Macau Business Daily, Nov 14, 2014

MOP 6.00 Closing editor: Luís Gonçalves Publisher: Paulo A. Azevedo Number 666 Friday November 14, 2014

On course for golf only

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Year III

aesar’s Golf course is here to stay. The Urban Planning Committee proposes that the prime 70 hectare site near the Cotai Strip retain its designated use. Speculation had been rife that the last chunk of open space in the area was under threat. You guessed it: another hotel-casino resort.

US conglomerate Caesars sold the property at a loss a year ago. The property owner could submit other plans in 2 years, though . . .

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2

TransAsia profits up 30 pct in 3Q PAGE 3

Civil servants’ salary hike only partly linked to inflation PAGE 5

Public transport support ready for late night crossing, says Carion PAGE 5

Brought to you by

HSI - Movers November 13

A painful half-year more SJM CEO Ambrose So admitted it yesterday. High roller gaming revenue is on to a hiding. And will not turn around within six months.

Chinese President Xi Jinping is escalating his anti-corruption drive. And likely visiting the territory next month. Add the disruption of the Macau Grand Prix and heavy hitters are expected to head for the hills, say the gurus

www.macaubusinessdaily.com

PAGE 6

Economic suspense

Name

Reinventing Nam Van It was once the Bar Street. Nam Van Zone E is now to get a new lease of life. IACM proposes it serve as an ‘art and cultural leisure centre’.

The Civic and Municipal Affairs Bureau plans a space ‘for sharing and communicating themes related to the arts and culture’. Shops, small theatre, dance studios, multi-function rooms, information centre and food area will feature

PAGE

%Day

Galaxy Entertainment

3.13

Tingyi Cayman Island

3.11

Cathay Pacific Airwa

2.88

Hengan International

2.82

Ping An Insurance Gr

2.02

China Shenhua Energy

-1.17

China Resources Land

-1.27

Kunlun Energy Co Ltd

-1.79

China Mengniu Dairy

-1.97

PetroChina Co Ltd

-2.43

Source: Bloomberg

I SSN 2226-8294

4 Brought to you by

Growth in China slowed to 7.3 percent in Q3. A very intriguing end to the year as the 7.5 target seems increasingly elusive. More economic tweaking ahead

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2 | Business Daily

November 14, 2014

Macau

Caesars Golf on course to remain golf club The Urban Planning Committee suggested the Cotai golf course retain use of the land despite speculation that the last piece of open space on the Cotai Strip would be turned into another hotel-casino resort when Caesars sold the property at a loss a year ago Joanne Kuai

joannekuai@macaubusinessdaily.com

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aesars Golf Macau – a 708,346 square metre (70 hectare) prime site at the southern end of Macau’s casino district - the Cotai Strip – will continue to be a golf course, as proposed by a draft that was discussed by the urban planning committee at a plenary meeting yesterday.

The draft also suggested any building on the plot of land cannot occupy more than 3.6 percent of the area, and that the maximum plot ratio would be 0.04 subject to a height limit of 20.5 metres.

The draft proposal was based on the land concession contract that was granted in 2002, said Lao Iong, director of the urban planning department for the Land, Public Works and Transport

Bureau, and also secretarygeneral of the urban planning committee.

Opinions from committee members include mandating the purpose of any construction on the site such as only supporting facilities for golfing should be allowed plus clubhouse or car park rather than gaming or hotel facilities.

The majority of committee members agreed to retain the purpose of the land as an 18–hole, links-style golf course as it is now and said more infrastructure on the side, such as pedestrians and drive-way onto the site, should be better designed.

Once the plan comes into effect, it would be valid for at least two years before the property owner can apply for another plan.

As required by the urban planning law, construction project developers have to apply for an ‘urban conditional plan’ from the government, a document issued by the Land, Public Works and Transport Bureau that determines the project’s construction area, building height limit, and public facilities to be incorporated in the project site.

Some members of the urban planning committee also suggested that any construction plan on that site needs to be presented alongside with an evaluation report on the impact on the environment.

According to the law, the issuance of the urban conditional plan for construction of low-rise buildings with a height of

at least 20.5 metres, or those of 9 metres or less, can be exempted from the urban planning committee’s review.

Mr. Lao added that since the committee was founded in March, they have discussed 82 drafts and issued more than 40 approvals. He said if the draft was changed drastically, it would have to go through a second round of public notices and listen to more opinions from the committee members and the residents.

Golfers keep playing Last year, United States casino operator Caesars Entertainment Corp sold the property at a loss, pocketing about US$438 million (MOP3.5 billion).

The company had bought

the Cotai land for US$578 million in 2007 with the intention of waiting for government approval to build a hotel-casino complex.

The golf course was sold to Pearl Dynasty Investments Ltd, a Macau-based company registered in the British Virgin Islands – the entity mentioned in Caesars Entertainment’s filing disclosing the deal last year as the purchaser.

Previously, Business Daily reported the fact that Pearl Dynasty Investments Ltd is linked to Macau real estate developer San You Development Co Ltd – the firm behind the luxury developments Residencia, The Manhattan and The Greenville. This led to speculation that the new owners would seek a change of use for the site.

Business Daily | 3

November 14, 2014

Macau

TransAsia Airways Q3 results improve The Taiwan-based carrier, which operates frequent flights to Macau, has benefited from a nearly 30 percent rise in its Q3 profits Stephanie Lai

sw.lai@macaubusinessdaily.com

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aiwan legacy carrier TransAsia Airways Corp, which runs frequent flights between Macau and Taipei on a daily basis, saw improved profits for the third quarter from its steadily rising passenger volume for the carrier’s newly expanded routes to Japan and mainland China in the period.

TransAsia Airways saw its revenue for the third quarter ended September hit NT$3.54 billion (US$115.6 million, or MOP924 million), a slight increase of 1.3 percent compared to the same period last year, the company’s latest financial results show.

The carrier’s third quarter profits amounted to NT$130 million, a rise of almost 30 percent year-on-year.

TransAsia Airways, which currently runs three flights between Taipei and here a day, attributed a “stable rise” in passenger volume as the main factor for its improved results, in particular the increased number of outbound visitors from Taiwan travelling for Japan, stimulated by the depreciation of the yen.

During the third quarter, the

fleet, and plans to lease planes to enhance capacity next year.

No budget flights

Taiwan-based legacy carrier increased its frequency of flights to Tokyo, Osaka and Okinawa in Japan; the carrier has also newly established scheduled flights to Guiyang, the capital of Guizhou Province in southwest China as well as Quanzhou City in Fujian Province, resulting in a total of 29 direct routes between the island and mainland China.

TransAsia Airways’ cumulative revenue for the first three quarters

amounted to NT$10.06 billion, a rise of 8.6 percent compared to the same period last year; the carrier’s aftertax profit this period posted over NT$292 million, already exceeding the full-year figure of last year at NT$133 million.

Expressing optimism in the results for the remaining quarter of this year, TransAsia Airways said it planned to introduce two new A321 aircraft and two ATR72-600 aircraft to its

While the budget carrier Tigerair Taiwan prepares for its first flight between Taipei and Macau by midDecember at the soonest, following the open skies agreement between the two destinations coming into effect on October 30, rival V Air has no plan to fly here anytime soon.

Tigerair Taiwan is a venture set up last year by Taiwan’s China Airlines and Tiger Airways Pte of Singapore.

China Airlines does not operate flights to Macau.

Taiwan-based budget carrier V Air, first established in November last year, is wholly owned by TransAsia Airways.

A V Air spokesperson told Business Daily that it would like to target cities in Southeast and Northeast Asia.

“Macau is already covered by our group [TransAsia Airways] which doesn’t include the city in our plan to launch flights now,” the V Air spokesperson said. “If there are changes in market demand, we’ll see about a change in the current route plan.”

4 | Business Daily

November 14, 2014

Macau Brought to you by

HOSPITALITY Reaching for the sky The yearly survey on gambling activities sector provides a convenient snapshot of the sector. As we peer into some of the main indicators regarding the evolution of revenues and costs, a few trends and features become apparent. We are leaving aside, in the comments below, the figures for betting and lotteries. One of the most striking changes observed relates to the average staff cost. While in 2004 the monthly average stood at just below 7,000 patacas, last year, the same figure exceeded slightly 16,000 patacas. That is the equivalent to an average rise of 9.8 percent per year, a value neatly above the average inflation rate for the period. It implies a sustained growth in the average real compensation over the last 10 years. As a result, while staff numbers rose 3.6-fold in the period, total staff costs for the casinos went up 8.5 times. In 2013, casinos were spending more then 1.3 billion patacas a month in staff compensation. The same figure, in 2004, was 154 million patacas.

Nam Van Zone E: Arts and cultural hub in offing

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nce the Bar Street, Nam Van Zone E is to be turned into an ‘art and cultural leisure centre’ according to the Civic and Municipal Affairs Bureau (IACM) plan, Chinese media outlet Macau Daily reports.

In development plans for municipal infrastructure introduced by members of the IACM administrative council Nam Van’s Zone E will be a space ‘for sharing and communicating themes related to the arts and culture’.

IACM said they would maintain the layout of the existing shops,

Other changes are equally impressive. Total revenues rose by a similar factor: 8.2 times.

But as non-staff costs rose noticeably slower, the total Gross Added Value for the sector jumped from about 23 billion in 2004 to 225 billion in 2013. Measured by worker, GAV went from just over 1 million to more than 2.7 million per worker, respectively.

That represents an annual rise in excess of 11 percent, on average. The main beneficiaries were, in relative terms, the owners of other types of income. The rise in total GAV, without the staff compensation, was the fastest among these indicators. The corresponding annual average rate stood slightly above 28.7 percent for the period.

J.I.D.

MOP4.35 mln

average casino annual revenue per worker in 2013

creating a small theatre, dancing rooms, multi-function rooms, information centre, food area, and storage. The public toilets and outdoor area would also be renovated.

Some residents attending the meeting commended the initiative.

They said besides the construction, the authorities would need to pay attention to management in order to really revive the area and provide the residents and art workers a platform to exchange ideas and create better art works.

Zone E has been pending development since the government reclaimed the space in mid-2012.

Controversy arose in 2010 when the government said it would stop renewing the rental contracts for the business owners there. The area was eventually taken back and has been vacant since.

IACM said it had also changed the iron barricades on San Ma Lo, renovated the recreational area next to Sai Van Lake, built shelters around the reservoir and paved the roads in ZAPA district and some other areas.

Foreign reserves remain flat in October

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acau’s foreign exchange reserves dropped slightly by 0.3 percent to MOP128.8 billion (US$16.1 billion) in October over that of the month prior.

Preliminary data from the Monetary Authority of Macau released yesterday shows that the reserves decreased from September’s MOP129.2 billion.

The monetary authority also advised that the amount of exchange reserves in September (data for October not yet available) represented 13 times the money in circulation in Macau, also known as M2, that aggregates all notes and coins plus bank deposits and savings.

Earlier this year, Macau’s foreign exchange reserves dropped in March

to the lowest level since its separation from the fiscal reserves.

At the time, the money in international currencies held by the central bank fell MOP7.8 billion in one year and half a billion in one month.

The March reading was also the lowest figure since February 2012 when the government separated the fiscal and exchange reserves and started to manage them separately.

March’s decline in exchange reserves could have been due to the devaluation of the currency in which the assets held by authorities are denominated or by government selling. Central banks park external currency in their coffers to manage the exchange rate or protect the financial system against crises or market crashes.

Business Daily | 5

November 14, 2014

Macau

Carion: Public transport support ready for late night crossing

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ormer head of the Land, Public Works and Transport Bureau Jaime Roberto Carion has noted that public transport support planning is ready to accommodate the late night to early morning border crossing at the Zhuhai-Macau Cross Border Industrial Zone, while the establishment of the new GuangdongMacau border crossing in nearby Ilha Verde will see its prepartion works start next year.

The city’s Transport Bureau will add more night-time buses to the industrial zone that connects the adjacent district of Fai Chi Kei after

midnight, as well as to the Border Gate Bus Terminal in the early morning when the bus service starts at 6:00 am, Mr. Carion wrote in a reply to legislator Chan Meng Kam’s written enquiry.

The reply, which was written by Mr. Carion before recently retiring from the Bureau, was only published yesterday.

It is expected that by mid-December the Zhuhai Immigration authorities will complete the checkpoint expansion on the mainland side of the industrial zone.

However, there is still no official

SAFP head: Various considerations for salary hike

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he head of the Public Administration and Civil Service Bureau (SAFP), José Chu, claimed yesterday that the proposed salary hike of nearly 6.8 percent for public servants in January is not solely decided by inflation when explaining why the salary increase would exceed inflation.

“Basically… [The salary increase of public servants] is not only dependent upon inflation. It includes factors such as the tendency of remuneration in the market, inflation, and the rate of future salary lifts for the human resources in each company, enterprise or various industries,” Mr. Chu said.

In addition, he said the decision was also made following discussion by a committee on the remuneration of public servants, the annual income and revenues of the government, as well as other comments from local

definition of who can cross the checkpoints at the industrial zone from 12:00 midnight to 7:00 am apart from the mainland Chinese labour force working in the city.

The Zhuhai-Macao Cross Border Industrial Zone – straddling the northwest of Ilha Verde and Maoshengwei in Zhuhai - is the only 24-hour Immigration crossing point at the moment but it is only currently open to business owners or staff of the companies working inside the zone.

The central government has approved the late night crossing at the cross-border industrial zone as the new Guangdong-Macau border crossing in Ilha Verde is still pending an operational date.

In his reply, Mr. Carion noted that before the mainland and Macau Government is to build the new border crossing facility, the local government will have to move the Nam Yue wholesale market away to inside the cross-border industrial zone to accommodate the project, with construction works beginning next year.

The new border crossing is also part of a bigger urban planning project whereby the local government intends to build a public transport hub, which will include a light rapid transit (LRT) station alongside plots reserved for a public housing complex and budget hotels in the Ilha Verde district, Mr. Carion wrote.

S.L.

civil workers associations and society at large.

The salary hike for civil workers was proposed by Chief Executive Fernando Chui Sai On during his presentation of the 2015 budget plan to the Legislative Assembly on Tuesday. He proposes increasing the remuneration of public servants from the current 74 patacas per salary point to 79 patacas per salary point from January 1 next year - an increase of 6.75 percent.

If the new proposal is approved by the Legislative Assembly, some 30,000 civil servants in the city will enjoy an accumulative increase in their salary of more than 10 percent within one 12-month period as their salary had just been raised from 70 patacas per salary point to the current level in April.

K.L.

No timeframe for LRT link to Hengqin

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he Transportation Infrastructure Office (GIT) said yesterday that the LRT’s extended link to Hengqin is at the stage of design and deeper research is being undertaken.

Meanwhile, the advising team to the Office has started analysing and evaluating the technical issues of the construction of the link although there is no timeframe for when the related construction might commence.

The link connecting Macau and Hengqin is 3.3 kilometres. It will be built overhead starting from the Lotus Border Gate in Taipa. The link will then pass the Lotus Bridge by gradually entering an under-river tunnel to arrive at the Guangzhou–Zhuhai Intercity Mass Rapid Transit station.

The Bureau claimed that the Macau-Hengqin link will complete the seamless traffic transit between the two regions.

According to the Office, the advising team on the link is currently working on a further evaluation of the route, location of stations, predictions of future traffic within the area as well as analyses of difficulties likely to be encountered on the construction of the under-river tunnel.

The Office claimed it will continue to push all the related works of the extended link to enable the construction to start as soon as possible in order to bring Macau into the ‘one-hour life circle’ of the Pearl River Delta zone, boosting the development of Macau and surrounding regions.

6 | Business Daily

November 14, 2014

Gaming

GP and Xi Jinping visit may derail gaming recovery The Grand Prix and the President’s visit – two respective challenges for the gaming industry in the last two months of the year. SJM’s Ambrose So concedes recovery is unlikely within the next 6 months Kam Leong

kamleong@macaubusinessdaily.com

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research report by HSBC Securities posits that the Grand Prix, which roared off to a spectacular start yesterday, is affecting the casino business. It predicts that gaming revenue here will experience another drop – by between 16 and 21 percent yearon-year for November, amounting to some MOP24.5 to MOP25.5 billion (US$3.06 – 3.18 billion).

Forecasting the city may suffer its sixth consecutive month of decline in gaming revenue, the report muses that the Grand Prix will affect the flow [of gamblers] to the Macau Peninsula, leading to a deceleration in revenue growth in the mass gaming sectors, thereby exacerbating the drop in overall revenues, a financial wire by Hong Kong ET Net reported.

According to this source, HSBC said that the gaming revenue in

Macau reached a total of MOP7.5 billion, or a daily MOP846 million, in the first nine days of November, a slight increase on the week before when average daily revenue totalled MOP818 million. Nevertheless, HSBC reckons that such slight growth was only due to the ‘normalized’ win rate of the industry, indicating November remains a challenging month for the gaming industry.

More challenges In fact, following ‘challenging’ November, the city is to meet another challenge – President Xi Jingping’s possible visit to Macau in December.

Union Gaming Research analyst Grant Govertsen remarked earlier this month that the gaming industry could be further affected by the Chinese President’s expected visit

to Macau next month as part of the 15th anniversary celebrations of Macau’s handover to China, as gamblers would not want to be seen, and would stay away from the city during the president’s visit.

Macau’s casino industry is bracing for its longest losing streak as the Chinese government’s crackdown on extravagance has prompted VIPs to avoid Macau’s casinos. This has dented the earnings of companies from Wynn Macau Ltd. to Melco Crown Entertainment Ltd. Their shares have also suffered, with SJM falling 41 percent this year, the biggest slump among its peers.

SJM predicts 6 more months of anti-graft fallout The chief executive officer of SJM Holdings Ltd., Ambrose So, said he’s bearish about Macau gambling revenue from high rollers over the next six months as Chinese President Xi Jinping escalates his anti-corruption drive.

The executive of Asia’s largest casino operator expects industrywide gaming revenue to be flat or drop slightly this year, So said in an interview in Macau on Tuesday. He forecast a “high single digit” growth for 2015.

“The prospects for the VIP market are gloomy,” So said. “If you ask me now, I’m bearish about the VIP market for the next six months. I don’t know how to read the future beyond that.”

“The government will probably review the campaign next year” during the annual meetings for the national legislature and top political advisory body, So said. “If the campaign isn’t going to expand further in any sense, things may start to improve. The impact of the campaign is primarily psychological.”

Macau casino revenue, which has grown 2.3 percent in the year to date, may fall 0.6 percent year-on-year, according to a median estimate of nine analysts surveyed by Bloomberg News.

The market may rebound to a 2 percent growth next year, according to a median estimate of 12 analysts surveyed.

The city has recorded the slowest annual growth in casino revenue since 2009 with a 9.7 percent gain, having not seen a yearly decline since records began in 2002.

Premium mass To boost revenue, the company will shift more tables to target the so-called premium mass-market gamblers next year, So said. Five tables have already been converted in October and 15 more will be moved by the end of this year.

Premium-mass gamblers, who bet in cash, provide better margins than high rollers because they don’t require junket operators, who charge casino companies a commission to bring in VIP customers and arrange credit for their gambling trips.

“We have to take these steps to reconfigure our tables until the opening of our new resort in 2017,” So said. “This way, we can maintain market share. Even though it may continue to drop, it will be less severe.”

Hong Kong-listed SJM ranks second in the Macau casino market with a share of 22.6 percent in the third quarter. Sands China Ltd. was No. 1 with a 23.2 percent share, according to Karen Tang, an analyst at Deutsche Bank AG. “If you can stop losing market share or lose at a slower rate, it’s already a win in the current environment,” So said.

SJM owns 20 of Macau’s 35 casinos, more than any other operator.

It’s the last company of the city’s six operators to build a property in the increasingly popular Cotai Strip, the Asian equivalent of the Las Vegas Strip. Galaxy Entertainment Group Ltd. will be the first to open with a Phase II expansion of its main Galaxy Macau resort in the middle of next year.

Galaxy now gleans the most revenue from high rollers among all the city’s casino operators, overtaking SJM, according to Bloomberg Intelligence.

SJM, founded by Macau gambling mogul Stanley Ho, reported this week that adjusted earnings before interest, taxes, depreciation and amortization had fallen 14 percent in the third quarter to HK$1.75 billion ($225.7 million). This was below an average of HK$1.91 billion estimated by six analysts compiled by Bloomberg.

With Bloomberg

Business Daily | 7

November 14, 2014

Gaming Churchill Downs acquires Big Fish Game

Caesars to reach deal with bondholders

Sara Farr

sarafarr@macaubusinessdaily.com

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aesars Entertainment Corp has reached an agreement with key senior creditors on the outline of a debt restructuring plan that includes a prearranged bankruptcy for its largest unit as soon as January, according to two people with knowledge of the negotiations.

Under the plan being negotiated by first-lien bondholders, including Paul Singer’s Elliott Management Corp. and Pacific Investment Management Co, the casino company would put its Caesars Entertainment Operating Co. unit into Chapter 11 proceedings as soon as January 14, said the people, who asked not to be identified because the discussions are private.

The proposal, which is the product of eight weeks of talks between the casino operator and its creditors, would help tame a US$22.9 billion debt burden taken on six years ago in one of the biggest leveraged buyouts ever. The company needs the support of the creditor group in order to impose a reorganisation that may offer little recovery for lowerranking creditors.

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Caesars, taken private by Leon Black’s Apollo Global Management and TPG Capital for US$30.7 billion in 2008, has lost money every year since 2009. It has been trying to remain solvent ever since by refinancing debt and shuffling assets.

A mid-January filing would give enough time to assure the senior creditors that they could receive cash pledged by the company last month without being challenged by warring groups in bankruptcy proceedings, the people said.

The gap between the cost to insure against a default on Caesars for six months and five years has collapsed, a sign investors are girding for a bankruptcy. Six-month swaps on the debt are trading at 63.5 percentage points

upfront, meaning buyers would pay US$6.35 million to insure US$10 million of debt for six months, while five-year swaps are trading at 78.9 points, according to data provider CMA Inc. First-lien bondholders have sought to extract a recovery of about 90 cents on the dollar from Caesars Entertainment Operating Co., the people said.

The reorganisation proposal will give them a combination of cash, new securities and a form of equity from the unit, they said.

A separate group of senior creditors that owns the operating company’s term loans is continuing to consider the broad points of the restructuring plan.

Bloomberg

hurchill Downs is set to acquire the producer of online casino and casual games Big Fish Game for a total approaching US$835 million. Of this, US$485 million is to be paid upfront, while the remaining US$350 million will depend on 2016 earnings.

Churchill Downs, a thoroughbred horse racetrack in south Louisville, Kentucky, is better known for hosting the annual Kentucky Derby.

However, it has diversified into other online gambling and games.

Analysts at Wells Fargo Securities, LLC said the deal is a “value accretive” but there was scepticism from investors similar to when International Game Technology (IGT) announced it was buying Double Down Interactive for US$500 million. This saw IGT expand its business into Facebook games in 2012.

Nonetheless, analysts said in their latest note to clients that “online social

casino gaming is a proven category with stable growth characteristics, unlike other forms of online gaming, and the Double Down acquisition [by IGT] was ultimately successful.”

Churchill’s decision to acquire an Internet gaming company versus other strategic avenues such as regional casino acquisitions “may be viewed as a potential negative for the regional gaming industry,” analysts wrote, adding that the racehorse track had been an acquirer of casino assets and its low leverage allowed room to deploy additional capital into the space.

“While we believe online assets would fit well within an operating company, it is unclear whether Churchill Downs may see value in a REIT [real estate investment trust] separation,” analysts at Wells Fargo added.

The deal is expected to be complete by the end of the year, pending regulatory approvals.

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November 14, 2014

Greater China Lower gold demand is “new normal” Chinese appetite for gold has dropped after last year’s buying frenzy despite lower prices, an industry body said yesterday, cutting its annual demand forecast for the top consumer for a second time in three months. The World Gold Council (WGC) said it expected Chinese demand of 850-950 tonnes this year, down from a previous estimate of 900-1,000 tonnes.

Early in the year, the London-based group had said Chinese appetite could reach 1,100 tonnes. China consumed a record 1,065 tonnes last year as a 28-percent tumble in gold prices after a 12-year rally unleashed a wave of buying.

PBOC drains 20 bln repos Central bank drained 20 billion yuan (US$3.26 billion) from the money markets through 14-day bond repurchase agreements on Thursday, traders said, but did not inject nor drain funds on a net basis this week. This was the fifth consecutive week the People’s Bank of China (PBOC) has held funds in the market steady, as it has moved to use other channels to inject liquidity.

New Silk Road’s new bank China plans to establish a new bank to fund development of the “New Silk Road”, pouring billions of dollars into projects to revive intercontinental land routes and maritime links through central Asia, state media reported yesterday.

The official China Securities Journal said related government departments would establish the “Marine Silk Road Bank”, with a minimum paid-in capital of 5 billion yuan (US$816.23 million), to be funded by the Marine Silk Road Investment Management Fund and by unnamed ASEAN member countries.

Wison faces bribery charges

Wison Engineering Services Co Ltd, a supplier to scandal-hit PetroChina, said it was facing bribery charges following an investigation by the Chinese government, sending its shares plunging 50 percent. Charges have been filed against the company and its chairman, Hua Bangsong, alleging that they had been involved in “the offering of unlawful advantages,” Wison said in filing late on Wednesday. The charges come after Wison said in September 2013 that authorities had seized records and temporarily frozen some of its bank accounts.

Progress in South China Sea issue Premier Li Keqiang said yesterday that the situation in the South China Sea is on the whole stable and the freedom and safety of navigation in the region is ensured. China and ASEAN members have identified the dual-track approach for dealing with the South China Sea issue, he said, according to which specific disputes are to be solved through negotiations and consultations by countries directly concerned and peace and stability in the region be jointly upheld by China and ASEAN countries working together.

October data shows economy cooling further Despite a raft of stimulus measures, China’s annual economic growth slowed to 7.3 percent in the third quarter, the weakest pace since the global financial crisis

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hina’s economy lost further momentum in October, with factory growth dipping and investment growth hitting a near 13-year low, reinforcing views that Beijing will need to do more to fight slackening growth.

Months of tepid performance in factories and the growing drag from a weakening housing market are putting Beijing’s 2014 growth target of around 7.5 percent at greater risk.

Fixed-asset investment, an important driver of growth, grew 15.9 percent in the first 10 months of the year from a year ago, the National Bureau of Statistics said yesterday.

That was the weakest pace since December 2001.

October factory output rose 7.7 percent from a year earlier, which was higher August’s 6.9 percent rise but below expectations and the second weakest pace since the height of the global financial crisis. Retail sales growth eased slightly to 11.5 percent, the slowest pace since early 2006.

Economists polled by Reuters had forecast retail sales and industrial output to rise 11.6 percent and 8.0 percent, respectively, while fixed asset investment for the January-October was seen up 15.9 percent.

That followed data this week which showed inflation remained near a fiveyear low and producer prices fell for 32nd consecutive month, highlighting sluggish domestic demand.

“Chinese core October data came in uniformly softer and below consensus,” said Dariusz Kowalczyk,

senior economist at Credit Agricole CIB in Hong Kong. “The data highlights downward pressure on the economy. It will encourage further monetary easing.”

Many analysts believe additional support measures may be needed to offset the drag from the cooling housing market, but they are divided over whether authorities will take more forceful action such as cutting interest rates unless there is a risk of

KEY POINTS Oct data shows further weakness, fresh stimulus expected Factory output +7.7 pct y/y vs f’cast +8.0 pct Retail sales +11.5 pct y/y vs f’cast 11.6 Fixed-asset investment at 13-year low Ailing property sector a growing drag on economy

a sharper slowdown.

Growth in real estate investment, which affects about 40 other industries in China, cooled to 12.4 percent in the first 10 months of 2014 from a year earlier, with property sales and new construction continuing to fall.

In a bid to stem the slide in the property market, China cut mortgage rates and down payment levels for some home buyers in late September for the first time since the 2008/09 global financial crisis.

But economists are divided over whether the measures will have a long-term effect, pointing to massive inventories of unsold homes hanging over the market.

Policymakers have rolled out a series of measures since spring to bolster growth, including the latest move in late October and early November to approve over US$100 billion worth of infrastructure projects.

The central bank, which pumped 769.5 billion yuan worth of threemonth loans into banks in September and October, has pledged to keep its policy stance accommodative but stressed that it will not flood markets with cash.

Chinese top leaders, taking comfort from a relatively resilient job market, have flagged on many occasions that they would be more tolerant of slower economic growth while forging ahead with reforms to pursue a more sustainable growth model.

Reuters

Business Daily | 9

November 14, 2014

Greater China

Alipay’s shadow scares UnionPay more than Visa Foreign companies will access to what is projected to become the biggest card market in the world by 2020 but in a challenging environment Engen Tham

C

In less than three years, Alipay has hinese bank card operator U n i o n P a y , w h i c h m a y grown to control nearly half of China’s soon have to defend its online third-party payment market, near monopoly against Visa and tapping the hundreds of millions of MasterCard, faces a much bigger Chinese still without a credit card. threat from online payment providers That market commanded gross merchandise such as Alipay, volume of and is upgrading US$2.8 trillion in its systems to 2013, according meet the danger. to estimates from Shored up iResearch. by a raft of UnionPay, on protectionist the other hand, measures, the commands a state-backed mere 11.9 company has percent of that grown in just over Alipay bigger threat market and faces a decade from to UnionPay than Visa, competition from a n u n k n o w n Mastercard over 250 new name to a true online providers h e a v y w e i g h t , Rivals growing faster than that have been c o m m a n d i n g UnionPay in online market awarded licences 50.6 percent of all from Beijing as it the global cards China to open up its credit aims to stimulate in circulation in card market to foreigners consumer 2013, according demand. to the Nilson Alibaba told Report statistics China credit card market to be global No.1 by 2020 Bloomberg on newsletter.

Wednesday it was China said open to working last month it with eBay Inc’s would open PayPal to expand its credit card market to foreign players following its payment options, a plan that could a World Trade Organization ruling magnify Alipay’s reach and put further in 2012 that it discriminated against pressure on UnionPay. UnionPay is nevertheless putting up U.S. card firms.

Transactions were already around a fight. Last month it started working 32 trillion yuan (US$5.22 trillion) with some airlines to provide payment in China in 2013, according to data services for online airline tickets.

In September, it teamed up with from the People’s Bank of China.

But analysts say the obstacles Samsung in near-field-communication to a successful foreign invasion of payment (NFC), which lets users pay UnionPay’s dominant card position by tapping their phones on a device are considerable, as UnionPay charges available at local shops.

But Alipay is also trying to clinch merchants much lower rates than the a deal with Apple on its own NFC Western card companies.

A more immediate and perilous payment system.

UnionPay comes from a much threat comes from online payment firms like Alipay, a unit of giant more restrictive lineage, a product e-commerce company Alibaba, which of government policy, so there are a already dominates a parallel and lot of zero commission transactions growing payment universe that rivals that keep a lid on profit.

Reuters the traditional card set-up.

KEY POINTS

Property investment keeps slowing However a slump in sales shows signs of easing

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rowth in China real estate investment slowed further in the first 10 months of 2014, but property sales showed some signs of improvement, indicating Beijing’s efforts to boost the sector may be starting to have an effect.

Property investment, which affects more than 40 other sectors from cement to furniture, grew at its slowest pace in over five years between January to October, rising 12.4 percent in that period from a year ago, the National Bureau of Statistics (NBS) said yesterday.

That compared with an annual increase of 12.5 percent in the first nine months and marked the slowest pace of growth since July 2009.

The NBS data showed property sales dropped 1.6 percent in October in terms of floor space, easing substantially from a 10.3 percent drop in September.

That came after Beijing announced fresh steps in lateSeptember to support the sluggish property market, including mortgage rates and downpayment levels for some homebuyers.

The NBS data also showed

mortgage loans to home buyers dropped 4.3 percent in the first 10 months of 2014, easing from the drop of 4.9 percent in the JanuarySeptember period, as banks quickened their mortgage approvals and started to provide preferential rates to some home buyers.

Still, analysts doubted whether the government moves in late September would stem the slide in the property market as a glut of unsold homes hangs over the market. Many see the sector remaining weak well into 2015.

Moody’s investors Service said on Wednesday that the outlook for China’s property industry remains negative as it expected property sales would continue to decline in 2015 on high inventory levels and tight liquidity.

As the sector accounts for more than 15 percent of China’s annual economic output, the prolonged cooling of the housing market poses the biggest risk to the world’s second-largest economy, even as Beijing tries to stimulate overall growth, economists said.

Reuters

10 | Business Daily

November 14, 2014

Greater China

Hong Kong Stock Exchange trading floor

Fund managers eye Shanghai as investment quotas run out Michelle Chen

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sset managers in Hong Kong, frustrated by the exhaustion of a major investment quota to enter China’s domestic market, now see a lifeline in the muchanticipated Shanghai-Hong Kong stock connect scheme due to be launched next week.

Some fund managers have been facing the prospect of turning clients’ new orders down as Hong Kong’s quota for the investment programme was largely used up in September. The RQFII (Renminbi Qualified Foreign Institutional Investor) plan allows foreign investors to buy stocks and bonds in mainland China.

Those managers now plan to switch part of their equity products which are using the quotas to the new stock connect system, freeing up room for other RQFII-related products.

The Hong Kong and Shanghai link is due to go live on November 17,

giving foreign and Chinese individual investors unprecedented access to each others’ stock markets.

“The stock connect scheme offers us a potential channel to buy stocks listed in Shanghai once our RQFII product runs out of quota,” said Freddie Chen, head of sales at China Asset Management (Hong Kong).

The firm has more than 80 percent of its 21.8 billion yuan (US$3.56 billion) quota used up or reserved for new products. That is a level that usually prompts fund managers to apply for a new quota from China’s State Administration of Foreign Exchange.

Quotas are typically assigned to financial centres that handle offshore yuan business, and then divided among fund managers in those locations.

However, the Chinese regulator has not yet replenished Hong Kong’s

quota even though it has been virtually exhausted for nearly two months, forcing money managers to seek alternatives to meet clients’ growing demand for yuan assets. For a related story, click A large Chinese asset management firm in Hong Kong has been given approval by Hong Kong regulators to transfer part of its RQFII ETF to operate under the stock scheme and will make an announcement soon, according to a person with direct knowledge of the matter.

Fund managers say the freed up quota can then be used for other new products such as fixed income funds or multi-asset products that involve both bonds and equities to diversify product offerings and attract more investors.

As a result, product portfolios under the RQFII program will likely be skewed to focus more on assets

Managers now plan to switch part of their equity products which are using the quotas to the new stock connect system

other than A-shares. At present, equity ETFs targeting onshore stocks account for the lion’s share of RQFII products, compared to bond funds and ETFs. For example, China CSOP, the biggest RQFII player with an aggregate quota of 46.1 billion yuan (US$7.54 billion), sees more than 80 percent of its quota used for equity products among its mutual funds.

Still, the stock connect scheme will also operate under restrictions, with a daily quota capped at 13 billion yuan for Shanghai-bound investment, limiting the scope of fund mangers to make use of the scheme.

“Stock Connect is more appropriate for products where China A-share is an optional allocation, such as Asian equity funds, or as a complement to the existing QFII/RQFII quota,” said Chen.

Reuters

Banks to raise US$10 billion in preference shares Preference shares behave like bonds, and convert into common equity if the bank’s core capital falls below certain trigger ratios.

Engen Tham

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hree of China’s top 10 banks plan to issue up to 60 billion yuan (US$9.79 billion) of preference shares by the end of the year, according to filings with the Shanghai Stock Exchange.

As growth slows and bad debts build up, China’s banks are rushing to replenish their balance sheets to meet the tough new global bank capital regulations known as Basel III. Banks are “less likely to be able to use equity because most of them are trading below book,” said Edmond Law, banks analyst at UOB Kay Hian (Hong Kong) Ltd. “Preference shares is the more

efficient way to replenish Tier-1 capital,” he added.

Preference shares behave like bonds, and convert into common equity if the bank’s core capital falls below certain trigger ratios.

Their introduction in 2013 was welcomed by Chinese retail investors as they are considered non-dilutive to ordinary share valuations.

Shanghai Pudong Development Bank Co Ltd, Industrial Bank Co Ltd and Bank of China Ltd plan to issue 15 billion yuan, 13 billion yuan and 32 billion yuan of preference shares respectively.

As preference shares yield a higher

Preference shares is the more efficient way to replenish Tier-1 capital Edmond Law banks analyst UOB Kay Hian

rate of interest, in the short term, investors may switch and lose their taste for common equity, analysts said.

But commentators agreed that dilution was not a long-term concern.

Bank of China (BoC) sold US$6.5 billion worth of preference shares in October, launching a landmark wave of fundraising by China’s biggest banks.

Last week, Industrial and Commercial Bank of China Ltd, the country’s biggest lender, said it had received bank regulator approval to issue up to 35 billion yuan of offshore preference shares.

Reuters

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November 14, 2014

Asia

Japan firms overwhelmingly Bank of Korea holds want tax hike delay

rates steady

Abe could postpone the hike and call a general election in an effort to lock in his grip on power

Markets showed little reaction as investors turned their focus to indications of future policy direction from BoK Governor

Tetsushi Kajimoto

Christine Kim and Choonsik Yoo

S

Japan Prime Minister Shinzo Abe walks into the 17th Association of South East Asian Nations (ASEAN)-Japan summit yesterday, with the flags of the ten ASEAN nations and Japan behind him

J

apanese companies overwhelmingly want Prime Minister Shinzo Abe to delay or scrap a planned tax increase, a Reuters poll shows, highlighting concerns that it could derail a fragile economic recovery.

As expectations grow that Abe will soon announce he is putting off the unpopular measure, the Reuters Corporate Survey found that nearly three in four big companies think the economy is too weak to weather the increase as scheduled in October 2015.

KEY POINTS 72 pct say economy cannot cope with planned sales tax hike 58 pct seek delay in tax hike; 10 pct want to avoid higher tax Speculation grows PM Abe may put off tax hike, call snap poll Q3 GDP data due Nov. 17 crucial for Abe’s tax decision

The government raised the national sales tax to 8 percent from 5 percent in April and planned to bring it to 10 percent next October in a bid to rein in massive public debt.

The April hike pushed Japan into its worst decline since the global financial crisis in the second quarter.

Abe has said he will look at third quarter GDP, due out Monday, before deciding whether to proceed with the planned October 2015 tax increase.

“It’s highly risky to force through a tax hike in a situation where consumption has not recovered as expected,” a manufacturing executive said in the Reuters survey. “It’s desirable to delay it.”

The Reuters poll of 486 large manufacturers and nonmanufacturers, conducted between October 27 and November 10 by Nikkei Research, does not fully reflect the Bank of Japan’s Oct. 31 monetary easing, which stunned markets, pushing up Tokyo shares and weakening the yen.

Increasingly wary Of the 250 firms answering questions on the sales tax, 72 percent said the world’s third-biggest economy cannot cope with the planned tax hike next year, while 28 percent said it can.

Japanese firms have become increasingly wary about the planned sales tax hike in recent months, following a run of soft economic indicators that highlighted a bigger-than-expected hit from

April’s increase.

One third of companies said they want the government to put off the tax hike by up to a year, a quarter called for a delay by a year-and-ahalf or more and 10 percent want the idea scrapped.

Highlighting their scepticism about higher inflation and durable growth, only 16 percent expect to raise prices of their goods and services next year, 28 percent plan not to raise prices and 57 percent remain undecided.

“Abenomics” seeks to pull Japan out of 15 years of deflation and tepid growth by spurring a self-sustaining cycle of rising profits, prices and wages.

But in the survey only 2 percent said they can raise wages next year more than this year, 31 percent expect wage hikes in line with this year, 11 percent see smaller pay rises next year and 14 percent say they cannot raise wages at all.

Last month’s survey found that 20 percent of firms thought the economy was ready for another tax hike, 33 percent said it could not weather a hike and the rest declined to say either way.

Separately, the Reuters Tankan found Japanese manufacturers grew more confident for the first time in three months but expect conditions to worsen again in coming months, while sentiment among service companies slid for a second month to its lowest in a year, as retailers continued to feel the pain from the sales tax hike.

Reuters

outh Korea’s central bank kept its policy interest rate steady yesterday, as widely expected, to assess the effects of this year’s two rate cuts as well as policy decisions in the United States and Japan.

The Bank of Korea’s monetary policy committee left its base rate unchanged at 2.00 percent, a media official said without elaborating.

“We think downside risks to the Bank of Korea’s growth outlook have increased. Given the yen weakened significantly after the Bank of Japan announced additional easing on October 31, Korea exporters may face greater price pressures over the coming months,” said Ronald Man, an economist at HSBC in Hong Kong.

All 33 analysts in a Reuters poll had expected the central bank to leave rates unchanged after cutting it in October.

For the central bank’s next move, 14 analysts predicted a rate cut, while 10 expected a hike.

The central bank is now more focused on the effects of policy decisions from the United States and Japan, especially as the yen has weakened dramatically since the Bank of Japan expanded its stimulus programme last month.

Policymakers have been fretting over measures to counter risks to South Korean export competitiveness but the central bank has balked at slashing interest rates more as its governor said the effects of rate cuts on the real economy are limited.

The Bank of Korea has already cut interest rates twice this year, in August and October, in moves widely seen as giving in to pressure from the government to boost its growth policies.

Stimulus measures by the government and the central bank, including plans to boost public spending and interest rate cuts have encouraged consumers to spend, with South Korea’s bank lending to households rising by the largest amount on record in October.

The Bank of Korea lowered next year’s growth forecast to 3.5 percent from 3.8 percent in October, but it is still close to the economy’s potential growth rate, which the central bank has said is somewhere in the high 3-percent range.

Reuters

KEY POINTS Base rate kept at 2.00 pct (Reuters poll: 2.00 pct) Analysts split between raise and cut in next move BOK keeping tabs on monetary policy in United States, Japan

12 | Business Daily

November 14, 2014

Asia Japan machinery orders jump Japan’s core machinery orders unexpectedly rose for the fourth straight month in September and manufacturers grew more confident this month, suggesting the economy may be finally starting to gather speed after the hit from an April sales tax hike. Yesterday’s data also offered an encouraging sign of firms starting to gradually ramp up on capital investment, seen as significant by the Bank of Japan for cementing a durable economic recovery. The 2.9 percent month-on-month gain in core machinery orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months.

SingTel Q2 profit up Singapore Telecommunications Ltd, Southeast Asia’s largest telecommunications operator, reported a 19 percent rise in secondquarter net profit yesterday, helped by higher contributions from its regional associates. SingTel posted a net profit of S$1.04 billion ($806 million) for the three months ended September, its highest in 10 quarters, compared with S$870 million a year ago. Its underlying net profit was S$979 million, excluding one-time items. Revenue rose 4 percent to S$4.31 billion. Its earnings before interests, taxes, depreciation and amortisation (EBITDA) were S$1.33 billion, up 3 percent.

Foreigners likely bought record Japan shares Foreign investors bought a likely record amount of Japanese shares last week, brokerage data showed yesterday, as buyers took heart from the central bank’s surprising easing measure and the pension fund’s decision to increase its allocation for domestic stocks. Foreigners bought a total of 2.23 trillion yen ($19.26 billion) worth of Japanese shares, including both futures and cash stocks, during Nov. 4-7, according to data provided by the Japan Exchange Group, which operates the Tokyo Stock Exchange and the Osaka Exchange.

S.K. refiners considering legal action South Korea’s two major refiners are considering legal action to recover losses tied to the collapse of the world’s largest marine fuel supplier, Denmark’s OW Bunker, which has started winding up its Singapore unit, industry sources said yesterday. OW Bunker filed for bankruptcy last Friday after an alleged fraud at a Singapore subsidiary, Dynamic Oil Trading, cost it at least US$125 million and banks refused to provide new credit lines, throwing the world’s ship fuel market in turmoil. According to OW Bunker Far East Singapore’s corporate records.

India and US resolve food row stalling WTO pact An agreement is due to take effect in mid-2015

W

ashington and New Delhi said yesterday they have resolved a row over Indian food subsidies that blocked a key WTO trade agreement earlier this year.

India had refused to endorse the landmark Trade Facilitation Agreement (TFA) in July unless its food stockpiles were exempted from possible punitive measures.

The two countries agreed that India’s food security programmes would not be challenged under WTO rules “until a permanent solution regarding this issue has been agreed and adopted,” it said.

India’s Commerce Minister Nirmala Sitharaman tweeted that India and the US had “successfully resolved their impasse over food security issues in #WTO”.

“WTO General Council will receive India’s proposal and US will support us,” she said.

India’s new Prime Minister Narendra Modi discussed the issue with US President Barack Obama when he visited Washington in September, raising hopes of a breakthrough.

India’s decision in July to hold up the landmark deal to reduce trade barriers surprised fellow WTO members, all of whom had agreed at a December, 2013 meeting in Bali to implement the pact.

India and its developing-world supporters say food stockpiling is essential to ensure poor farmers and consumers survive in the cut-throat world of business.

But stockpiling and subsidies

Indian Prime Minister Narendra Modi arrives at the 12th ASEAN India Summit at Myanmar International Convention Centre in Naypyitaw

for the poor are considered tradedistorting under existing WTO rules.

Western countries, led by the United States, have raised concerns that such stocks could leak onto global markets, skewing trade.

At the time of the Bali accord, WTO members agreed on a fouryear “peace clause” to protect India

from being punished over subsidies and stockpiles until a “permanent” solution” was reached.

But after the Bali pact, Indian officials complained there were nearly two dozen meetings on the trade facilitation pact and just a handful on subsidies.

AFP

Indonesia’s new govt rethinks fuel price hike Indonesia’s subsidized fuel prices are among the cheapest in the world

I

ndonesia’s new government is rethinking the timing and size of a rise in subsidized fuel prices following a sharp drop in global oil prices, the vice president’s office said yesterday.

President Joko Widodo was poised this month to raise prices by as much as 3,000 rupiah (US$0.25) per litre, but a 7 percent decline in U.S. crude prices since his October 20 inauguration has eased the pressure to act quickly.

Widodo, who took office on October 20, has promised to confront a ballooning US$23 billion fuel subsidy bill, the main factor behind the budget and current account deficits.

“How much the hike will be is the crucial part, especially since there has been a decrease in the global oil price. That is why the price is still being discussed,” said Husain Abdullah, spokesman for Vice President Jusuf Kalla.

Indonesia’s subsidized fuel prices are among the cheapest in the world with gasoline costing 6,500 rupiah a litre and diesel 5,500 rupiah.

Widodo’s government has been considering a fuel price hike of between 2,000-3,000 rupiah.

“If we follow the trend, it should be this month. But we don’t know for sure, there are other considerations to decide on a precise date,” Abdullah said.

Widodo is expected to discuss the

President Widodo based his programme in removing the oil subsidies

fuel subsidy issue with Kalla and his cabinet after he returns next week from attending the G20 summit in Australia.

Raising fuel prices is a sensitive issue that typically sparks protests and contributed to the downfall of long-serving autocrat and then president Suharto in 1998.

Protests, which remain largely peaceful, have been staged on a regular basis in Jakarta and other major cities ahead of the expected announcement.

Reuters

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk Joanne Kuai, João Santos Filipe, Kam Leong, Luciana Leitão, Luis Gonçalves, Michael Armstrong, Óscar Guijarro, Sara Farr, Stephanie Lai GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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Business Daily | 13

November 14, 2014

Asia

Calls for Australia to follow US, China climate deal

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ustralia was under pressure yesterday to follow the United States and China and ramp up efforts to combat climate change, as it prepared to host world leaders at the G20 summit.

The surprise deal between the world’s two biggest polluters to curb greenhouse gas emissions was announced in Beijing on Wednesday, in a move hailed as a potential breakthrough in the long fight for a global pact.

In making the announcement, US President Barack Obama described climate change as an urgent global challenge.

“In addition, by making this announcement today, together, we hope to encourage all major economies to be ambitious -- all countries, developing and developed -- to work across some of the old divides so we can conclude a strong global climate agreement next year,” he said.

Australian Prime Minister Tony Abbott welcomed the deal but said his preoccupation in hosting

The carbon tax was there to... price pollution. When you stop pricing pollution (and) you start gifting money to polluters, you know you’re on the wrong tram Paul Keating former Australian prime minister

the G20 in Brisbane at the weekend was on the economy, and creating growth and jobs.

“We’ve just had the APEC conference in Beijing and climate change was hardly mentioned,” Abbott told reporters in Myanmar for the East Asia Summit.

“It was mentioned in passing by one leader in Beijing and look, there are lots of venues to deal with climate change.”

Abbott said Australia’s emissions amounted to about one percent of the globe’s, whereas the US accounted for about 15 percent and China 24 percent.

“As for Australia, I’m focusing not on what might happen in 16 years’ time, I’m focusing on what we’re doing now and we’re not talking, we’re acting,” he said, in reference to China’s aim for its emissions to peak by around 2030 and for 20 percent of its energy to come from renewables by then.

But his attitude was criticised by environmentalists with one saying the USChina deal highlighted “the

Australia is one of the top 20 polluting countries in the world and produces more carbon pollution per person than any other developed country

Mining is one of the most extended and polluting activities in Australia

ludicrous inadequacy” of Australia’s policies, which have seen the scrapping of a carbon tax designed to combat climate change and of a mining tax on coal profits.

“I don’t think he was listening when the world’s two biggest economies had this as central to their economic agenda right now and for years to come,” John Connor, from Australia’s independent Climate Institute, told AFP. The government is

committed to reducing its carbon emissions by five percent below 2000 levels by 2020 and has announced Aus$2.55 billion (US$2.22 billion) Emissions Reduction Fund to give polluters financial incentives to reduce emissions.

Australia’s Treasurer Joe Hockey said climate change would be discussed at the G20 but would not be allowed to dominate the agenda.

Reuters

14 | Business Daily

November 14, 2014

International ECB to assess test-failed banks Banks whose capital fell short in recent European Central Bank health checks have handed in plans to plug these gaps and will receive the ECB’s assessment by the end of the year, an ECB policymaker said yesterday. “We have received these plans ...on Nov 10, and are now in the process of thoroughly checking them with the aim to provide banks with an assessment before the end of the year,” Executive Board member Sabine Lautenschlaeger said at an event in Stockholm. Thirteen banks fell short and have given in plans, she said.

Vedanta profit hurt by costs Vedanta Resources Plc reported a 5 percent fall in first-half core earnings due to lower production and higher costs at its oil and gas and Zambian copper businesses, where the company said it was continuing to face challenges. The London-based miner, which has most of its assets in India, said earnings before interest, tax, depreciation and amortisation fell to US$2.1 billion in the six months ended September 30 from US$2.21 billion a year earlier. The miner reported an 8 percent fall in oil and gas production and a 12 percent decline in copper output.

Hasbro in talks to buy DreamWorks Toymaker Hasbro Inc is in talks to buy Hollywood studio DreamWorks Animation SKG Inc, the New York Times reported, citing people briefed on the matter.

Under the proposed deal, Hasbro would pay a mix of cash and stock, though an exact price has not been determined yet, the newspaper reported. DreamWorks spokesman Matthew Lifson and Hasbro spokeswoman Julie Duffy said separately that the companies do not comment on rumours and speculation. The talks with Hasbro come more than a month after discussions with Japan’s Softbank fell apart, with one source citing price as a dissuading factor.

AT&T pulls plug on fibre spending AT&T raised pressure on the U.S. telecommunications regulator’s work on new “net neutrality” rules, saying it would stop investing in high-speed Internet connections in 100 cities until the Web rules were settled.

The statement from AT&T Chief Executive Officer Randall Stephenson is the first move by an Internet service provider in response to President Barack Obama’s unexpected call on the Federal Communications Commission on Monday to regulate these companies more like public utilities. AT&T has been spending heavily on acquisitions and the statement came only days after it cut its capital spending estimate for 2015.

Comcast-Warner deal going ‘full steam’ Comcast Corp’s merger with Time Warner Cable Inc is going “full steam ahead” despite uncertainty around new rules governing net neutrality, Comcast Chief Executive Officer Brian Roberts told reporters on Wednesday. The deal, which would create the largest U.S. cable Internet provider, is in its final phases and remains on track to close, he said at a Comcast press event in San Francisco. Shares of both companies fell sharply on Monday, after President Barack Obama declared that Internet service providers should be regulated like public utilities, touching off protests from cable and telecoms companies.

Carney-Yellen race: ready, set, hike Investors extended bets yesterday on how long the BOE will keep its benchmark at a record-low 0.5 percent after officials cut their growth and inflation forecasts

F

ederal Reserve Chair Janet Yellen may just beat Bank of England Governor Mark Carney to the first interest-rate increase since the financial crisis.

Markets are now pricing in a quarter-point increase by November next year, Sonia forwards show. As recently as August, wagers were for around February. In the U.S., the Fed is seen acting by September.

Presenting the BOE’s quarterly Inflation Report, Carney cited the “specter of economic stagnation” in the euro area, the biggest market for British exports, and said U.K. inflation could slow to below 1 percent within months.

This is almost going to be like a horse race to the finish line on who’s going to go first now, whereas only three or four months ago that wouldn’t have even been close Andrew Goldberg, global market strategist, J.P. Morgan Asset Management

The yield difference between two-year gilts and similar- maturity Treasuries narrowed to 8 basis points yesterday, the least since October 2013.

Fed first “Whereas in the middle of the year the BOE was happy to go ahead of the Fed, now we’re in a world where the BOE will likely follow the Fed,” said Mike Amey, a fund manager at Pacific Investment Management Co. in London.

Investors are betting the first rate increase from the Fed will come in 10 months, Morgan Stanley index data show. Policy makers have kept their benchmark target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.

“We are behind the Fed in terms of timing,” said Ian Winship, head of sterling bond portfolios at BlackRock Inc., the world’s biggest money manager with more than US$4 trillion of assets. In the U.K., “we’re looking at September or October for a full hike,” he said. “The impact of the disappointment we’ve had globally is having an impact on U.K. monetary policy.”

Tentative signs of a revival in wages, which Carney says will determine when rates increase, emerged in government figures yesterday. Pay growth accelerated to 1 percent in the third quarter, with wages excluding bonuses outstripping consumer-price inflation for the first time since September 2009.

The Bank of England’s Deputy Governor for Monetary Policy Ben Broadbent said in an interview today

Federal Reserve Chair Janet Yellen

on BBC Radio 5 Live that the path of market rate expectations were in line with the “kind of inflation you want.”

The path of rate increases will be gentler and rise to a lower level than before the crisis, he said.

Wage data Last month, the Fed ended its bondpurchase program, citing improvement in the U.S. labour market, moving it closer to higher rates. Since then, data showed U.S. employers added 214,000 workers in October and the unemployment rate fell to a six-year low.

“There is growing expectation in the market it’s going to be the U.S.,” said Vatsala Datta, a U.K. rates strategist at Royal Bank of Canada in London. “We have to look at the wage data, that’s the key point the BOE is directing us to.”

Bloomberg News

ECB warns on lower than expected inflation and growth Some investors read the report as a signal that the ECB could extend its asset purchases to corporate bonds and possibility even government debt

A

large group of professional forecasters cut their outlook for euro zone inflation and growth, underlining a trend that could prompt the European Central Bank to take more policy action to kickstart the region’s flagging economy.

The 61 economists, academics and other forecasters surveyed by the ECB expect euro zone inflation of 1.0 percent next year and 1.4 percent in 2016, data released yesterday showed - down from earlier forecasts of 1.2 percent and 1.5 percent respectively.

Citing falling oil prices and widespread political tensions, they also predicted economic growth would slow to 1.2 percent next year, having previously forecast 1.5 percent.

“The balance of risks has become more clearly tilted to the downside. ... Respondents identify geopolitical tensions, mainly in Ukraine and Russia, but also in the Middle East,

as by far the main risk,” the ECB’s report of the findings said.

The panel’s view is closely watched by markets as a gauge of how the ECB expects inflation to develop.

The central bank’s President, Mario Draghi, said on Wednesday it would keep interest rates low and stood ready to take additional unconventional policy actions if inflation expectations did not pick up.

In Washington on Wednesday, the International Monetary Fund warned of downside risks to its growth

projections for the euro zone, and urged the ECB to act if prices in the currency bloc continued to drift lower.

The ECB, whose inflation target is below but close to 2 percent over the medium term, will update its own staff forecasts next month.

Annual euro zone inflation stood at 0.4 percent in October.

Earlier on Thursday, a clutch of inflation readings from individual euro zone countries broadly confirmed the preliminary picture for that month.

In dominant economy Germany, consumer prices harmonised to compare with other European Union countries were confirmed as falling 0.3 percent on the month and rising 0.7 percent on the year, the Federal Statistics Office said.

Parallel final numbers from Spain and Italy also confirmed preliminary data.

Reuters

Business Daily | 15

November 14, 2014

The gentlemen started their engines yesterday and now there are eight races until Sunday to decide eight winners.

On the first day, there was a mix of everything on the track, from penalties to the inevitable shunts into Macau’s unforgiving walls João Santos Filipe jsfilipe@macaubusinessdaily.com

16 | Business Daily

November 14, 2014

Flying Dutchman and fast Frenchman highly fancied Dutchman Max Verstappen and Frenchman Esteban Ocon are heads-on to win the Guia and all the others will want to beat them. Yesterday, however, it was Tom Blomqvist who landed provisional pole position

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he Macau Grand Prix is going to be the venue for the hottest clash of the moment in terms of Formula 3.

Max Verstappen (DallaraVolkswagen), who is going to race in Formula 1 next season, wants to demonstrate his quality after being beaten to the punch in the Formula 3 European Championship

by Esteban Ocon (DallaraMercedes). Meanwhile, the Frenchman is racing to assert his unquestionable talent, proving to Formula 1 teams that he is the hottest prospect in town.

Undoubtedly, Max Verstappen is the man to watch. The Dutchman is racing in Macau after being confirmed as driver of Formula 1 Team Toro Rosso for next season.

Yesterday, he came sixth in the first qualifying session.

The position is provisional as today a second qualifying session follows. But he passed a red light and he will be penalised two places on the grid for the infraction in the qualifying race.

“I thought the session wasn’t bad at all. We’re improving all the time and mainly in the beginning of the qualifying, with fresh tyres, we were really strong”, Verstappen said.

“Anything can happen. It’s a bit disappointing about the penalty but it is how it is”.

Despite being the Dutchman’s main rival, Ocon could not do any better than 10th provisional place on the grid yesterday. Like Verstappen, Esteban Ocon will also be penalised two places for the same reason.

“Tomorrow is the important session for qualifying. So I have no reason not to be confident”, Ocon said. “We’re hoping that tomorrow [today] it does not rain, otherwise it will be more difficult for everybody”.

Nevertheless, British driver Tom Blomqvist (Dallara-Volkswagen) was the strongest driver on the track, claiming provisional pole position. “It’s a good time as it’s provisional pole.

But tomorrow [today] is really when all is decided.

Formula 3 - Qualifying 1 Car

Time

Tom Blomqvist

Dallara-Volkswagen

2:11.922

Antonio Giovinazzi

Dallara-Volkswagen

2:12.037

Nick Cassidy

Dallara-NBE

2:12.546

I will try to keep the position.

My goal is to win”.

Rest of the pack Besides the two main favourites there is a lot of quality in the Formula 3

pack. Italian Antonio Fuoco (Dallara-Mercedes), protégé of the Ferrari Formula 1 Team, Austrian Lucas Auer (DallaraMercedes) and Swedish driver Felix Rosenqvist (DallaraMercedes) are all talented drivers that can make the

difference in Macau.

In this fight, the qualifying racing is going to be essential.

In spite of being one of the most challenging tracks in the world the narrow Guia Circuit does not afford many opportunities for overtaking and thus it is very important to start the race as far up at the front as possible in order to secure a good position on the home straight.

As for homegrown Andy Chang Wing Chung, the 18year old was 27th, five seconds behind Blomqvist. Chang is driving a Formula 3 car for the first time in Macau.

Odds on a Citroen celebration Citroen has won 17 of 22 races, with its drivers heavily favoured to mount the podium on the Guia track. The new WTCC champion debuts in this category in Macau in an attempt to secure one more victory before the end of the year.

Filipe Souza (BMW) will race in the colours of Macau

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t the beginning of the year, not many would have put money on José María López clinching the World Touring Car Championship (WTCC) by the close of the season. However, with no real competition for Citroen cars the Argentinean seized the opportunity, beating teammates Yvan Muller and Sebastien Loeb into the bargain.

The newly-crowned champion is back in Macau, where he raced for the first time in 1991 with Formula 3, and has a golden opportunity to win with a WTCC car.

Pechito Lopez is after the icing on the cake.

“I am happy with our first day and I am still looking for the limits to improve my time”, the Argentinian said after the first practice. “It’s amazing to be the WTCC champion but the pressure is the same. I’m still focused on helping the team and winning more”.

However, the competition from the Citroen boys will be fierce. Yvan Muller is the most experienced driver in the team and has been series champion four times. The King of WTCC won in Macau on two different occasions and after being beaten by a rookie will be eager for retribution.

Citroen still have two more drivers to be taken into

account in the fight for victory in Sebastien Loeb and the Chinese Ma Qing Hua. Sebastien Loeb has won the World Rally Championship nine times in a row and rolls out onto the Guia for the second time. In his first complete season in WTCC he managed to secure third place in the championship behind his teammates. A victory for Loeb in Macau would be a tremendous boost to his confidence for the next season. Ma Qing Hua has this year become the first Chinese to win a race in an FIA Championship, after taking first place in the second race in Russia, and will try to replicate his success in Macau.

While Citroen has managed to win 17 of 22 races thus far and its drivers considered favourites, more drivers are lining up for their opportunity to win this season.

Portuguese Tiago Monteiro adores the Guia track and is the best of the rest, placing fourth in the championship.

The Honda driver will try to secure his position in Macau and his first victory of the season, after taking second twice, and third three times.

The Japanese manufacturer is also relying on the experienced Gabriele Tarquini and on Mehdi Bennani.

Both drivers have achieved victories this season.

Lastly, Macau will be represented by Filipe Souza, who will drive a BMW 320 TC. The Macanese driver has only participated in the Chinese rounds and in Japan, achieving a 14th place in Bejing as his best position this year. However, the Macau driver is focused on the Yokohama Trophy and in this respect has managed to get one second place and three third places in six races.

The BMW 320 offers limited aspirations for Filipe Souza. A victory in the Yokohama Trophy and a tenth place in the overall classification can be considered an excellent race for the Macau driver.

Business Daily | 17

November 14, 2014

Battle of the Brits begins Ian Hutchinson, Michael Rutter, Stuart Easton and John McGuinness have all won in Macau - and are back to win once more. Yesterday, it was Rutter - in his 20th outing in Macau - who set the pace, claiming provisional pole position

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n this year’s Macau Motorcycle Grand Prix the winners of 13 editions of the race line up for battle. In fact, all winners since 2000 – except for Steve Plater (2006, 2007) - will be racing against each other, making this truly a battle of the British racing firmament.

For Michael Rutter 2014 is all about payback. After being beaten by Hutchinson in a close race last year, the 8-times winner of the Macau Motorcycle Grand Prix is back to re-establish mastery. In his 20th race in Macau, the Briton will try to extend his record on the Guia by riding a Yamaha, the same mount he used in his second victory in Macau.

“I am obliged to win,” he said after achieving provisional pole. “But there are a lot of quality riders [who could] win. I think we can do something good but it’s going to be a close race. This year, you can feel that the track is a bit more dangerous and slippery”.

“Hopefully, the track is going to be more clean tomorrow [today] and there will be better conditions for racing. I think this is eventually going to happen as there are more cars and bikes on the

track”, he commented. “I don’t know if I’ll be able to hold the pole position tomorrow [today] as Stuart Easton has been very strong recently, while racing in the UK”.

Last year, Ian Hutchinson won the GP, besting the record-winning Michael Rutter. The 35-year old will race in Macau to achieve his second victory in the former Portuguese enclave. However, conditions have changed in the intervening year and the rider will pilot a Kawasaki instead of a Yamaha. Hutchinson is in fourth place on the grid after one qualifying session.

From 2010 to 2012, no other person has won in Macau but Stuart Easton (Yamaha). Whether riding a Honda or a Kawasaki, the Briton cleaned up. Now Hutchinson’s teammate will be riding a Kawasaki once more in an attempt to achieve his fourth victory. Yesterday, he was second fastest.

In 2001, John McGuinness (Honda) took his only victory to date in Macau. The 42-year old has been riding for the Japanese manufacturer for many years but has so far failed to repeat his victory on the Guia. He was fifth yesterday in the first qualifying season.

There was a scary moment yesterday when Portuguese rider André Pires was forced to retire after crashing, and was taken to hospital for a check-up. The driver suffered brain concussion and neck sprain and will not compete.

Motorcycle - qualifying 1 Bike

Time

Michael Rutter

Yamaha

2:27.699

Stuart Easton

Kawasaki

2:28.000

Martin Jessopp

BMW

2:30.247

Fierce tussle to dethrone Mortara This year, the Macau GT Cup is shaping up as a fight between the German manufacturers, all of whom will try to steal the crown from Mr. Macau, Edoardo Mortara

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ne of the most balanced competitions this year is the Macau GT Cup. The entry list has a lot of quality and everybody will be keen to beat Mr. Macau, Edoardo Mortara, the winner of the last three editions.

The Italian racer is the favourite to win again but his task will not be easy. This season, for the first time, he is driving the Audi R8 LMS Ultra but with fierce rivalry raging around him. This, however, did not stop Mortara from taking third place in the first practice session.

But the difficulties for the Italian start at home, or in this case, in his own team. Teammate Laurens Vanthoor (second fastest

Augusto Farfus can cause an impact in Macau.

Macau’s drivers

yesterday) pilots the same car and is determined to win in Macau.

That said, Maro Engel was the fastest man on the track yesterday. The German will be the striker for Mercedes in the quest to beat the eternal rival. His teammate, Dutchman Renger Van der Zande, is also a contender for victory laurels.

As for the BMW manufacturer, Marco Wittmann is the most serious contender. The German arrives in Macau, newly crowned at DTM (German Touring Car Masters), a competition in which he beat Mortara. Regardless, during practice Wittmann managed to place only thirteenth. Also from BMW, the Brazilian

André Couto is the local hope for a good result in the Grand Prix. The driver that won the Formula 3 race in 2000 will compete in a Ferrari 458 GT3. However, the Macanese only drove the car for the first time yesterday.

But he nevertheless managed a respectable 7th in practice.

Macau also presents Rodolfo Ávila and Vong Keng Fai, both driving a Porsche 997GT3. Yesterday, during practice, used to find the best set-up for the car, Ávila plaxed 30th and Vong 32nd . The two Macanese drivers have limited aspirations in terms of results.

“It was only the first practice session and the first time I has driven this car. This is a rented car so I did not know in what condition it would be but everything is okay”, Ávila told Business Daily. “The track is still lacking grip and it’s very slippery. But this is normal for street circuits. As there are more cars on the track it will get better and tomorrow it will be even better”.

“I’m not sure of our goals yet. I have to check how the other drivers are doing but that will only be possible tomorrow [today] in the qualifying session. But I would like to win the GTM category”, he said. “For now, I can say that I’m really happy to be here; it’s better than watching the Grand Prix on TV”.

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November 14, 2014

The MOP860,000 pot of gold During the racing weekend the Grand Prix Committee will reward the fastest drivers by dipping into a pot of MOP861,050. While the Formula 3 race offers the best prize money, the drivers of WTCC and Chinese Racing Cup will be competing for glory alone.

But defeating deadly rivals can be worth its weight in gold in marketing profile

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he 2014 edition of the Macau Grand Prix has MOP861,050 in prize money to disburse between five different categories.

The largest share of the prize money will be garnered by the Formula 3 race in the amount of some MOP440,000, which will be paid in US dollars. The winner of the Grand Prix will take home MOP96,000.

Drivers ranking second to tenth will receive prizes ranging from MOP80,000 to MOP8,000. In addition, the drivers setting the fastest time of the race to record the highest speed during the race on the Guia Circuit will pick up MOP8,000 each.

But the main race in Formula 3 is not the only one to monetarily reward the drivers. The qualifying race is worth MOP12,000 for the winner, MOP8,000 for second place and MOP6,000 for third place. As in the main race, the drivers setting the fastest lap time and reaching the highest speed will be paid MOP8,000 each.

The first prize to be disbursed in the F3 competition will be for the driver achieving pole

position for the qualifying race. Also, the driver setting the fastest lap time of the two qualifying sessions will be awarded MOP8,000.

Yesterday, at the end of the first qualifying session Tom Blomqvist was best placed to receive the MOP8,000, as the Briton posted the best time of the session and provisional pole position for the qualifying race. Today, however, this could change because the pole position for the qualifying race is defined by the fastest lap in the two sessions. So the other drives can still reach the golden pot.

But the perfect weekend for a driver in F3 can mean he – or she, this year – could pocket as much as MOP135,800. As of today, any pilot can still manage to get the full cake.

The Macau Motorcycle Grand Prix prizes will be paid in Hong Kong dollars.

In total, the prizes for this category amount to MOP207,050, the second largest prize money of the racing weekend.

The winner of the race will bring home the equivalent of MOP33,000 while the winning team will be awarded

MOP23,000. Also, all the riders that finish the race placing second to fifteenth will receive prize money ranging from MOP25,700 to MOP2,100.

The rider to set the fastest lap time of the race will receive MOP3,090, as will the rider starting the race from pole. The perfect weekend for a rider, then, will net him MOP39,100. To this can be added an extra MOP22,600 for the winning team.

In relation to the MOP3,090 the eight-times winner of the Motorcycle Grand Prix has the provisional pole position and he is closer than anyone else to grabbing the money. However, the Briton revealed after the first session of qualifying that his provisional pole position was in danger because of countryman Stuart Easton, who has been on top form recently back in the United Kingdom.

The Macau Road Sport Challenge, the Macau Touring Car Cup and Macau GT Cup prizes will be disbursed under the same model in Hong Kong dollars.

The winner will receive a cheque worth MOP16,500,

The largest share of the prize money will be garnered by the Formula 3 race in the amount of some MOP440,000

the second MOP11,300 and the third MOP6,100. In total, each of these competitions will disburse MOP34,000 in prizes.

However in these competitions everything is still open. The prizes of the Road Sport Challenge and the Macau Touring Car Cup will be decided tomorrow, the day that these two races take place, while the qualifying, which does not award money, will be run today.

In relation to the Macau GT Cup, a competition that has seen its prestige increase exponentially in recent years, the decision will be made on Sunday. But today there is still some action, as qualifying takes place. As the Guia Circuit does not have many places to overtake, the drivers know that if they want to grab the money the best way to start doing it is to secure pole. However as the Macau GT Cup this year will have the largest German manufacturer involved, the prestige of winning alone will be more important than the MOP16,500. Because beating rivals is worth more in marketing mileage than prize money.

The World Touring Car Championship and Chinese Racing Cup will not net winners any cash.

In the end, winning the races is more about the prestige and the glory rather than the money. And eventually the prizes only cover part of the expenses that the drivers and teams have to shell out on races, because at the end of the day it’s sponsorship that keeps the competitors going.

Business Daily | 19

November 14, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

VIETNAM NEWS In keeping with Viet Nam Post and Telecom Group (VNPT)’ June-approved grand scale restructuring plan, a recent proposal to establish three new firms was submitted to the Ministry of Information and Communications (MIC) and the Prime Minister. The three firms, VNPT- Net, specialising in network infrastructure; VNPT- Vinaphone, operating in telecommunications; and VNPT- Media, operating in multi-media services, will divide VNPT’s core businesses into specialised firms, similar to a split-up. The restructuring of VNPT will need to reallocate human and financial resources to avoid overlap, said the group’s general director, Tran Manh Hung.

PHILSTAR Moody’s Investors Service said a downgrade in the Philippines’ credit rating will be “unlikely” over the near term but stressed a significant decline in debt metrics or even the worsening of external payments position may act as downside risks to the country’s investment grade rating. “In view of the currently positive outlook on the Philippines’ sovereign rating, a downward rating movement is unlikely over the near term,” Moody’s said. Moody’s in October last year hiked the country’s credit rating from Ba1 to Baa3, the minimum investment grade rating, and assigned a positive outlook on this.

THE STRAITS TIMES As new malls continue to open their doors while old ones undergo facelifts, an estimated 3 million sq ft of new retail space will be created in Singapore by the end of this year, said a CBRE report. Consultants are observing healthy leasing activity, though they expect that the sizeable increase in new shop space may put pressure on rents, or lower occupancies if developers try not to budge on their asking rates. The head of research for CBRE Singapore expects average mall rents to fall by 3 to 5 per cent within the next six months.

THE STAR Malaysia’s national oil company Petronas and Total of France are in the race to win the lucrative TurkmenistanAfghanistan-Pakistan-India transnational gas pipeline (TAPI), Pakistan’s Express Tribune reported. It said Chevron and ExxonMobil, the top us energy firms, have dropped out following rejection of their demand for an equity stake in the project.

The report quoted sources as saying that the steering committee of the TAPI project will meet in the Turkmenistan capital, Ashgabat, on Nov 1718 to discuss the possibility of awarding the US$10bil construction contract.

China’s new world order Lee Jong-Wha

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Professor of Economics and Director of the Asiatic Research Institute at Korea University

lready the world’s largest exporter, manufacturer, and international-reserveasset holder – is poised to overtake the United States as the world’s largest economy (measured according to purchasing power parity) this year. Now, it is using its growing clout to reshape global economic governance. Indeed, the country’s days of following Deng Xiaoping’s injunction to “hide brightness and cherish obscurity” are long gone.

After decades of actively participating in international economic institutions – including the G-20, the International Monetary Fund, the World Bank, and the World Trade Organization – China has begun to resemble a revisionist power seeking to create a new world order. Last month, China and 20 other Asian countries signed a memorandum of understanding to establish a new multilateral development bank, the Asian Infrastructure Investment Bank. Viewed as the first serious institutional challenge to the World Bank and the Asian Development Bank (ADB), the AIIB was proposed by China.

In a sense, this shift should not be surprising, given the widespread debate over the inherent weaknesses of existing international institutions and governance structures – in particular, China’s disproportionately small role in them. China accounts for a 3.8% voting share of the IMF and a 5.5% share of the ADB, compared to 16.8% and 12.8%, respectively, for the United States and 6.2% and 12.8% for Japan.

Moreover, the advanced economies have staked their claim to leadership in these institutions. Europeans have led the IMF and Americans have controlled the World Bank since their establishment after World

War II. Likewise, the ADB has had Japanese presidents since its founding in 1966.

Meanwhile, emerging economies like China face significant barriers to boosting their capital contributions to – and their status in – these institutions. And reforms, though widely discussed, have faced long delays. For example, IMF quota and governance reform, on which G-20 leaders agreed in 2010, has yet to be implemented.

Frustrated, China finally decided to push for the establishment of the AIIB, in which it will be the largest shareholder, with a stake of up to 50%. China will also provide the AIIB’s first president, and the bank’s headquarters will be in Beijing.

China can leverage its considerable influence over the AIIB to bolster its international image, particularly by strengthening its relationships with developing countries. Many developing Asian countries, for example, have significant unmet need for infrastructure investment to buttress their long-term economic growth.

The AIIB can not only channel more resources toward developing countries; it can do so in a way that is better suited to their needs, with fewer bureaucratic barriers and more flexibility than its more established counterparts. The AIIB would complement China’s rapidly increasing bilateral development financing, with the added benefit of a multilateral structure that ensures better governance and higher operating standards.

What the AIIB may not be able to do is contribute to improved economic governance in Asia – not least because Japan, Australia, Indonesia, and South Korea, whose total GDP is roughly equal to China’s, are not yet members.

Without these economies to counterweigh China’s influence or a resident board of directors,

the AIIB could allow China to impose its will on members and beneficiaries alike.

For example, as former Indian Minister of State for External Affairs Shashi Tharoor has suggested, China may use the AIIB to help finance a new Silk Road, an overland and maritime route connecting East Asia with Europe. While the project could have significant regional benefits, stimulating economic development by promoting integration and connectivity, it would serve primarily China’s interests, expanding the country’s international influence and reducing the gap between its eastern and western regions. At the same time, it could exacerbate geopolitical tensions and territorial disputes between China and its neighbours.

More generally, some development experts have raised concerns about whether the AIIB can operate according to international standards of governance and transparency, enforce safeguards, refuse to work with incompetent or corrupt governments, and follow effective procedures. They also worry that, by fragmenting international development finance, the AIIB could weaken its impact considerably.

To be sure, China has made an effort to address such concerns, emphasizing repeatedly that the AIIB aims to complement, not compete with, other institutions.

Following the AIIB’s launch, Chinese President Xi Jinping declared that it “needs to follow multilateral rules and procedures” and should learn from “existing multilateral development institutions in their good practices and useful experience.”

But China must support such statements with an active commitment to fair and efficient

governance. Specifically, it should consider lowering its own voting share, instituting a rotating presidency, and broadening membership to include advanced Asian economies.

The AIIB is a welcome initiative.

But, given deep mistrust and a multitude of conflicts involving China, its regional neighbours, and the United States over security, environmental, and human-rights issues, its success is far from guaranteed. It is up to China to make the necessary compromises to enable the AIIB to reach its potential.

China’s approach to influencing global governance is only beginning to emerge. One hopes that it starts off on the right foot.

Project Syndicate

The AIIB would complement China’s rapidly increasing bilateral development financing, with the added benefit of a multilateral structure that ensures better governance and higher operating standards

20 | Business Daily

November 14, 2014

Closing China and Russia ink energy agreements

HK releases research tackling aging population

Gas import from Russia via the western route will hit 30 billion cubic meters per year and last for three decades, according to the China National Petroleum Corp (CNPC) yesterday. The CNPC signed a framework agreement with Gazprom on November 9 detailing the natural gas import arrangement. The deal is another step forward in gas cooperation, preceded by the two oil giants inking a purchase and sales contract on gas import via the eastern route in May, 2014. The CNPC also signed a cooperation agreement with Rosneft on the Vankor Oilfield project on the same day.

Hong Kong’s Legislative Council (Legco) Secretariat yesterday released a Research Brief on “Preparing for population aging” to study the overseas experience in tackling aging population. According to the latest population projections by Hong Kong’s Census and Statistics Department, the number of people aged 65 and above in Hong Kong will increase significantly from 1.02 million in 2013 to 2.56 million in 2041.

The research said challenges presented by an aging population are not unique to Hong Kong. The Brief highlights various policy measures introduced by other places like on how to tackle the challenges of aging population.

PBOC sees smaller banks applying for injections Financial institutions in some provinces, including Jiangsu and Zhejiang, are submitting applications for central bank loans

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he People’s Bank of China is gauging demand for funds at city commercial banks to support lending to small enterprises, according to an official with knowledge of the matter.

The PBOC will later decide the size of the injections, which could run into tens of billions of yuan, the official said. The monetary authority has already conducted such operations at 3.5 percent interest in Zhejiang, Sina. com reported today, citing market participants.

Premier Li Keqiang has called for lower financing costs to support small businesses, while refraining from broadbased monetary easing, at a time when the economy is forecast to grow at the slowest pace since 1990. The PBOC has cut reserve requirements for some lenders and pumped 769.5 billion yuan (US$126 billion) into selected banks in the last two months.

“This is another policy signal that the PBOC will continue to lower financing costs,” Zhou Hao, a Shanghai-based economist at Australia & New Zealand

fax seeking comment or to a telephone enquiry.

Slowing economy

People’s Bank of China headquarters in Beijing

Banking Group Ltd., said in a phone interview.

Loan rates The weighted average loan rate for non-financial companies was 6.97 percent for September, one basis point higher than June’s 6.96 percent, according to central bank data.

The PBOC will lower financing costs and maintain prudent monetary policy, it said in its third-quarter report released November 6.

The Hang Seng China Enterprise Index of shares rose to the highest level since September after the initial report of the planned PBOC injection. It closed 0.7 percent higher at 10,800.91.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, pared gains on the initial PBOC injection report today before trading six basis points higher at 3.06 percent. The yield on China’s government

bonds due September 2024 rose seven basis points to a one-week high of 3.65 percent, according to National Interbank Funding Centre data.

“The central bank is facing a dilemma,” Zhou said. “It wants to avoid broad easing, but the injected money seems to be trapped in the banking system, not helping lower borrowing costs in the real economy by that much.”

The PBOC didn’t immediately respond to a

China’s industrial output growth slowed to 7.7 percent in October, trailing the 8 percent median estimate in a Bloomberg survey, according to official data released today.

The world’s second-largest economy will expand 7.4 percent this year, the least in 24 years, according to the median estimate in a Bloomberg survey. Foreignexchange reserves slid by a record US$105.5 billion in the third quarter to US$3.89 trillion as the PBOC scaled back dollar purchases that add yuan to the financial system.

“It’s now quite certain that the PBOC prefers using new tools to inject liquidity, rather than reserve-ratio cuts or an interest-rate cut,” Deng Haiqing, chief fixed-income analyst at Citic Securities Co., said by phone from Beijing.

“These new tools are more effective in adjusting the interest rates in a market environment.”

G20 protesters bury heads in Bondi sand

Virgin Money climbs on first trading day

Taishin sees investors’ exit from Changhwa

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cores of Australians buried their heads in the sands of iconic Bondi Beach yesterday to send a message to Prime Minister Tony Abbott about the dangers of climate change.

As world leaders arrived in the northern city of Brisbane for the G20 summit, more than 100 people dug holes in the famous sand so they could plunge their bodies in halfway, holding their position for three minutes.

Organisers said they were telling Abbott: “You have your head in the sand on climate change”.

“Tony Abbott’s refusal to include climate change on the G20 agenda and his government’s overt attempts to stifle the renewable energy industry show that he is determined to keep his head buried in the sand on the most important issue of our time,” said organiser Eden Tehan.

Since coming to power last year, Abbott’s conservative government has scrapped a carbon tax designed to tackle climate change, fulfilling a key election promise. It has also removed another tax on the profits of coal mining, while new investment in renewable energy has fallen 70 percent.

AFP

he lender backed by billionaire Richard Branson, climbed in its first day of trading after raising at least 312 million pounds (US$492 million) in an initial public offering that had been delayed by last month’s market selloff.

The shares were sold for 283 pence apiece, valuing the bank at 1.25 billion pounds, according to a statement today.

While the company drew orders for all the shares on sale within a day of opening, the low pricing reflects caution in a quarter where at least five IPOs in Europe have been postponed or withdrawn amid a stock-market selloff. Virgin Money and Aldermore Group Plc. delayed sales in October.

Virgin Money said on November 4 it would resume the IPO after the Bank of England announced lower-than-expected minimum regulatory ratios for banks, prompting a surge in shares of British banks. The U.K. lender, which had a 3.8 percent leverage ratio as of June 30, already exceeds the BOE measure.

Bloomberg News

Bloomberg News

aishin Financial Holdings, one-third owned by foreign investors, said it could face a more than T$10 billion (US$333 million) paper loss this year from a dispute with Taiwan’s finance ministry over the ownership of Changhwa Bank.

Taishin is the biggest shareholder in Changhwa bank, with a 22.5 percent stake. The finance ministry is the second largest shareholder, but has been pressing Taishin to cut its stake or reduce its seats on Changhwa’s board as part of its efforts to take control of the bank.

Taishin’s foreign investors include investment firms Blackrock, Vanguard and Norges Bank.

“If the board seats (on Changhwa bank) we can get are less than half of the total, we would have an instant paper loss of over T$10 billion,” Taishin President Joseph Jao told Reuters. “Some of our foreign shareholders may sell their holding in Taishin because of the dispute.”

Earlier, Finance minister Chang Sheng-ford told reporters he is getting ready to “stage a war” against Taishin if negotiations over Changhwa are not “fruitful”.

Reuters