Macau Business Daily, Oct 23, 2014

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MOP 6.00 Year III

Number 651 Thursday October 23, 2014

Publisher: Paulo A. Azevedo

Closing editor: Sara Farr

GEG decides on deluxe after all.

Galaxy Entertainment Group is now planning to expand the capacity of its 5-star hotel. On two parcels of land on Cotai originally earmarked for a 4-star hotel-apartment. Parcel I/II is the area where Phase 2 is being built, and where Phase 4 will be constructed. According to the latest interim report, Phase 2 of Galaxy Macau will open mid-2015

Soaring rents

Anti-foreign official bribery bill could soon be passed

They made it but they paid it. Most receipts generated by restaurants and eateries last year went towards rent.

Receipts increased 23 percent over those of 2012 but rents alone increased 38 percent.

Rentals for drinking establishments went up a swingeing 87 percent

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Open skies pact with Taiwan in effect by year-end Page 4

HK stocks defy protests to post world’s best gain

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Slowly does it It’s been a bumpy ride.

Chinese authorities have recently employed a range of economic weapons other than the omnipresent rate cut. Despite trimming pressures for quick growth results, China is opting for safe and sound consolidation

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HSI - Movers October 22

Name

%Day

Credit tightening

Tencent Holdings Ltd

3.38

Henderson Land Devel

3.08

Cathay Pacific Airwa

3.05

PetroChina Co Ltd

2.99

More non-performing loans are coming to light. From Mainland Chinese banks, which are now avoiding risky borrowers. More selectivity feeds back to less credit for gamblers and junkets in Macau. SNL Financial says the five biggest lenders in China saw NPLs increase in the first six months of 2014

MTR Corp Ltd

2.48

Kunlun Energy Co Ltd

0.00

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China Unicom Hong Ko 0.00 China Mobile Ltd

-0.22

Belle International

-0.23

Tingyi Cayman Island

-1.65

www.macaubusinessdaily.com

Source: Bloomberg

Service sector growing Receipts are up for the service sector.

Plus expenditure and number of persons engaged. Real estate management led the way. While advertising services registered the biggest growth in number of establishments. Conferences & exhibitions, security and cleaning services all shone

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2

October 23, 2014

Macau

Receipts of service sector climbing The service sector registered growth in receipts, expenditure and numbers of persons engaged in 2013.

Kam Leong

kamleong@macaubusinessdaily.com

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he service sector - which includes real estate management, security and cleaning, advertising, and conference & exhibition organising services registered growth in its annual receipts and expenditure last year.

In particular, real estate management service took the lead, reaching 1.05 billion patacas in receipts and 893 million patacas in expenditure.

Meanwhile, advertising services registered the biggest growth in terms of number of establishments.

The latest service sector survey by the Statistics and Census Services shows that in 2013 there were 199 establishments in real estate management service, 23 establishments in security services, and a total of 113 establishments in cleaning services. In addition, there were 421 other establishments working in the advertising field with another 38 establishments in conference & exhibition organising services.

In the real estate management field, receipts and expenditure registered growth of 7.2 percent and 7.1 percent, respectively; 3,199 of the total 5253 persons in

media sales.

The receipts of the field registered a significant growth of 40 percent year-on-year, reaching 410 million patacas although 91 percent of such establishments were operating with less than 6 persons last year. The sector’s annual expenditure posted 529 million patacas, a 54.4 percent growth year-on-year.

Meanwhile, the receipts from conference and exhibition organising services increased by 13 percent year-on-year, reaching 232 million patacas. Its expenditure also went up by 14 percent, to 179 million patacas.

Security, cleaning services

the field were property caretakers, according to the survey. Meanwhile, 23 of the199 establishments posted annual receipts of 10 million patacas or more, accounting for 56 percent of the total receipts in this field of service.

Advertising, conference & exhibition organising service On the other hand, the survey also shows that 63 new advertising services were founded last year, to total 421, which is the biggest increase in the number of establishments in any field. Some 17 percent, or 234, of such establishments engage in advertising design, production and

In 2013, there were 3,673 security guards in the city, a 6 percent increase year-on-year, according to the survey.

The security field posted 822 million patacas in receipts last year, with the total expenditure at 745 million patacas, posting increases of 11.6 percent and 14.9 percent, respectively.

Meanwhile, 89 percent of the persons engaged in cleaning services are cleaning workers. The cleaning sector received a total of 517 million patacas in 2013, of which 81 percent was from 21 establishments which dominated the industry with annual receipts of 5 million patacas or more.

DSEC to conduct 2016 population by-census test runs next year Joanne Kuai

joannekuai@macaubusinessdaily.com

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he Statistics and Census Bureau (DSEC) is gearing up for the 2016 population by-census, which takes place every 10 years. The survey’s scope is about one-fifth of all residences in Macau selected by random sampling. Test runs are to be conducted in 2015.

Questionnaires are to be ready by the end of the year.

Director Vanessa Kong Pek Fong said that their staff has been reduced from more than 300 to the current 220 or so. The labour shortage is not helping in conducting such a largescale census although more electronic devices and modern technology should make their work more efficient.

Vanessa Kong added that the Bureau provides the government with hard data to conduct more scientific administration as well as helping people from all walks of life better understand society.

She said, for example, that data shows that the primary sector (raw materials) of the economy almost doesn’t exist in Macau, while the secondary sector (manufacturing)

contributes less than one percent to GDP. Gaming has become the single leading industry, with tourism, retail, logistics and telecommunications, and the tertiary sector (services) shaping the SAR’s economy in a very different way.

“The unemployment rate has dropped from its peak of 7.1 percent to the current 1.7 percent. It’s a refection of the general economy and society,” said Ms. Kong. “Back then, when there was only one gaming operator, we couldn’t release the statistics because official data cannot provide the information of a sector if there are less than three companies. Now with the release of the information, people are able to have a clearer picture of the operation of the business, such as employment, and, for example, how many of the employees are nonresident workers. ” She spoke to the media on the sidelines of a photo exhibition reviewing the past 30 years of services of the Bureau. A forum on scientific policymaking employing statistics was also held at the Science Museum.

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October 23, 2014

Macau

Galaxy Macau scraps 4-star hotel-apartments The company had planned in the first contract rental for the Cotai land to build a 4-star hotel and apartments on two parcels of land used for Phase 2 and 4 of the project.

Now, the company has decided to scrap this idea and expand its 5-star hotel project João Santos Filipe

jsfilipe@macaubusinessdaily.com

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alaxy Entertainment Group has decided to scrap the project for a 4-star apartment hotel on a land parcel that is going to be used for Phase 2 and Phase 4 of Galaxy Macau. The land will be used instead to increase the capacity of its 5-star hotel.

In September 2009, Galaxy and the Macau Government signed a contract for the land grant of the Cotai area. The total rented area occupied 440,248 square metres and valued at MOP2.9 billion.

The first contract also stated that the land would be divided into four parcels.

Parcel I was to occupy 223,560 square metres (MOP1.35 billion), parcel II was to occupy 61,049 square metres (MOP421 million), parcel III was to occupy 48,000 square metres (MOP211 million) and parcel IV was to occupy107,639 metres (MOP937 million).

Nonetheless, the government published yesterday in the Official Gazette an amended contract.

According to the new document, parcels I and II will be combined to create a new parcel designated I/II occupying 284,602 square metres worth MOP1.95 billion.

However, the most important change is that the company has decided to give up on the project for a 4-star apartment hotel and its parking spaces.

Instead, Galaxy has opted to expand the 5-star hotel and parking spaces also planned for the same land parcel. All the area for the 4-star apartment hotel and parking spaces is now incorporated in the 5-star facilities.

Parcel I/II is the area where Phase 2 is being built and where the future Phase 4 is also going to be erected.

According to the late interim report by the company, Phase 2 of Galaxy

Macau will open by mid next year.

As for Phase 4, the site investigation will start later this year.

The first request to eliminate the 4-star apartment hotel and to increase the capacity of the 5-star facilities was handed to the government on January 21.

These changes will not affect the rental price that Galaxy will have to pay to the government for the land. While construction works continue, the company will pay per year MOP8.5 million for parcel I/II, MOP1.4 million for parcel III and MOP3.2 million for parcel IV. As the works are completed and the areas operational, Galaxy will pay every year MOP16.3 million for parcel I/II, MOP2.7 million for parcel III and MOP8.2 million for parcel IV. The rental contract is due to expire on 14 October 2034.

Galaxy had not responded to requests by Business Daily for comment by the time this story went to press.

A Galaxy representative told Business Daily that the company is increasing its “flexibility for development by consolidating Lots

Anti-foreign official bribery bill could soon be passed Stephanie Lai

sw.lai@macaubusinessdaily.com

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bill that extends its anticorruptive prevention and sanctioning scope to foreign public officials and officials of public international organisations “should be able” to obtain final approval from the Legislative Assembly by yearend, legislator Chan Chak Mo said yesterday following a sub-committee deliberation on the draft proposal.

The bill, which is based on compliance with the United Nation’s Convention Against Corruption, states that the city’s graft watchdog

- Commission Against Corruption (CCAC) - will be the authorised unit to investigate any corrupt acts related to external trade, where public officials and officials of public international organisations outside of Macau are the bribed party.

“As our [legal] consultants said, the articles of the bill are not complicated... We hope that after one or two meetings, a new working text [from the government] on the bill can be delivered here for us to continue the deliberation,” Mr. Chan

I and II, which will allow [Galaxy] to move and reposition accommodation.”

In addition, Phase 3 and 4 will not be delayed, the representative assured, adding that “developing large-scale resorts is a very complicated exercise.”

The initial site investigation for these two phases are expected to begin at the end of the year, he added.

Meanwhile, the rental contract signed by the government and Sands China - represented in the document

by Venetian Cotai, Venetian Macau and Cotai Strip Lote 2 Apart Hotel (Macau) - was also amended due to the need to make a ‘little adjustment to the north limit of parcel III [where Parisian is being built] in order to best fit the building being erected on the parcel’, the Official Gazette announced.

Until the contract published yesterday the area rented to Sands China, excluding the land for Sands Cotai Central, totalled 405,658 square metres. The land was divided into three parcels: parcel I (291,479 square metre), which was used for The Venetian, parcel II (53,700 square metre), where the Four Seasons is located, and parcel III (60,479 square metre), where the Parisian is being built and is due to open in late 2015.

However, with the new changes – which were requested on 21 August 2013 – parcel I was reduced to 290,562 square metres, parcel two was cut to 53,303 square metres and parcel III was increased to 61.681 square metres. Plus 112 square meters of land near Avenida Cidade Nova was handed to the government.

Sands China refused to comment on the changes to the contract with the government, after being contacted

by Business Daily.

told media. “By this year-end, the bill should be able to get approved.”

However, echoing Legislative A s sem b ly ’ s cha i r m a n Ho Ia t Seng’s concern expressed last Thursday, Mr. Chan said he also hoped that the imminent changes of the leading Secretaries would not impact the reading of the bills in the Assembly.

Mr. Chan, the head of the second permanent committee of the Legislative Assembly, said in early July that they were rushing to approve the anti-corruption act as Macau was due to be reviewed by experts from the United Nations on its compliance with the Convention Against Corruption this year.

The bill is targeted at sanctioning the bribing party from Macau.

Gabriel Tong Io Cheng, a member of the sub-committee, informed us that during the deliberation of the bill his fellow legislators were still pending answers on the extradition issues pertaining to the bribing parties remaining outside Macau.

Gov’t subsidies to deplete highpolluting vehicles

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he Environmental Protection Bureau is to award subsidies to car owners to get rid of their smog-spewing vehicles.

Given the air pollution choking Macau, the initiative seeks to make obsolete two-stroke engine motorcycles and diesel cars that are 10 years or older.

The Bureau said that according to their research two-stroke motorbikes account for five percent of the total amount of vehicles circulating in Macau but contribute to 20 percent of the carbon emissions. While diesels cars over 10 years old account for 1 percent of the total number of vehicles but generate 40 percent of PM2.5 car emissions. The Bureau expects the air quality to significantly improve once 50 percent of these vehicles are weeded out. The proposal was launched following four public consultation sessions. The Environmental Protection Bureau and the Transport Bureau expect to finish the draft legislation by the end of this year.

Realtor temporary permit application deadline 31 Oct

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eal estate agents whose offices are located in noncommercial buildings will have until Friday next week to apply for their temporary licences.

As many as 32 applications had been submitted to the Housing Bureau as at October 15. Of these, 21 were approved, two denied and the remaining nine are still being assessed. The licences allow real estate agents to register their business in an office located on the ground floor of residential or industrial buildings. The temporary licences permit them to practice business until August 31, 2019.

The authorisation will then expire and cannot be renewed.

China’s lottery sales up 25.2 pct

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hina’s lottery sales rose 25.2 percent year-onyear to 32.25 billion yuan (US5.3 billion, MOP42.4 billion) in September, new data released yesterday shows. Sales of welfare lottery tickets rose 19.6 percent year on year to 17.47 billion yuan last month, while sports lottery sales rose 32.5 percent to 14.78 billion yuan, the Ministry of Finance said in a statement. In the first nine months of 2014, total lottery sales stood at 279.4billion yuan, up 24.5 percent from a year earlier. Money raised through the lottery is used for the jackpot, management fees and public welfare under China’s lottery management rules. Last year, total lottery sales topped 309 billion yuan, up 18.3 percent year on year, the ministry’s data showed.

4

October 23, 2014

Macau

Restaurants, eateries’ rent soars Receipts of local restaurants and similar establishments registered a year on year increase of 23 percent in 2013. But rent jumped even more – in particular, the rent for eating and drinking establishments soared by 40 percent and 87 percent y-o-y, respectively Kam Leong

kameleong@macaubusinessdaily.com

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ll 1,918 operating restaurants and similar establishments gained receipts of MOP8.5 billion last year, an increase of 23 percent year-on-year with total expenditure reaching MOP7.82 billion, a 24 percent growth year-onyear. Although in profit in general, the industry saw rent soar on average by 38 percent year-on-year, as revealed in a survey conducted by the Statistics and Census Service (DSEC).

According to the bureau’s restaurant and similar establishments survey, 1,834 of 1,918 such establishments are restaurants, eating and drinking places while 75 are cooked-food stalls in municipal

MOP3.24 bln sectoral contribution to economy

markets, with a total of 26,187 staff in 2013, a jump from 4,200 persons in 2012.

Last year, nearly 40 percent of total operating expenses, amounting to MOP787 million, of these establishments, excluding cookedfood stalls, was spent on rent. Rent for drinking places soared by 87 percent year-on-year.

Meanwhile, the total receipts and expenditures of these three types of establishment reached MOP8.47 billion and MOP7.8 billion in total in 2013. Purchase of goods and compensation of employees, which amounted to MOP3.24 billion and MOP2.56 billion, respectively, were their major expenditure items, recording a growth of 25 percent and 20 percent year-on-year, respectively.

In addition, their gross fixed capital formation, which primarily refers to the money establishments invest in equipment, also recorded a significant increase of 76 percent year-on-year, reaching MOP345 million. Gross value added, that measures the sectoral contribution to the economy, rose by 20 percent year-on-year, at MOP3.24 billion.

The significant growth in gross fixed capital was attributed to its

MCEA grabs 40pct of FDIC’s financial support in 3Q

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acau Industrial and Commercial Development Fund (FDIC) distributed MOP23 million in financial support to more than 100 entities in the third quarter, with the Macau Convention and Exhibition Association (MCEA) reaping more than 40 percent of FDIC’s overall budget.

According to data published yesterday in the Official Gazette, the Macau Industrial and Commercial Development Fund gave MOP22.9 million to several associations and companies from Macau, the majority to finance its participation in expositions, fairs or like events. In total, the number of programmes supported

by FDIC reached 197 in the third quarter.

The largest by far was conceded to the Macau Convention and Exhibition Association, which received MOP9.5

substantial jump in both eating and drinking places, registering 178 percent and 590 percent increase, year-on-year, respectively, even though restaurants dropped by more than a half in 2013, due to the decline in major renovation projects.

The survey also showed that more than half of the total receipts of the industry, at 53 percent, were from 191 establishments only, which received MOP10 million or more annually. In addition, 30 percent

of the establishments posted annual receipts of less than MOP1 million while the other 877 establishments raked in between MOP1 million and MOP4.99 million annually.

On the other hand, the receipts of cooked-food stalls in the municipal markets went up by 39 percent yearon-year, to MOP27 million with expenditure amounting to MOP31 million, up 24 percent year-on-year.

In 2013, 153 enterprises engaged in the businesses.

Open skies pact with Taiwan in effect by year-end Stephanie Lai

sw.lai@macaubusinessdaily.com

million from FDIC in the third quarter. The sum was 41 percent of all the Fund’s budget spent last quarter.

The biggest slice (MOP9 billion) was delivered to finance the expenses of the organisation for the ‘Macau Dynamic Week’ event held in Shenyang, in the province of Liaoning, in Mainland China. A second line worth MOP591,000 covered the expenses of a course in conventions and exhibitions involving Macau and Guangdong.

Macau Islands Industrial and Commercial Federation also received considerable support in the third quarter from FDIC. It received MOP1.2 million to support the event ‘Consumption Carnival on the Islands 2014’. Macau Pastry Speciality Association got MOP1.11 million to organise the Mooncake Festival this year.

L.G.

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he open skies agreement signed between Macau and Taiwan in February, and currently stalled in Taiwan’s Legislative Yuan, is expected to come into effect within this year, director-general of the Taipei Economic and Cultural Office in Macau Lu Chang Shui said.

The open skies pact, signed in February 17, enables airlines to carry unlimited passengers and freight between here and the island, and allows more airlines to do it.

Speaking to Chineselanguage media here on Tuesday, Mr. Lu noted that the pact has already been sent to the Legislative Yuan for review, adding that “it should not be long” before the pact comes into effect this year.

A budget carrier from the island, Tigerair Taiwan, told

Business Daily that it hoped the processing of the open skies pact could be concluded as soon as possible.

Tigerair Taiwan, a venture set up in December last year between Taiwan’s China Airlines and Tiger Airways Pte of Singapore, originally targeted Macau as one of its first routes to be established this year.

After obtaining the operating licence on September 16, Tigerair Taiwan launched its first flight to Singapore on September 26 and is now launching flights to Chiang Mai and Bangkok in Thailand by mid-November.

Tigerair Taiwan’s rival, V Air, is also expected to obtain its operating licence by mid-November or earlier.

Budget carrier V Air said in September that its first intended destination was Bangkok, noting that it

expected to launch its debut flight by the end of this year.

V Air, established by Taiwan’s legacy carrier TransAsia Airways Corp in November last year, said before that it was also interested in flights between here and the island.

Business Daily approached V Air for further information on the plan to launch flights to here but had not received a reply by the time the story went to press.

Currently, the air services agreement between Macau and Taiwan permits only Macau flagship carrier Air Macau Co Ltd, and Taiwan’s Eva Airways Corp, TransAsia Airways Corp and Mandarin Airlines to offer flights. For each party, the present service agreement allows the airline to carry only 19,400 passengers and 400 tonnes of freight per week.

5

October 23, 2014

Macau

Increasing NPLs in Chinese banks threaten Macau gamblers Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

Mainland financial institutions are distancing themselves from risky borrowers and becoming more selective, a change of attitude that could dampen credit lines to gamblers and junkets in Macau.

The cause: non-performing loans (NPL) are spreading

the ability of the borrower to repay.

The situation is bad news for Macau, especially junkets and gamblers who depend on credit to operate and play. The diminishing credit lines this year have been one of the main drivers of the revenue plunge in Macau, namely among high rollers. The VIP revenues have declined double digit all year and in October are likely to drop more than 30 percent, analysts believe.

October revenues to drop 22pct

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ecent data shows that nonperforming loans continue to rise in Chinese banks and experts believe the trend is just beginning to create some difficult challenges ahead. As the problem becomes more apparent, the Mainland’s bigger financial institutions are already avoiding risky borrowers and becoming more selective about their clients, which means that credit flow to gamblers in Macau could be hurt.

According to data compiled by SNL Financial, the five biggest lenders in China saw their non-performing loans (NPL) increase in the first six months of the year. The Industrial and Commercial Bank of China saw its NPL ratio (non-performing loans as a percentage of total loans) increase

from 0.94 percent in December 31 to 0.99 percent in June 30. Currently, China’s largest bank has 150 billion yuan at risk of never being paid. But the situation is similar throughout the Chinese financial system. Agricultural Bank of China has a NPL ratio of 1.24 percent, China construction Bank 1.04 percent and Bank of China 1.02 percent.

“I expect NPL will continue to be revealed. One thing that was keeping NPL figures from coming out was that loans could be rolled over or reextended and repackaged in various ways”, Kellee Tsai, professor and head of division of social science at the Hong Kong University of Science and Technology told SNL Financial. The academic expects these delinquent loans to continue to rise in the future

as property prices in China continue to soften, making it harder to sustain the expected returns.

The problem with NPL is also that each country has its own system of calculating them, making it harder to get the real picture. Even if 1 to 2 percent of NPL ratio is a small percentage compared to other countries, the rapid growth recorded this year should be a warning sign for the future. Some smaller banks in China are already reporting a much higher presence of non-performing loans in their balance sheets, with ratios exceeding 2 percent.

Kellee Tsai stressed to SNL Financial that draft rules are “badly needed” and that it is difficult to coax Chinese banks into being transparent about the destination of their loans and

Analysts are betting on a decline of 22 percent for gaming revenues in October, the fifth straight month in the red for the gaming industry here.

Last week (between October 13 and 19) the average daily revenues in casinos amounted to MOP789 million, 5 percent lower than the previous week (MOP823 million), Barclays said yesterday. The UK bank is expecting gaming revenues to decrease 21 to 23 percent. The estimation is in line with the rest of the market. Wells Fargo is expecting the fall to be between 20 to 23 percent this month, while Sterne Agee advanced with a 22 percent drop prediction. Revenues from mass floors are likely to stay flat in October and VIP will probably plunge more than 30 percent, analysts say.

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October 23, 2014

Macau Brands

Trends

Clarisonic Skin

HK stocks defy protests to post world’s best gain

Raquel Dias newsdesk@macaubusinessdaily.com

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larisonic skin brushes have grown very popular very fast.

Their presence in Asia is ever more present. The brand which began producing electric scrubbing brushes for facial skin has now branched out to include several brush options for body, feet and different kinds of skinrelated problems. Behind their success lies a strong marketing campaign and the fact that the devices look pretty and cool.

There are a variety of options to satisfy every age group, and the price is not prohibitive. As to whether the Clarisonic really works is a matter of opinion, as there seems to be no consensus.

The fact that the brand produces its own creams and lotions is also a divisive issue; some say skin appearance is improved because of the innovative brush concept, others opt for the quality of the lotions.

Then there’s the problem of the accessories. In order to maintain demand, the brand, like any other, needs to keep selling. It is, however, a difficult task to convince customers to purchase facial brushes more than once. The strategy becomes simple: keep people interested by upping the amount of stuff they can get to complete their Clarisonic system. If at first you only got the facial brush, you may want to invest in the body brush. Once you get this one, you might as well get the ‘body extension handle’ and so on.

Having said that, there’s no reason why one should not buy it. Plus, did I mention they come in every colour?

H

ong Kong stocks are beating every other developed market in the world this month as lower valuations shelter shares from a global selloff and the city’s worst political unrest since the 1960s.

The MSCI Hong Kong Index rallied 3.1 percent in October through Tuesday, the most among 23 developed markets tracked by MSCI Inc. and one of only two to gain. The measure is poised to erase its loss since police fired tear gas at pro-democracy demonstrators on September 28, rising 0.3 percent, compared with a 3.2 percent slump by the MSCI World Index in the same period.

“Hong Kong as a whole has held up pretty well despite what’s going on,” said Nicholas Yeo, a money manager at Aberdeen Asset Management Plc, which oversees US$550 billion and hasn’t changed its holdings because of the protests. “After the first few days, people are becoming more rational and more pragmatic,” he said. “We haven’t come to a stage where this means it’s the end of Hong Kong.”

With the benchmark Hang Seng Index trading at 10 times earnings yesterday, the lowest multiple among the world’s major developed markets, Bocom International Holdings Co. says the impact of the protests is already reflected in equity prices.

RS Investment Management Co. sees catalysts for Hong Kong stocks in a trading link with Shanghai and prospects for Chinese stimulus.

Among 53 developed and emerging country MSCI indexes, only a measure of equities in Turkey rallied more in October through Tuesday than the Hong Kong gauge, data compiled by Bloomberg show. Casino operators Sands China Ltd. and Wynn Macau Ltd. led gains this month through yesterday, surging at least 9.7 percent.

Short-lived drop While the Hang Seng Index plunged 3.2 percent over two days after police used tear gas on crowds last month, shares stabilized as the size of the protest sites shrank and investors weighed the impact on the city’s listed companies.

Firms that get a majority of their sales from Hong Kong make up about 13 percent of the Hang Seng Index, while those that rely on China make up at least 54 percent, data compiled by Bloomberg show. Li & Fung Ltd., the wholesaler that gets more than half its revenue from the U.S., rallied 5.8 percent this month through Tuesday.

Hong Kong Chief Secretary Carrie Lam and four other government

officials held discussions Tuesday with five members of the Hong Kong Federation of Students led

by Secretary-General Alex Chow in an attempt to resolve the biggest challenge to China’s sovereignty over Hong Kong since the end of colonial rule in 1997.

Democracy demands Student leaders have demanded China amend a decision that candidates in the city’s first-ever leadership election in 2017 must be vetted by a nominating committee, a mechanism they say is designed to guarantee a chief executive more loyal to China than to Hong Kong.

“We’ve already seen the larger negative impact from the protests already taking place, and now the scale has been more manageable,” said Tony Chu, a money manager for RS Investment, which oversees about US$22.3 billion and holds more Hong Kong stocks than the benchmarks it tracks. The “medium to longer term outlook looks positive.”

Investors are hoping for more economic stimulus as Communist Party leaders meet this week, said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. China is planning the injection of about 200 billion yuan (US$32.7 billion) into some national and regional lenders, a government official familiar with the matter said last week, in its latest effort to shore up slowing growth. Gross domestic product rose 7.3 percent last quarter, the slowest pace since 2009, a report showed.

Global slump The central bank provided 500 billion yuan of liquidity to China’s five biggest banks last month and the nation began easing property curbs in some cities to support slumping prices.

Hong Kong’s stock rally contrasts with a global slump dragging down shares from New York to London and Tokyo. About US$2.8 trillion was wiped off the value of equities worldwide in October through last week amid concern about the outlook for economic growth, falling oil prices and the spread of the Ebola virus. The Standard & Poor’s 500 Index has slid 3.5 percent from last month’s record.

Federal Reserve policy makers are winding down their monthly pace of asset purchases, and traders see about a 38 percent chance the central bank will increase its benchmark rate to at least 0.5 percent from around zero

by September 2015, based on federal

fund futures contracts.

Borrowing costs When rates are raised in the U.S., Hong Kong will import higher borrowing costs as its dollar is pegged to the greenback. That’s a reason to stay away from local shares Societe Generale SA’s Asia equity strategist Vivek Misra says, because rising yields will weigh on the property market.

In contrast, policy support and low valuations on Chinese stocks in Hong Kong make them an attractive investment, Misra said.

The protests’ impact on the Hong Kong’s economy will mostly be reflected in the medium- to longterm, including the city’s international reputation, Financial Secretary John Tsang wrote in his blog October 19.

Retailers have suffered amid the demonstrations, with shares of jeweler Chow Sang Sang Holdings International Ltd. sliding 4.8 percent through yesterday. Cathay Pacific Airways Ltd. lost 5 percent.

Buying crisis “In the short term there may be some rebound because the strategy of buying whenever there is a crisis worked very well in the last 10 years in Asia so people tend to do that,” said Eng Teck Tan, Singapore-based senior portfolio manager for equities at Nikko Asset Management Co., which manages US$168 billion.

“Hong Kong from a longer term perspective faces a lot of challenges.”

After capping a 7.3 percent loss last month, the Hang Seng Index traded at 1.3 times net assets Tuesday, a 35 percent discount to the MSCI World Index. That was 15 percent less than its five-year average, according to data compiled by Bloomberg.

Brokers are waiting to find out the start date of a planned exchange link between Hong Kong and Shanghai, which will offer a new route for international buyers to access Chinese stocks and for mainland investors to put money into Hong Kong equities. Hong Kong Exchanges & Clearing Ltd. is ready for the program and regulators will announce the timing, bourse spokesman Scott Sapp said Oct. 20.

“Valuations are on the cheaper side so that’s supportive,” said RS Investment’s Chu. “The stock connect is really beneficial for both sides, Hong Kong as well as for Shanghai.”

Optimism about the stock link has helped counteract political risk from the protests, according to Hao Hong, managing director of research at Bocom International.

Bloomberg

7

October 23, 2014

Gaming

Caesars seeking to build US$1bln casino resort in Philippines The Las Vegas-based casino wants to build a resort with shops, restaurants and an entertainment district

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aesars Entertainment Corp, the largest operator of U.S. casinos, is seeking a license from the Philippine government to build a US$1 billion resort in the country, betting on luring gamblers from across Asia.

Chairman Gary Loveman and Steven Tight, president of the Las Vegas-based casino owner’s international development unit, held preliminary talks with Philippine President Benigno Aquino last month in the U.S. to discuss the possibility of building the resort in the Southeast Asian country, Tight said by phone.

“There’s no major international brand currently in Manila,” he said.

“There’s a chance to create something that will drive tourism, that will really put Manila on the regional tourism map.”

The Philippines has issued four licenses to casino operators owned by billionaires including James Packer, Lawrence Ho and Enrique Razon to build resorts in the 120-hectare Entertainment City, a Las Vegasstyle complex designed to compete with Singapore and Macau’s gambling markets. The country’s gaming regulator hasn’t granted any new licenses under Aquino’s

term, which started in 2010, said Philippine Amusement & Gaming Chairman Cristino Naguiat, who this week confirmed Aquino’s discussion with Caesars.

Caesars approached the government to seek a license and approval for the lease of the land next to the Ninoy Aquino International Airport, about 4.7 kilometers (2.9 miles) from the Entertainment City, Tight said. Aquino asked his cabinet to review the company’s proposal and make a recommendation, he said.

“We’re in the process of evaluating

everything,” Naguiat said when asked if the regulator will give out new licenses.

The Philippine Daily Inquirer earlier reported on the talks.

Caesars is seeking to build a resort with shops, restaurants and an entertainment district that could showcase international performers such as Celine Dion and Elton John, Tight said.

The company hopes the project would complement a casino resort it’s building in South Korea, Tight said.

Caesars plans to build a network of

casinos in Asia and is also interested in the market in Vietnam, he said.

A Philippine resort would benefit from the increasing number of South Korean travelers to the country as well as tourists from southern China, according to Tight. More than 20 percent of tourists in the Southeast Asian country came from South Korea in the first seven months of the year, according to the tourism department. This was followed by the U.S. which contributed 16 percent of the total, while China ranked third with 9 percent.

Caesars is working with a local company on a possible casino project and is seeking a “large scale” domestic partner for the resort, Tight said.

Entertainment City will have four casinos including Solaire Resort & Casino by Razon’s Bloomberry Resorts Corp City of Dreams Manila, a venture owned by Melco Crown Entertainment Ltd. and Philippine billionaire Henry Sy, is slated to open by this year.

The two remaining licenses are held

by Japanese gaming magnate Kazuo Okada and a venture of Genting Hong Kong Ltd. and Philippine billionaire Andrew Tan. Bloomberg

8

October 23, 2014

Greater China Taiwan’s food safety office opens Taiwan’s administrative authority launched a food safety office on Wednesday to tighten control and soothe public outrage amid a string of cooking oil scandals in recent months.

The new office will be a driving force in coordinating food safety management among different departments and cracking down on substandard food products across the island, according to Sun Lih-chyun, spokesperson for Taiwan’s administrative authority.

The office, equipped with 20 officials, is an upgrade of the former food safety promotion task force under Taiwan’s administrative authority.

APEC finance chiefs meet am

The meeting in Beijing of ministers from the APEC forum precedes Kelly OLSEN

HKEx metals futures Dec. 1

Hong Kong Exchanges and Clearing Ltd (HKEx) plans to launch so-called “mini” industrial metals futures contracts on December 1, HKEx Chief Executive Charles Li said. HKEx, which purchased the London Metal Exchange (LME) in December 2002, has previously said it planned to launch contracts in copper, aluminium and zinc this year, but this is the first time the launch date has been announced. Li announced the date during a speech at the LME Week dinner, the largest annual gathering of the global industrial metals sector.

FDI to grow 10 pct a year for next 5 years China’s foreign direct investment (FDI) is likely to grow by at least 10 percent every year for the next five years, the Commerce Ministry said yesterday.

Zhang Xiangchen, an assistant minister at the ministry, made the comments at a briefing. Commerce Ministry spokesman Shen Danyang said last month that China’s FDI may hit an all-time high of US$120 billion this year, barring no sharp changes in global capital flows.

Premier taking time for reforms It is still taking time for reform measures to gain traction, Chinese Premier Li Keqiang was quoted as saying by the Foreign Ministry. While economic performance in first nine months of year was still within a “reasonable range”, China’s economy also faces downward pressure, the ministry quoted Li as telling APEC finance ministers, in a statement released late on Tuesday.

Bigcommerce inks deal with Alibaba Australia’s Bigcommerce has signed a deal with Alibaba.com to allow users to source products directly through the Chinese company’s supplier network.

Bigcommerce provides small and medium-sized merchants with an ecommerce platform and thanks to the deal, its 55,000 users will now have access to 1.5 million products through Alibaba’s global manufacturer network. Bigcommerce CEO Eddie Machaalani said in a statement the partnership will help its users to expand into new revenue opportunities.

Chinese Vice Premier Zhang Gaoli delivers his speech as Chinese Finance Minister Lou Jiwei, Chairman of the Fiscal Policy Agency in the Indonesian Ministry of Finance Andin Hadiyanto, Philippine Finance Secretary Cesar Purisima and Alan Bollard, Executive Director of Asia Pacific Economic Cooperation (APEC) Secretariat, listen, during the Asia-Pacific Economic Cooperation (APEC) Finance Ministers Meeting Opening Ceremony in Beijing

T

he global economic recovery is beset by “downside risks”, China’s vice-premier told AsiaPacific finance ministers yesterday, a day after growth in the world’s second-largest economy hit a fiveyear low.

The meeting in Beijing of ministers from the Asia-Pacific Economic Cooperation (APEC) forum precedes the group’s annual summit next month, when Chinese President Xi Jinping is expected to host counterparts including US President

Barack Obama, Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe. “Now global economic recovery remains difficult, with downside risks still existing,” China’s Vice-Premier Zhang Gaoli said in a speech formally starting the finance meeting.

The Asia-Pacific region faced challenges including what he described as “policy adjustment of major developed economies”, apparently a reference to the US Federal Reserve’s winding down of

the vast bond purchase programme it put in place to fight the global financial crisis.

APEC, established in 1989, groups 21 economies spanning Asia, Oceania and North and South America and includes giants the United States, China, Japan and Russia, emerging economies such as Mexico and Indonesia and small nations such as Brunei and Papua New Guinea.

“The Asia-Pacific region is the main driving force and engine for global economic growth,” Zhang

South Korean firms step up China investment South Korea is one of the few developed countries that has a trade surplus with China, its biggest export market

S

outh Korean firms have accelerated investment into China by a third this year, encouraged by improving diplomatic ties including a pending free trade deal.

This expansion in China by South Korean companies is in sharp contrast to Japanese firms, which have been rapidly scaling back investment following a territorial dispute between Tokyo and Beijing two years ago and on-going political spats.

Japan’s foreign direct investment into China is 43 percent lower so far this year from 2013 at US$3.39 billion, while South Korea’s FDI into China jumped 33 percent during the first nine months of the year to US$3.23 billion.

The South Korean investment surge comes as Beijing and Seoul strengthen diplomatic ties, hoping to wrap up free trade talks by year-end. Chinese President Xi Jinping and South Korean

President Park Geun-hye have met five times since both took office last year and will hold another bilateral summit next month on the side-lines of the Asia-Pacific Economic Cooperation forum in Beijing.

In contrast, Xi has yet to meet Japanese Prime Minister Shinzo Abe since both took power.

Heavyweights such as Samsung Electronics Co Ltd and Kia Motors Corp have powered the investment drive by expanding production facilities in China, with manufacturing accounting for about 90 percent of total South Korean FDI to China.

But investment in the less capital-intensive wholesale/retail sector grew over 55 percent last year as consumer goods firms cashed in on a “Korean wave” fashion craze among younger Chinese for South Korean cultural products from music to cosmetics and clothing.

Amorepacific Group Corp,

South Korea’s largest cosmetics maker, is expanding its production and R&D centre in Shanghai with a target to produce 13,000 tons annually by 2020, or 10 times what it makes now, said Kim Seung-hwan, senior vice president of group strategy.

Samsung invested US$7 billion to build a NAND flash memory factory in Xi’an in north-western China, which began operations earlier this year, while South Korea’s Kia Motors began production at its third factory in China early this year.

Kia’s parent Hyundai Motor Co, which already has three factories in Beijing, plans to build two more in China, sources told Reuters in September.

While their contributions to South Korea’s overall FDI to China remain a small fraction of the total, consumer companies have expanded their presence in China helped by the popularity of South Reuters

9

October 23, 2014

Greater China

mid global worries

s the group’s annual summit next month

Global growth has been revised downwards and is now expected at 2.6 percent this year, only marginally up from 2.4 percent in 2013 Sri Mulyani Indrawati managing director and COO World Bank

Bloom Raskin.

Sri Mulyani Indrawati, managing director and chief operating officer at the World Bank, told the meeting that developing economies in the region would remain a mainstay of global expansion.

But she warned of wider global risks, including weakening commodity prices, the Ebola outbreak in west Africa and political instability characterised by the rise of the Islamic State group and the conflict in Ukraine.

“The picture has changed, and 2014 could turn out to be a disappointing year for the global economy,” she said.

Free trade

said, stressing that the 21 APEC economies account for 40 percent of the world’s population, 70 percent of the global economy and 46 percent of world trade.

Zhang said ministers would be discussing, among other issues, the global and regional economy, infrastructure investment and financing cooperation and fiscal and taxation policy.

The gathering was attended

by Chinese finance minister Lou Jiwei, Japan’s Taro Aso and others, though US Treasury Secretary Jacob Lew skipped the event, instead sending Deputy Secretary Sarah

Over its quarter-century history APEC, which is a consensus-based grouping, has made the pursuit of free trade among member economies a persistent goal.

Nowadays it says its main objective “is to support sustainable economic growth and prosperity in the AsiaPacific region”.

Economically, rival free trade groupings championed by the US and China have split APEC members.

APEC includes Hong Kong, a semi-autonomous region of China, and self-governing Taiwan, which is claimed by Beijing.

The finance meeting was originally slated to be held last month in Hong Kong but the venue was switched early this year, reportedly over Chinese concerns about prodemocracy demonstrations in the former British colony.

AFP

Airbus Helicopters expects China to become biggest market Beidahuang, China’s biggest general aviation service provider, plans to buy over 40 planes and helicopters, increasing its fleet to around 130 by 2020

A

irbus Helicopters, the world’s largest civil helicopter maker, expects China and Hong Kong to become its biggest global market within six years as Beijing starts to lift restrictions on the use of low altitude airspace from 2015.

The Airbus Group NV’s helicopter division expects to increase its annual sales in China to 150 units by 2020 from around 30-40 helicopters now, its China president Norbert Ducrot told Reuters.

Sales in the United States, the firm’s biggest market, average around 120-150 aircraft per year.

“The China market is very small with a big potential,” Ducrot said in an interview in Beijing. “I am pretty sure around 2020, China will be the first market for Airbus Helicopters.”

China simplified flight approval procedures for private aircraft late last year, but the fledgling market for helicopters and small aircraft has been constrained by the military’s control of low altitude airspace.

A dearth of small airports, maintenance facilities, mechanics and pilots have also hampered the sector’s growth.

Ducrot said he expects demand for helicopters and small aircraft to

September sugar imports down Demand for sugar has slowed this year after record imports by refineries last year led to a build-up of stocks Dominique Patton

Reuters

KEY POINTS Chinese imports drop 39 percent from year before Factors include weaker domestic prices and high stocks Fourth-quarter imports may rise due to stronger prices

C

hina imported 360,000 tonnes of sugar in September, down 39 percent from the same month last year after domestic prices fell sharply during the summer, closing the gap with cheaper overseas sugar.

The world’s second-largest consumer of sugar imported 2.4 million tonnes of the sweetener in the first nine months of 2014, a drop of 17.8 percent from last year, according to an industry website, citing customs data.

Chinese imports surged last year after global prices plummeted and the country’s fast-expanding refineries snapped up cargoes bought at well below domestic prices.

But futures in Zhengzhou began to fall sharply in the third quarter, tracking international prices to reach their lowest level in five years in September.

pick up gradually when China starts to open up its low altitude airspace next year.

As infrastructure improves and the military opens up more airspace by 2020, Ducrot estimates there will be 50,000 helicopters in China over the next 30 years. There are only about 330 helicopters currently in operation in China, including Hong Kong.

Airbus Helicopters is currently the market leader in China, with customers that include statebacked Citic Offshore Helicopter Co Ltd. In July, it announced an order for 123 helicopters to three privately owned Chinese general aviation companies, a deal that would effectively double the size of its fleet over the next five years.

In March, it also signed an agreement with Aivcopter, the firm’s long-time governmentowned partner, to jointly produce 1,000 EC175 models.

Industry observers say more than 200 general aviation companies, mostly privately owned, are lining up for regulatory approval in China.

Existing companies are also planning to expand their facilities.

“There were several chances to buy over the summer but not for a long time, only a few days, so China couldn’t import much,” said a trade source.

Demand for sugar has also slowed this year after record imports by refineries last year led to a buildup of stocks, putting pressure on domestic mills that have struggled

to sell recent output.

“This year’s sales are actually much lower, 1 million tonnes lower than last year,” said Yong Changjian, a sugar analyst at Rabobank.

“When domestic sales prices are low and you see volume getting low, that only means that there’s no demand for this sugar.”

However, dealers said refineries could buy more in the last quarter if futures prices strengthen. Chinese refining capacity is estimated at around 8 million tonnes and refiners need to import raw sugar to guarantee a minimum utilisation rate.

“Most people want to see if next year’s sugar price is firmer, and then they will have confidence to buy more,” said another trade source.

Reuters

10

October 23, 2014

Greater China

PBOC seen playing safe as slowdown fans policy debate Top leaders fear any major policy easing could be read as sign of backpedalling Kevin Yao and Benjamin Kang Lim

People’s Bank of China main headquarters in Beijing

C

hina’s central bank is likely to hold its line against an interest rate cut even as growth slows to a quarter-century trough, as the politics of reform influence the conduct of monetary policy, government sources involved in internal policy discussions say.

The People’s Bank of China (PBOC) faces growing pressure to cut interest rates to support growth, but fears that could fuel debt and property bubbles while denting Beijing’s reformist credentials have reduced the chances of any quick moves, according to sources close to the leadership and at top think-tanks.

Top leaders, who have pledged to stick with difficult reforms and eschew short-term stimulus to prop up growth rates, fear any major policy easing such as a cut in interest rates or broad cut in bank reserve requirements could be read as signs of backpedalling, the sources said.

“The main problem is some people have drawn a parallel between cutting interest rates with strong stimulus,” said a former central bank researcher who asked not to be identified.

“It’s a bit hilarious when you link cutting interest rates - a monetary policy - to politics, but the debate shows divided views within the government,” said the researcher, who now works for the government.

The policy tone reflects President Xi Jinping’s talk of a “new normal”, that China should adapt to slower but more sustainable growth after three decades of breakneck expansion.

Stimulus has become a toxic word in the country, which is still nursing the hangover from a 4 trillion yuan (US$650 billion) spending package in 2008-09 that created a mountain of debt.

“Cutting interest rates is a major policy decision which is also very sensitive at the moment,” said a senior economist at the Development Research Centre, the cabinet’s thinktank.

“It will be the last-resort policy that cannot be used easily,” said the economist, who requested anonymity as he is not authorised to speak to the media.

Government think-tanks advise senior leaders on policy and reform plans, and can help draft them, but they are not involved in the decision making and implementation.

Slowing growth Data on Tuesday showed the world’s second-largest economy grew an annual 7.3 percent in the third quarter, the weakest pace since early 2009.

That has the economy set to miss its growth target of 7.5 percent for this year, the first such miss in 15 years, and to post its slowest full-year growth since 1990.

“I personally believe interest rate cuts are needed, but top officials have signalled that they won’t do that any time soon,” said Yin Zhongli, senior economist at the Chinese Academy of Social Sciences (CASS), a leading government think-tank.

The central bank has made some targeted easings, cutting reserve requirements for smaller banks and injecting short-term cash into some banks, to direct credit to vulnerable sectors, such as small businesses.

In its latest step, sources said late last week that it was set to inject about 200 billion yuan of liquidity into some banks.

“The central bank may have

exhausted its ability, although it has innovated many short-term liquidity tools,” said Wang Jun, senior economist at China Centre for International Economic Exchanges (CCIEE), a well-connected thinktank in Beijing.

Stimulus vs. reform Whether the PBOC should cut interest rates has touched off a heated debate among government economists and state media.

Last month, Xinhua news agency, the Communist Party’s mouthpiece, ran a commentary saying those who expected interest rate cuts showed their distrust of reforms. The People’s Daily, the party’s leading paper, hit back by arguing that cutting interest rates could not be seen as the opposite to reforms.

The central bank may have exhausted its ability, although it has innovated many shortterm liquidity tools Wang Jun senior economist China Centre for International Economic Exchanges

The PBOC and the National Development and Reform Commission (NDRC), the top economic planner, debated for months earlier this year about whether the government should ease monetary policy and use stimulus to buoy the flagging economy, a source with ties to the leadership told Reuters, requesting anonymity.

After the economy slowed in the first quarter, the government announced a series of support measures over the following three months that boosted growth. But President Xi ended the debate in July by throwing his weight behind reforms as the driver of growth, the source said.

“The big change came in July when Xi spoke about the ‘new normal’.

The government decided to abandon stimulus and focus on reforms,” the source said.

At a secret meeting in September, top leaders agreed to put reform ahead of stimulus and accept economic growth could come in below target, policy insiders told Reuters.

So the PBOC is likely to stick with its targeted policy easing in the coming months, the sources said. An interest rate cut is unlikely this year, although the door for a broad-based RRR cut remains open, especially if capital outflows worsen.

Some expect fiscal policy may play a bigger role in supporting growth to help relieve pressure on the central bank. Premier Li Keqiang has already unveiled plans to spend more on water conservancy, environmental protection and other areas.

“They are unwilling to cut rates, they’d rather resort to some stealth steps,” said Xu Gao, chief economist at Everbright Securities in Beijing.

Reuters

11

October 23, 2014

Asia

A cargo vessel leaving the port at Aomi international container terminal for import and export in Tokyo. Japan had a trade deficit of US$8.96 billion in September 2014

Japan exports rebound amid troubled environment A recent run of weak data including a shocking slump in factory output prompted the government to revise its economic view on Tuesday Stanley White

J

apan’s exports rose at the fastest pace in seven months in September as sales to Asia picked up pace, but signs of slowing global growth may hurt the trade sector’s ability to recharge the world’s thirdbiggest economy and keep pressure for fresh stimulus.

In particular, cooling growth in China and an economic chill in Europe - two key markets for Japanese exporters - are adding to pressure on the Bank of Japan and the government to step up policy support as the economy struggles to recover from the pain of an April sales tax hike.

A recent run of weak data including a shocking slump in factory output prompted the government to cut its economic view on Tuesday, raising speculation that it may roll out fresh stimulus steps when it makes a decision on the second-stage of the sales tax hike in December.

In that context, yesterday’s trade figures should be welcome news to Tokyo. The 6.9 percent annual increase in exports in September was roughly in line with a 6.8 percent gain expected by economists, and the biggest rise since February. It follows a 1.3 percent year-on-year decline in August.

Exports to Asia, which accounts for more than half of Japanese shipments, rose 8.1 percent in September from

a year ago due to growing demand for electronic parts and metals from China and Vietnam, the data showed.

Sales to China also gained an annual 8.8 percent, but there are worries as growth in Asia’s economic powerhouse slowed to its weakest since the global financial crisis in the third quarter.

KEY POINTS Sept exports +6.9 pct yr/yr vs f’cast +6.8 pct yr/yr Sept export growth fastest in seven months China slowdown, weak Europe threaten outlook

out any gains in exports, hurt Japan’s economy and complicate the planned sales tax hike next year.

“Exports staged a rebound but they are still lacking momentum as a trend, as Japanese carmakers and other firms are shifting production abroad and global growth remains moderate,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Exports have not been growing the way the BOJ expected this year and domestic demand is weak, so the BOJ will cut its growth projections at the end of this month,” he said.

“The bank may still insist that the economy is on track to meet its inflation goal, but I see it will come under pressure for fresh stimulus sooner or later.”

Still, the Bank of Japan is expected to hold off from launching a fresh round of stimulus in the near term, hoping that domestic consumption will steadily pick up and help spur growth.

Europe a worry Exports have disappointed for much of this year because many companies have shifted production overseas, tempering the benefits of weaker yen. Now, renewed turbulence in the global markets on signs of a slowing world economy could snuff

Underperforming exports have been one of the weak links in the Japanese economy, which is struggling to cope with an April hike in the sales tax to 8 percent from 5 percent.

Japan’s economy shrank an annualised 7.1 percent in the second

quarter, with the tax hike causing the biggest contraction since the 2009 global financial crisis.

The BOJ can take some comfort from the September export data, though economists say the central bank would need to see sustainable growth in shipments to feel confident about a trade-led economic rebound.

In September, exports picked up momentum as Japan’s automakers shipped more cars to Britain and Saudi Arabia, the data showed.

Increased shipments of steel to India also pushed exports higher.

Overall shipments to the United States rose 4.4 percent on-year in September, though worryingly sales of cars fell an annual 5.2 percent - a consequence of auto makers continuing to shift production overseas.

The threat of recession and deflation in the euro zone also weighed on demand there as exports to Europe grew only 0.7 percent on-year in September, slowing sharply from 5.6 percent in August.

Japan’s trade balance came to a deficit of 958.3 billion yen (US$8.96 billion), wider than the median estimate for a 777 billion yen deficit, as imports rose an annual 6.2 percent in September, ahead of the median pick for a 3.0 percent increase.

While the economy is forecast to resume expansion in the third quarter, the pace could be very slow, which would fuel speculation that the government will delay a second sales tax hike to 10 percent scheduled for next year.

The BOJ appears set to resist pressure for more easing or to accept that its inflation target is unrealistically high, even as growth fears roil global markets and Japan’s economic indicators weaken.

People familiar with its deliberations said the BOJ is preparing to roughly halve its 1 percent economic growth forecast for this fiscal year at a meeting on October 31, but will stand by its prediction that inflation will hit its 2 percent target in the year from next April.

Reuters

12

October 23, 2014

Asia

Slower Australian inflation signals RBA to keep record The consumer price index advanced 0.5 percent from the second quarter

A

ustralia’s core inflation slowed last quarter as the removal of a carbon tax cut power bills, giving the central bank scope to keep record-low interest rates.

The trimmed mean gauge of prices rose 0.4 percent from the second quarter, below the median forecast of a 0.5 percent gain and less than a revised 0.7 percent increase three months earlier, government data released in Sydney showed yesterday.

Historically slow wages growth and falling electricity prices provide flexibility for Reserve Bank of Australia Governor Glenn Stevens as he tries to reinvigorate domestic industries and encourage hiring. Policy makers have left rates at 2.5 percent for the past 14 months as they aim to steer a transition in the economy and extend 23 years of growth.

Tradables inflation from goods including imported electrical equipment and clothing rose 2 percent, yesterday’s report showed.

Non-tradables, or domestic inflation for goods and services that aren’t imported like fast food and utilities, climbed 2.4 percent from a year earlier, the report showed.

2%-3% target Yesterday’s report showed the weighted-median gauge of inflation, a second core measure that excludes the largest price increases and declines, advanced 0.6 percent in the third quarter, compared with the estimate for a 0.5 percent gain.

On an annual basis, the trimmed mean gauge advanced 2.5 percent, compared with economists’ forecasts for a 2.7 percent gain. The weighted median increased 2.6 percent, matching estimates, yesterday’s report showed.

The central bank aims for inflation of between 2 percent and 3 percent on average. The CPI climbed 2.3 percent in the third quarter from a year earlier, also matching economists’ forecasts.

Australia is a developed world rarity in that it has a normal interest rate level, compared with the U.S., euro zone, Japan and the U.K. where benchmarks are near zero.

The RBA is trying to rebalance the economy away from mining regions in the north and west as investment wanes, and stimulate growth in manufacturing, residential construction and retail in the south and east. It says the nation’s currency hasn’t fallen far enough to aid the rebalancing of growth.

Power, fuel The consumer price index advanced 0.5 percent from the second quarter, compared with a 0.4 percent median estimate, yesterday’s report showed.

Electricity prices fell 5.1 percent in the third quarter “mainly due to the removal of the carbon price from 1 July,” the Bureau of Statistics said

in its release. The cost of automotive fuel dropped 2.5 percent in the third quarter, while fruit prices gained 14.7 percent and the costs of new dwelling purchases by owner occupiers climbed 1.1 percent.

The fall in fuel prices reflected a more than 13 percent drop in West Texas Intermediate crude in the third quarter.

Peter Jolly, Sydney-based head of research for National Australia Bank Ltd., said before the release that his colleagues estimated the carbon tax shaved 0.2 percentage point off headline inflation and up to 0.1 point off underlying inflation.

They correctly predicted the quarterly drop in power prices.

Reserve Bank of Australia headquarters

Bloomberg News

Next Japanese sales tax hike delayed ‘til April 2017 Abe faces a tough decision by year-end on whether to proceed with the next hike in October 2015 in a bid to curb Japan’s mammoth debt Tetsushi Kajimoto

A

n economic adviser to Japanese Prime Minister Shinzo Abe said yesterday that the next sales tax hike should be delayed by a year and half, until April 2017, given the big risk that the tax increase would pose for the country’s fragile economy.

Etsuro Honda, a University of Shizuoka professor and a prominent outside architect of Abe’s economic policies, made the comments to reporters after a meeting of more than 40 ruling party lawmakers who

are growing wary about the planned sales tax hike late next year.

“There’s a great danger from the next sales tax hike given the current situation where positive effects of Abenomics and negative impact of April’s sales tax hike are offsetting each other,” he said, referring to Abe’s reflationary policies.

“So I told them that the next tax hike should be postponed by a year and half until April 1, 2017” after Japan can ensure that deflation is

conquered, he said.

A sales tax increase in April to 8 percent from 5 percent pushed Japan’s economy into the deepest quarterly slump since the 2009 global financial crisis. And a recent run of weak economic data have raised doubts about whether the economy can withstand a further planned hike to 10 percent next year.

Abe faces a tough decision by year-end on whether to proceed with the next hike in October 2015 in a

bid to curb Japan’s mammoth debt, which is worth more than twice the size of its economy, the worst in the industrial world.

Honda said Abe remained neutral on a sales tax decision.

He added that postponing the planned tax hike won’t cause a loss of market confidence in Japan’s public finances, but it would rather help boost share prices because such decision would be seen supportive for the economy.

Reuters

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13

October 23, 2014

Asia The director S.Korea Q3 GDP general of the seen rebounding finance ministry’s South Korea’s economy is expected to treasury bureau have rebounded modestly in the July-Sepsaid a change tember quarter after slowing sharply in the previous three months, a Reuters survey would help showed, but cooling global growth is expected to keep the door open for further gather market monetary policy easing. The economy probably grew 0.9 percent in the third information at quarter from the second on a seasonally times of turbulence adjusted basis, thanks to exports growth and an uptick in private consumption, or global interest picking up from a 0.5 percent rise in the June quarter, according to 22 analysts rate changes surveyed in the Reuters poll.

Korean Exhange trading floor

S.Korea to modify bond auctions timing to gauge demand

S

outh Korea may open its market for weekly treasury bond auctions a few days in advance of actual bidding in a move to gauge demand and improve monitoring of yields in the face of market volatility, a top finance ministry official told Reuters.

The government is looking at establishing the “when-issued” system as part of its efforts to modernise the country’s bond market, Asia’s third largest, said Lee Won-sik, director general of the finance ministry’s treasury bureau, in an interview.

Lee also played down concerns that South Korea could lose its attraction for foreign bond investors, especially after the U.S. Federal Reserve starts raising rates, possibly next year.

“There aren’t many markets in

emerging countries like South Korea that are as attractive to foreign central banks or sovereign wealth funds. I think it will be difficult for investors to find a country with strong fundamentals as well as an interest rate advantage,” said Lee, noting that South Korea also has the advantage of a large current account surplus.

The country has shown in recent years it can withstand the turbulence sparked by crises in other countries and Lee, who took the treasury job in August, said South Korea’s bond market had not yet seen a big impact from recent global volatility, although some foreign capital had left the stock market.

One central bank had even expressed interest recently in investing in South Korean treasury bonds for

the first time, he said, without naming it.

The finance ministry said last month it planned to sell up to a net 43.2 trillion won (US$41 billion) of treasury bonds next year, compared to the 27.7 trillion won planned for 2014.

The issuance plan for next year will probably have a similar ratio of short-term to long-term bonds as this year, Lee said, although that ratio could change in the event of volatility.

For this year, the finance ministry intends to issue 20 to 30 percent of its treasury bonds with three-year maturities, the same range in five-year bonds, 25 to 35 percent in 10-year bonds, between 5 and 15 percent with a 20-year maturity and the same range for 30-year bonds.

Currently, South Korea’s bond auction is only open for 20 minutes a week, when bidders make their offers on Mondays.

Under a system similar to those in the United States and China that South Korea is considering, the auction window would open three days ahead of bidding to test market demand, Lee said. Actual bidding would still last just 20 minutes.

Reuters

Malaysia’s CIMB-led bank merger more difficult

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minority shareholders.

The EPF, which owns about 14.5 percent of CIMB, 41 percent of RHB and 65 percent of the third bank Malaysia Building Society Bhd, failed in its argument that the interests of its 14 million members were at stake.

The bourse was also quoted as saying that the EPF had had prior knowledge of the deal talks before they were disclosed. The EPF said in September that it had not been part of any of the discussions about the proposed merger.

There has been much market speculation that Aabar, which owns around 21 percent of RHB, will seek terms more favourable to itself. Aabar has repeatedly declined to comment on the merger.

With the EPF barred from voting, Aabar’s voting rights increase to around 36 percent. If it joined forces with RHB’s third-largest shareholder OSK Holdings Bhd, the two would have a combined voting power of 53 percent.

Reuters

Vietnam ranked second among the three fastest growing smartphone markets in terms of volume turnover in Southeast Asia in the past 12 months, according to German market research firm (GfK). During the September 2013 to August 2014, Vietnam reported 56 percent increase in smartphone demand compared to the previous period September 2012 to August 2013, local Tuoi Tre (Youth) Newspaper reported yesterday, quoting GfK’s latest survey results. Vietnam stood behind Indonesia, which posted 70 percent rise, and ahead of Thailand, whose demand for smartphone expanded 44 percent.

Takata to cooperate ‘fully’ on airbags solution Japan’s Takata Corp said yesterday it would cooperate fully with U.S. authorities and automakers after the National Highway Traffic Safety Administration urged vehicle owners to act swiftly on recall notices to replace the company’s defective airbags. “We take (the NHTSA’s) latest action seriously,” Takata said in a statement. It added that the cost of repairs for the 4.74 million vehicles subject to NHTSA’s bulletin on Monday had already been set aside, and that any additional costs would be minimal.

S.Korea sees risks to growth outlook Central bank recently cut its economic growth forecast for this year and 2015, its governor said yesterday, but the outlook still stresses negative over positive factors. Bank of Korea Governor Lee Juyeol said at an economic forum in Seoul that growth in Asia’s fourth-largest economy could be hit if external conditions worsened, such as a tough tightening in U.S. monetary policy. Lee said the central bank had cut interest rates in August and this month because sentiment remained weak - even after a some time had passed since the ferry sinking in mid-April that darkened the public mood.

The bourse is going to bar a key shareholder in CIMB Group Holdings decision by Malaysia’s bourse to bar a key shareholder in CIMB Group Holdings Bhd and two other lenders from voting on their planned merger has given minority investors more clout and thrown doubt on the deal’s prospects.

Seeking to create Malaysia’s biggest bank with a market value of more than US$20 billion, the three have proposed a complex deal structure widely seen as aimed at blocking potential objections from Abu Dhabi-based Aabar Investments - the second-largest shareholder in one of the lenders, RHB Capital Bhd. The deal’s success would have been all but assured if state pension fund Employees Provident Fund (EPF), which bankers have said is in favour of the merger, had been granted a waiver to rules that prevent it from voting because it has substantial stakes in all three banks.

The refusal to grant the waiver was seen as plus for corporate governance in Malaysia, but CIMB may now scramble to appease Aabar and other

Vietnam smartphone market rocketing

KEY POINTS Malaysia’s bourse refuses waiver to allow EPF to vote EPF is major shareholder in all three banks Move may allow RHB shareholders Aabar, OSK to have a bigger say Aabar, OSK would hold 53 pct of RHB voting power as EPF barred

Migrants drive N.Zealand population growth New Zealand’s population grew at its fastest annual rate in more than a decade in the year ending June -- driven by immigration, the government statistics agency announced yesterday. The population grew by 67,800, or 1.5 percent, during the June year, the highest annual increase since 2003 and up from the 34,000, or 0.8 percent, rise the previous June year, according to Statistics New Zealand. Population growth was due to a natural increase (more births than deaths) of 29,500 and a net international migration gain (more arrivals than departures) of 38,300.

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October 23, 2014

International Hungary plans to impose new tax on Internet Hungary’s government plans to levy a new tax on Internet data transfers, according to the draft 2015 tax bill submitted to parliament late on Tuesday, which could hit Internet providers and the country’s telecommunications companies. The draft tax code contains a provision for Internet providers to pay 150 forints (60 US cents) in tax per gigabyte of data traffic, but would also allow companies to offset corporate income tax against the Internet tax.

ABB orders beat expectations Swiss engineering group ABB posted a bigger-than-expected rise in third-quarter orders, helped by demand from the oil and gas industries, but said the outlook for the global economy was increasingly uncertain. The Zurich-based firm showed encouraging signs of increased order momentum at the end of the second quarter, helped by a pick-up in large contracts worth over US$15 million. That trend appeared to have continued into the third quarter, when orders rose 24 percent to US$11.2 billion, beating the average estimate in a Reuters poll for US$10.1 billion.

Russian FX deposit auction in early Nov Russian Finance Minister Anton Siluanov told reporters yesterday his ministry would hold its first foreign exchange deposit auction in early November. The forex deposit auctions are intended to address a shortfall of dollars among Russian banks and companies shut out of international capital markets due to Western sanctions over the Ukraine crisis.

Yahoo CEO parries activist investor attacks Yahoo Inc’s CEO is trying to steer investor focus away from the tech company’s stagnant revenue and toward achievements and growth prospects that have been flying below the radar. Chief Executive Marissa Mayer spent much of Tuesday’s earnings call highlighting improvements in Yahoo’s mobile business, the benefits from acquisitions and billions of dollars in buybacks. “This team has now been in place for two years and we’ve achieved much more than many people realize,” Mayer said. It was a vigorous defence of her tenure, which has come under fire from activist investor Starboard Value LP.

US$780 million from sale of Tesla stake Daimler AG said on Tuesday it would book a US$780 million windfall from selling its 4 percent stake in rival electric car maker Tesla Motors Inc. The stake sale comes as a surprise, even though the Stuttgart-based maker of Mercedes-Benz cars insisted that a technological cooperation deal between the two carmakers remains unchanged. The sale of Daimler’s stake in Tesla will result in a cash inflow of around US$780 million, boosting earnings before interest and taxes by a similar amount for 2014. Proceeds from the stake sale will be used to strengthen Daimler’s operational business, the automaker said.

U.S. regulators adopt new risk rules for securitization Regulators have been struggling for years to agree on the risk retention rule Douwe Miedema

U

.S. regulators issued a rule requiring banks that sell loans to investors to keep part of the risk on their own books, a measure aimed at preventing the sloppy loans that sparked the 2007-09 credit crisis.

The rule was mandated by the 2010 Dodd-Frank Wall Street reform law. After years of debate over its parameters, the 553-page measure was adopted by three of the six agencies that need to sign off on it.

“Lenders have wanted and needed to know what the new rules of the road are and this rule defines them,” said Mel Watt, the head of the Federal Housing Finance Agency, one of the three federal regulators finalizing the risk retention rule.

The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency also adopted the rule.

It requires banks to keep at least 5 percent of the risk on their books when they securitize loans. This “skin in the game” is aimed at aligning the bank’s interest with the investors that buy the loans.

Before the crisis, banks pumped up lending volumes with little concern about risks since they planned to offload the loans. Investors who purchased loans gauged risk relying on credit ratings by agencies that had received fees from the banks.

The system imploded when subprime mortgages started defaulting, and investors dumped the securities.

Pictured Federal Deposit Insurance Corporation has adopted the rule

Regulators have been struggling for years to agree on the risk retention rule. They proposed it again last year after more than 10,000 comment letters from the industry on the first proposal, many of them critical.

The most hotly debated issue was the scope of an exemption for ordinary mortgages, deemed crucial so as not to stifle the market for home loans for people with moderate or low incomes.

In line with what many in the industry had sought, the waiver for “qualified” residential mortgages followed a definition in a separate rule from the Consumer Financial Protection Bureau, which protects borrowers from taking on too much debt.

The CFPB’s rule does not set a minimum down payment for mortgages, a departure from the

Panama and Colombia to negotiate tax information-sharing deal

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anama and Colombia will negotiate a financial information-sharing deal, ending a stand-off over Colombia’s classification of the Central American country as a tax haven and removing it from that status, Colombia’s president said on Tuesday.

The Colombian government is trying to curb tax evasion and two weeks ago designated neighbouring Panama as a tax haven, in an effort to pressure the country to agree to information-sharing.

The move could have pushed Colombian investors out of Panama, as assets in declared havens are taxed at three times the rate of foreign assets in countries that share data with Colombia.

“We were signing the decree through which we will remove Panama from the list of tax havens, after they sign a memorandum of understanding where they commit to a date by which to negotiate a deal,” President Juan Manuel Santos said at an event late on Tuesday.

“It’s what we wanted from the start,” Santos said. “It’s good news for everyone.”

The two countries will negotiate the terms of their information-sharing and ink a deal on taxation, as well as cooperation on fighting money laundering, the Colombian finance ministry said.

Panama has previously signed information-sharing agreements with other countries, including the United States “Reaching an agreement on financial and tax information-sharing with Panama is an important step in international cooperation in the fight against money laundering and tax evasion,” Colombian Finance Minister Mauricio Cardenas said in a statement.

Panama had threatened “retaliatory measures” last week if Colombia did not remove the country from the tax haven list within seven days, an ultimatum which expired on Tuesday.

Colombian investments in Panama,

regulators’ original proposal. The agencies also introduced a periodic review of the definition.

The rule was in line with last year’s reproposal, though it made some technical changes.

Banks were keen to have certainty about the final rule because the asset-backed securities they issue when securitizing loans are a crucial funding tool, and several niche markets depend on the process.

Operators in markets for assetbacked commercial paper, collateralized loan obligations and commercial mortgage-backed securities will closely study the rule. The Loan Syndications and Trading Association said the rule “needlessly puts in place cumbersome requirements.”

Reuters

The United Arab Emirates, Barbados and Monaco have also reached deals with Colombia, the finance ministry said, and will be removed from the tax haven list

Colombian Finance Minister Mauricio Cardenas

Central America’s biggest economy, more than quadrupled last year to US$3.2 billion and represented 41.8 percent of total foreign investments

by Colombians in 2013, according to central bank figures.

Reuters

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October 23, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

VIETNAM NEWS Businesses have asked banks to give more unsecured loans based on business credit rating in a move to unclog the credit sources. At a forum held in Ha Noi late last week, Vice Chairman of the Viet Nam Youth Entrepreneurs Association Le Vinh Son said that it was difficult for businesses to access unsecured loans in Viet Nam, even though it was popular elsewhere in the world. Vietnamese banks still gave loans based on mortgaged assets, Son said, adding that it made access to credit difficult for businesses, especially small and medium-sized ones.

PHILSTAR The Bangko Sentral ng Pilipinas released yesterday stricter guidelines for the “too big to fail” or “domestic systemically important banks” (DSIB) to strengthen the industry and avoid contagion in times of crises. In a statement, the BSP said the Monetary Board approved the guidelines in line with the tougher Basel 3 standards, which were formed in response to the 2008 global financial crisis.

DSIBs are banks which failure would significantly impact the financial system and the economy as well. Local banks will be assessed via their size, interconnectedness, substitutability or financial institution infrastructure, and complexity.

TAIPEI TIMES The book-to-bill (BB) ratio for North America-based semiconductor equipment manufacturers, such as Applied Materials Inc., dropped below one — to 0.94 — last month for the first time in the past 11 months, industry association SEMI said.

The three-month average of worldwide bookings was US$1.17 billion in orders last month, down 12.68 percent from the August bookings of US$1.34 billion, SEMI said in a statement issued on Monday. As the threemonth average of worldwide billings also fell 3.3 percent to US$1.25 billion, the bookto-bill ratio fell to 0.94 last month from 1.04 in August, the association said.

THE AGE A surprise jump in fruit prices has helped drive consumer prices 0.5 per cent higher in the September quarter as the weaker Aussie dollar increased the cost of imported produce. House prices, property rates, and vehicle charges also increased, partly offset by falls in prices for electricity, petrol and telecoms equipment and charges.

The Consumer Price Index (CPI) reading for the three months to the end of September leaves the 12-month inflation rate at 2.3 per cent, according to the Australian Bureau of Statistics.

IBM and the financial engineering economy James Saft

Reuters columnist

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BM’s woes are interesting not simply because they tell us about the economy, but because they reveal broader truths about how, and for whom, companies are run.

IBM kicked its 2015 operating earnings goal off the back of the truck on Monday, blaming an outright fall in third-quarter revenues on a sudden downturn in client spending.

“We saw a marked slowdown in September in client buying behaviour, and our results also point to the unprecedented pace of change in our industry, “ said Ginni Rometty, IBM chairman, president and chief executive officer.

IBM shares fell more than 7 percent in reaction, giving up more than three years of gains.

In all likelihood, IBM isn’t just a company which ran into an inflection point in the broader economy, nor is it simply an unlucky victim of the step change in the pace of technological innovation.

It is a company which did this after five to 10 years of following one of the most popular corporate strategies out there: prioritizing financial engineering over investment, and giving primacy to living quarter by quarter rather than for the longer term.

The result, and IBM is far from being alone here, is a company left with a hollowed-out core franchise which has been deprived of investment, combined with higher debt loads.

From 2000 to 2013, IBM pur-

sued an epic campaign of buying back shares, flattering earnings but perhaps at the expense of investment in the future, something which, as a technology company, is promised to no one. During that period IBM spent more than US$108 billion on share buybacks and an additional US$30 billion on dividends. That compares to just US$59 billion on capital expenditure. That produced a doubling of pre-tax margin during the period, but arguably at a cost to the value of the core franchise, which looks less and less defensible.

Indeed, in the last six years, the company’s debt load has about tripled but sales are essentially flat.

In July, hedge fund manager Stanley Druckenmiller drew a line between that strategy and Federal Reserve policy, which he said encourages companies to stint on productivity improvement and investment in the real economy and instead use cheap money to borrow and buy back shares.

Buying back shares improves profitability per share, a strategy which tends to work so long as investors believe it is not done at the expense of the company’s ability to remain competitive.

Can’t step in same river twice IBM may simply be the unlucky victim of market forces as technology evolves, but it is hard to

look around the U.S. economy, which has had a combination of very high profit margins and very low capital investment, and wonder if many publicly traded companies are in similarly vulnerable positions.

In the last six years the company’s debt load has about tripled but sales are essentially flat

“In our view, IBM is not different from companies like Cisco, Microsoft, Oracle and Intel,” Geneva-based Lombard Odier fund manager Eurof Uppington said via email.

“They all face the same sort of pressures from new trends like cloud, mobility and super scale Internet and are all reacting in the same way using financial engineering. IBM is probably just early.”

Lombard Odier has been critical of what it calls the GOSOBB strategy, as in Giving Out Stock Options and Buying them Back.

While, under accounting rules,

this flatters operating earnings, it masks how much money is actually going home in employees’ pockets as compared to if share options were cash payments.

Had IBM wanted to offset the dilution caused by employee share options in the five years to mid-year, it would have needed almost US$18 billion in share buybacks, or about a third of all buybacks made during the period. IBM are far from unique, much less unusual, in the scope of those figures.

The broader unanswered question here is how best to manage a technology company, or indeed an economy, during a period of very rapid technological change. The market tends to assume that company revenues are far stickier, far more permanent than they actually are. That assumption grew out of 100 or more years of analysing and investing in industrial companies which, while buffeted by war, globalization and technological change, had the luxury of operating in a more slowly changing world.

That assumption, that tendency of financial markets to focus on the per-share earnings figure without giving due care to all of the many forces which make those revenues possible, may leave investors today very vulnerable.

A decade of share buybacks and underinvestment is starting to look like it may have been a mistake.

Reuters

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October 23, 2014

Closing PLA aims to optimize military spending

Wind power capacity nears development target

The People’s Liberation Army is working to improve the efficiency of military spending to guarantee battle effectiveness, according to the PLA General Logistics Department. Zhao Keshi, head of the PLA General Logistics Department, said auditors will watch closely over military funds, expenditures, and assets, and all economic activities of the military will be audited. The department will build a real-time recording and data transmission system on military fund consumption, Zhao said. A modelling and simulation system on military budget and expenditures will also be installed, which will be combined with an expert decision-making and consultation system to improve efficiency.

China saw robust development of wind power in the first half of this year, according to data from an industrial expo yesterday. More than 7 gigawatts of wind power generating capacity was connected to the state grid by the end of June 2014, representing an increase of 30.37 percent year on year, according to China Wind Power 2014, which opened in Beijing yesterday. The rapid growth brought the country’s total wind power generating capacity close to 100 gigawatts, a goal policymakers hope to achieve by 2015. The wind power sector generated 134.9 billion kWh of electricity in China last year.

Juncker pledges investment plan for jobs Juncker also said that the European Union’s budget rules that limit the size of government deficits and public debt will not be weakened Gilbert Reilhac

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he incoming head of the EU executive, Jean-Claude Juncker, told the European Parliament yesterday that he would present his 300-billion-euro plan for investment to bolster growth and jobs by the end of this year.

Switching significantly to German during a keynote address ahead of a parliamentary vote to endorse his new European Commission, Juncker said investment was vital to restoring growth and creating jobs. Germany, Europe’s dominant economy, is resisting calls for it to spend more to kick-start growth.

Juncker, a conservative former prime minister of Luxembourg, stressed, however, that, as German Chancellor Angela Merkel has said, that much of the 300 billion euros should come from private investors and that governments should continue to contain their budget deficits.

“If you give us your support today, we will present the jobs, growth and investment package before Christmas,” Juncker told parliament in Strasbourg, adding that investment

Jean-Claude Juncker (Front) delivers his speech in front of High Representative of the European Union for Foreign Affairs and Security Policy-elect Federica Mogherini

should focus on improving economic efficiency, not short-term spending.

Berlin has been resisting calls from other euro zone states and beyond for it to increase public investment spending to rekindle economic growth on the continent.

Juncker also said that the European Union’s budget rules that limit the

size of government deficits and public debt will not be weakened. The Commission is preparing a review of the rules and their effectiveness with a report due by the middle of December, while France and Italy are pushing for more leniency in required budget consolidation efforts.

“The rules will not be changed,” Juncker said. “But

they can be implemented with a degree flexibility.”

Investment, he said, was only one part of a threepillar strategy, along with structural reforms of national economics and renewed fiscal credibility for governments.

Juncker pledged a “very political” team that would focus during its five-year mandate on carrying out

major programmes while leaving lesser matters to national governments - a key demand from Britain, where there are strong demands for the country to quit the EU. He said a new, twotier hierarchy Commission whose number has soared with the expansion of the EU to 28 member states, was designed to make it more efficient and to break down “parochial attitudes” in which commissioners pursued individual projects.

A new layer of vice-presidents would coordinate them.

Acknowledging the surge in anti-EU sentiment during elections to the parliament in May, Juncker said the Union had to show Europeans it was working in their interests.

“Citizens are losing faith,” he said.

“Extremists on the left and right are nipping at our heels. Our competitors are taking liberties. It is time we breathed a new lease of life into the European project.”

He stressed that economic improvement was vital: “Either we succeed in reducing unemployment. Or we will have failed.”

China approves rail and airport projects

More time to prepare for HK- 11 banks to fail European SHG link stress tests

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hina has approved construction of five airports and three railway projects worth 150 billion yuan (US$24.5 billion), the country’s top economic planning agency said yesterday, the latest move to speed up infrastructure projects to boost growth. China’s economy grew at its slowest pace since the global financial crisis in the September quarter, adding to worries that it will drag on global growth.

The building of railway lines and airports will foster investment, the biggest driver in the world’s second-largest economy, which has sagged this year as a cooling manufacturing sector and a softening housing market discourage spending.

The eight projects include a rail line between the central city of Zhengzhou in Henan province to the western city of Wanzhou in Chongqing, worth 97.4 billion yuan, the National Development and Reform Commission (NDRC) said.

The commission also approved the construction of five airports located in the northwestern provinces of Qinghai and Inner Mongolia, southwestern provinces of Yunnan and Guizhou and northeast Jilin province.

Reuters

Reuters

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ome of the world’s biggest banks and asset managers have asked the Hong Kong securities regulator for more time to prepare for a landmark China stock trading link due to uncertainty over the rules of the scheme, according to a letter seen by Reuters.

The Hong Kong-Shanghai stock connect scheme was widely expected to go live on October 27, but the letter sent on Friday by the influential Asia Securities Industry & Financial Markets Association could delay the debut of trading until late November.

In the letter, ASIFMA said its members could not begin trading next week because of uncertainty surrounding some technical issues and a lack of clarity over taxation. It asked for its members to be given a month’s notice before the launch of the Hong Kong-Shanghai link-up.

The letter added that banks would need time to calibrate trading systems and prepare client documentation once the details had been finalised.

t least 11 banks from six European countries are set to fail a region-wide financial health check this weekend, Spanish news agency Efe reported, citing several unidentified financial sources.

The results of the stress tests on 130 banks by the European Central Bank are due to be unveiled on Sunday.

Three banks in Greece, three Italian lenders and two Austrian ones are among those that preliminary data showed had failed the tests, Efe said. It gave no details of how much capital the banks would have to raise and said this could yet change as numbers could be revised at the last minute.

The euro fell on the report. The ECB could not immediately be reached for comment.

Efe also identified a Cypriot bank and possibly one from Belgium and one from Portugal. The exercise is designed to see how banks would cope under various economic scenarios, including adverse ones, and is likely to reveal capital shortfalls at some entities.

Reuters

Reuters