Macau Business Daily, Oct 21, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 649 Tuesday October 21, 2014

To invest

or not to M

Year III

acau residents are taking notice. Considerably cheaper new-build residential property is coming onto the market in Hengqin. Buy for investment purposes or ‘self-use’? So far, it’s been about 50-50, say realtors. Macau buyers are anticipating the 24-hour crossing and Macau licence plate benefits, they say Page

4

Silver lining?

Absolute zero. That’s the prognosis for gaming revenue growth this year.

Analysts are also bracing for the worst October ever. Given the numerous adverse factors affecting the industry, the pundits say Macau is holding its own. And likely to turn in ‘respectable’ single-digit growth over 2012

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6

Japan casino plan likely delayed again, official says Page 7

Trump benefit cuts may save Taj Mahal at union’s expense Page 7

HSI - Movers

Innovate to accumulate

October 20

Name

The Canton Fair. Famous for showing the world a different face of China. The import-export exhibition now proves that China is challenging weaker economic conditions with a burst of innovation.

Despite a drop in turnover

Pages 2 & 8

%Day

China Overseas Land

1.66

CITIC Ltd

1.51

Li & Fung Ltd

1.43

China Resources Ente

1.20

China Shenhua Energy

0.96

Cheung Kong Holdings

-0.84

MTR Corp Ltd

-0.99

Swire Pacific Ltd

-1.19

Sun Hung Kai Propert

-1.50

Kunlun Energy Co Ltd

-1.73

Source: Bloomberg

www.macaubusinessdaily.com

I SSN 2226-8294

Y-bridge fatality

In the red

The bridge has claimed more victims. One dead and four injured. Construction works for a section of the Hong Kong-Zhuhai-Macau bridge have been suspended. There have been five fatalities on the project since it started. The bridge is slated for completion in 2016

The yellow cab company, as it’s commonly known, is struggling to meet quality standards with continuous losses reported. The company’s executive director speaks to Business Daily of the company’s unsatisfactory dispatch rate as it faces uncertainties on whether the licence will be renewed

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2

October 21, 2014

Macau

Hong Kong-Zhuhai-Macau Alms bowl beckons bridge fatality opinion

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José I. Duarte Economist

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ecent news tells us that the Commission Against Corruption (CCAC) found a case to answer for fraud in the access to an environmental subsidy, here described, simply, as the environmental protection and energy conservation financial scheme (Portuguese acronym FPACE). The scheme was launched in 2011 and sought to provide financial support for expenses incurred by eligible organisations – ‘companies and associations’ - on the ‘acquisition and installation of products and equipment that contribute to improving the environment, increase energy efficiency and save water’. Eligible organisations could claim a subsidy equivalent to 80 percent of the expenses, up to a limit of half a million patacas. An Evaluation Commission, with up to seven members, was created to deal with FPACE applications. Its tasks: assess applications and recommend (or not) funding.

No specific principles or rules were established: be they specific policy targets or the beneficiaries’ economic profiles, or the technical and environmental aims, or the evaluation methods to be followed, or the ranking criteria to be used - none of those, presumably minor, issues was defined. With so vague criteria and procedures, if anything, one must be surprised that CCAC did not uncover more situations of abuse.

They found one (only!) case of over-invoicing. Doing it, so that the subsidy will actually cover the full cost, is obviously so tempting for all parties involved that it seems almost pathetic that a CCAC investigation was needed to uncover that single instance of fraudulence.

In fact, this aspirant ‘environmental fund’ amounts to no more than a consumption subsidy under the feel-good label of environmental protection. Another instance, one could say, of spraying some money around to keep the crowds contented. The way it was designed – if the word is not too strong here – and the looseness of its approach, both guaranteed the scheme would not survive five minutes of cursory evaluation under the most benevolent policy evaluation criteria.

So much was said here when the plan was launched, both about the lightness of it all and the opportunity for abuse. Leaving that aside for further exploration by the corruption authority, let us look into what the practical results have been. Based on the lists of subsidies granted, which unfortunately do not mention what type of products, equipment or projects were financed, a few interesting features emerge. We now have data for three full years or twelve quarters since the start of the scheme. Without trying to exhaust all possible considerations, here are a few topics worthy of attention.

After an initial phase where lack of awareness was probably the dominant status among eligible organisations, many took to the fund with gusto and made the most of it. The total number of beneficiaries so far roughly stands at 3,000 organisations. About 1,800 obtained their support in the last four quarters, suggesting that demand is growing fast. Many have now realised that they could possibly get their new air cons and lamps for free, or almost, courtesy of the public budget. No less than 44 companies have now obtained the grant in full – half a million patacas. If we widen the interval to include all that got more than 450,000 patacas, the total number of beneficiaries rises to 92, which received, altogether, just over 45 million patacas – that is some 490,000 patacas on average. They include several casinos, banks, hotels, telecom companies and many well-known and very wealthy companies and associations. That they should be receiving any kind of subsidy at all is debatable.

That they get these grants in competition with smaller companies already choked by rents and wages that only the same big organisations can pay seems ever so slightly reprehensible. And, let us be clear on this, the companies or associations are not to blame here. They are doing what they are supposed to do; that is, getting value for their owners or members.

Now, let’s look at the opposite side of the list. At the bottom, we find that the number of organisations receiving less than 50,000 patacas under this scheme amounted to more than 1,600, representing over one half of the total number of beneficiaries. Altogether, they got close to 42 million patacas, just a tad more than 26,000 patacas on average: alms for the crowds?

Now, does it make any administrative and financial sense to grant subsidies so low that the public cost of processing them certainly vastly exceeds the amount granted? Does it make any sense, really, to provide a subsidy of 1,056 patacas? Aren’t there better uses for the public purse?

A final word: the regulations clearly state that the funds are earmarked for firms and associations. The lists are peppered with hundreds of names of individuals. Is anyone willing to bring forth an explanation?

43-year-old worker died on Sunday and another four were injured while working on the Hong Kong-Zhuhai-Macau Bridge site on Chek Lap Kok South Road in the neighbouring SAR. According to Radio Television Hong Kong, the accident happened after a platform collapsed.

The injured were taken to Princess Margaret Hospital in Hong Kong, two of whom still remain hospitalised, while the other two have been discharged. The Chairman of the Association for the Rights of Industrial

Canton Fair turnover drops

T

he Canton Fair, China’s largest trade fair, wrapped up the first phase of its Autumn session this year with a decline in turnover of machinery and electronic products.

According to China News Agency, the first phase saw a turnover of machinery and electronic products worth US$6.44 billion in the three days up to Friday. But in the first four days of last year’s Autumn session, the turnover was US$12.5 billion.

Accident Victims, Chan Kam Hong, is quoted by Hong Kong Chinese newspaper Hong Kong Economic Times as saying that this is the fifth fatal accident since construction began.

Chan Kam Hong also said that the Association is worried that the latest accident was caused by the speeding up of the works in order to meet the deadline.

The Highways Department told Business Daily by email that the accident happened “due to the partial collapse of the precast bridge segment

lifting frame during testing.”

The construction of the 29.6 kilometre main bridge of the Hong Kong-Zhuhai-Macau connection commenced December 2009 and is expected to be complete by 2016.

“The Highways Department and the Labour Department [in Hong Kong] are investigating the cause of the accident,” the email reads. In addition, works for the relevant part of the project have been temporarily suspended, the department added.

The sharp decline was primarily due to the sluggish global economy and weakening demand, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) said.

The turnover of consumer electronic products plummeted by 55 percent year-on-year, the chamber said.

Exports of machinery and electronic products usually account for more than half of China’s annual exports. The sector’s export value grew by merely 0.4 percent yearon-year in the first three quarters of this year, data from Chinese Customs shows.

CCCME noted that the sector was facing challenges such as the trend of manufacturing activity to shift back

to developed economies as well as the increasing cost competitiveness of Southeast Asian economies.

The Canton Fair, which takes place every Spring and Autumn in Guangzhou, is seen as a barometer of China’s exports although its influence has been declining due to the rapid growth of a variety of e-commerce platforms.

The Fair attracted a total of 96,393 buyers as at Saturday, data from the organisers show, down from 101,198 buyers in the Spring session but higher than the 92,149 attending last year’s Autumn session.

Compared with previous sessions, the number of buyers from Africa dropped sharply due to the impact of Ebola, the organiser said.

Jimei chairman fails to fully acquire Sinogreen

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filing with the Hong Kong Stock Exchange on Friday noted that a bid by the chairman of Macau junket operator Jimei Group Ltd to fully acquire Hong Konglisted Sinogreen Energy International Group Ltd had failed.

Following a share subscription in Sinogreen Energy proposed in late July and completed last month, Jimei chairman Lam Yin Lok and his associate parties assumed control of 65.85 percent of Sinogreen Energy’s capital. As required by Hong Kong’s Takeovers Code, Mr. Lam had to

make an unconditional mandatory cash offer to acquire all shares of the company.

The Friday filing on the closure of the mandatory cash offer, a joint announcement made by Reach Luck International Ltd and Sinogreen Energy, noted that the valid acceptances of the share offer received represents only approximately 0.005 percent of the company’s issued shares.

Reach Luck International Ltd is a company incorporated in the British Virgin Islands and is wholly owned

J.S.F.

by Mr. Lam. ‘...a total of 124,159,200 shares, representing about 25.15 percent of the total issued shares, remain in the hands of the public,’ the Friday filing noted, adding that the company is in compliance with the public float requirements of the Hong Kong Stock Exchange.

Sinogreen Energy, which trades in conductive silicon rubber keypads, said in a filing on July 25 that Mr. Lam’s subscription of shares in the company could help ‘diversify its business into the Macau gaming market’ with the Jimei boss’s ‘extensive experience and business network in the gaming industry’.

Jimei, considered a major junket operator here, runs 10 VIP gaming clubs throughout Macau, its official website notes.

S.L.

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October 21, 2014

Macau

Yellow taxi company in red, struggling with on-call service Yellow taxi operator Vang Iek said the company is in the red while struggling to meet a satisfactory taxi dispatch rate Stephanie Lai

sw.lai@macaubusinessdaily.com

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or the nine months of operation since the city’s yellow taxi operator Vang Iek Radio-Taxi Co Ltd signed a contract extension with the government in early February, the company has continuously made a loss, it told Business Daily. Given the high driver turnover rate, it is struggling to operate the on-call taxi service, it says.

As required by the Transport Bureau upon the signing of the contract extension in February, Vang Iek is committed to having 60 of the 100 yellow taxis operating via phone calls instead of being hailed on the street, during the ensuing nine-month period, while

the remainder should be a gradual transition to a pure on-call service.

Eugenio Cheng Weng Chiu, executive director of Vang Iek, told us that his company has fulfilled the government’s requirement in these nine months of operation although he conceded that the taxi dispatch rate has been worse than the company expected.

Of the 60 yellow taxis serving on-call requests the taxi dispatch rate for the fleet is only around 50 percent – a performance rate that has prompted complaints by the Traffic Consultative Committee in recent meetings.

As Mr. Wong Wan [head of the Transport Bureau]

previously noted, drivers prefer running the regular [black] taxis than the yellow ones out of concern of ‘operational efficiency’: the black taxi drivers can basically run three to four rounds in an hour, while the number of rounds yellow taxi drivers can run is half of that number when they are required to respond to only on-call requests. Mr. Cheng said the unsatisfactory dispatch rate was plagued by a human resources problem.

Vang Iek has also been registering losses but Mr. Cheng refused to specify the amount.

“In these nine months, our driver turnover rate has been as high as 40 percent,” he said.

“The reasons contributing to that turnover rate are that we have some drivers who were new to running taxis [and] just simply used us as a stepping stone before moving on to rent a black taxi and driving them; others were fired because they weren’t fulfilling the service standard.”

The 1,200-plus ‘conventional’ taxis, commonly known as black taxis, are not managed by any company.

Black taxi drivers, who rent the cabs from individual taxi licence owners and agree on their own work schedule, operate a mixed on-call and street pickup model.

For Vang Iek, at least three drivers are required to staff a yellow taxi’s 24-hour operation. But the company has only around 100 drivers to keep the yellow taxis running at the moment.

Vang Iek’s recruitment remains “unsatisfactory” despite the company putting forward an incentive scheme

in March this year.

“We call the scheme a ‘special shift’, by which drivers can – on top of their regular shift – take our taxis and run for at least three hours to take as many on-call orders as possible on a rentfree basis,” said Mr. Cheng.

Vang Iek has a fixed pay scheme for their drivers engaged in either a 6-hour shift or 8-hour shift, with a basic monthly salary ranging between 9,000 patacas (US$1,126) and 12,000 patacas.

The yellow taxi company is currently in talks with the Transport Bureau regarding the terms of another contract extension but Mr. Cheng refused to disclose further details. The current contract expires on November 6.

In the discussion with the Transport Bureau, however, they have not yet mentioned the possibility of launching an open bid to run an on-call taxi service in the city, Mr. Cheng revealed.

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October 21, 2014

Macau Gov’t to pay MOP4.3mln for water treatment study The government will pay MOP4.3 million to local association Instituto para o Desenvolvimento e Qualidade (Macau) to monitor the quality of the facilities for water treatment and solid residue in the Special Administrative Region, it was announced yesterday in Macau’s Official Gazette.

The contract runs for 2014 and 2015, with the Portuguese Institute receiving MOP2.15 million per year, totalling MOP4.3 million by the end of the agreement.

The dispatch was signed by Chief Executive Fernando Chui Sai On on October 14.

Hengqin: Investment or home sweet home?

The city is eyeing the property market in Hengqin, where housing is purportedly three times cheaper than here. Agents say most of the island’s buyers hail from Macau, driven by a mix of investment and self-use motives Kam Leong

kamleong@macaubusinessdaily.com

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arious local property agents claim they are receiving overwhelming responses from their local clients about the Hengqin property market, where some new projects are being released for sale or pre-sale. Many believe that the properties there represent good opportunities for investment, while some believe that the future 24-hour border crossing may make the mainland zone an attractive choice for end-users as well.

Centaline Macau Property Agency Ltd. say that their clients who purchase or are interested in purchasing Hengqin projects are mostly those with extra money, and believe that the prospects for Hengqin are bright. They are primarily buying units for investment.

Meanwhile, local agencies Anzac Realty, Midland Macau and Sun City Property Co Ltd claim that a significant proportion of their local buyers are eyeing the Hengqin properties for end-use residential purposes.

“Some 70 percent of our clients,

who are mainly middle class or below, who are unable to afford local properties, are buying properties in Hengqin for self-use,” the executive director of Sun City, Rainbow Lee, told Business Daily in a phone interview.

She claims that these buyers may consider moving to Hengqin to live following the implementation of a 24-hour border crossing and the introduction of allowing vehicles with only Macau plate numbers to enter Hengqin.

Likewise, the president of Anzac Realty, Nestor Ng, also told us that the percentage of clients buying Hengqin properties for investment purposes

amounts to half, while the rest are buying for habitation purposes. “Most consider that when the [24-hour] cross border policy is implemented they can have a second home or one more flat for the family,” he said.

According to these agents, the average price for the first private residential project in Hengqin, Sea of Dreams, also the first to officially go on sale, costs on average some HK$5,000 per square foot or 35,000 yuan per square metre. These prices are still around three times cheaper than the average house price in Macau, according to Centaline.

The heat of the Hengqin property market will continue to be fuelled in the future by the potential strong development of Hengqin. Taking another residential project in Hengqin - Zhonghai Mingzan Garden - since the pre-sales for its Phase I project started at the beginning of the month all the flats, a total of more than 600 units costing averagely between 36,000 and 38,000 yuan per square metre, have been sold out.

According to Ms. Lee, Zhonghai

Mingzan Garden has now stopped accepting subscriptions for its Phase II sales as the number of subscribers had surpassed 1,600 for the 1,000odd flats available.

Another residential project Legend Chief Hengqin China - is now also attracting subscriptions and catching buyers’ attention.

The first commercial building in Hengqin – Hengqin Headquarters Building - is believed to be going on pre-sale this week. Ms. Lee thinks that buyers interested in this commercial building will primarily be those companies planning to operate in Hengqin.

Jones Lang LaSalle (Macau) Ltd. estimated in September that Hengqin may complete most of its planned 20,000 residential units by 2017, of which some 14,000 will be saleable.

Centaline recently floated the notion that after Macau buyers invest in the Hengqin projects, they will probably release their secondhand properties [in Macau] for cash, which will excite the market once more. with Stephanie Lai

More than 50 countries, regions at MIF 2014 The19th Macau International Trade and Investment Fair (MIF) will be held from October 23 to 26 in the Convention and Exhibition Centre of The Venetian Joanne Kuai

joannekuai@macaubusinessdaily.com

T

he theme of this year’s Macau International Trade and Investment Fair (MIF) is ‘Co-operation – Key to Business Opportunities’. The 4-day event will be held in a 30,000 square metre venue starting this Thursday.

Jackson Cheong Chou Weng, President of Macao Trade and Investment Promotion Institute (IPIM), said that to be in line with Macao’s development as “a commercial and trade service centre for Portuguese-speaking countries (PSCs) Small and Medium-sized enterprises (SMEs)... a food product distribution centre for the lusophone countries... and a centre for conventions and exhibitions for economic and trade co-operation between China and Portuguese-speaking countries”, thematic pavilions for PSCs will be

set up and business matching sessions conducted to assist local and overseas trade and businesses sectors to make use of Macao’s service platform. The hope is to trigger collaboration in different sectors including food, conventions and exhibitions.

Cheong said he expected at least 48 trade agreements to be signed during this year’s edition of MIF, which highlights the participation of enterprises from Latin America.

To promote business links between Macau, China and Latin America, the Macau Association for the Promotion of Exchange between Asia Pacific and Latin America (MAPEAL) will host a “Latin American Business and Investment Series”.

Seminars on Latin American business and tourism promotion – Costa Rica and Peru; “A Glimpse

at the Maritime Silk Route from the Past into the Future”; challenges and opportunities for Chinese investors in Latin American business will be held. Gary Ngai, President of the Executive Board of MAPEAL said a detailed analysis into the feasibility of investing in these countries and elaboration of issues related to legal systems, taxation, incentives, privileges and protective measures for investments would also be involved.

Echo Chan Keng Hong - Executive Director of IPIM, and also the president of the Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park Development Co Ltd, located in Hengqin New Area in Zhuhai - disclosed that the incubation centre that was put into operation this July has already successfully helped six Macau companies to register in

Hengqin. Some 18 to 20 companies are expected to join the centre during this year’s MIF. Echo Chan said the incubation centre mainly serves local SMEs, not only in the area of traditional Chinese medicine but also in other services such as conventions and exhibitions, promotion, public relations and logistics, etc.

In last year’s MIF, the 1,900 exhibition booths occupied more than 30,000 square feet of exhibition area, attracted more than 50 countries and regions, and 116,000 visitors, posting a 12% increase year-on-year.

More than 2,000 business-matching sessions were organised, representing an 11.69 percent growth over that of the previous year.

Currently, more than 4,500 exhibitors and delegations have registered to join this year’s edition.

5

October 21, 2014

Macau

Softer hangover MSCI Hong Kong Index from Golden Week close to erasing loss Gaming revenues in the week following the public holiday dropped 30 percent, slightly better that last year’s 36 percent fall. October revenues are predicted to decrease 20 percent Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

T

his year’s Golden Week hangover was softer for the gaming industry here, a fact that could presage worse news for operators when October revenues are published.

This month is already confirmed to be one of the worst since gambling was liberalised in Macau, with analysts estimating a drop of anywhere from 18 to 30 percent year-on-year.

The first test was the size of the decline in revenues following Golden Week, as casino revenues normally fall sharply after public holidays. This year was no exception but the decline was smoother than anticipated.

According to Wells Fargo, in the second week of October (until October 12) average daily revenues in casinos here totalled MOP867 million. That’s 30 percent less than what was posted in the previous week, when Golden Week was in full swing (October 1 to 6). During that period, gaming tables amassed MOP1.3 billion for the six biggest operators.

The 30 percent drop was, however, smaller than that in the same period last year. Following 2013’s Golden Week, gaming revenues decreased 36 percent in Macau. Some analysts underlined that if this year’s drop in the post-Golden Week period was similar to 2013, gaming revenues in Macau could plunge by 30 percent in October.

Still two digits As that was not the case, Wells Fargo now expects a brighter - or at any rate less gloomy - outlook.

Gaming revenues should decrease by 20-23 percent in October year-on-

year, still the worst result in years.

The US bank says that visitation in Macau was affected by the Hong Kong protesters. With the Golden Week effect behind us, the market is now focusing on two near term factors that could influence October’s performance. ‘Any improvement in the situation in Hong Kong and the pace of the smoking ban are key variables for the remainder of October’, wrote Wells Fargo in a note to clients yesterday.

Despite some investors and even Las Vegas Sands boss Sheldon Adelson saying that the smoking ban is a “non-issue”, other analysts are taking a more conservative position and wait to see the impact in the longer term. ‘We believe it’s too early to judge the impact of the smoking ban based on one week of revenues given numerous factors including Hong Kong protests, tour group disruptions and visa restrictions’, said Wells Fargo.

But if the smoking ban impact is still uncertain and the protests a temporary effect, the weakness of credit in China is more worrisome, affecting VIP and mass premium gamblers, two groups that are responsible for almost 60 percent of gaming revenues here. In September, the total credit flow in China has dropped by 25 percent from a year ago and in the third quarter fell 40 percent, also yearon-year. In the second quarter of this year, the credit flows in China increased by 24 percent. As a consequence, VIP revenues will likely decline by 20 percent until the first half of next year.

since protest clashes

T

he MSCI Hong Kong Index advanced, putting the measure less than 0.5 percent away from erasing losses spurred by clashes between police and demonstrators that began last month.

China Overseas Land & Investment Ltd., the largest mainland developer listed in Hong Kong, rose 1.9 percent after the China Securities Journal reported possible easing of a property tax. Wynn Macau Ltd. added 2.2 percent as casinos climbed. Cathay Pacific Airways Ltd., which closed last week at a one-year low, increased 1 percent. Man Wah Holdings Ltd., a sofa maker that gets half its sales from the U.S., advanced 2.2 percent.

The MSCI Hong Kong Index gained 0.2 percent to 12,563.75 as of 1:09 p.m. in the city after briefly erasing its drop since Sept. 26. The benchmark Hang Seng Index rose 0.4 percent to 23,125, while a measure of Chinese shares traded in Hong Kong added 0.8 percent. Talks between pro-democracy protest leaders and city officials are to resume tomorrow after violence this weekend.

“At the early stage of protests the market was sold off as global investors focused on the political risks in Hong Kong, but the demonstrations didn’t impact the stock exchange or the financial markets,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “Investors are hoping some government support measures will come out from the fourth plenum meeting, and that’s helping support the market.”

The People’s Bank of China was said to plan the injection of about 200 billion yuan (US$32.7 billion) into some national and regional lenders as Premier Li Keqiang steps up stimulus to support economic growth. The funding is to help prepare for yearend liquidity demands, a government official familiar with the matter said on October 17, asking not to be identified because there hasn’t been an official announcement.

Protest dialogue Carrie Lam, Hong Kong’s No. 2 official, announced the next round

of talks after police clashed with about 9,000 demonstrators at the end of last week. The Hong Kong Federation of Students, one of the groups leading the protests, said it will participate in the dialogue.

They are demanding China reverse its decision that candidates for the city’s leadership election in 2017 must be vetted by a committee. Chief Executive Leung Chun-ying has said the decision isn’t negotiable.

Top Communist Party officials meet in Beijing this week for their fourth plenum, with data on gross domestic product due tomorrow.

The nation will set an economic growth target of about 7 percent for 2015, the weakest expansion in a generation as leaders tackle debt risks and imbalances, according to analysts polled by Bloomberg.

Stock link A statement posted by the China Securities & Regulatory Commission last week didn’t give details as to when cross-border equity trading between Hong Kong and Shanghai would begin. Stocks had risen earlier on October 17 on speculation the regulator would announce next Monday as the start date.

Hong Kong Exchanges & Clearing Ltd. Chief Executive Officer Charles Li told reporters last week there is no timetable for the program. The plan will allow foreign investors unprecedented access to mainland shares and give Chinese investors access to Hong Kong-listed equities.

Futures on the Standard & Poor’s 500 Index added 0.5 percent today.

The gauge rose 1.3 percent on Oct. 17 as earnings beat estimates, consumer confidence reached a seven-year high and investors speculated that global central banks will add more stimulus.

Uncertainty about economic growth in China and Europe as well as the timing for U.S. interest-rate hikes helped drag Hong Kong’s benchmark equity gauge down 9.1 percent from this year’s high through last week.

The Hang Seng Index traded at 10.6 times estimated earnings at the last close, compared with 15.7 for the S&P 500.

6

October 21, 2014

Macau Brands

Trends

Ready for battle Raquel Dias newsdesk@macaubusinessdaily.com

Macau gaming industry stalling JL Warren Capital expects the growth of gross gaming revenue to be flat by the end of the year. As for October, gaming analysts at the equity research firm expect the worst month ever in the recent history of the territory’s gaming João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he famous trench coat transcends trends. It has had its temporary ‘outs’ in the fashion world but its tradition and practicality mean it’s always been used. Its history, like most classic pieces, is long and eventful. The name we give this waterproof jacket comes from World War I, where it was used by soldiers during windy, rainy days in the trenches.

Invented in England either

by Burberry or Aquascutum (there’s a big debate) this heavyduty coat was optional attire in the British Army.

Needless to say, after the War soldiers kept wearing it and it became, well, a thing.

What nowadays screams conformity and proper attire was brought back to fashion by the Mod movement. A khaki trench coat with a black turtleneck underneath was all the rage in the late 50’s and 60’s.

Fast-forward to today and what you have is a number of must-have options.

Burberry puts together a seasonal collection, besides their permanent one. You can find anything, from the traditional khaki to a green python option. Although men still wear them, the trench coat became ever more feminine. Perfect for any body shape, they now come in different sizes, from waist length to under the knee.

As winter approaches, we leave you with a few ideas.

M

acau’s gaming industry is going to remain flat at 0 percent growth - in comparison to 2013, the latest report from JL Warren Capital says.

According to the predictions of the gaming analysts at the Americanbased research equity company, this will be the first time gross gaming revenue has not grown since 2002, the first year that Information from the Statistics and Census Service (DSEC) was available.

According to JL Warren Capital, the gaming industry here is being affected by many factors, ranging from the Central Government’s anti-corruption campaign to the demonstrations in Hong Kong that are reducing the number of group tours to the territory.

‘China’s anti-corruption campaign now appears to be semi-permanent; the secondary property market, a commonly used form of collateral for VIP borrowing, remains sluggish;

junkets are experiencing a credit crunch, with smaller operations going under or being consolidated; prospects for global economic growth are worsening; ongoing protests in Hong Kong are reducing group tours to Macau, and a new smoking ban effective October 6 is likely to drag on casino attendance’, the report from the equity research company says.

According to DSEC, since 2002 – no data previous to that year is available – gross gaming revenue has always grown more than 8.3 percent.

In fact, since 2002 the worst years for the gaming industry were 2005 (growth of 8.3 percent) and 2009 (growth of 9.6 percent).

As for the month of October, the prospects are even darker. JL Warren estimates that there will be a 20 percent drop vis-a-vis October 2013, when gross gaming revenue was MOP36.5 billion. This would be the worst result in year-on-year terms ever, as prior to that there is

Sands China’s staff costs to surpass US$1 billion

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or the first time, Sands China’s staff costs will this year surpass the billion-dollar mark as competition for workers in Macau increases and operators award salary rises and bonuses to retain staff.

Following the release of third quarter results, Sheldon Adelson, founder of Las Vegas Sands Corp, said that employees’ compensation and benefits would slightly exceed US$1 billion in 2014, a record for Sands China.

In 2010, the parent company of Sands China spent less than half on its workers (US$450 million) according to official company documents.

Following the opening of Sands Cotai Central in 2011, employee costs rose to US$769 million in 2012. Last year, it almost reached the billion-dollar mark (US$927 million), an increase of 20 percent over the previous year.

To investors, Mr. Adelson underlined that “there has been a great deal of noise lately from certain circles about the negative impact of rising labour costs in Macao. Let me share with you that we are more than happy to increase the salaries of our employees there”.

Despite the big increase in staff costs, Sands China has been able to offset labour expenses with revenue

no monthly information available.

‘Assuming average daily revenue of around MOP880 million for the balance of the month, we estimate around MOP947 million in October, representing negative 20 percent growth versus 2013’, the reports says.

Although the numbers are considered negative the balance of the year is not so negative for the report in comparison with 2012.

‘If we adjust 0 percent growth from a very high base of 2013 GGR and compare 2014 to 2012 instead Macau GGR growth comes to an annualised rate of around 8 percent, which still looks decent’ the report noted. ‘The figure is below investors’ expectations but considering that gambling is discretionary consumer spending and the Chinese economy is slowing decisively, high single digit year-on-year growth is respectable, and perhaps even a bit higher than what a normalised growth rate should be’, it concluded.

growth. In 2014, the total for staff costs will likely represent 11 percent of net revenues. In 2013, labour costs totalled 10.4 percent of net revenues and in 2012 around 11.8 percent.

With a record low unemployment rate of 1.7 percent, a flow of new casinos set to open in the coming years and already some operators claiming there’s a labour shortage the competition to attract new staff and retain current employees will be one of the main challenges of the industry here. According to Bloomberg calculations, Sands China’s average labour costs rose from US$30,400 per worker in 2010 to US$32,800 in 2013. With the recent wage increases and bonus packages, these figures are likely to jump again. In the first nine months of the year, Sands China spent US$812.5 million on staff costs, 19.6 percent more than in the same period last year.

L.G.

7

October 21, 2014

Gaming

Japan casino plan likely delayed again, official says

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apan’s plan to legalise casino gambling has likely been delayed again, a senior official said yesterday, dealing a further political blow to Prime Minister Shinzo Abe. Casino operators including Las Vegas Sands, Genting Singapore, MGM Resorts and Melco Crown Entertainment are waiting in the wings as potential investors in what analysts say is one of the world’s biggest untapped markets, worth tens of billions of dollars a year.

But parliament was unlikely to have enough time to pass the controversial law during the current session of parliament, the coalition official said.

“The hurdle is quite high for both lower and upper houses to enact it” during the current session which ends on November 30, Keiichi Ishii, policy chief of Komeito, the junior partner

KEY POINTS Delay would be new headache for PM Abe Bill could be carried over to early-2015 session Likelihood rising Japan won’t have casino for 2020 Olympics in Abe’s coalition government, told Reuters.

Abe, who wants Japan’s first casino open in time for the 2020 Tokyo Olympics, saw two cabinet minister

resign on Monday, moves that could complicate tough decisions on key policies.

Abe has made legalising casino gambling, hugely popular in Asian centres Macau and Singapore, a pillar of his plan to revive economic growth.

The “integrated resort” bill has already been carried over from a previous session of parliament. It could also struggle to pass in the ordinary session from early 2015, which will be dominated by major bills such as the national budget.

Support from Komeito is seen as crucial for the bill since Abe’s Liberal Democratic Party does not have a majority on its own in the Upper House. But Ishii said there was concern among some Komeito members over the effects of gambling on society.

Abe has said casino resorts would

help the economy by boosting tourism.

But market researchers say Japan’s 128 million people would likely account for most of the revenue and casino operators have said foreigneronly resorts could struggle to make a profit.

Pro-casino lawmakers last week agreed to revise the bill by mentioning the need for limits on Japanese nationals’ entry to casinos, bowing to pressure from opponents who threatened to block legalisation unless issues such as gambling addiction were addressed.

Proponents of the bill said the revision did not mean Japanese nationals would be banned and that details of limits, such as a possible entry fee, would be decided in a second bill to be drafted next year.

Reuters

Trump casino benefit cuts may save Taj Mahal at union’s expense

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rump Entertainment Resorts won bankruptcy court approval to end union healthcare and pension programs, increasing the odds that the company can keep the Taj Mahal casino open.

U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, ruled last week that the company could impose the concessions, a move that may lead to benefit cuts for other unionized casino employees in Atlantic City, New Jersey. The judge said he will issue a written opinion next week explaining his ruling.

Trump Entertainment is seeking to shift workers in Unite Here Local 54, which represents more than 1,100 employees at the Taj Mahal, from a traditional pension to a 401(k) program. It also wants to end the health-care plan and move workers to a program under Affordable Care Act sponsorship. Employees would get a US$2,000 stipend to help pay for coverage.

After making his decision, the judge said he was “concerned about health-care for the employees” and wanted to ensure there’s no gap in coverage. Casino lawyers told Gross they believe the retirement plan provides as long as 90 days

of extended coverage, while union lawyers said it runs out at the end of the month.

Trump Entertainment needed the concessions to avoid liquidation, and would otherwise have to close the Taj Mahal, Kristopher Hansen, a lawyer for the company, said at a hearing this week. The casino faced shutdown as early as November, the company has said.

Freeze denied The judge denied the union’s request to freeze his order while it seeks an appeal, saying the balance of equities favoured Trump Entertainment, which needed the ruling to take effect immediately.

His decision will be retroactive from September 26, when the company made the request.

“The decision today will certainly enrage the workers who have relied on and fought for their health care for three decades,” Unite Here Local 54 President Bob McDevitt said in a statement yesterday. “We intend to continue to fight this both in the courts and in the streets.”

Trump Entertainment filed for bankruptcy September 9 and shut the

Trump Plaza days later as Atlantic City loses gambling business to surrounding states. Casino revenue in the city fell more than 40 percent to about US$2.8 billion in 2013 from a peak of more than US$5 billion in 2006.

US$20 million The company argued that the current union contract imposed an unsustainable US$20 million in annual costs and that cuts were needed to induce lenders controlled by billionaire Carl Icahn to invest US$100 million. The lenders would also convert some of the company’s US$292 million in debt into equity.

Attorney Joseph Farelli, a partner at Pitta & Giblin LLP in New York who represents unions in the hospitality industry, said the ruling “opens the door” for other companies to look to President Barack Obama’s healthcare overhaul to cut labour costs.

While it “may not be a precedent now,” other Atlantic City casino operators may try to do the same, Farelli said. “It will be fact sensitive,” with poor financial condition being a key factor for such changes to survive court scrutiny, he added.

“Obamacare has actually made it easier for employers to get out of their contractual obligations,” he said.

Cuts at Trump Entertainment may open the way for most other Atlantic City casinos to seek concessions from Unite Here under a so-called most-favoured-nation clause in their labour agreements, according to court documents.

Judicially imposed The ruling probably won’t trigger the clauses because the concessions were judicially imposed, not negotiated, said Farelli, who has had experience crafting such clauses.

Union members rallied against the proposed cuts last week, protesting in front of Icahn’s Tropicana casino in Atlantic City. Several hundred casino workers also blocked a highway in the city to protest the concessions.

The union hasn’t set a meeting to take a strike vote, according to Ben Begleiter, a spokesman with Unite Here. Members will hold an informational picketing rally on Friday at the Taj Mahal, he said in a phone interview.

The fight now turns to Republican Governor Chris Christie and other New Jersey officials from whom Trump Entertainment is seeking as much as US$175 million in tax relief and incentives.

The contract modifications approved yesterday will allow the company to operate pending the outcome of discussions with state and local authorities, Trump Entertainment said in a statement after the ruling.

“We look forward to working with our elected officials,” Chief Executive Officer Robert Griffin said in the statement. “With bipartisan leadership we believe we can take a collective step towards a brighter future in Atlantic City.”

Donald Trump, the real-estate tycoon who founded the company, has no involvement in Trump Entertainment now and has been seeking to have his name removed from its properties.

Bloomberg

8

October 21, 2014

Greater China Metals demand increases for 2015 China’s consumption of refined copper is expected to rise at least 6 percent in 2015, roughly in line with this year, supported by new investment in power networks and demand from rail projects, analysts and industry executives said. An expected slowdown in new residential and commercial building projects, however, could see an easing in consumption growth for aluminium and nickel in the world’s top metals consumer. Lead demand growth may also be trimmed by lower production of electric bicycles, while tin demand should be supported by chemicals and tin-coated steel plates makers.

Power consumption increases

China consumed 457 billion kilowatt hours (kWh) of electricity in September, up 2.7 percent from a year earlier, data from the National Energy Administration showed.

Over the first nine months, power consumption increased 3.9 percent on the year to 4.0975 trillion kWh, the administration said. Power generation and consumption registered their first yearon-year declines in four years in August, with summer temperatures much lower than the record-breaking rates of 2013, slashing air conditioner demand.

Cotton imports down China imported 122,900 tonnes of cotton in September, down 39 percent on the same month of last year, said the China Cotton Association, citing customs. For the first nine months of the year, Chinese imports of the fibre have dropped by 38 percent to 2 million tonnes. The world’s top cotton consumer has imported less of the fibre this year as higher global prices and limited import quotas forced mills to import yarn instead.

Baosteel to supply gas pipelines China’s second biggest steelmaker Baoshan Iron & Steel Co Ltd (Baosteel) said it had won a contract to supply pipes for a natural gas pipeline running from Turkey to Azerbaijan. The company will provide 370 kilometres of pipes for the project known as TANAP, it said in a statement posted on the Shanghai stock exchange yesterday. The statement did not disclose the value of the Baosteel contract.

Banks to phase out magcards Chinese banks will promote the use of chip cards and phase out magcards for security concerns. Being more secure and convenient, chip cards, as an upgrade of magnetic ones, have become the majority of newly-issued bank cards in the country since being introduced in 2011, according to the People’s Bank of China (PBoC). The PBoC has required that commercial banks upgrade their banking systems and widen the use of chip cards. It also demanded that since 2015, the newly-issued bank cards with yuan-denominated clearing accounts should be chip ones in economically-developed areas.

Innovation stars in Guangzhou Fair This year’s export environment was not easy on Chinese exporters, who complained about weak external demand, rising labour costs and fluctuating exchange rates

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he winners of the Design Awards at the 116th Guangzhou Fair, which opened Wednesday in Guangzhou, include an apple-shaped rice cooker, a felt watch suitable for cold weather, and a tea-brewing device.

The products themselves -- home appliances, bags and watches -are examples of China’s traditional strength in manufacturing. But what makes them stand out is something less common for Chinese exports: innovation and good design.

“Good design can directly generate profits and power,” said Liu Yi, general manager of Andon Health, as he demonstrated his company’s baby monitor, which won the “best of the best” at the fair’s Design Awards.

Designed for working parents to see and interact with their at-home babies via smart phone, the device has hit the shelves of Apple Stores, Liu said, proving the design ability of what started as a contract factory.

“Our company used to manufacture goods for other brands,” he said. “After the 2008 financial crisis made business difficult, we started to look for change.

Then came mobile Internet and smart phones and we seized the chance to roll out our new products.”

Canton Fair venue

At the on-going Canton Fair, a barometer of China’s exports, the turbulent world economy and fears of slowing exports have highlighted the need for brand-building and innovation.

In the home appliance section, Chinese companies touted “worldclass technology” in their latest products and said their own technological brands contributed heavily to the sustained growth of their exports.

Official data show China’s exports in the first three quarters grew by 5.1 percent year on year, down from 8

percent a year before.

Exporters of machinery and electronic products, which make up the bulk of the country’s exports, felt the pinch. Their exports so far this year grew by only 1.5 percent, said Shi Yonghong, vice head of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products.

“But I see the gridlock as an opportunity,” Shi told Xinhua at the fair. “Enterprises with self-owned brands actually used this process to enhance their competitiveness in the global trade.”

China mulls tax relaxation on existing homes Aside from the sales tax, authorities might make more changes on transaction taxes in the future

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hinese authorities are likely to relax the sales tax on existing homes, the Beijing-based China Securities Journal reported yesterday in a front-page story.

Under the new policy, sales of a second home purchased no less than two years prior will be exempt from a 5-percent tax on the transaction price, said the daily, citing wellplaced sources.

According to the newspaper, think tanks have proposed relaxation of sales tax to buoy home sales in industry research reports submitted to government departments.

Currently, the taxable period is five years from date of purchase.

The current policy has been in place since early 2011, when the Chinese government adopted a package of policies aimed at curbing the overheated housing market.

The report also said regulating authorities had concluded that China’s housing market is oversupplied based on surveys and research.

Aside from the sales tax, authorities might make more changes on transaction taxes in the future, if necessary, to lower transaction costs and boost home sales, according to the report.

Since the beginning of 2014, the Chinese property market has suffered a notable downturn, with falling prices and sluggish sales. Official data showed that out of 70 major Chinese cities, new homes in 68 saw

Official data showed that out of 70 major Chinese cities, new homes in 68 saw month-on-month price declines in August

5 percent of transaction price exemption for second homes older than two years month-on-month price declines in August, compared with 64 in July.

On September 30, China unveiled eased mortgage measures for home buyers in a joint announcement by

the People’s Bank of China (PBOC), the central bank, and the China Banking Regulatory Commission.

According to the announcement, mortgages on a second home will be treated as a first mortgage if the buyer has no other outstanding mortgages.

As a result, people who wish to buy a second home will enjoy the same 30-percent down-payment required of first-time home buyers, instead of a 60- to 70-percent down-payment.

Second-home buyers without outstanding mortgages will also be allowed interest rates as low as 70 percent of the 6.55-percent benchmark mortgage rate.

Xinhua

9

October 21, 2014

Greater China Shi’s confidence was backed by the industry’s export data. Processing trade, which relies on foreign investment and involves little technology, dropped by 1.9 percent. By contrast, general trade, mostly of self-owned brands, jumped by 12.4 percent.

Yu Yi, vice head of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, also said Chinese contract factories had seen narrowed profit margins, but companies with self-owned brands are faring well and still reporting growing exports.

China’s booming processing trade has fuelled decades of red-hot growth of its exports and economy, but the engine is losing steam, and it is not just due to waning global demand after the financial crisis.

Analysts pointed to an inevitable trend that, as China loses its cheap

It is a good sign, suggesting the export slowdown coincided with a shift from processing trade to general trade. It shows our competitiveness has risen Shi Yonghong, China Chamber of Commerce for Import and Export of Machinery and Electronic Products, vice head

labour leverage, labour-intensive manufacturing industries are leaving China for other developing countries.

This means more overseas competitors to challenge the low price advantage of Chinese products.

But in the meantime, the narrowed profit margins of processing trade have encouraged more Chinese companies to nurture their own brands and focus on technology and innovation.

Last month, Chinese Vice Premier Wang Yang called for encouraging Chinese companies to be more innovation-driven, as the country continues to shape a more balanced and quality foreign trade.

Shi said the technical level of Chinese companies now surpasses that of the majority of the world’s countries, though the country still lacks brands that can match Apple and Samsung in terms of technology.

Chinese exporters also see potential in overseas markets for Chinese brands and innovative products, especially in emerging markets outside the traditional consumer giants like Europe and the United States.

“The Middle East and Africa have high demand for our new energy products,” said Jerry Pan, project manager of Norinco New Energy, whose booth displays innovative products such as solar energy-driven water pumps.

Besieged by oversupply, antidumping and anti-subsidy investigations in European and American markets, China’s photovoltaic producers are now trying to explore new markets and develop new technology.

“Competition is fierce in the traditional solar panel market, and our labour costs are high. So we choose to compete on design and ideas. We sell designs that others don’t have,” Pan said.

Xinhua

Rule of law meeting kicks off The Fourth Plenary Session of the 18th CPC Central Committee - slated for October 20-23 - will deliberate on “rule of law” topic

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he Communist Party of China (CPC) yesterday kicked off a key meeting which centred on “rule of law” for the first time in the Party’s history.

The Fourth Plenary Session of the 18th CPC Central Committee - slated for October 20-23 - will deliberate on a draft decision of the CPC Central Committee on “major issues concerning comprehensively advancing rule of law,” sources close to the meeting said.

The decision is widely expected to set the tone for the CPC to promote rule of law in China in an all-rounded manner under new circumstances.

This is the first time a plenary session of the CPC Central Committee has taken rule of law as its central theme.

China wrote rule of law into its Constitution in the 1990s. The 15th National Congress of the Communist Party of China (CPC) in 1997 decided to make “the rule of law” a basic strategy and “building a socialist country under the rule of law” an important goal for socialist modernization.

The phrase “exercises the rule of law, building a socialist country governed according to law” was added to the Constitution in 1999.

According to sources familiar with the matter, the CPC leadership has taken the view that China is still

a country in the primary stage of socialism but at the critical phase in its building of a moderately prosperous society in all respects.

The country’s reform has meanwhile entered a critical stage and a deep water zone, they said while warning of “a complicated and changing international situation.”

The gravity of the CPC’s undertakings in safeguarding China’s reform, development and stability is thus unprecedented, and so is the multiplicity of the contradictions, risks and challenges it faces.

Rule of law will henceforth play an ever more prominent and important role in the overall work of the Party and the government, the sources said.

A statement released after that meeting said rule of law is “a must” if the country wants to build a prosperous society in an all-rounded way, rejuvenate the nation, comprehensively deepen reform, and improve socialism with Chinese characteristics and the Party’s governance capability.

Xinhua has learned that opinions have been solicited within and outside the Party for the draft decision on rule of law to be discussed during the plenary session.

The Political Bureau of the 18th CPC Central Committee will also report its work to the Central Committee during the meeting.

Xinhua

Qatar fund to buy stake in HK department store operator Bellshill Investment Co, a unit of Qatar Holding, is buying the shares from Lifestyle’s dominant shareholder, Real Reward Ltd, which is equally controlled by a unit of Chow Tai Fook Jewellery Denny Thomas

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atar Holding LLC has agreed to pay US$616 million for about one fifth of Lifestyle International Holdings, a department operator in Hong Kong and mainland China - the latest addition of a high-end retail brand to the sovereign wealth fund’s portfolio.

A unit of Qatar Holding will pay HK$14.75 per share for the 19.9 percent stake, a 1 percent premium to Lifestyle’s last traded price of HK$14.60, the statement added. Qatar Holding will get one board seat on the completion of the transaction.

Lifestyle shares fell 5.9 percent yesterday as trading resumed after they were halted on September 24 pending an announcement. The fall partly reflects broad weakness in the market since September.

Qatar Holding acquired London’s Harrods Group in 2010 for 1.5 billion pounds. It also owns a 12.6 percent stake in Tiffany & Co, according to Thomson Reuters data.

Lifestyle’s stores include a SOGO (pictured) branded store in Hong Kong’s bustling shopping district of Causeway Bay and four Jiuguang stores on the mainland

“This investment in Lifestyle International Holdings is a continuation of QIA’s investment plan to diversify its global portfolio; this time in Asia,” Qatar Investment Authority, the parent company of Qatar Holding, said in a statement.

Bellshill Investment Co, a unit of Qatar Holding, is buying the shares from Lifestyle’s dominant shareholder, Real Reward Ltd, which is equally controlled by a unit of Chow Tai Fook Jewellery Group Ltd and the family of Hong Kong businessman Thomas Lau. The deal marks the second partial exit from the retail sector by a Hong Kong tycoon, following last year’s move by Li Ka-shing to sell a 25 percent stake in A.S Watson to Singapore state investor Temasek Holdings for US$5.7 billion.

Real Reward did not give a reason for the stake sale, but a person familiar with the deal said Qatar’s experience in running Harrods is expected to help SOGO’s operations.

KEY POINTS Qatar to buy 19.9 pct stake in Lifestyle, to get one board seat Deal follows Temasek’s purchase of a 25 pct stake in A.S. Watson Lifestyle shares down 5.9 pct

J.P. Morgan is advising Chow Tai Fook, while Bank of America Corp is advising Qatar Holding, the person added. The person was not authorised to speak to the media.

J.P Morgan declined to comment, while Bank of America did not respond to an email seeking comment.

Reuters

10

October 21, 2014

Asia Tokyo Steel cuts product prices Tokyo Steel Manufacturing Co, Japan’s top electric arc furnace steelmaker, said yesterday it will lower prices of all its products for delivery in November by 3,000 yen (US$28) a tonne due to weak overseas prices and slow demand at home.

The company’s pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, who aim to boost exports to Japan. Prices for Tokyo Steel’s main product will go down by 3,000 yen, or 3.8 percent, to 77,000 yen (US$718.6) per tonne in November.

New Zealand to continue strong ties with Indonesia New Zealand Foreign Minister Murray McCully said yesterday that New Zealand hoped to continue its close relationship with Indonesia as he left to attend the inauguration ceremony of President-elect Joko Widodo. “Indonesia is one of the world’s largest democracies, a major player in ASEAN, and one of New Zealand’s most important political and trading partners in the Southeast Asia region,” McCully said in a statement. “Indonesia is projected to be the world’s seventh largest economy by 2030, and with a population of close to 250 million people, it is an important destination for New Zealand exports,” he said.

Transfield receives Ferrovial bid Australian management firm Transfield Services Ltd said yesterday it had received an indicative takeover proposal from Spanish infrastructure group Ferrovial, valuing the company at around A$1 billion (US$876 million). Ferrovial had made a conditional proposal at A$1.95 per share, a 30 percent premium to Transfield’s last traded price, but a level the Transfield board said it did not believe reflected the underlying value of its shares. As part of the discussions, Transfield would offer Ferrovial limited and non-exclusive due diligence, it added.

Australian policy to support demand growth Monetary policy setting is currently configured to support growth in demand, a senior Reserve Bank of Australia (RBA) official said yesterday. Low interest rates should temporarily raise the disposable incomes of those with debt, but also lower incomes for those reliant on interest-bearing assets, said Christopher Kent, RBA Assistant Governor. “This is stimulatory nonetheless, in part because the household sector is a net debtor overall,” said Kent, who is responsible for the Bank’s Economic Analysis and Economic Research Departments.

New Zeland holds new parliament’s first session New Zealand’s 51st Parliament convened for the first time since last month’s general election yesterday for the swearing in of all 121 members. David Carter, a member for the governing centre-right National Party was re-elected Speaker.

The televised ceremony began with the three Royal Commissioners -- the Chief Justice, the Court of Appeal President, and the Chief High Court Judge -- declaring the new Parliament open.

Governor-General Sir Jerry Mataparae is to outline the government’s legislative agenda over the three-year term at the State Opening of Parliament on Tuesday.

Abe loses trade and justice ministers On Saturday, national media NHK said two Obuchi political groups spent 43 million yen (US$400,000) on annual theatre events between 2009 and 2011 and kept no record of spending on the 2012 event

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apan’s new trade and industry minister quit over a funding scandal yesterday and the justice minister resigned after being accused of violating electoral laws, dealing Prime Minister Shinzo Abe his biggest setback since taking office in 2012.

The resignations of the two women could complicate tough decisions on key policies, including whether to go ahead with an unpopular plan to raise the national sales tax and planned restarts of nuclear reactors that were shut down after the 2011 Fukushima disaster.

Trade and industry Minister Yuko Obuchi, the daughter of a prime minister and tipped as a future contender to become Japan’s first female premier, told a news conference she was resigning after allegations that her support groups misused political funds.

Just hours later, Justice Minister Midori Matsushima also resigned.

The opposition Democratic Party had filed a criminal complaint against Matsushima, accusing her of violating the election law by distributing paper fans to voters.

Japanese Trade and Industry Minister Yuko Obuchi takes a moment to speak during a news conference announcing her resignation at the ministry in Tokyo, Japan, 20 October 2014 after submitting her resignation to Prime Minister Shinzo Abe

South Korea producer prices fall Producer prices fell 0.3 percent last month from August

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outh Korea’s producer prices fell in September from a year earlier for a second consecutive month, central bank data showed yesterday, as cheap crude oil continued to keep price pressures soft.

Producer prices in September dipped 0.4 percent from a year ago, the Bank of Korea said in statement, the fastest rate of fall since a 0.5 percent decline in March this year.

Producer prices fell 0.3 percent last month from August.

Prices were pulled down mainly by industrial goods, which fell 1.9 percent last month on annual terms.

This was also the steepest drop since March.

Among sub-indices, coal and oil products notched the biggest fall, spiralling down 10.7 percent in September from a year ago.

The central bank has repeatedly attributed low inflationary pressures

Busan port, in the South-eastern Maritime Industrial Region

to supply side factors, especially from declining crude oil prices and said inflation is expected to remain subdued for the time being.

The data comes a few days after the Bank of Korea slashed interest rates to 2.0 percent and lowered its growth and inflation forecasts for 2014 and 2015. The central bank now forecasts inflation will average 1.4 percent this year, down from the 1.9 percent forecast in July.

Reuters

11

October 21, 2014

Asia KEY POINTS Trade minister was high‑profile, possible future PM Scandals come as PM confronts tough decision on sales tax Resignations may hamper plans to reboot reactors

Obuchi and Matsushima were two of five women appointed by Abe in a cabinet reshuffle in early September - a move intended to boost his popularity and show his commitment to promoting women as part of his “Abenomics” strategy to revive the economy.

“I appointed them and as prime minister, I bear responsibility,” Abe told reporters at his office. “I deeply apologise to the people of the nation.” Abe added he wanted to pick successors for the two posts within the day.

As head of the powerful Ministry of Economy, Trade and Industry (METI), Obuchi, a telegenic mother of two, was tasked with selling Abe’s unpopular plan to restart nuclear reactors to a wary public worried about safety.

“We cannot let economic policy and energy policy stagnate at METI because of my problems, so I will resign my position,” a solemn Obuchi told a nationally televised news conference, bowing deeply in apology.

The departures are the first cabinet resignations for Abe, who took office in December 2012 for a rare second term, promising to revive Japan’s stalled economy and strengthen its security stance to cope with challenges such as a rising China.

Opposition takes aim Abe’s first stint as prime minister in 2006-2007 was marred by scandals among his ministers several quit and one committed suicide. Abe himself resigned after just one year in the face of parliamentary deadlock, sliding support rates and ill health.

His current government had been little touched by scandal until the cabinet rejig. Abe’s ruling coalition has a hefty parliamentary majority and no general election need be held until 2016, but the opposition Democrats have taken aim at new ministers in debates to try to dent Abe’s popularity.

Defence Minister Akinori Eto, also appointed in September, has faced questions from the opposition over his political funds.

Abe’s support fell 6.8 percentage points to 48.1 percent in a weekend survey by Kyodo news agency from last month. Nearly two-thirds opposed a second tax hike and almost 85 percent said they didn’t feel the economy had recovered.

Reuters

Australia to list Medibank It is expected to start trading on Nov 25

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ustralian health insurer Med i b a n k P ri v a t e s a i d yesterday it is planning an IPO to raise between A$4.3 billion and A$5.5 billion (US$3.7 billion to US$4.8 billion), potentially making it the largest listing of a state-owned company in nearly two decades.

Medibank, set up by the government in the 1970s as a cheap health insurance option, plans to sell up to 2.75 billion shares in a range of A$1.55 to A$2.00, the company said in its prospectus, lodged with authorities yesterday.

The company also gave its first profit and dividend forecast, saying it expects proforma operating profit to grow 10.5 percent in the year to June 30 to A$282.1 million, with revenue growth up 6.2 percent.

It forecast a fully franked dividend of A$0.049 per share - a yield of 4.2 percent to 5.4 percent.

Analysts had expected the IPO for 100 percent of Australia’s biggest health insurer to raise between A$4.1 billion and A$5.7 billion.

If Medibank fetches more than A$4.6 billion, the only larger IPO of an Australian state-owned asset will have been telco Telstra Corp Ltd which raised A$14 billion in 1997.

The Medibank sale is a key part of a larger privatisation programme aimed at rescuing Australia from

KEY POINTS Potentially biggest state IPO since Telstra in 1997 Book building range within analysts’ forecasts Dividend yield forecast at up to 5.4 pct

what the conservative government has called a debt crisis fuelled by mounting health and pension bills and the end of a mining investment boom.

State and federal governments have identified some A$120 billion of potential sales in the next two years including ports and electricity networks.

Bankers working on the deal say they brought the listing forward by a month to November to capitalise on strong demand for the IPO, and not because they were afraid of market volatility which has wiped 7 percent off the value of Australian shares since the sale was announced in August.

Reuters

Rentals to the Korean economy rescue Nomura estimates that there was some US$400 billion tied up in jeonse (old rental system) deposits in 2012, equal to one-third of South Korea’s annual economic output

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or a country trying to avoid the menace of deflation, South Korea is receiving timely help from unusual quarters - the country’s landlord and their tenants.

Interest rates at historic lows have wrought a change in traditional rental contracts that could gradually unleash tens of billions of dollars for more productive uses like consumption and home buying.

Landlords have for decades operated the “jeonse” rental system, whereby tenants pay a deposit that can be more than half the home’s value instead of having to pay a monthly rent.

There is a huge pool of funds being under utilised. But the jeonse system appears to be going out of fashion, as most landlords can’t make high enough returns from stashing the money in bank deposits paying just 2.5 percent - they will go down again after the central bank lowered its policy rate further last week.

Using the funds as leverage to further invest in the real estate market holds little attraction for landlords either. Prices have been flat.

Jeonse accounted for slightly more than half of rentals early this year, sharply down from nearly 70 percent in early 2011, land ministry data showed.

“The jeonse deposit money has mostly been illiquid, but the declining jeonse contracts will turn the money

The sharp drop in interest rates is the most important factor behind this phenomenon as home owners want to make up for the shrinking income as much as possible Kim Eun-kyung, consultant, Samsung Securities

more liquid, more ready to spend on consumption or paying back loans, although this will happen very gradually,” Kim Eun-kyung, a consultant for Samsung Securities said.

South Korea’s ageing population - the number of working-age people between 15 and 64 will begin shrinking from 2017 - also heralds lower demand for rentals, as typically

Construction sector is facing stress from a recently contracting economy

demand comes from younger people.

Landlords have responded to the changing market environment by either charging a monthly rental, or asking for a substantially higher jeonse deposit, which should further reduce demand for such rentals.

Either way, the prospect of less money locked up in the jeonse system, and more becoming available for people to spend, invest, or buy their own homes should be a boon for the economy.

Young Sun Kwon, an economist at Nomura in Hong Kong and a

former official with South Korea’s central bank, estimated that renters have borrowed about 64 trillion won (US$60 billion) to fund jeonse deposits.

The trend away from jeonse rentals comes at a good time for Finance Minister Choi Kyung-hwan, who fears Asia’s fourth-largest economy could go the way of Japan and slip into deflation. The extra money coming into circulation will help his strategy to lift asset prices as a way to boost consumption.

Reuters

12

October 21, 2014

Asia

Widodo sworn in as President amid Widodo has failed to persuade any of the parties that backed Prabowo Subianto in July’s leaving him in control of just 37 percent of parliament

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oko Widodo (aka Jokowi) was sworn in as the seventh Indonesian president at the parliament building yesterday, replacing President Susilo Bambang Yudhoyono. Jokowi pairing with Jusuf Kalla won the direct presidential election three months ago, defeating rival former general Prabowo Subianto with running mate Hatta Rajasa.

Leaders from around the world attended the inauguration ceremony, including U.S. State Secretary John Kerry, Malaysian Prime Minister Najib Razak, Singapore Prime Minister Lee Hsien Loong, Timor Leste Prime Minister Xanana Gusmao, and Papua New Guinew Prime Minister Peter Oneil.

Dark omens However, Morgan Stanley, the most-accurate forecaster of the Indonesian rupiah in the past year, expects the currency to extend its three-month slide as Jokowi struggles to gain parliamentary support.

The U.S. bank cut its year-end projection by 8.7 percent to 12,600 per dollar this month from 11,500 after Widodo’s

New Indonesian President Joko Widodo delivers his first speech as President shortly after the swearing in ceremony in front of Parliament members in Jakarta, Indonesia, 20 October 2014

opponents scored several parliamentary victories including the selection of a house speaker. ING Groep NV lowered its forecast 5.6 percent to 12,500, saying it anticipates “investorunfriendly gridlock.” The rupiah has fallen 3.4 percent to 12,024 in the past three months.

The rupiah has been the worst-performing emergingmarket Asian currency over the past three months, leaving it up just 1.2 percent for the year following a 21 percent slump in 2013. It will end 2014 at 12,050 per dollar, according to the median view of 28 analysts surveyed by Bloomberg. That compares

with an estimate of 11,800 on September 30.

Outflows, reserves The rupiah has weakened against the dollar because of the Indonesian political elite’s ignorance in considering the market’s negative response to their actions, Jokowi

told reporters in Jakarta on October 8.

Inflows into stocks and bonds have turned into outflows on the political friction and as investors started bracing for increases in U.S. interest rates next year.

Foreign funds pulled US$1.1 billion from local shares since the end of August, paring net purchases this year to US$3.8 billion. Some 6.55 trillion rupiah (US$545 million) of debt has been offloaded this month, following net purchases of 123.5 trillion rupiah in the previous nine months.

The popularity of Indonesian sovereign bonds, which pay the highest yields among Asian emerging markets after India, also makes the country vulnerable to sudden outflows.

Foreigners hold 37 percent of the securities.

Current account The country’s low foreignexchange reserves add to the rupiah’s fragility. Reserves have increased 12 percent to US$111.2 billion this year, but are still only enough to cover 6.5 months of imports, central bank data show. That compares with 10.9 months for the Philippines and 8.7 months in Malaysia.

BOJ stays upbeat on regional Japan In a quarterly report on the regional economy, the BOJ maintained its assessment for eight of the country’s nine regions to say they continue to recover moderately as a trend Leika Kihara

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ost Japanese regional economies continue to recover as the pain from a sales tax hike in April starts to ease, the Bank of Japan said in a quarterly report, maintaining its optimism on the outlook despite growing signs growth may be losing momentum.

BOJ Governor Haruhiko Kuroda also stuck to his upbeat tone in a speech to a meeting of the central bank’s regional branch managers, saying that the economy is set to recover moderately as a trend although there are some weaknesses in factory output.

“As for the outlook, the economy will continue to recover moderately as

BOJ Governor Haruhiko Kuroda

a trend, with the effect (of the sales tax hike likely to gradually subside,” he said yesterday.

In a quarterly report on the regional economy, the BOJ maintained its assessment for eight of the country’s

nine regions to say they continue to recover moderately as a trend.

Only the north-eastern Tohoku region cut its assessment from the previous report issued in July.

The regional economic report will be among factors the BOJ will scrutinise at its policy-setting meeting on October 31. At the meeting, the BOJ will also release fresh long-term economic and price projections that serve as a benchmark for future monetary policy decisions.

The BOJ has stood pat on monetary policy since launching an intense burst of stimulus in April last year, when it pledged to double base money via aggressive asset purchases to achieve

its 2 percent inflation target in roughly two years.

Recent weak data has cast a shadow over the BOJ’s optimism that the economy is on course for a moderate recovery. Factory output slumped as companies were saddled with a huge pile of inventory due to sluggish demand after the April tax increase.

A recent Reuters poll showed Japanese business confidence slipped to its lowest in 1-1/2 years in October, a further sign Tokyo may be forced to offer fresh policy support to recharge an economy ailing from the tax-hike pain.

Reuters

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13

October 21, 2014

Asia

cloudy forecast Philippines orders presidential election to switch sides,

The main guard for the rupiah is the capital inflows, so the question is whether or not that’s going to be able to cover the current-account deficit, which is largely unchanged Geoffrey Kendrick, head of foreign-exchange and rates strategy, Morgan Stanley

Bank Indonesia boosted its key rate by 1.75 percentage points last year to try and stem the rupiah’s plunge, while the government raised the price of subsidized gasoline by 44 percent. Those measures made only a small dent in the current- account shortfall. The deficit, the

broadest measure of trade in goods and services, was US$9.1 billion in the second quarter, compared with a record US$10.1 billion in the same period in 2013.

Cabinet selection The red-white coalition that backed losing presidential candidate Prabowo Subianto controls 63 percent of the legislature. The grouping will make it harder for Jokowi to cut fuel subsidies, which would free up funds to be spent on education, health and roads and sea ports. The coalition may also make it tougher for the incoming president to make good on his promise to appoint a cabinet in which technocrats outnumber politicians.

The president-elect can still make headway on increasing the tax take, streamlining the bureaucracy and cutting red tape without having to pass new laws.

The red-white coalition’s selection of a house speaker followed the passage of a law scrapping direct local elections on September 26, ending a decade-long system of regional democracy that produced leaders like Jokowi, a former mayor.

Bloomberg News and Xinhua

bank capital boost The rules come after Standard & Poor’s said this month’s debt at Philippine companies is rising the fastest among peers in Southeast Asia

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he Philippines will order lenders to boost capital and cap the value of real estate that can be used as loan collateral to ensure banks gird themselves for increased risk taking.

Bangko Sentral ng Pilipinas approved a minimum capital requirement for larger banks that’s about four times the current level, according to figures supplied by Governor Amando Tetangco. Banks must also cap the collateral value of property at 60 percent under a new credit standard to be implemented over two years, he said in an e-mailed reply to questions.

Surging lending for real estate amid elevated prices is also stoking concern that asset bubbles are building.

“The current environment naturally attracts more risk-

taking by banks,” Tetangco said. “We want to be sure banks have a higher level of capital to absorb the accompanying possible higher levels of shocks.”

Banks’ real estate exposure, or loans and investments tied to property, rose 22 percent in the second quarter to 1.1 trillion pesos (US$24.5 billion) from 900 billion pesos a year ago, according to central bank data.

The second-quarter figure was 6 percent higher from the January-to-March period.

Lenders must have a strong internal policy for controlling concentrations of credit risk, conduct regular stress tests and sufficiently provide for loan-loss allowances, the governor said. Bank directors and senior management must ensure prudent lending, he said.

Bangko Sentral ng Pilipinas headquarters in Manila

Banks with more than 100 branches must boost capital to at least 20 billion pesos, he said. That compares with almost 5 billion pesos now.

New lenders will have to comply immediately with the increased level, while existing banks will be given five years, Tetangco said. The capital rules are separate from global Basel III requirements, he said.

“This increased scrutiny on banks and focus on ensuring banks are prudent when it comes to lending standards is positive for financial stability,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. For the new credit framework, banks have six months to formulate an action plan and as long as two years to fully comply, Tetangco said.

The revised collateral value for property compares with the current average of 80 percent, with some loans for low-cost homes allowing as high as 90 percent. Borrowers of as much as 3 million pesos need not submit income-tax returns and audited financial statements, Tetangco said.

Bloomberg News

Vietnam PM sees strong 2015 GDP growth After growing 5.42 percent in 2013, the economy has been expanding faster this year Ho Binh Minh

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ietnam expects economic momentum to pick up next year but inefficiency, bad debt and weak domestic sentiment will keep a lid on growth, the country’s prime minister said yesterday.

The Southeast Asian nation expects economic growth of 6.2 percent in 2015, faster than the targeted 5.8 percent this year.

After a long struggle with runaway prices, Vietnam plans to keep inflation at 5 percent in 2015, compared with a government projection of below 5 percent this year, Prime Minister Nguyen Tan Dung told the National Assembly in a televised opening session.

“The macro economy and major economic balances are not sustainable,” Dung said, citing a high state budget deficit, fast rising debt and slow growth in aggregate demand and bank credit.

“Economic growth has made a step towards recovery but the business environment and productivity, efficiency and competitiveness of the economy remain low.”

Dung’s comments are in line with those of many independent economists, who say strong exports and a booming manufacturing sector are driving an economy otherwise constrained by structural woes, such

A general view of delegates attending the Opening session of the eighth session of the National Assembly’s 13th tenure, at the National Assembly Office in Hanoi, Vietnam, 20 October 2014

as a wasteful state sector, stubborn bad debts and subdued domestic spending.

Third quarter annual growth quickened to 6.19 percent from 5.42 percent in the second quarter and 5.09 percent in the first three months, data showed.

Others are not quite so bullish, however. ANZ bank in a report last week maintained its forecast of annual growth at 5.6 percent this year and the World Bank in July cut its forecast of 2014 GDP growth to 5.4 percent from 5.5 percent. That was based on weak consumption, low confidence in the private sector, high rates of non-performing loans in banks and

debt exceeding equity in state-owned enterprises.

China threat Dung said the US$171 billion economy was also facing a slow recovery in the real estate market and involved in a territorial dispute with China which has strained bilateral ties.

China’s action has “seriously threatened peace, stability and the socio-economic development of the country”, he said.

Some economists reckon the effects of the dispute in May - when China moved a US$1 billion oil rig

unannounced into a stretch of the South China Sea that Hanoi claims is its exclusive economic zone - could trim 1 percent off growth this year.

Assembly deputies are scheduled to hold a closed-door hearing on the South China Sea development during the session.

The consumer price index in September rose 2.25 percent from December 2013, the slowest yearto-date pace in a decade, Dung said. Earlier this month, the World Bank revised down its forecast for Vietnam’s inflation in 2014 to 4.5 percent, from 6.0 percent projected previously.

Bad debts rose to 3.9 percent of bank loans at the end of August from 3.61 percent at the end of 2013, according to the government report to the legislature.

Foreign debt is forecast to rise to 39.9 percent of gross domestic product in 2014, from 37.3 percent in 2013, while the annual trade surplus was revised up to US$1.5 billion, from a surplus of $0.5 billion forecast previously, the report said.

Parliament will discuss and may approve the government’s socioeconomic targets for 2015 during its autumn session due to end in late November.

Reuters

14

October 21, 2014

International BIS warns of easy money danger The current ultra-expansive monetary policy around the world could pose a threat to financial stability, the chief economist of the Bank of International Settlements (BIS) in Basel warned yesterday. In an interview with the German daily Die Welt, the chief economist of the Basel-based BIS, Claudio Borio, warned of the dangers of easy money. “From a global perspective, the current monetary policy could contribute to the dangers for financial stability,” Borio said. “Interest rates are globally too low to guarantee price stability and financial stability,” Borio argued.

Egypt minister calls for “economic revolution” Egypt needs an “economic revolution” to recover from damage caused by political instability as it seeks to attract billions of dollars in foreign investment and repair its state finances, planning minister Ashraf al-Arabi said. To compensate for those losses and eventually compete globally, Egypt must overhaul an economy which has been dominated by the state for decades and show investors it is committed to safeguarding their money, Arabi said. He said a new investment law, currently in draft form, would tackle issues including land use, the energy sector and infrastructure.

Russia keeps defending rouble Russia’s central bank said yesterday it had conducted 86.83 billion roubles (US$2.12 billion) worth of forex interventions to defend the rouble on October 16. The central bank releases its interventions data with a time lag.

The rouble has been sliding on falling oil prices and broad risk aversion towards Russia because of its role in the Ukraine crisis.

No export bonanza for U.S. harvest The largest U.S. grain harvest in history has pushed prices to four-year lows, which usually means a sales bonanza for the world’s largest food exporter.

Not this year. Traditional rivals and aggressive new competitors with their own huge harvests, such as Ukraine and Russia, are leveraging the dollar’s strength to snap up a bigger share of a market that is shrinking as importers themselves boost output. In addition, a clogged domestic transport system has pushed rail and river freight rates sky-high, making it expensive to bring the mountains of grain to ports for shipping.

Electrolux profits soar Swedish electrical appliance maker Electrolux reported its third-quarter net profit soared 42 percent to 933 million krona (102 million euros, US$130 million) thanks to a cost-cutting programme started at the end of last year.

Sales over the quarter increased 5.6 percent to 28.8 million krona, slightly better than the 28.4 million krona expected by analysts. Electrolux said in a statement that its European operations were performing better because of the reduced costs and improved management of product portfolios. The trims included cutting its number of employees by 3 percent.

French ministers seek to counterbalance Germany Government confirmed last month it would break a promise to bring its deficit below an EU-mandated ceiling of three percent of output next year

F

rench Finance Minister Michel Sapin reaffirmed ahead of a meeting in Berlin with his German counterpart yesterday that France would cut its deficit at a rate appropriate to maintaining a fragile recovery.

“We must not go all out for deficit reduction, we have to slow it down because we must be in harmony with the needs of the French economy we must moreover support growth,” he told France Info radio.

Sapin reiterated a long-held French view that Germany should lead an effort to boost investment in the euro zone and promised that France would continue to pursue structural reforms.

“We are not going to do a deal along the lines of ‘you give me that, and I’ll give you this’ - it’s about what is right for each of us and what is right for Europe,” he said of the talks later with German Finance Minister Wolfgang Schaeuble.

France confirmed last month it would break a promise to bring its deficit below an EU-mandated ceiling of three percent of output next year.

The European Commission is due to decide by the end of this month whether to reject its 2015 budget in what would be an embarrassment for the core EU member.

Economy Minister Emmanuel Macron, who will accompany Sapin on the trip, said at the weekend he was “totally sure” that the EU executive would ultimately not take that step and voiced hopes that Germany and France would see eye

French Prime Minister Manuel Valls (R) with French Finance Minister Michel Sapin (L).

French President Francois Hollande (C) arrives to pose for a family photo

to eye on how to boost euro zone recovery.

France expects growth of just 0.4 percent this year, rising to 1.0 percent in 2015.

S ep a r a tel y , Ger m a n d a i l y Frankfurter Allgemeine Zeitung quoted Macron as calling on Germany to release 50 billion euros of investment as a counterparty to the 50 billion euros of savings on spending France has promised to make up to 2017.

“Fifty billion euros of savings by us, 50 billion euros of extra investment by you - that would be a good balance,” he told the newspaper.

“It is in our collective interest that Germany invests.”

Jean Pisani-Ferry, the economist charged by the French government with drafting a joint report with a German peer on reform and investment opportunities, suggested it was time for Berlin to “re-consider its priorities”.

“Germany is still living on the laurels of the (Gerhard) Schroeder period,” he said of the centre-left exchancellor who radically overhauled Germany’s labour market in the 2000s.

“In Germany, apart from the minimum wage, there have been very few reforms of major import in the past few years,” he told Les Echos newspaper.

Reuters

Libor calculation methods might be standardized Banks are still using a range of different methods to calculate their submissions Julia Verlaine

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he group that administers the London interbank offered rate, seeking to bolster confidence in the benchmark after a manipulation scandal, is proposing to standardize how the banks calculate their submissions.

Global regulators said in July the rate, the key interest benchmark for more than US$300 trillion of securities worldwide, shouldn’t rely on estimates that allowed traders at some of the world’s biggest banks to manipulate Libor. At least nine firms, including Barclays Plc. and Royal Bank of Scotland Group Plc., have been fined more than US$6 billion after traders colluded to rig the rate and related benchmarks for profit.

Banks are still using a range of different methods to calculate

their submissions, ICE Benchmark Administration, the unit of Intercontinental Exchange Inc. that took responsibility for the rate in February, said in a statement today.

“It is in the interests of users of Libor and benchmark submitters alike that a more unified transaction-based methodology should be adopted,” ICE Benchmark Administration said. “We therefore propose a more prescriptive calculation methodology with pre-defined parameters that our oversight committee will keep under review.”

The group proposed expanding the universe of transactions on which banks can base their submissions to include their wholesale funding deposits, commercial paper and primary issuance certificates of deposit. Other data from repurchase

agreements and the overnight indexed swap rate would only be included when a lack of data would otherwise force firms to rely on judgment.

Libor is calculated by a daily poll that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

The panel said it’s also weighing alternatives to what it called that “topping and tailing” exercise and whether it should “smooth” the rate published rate to reduce its volatility.

Firms have until December 19 to submit their responses.

Bloomberg News

15

October 21, 2014

Opinion Business

Bretton Woods III or bust

Leading reports from Asia’s best business newspapers

James Saft

wires

Reuters columnist

THE NEW ZEALAND HERALD New Zealand consumer confidence fell to a 12-month low in October as households felt less cheery about the future, with economic growth coming off the boil.

The ANZ-Roy Morgan consumer confidence index fell 4.3 points to 123.4 in October to its lowest reading in 12 months, though still above its long-term average of 118.8. The current conditions index edged up 0.3 of a point to 124.4, while future conditions dropped 7.4 points to 122.8. The dip comes as the Reserve Bank signals a pause in its interest rate hiking cycle.

BANGKOK POST The planned 2.4-trillion-baht infrastructure megaprojects are unlikely to affect public debt much, as the investment should help to drive economic growth of at least 4% a year over the next eight years, says the Public Debt Management Office (PDMO).

“The massive investment may pile pressure on the country’s public debt to a certain extent, but it should propel economic growth to at least 4% a year, with inflation estimated at 3%,” said director-general Kritsda Udyanin.

“We believe the economic growth rate will outpace the rise in public debt.”

TAIPEI TIMES More than half of Taiwanese workers whose main source of income is their salary are trying to beat wage stagnation by working harder to show their bosses that they deserve higher pay, according to a survey by 1111 Job Bank. In a survey of salaried men and women across the nation, 54.92 percent of the respondents said they were working harder in a bid to seek promotion and pay raises. The survey found that a majority of Taiwanese workers are relying on themselves to increase their income, with 33.35 percent making financial investments and 31.8 percent moonlighting.

PHILSTAR Energy Development Corp.

(EDC), the Lopez-led geothermal company, has signed a US$315 million financing agreement with a group of foreign and local banks for the construction of the 150-megawatt Burgos Wind Project (BWP) in Ilocos Norte. The facility, which consists of US dollar and Philippine peso tranches, would mature in 15 years, EDC said. EDC aims to make the Burgos Wind Project the first wind project to avail of the Feed-in-Tariff (FIT) incentive scheme of the government. At present, the Department of Energy has approved an allocation of 200 MW for wind projects.

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hina is going to export capital, and either the U.S. puts it to good infrastructure use in a ‘Bretton Woods III’ system or the world will face continued poor growth and high asset prices.

Sanjeev Sanyal, global strategist at Deutsche Bank, calls it the Age of Chinese Capital, one in which the world’s largest economy transitions to a consumer-driven model and starts to pump out its massive savings to the rest of the world.

The U.S., with its woeful infrastructure, is the best candidate to usefully absorb capital on the scale China will shortly be throwing off, Sanyal argues.

While economists tend to fret and tut at the idea of these kinds of on-going structural imbalances, we should remember that the world is always changing and it is harder to find a state of balance in nature than create one on paper with an equation.

The original Bretton Woods system, which lasted in some form from 1944 to 1971, was a formally negotiated system with a series of fixed exchange rates. Bretton Woods II, some argued, was based around a Chinese peg of the yuan, shadowed by many of its Asian trading competitors, and adjusted by recycling export revenues into dollar reserves mostly in the form of Treasuries.

While some argue that this had the effect of force-feeding cheap credit to the U.S., contributing to the sub-prime bubble and financial crisis, one thing Bretton Woods II definitely did was form the backdrop for a massive rise in Chinese output and wealth.

Now remember, when you have a glut of capital a few things reliably happen. Asset prices rise, because capital seeks a return, interest rates stay low, for the same reason, and you have a tendency for bubbles to develop

While everyone complains that investment is too low, as in the IMF’s call for infrastructure investment, the fact is that at 24.5 percent of global GDP in 2013, investment is at just about its long-term average. The issue instead has been that investment has been rising, until possibly recently, in China, and going into lower-quality projects which are often unneeded.

That era may now be ending, but with China saving more than half of its annual GDP, accounting for more than a quarter of global savings, that money is going to have to find a new destination.

Opportunities and demographics in China are not favourable, so abroad the money will likely go, but where?

While India might seem to be a prime candidate, as it is sorely lacking infrastructure and Prime Minister Modi seems bent on following China’s investment-driven model, the fact is that India simply isn’t big enough, at least yet, to take these kinds of flows.

Highways and airports As for the rest of emerging markets, the IMF itself argues that while public infrastructure investment can be self-financing in developed countries, in developing ones it is likely to simply lead to higher levels of debt. No free lunch in Africa or Latin America, apparently.

And while much attention is currently focused on Europe, in hopes that austerity can be eased, the medium-term scope for infrastructure is limited. For example, ageing in Germany, Sanyal argues, means that the most we might hope for is that Germany doesn’t add to the global glut of savings.

That leaves the U.S., where a particular brand of politics has led to decades of underinvestment in infrastructure. Deutsch Bank estimates that the 25-year investment deficit in everything from airports to roads to schools is almost US$4 trillion, and a yearly funding shortfall of more than US$200 billion.

Now remember, when you have a glut of capital a few things reliably happen. Asset prices rise, because capital seeks a return, interest rates stay low, for the same reason, and you have a tendency for bubbles to develop. That means that even if western central banks were able to raise interest rates, flows of capital from China might keep rates low and give rise to bubbles anyway.

If, as seems the case now, those rate rises are delayed, the effect might be stronger.

If Chinese capital can be put into self-financing infrastructure in the U.S., and, where possible, elsewhere, global growth would rise. But this requires the U.S. to decide to borrow money, effectively from the Chinese, and use it for public investment. Hardly seems a sure thing, as political propositions go.

“If Bretton Woods Three fails to take off for whatever reason, we should reconcile ourselves to a long period of mediocre growth,” Deutsche’s Sanyal writes in a note to clients.

“Cheap capital, however, will continue to support asset prices and depress yields. If history is any indication, trophy assets may do especially well.”

It may be a choice between bridges and bubbles.

Reuters

16

October 21, 2014

Closing Xi to chair APEC Economic Leaders’ Meeting

Hong Kong’s jobless rate stays at 3.3 pct

Chinese President Xi Jinping will attend and chair the Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting to be held in Beijing on November 10 and 11, Foreign Ministry spokesman Qin Gang announced yesterday. Leaders or representatives of the APEC members will attend the meeting, themed “Shaping the Future through Asia-Pacific Partnership.”

Xi will also deliver speeches at the APEC CEO Summit and the APEC Business Advisory Council. Apart from the above-mentioned meetings, there will be a senior officials’ meeting on November 5 and 6 and the 26th ministerial meeting on November 7 and 8.

Hong Kong’s seasonally adjusted unemployment rate stood at 3.3 percent in July to September, 2014, same as that in June to August this year, the statistics department said yesterday. An increase in the jobless rate was observed in the decoration, repair and maintenance for buildings sector. On the short-term outlook the Secretary for Labour and Welfare Matthew Cheung said while the latest figures indicated a still largely tight labour market up to September, they had not yet reflected the disruptions to economic activities caused by the recent ‘Occupy Central’ movement on many industries such as retail, catering and inbound tourism.

iPhones make Taiwan export orders surge The world’s top contract chipmaker, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), has seen its business surge to record levels in the current peak season for smartphones J.R. Wu and Jeanny Kao

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aiwan export orders in September were nearly four times as strong as expected as global retailers raced to meet consumer demand for high-tech gadgets such as the newest iPhone from Apple Inc. More gains are likely with October orders possibly hitting new highs, Lin Leejen, statistics director of the Ministry of Economic Affairs, told a news conference yesterday.

The robust data underpins a rosy outlook for the island economy and its export-oriented technology companies, while indicating global demand for devices such as the iPhone 6 and its bigger-panelled 6 plus model and other smartphones remain undented by global economic uncertainties.

Taiwan’s export orders, seen as a leading indicator of demand for Asia’s exports and for hi-tech gadgets, typically lead actual exports by two to three months.

September’s 12.7 percent jump in export orders from a year earlier pushed order levels to a monthly record of US$43.31 billion, far

KEY POINTS Sept export orders +12.7 pct vs f’cast +3.3 pct Orders from China +8.6 pct y/y; U.S. orders +15.5 pct Europe orders +22.6 pct y/y; Japan -0.1 pct Govt says Oct orders to surpass Sept levels, may hit $44 bln

Producing chips for smartphones such as the newest iPhones from Apple helped TSMC notch record net profit and 29 percent growth in overall revenue

exceeding the 3.3 percent growth estimated in a Reuters poll.

Double-digit growth in orders came from the United States and Europe, at 15.5 percent and 22.6 percent, respectively.

Orders from China, while growing at a slower 8.6 percent, also hit a record monthly high of US$10.4 billion, the ministry said.

The iPhone 6 went on sale in

China Mobile posts fifth straight decline

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mainland China on Oct. 17.

Orders last month were led by a 19.4 percent gain in orders for electronic goods, as well as a 16.3 percent rise in orders for information and communications products.

Orders for semiconductors are reflected in the category of electronic goods. The world’s top contract chipmaker, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), has seen its business

surge to record levels in the current peak season for smartphones.

Producing chips for smartphones such as the newest iPhones from Apple helped TSMC notch record net profit and 29 percent growth in overall revenue in the third quarter versus a year earlier, as well as 29 percent growth in revenue from communication devices from the second quarter.

Russia demands more meat from China

R

Camera lens maker Largan Precision Co Ltd, which also makes lenses used in iPhones, saw its revenue in September jump 74 percent from a year earlier.

Lin said that full year export orders this year could rise to US$460 billion, revising higher a forecast she gave just a month ago of US$450 billion, which would be a record annual total.

Reuters

Australia eyes ambitious dam building plans

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hina Mobile Ltd.’s profit fell for the fifthstraight quarter as the world’s largest carrier by users spent more to encourage subscribers to switch to high- speed data services.

Net income fell 15 percent to 24.2 billion yuan (US$4 billion) in the third quarter, from 28.4 billion yuan a year earlier, according to figures derived from nine-month results the Beijing-based company reported yesterday. That missed the 26 billion-yuan median of four analyst estimates compiled by Bloomberg.

Chief Executive Officer Li Yue is eliminating US$2 billion in smartphone subsidies while analysts estimate net income will drop about 10 percent this year, the biggest fall since 1999. The government ordered mobile phone carriers in July to reduce such spending to boost profitability.

Sales in the quarter fell 2 percent to 156.6 billion yuan, from 160 billion yuan a year earlier.

That compared with the median 162 billion yuan of four analyst estimates compiled by Bloomberg.

The carrier in December reached an agreement with Apple to offer the iPhone after six years of negotiations.

China Mobile began selling the device January 17.

ussia’s recent restrictions on food imports from the West mean that its demand for meat from China will soar, a senior insider has predicted.

Meat processing enterprises in far eastern Russia alone need nearly 100,000 tonnes of meat as raw materials each year, which provides a huge market for their Chinese counterparts, said Kitaev Pavel, vice president of the Meat Processors Association of the Far East, at a purchasing fair in Suifenhe City of northeast China’s Heilongjiang Province.

The two countries will develop logistics, transportation and storage, he said during the four-day event, which closed yesterday.

In August, Russia banned fruit, vegetables, meat, milk and dairy imports from the United States, the European Union, Australia, Canada and Norway, after Western countries imposed a new round of economic sanctions on it.

Russia had a 13-year ban on pork imports from China over quality concerns. But on Oct. 12, a Chinese firm was allowed to export 800 tonnes of pork to Russia, seemingly opening the floodgates to such trade.

ustralia’s government is looking at investing in nearly 30 irrigation schemes and reigniting a long-stalled programme of dam building to combat growing water shortages constraining agricultural production.

The country is a leading producer and exporter of crops such as wheat, sugar and cotton, but output faces risks from prolonged drought across much of the Australian east coast.

Australia has previously floated ambitious plans to use dams and irrigation to develop marginal land in the outback, but financial and environmental constraints mean it has not built a major new dam in decades.

According to a government policy paper released on Monday, the amount of water available per capita from dams has fallen more than 20 percent since 1980 and is set to drop further.

Agriculture Minister Barnaby Joyce said investment in water infrastructure must be prioritised, but the paper did not say how the new projects might be funded or give financial detail.

Australia is considering some level of investment in 28 potential projects.

Bloomberg News

Xinhua

Reuters