Macau Business Daily, Nov 21, 2014

MOP 6.00 YearYear III IIINumber Number 638 672 Monday FridayOctober November 6, 2014 21, 2014 Publisher: Publisher: Paulo Paulo A. Azevedo A. Azevedo Closing Closing editor:editor: Luis Gonçalves Sara Farr

Caesars’ shares jump on debt proposal to convert unit into REIT > PAGE 7

24-hour border crossing to China D

ecember 18 is the date. It’s been a long time in the works. But now it’s reality. The Lotus Bridge crossing to and from mainland China will open 24 hours. So round the clock access - and egress - to and from Hengqing.

The other crossings, including crowded Gongbei Port, have had their times extended by up to two hours. This ahead of the 15th anniversary of the establishment of the MSAR on December 20 Page 2

Macau’s appetite for foreign currency deposits grows Page 5

Time to liquidate?

Judge asks Trump casino

End of gold rush era

Page 7

HSI - Movers

Reality check time.

Jewellery retailers are licking their wounds.

Last year’s ‘Gold Rush’ has petered out, with declining sales the proof. Many mainland Chinese visitors bought in but conspicuous consumption is out

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Name

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Factories faltering The Chinese factory sector has seized up. Output returned to 6-month levels and concerns have surfaced once more.

Analysts forecast more government intervention in the economy to correct weak trends

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November 20

8

Taking public opinion on board

%Day

China Mengniu Dairy

2.94

CNOOC Ltd

1.95

Tencent Holdings Ltd

1.05

China Petroleum & Ch

0.97

PetroChina Co Ltd

0.83

China Merchants Hold

-1.35

Galaxy Entertainment

-1.47

China Resources Ente

-1.52

CITIC Ltd

-1.53

China Resources Land

-1.64

Source: Bloomberg

I SSN 2226-8294

The consultation conclusions are clear. The public approves of undercover officers keeping tabs on taxi drivers. This in the wake of increasing complaints. The new taxi law will include provision for such agents. And the flag fall rate will increase by MOP2 to MOP17. The draft bill is expected to be finalised by the end of the year Page

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November 21, 2014

Macau

Inland border entry hours to be extended ahead of handover anniversary Starting December 18, the Border Gate-Gongbei portal will enjoy a two-hour entry extension while the Lotus Port-Hengqin border and the Industrial Zone border in Ilha Verde will open around the clock Stephanie Lai

sw.lai@macaubusinessdaily.com

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he busiest of inland checkpoints at Border Gate - connected to Gongbei in Zhuhai and now handling a daily visitor volume in the order of 300,000 people - is to have its opening hours extended to 6:00am from the current 7:00am, closing at 1:00am instead of 12:00 midnight. This new adjustment is meant to cover all types of visitors but is not for lorries, government spokesperson Alexis Tam Chon Weng announced in an ad hoc press briefing yesterday.

This new measure, freshly approved by China’s State Council, is to come into effect at midnight on December 18, along with the 24-hour border crossing at both the Lotus Port-Hengqin checkpoint and the Cross-Border Industrial Zone connecting Ilha Verde and Maoshengwei in Zhuhai.

Apart from mainland Chinese residents, visitors travelling to the mainland or returning to the city can cross the Lotus Port-Hengqin border starting on December 18 on a 24-hourly basis, an adjustment that applies also to tourist coaches traversing this border but not regular logistics traffic, Mr. Tam noted.

The Lotus-Port Hengqin border, currently opens at 9:00 am and closes at 8:00 pm, has a daily passenger volume of 13,000 people and may undergo an expansion on the Macau

side to accommodate heavier traffic in the future.

The Cross-Border Industrial Zone, however, has more restricted access to the types of visitor that can enjoy the 24-hour crossing measure: only mainland Chinese labour working in the city, Macau residents and students that are studying here or on the mainland can cross the checkpoint in the industrial zone from 12:00 midnight to 7:00 am.

The Zhuhai-Macau Cross Border Industrial Zone is the only 24hour crossing immigration point at the moment but it is only currently open to business owners or staff of companies working inside the zone. About 2,500 people cross the industrial zone checkpoint every day, whilst only 350 people cross this border from 12:00 midnight to 7:00 am now, said the deputy director of the Public Security Police, Mr. Mui San Meng, yesterday.

Also, the extended entry hours for the industrial zone checkpoint starting on December 18 will not cover the crossing of light vehicles or tourist coaches, the government noted.

This latest measure on border entry hours coincides with the month China’s President Xi Jinping is scheduled to visit Macau to attend the inauguration ceremony of Chief Executive Fernando Chui Sai On

and his leading Secretaries. He will also participate in the ceremonies marking Macau’s 15th anniversary of the handover. Mr. Tam said that the lineup of the new Secretaries are only due to be announced “soon”.

“These set of border entry hour extension measures have already been negotiated for a long time between us and the government departments in Beijing, since Mr. Chui took office [five years ago],” said Mr. Tam, although he declined to disclose the agenda of Mr. Xi’s visit here. “This is actually realising the Guangdong-Macau Framework Agreement signed between Mr. Chui and then-Guangdong Governor Mr. Huang Hua Hua on March 2011, in which we wanted to achieve a border entry hour extension in both Gongbei and Hengqin, and eventually a 24hour border crossing.”

The government spokesperson rumoured to soon be succeeding the post as Secretary for Social Affairs and Culture after Cheong U - reiterated that the 24-hour border crossing will “definitely” apply to the busy Border Gate-Gongbei portal in future.

While higher bus frequencies and more police will be assigned to accommodate the extended border entry hours, Mr. Tam said that the government would closely monitor the change in visitor flow that this new adjustment will bring.

Former Cosco executive sentenced to 10 years jail

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former executive of stateowned shipping giant China Cosco Group was sentenced to 10 years imprisonment in a first instance ruling following graft charges, mainland-Chinese language media have reported.

Xu Min Jie, formerly vicepresident of the group, was accused of reporting the expenses of his son’s accommodation in a Hong Kong hotel and his wife’s spending on beauty services and meals at the Macau Jockey Club as “social expenses” when applying for reimbursement of 310,000 yuan (US$50,615) from the company during his term as general manager of Cosco Pacific between 2007 and 2011, mainland Chineselanguage newspaper The Mirror reported on Wednesday.

Cosco Pacific is the state-owned company’s port operating arm based in Hong Kong. The Cosco Group’s businesses include container and dry-bulk shipping, as well as port operations.

Mr. Xu was investigated and detained in November last year on what were mooted to be corruption charges.

On June 9 of this year, China’s Central Discipline and Inspection Commission announced that Xu had been expelled from the Communist Party for taking advantage of his position in the company and claiming expenses for personal items.

S.L.

Ambrose So: Possible negative growth for 2014 gaming revenue

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mbrose So Shu Fai, chief executive of SJM Holdings Ltd, expects this year’s gross gaming revenue in Macau may suffer a decrease compared to last year, according to Chinese media outlet Macau Daily.

Mr. So said the number of visitors to SJM has remained flat. The biggest slump in revenue has appeared in the VIP sector. He expected that even if the gaming revenue in November and December can perform as well as last year, the increase in this year’s total revenue would only be 2.3 percent.

Any worse performance in the last two months of this year compared to the same period in 2013 would indicate a negative growth of 2014 on a year-on-year basis.

No VIP promoters have withdrawn from SJM’s casino floors, he says, despite rumours some VIP rooms had to be closed due to the decline in sector revenues. Mr. So said the casino operators only deal with junkets which have the freedom to run their VIP rooms.

He was speaking to reports on the sidelines of the first anniversary celebration of the Macau European Chamber of Commerce, for whom he acts as honorary chairman, on Wednesday.

The organisation said that they are fostering the works to fortify bilateral relations for the benefit of mutual economy, commerce and culture. Mr. So said that SJM would continue to support the chamber of commerce in enhancing the connection between Macau and Europe and that it has integrated European elements into its Lisboa Palace Cotai project introducing two European brands Versace and Karl Lagerfeld.

J.K.

Business Daily | 3

November 21, 2014

Macau

DSAT: Undercover officers to be introduced in new taxi law The Transport Bureau said undercover officers may start law enforcement in the future, a decision based on the results of public consultation.

The Bureau also announced that the taxi fare increase would come into effect by the end of this year Joanne Kuai

joannekuai@macaubusinessdaily.com

T

he Transport Bureau (DSAT) said that undercover officers hunting for taxi drivers conducting illegal behaviour and harsher punishment such as increasing penalties are likely to be introduced to the taxi law revision draft.

At a media briefing yesterday introducing the results of a 45-day public consultation the head of the DSAT department of traffic management, Lo Seng Chi, said public opinion has given them the impetus to draft such regulations.

During the consultation period - from August 9 to September 23 - the Bureau collected 296 written opinions and 547 questionnaires from street interviews mainly conducted with tourists in addition to more than 20,000 online questionnaires answered mainly by locals.

More than 97 percent of the opinions collected online support the introduction of undercover agents and increased penalties. The biggest disagreement lies in installing monitoring equipment inside the vehicle: 83 percent agree with the measure while the remainder do not.

The Bureau said other major suggestions include simplifying procedures for tourists to file a complaint against cab drivers, more taxi stand controllers, increased taxi-related enforcement

powers for the police, possible licence suspension and cancellation of licence for violations.

The authorities hope that there is also going to be a revision of the way licences are distributed.

“So far there is a public

tender and the highest bid gets the licences. We want other criteria to be taken into account also. And we suggest the revision of the law also include two licensing systems that cover both companies and individuals,” said Mr Lo.

The long anticipated taxi fare increase will take effect in December, said Mr Lo. The flag fall rate – the fare for the first 1,600 metres of a cab journey – will be raised to MOP17 from the current MOP15. Currently, every subsequent 230 metres

is charged at MOP1.5, which will be raised to MOP2 for every 260 metres. In addition, the charge for waiting will be raised to MOP2 per minute from the current MOP1.5.

The draft bill is expected to be finalised by the end of the year.

105 restaurants fined for violating pricing regulations

Robots to guide visitors at Travel Expo

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s at October 15, the Macau Government Tourist Office (MGTO) had fined 105 restaurants for overpricing or increasing their prices during holiday seasons without notifying the authorities.

In a reply to legislator Ho Ion Sang’s written enquiry, director of Labour Affairs Bureau (DSAL) Wong Chi Hong said restaurants can make their own price list but before putting it into practice or changing the price must notify the entity that issues them the licences. Price details must be explained to customers on the price list, such as whether tax or service

charge is included. Violation of these regulations will result in a fine.

Mr. Wong said he had consulted the Civic and Municipal Affairs Bureau (IACM), who said they would send inspectors to restaurants during holiday seasons and regulate the situation regarding additional charges.

By early October, IACM had inspected 689 restaurants and prosecuted 48 who had not complied with the authorities on pricing beforehand.

Some local restaurants close or increase service charges during holiday seasons because the law mandates that employees who

work on a mandatory holiday are entitled to an additional day’s basic remuneration and a compensatory rest day which may be substituted for another day’s basic remuneration.

Legislator Ho Ion Sang said in his written enquiry that the phenomenon of restaurants raising prices of their own volition was becoming rampant, with some asking for 20 to 40 percent extra and some even overcharging after the holiday season. He urged the government to better regulate the situation and increase fines.

J.K.

he second edition of the Macau International Travel (Industry) Expo kicks off at The Venetian today. Over 100 companies from more than 25 countries including the U.S., Korea, Japan, Italy and Portugal are joining the three-day event.

The exhibition will occupy an area of 6,500 square metres, with 320 booths arrayed. This year’s edition is themed ‘Splendid World, Wise Travelling’ - according to the organizer, robot tour guides are at the venue to show visitors around.

The organising committee told Business Daily that last

year the travel expo attracted more than 52,000 individuals, with deals in excess of MOP2.5 billion signed during the event. They expect this year to outperform and to promote tourism in line with Macau’s goal to be a World Leisure & Tourism Destination as well as developing the convention and exhibition industry.

The event is also supported by the China National Tourism Administration, the representative for which said they hope tourism organisations from the mainland will use this platform to reach out to overseas markets, while foreign counterparts can explore the mainland market as well.

4 | Business Daily

November 21, 2014

Macau

Reality check for jewellery retail sales After the golden year of 2013, jewellery retail sales have been declining year-on-year in Macau and Hong Kong. A perfect storm has brought the market back to earth with a bump João Santos Filipe*

jsfilipe@macaubusinessdaily.com

The effects of the anti-graft policies have been felt across luxury goods Sulabh Madhwal, Euromonitor International analyst

“S

ince the beginning of the year until October, we’ve seen a single digit drop in our sales revenues. This is because we’re comparing the results with a high base of sales in 2013”, says Lee Koi Ian, Managing Director of Seng Fung Jewellery Company Limited, to Business Daily.

The company has eight shops on the streets of Macau, mainly concentrated in San Ma Lou and Nam Van. Last year, the drop in the value of gold led many Chinese tourists to buy in.

This event – quickly dubbed the ‘Gold Rush’ - prompted the results of the jewellery retail sellers. For instance, the profit of two of the major players in Hong Kong and Macau – Chow Tai Fook and Luk Fook – went up by 32.1 percent to MOP7.5 billion, and 50 percent to MOP1.96 billion, respectively.

However, with the gold rush over, sales growth has been declining for both small and large players.

According to data from

the Statistics and Census Services (DSEC) of Macau, in the second quarter of this year there was a drop of 21.9 percent year-on-year in the sale of watches, clocks and jewellery. This market lost MOP1.2 billion during the second quarter in comparison to last year. From March to August, Hong Kong posted an average drop of 21.7 percent.

Like Seng Fung Jewellery, Chow Tai Fook (Same Stores Sales Growth 2Q –22 percent) and Luk Fook (SSSG 2Q –20 percent) explained in their second quarter results that the end of the Gold Rush caused this reduction.

Anti-graft campaign hits luxury product sales However, the high base of sales alone should not be blamed for the drop in sales.

The anti-graft policies of the Central Government have been affecting the sale of luxury products in Hong Kong and Macau, Sulabh Madhwal, Personal Accessories and

Eyewear Industry analyst at Euromonitor International, explained to Business Daily.

“The effects of the antigraft policies have been felt across luxury goods”, he said.

“In 2014 and 2015, value sales growth of real jewellery is expected to be much lower than those seen for the stellar year of 2013”.

Mainland Chinese tourists visiting Macau and Hong Kong have also less money to spend than in the past.

“Mass market shoppers are more or less the same as last year as is the number of visitors. But we have fewer high spending clients, which are the ones that buy goods worth more than MOP100,000”, the Managing Director of Seng Fung Jewellery said.

According to the official data of the third quarter of the year, mainland Chinese per capita spending in Macau decreased 4 percent year-onyear to MOP2,220.

This trend is not exclusive to the jewellery market.

Earlier this week, Sasa,

the retail seller of cosmetic products, said that their clients were also spending less money.

But in Macau retail sales are being affected by declining gross gaming revenues.

“It’s affected the sales chain”, Lee Koi Ian said.

“In our company we do not sell to the very highend [consumers], who are gamblers and shops inside casinos. But our best high-end clients are usually gaming promoters and workers related to gaming”.

Meanwhile, the Hong Kong market is struggling with the Occupy Central movement.

“Customer traffic and the business of our point-ofsale in certain areas in Hong Kong has been affected by the demonstrations happening nearby”, Chow Tai Fook reported earlier this week.

This is a perspective shared

by Barclays analysts. “We believe trends for October will likely weaken as retail sales could be negatively impacted by the ongoing protests in

Hong Kong”, the British bank stressed.

Even if there is a decline in sales in comparison to 2013 the prospects for the jewellery market are brighter for the rest of this year and for 2015.

“The retail sentiment is better because there are more weddings and festivities in the city during the second half of this year, especially after Golden Week in October”, Mr. Lee said.

This fact is also proven by Luk Fook’s results for Golden Week. The group’s same stores sales growth was up 3 percent year-on-year in Macau and the Hong Kong market.

“Although the overall industry outlook is expected to be positive, leading retailers might be pressed to extract revenue growth.

Recovery in 2015 is not expected to be as strong as the Chinese government’s antigraft policies are unlikely to change in the near future”, Euromonitor International analyst Sulabh Madhwal said of future prospects. *with Stephanie Lai

Business Daily | 5

November 21, 2014

Macau

Macau’s appetite for foreign currency deposits grows

M

acau residents and the government continue to put more and more of their money into foreign currency deposits, especially those denominated in Hong Kong dollars and yuan.

According to data from the Monetary Authority of Macau, residents here and the public administration had, in September, MOP423 billion in foreign currency deposited in bank accounts. That’s

an increase of 18.4 percent year-onyear (MOP358 billion). In the space of a year, locals deposited in Macau banks the equivalent of more than MOP65 billion in foreign money.

The deposits form the largest part of the international liabilities of the territory’s banking system.

The total international liabilities had a similar growth rate in September, going up by 23.2 percent from a year ago to MOP958.1 billion

Corporate

(US$119.8 billion). Of these, external liabilities and local liabilities in foreign currencies expanded year-on-year by 24.9 percent to MOP495.0 billion and 21.4 percent to MOP463.0 billion, respectively.

With the economy booming and more foreign companies and workers arriving in Macau, the size of international assets in banks here continue to increase at a double-digit pace every year, despite a small drop in the last quarter. In September, international assets here totalled MOP1,008.7 billion (US$126.1 billion), growing 24 percent more than a year ago. Compared to end-June, the figure, however, represented a drop of 1 percent. The slowdown since June made the share of international assets in total banking assets fall to 86.5 percent in September from 87.2 percent at end-June. The share of international liabilities in total banking liabilities also dropped to 82.1 percent from 82.8 percent in the same timeframe.

Most of the foreign assets and liabilities in Macau’s banking system come from Asia and Europe, AMCM said. Claims on Mainland China were 36 percent of the total, followed by Hong Kong at 32 percent. In Europe, claims on Portugal, the United Kingdom and Germany took up 6.3 percent, 1.6 percent and 1.5 percent.

L.G.

Shell V-Power Nitro+ launched in Macau Shell has launched its next-generation premium performance fuel, Shell V-Power Nitro+. In a statement, the company said ‘Shell V-Power Nitro+ is the result of Shell’s latest fast-acting premium fuel technology, which aims at enhancing the performance of car engines to unleash their full potential on the road and delivering a refreshing driving experience to drivers.’

This high-performance fuel contains 25 percent more friction modifiers than the previous Shell V-Power formulation.

Anne Yu, retail general manager of Shell Hong Kong Ltd for Hong Kong and Macau market, said, “Shell strives to innovate and seek breakthroughs in the field of scientific research to satisfy the demand in quality fuel from customers and their cars. The technical partnership with Ferrari brings precisely the unprecedented superiority of Scuderia Ferrari Formula OneTM race fuel to drivers. Shell V-Power Nitro+ has been highly acclaimed by Hong Kong drivers since its successful launch in Hong Kong last year. Today, Shell brings this premium high performance fuel to Macau, so Macau drivers can also enjoy the exceptional driving experience.”

6 | Business Daily

November 21, 2014

Macau Brought to you by

HOSPITALITY Airlift Until the beginning of 2011, Taiwan was the source of most aircraft landings in Macau.

In the second quarter of that year, for the first time, the number of flights from the mainland was greater than those arriving from Taiwan – by just two flights, that’s certain, but a first for sure. The gap has been increasing almost continuously ever since.

In the third quarter of the current year, the difference reached an all-time high, at 883 more planes arriving from China than from Taiwan. Inevitably, the share of China in the total number of flights landing in Macau keeps rising. The relative recuperation seen in flights coming from Taiwan in 2013 seems to be vanishing. Following a relatively long period of decline, Taiwan flights seemed to start a kind of renaissance in 2103, rising noticeably relative to previous years. But in the first nine months of this year the figures have been consistently below those of 2013.

The cumulative number for this period is 4.1 percent lower than last year, and 10 below what was the case in 2010.

Flights coming from other origins present a mixed picture. South Korea and Thailand are the most dynamic in the group. Compared with the same period in 2010, their numbers were in the last full quarter 3.2 times and 1.7 times higher than before. But while Korean flights are growing steadily, those for Thailand have recently declined. That decline was especially strong in the third quarter, when the figure registered stood 30 below the previous year. Among the worst results are those from Japan, which have declined since 2102 and currently stand well below their peak. Flights from Singapore and Malaysia have all been declining.

J.I.D.

6.8%

increase in number of inbound flights, JanSep, on previous year

Every little byte counts

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rinted media is still the number one means of reaching the consumer used by local companies but digital advertising is coming of age, say analysts and those working in the field. Over the years, companies in Macau have been investing more or less the same in advertising but adopting a more targeted approach. That’s why, even though printed ads are still the communication tool of choice, the Internet is elbowing its way through the pack.

Overall, advertising sector revenues increased 40 percent in 2013, returning MOP559 million. Of this, 73 percent came from advertising services per se, which corresponds to an overall annual increase of 46 percent, while revenues derived from the organisation of conferences and

exhibitions dropped 23 percent.

The chairman of the Association of Advertising Agents of Macau, Keyvin Bi, says the Internet appears to be leading the charge, while more expensive and traditional media such as outdoor billboards are waning in popularity. “We only see banks, casinos or some fuel companies using them”, he says. “Outdoor billboards can cost MOP200,000 to MOP300,000 for one month or half a month, depending on location.”

Local companies primarily resort to printed advertisements in newspapers but even they are now starting to advertise on the Internet.

“The Internet is much more efficient and cheaper”, Mr. Bi explains, adding: “They can advertise on Macau websites but they can also buy advertising through social media such

Money matters

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new generation of casino workers is uniting and shaking up the casino industry. Observers say the city’s new political atmosphere is spreading to the gaming world, guided by young casino dealers who do not feel connected to traditional gaming workers associations. Some are looking for a seat in the Legislative Assembly. Times are changing for labour relations in the gaming sector.

This year, thousands of gaming workers participated in several actions targeting the six gaming companies, the biggest such protests since 1999.

They complained that their benefits

and wages were not being improved by their employers.

They walked off the job, called in sick all together at the same time and worked to rule, challenging gaming operators during National Day Golden Week, a peak season for casinos.

Workers, guided by a new association, Forefront of The Macau Gaming, argued that their employers were ignoring their complaints and had been avoiding them for some time.

Eventually, the situation escalated into public demonstrations.

This comes amidst a gaming revenue slowdown, and while operators are looking at staffing new

as Facebook. Or, if they’re trying to promote an event, firms can advertise through Google or Yahoo.”

Foreign firms usually invest more than local ones in advertising, as Macau firms already know the market, using, instead, the bestrespected “word of mouth” method to publicise their products or services. Moreover, Mr. Bi also says that overseas companies usually choose a Hong Kong or Mainland Chinese advertising agency. “Most of them don’t buy directly from local companies, always from a foreign advertising agency. Even casinos will not buy directly from a local advertising agency”, he says.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at magzter.com

projects in Cotai. It is challenging the industry. Workers are asking for an improved promotion system and smoke-free casino floors by 2016 plus better wages and benefits.

Official data shows that the average earnings of full-time dealers in the second quarter rose by 7.1 percent year-on-year to MOP25,727 (US$2,966).

Macau-watcher Larry So Man Yum says that the political atmosphere has changed since protesters organised against a controversial bill to give generous retirement packages to the outgoing Chief Executive and Secretaries. They managed to have the bill shelved by the government.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at magzter.com

Business Daily | 7

November 21, 2014

Gaming

Time to liquidate?

Judge asks Trump casino

T

rump Entertainment Resorts Inc. is losing money, its assets are deteriorating, and the Atlantic City, New Jersey, casinoowner’s prospects of turning things around are bleak. Why shouldn’t it just be liquidated, asked the judge overseeing its bankruptcy.

U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, ordered the company to “show cause why the court should not convert the case” to a formal liquidation under Chapter 7 of the bankruptcy code.

The judge scheduled a hearing for December 4.

Trump Entertainment, the owner of the Trump Taj Mahal, faces continuing losses and doesn’t have financing to support its reorganization

efforts, so “there is no reasonable likelihood of rehabilitation,” Gross said in today’s order.

Under Chapter 7 of the U.S. Bankruptcy Code a trustee is automatically appointed to make decisions for the company and sell its assets to distribute the proceeds to creditors.

The Trump Taj Mahal is set to close December 12, becoming the fifth Atlantic City casino to shutter this year.

A letter-writing campaign is being waged between the company’s management and its union, Unite Here Local 54. The focus is billionaire Carl Icahn, who controls Trump Entertainment’s lenders, with the company saying he’s the company’s

only hope for survival while the union argues the billionaire can save the Taj Mahal without stripping them of health care and pensions.

Icahn investment Under a proposed restructuring plan, the Icahn lenders would take over the company and would inject US$100 million in capital, according to court filings.

The union, which represents more than 1,100 Taj Mahal employees, lost a court fight over its labor contract, with the judge granting the company permission to terminate its collective bargaining agreement.

The union appealed the ruling, saying Icahn is trying to reap profit at

the expense of low-income employees.

Trump Entertainment Chief Executive Officer Robert F. Griffin said in a letter today that the Taj Mahal and the workers’ jobs could be saved if the union would drop its appeal.

The company previously said it also needs state and city tax breaks to induce the Icahn lenders to invest.

Trump Entertainment filed for bankruptcy September 9 and shut the Trump Plaza days later as Atlantic City loses gambling business to surrounding states. Casino revenue in the city fell more than 40 percent to about US$2.8 billion in 2013 from a peak of more than US$5 billion in 2006.

Bloomberg

Caesars shares jump on debt proposal to convert unit into REIT

C

aesars Entertainment Corp. shares climbed as much as 30 percent in after-market trading on the most-indebted U.S. gaming company’s proposal to restructure the obligations of its biggest unit by turning it into a real estate investment trust.

Caesars proposed the plan – which would split Caesars Entertainment Operating Co. into a property company that owns its casinos and a unit that would manage them – in private talks with creditors, according to a regulatory filing Wednesday. Caesars said it remains in discussions with lenders and that the blueprint is “outdated.”

The stock hasn’t closed above US$17 since July and earlier climbed as high as US$18.69.

Caesars is trying to wrangle the support of dozens of creditors holding $18.4 billion of the unit’s debt to

push through a pre-arranged bankruptcy plan. The casino operator, taken private for US$30.7 billion by Apollo Global Management LLC and TPG Capital in 2008, has lost money every year since 2009 and struggled to meet its debt payments.

It said last week its largest division would run out of cash by the fourth quarter of 2015 if it can’t restructure obligations through creditor negotiations, a bankruptcy or a refinancing, according to a November 14 filing. Caesars said it expects the unit generate negative operating cash flow for the foreseeable future.

Silver point The company was forced to reveal its reorganization proposal after lender Silver Point Capital LP exited restructuring talks, becoming at least the second to do so

in the last month, people familiar with the matter said yesterday.

The Greenwich, Connecticut-based hedge fund didn’t extend a nondisclosure agreement earlier this month that gave it access to private information meant to facilitate talks. Disclosing the material non-public information that Silver Point saw allows the money manager to resume trading Caesars debt.

Perry Corp., the hedgefund firm run by Richard Perry, quit discussions last month, people with knowledge of that move said October 29.

Gary Thompson, a spokesman for Las Vegasbased Caesars, declined to comment on the company’s talks with creditors.

Caesars said in the filing yesterday that “numerous proposals have been, and continue to be, transmitted” between the parent company,

the operating unit and creditors.

Creditor recoveries Under the proposal, holders of about US$5.36 billion of loans would receive 100 cents on the dollar through a combination of cash and debt, the filing said. Firstlien bondholders who own US$6.35 billion of securities would get 93.8 cents on the dollar in cash, debt and equity.

Creditors who own US$5.25 billion of secondlien bonds would receive a minimal amount of equity unless they agreed to back the company’s restructuring proposal in court, according to the filing. If they did so, they’d receive more equity.

If the REIT proposal were adopted, Caesars would be following other casino companies that have pursued a similar strategy.

REITs have become a popular

tool to improve returns for investors as they don’t pay federal income taxes and are required to distribute at least 90 percent of taxable earnings as dividends.

Pinnacle Entertainment Inc., which owns and operates 15 gambling properties, said this month it’s splitting its operating assets and real estate into two publicly traded companies. Penn National Gaming Inc. completed a similar move a year ago.

Caesars reached an agreement with first-lien bondholders including Paul Singer’s Elliott Management Corp. and Pacific Investment Management Co. on a debt-reduction plan earlier this month, people with knowledge of the discussions said November 11. The plan puts Caesars Entertainment Operating Co. unit in bankruptcy court as soon as January 14.

Bloomberg

8 | Business Daily

November 21, 2014

Greater China

Early signs of a floor under sink

Yuan-linked financial Prices have fallen in each of the past six months, to be down nearly products rise in S.K. The Chinese yuan-linked financial products rose in South Korea ahead of the launch of a market where currencies of the two countries would be traded directly and the implementation of a bilateral free trade agreement (FTA).

Shinhan Bank, one of South Korea’s four leading banks, said yesterday that it rolled out the yuan deposit product, named China Plus Time Deposit. It has five maturities, including one month and a year, and the deposit rate was set at 3.15 percent.

China, N.Z. to deepen ties President Xi Jinping met yesterday with New Zealand Governor-General Jerry Mateparae and the two pledged to promote the paradigm-setting relations between their countries. Expressing his pleasure in visiting New Zealand again, Xi said China and New Zealand are good friends and the two countries have carried out comprehensive exchanges and cooperation based on mutual respect and benefit. The China-New Zealand relationship, Xi said, stands at the forefront of China’s relations with developed countries and sets a good example for interaction between countries of different political systems, history, culture and stages of development.

Superb Summit value questioned Carson Block, the founder of investment research firm Muddy Waters, yesterday accused Hong Kong-listed timber firm Superb Summit of being “an empty box” with little of no value. In a phone interview with Reuters, Block said Muddy Waters, which is shorting Superb Summit, was not able to verify that the company actually owned forestry assets valued at HK$3.4 billion Hong Kong dollars (US$438.4 million) in its accounts. Superb Summit declined to comment when asked about the allegations made by Muddy Waters.

BMW margins narrow in China BMW’s profit margins in China are narrowing partly due to increased market competition, the German carmaker’s China head said yesterday, but the firm still expects to outpace growth of the wider premium car market. The carmaker expects the premium car market in China to grow at around 10 percent annually over the next few years, BMW’s China chief executive Karsten Engel said in an interview at the Guangzhou auto show. BMW competes with German rivals Daimler AG and Volkswagen AG’s Audi AG in China.

China-Peru ties steadily bolstered Ties between China and Peru, currently at their peak, are steadily strengthened thanks to the two countries’ shared longterm outlook, Chinese Ambassador to Peru Huang Minhui said. Zhang Dejiang, chairman of the Standing Committee of the National People’s Congress (NPC), will start the visit from yesterday at the invitation of President of Peruvian Congress Ana Maria Solorzano. Zhang’s visit, the first ever visit to Peru by a chairman of the NPC Standing Committee since the establishment of bilateral diplomatic ties in 1971.

E

ven as China’s home prices suffered their biggest annual fall in nearly four years in October, there are early indications the worst might have passed as property sales, investment and construction all show some signs of recovery.

For global investors who fear that a weak property market is the single biggest threat to the world’s secondlargest economy, a bottoming in house prices could be the best news they get from China as the year draws to a close.

The housing market is still vulnerable and could sag again if policy support fades, a risk noted by Australia’s central bank this week, but some home buyers, brokers and developers are confident a shift is underway.

“The housing market seems to be warming up a little,” said Guo, a 24-year-old who has been looking to buy in the capital, and who declined to give his full name. “Now I can think about buying a small house in the Beijing suburbs.”

After home prices powered to record highs in four of the five years from 2009, the market sagged this year as Beijing tried to calm prices with controls such as lending restraints and limits on multiple purchases.

In annual terms, prices fell 2.6 percent in October.

That has seen policymakers beat a hasty retreat on some measures, and mortgage rates and downpayment levels were cut in September for the

The market is bottoming out. But it’s hard to tell how fast or stable the rebound would be Fan Xiongchong, Sunshine 100 China, vice-president

first time since the 2008/09 global financial crisis.

Their efforts may be paying off.

The monthly fall in prices moderated to a four-month low of 0.8 percent in October. The slide in mortgage demand also eased. Loans were down 4.3 percent in the first 10 months of 2014, after a 4.9 percent drop between January and September.

“Before October, it was hard to persuade people to view houses,” said Zhang, a broker at Lianjia Real Estate in Beijing. “Now, many are willing, and they decide to buy really quickly if they like the homes.”

Potential surprise Inventories of unsold homes in the biggest cities fell 0.9 percent

on a monthly basis for the first time in nearly nine months, real-estate services firm E-House China said.

Tim Condon, ING’s head of research for Asia, said the housing data pointed to fewer cities reporting falling prices in the months ahead, and it was a matter of time before house prices reached a floor.

“We think housing represents a potential upside surprise to growth

Factory growth stalls Overall new orders picked up slightly but new export orders slowed markedly

G

rowth in China’s vast factory sector stalled in November, with output contracting for the first time in six months, a private survey showed yesterday, adding to signs that the economy may still be losing traction.

The reading is the latest in a string of weak figures in recent weeks, strengthening the case for more stimulus to avert a sharper slowdown in the world’s secondlargest economy.

The flash HSBC/Markit manufacturing purchasing managers’ index (PMI) fell to a six-month low of 50.0 from a final reading of 50.4 in October and well below the 50.3 forecast by analysts.

A reading above 50 indicates expansion, while one below 50 points to contraction on a monthly basis.

“Disinflationary pressures remain strong and the labour market showed further signs of weakening,” said Hongbin Qu, chief China economist at HSBC. Overall new orders picked up slightly but new export orders slowed markedly, dragging on activity. The factory output sub-index fell to 49.5, the first contraction since May. The Australian dollar dipped on the report while Asian stock markets showed little immediate reaction.

A cooling property sector, erratic foreign demand and overcapacity have weighed on its manufacturers and the broader economy this year

despite a steady stream of stimulus measures.

Most analysts expect further support steps in coming months but are divided over whether Beijing will resort to more aggressive policy measures such as interest rate cuts unless conditions threaten to sharply

We still see uncertainties in the months ahead from the property market and on the export front. We think more monetary and fiscal easing measures should be deployed Hongbin Qu, HSBC, chief China economist

deteriorate.

Other data this week showed home prices fell further and foreign direct investment continued to slide.

China’s top economic planning body said on Wednesday that the economy faces increasing downward pressure in 2015, while the cabinet

Business Daily | 9

November 21, 2014

Greater China

king property market First announcement

y 4 percent from an all-time peak hit in April

on strategic oil reserves China has been reluctant to share oil stocks data, arguing that it would be put at a disadvantage in making oil purchases if the data were public

C

hina made its first official announcement about the country’s strategic petroleum reserve (SPR) yesterday, saying the first phase of the government emergency stockpile is storing about 91 million barrels of crude oil, or about nine days of oil use.

The announcement by the National Bureau of Statistics (NBS) came after President Xi Jinping made a pledge during the G20 summit over the weekend to start regularly releasing information on the country’s oil inventories.

The report by the statistics bureau gave details of the four sites that make up the SPR’s first phase, but did not mention the larger second or third phases, some details of which have been released through official media and government think-tanks.

China, the world’s second-largest oil consumer, imports nearly 60 percent of the crude it consumes, and eventually aims to meet the OPEC standard of stockpiling enough to cover 90 days of net imports.

The SPR’s first phase, located in four coastal sites, was fully filled by early 2009 as China took advantage of a steep falls in the global oil markets

amid the financial crisis, Zhang Guobao, the top energy official at the time said.

The statistics bureau said yesterday the oil bases are storing a total of 12.43 million tonnes of crude, or 91 million barrels, just under 90 percent of the total storage capacity of 103 million barrels.

It was not clear if the oil in these tanks has been swapped for new stocks in the five years since it was first filled.

China said on Wednesday that it planned to complete the construction of the second phase by 2020, partly by encouraging private investment in the storage facilities.

Industry officials and traders believe the second phase, designed to hold 170 million barrels, is partially filled. The government has said it plans to begin the third phase by 2020.

Under the first phase, the Zhoushan site is storing 3.98 million tonnes of crude, the Zhenhai site is holding 3.78 million tonnes, Dalian has 2.17 million tonnes and Huangdao 2.5 million tonnes, the statistics bureau said.

In his pledge, Xi did not say how often China would release inventory data.

forecasts,” he wrote.

China is set to post its weakest growth in 24 years this year, with market economists expecting growth to come in just under the government’s 7.5 percent target.

Next year, there are expectations the government will aim for 7 percent growth.

There are other positive signs for the housing market. Annual growth

in property investment quickened to 11.8 percent in October, as housing construction leapt around 43 percent from a year earlier, a sharp reversal after September’s 0.2 percent decline.

Land purchased by developers climbed an annual 1.2 percent annually in the first 10 months, after a 4.6 percent fall between January and September.

promised help lower funding costs by giving banks more flexibility to lend.

Analysts believe injections of extra funds by the central bank have been largely intended to keep borrowing costs low as rising bad loans make banks increasingly reluctant to lend.

But a growing chorus of economists including some at government think tanks say these “modest” and “targeted” measures are not working. They now predict the central bank will have to cut interest rates, with some seeing a move by year-end.

China wasted US$6.9 trillion on bad investment

Reuters

Reuters

Reuters

China has acknowledged that it is overly-dependent on investment to power the world’s second-biggest economy

C

hina wasted an approximate 42 trillion yuan (US$6.9 trillion) on “ineffective investment” in the five years from 2009, with the problem worsening in the past two years, a government official and an economist were quoted as saying in the local media.

From relying too much on investment to lift the economy to supplying state firms with cheap loans that fuelled unnecessary spending, the two pressed China to face up to its problem of making investment with low or no efficiency.

Their calculations - one of the starkest to date - showed that unproductive investment took up almost half of China’s total investment in 2009 and 2013.

The remarks were made by Xu Ce of the development and planning department at China’s top economic planner, the National Development and Reform Commission, and Wang Yuan from the Academy of Macro Economic Research, which is linked to the commission.

Their comments were published in an opinion piece in the Shanghai Securities News yesterday, with the caveat that their views did not reflect official thinking.

“The problem of low- or noefficiency investment has reached a time where it must be faced up to,” Xu and Wang wrote.

China has acknowledged that it is overly-dependent on investment to power the world’s second-biggest economy, but re-ordering the growth model takes time. Investment contributed to 42 percent of China’s economic growth between January and September this year.

Xu and Wang said the problem should be addressed now as China seeks to develop regional economies, including those along the old Silk Road trading route where it has promised to spend $40 billion.

Exhorting caution, Xu and Wang said China wasted between 4.7 trillion yuan and 13.2 trillion yuan each year between 2009 and 2013 on investment with zero efficiency.

The money wasted on such projects peaked in 2013 at 13.2 trillion yuan, or 47 percent of China’s total fixed capital formation for that year, their calculations showed.

The problem of lowor no-efficiency investment has reached a time where it must be faced up to Xu Ce, development and planning department, China’s top economic planner

Investment quality had fallen so much recently that nearly two-thirds of the 67 trillion yuan that China wasted from 1997 were spent after 2008.

Easy liquidity conditions worldwide, state campaigns to revitalise some sectors that led to overinvestment, delays in the restructuring of some firms and judging government performances by the level of economic growth all fed wastage, they said.

Reuters

10 | Business Daily

November 21, 2014

Greater China

Rush to green vehicles fuels bubble concerns The potential for a supply-demand mismatch worries even newcomers like China Dynamics Samuel Shen and Kazunori Takada

F

orget luxury limos, think green buses.

China’s electric vehicle sales surged five-fold in the first 10 months of 2014, powered by Beijing subsidies. In a long-awaited take-off, even unlikely firms like a metals trader and a soda ash producer are pouring money into green transportation.

As China’s demand for luxury and premium cars cools, the Guangzhou auto show this week hosts a separate event dedicated to green vehicles. But the gold rush is fuelling concern in the industry it may add to overcapacity, leaving new entrants struggling to survive even with state support.

“China’s green vehicle market will be huge,” said Arnold Chan, Deputy Chairman of China Dynamics Holdings Ltd. The company, more than 11 percent-owned by Chan according to Thomson Reuters data, quit metals trading to start making environmentally friendly electric buses this year after losing money ever since its 2006 Hong Kong listing.

“There are 2 million buses on Chinese roads. A 10 percent share of that market would be enormous,” said Chan, whose new entrant firm is worth about $440 million by market value.

It’s unclear how many electric vehicles could in practice replace buses now in service, but as the world’s biggest auto market, China is a magnet for new firms.

Shanghai-listed Tangshan Sanyou Chemicals Industries Co ltd , a Chinese producer of soda ash worth US$1.9 billion by market capitalisation, entered the green vehicle business in March. At Shenzhen-listed auto parts maker Wanxiang Qianchao Co Ltd, shares have doubled since parent Wanxiang Group acquired bankrupt U.S. electric car maker Fisker Automotive in February.

The concern over potential overinvestment stems from orders for electric buses and cars coming from local governments, rather than individual consumers.

Despite a flood of electric car models coming to the market this year, from BMW and Mercedes Benz to Nissan and BYD, many in China are just not yet ready to buy them, according to a survey earlier this year by consultancy A.T. Kearney.

If the government keeps subsidizing an industry which itself is not profitable, there will be a lot of trouble Hou Yankun, UBS, auto analyst

A Toyota hybrid model

Indonesia wants return for committing AIIB The Jakarta Post reported this week that Widodo has requested the AIIB’s headquarters be located in Jakarta

(Widodo) has given his personal commitment that Indonesia will join the bank. But he has made two specific requests to the government of China Andi Widjajanto, Indonesia’s Cabinet Secretary

Family photo of AIIB foundation

P

resident Joko Widodo is committed to Indonesia joining a China-backed Asian infrastructure bank, but wants a few things from Beijing first, a senior adviser told Reuters.

The US$50-billion Asian Infrastructure Investment Bank (AIIB), launched last month in Shanghai, is seen by the United States as a challenge to the Westerndominated World Bank and Asian Development Bank.

“(Widodo) has given his personal commitment that Indonesia will join the bank. But he has made two specific requests to the government of China,” Cabinet Secretary Andi Widjajanto said in an interview late on Wednesday. He declined to reveal the requests.

The Jakarta Post reported this week that Widodo has requested the AIIB’s headquarters be located in Jakarta and that Indonesia play a major role in the bank.

Widjajanto said he expected an answer from Beijing on the Widodo’s request by mid-December.

Indonesia was not among the 21 countries attending the launch of the AIIB because Widodo had just come into office and had yet to decide on whether to join.

AIIB, in which China will hold a majority stake, aims to give project loans to developing nations such as Indonesia.

The archipelago’s limited

infrastructure, with gaps in its network of roads, rails and ports, is one of the main impediments to economic growth.

Washington has welcomed the bank with some reservations, saying it needed to meet international standards of governance and transparency.

China has said the new bank would use the best practices of the World Bank and the Asian Development Bank.

Reuters

Business Daily | 11

November 21, 2014

Greater China Some 54 percent of survey participants said incentives wouldn’t be enough to override other concerns.

Fully 60 percent of consumers said they expect a minimum driving range of 250 kilometres, much further than the range of most electric cars currently on the market.

Chasing subsidies Beijing has introduced a slew of measures over the course of this year to support electric vehicle sales in a move to combat China’s growing pollution problem.

These incentives include renewed subsidies for car buyers, exemption from purchase taxes and public funding to build charging stations.

Another key strand that caught the eye of wannabe green vehicle makers was a purchase quota of at least 30 percent by 2016 for the fleets of central government, as well as local government in 88 new energy vehicle pilot cities.

But China’s industrial policies have backfired in the past.

In 2009, Beijing offered hefty subsidies to the solar power industry, triggering a race to develop multibillion dollar solar projects. But the boom ended badly with the collapse of solar superstars such as Suntech Power Holdings and LDK Solar Co Ltd. In shipbuilding, meanwhile, government-backed expansion also led to a bust that brought hundreds of small to mid-sized shipyards to the verge of bankruptcy.

“I see a lot of people rushing into this business,” Deputy Chairman Chan said. “Many will be weeded out in the future. Only those with real competitiveness can survive.”

Reuters

China boosting banks’ lending power Policymakers are seeking to cut funding costs and feed credit into the economy as manufacturing growth weakens and economists predict the nation’s slowest expansion since 1990

C

hina may further ease the way it calculates banks’ loan-todeposit ratios by including some interbank deposits, boosting financial institutions’ lending power as the economy falters.

The government will make the ratio more flexible and improve loan management, Premier Li Keqiang said yesterday at a meeting of the State Council. As part of the shift, the central bank may add 7 trillion yuan (US$1.1 trillion) of interbank deposits to the calculations, according to China International Capital Corp., which didn’t speculate on the likely timing.

Chinese policy makers are seeking to cut funding costs and feed credit

into the economy as manufacturing growth weakens and economists predict the nation’s slowest expansion since 1990. Bank of America Corp. estimated today that including interbank deposits could boost banks’ lending capacity by 808 billion yuan, the equivalent of 10 percent of new loans in 2013.

China limits bank lending to no more 75 percent of deposits. In June, the China Banking Regulatory Commission loosened loan-to-deposit calculations through changes that related to negotiable certificates of deposit and some credit extended to small enterprises and the rural sector.

The central bank may also include

500 billion yuan of interbank loans to non-deposit taking financial institutions in the calculation, CICC’s Beijing-based analyst Huang Jie wrote in a note yesterday. Banks’ loan-todeposit ratio may drop to about 60 to 61 percent from 64.2 percent at the end of September, Huang estimated.

A change in the calculations to include interbank deposits could have a side-effect: cuts in banks’ reserve requirements, according to Huang.

Extra deposits mean banks have to set aside extra reserves. The central bank may need to cut reserve ratios two or three times to offset the impact and maintain liquidity, Huang said.

Bloomberg News

Hong Kong asks China for more RQFII RQFII quotas enable yuan held outside of China to be invested in the nation’s securities and so far allocations totalling 770 billion yuan have been granted Fion Li and James Regan

H

ong Kong is seeking an additional quota to invest yuan in China’s onshore financial markets after all of its initial allocation was taken up.

“We raised the issue with the authorities and the signs are good,” K.C. Chan, Secretary for Financial Services and the Treasury, said today in an interview.

“It’s just a matter of timing or priority. I don’t expect there to be any problems.”

Hong Kong’s existing 270 billion yuan (US$44 billion) quota under the Renminbi Qualified Foreign Institutional Investor program is the world’s biggest, ahead of the U.K., Germany and South Korea with 80 billion yuan each. The city opened a stockexchange link with Shanghai this week and scrapped a daily limit on the amount of yuan residents can buy, reinforcing its dominance as an offshore trading centre for Chinese assets.

RQFII quotas enable yuan held outside of China to be invested in the nation’s securities and so far allocations totalling 770 billion yuan have

The mutual fund recognition, in terms of the sequencing, is to be launched after the HK-Shanghai Connect. Now the connect project has started, we will raise the issue K.C. Chan, Hong Kong Secretary for Financial Services and the Treasury

quotas overseas if they need more capacity, Securities and Futures Commission Deputy Chief Executive Officer Alexa Lam said this month.

“We hope to see a good figure,” Chan said when asked how much additional quota Hong Kong has requested. He declined to give further details.

Fund recognition

been granted, with Australia and Canada each getting 50 billion yuan this month. Hong Kong’s financial companies should look to tap unused

Mutual recognition of funds between Hong Kong and China is the next priority following the start of the stocktrading link between the city and Shanghai, Chan said.

SFC’s Lam said in January

that talks with China on the cross-border fund sales program was in the “final stretch.”

“It’s too late for this year,” Chan said. “The mutual fund recognition, in terms of the sequencing, is to be launched after the HKShanghai Connect. Now the connect project has started, we will raise the issue.” He was reluctant to give a timeframe for the project but said “12 months sounds alright.”

Chan reiterated the government’s stance that there are no plans to change the Hong Kong dollar’s 31-year-old peg to the U.S.

dollar, saying the existing system works well for the local economy and the conditions for a shift to a link to the yuan are “quite a long way away.”

“You basically need the yuan to become a major international currency,” he said. “Practically speaking, it takes a long time for a currency to reach that stage. It will also require liberalization in the capital account and the financial markets in China.

That may take some time. For all these changes to happen, it will take more than five years.”

HSBC Holdings Plc. Chief Executive for Asia Pacific Peter Wong last month joined former chief of Hong Kong Monetary Authority Joseph Yam in calling for the city to look at alternatives to the peg. The lender predicts the Chinese currency can become fully convertible by 2017 and Wong said a tie to the yuan was among the options Hong Kong should consider. Yuan savings in the city jumped 60 percent since the end of 2011 to 944.5 billion yuan, HKMA data show.

Bloomberg News

12 | Business Daily

November 21, 2014

Asia

Japan exports grow strongly

Singapore’s wholesale trade up Exports jumped in October due to higher shipments of cars, Singapore’s domestic wholesale trade ships and electronics, finance ministry data showed grew by 0.4 percent in the third quarter this year compared with the previous quarter, driven by increase of sales in most industries, the Singapore Department of Statistics (DOS) announced yesterday. Excluding petroleum, however, domestic wholesale trade declined 2.1 percent. While higher domestic sales were experienced across most industries, including food, beverages & tobacco, industrial & construction machinery and metals, the general wholesale trade industry recorded a 27.2-percent sharp decline against the previous quarter in domestic sales value, which largely offsets the increase in other industries.

Medibank IPO book build “well covered” The institutional offer for Australia’s state-owned health insurer Medibank Private Ltd , is “well covered with high quality demand” at A$2.15, a person with knowledge of the initial public offering said yesterday. Joint lead managers, Deutsche Bank AG, Goldman Sachs Bank AG and Macquarie Capital Funding LP sent an email to clients with the update ahead of books closing at midday local time, the source said, requesting anonymity as he was not authorised to speak on the record. That price level represents a multiple of 22.9 times projected earnings for 2015.

Moody’s sees S.K. in deflation South Korea is experiencing disinflation due mainly to low commodities prices and there is no risk of it falling into a Japan-style deflation, a senior official at credit rating agency Moody’s said yesterday. “I would say it’s a disinflation process but not a deflation process,” Tom Byrne, a senior vice president at Moody’s Investors Service, told Reuters on the side-lines of a conference in Seoul. “I don’t see the risks of Korea going into a long period of deflation as Japan did as economic preconditions are just fairly different,” he added.

Sri Lanka formally announces 2015 Presidential polls

Sri Lankan President Mahinda Rajapaksa yesterday signed the proclamation declaring a presidential election next year, the President’s office said. In the proclamation, the President has noted his intention to seek a third term in office, two years ahead of completing his second term.

Stanley White

J

apanese exports grew in October at the fastest pace in eight months, an encouraging sign that global demand could help the country recover from recession and support the central bank’s optimistic economic outlook.

The 9.6 percent annual rise in exports in October was more than double the 4.5 percent gain expected by economists in a Reuters poll and faster than September’s 6.9 percent year-on-year increase.

In another sign that the world’s third-largest economy is regaining its footing, a private flash survey showed that factory output grew in November at the fastest pace since March.

Policymakers were stunned by data this week that showed the Japanese economy fell into recession as a sales tax hike weighed on consumer spending and business investment. But growing exports and output could help lift some of the gloom surrounding the economy.

“The trade data shows that exports will contribute to growth in the fourth quarter and help recoup some of the weakness we’ve seen

in Japan’s domestic demand,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Accelerating exports could also be a positive for Japanese Prime Minister Shinzo Abe, who has said he will call an election amid growing doubts about his economic policies.

Japan’s exports jumped in October

due to higher shipments of cars, ships and electronics, finance ministry data showed.

Exports to Asia, which account for more than half of Japanese shipments,

KEY POINTS Oct exports +9.6 pct y/y vs f’cast +4.5 pct y/y Flash PMI says Nov output best since March Oct export growth eases concern about global demand Exports could help economy recover from recession

Rubber producers to fight oversupply Thailand, Indonesia and Malaysia have agreed not to expand new rubber planting areas beyond targets set earlier and to boost domestic rubber consumption Yantoultra Ngui and Manolo Serapio Jr

T

op Asian rubber producers have agreed to “manage” exports to international markets to curb excess supply, although analysts said the step would have little impact on battered prices without a robust pickup in demand.

Benchmark rubber prices have fallen a quarter this year, standing just above five-year lows plumbed last month amid a supply glut deepened by a slowing economy in top consumer China.

Thailand, Indonesia and Malaysia, which produce nearly 70 percent of the world’s natural rubber, have also agreed not to expand new rubber planting areas beyond targets set earlier and to boost domestic rubber consumption by 10 percent annually, according to a joint statement issued on Thursday.

Malaysian plantation industries minister Douglas Uggah Embas, who held a media briefing after a meeting of

producers in Kuala Lumpur, declined to give further details on the measures, including how the three countries aim to manage exports.

Thailand, Indonesia and Malaysia - which form the International Rubber Consortium - in 2012-13 collectively cut exports by 300,000 tonnes, or roughly 3 percent of 2012 global output. The intervention only briefly supported prices and Indonesia called for the pact to be discontinued.

“(The new steps) can support but they cannot boost prices because only growth in demand can do that,” said Gu Jiong, an analyst at Yutaka Shoji Co in Tokyo.

“The biggest market is China and demand growth there is getting smaller because the economy is slowing.”

Rubber associations from Thailand to Cambodia have this year urged producers not to sell the commodity below a minimum price of US$1.50 per kg, while top producer and exporter Thailand later approved a subsidy plan worth around US$1.8 billion to support farmers.

Those measures helped global rubber prices recover from their lowest levels since 2009, but they have remained under pressure from slower Chinese demand, forcing many farmers in Asia to abandon tapping in favour of more lucrative jobs.

Reuters

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Luciana Leitão, Luis Gonçalves, Michael Armstrong, Sara Farr, Stephanie Lai, Óscar Guijarro, Kam Leong 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 21, 2014

Asia picked up to 10.5 percent in October from a year earlier.

Shipments to China slowed to a 7.2 percent annual rise in October from an 8.7 percent pace the previous month as the world’s second-largest economy slows.

Solid sales to U.S. The expansion in exports to the United States in October doubled to 8.9 percent.

Total imports rose 2.7 percent year-on-year to October, lower than the median poll estimate for 3.4 percent.

October produced a trade deficit of 710.0 billion yen (US$6.01 billion),

versus the median estimate for a 1.05 trillion yen deficit.

The Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 52.1 in November from a final 52.4 in October.

However, the output component of the PMI index rose to a preliminary 53.5 from 51.3 in October, reaching an eight-month high, suggesting companies are ready to ramp up production after a dip in demand earlier this year.

“November data signalled positive growth in operating conditions for Japanese manufacturers,” said Amy Brownbill, economist at Markit.

Reuters

Land & Houses plans US$190 mln REIT IPO Proceeds from the IPO will be used to finance expansion of its rental and apartment businesses

T

hailand’s largest homebuilder Land & Houses Pcl plans to set up a 6.23 billion baht (US$190 million) real estate investment trust (REIT) and offer a majority stake to the public this year, its managing director said yesterday.

Land & Houses will transfer assets, including the Terminal 21 Bangkok shopping mall valued at about 5 billion baht, to the trust which will be set up by its 60 percent-owned unit L&H Property, Managing Director Adisorn Thananan-narapool told reporters.

The subsidiary will hold 15 percent of the LH Shopping Centres Leasehold REIT and the remaining 85 percent will be offered through the IPO, he added.

Proceeds from the IPO will be used to finance expansion of its rental and apartment businesses.

The company planned to book a gain from the asset sales to the trust in the fourth quarter, which will boost its net profit to a record

high this year, Adisorn said. He did not specify the profit amount but said sales in 2014 would exceed the company’s 32 billion baht (US$974 million) target.

Land & Houses also aims to launch another REIT next year worth an estimated 10 billion baht.

The company could also plans to raise another 10 billion baht via bond issues next year, Adisorn said.

Land & Houses plans to spend 7 billion baht on land acquisitions in 2015, he added.

REITs have become a popular way to raise funds for property developers in Thailand since the stock market has recovered after the military took over government in May, ending months of political unrest.

The success of the country’s first REIT, a US$628 million trust launched by Bangkok Land in August, has also encouraged more developers to tap investor appetite.

Reuters

Modi’s divide and rule weakens Coal India unions A mining state company sale could fetch a third of the government’s US$9.5 billion annual divestment target Krishna N. Das

A

rift between the five powerful labour unions at Coal India Ltd is set to clear the way for Prime Minister Narendra Modi’s government to complete a stake sale in the state company that is critical to hitting budget targets.

One of the unions, close to Modi’s nationalist party, says it has the backing of half of Coal India’s 370,000 workers and will not join a strike on Monday to oppose plans to sell 10 percent of the firm and let private firms to mine and sell coal.

“A strike is not the right process to get your demands met,” Baij Nath Rai, president of the Bharatiya Mazdoor Sangh (BMS) trade union, told Reuters.

The sale could fetch a third of the government’s US$9.5 billion annual divestment target. Asset sales are running behind schedule, pressuring a deficit target of 4.1 percent of GDP for the fiscal year to March.

Officials have marketed the sale in the United States and road shows will follow this week in London and Singapore. But no date has been set for the actual launch of the sale, sources with knowledge of the matter said.

The Coal India offering

would follow a 5 percent stake sale in state-controlled Oil and Natural Gas Corp, worth US$2.8 billion and slated for December.

Second time lucky Last year the unions thwarted the previous government’s attempt to sell a stake. Officials are now counting on Modi’s clout to push the sale through as part of broader efforts to end India’s coal production crisis.

The unions rarely break ranks. With the BMS staying away, union leaders and company officials told Reuters the one-day strike is likely to have little impact on Coal India’s daily output of up to 1.5 million tonnes.

The BMS is part of the same Hindu nationalist umbrella group to which Modi’s ruling Bharatiya Janata Party belongs.

“The divestment will go through soon and worker unions will come on board.

Coal India officials are in talks with them,” said a senior government official.

But the official, who declined to be named before an official announcement, said the government did not believe in “steamrolling” anyone and was working on other ways to

KEY POINTS Pro-government union to stay away from Monday’s strike Unions oppose sale of 10 pct stake in Coal India Sale of US$3.5 bln stake crucial to hit deficit target make the strike fail. He did not elaborate.

A senior Coal India official said the BJP’s election victory in May had boosted the BMS’s influence over other unions, helping stem opposition to government measures and curb output losses.

“We don’t want to quarrel with the BMS but their leadership is under pressure,” said Jibon Roy, general secretary of the All India Coal Workers Federation.

“We oppose divestment, we oppose commercial mining by private firms, and we oppose anything that will lead to the demise of Coal India and bring slavery to India”.

Reuters

Indian Prime Minister Narendra Modi waves to supporters after receiving a ceremonial welcome at Parliament House in Canberra this week

14 | Business Daily

November 21, 2014

International Serbia strikes loan agreement with IMF Serbia said yesterday it had reached agreement with the International Monetary Fund on a new loan deal designed to reassure investors after months of uncertainty. Serbia has been seeking a precautionary loan deal to replace a previous arrangement frozen by the lender in early 2012 over broken spending promises. “Today you will be informed that we have reached an agreement with the IMF,” Serbian Prime Minister Aleksandar Vucic told reporters. “That’s big news for Serbia,” he said.

Swiss protesters to stop lobbying Davos Anti-corporate activists declared moral victory over the annual Davos World Economic Forum of global business and political leaders and said they would no longer lobby there after the next meeting in January. Three anti-globalisation groups that have staged marches and counter-conferences during the gathering over the past 15 years said they took the decision because their aim to raise awareness of misbehaviour by big companies had succeeded. The groups’ statement said Davos was also losing its relevance as a venue to bring pressure on decision-makers.

Goldman sacks staff for leaking info Goldman Sachs Group Inc said it fired two staff after a junior employee passed confidential information from the Federal Reserve Bank of New York, his former employer, to a senior colleague in the investment bank. Goldman said the incident on September 26 was immediately reported to its compliance team, regulators and the New York Fed and an internal investigation was launched into the junior employee’s actions. “That employee and a more senior employee who failed to escalate the issue were terminated shortly thereafter,” Goldman said in a statement issued after the New York Times reported the incident.

VTB requests 250 bln rouble aid Russia’s second-largest bank VTB has asked for 250 billion roubles (US$5.4 billion) in aid from the government which plans to discuss it today, Finance Minister Anton Siluanov said yesterday. Siluanov also said the ministry planned to place a remaining US$900 million in foreign exchange deposit auctions by the end of 2014.

He said he doubted the ministry would have funds for forex or rouble deposit auctions in 2015.

Delta to buy 50 wide-bodied Airbus jets European planemaker Airbus has won a crucial order worth roughly US$14 billion at list prices from Delta Air Lines for 50 long-haul, wide-bodied jets, three people familiar with the matter said. The order, to be split between the all-new A350-900 and a recently announced revamp of the current-generation A330, follows a closely fought competition with Boeing. Airbus emerged as the front-runner in part after it became clear its revamped A330neo could be delivered earlier than Boeing’s temporarily sold-out 787 Dreamliner, one of the people said.

Euro zone business growth slower than thought A PMI covering the dominant service industry also missed all predictions in the poll by falling to 51.3 Jonathan Cable

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uro zone business growth has been weaker than any forecaster expected this month and new orders have fallen for the first time in more than a year despite further price-cutting, a survey showed yesterday.

Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and seen as a good growth indicator, fell to 51.4, missing even the lowest forecast in a Reuters poll.

“This is going to be a huge disappointment for the European Central Bank. This is the euro zone more or less just continuing to stagnate, a renewed downturn is an increasing likelihood,” said Chris Williamson, survey compiler Markit’s chief economist.

A PMI covering the dominant service industry also missed all predictions in the poll by falling to 51.3, while the factory PMI’s dip to 50.4 missed the median forecast. However, they did hold above the 50 mark that separates growth from contraction.

Williamson said the PMI pointed to 0.1-0.2 percent GDP growth in the current quarter, compared with the 0.2 percent forecast in a Reuters poll taken last week.

Forward-looking economic indicators suggest the situation is

KEY POINTS Euro zone composite PMI 51.4, below all poll forecasts PMI points to 0.1-0.2 pct fourth-quarter growth Firms cut prices but orders fall unlikely to improve anytime soon.

The composite new orders index fell to 49.9, its first time below 50 since July 2013, and factories, who barely increased staffing levels, ran down old orders faster than last month - the related sub index fell to 48.3.

“It’s signalling a downturn in demand, firms are eating into existing orders to maintain any growth. You would like to think with the measure the ECB has taken that you would see the numbers moving higher, but we’re moving in the wrong direction,” Williamson said.

Also of concern to the ECB, which is facing the spectre of deflation, service firms cut prices again. The subindex did rise to 46.9 from October’s 56-month low but has remained firmly below the breakeven 50 mark since late 2011.

European Central bank headquarters in Frankfurt

Prices rose just 0.4 percent in the euro zone in October, well below the ECB’s target of close to but below 2 percent and deep in what it terms the “danger zone”.

To keep the euro zone from slipping into deflation, the ECB has been pumping money into the banking system by buying covered bonds and offering long-term loans, and a Reuters poll suggested there is now a 50-50 chance that it will take the plunge and begin buying sovereign bonds.

Reuters

Study states banking culture breeds dishonesty When bank employees were primed to think less about their profession and more about normal life, however, they were less inclined to dishonesty.

Kate Kelland

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banking culture that implicitly puts financial gain above all else fuels greed and dishonesty and makes bankers more likely to cheat, according to the findings of a scientific study.

Researchers in Switzerland studied bank workers and other professionals in experiments in which they won more money if they cheated, and found that bankers were more dishonest when they were made particularly aware of their professional role.

“Many scandals … have plagued the financial industry in the last decade,” Ernst Fehr, a researcher at the University of Zurich who co-led the study, told reporters in a telephone briefing. “These scandals raise the question whether the business culture in the banking industry is favouring, or at least tolerating, fraudulent or unethical behaviours.”

Fehr’s team conducted a laboratory game with bankers, then repeated it with other types of workers as comparisons.

The first study involved 128 employees all levels of a large international bank -- the researchers were sworn to secrecy about which one -- and 80 staff from a range of other banks.

Participants were divided into a treatment group that answered questions about their profession, such as “what is your function at this bank”; or a control group that answered questions unrelated to work, such as “how many hours of TV do you watch each week?”

They were then asked to toss a coin 10 times, unobserved, and report the results. For each toss they knew whether heads or tails would yield a US$20 reward. They were told they could keep their winnings if they

were more than or equal to those of a randomly selected subject from a pilot study.

Given maximum winnings of US$200, there was “a considerable incentive to cheat”, Fehr’s team wrote in the journal Nature.

The results showed the control group reported 51.6 percent winning tosses and the treatment group -whose banking identity had been emphasised to them -- reported 58.2 percent as wins, giving a misrepresentation rate of 16 percent.

The proportion of subjects cheating was 26 percent.

The same experiments with employees in other sectors -including manufacturing, telecoms and pharmaceuticals -- showed they don’t become more dishonest when their professional identity or bankingrelated information is emphasised.

Reuters

Business Daily | 15

November 21, 2014

Opinion

Creativity, corporatism, wires and crowds Business

Leading reports from Asia’s best business newspapers

THE STAR As the usage of cash and cheques remains prevalent in Malaysia, efforts should be intensified to migrate to e-payment since the potential cost savings and efficiency gains are quite substantial, says Bank Negara director of payment system policy department Tan Nyat Chuan. He said the usage of cheques per capita was 6.9 in 2012 compared with an average of 0.2 in advanced countries while the cash currency in circulation over gross domestic product (GDP) was about 6.1%, higher from an average of 3.8% in advanced countries.

Robert J. Shiller

2013 Nobel laureate in economics and Professor of Economics at Yale University

THE TIMES OF INDIA The government will protect power consumers from getting a tariff shock from coal block auction and cap the number of mines or quantity of reserves that goes to one entity with a view to prevent a monopoly scenario.

“It (auction) is not a revenue-maximizing approach ... the essence is to keep a lid on tariff ... if not eliminate, alleviate coal supply position,” coal secretary Anil Swarup said, after the coal ministry invited comments from stakeholders on draft norms for auctioning coal blocks. The ministry is looking at inviting requests for proposals from prospective bidders.

THE PHNOM PENH POST Giving Cambodia a makeover was the focus at the sixth World Rice Conference, which was held at Phnom Penh’s Sofitel hotel.

Minister of Commerce Sun Chanthol opened the day’s events calling for better branding of the Kingdom’s products and investment environment. “Don’t let others in the world only know that Cambodia has been victim to a genocide regime. Some people even ask if they should be afraid of stepping on landmines when they visit Cambodia.

That is simply not the reality, so we need to promote and improve our country’s image,” Chanthol explained.

THE NEW ZEALAND HERALD The banknote is getting a makeover for the first time in 15 years, and although the same well-known faces will remain, security features have been beefed up. Yesterday the Reserve Bank announced it will be releasing new designs of New Zealand bank notes, which will come into circulation from October next year. The last banknote upgrade was in 1999. While the new designs will feature all the same well-known faces, including Sir Edmund Hillary and Kate Sheppard, the new designs and colours will be more vibrant.

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conomic growth, as we learned long ago from the works of economists like MIT’s Robert M. Solow, is largely driven by learning and innovation, not just saving and the accumulation of capital. Ultimately, economic progress depends on creativity. That is why fear of “secular stagnation” in today’s advanced economies has many wondering how creativity can be spurred.

One prominent argument lately has been that what is needed most is Keynesian economic stimulus – for example, deficit spending. After all, people are most creative when they are active, not when they are unemployed.

Others see no connection between stimulus and renewed economic dynamism. As German Chancellor Angela Merkel recently put it, Europe needs “political courage and creativity rather than billions of euros.”

In fact, we need both. If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity – particularly policies that promote solid financial institutions and social innovation.

In his 2013 book Mass Flourishing, Edmund Phelps argues that we need to promote “a culture protecting and inspiring individuality, imagination, understanding, and self-expression that drives a nation’s indigenous innovation.”

He believes that creativity has been stifled by a public philosophy described as corporatism, and that only through thorough reform of our private institutions, financial and others, can individuality and dynamism be restored.

Phelps stresses that corporatist thinking has had a long and enduring history, going back to Saint Paul, the author of as many as 14 books of the New Testa-

If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity – particularly policies that promote solid financial institutions and social innovation.

ment. Paul used the human body (corpus in Latin) as a metaphor for society, suggesting that in a healthy society, as in a healthy body, every organ must be preserved and none permitted to die.

As a public-policy credo, corporatism has come to mean that the government must support all members of society, whether individuals or organizations, giving support to failing businesses and protecting existing jobs alike.

According to Phelps, Pope Leo XIII advocated a corporatist view in his 1891 encyclical Rerum Novarum, and Pope Pius XI amplified these ideas in his 1931 encyclical Quadragesimo Anno. But, in reading these works, I do not find a clear or persuasive statement of

any economic doctrine, except for basic notions of fairness and Christian charity.

In fact, an Ngrams search of books shows that the term corporatism began to become popular only after the mid-1930s, and achieved broad currency by the 1970s and 1980s. The term seems to have been used most often by critics, often to denounce the defunct Fascist philosophy, or by those extolling elements of a “new” corporatism.

Surely, elements of corporatist thinking persist today. People who might not stress that the government should protect failing businesses or redundant workers still have sympathies that might often lead to such outcomes.

Historically, an important spur toward corporatist thinking was Gustave Le Bon’s 1895 book The Crowd, which coined the terms “crowd psychology” and “collective mind.” For Le Bon, “An individual in a crowd” – not only angry mobs on the street, but also other psychologically interconnected groups of people – “is a grain of sand amid other grains of sand, which the wind stirs up at will.”

Le Bon believed that crowds need strong leaders, to distance them from their natural madness and transform them into civilizations of splendour, vigour, and brilliance. Mussolini and Hitler both took inspiration from his book, and incorporated his ideas into Fascist and Nazi ideology; and those ideas did not die with those regimes.

Still, the word “crowd” has taken on an entirely different meaning – and political valence – in our century. Crowdsourcing and crowd-funding have created new kinds of crowds, of the sort that Le Bon never could have imagined.

As Le Bon emphasized, people

cannot easily do great things as individuals. They need to operate together within organizations that redirect crowd psychology, facilitate creativity, and are led by people of integrity.

Any such organizational technology, however, is subject to error and requires experimentation. When the crowd-sourced Wikipedia was started in 2001, its success was not obvious.

Even one of its founders, Jimmy Wales, found it a little hard to believe: “It’s kind of surprising that you could just open up a site and let people work.”

When the United States’ Jumpstart Our Business Startups (JOBS) Act, which facilitated true crowd-funding of enterprises, was signed by President Barack Obama in 2012, it was an experiment, too. Many critics said that it would result in the exploitation of naive investors.

We still do not know whether that is true, or how well the experiment will work. But if the JOBS Act does not succeed, we should not abandon the idea, but try to modify it.

Ultimately, we need economic institutions that somehow promote the concerted creative actions of a wide swath of the world’s people. They should not be corporatist institutions, dominated by central leaders, but should derive their power from the fluid actions of modern crowds.

Some of those actions will have to be disruptive, because the momentum of organizations can carry them beyond their usefulness.

But there must also be enough continuity that people can trust their careers and futures to such organizations. Acknowledging the need to experiment and design new forms of economic organization must not mean abandoning fairness and compassion.

Project Syndicate

16 | Business Daily

November 21, 2014

Closing China to end state monopoly on salt

Premier Li encourages Qualcomm’s boss

China is to end a monopoly over the production and sale of table salt, its official broadcaster said yesterday, dismantling a system that has been in place in various guises for more than two thousand years and run by a state monopoly since 1950. The move reflects Beijing’s drive to deregulate state-run sectors. China is the world’s biggest consumer of salt. With its population of nearly 1.4 billion, it accounted for nearly a quarter of global demand in 2012. The disbanding of the salt monopoly will start in 2016 and should be complete by 2017, CCTV said.

Qualcomm Inc’s opportunities in China will be far greater than its challenges, Premier Li Keqiang said yesterday as the U.S. mobile chipmaker prepares to face a possible record fine for antitrust violations in the country. Speaking at the World Internet Conference yesterday with Qualcomm Executive Chairman Paul Jacobs, Li said he believed Qualcomm would resolve the issue with the Chinese authorities. The anti-monopoly regulator is investigating local subsidiary after it said in February the U.S. chipmaker was suspected of overcharging and abusing its market position.

from 17 percent on the first day to 2 percent yesterday.

Temporary tax fix

Rich values, poor rules dog HK-SHG stock volumes Southbound trade was always expected to be lighter, as mainland investors have shown little enthusiasm for previous schemes to invest abroad, preferring the lure of real estate

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rofit-taking and queasiness about the rules blighted trading via the Shanghai-Hong Kong stock connect this week after a brisk first day when mostly hedge funds and private banks snapped up all the available mainland shares within hours.

The scheme reached the 13 billion yuan (US$2.1 billion) daily “northbound” quota on Monday, but achieved only 37 percent on Tuesday, 20 percent on Wednesday and 18 percent yesterday.

That was partly down to a welltelegraphed ambush by mainland investors, who ran up the price of their stocks in the months before the launch, and promptly sold them into

the initial rush from Hong Kong.

But big institutions gave the scheme a wide berth, concerned about taxation matters and technical rules that make trades more risky and uncertain.

The Shanghai market has picked itself up from a multi-year trough to rise 27 percent this year, the third best performer in Asia after India and Pakistan.

“There was a lot of anticipation on the stock connect scheme before the launch,” said Arnout Van Rijn, Asia-Pacific equities fund manager at Robeco in Hong Kong, part of a team that manages US$250 billion in assets globally.

That was particularly true of

Interbank market extends trading hours

stocks that Hong Kong brokerages had been pushing hard.

For example, Kweichou Moutai Co Ltd, China’s top seller of fiery liquor baijiu, which has been among the top 10 stocks traded on the northbound leg in the first three days of trading, had raced up more than 50 percent so far this year. It fell 10 percent this week as mainland investors pocketed their profits.

“Further intakes of A-shares will be much slower as the excitement has been exhausted on the launch day, and potential investors turn cautious,” said Du Changchun, analyst at Northeast Securities in Shanghai.

The take-up was dismal, falling

Taiwan set for record 2014 export orders

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hina’s interbank market extended trading hours today as a pickup in cash demand boosted money rates before initial public offerings next week.

The National Interbank Funding Centre closed at 5 p.m. in Shanghai today, instead of the usual 4:30 p.m., according to a press officer, who asked not to be identified citing agency rules. The person didn’t give any reason for the extension.

The seven-day repurchase rate, a gauge of funding availability in the banking system, rose as much as 200 basis points to 5.20 percent, according to prices from the National Interbank Funding Centre. That was the biggest intra-day increase since September. A daily fixing climbed 21 basis points to an eight-week high of 3.4 percent.

Bids for initial share sale may tie up 1.6 trillion yuan (US$261 billion) next week, Guotai Junan Securities Co. estimated. The PBOC injected a net 10 billion yuan into the financial system via openmarket operations this week. Treasury deposits totalling 50 billion yuan matured yesterday, draining money from banks.

aiwan’s export orders are set to reach new heights this year, after October orders doubled market expectations as global retailers rushed to meet year-end sales for smartphones.

The strong figures come on vibrant demand for Apple Inc’s newest iPhone 6 and 6 Plus, which include dozens of parts made by many Taiwanese technology manufacturers.

The strength in demand underpinning export orders should propel the value of the island’s orders to a record high of around US$480 billion this year, the government said yesterday.

Order growth for November and December should reach more than 10 percent each from a year earlier, Lin Lee-jen, statistics director of the Ministry of Economic Affairs, told reporters at a news conference.

October’s 13.4 percent jump in export orders from a year earlier pushed order levels to a fresh monthly record of US$44.91 billion, exceeding the 6.56 percent growth estimated in a Reuters poll.

Taiwan’s exports in October fell short of expectations.

Bloomberg News

Reuters

While the fast money may still dip in and out of the market, the rules governing the scheme are deterring traditional long-only funds, which serve retail investors and have more risk-averse mandates.

Rahul Chadha, co-chief investment officer at Mirae Asset Global Investments in Hong Kong, said they hadn’t invested but would do so “in due course” and had instead invested in Chinese companies with listings in Hong Kong.

One complication in trading a Shanghai listing through the connect is the “pre-selling” requirement to deliver stock to a broker the day before sale, which leaves the seller exposed to movements in the stock for longer.

Institutions are also unnerved by the lack of a concept of beneficial ownership in China, which elsewhere in the world makes a clear distinction between those conducting the mechanics of a trade and the owner on whose behalf they trade.

And while China said last week it would temporarily exempt taxes on profits made from the stock connect scheme, fund managers are wary of a retrospective tax charge.

Such concerns have dogged previous attempts to give foreigners access to Chinese stocks, such as the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes.

The government has yet to clarify the tax treatment for those schemes, and Z-Ben’s Lazarus estimates between US$400 million and US$1.2 billion in tax could be owed by fund managers under the QFII quota, if the government were to call it in.

Reuter

EU to reveal lobbying in transparency push

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he EU announced plans to make top officials publicly declare meetings with lobbyists as part of plans by under-fire new European Commission chief Jean-Claude Juncker to boost transparency.

Under the new rules the European Union’s 28 Commissioners and their staff members will have to log meetings with the estimated 30,000 Brusselsbased lobbyists who seek to influence policy.

“All contacts will have to be made public,” said European Commission Vice President Frans Timmermans, the “right-hand” man to Juncker, who took office on November 1.

“We have moved from a time when governments had an attitude to the public of ‘trust me’ to the public saying ‘show me’.”

Also to be included are the commission’s influential director generals, the bloc’s most senior civil servants who draw up laws that affect the lives of the EU’s 500 million citizens.

Juncker announced plans for lobbying transparency earlier this year when laying out plans for his five year mandate as head of the powerful executive branch of the 28-nation European Union.

AFP