Macau Business Daily, Nov 27, 2014

MOP 6.00 Closing editor: Luís Gonçalves Publisher: Paulo A. Azevedo Number 676 Thursday November 27, 2014 Year III

MTEL: Ready to start M

TEL says it’s ready. To enter the fixed line market, and challenge incumbent telecom operator CTM. The company said yesterday that leased line and Internet services will be operational within days. Its fibre optic network already covers 30 per cent of the MSAR. Michael Choi, chairman and chief executive, says clients can subscribe to new services right now. Government approval for the Internet service follows in days PAGE

3 Emperor gaming revenues down 10 pct

Inflationary spiral continues Inflation hit 6.18 per cent in October. Housing and Fuel prices alone jumped 12.47 per cent from a year ago. Food and beverages also went up 6 percent. In relation to the Composite CPI, people spent most on Food & Non-Alcoholic Beverages (28.97 percent), Housing & Fuel (26.70 percent) and Transport (10.96 percent).

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No smoking

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IPIM disbursed MOP1.5 million in Q3 PAGE 2

Newpage continues as Gov’t gaming advisor

Warning in times of prosperity

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Almost ready. Studio City and Galaxy Phase 2 will open soon. The high profile integrated resorts will substantially increase Macau gaming’s offer. But Daiwa Capital Markets analyst Jamie Soo is a naysayer.

Supply will not increase demand, he says. The ‘Build it and they will come’ fairytale might not end happily ever after

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Name

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www.macaubusinessdaily.com

%Day

China Life Insurance

7.20

Power Assets Holding

3.84

Ping An Insurance Gr

3.65

Bank of Communicatio

3.28

China Resources Land

2.54

Henderson Land Devel

-0.19

China Unicom Hong Ko

-0.34

CNOOC Ltd

-0.98

Li & Fung Ltd

-1.03

Belle International

-3.90

Source: Bloomberg

Reverse psychology

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HSI - Movers November 26

He’s adamant. Health Bureau director Lei Chin Ion stoutly defended his corner against legislators. The government hasn’t approved any applications for new smoking zones in casinos since January 2013. The ban requires casinos that have applied for smoking areas to comply with strict rules, he says. Including submitting a monthly air quality report to authorities

It’s shaking things up. Last Friday’s PBOC interest rate cut is set to stimulate the sleepy property sales sector.

The reduction and wide range of measures have a strategic objective. To reverse the negative real estate trend dragging down the Chinese economy

Brought to you by

I SSN 2226-8294

Golden Hangover

Brought to you by

They go hand in hand. Gaming revenues and jewellery sales. In the six months ended September, Luk Fook sales in Macau plunged 22 percent from a year ago. Chow Tai Fook took a big hit as well.

Regardless, jewellery companies are planning to expand next year

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2 | Business Daily

November 27, 2014

Macau

No new smoking areas for casinos approved The government has not approved any new smoking zones for the city’s casinos since the partial smoking ban applied to local gaming venues came into effect in January 2013 Stephanie Lai

sw.lai@macaubusinessdaily.com

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hen questioned about the execution of the smoking ban policy in casinos, Health Bureau director Lei Chin Ion told legislators on Tuesday evening in an enquiryanswering session that so far the government has not approved any applications for new smoking zones in casinos since January 2013 when the partial smoking ban in casinos came into effect. The ban requires that casinos that have applied for smoking areas – allowed for up to fifty per cent of casino floor space – need to

submit a monthly air quality report to the Health Bureau.

In the Tuesday session, the Health Bureau head was asked by legislator Lam Heong San about the follow-up regarding the government’s accusation that the City of Dreams casino resort – operated by Melco Crown Entertainment – had converted a non-smoking area on the mass gaming floor into a smoking zone without the Bureau’s authorisation. “...the pre-trial stage of the case has already been completed, and we’ve already sent an accusation notice to the

company and set a timeframe for them to respond to us. Then we’ll analyse the reply the company sends to us and adopt the related measures,” Mr Lei said, without elaborating upon what possible penalties might apply to Melco Crown.

“Melco Crown Entertainment’s casinos are operated in compliance with Macau legal requirements and with requisite governmental approvals. We will continue communicating with the authority to facilitate mutual understanding towards the regulations and at the

same time, we will continue openly communicating with our operation colleagues to address their concerns (if any) on implementing the regulations properly.”, the gaming operator told Business Daily.

According to media reports, the casino regulator, the Gaming Inspection and Coordination Bureau, had approved the area in question at the City of Dreams as a ‘limited access area’ although the Health Bureau said it had not authorised it as a smoking area.

A new smoking ban that came into effect on October 6 requires that all mass market gaming floors go smoke-free, except for the enclosed smoking lounges set up on these floors that have no gaming facilities inside.

Under the new rules, casinos can also apply to set up smoking areas with gaming tables and slot machines on non-main floors ‘that are of limited access to specific games and gamblers’.

This is understood to embrace not only VIP gaming rooms but premium mass gaming areas that are separated from the main floors.

The deputy director of the Gaming Inspection and Coordination Bureau, Leong Man Ion, also attended the Tuesday assembly, stating that an approval from the Health Bureau is still needed to convert a ‘limited access area’ into a smoking zone.

“If gaming companies are making the ‘limited access area’ into a smoking zone, they have to deliver the related applications and we’ll assist them to confirm with the conversion,” Mr. Leong said, “Then the Health Bureau will make a comprehensive assessment about it and make a decision.”

“The Health Bureau is the organ leading the [smoking ban] law enforcement, for which we’ll also assist them to protect the health of workers,” the gaming regulator said.

Federation of Trade Union legislator Ella Lei Cheng I expressed concern that more cases similar to the disputes between the government and Melco Crown over the smoking zone conversion could happen, citing feedback collected from gaming employee members of the union.

“Prior to October 6, the definition of this new smoking ban has been spelled out that being a VIP room can be a key criteria to zone out a smoking area. Now, we don’t rule out there are more companies trying to apply to have more VIP rooms but the government already said there has not been any new smoking zones approved for it,” the legislator remarked to us, saying that the government should stick to the principle of pursuing a full smoking ban inside casinos as a final goal.

IPIM disburses MOP1.58 million in Q3

M

acau Trade and Investment Promotion Institute (IPIM) disbursed MOP1.58 million to 284 private companies during the third quarter of this year, it was revealed yesterday in the Official Gazette. Most of the money was given to companies that participated in events to promote the trade of Macau companies.

The company Sun Light Low Carbon Illumination Technology Limited received the largest subsidy, some MOP35,314, to participate in the Hong Kong International Lighting Fair (Spring Edition) that took place from April 6 to 9.

Photography company Kids Kingdom received the second largest

subsidy, at MOP26,612, for taking part in the 2014 Asia-Pacific Cultural & Creative Exhibition. Zix Media Lda received MOP23,280 for the Retail Asia Expo 2014, making up the top three recipients.

Regarding events that attracted more subsidised participation by Macau enterprises, the 2014 International

Home Expo tops the list with a total of 25 companies.

The second and third placed events were the 2014 Asia-Pacific Cultural & Creative Exhibition and the 5th Macau Computer & Electronics Fair.

Both events attracted some 19 Macau companies that received financial aid from the government.

Business Daily | 3

November 27, 2014

Macau

MTEL providing leased line, Internet early December The fixed-line telecom operator said it has already achieved over 30 percent of optic fibre network coverage on the Macau Peninsula, Taipa and Coloane Stephanie Lai

sw.lai@macaubusinessdaily.com

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ixed-line telecommunications service provider MTEL Telecommunication Company Ltd will have leased lines as well as Internet service ready by early December, following the company’s first-phase completion of network coverage of over 30 percent of households across the Macau SAR. Michael Choi, chairman and chief executive officer of MTEL, told a media luncheon yesterday that he expected users here could subscribe to the company’s local and international leased line services as well as Internet services by or before December 3, as government approval for the Internet service will be in place within days.

The government announced in June last year that MTEL was the second operator in Macau that could run a fixed-line telecommunications service in the city, with service validity lasting until December 2021. MTEL announced its entry into the local market following a bid cast in late March 2012. It is also the only company challenging the dominant

position of local telecom operator Companhia de Telecomunicações de Macau SARL (CTM).

As stated in the fixed-line telecom service licence dispatch, MTEL has pledged to invest about MOP1 billion (US$125 million) in supplying the telecom services and related infrastructure construction.

But Mr. Choi revealed yesterday that for the first stage of their investment plan - according to which MTEL should provide at least 30 percent of network coverage for local homes by December - the company has already spent more than MOP200 million on infrastructure works, exceeding the initial budget of MOP197 million.

“On the Macau Peninsula, Taipa and Coloane, we have already laid the [optic fibre] network that covers over 30 per cent of the homes in these three places respectively,” Mr. Choi told media yesterday. “For the next stage of building the network here we have to invest another MOP230 million”.

By the end of 2016, Mr. Choi’s company will have to achieve a 70 per cent network coverage of all residential units here; as contractually required, a full network coverage for local households must be achieved by 2018.

As disclosed in the fixed-line telecom service licence dispatch, approved and signed by the city’s chief executive, MTEL is spending about MOP777 million for its first five years of operation until 2018, including building the infrastructure of the

underground optic fibre network, opening shops and operating a cloud computing centre.

Mr. Choi informed media yesterday that his company is still awaiting approval by the government to run a data centre service.

MTEL is also expected to open the very first of its shops, located in Nam Van, before the end of this year. But the company’s chairman stressed that they are still waiting for the public works department’s approval for the final fit-out of the shop’s interiors.

While the company pledges to deliver a “better, faster and more secure” telecom service to users here, Mr. Choi did not elaborate upon the cheaper leased line and Internet cost his company is offering to compete with CTM; the MTEL boss only stressed that the price charts will be publicised soon.

In its bid to run the fixed-line telecom service here, MTEL previously stated that it could roll out a leased line service tariff equal to 70 percent or below of CTM’s charges.

4 | Business Daily

November 27, 2014

Macau Brands

Trends

Brikk Bling Raquel Dias newsdesk@macaubusinessdaily.com

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ou may have heard about Brikk, the brand dedicated to transforming day-to-day objects into gold-plated pieces. The company has grown famous for its 24K gold iPhones, taking bling to a whole new level. This time, however, and still maintaining the focus on technology, they have produced what many are calling a ‘collector’s item’ a Nikon in gold.

The Lux Nikon Kit includes the Lux Nikon DF camera and Lux Nikkor 14-24 f/2.8 lens finished in pure 24k gold. Only 77 units of this edition have been made and it has taken almost a year to develop this new addition for Brikk’s catalogue. Sections of the camera are adorned in stingray leather, including the focus and zoom rings, flash area, and grip.

As for that plating, it also includes the Custom Zero Halliburton camera case and is generally between 4 and 5 microns thick.

The kit comes with a warranty from Brikk, a company that works on the principle that a portion of all proceeds are channelled towards worthy causes. On its website, Brikk states that it ‘assists populations around the world which are suffering.’

Although one is not sure who will stump up the US$41,395.00 Brikk is asking for the set, it certainly makes for a good topic of conversation.

Greater China powers Vitasoy sales growth

V

itasoy International Holdings Ltd. posted a gross profit of HK$1.35 billion (US$168 million) during the first half of the year, a jump of 21 per cent, compared to HK$1.11 billion during the same period last year. The hike was driven by the continuous growth of its net sales in the major markets of Hong Kong, Macau and Mainland China.

According to the Group’s filing with the Hong Kong Stock Exchange yesterday, its interim turnover reached HK$2.72 billion, up some 17 per cent year-on-year. In addition, the EBITDA of the Group during the six months was HK$412 million, an increase of 13 per cent year-on-year.

The beverages manufacturer claimed that its performance during

the first half of this year had far exceeded its performance in the same period in the previous two years, taking profit attributable to equity shareholders as an example, which had increased by 22 per cent yearon-year, reaching HK$222 million.

On the other hand, the net sales revenue of the Group reached HK$2.72 billion, compared to HK$2.32 billion last year. The sales of the Group in the Macau market jumped 17 per cent year-on-year.

In addition, it registered growth of 11 per cent year-on-year in Hong Kong, according to its filing.

Vitasoy asserted that its new projects, such as PET plasticbottled VITASOY soymilk and VITA Milk Tea, had received very

good consumer responses in Hong Kong, noting as well that its exports business ‘continued to perform well’.

Meanwhile, the net sales revenue of the Group in Mainland China soared 35 per cent year-on-year, accounted for by its ‘deeper penetration in the Southern and Eastern China markets, as well as territorial expansion into Fujian and Hubei.’

The Group’s net sales outside China, namely North America and Singapore, also saw increases of 4 per cent and 2 per cent year-on-year, respectively, despite the performance of the Group in Australia and New Zealand dropping a slight one per cent year-on-year.

K.L.

Macau and HK Bauhaus sales up 22 pct in H1

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he net profit of clothing retailer Bauhaus International (Holdings) Limited surged 30.6 per cent year-on-year during the first half ended September 30.

In addition, the sales of the Group in Hong Kong and Macau, accounting for nearly 73 per cent of total turnover, also jumped 22.3 per cent, compared to the same period last year.

The Group’s net profit increased nearly HK$ 5 million over the same period of 2013, reaching a total of HK$20.9 million. Meanwhile, its turnover also achieved a year-onyear growth of nearly 16 per cent, totalling HK$636 million, the company informed the Hong Kong Stock Exchange on Monday.

Although the retailer claimed that the ‘Occupy Central’ movements in Hong Kong have affected some shopping districts where it has outlets,

the sales of the Group in Hong Kong and Macau still achieved HK$462.3 million during the first six months of its financial year, compared to the HK$378 million over the same period last year.

Meanwhile, same stores sales of the Group in the two Special Administration Regions jumped 20 per cent year-on-year. This growth was due to the fine-tuning of its shop mix – by introducing more branded shops, renovating the shop design of its existing shops, closing down certain underperforming shops as well as relocating shops to other prime shopping locations at lower rentals.

However, the Group’s performance in Mainland China still posted decreases in both turnover and samestore-sales despite its claim that its business performance in the segment

has ‘gradually stabilised’ following ‘a series of difficult restructuring exercises’ of its Mainland China operations.

The turnover of the Group in the mainland dropped by some 6.5 per cent year-on-year to HK$61.4 million, while same-store sales declined by one per cent during the first half of the year.

The retailer expects ongoing high rents, rising production costs and soaring labour expenses will continue to present it with a challenging operating environment. In addition, it noted that uncertainties would be created and consumer sentiment affected during the seasonal peak shopping festivals in the second half of the year if the ‘Occupy Central’ movement in Hong Kong continues unabated.

K.L.

Business Daily | 5

November 27, 2014

Macau CSR to upgrade 46 cleaning vehicles next year The city’s franchised cleaning company - Macau Waste Systems Co Ltd (CSR) – plans to gradually upgrade a total of 46 cleaning vehicles to meet the standards of the European Union from the fourth quarter of next year, according to local media TDM. The company introduced its new cleaning facilities yesterday, including installing retractable rear trunks on some of its garbage trucks to avoid emitting a foul smell, and increasing the number of rubbish bins as well as small road-sweepers. According to the company, it currently has a total of 140 sprinkler trucks, dump trucks and garbage trucks. In addition, there are 43 trash compactors in the city.

Inflation hits 6.18 per cent in October During the tenth month of the year prices increased 6.18 per cent, the Statistics and Census Service revealed yesterday. Housing and Fuels prices alone jumped 12.47 per cent in relation to October 2013 João Santos Filipe

jsfilipe@macaubusinessdaily.com

H

igher rentals and more expensive charges for eating out caused inflation to jump to 6.18 percent year-on-year during October, the Statistics and Census Service revealed yesterday.

The steep increase in prices has primarily affected Housing and Fuels, which registered an increase of 12.47 year-on-year. This was followed by higher prices in Food and NonAlcoholic Beverages (5.95 percent year-on-year) and in Recreation and Culture

(4.82 percent year-on-year).

The only service where prices actually decreased was in communications, which were cheaper by 0.15 percent in relation to one year ago.

All the other 10 items analysed by DSEC are more expensive for people living in the Special Administrative Region than a year ago.

In year-on-year terms, this is the second time in a row that inflation has hit 6.18 per cent during October, as from October 2012 to 2013 it increased at the same pace.

Since 2010, prices have been rising in October at an average of 5.6 percent. The largest rises were in 2011

(6.71 percent) and in 2013 and 2014. The last time that there was deflation during October was in 2009. At that

time, prices went down 1.10 percent year-on-year.

In relation to the Composite Consumer Price Index, the largest share of the budget of the people living in Macau is spent on Food & Non-Alcoholic Beverages (28.97 percent), Housing & Fuels (26.70 percent) and Transport (10.96 percent).

By contrast, the services and goods which people spend less on is Alcoholic Beverages & Tobacco (0.92 percent), Communication (2.53 percent) and Education (2.91 percent).

Luk Fook revenue plunges 22pct in Macau Big jewellery companies are reporting sharp drops in profit and revenue so far this year, although this isn’t deterring some from planning expansion Sara Farr

sarafarr@macaubusinessdaily.com

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uk Fook Holdings (International) Ltd posted a revenue drop of 25.1 per cent to HK$7.5 billion for the six months ended September 30. During the same period, the jeweller reported a profit decrease of 11.1 per cent to HK$1.8 billion from that of a year ago, the company announced in a filing with the Hong Kong Stock Exchange yesterday afternoon.

Revenue generated by the Macau market alone dropped 22.5 per cent to HK$1.1 billion, while still representing 14.6 per cent of the company’s overall revenue.

Between April and the end of September, the company’s overall same-store sales growth dropped by 41 per cent primarily due to the end of the ‘gold rush’ era of last year.

In addition, the Macau and Hong

Kong market saw same-store sales growth drop 40.7 per cent in the six months ended September 30, while that of mainland China dropped 44.1 per cent. Compared to last year, the sale of gold and platinum products was down 50.1 per cent, while that of gem-set jewellery dropped 12.9 per cent.

In the filing, the company also announced it is planning to expand its network and business, in particular in the mainland Chinese market, ‘in order to reduce its overall business reliance on the Hong Kong and Macau market.’

Luk Fook isn’t the only big-name jeweller looking to expand its market.

Chow Tai Fook Jewerelly Group Ltd has also announced plans to open new stores outside its main markets in Hong Kong.

Plans for expansion ‘While overseas travel is increasingly popular among the mainland Chinese, it means more and more of their shopping budgets are spent in the new tourist destinations outside our major markets,’ the

company said in a filing with the Hong Kong Stock Exchange.

Chow Tai Fook plans to double its number of points of sale, including concessionaires and standalone outlets, in the next 10 years. Stores in tourist hotspots outside mainland China and Hong Kong will also be its target ‘to capture the spending power of the affluent outbound Mainland Chinese tourists,’ it said.

The expansion plan comes as the jeweller said pro-democracy protests held near its Hong Kong stores had curtailed Chinese tourists. Travellers from China splurged the most on taxfree shopping last year, accounting for 27 per cent of spending, according to a study by tax-refund points operator Global Blue.

Chow Tai Fook said sales at stores open at least a year plunged 24 per cent in October as the Hong Kong ‘Occupy’ demonstrations have disrupted businesses at some of its nearby outlets. Sales of stores in the areas are expected to improve with police having cleared some protesters, Chairman Henry Cheng said at a press conference in Hong Kong. with Bloomberg

6 | Business Daily

November 27, 2014

Macau

No happy ending for ‘Build it and they will come’ fairytale Next year, Studio City and Galaxy Phase 2 will open to the public, two high profile integrated resorts that will increase the offer by the Macau gaming industry.

For Daiwa Capital Markets analyst Jamie Soo, however, this time supply will not be able to increase demand João Santos Filipe

jsfilipe@macaubusinessdaily.com

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ext year will demonstrate that supply is no longer driving demand in Macau, Gaming and Consumer Analyst at Daiwa Capital, Jamie Soo, has told Business Daily. According to Mr. Soo, in 2015 Gross Gaming Revenue (GGR) will decline 7 per cent year-on-year.

“We’re expecting some of the macro pressures faced in 2014 to continue into 2015. This would result in slower mass growth and overall negative growth for the VIP segment.

Overall, we expect GGR to decline by 7 per cent year-on-year”, he posited.

The year 2015 heralds the start of the second wave of casino openings in Cotai. Melco Crown’s Studio City and Galaxy Phase 2 are both due to open in mid-2015. This may not necessarily lead to the recovery in gross gaming revenue that some may expect, however, and in fact it may end up hurting operators.

“In a year of contracting revenue, we believe the ‘build it and they will come’ mantra is no longer a valid investment thesis for 2015. Additional capacity will result in increasing competition, lower table yields, and margin erosion”, he stressed.

The Hong Kong-based analyst also believes that the VIP segment will continue suffering and shrinking during 2015, as the anti-graft measures of the Central Government in Beijing continue to affect the gaming industry in the Special Administrative Region.

“We expect the anti-corruption campaign to continue and we expect that the performance we have seen for the VIP segment over the past 3 months to be the norm in 2015. This translates into a 19 per cent year-onyear decline for the VIP segment in 2015”, he said.

Predictions for the mass market segment are much better, mainly

driven by the increasing number of tourists coming to Macau. Although, the premium mass market is under pressure, for Jamie Soo the segment will continue to grow but at a slower rate than during this year.

“The premium mass segment has been seeing some pressure, while the grind mass segment is still structurally positive given the continued growth in visitor arrivals from China – there was an increase of 20 per cent yearon-year in October”, he said. “There’s still growth potential, albeit slower, when looking into 2015”.

Lately, it has been mentioned by some companies related to the retail market that mass market visitors are coming more and more from secondtier Chinese cities, which means they have less money to spend. On the other hand, tourists from first-tier cities are choosing to travel instead to other destinations. Soo said that

if this trend is proven correct, then the mass market will be impacted.

24-hour border crossing of limited impact From December 18 a 24-hour border crossing facility will exist between Macau and Mainland China.

Although there are some expectations from this measure, the effects are not to be felt in the short-term.

“We expect the 24-hour opening for the border crossing to have little impact on gaming revenue in the near term as Hengqin is still in the very early stages of being developed”, Mr. Soo said.

In the long term, however, things can be very different and gaming operators may alleviate some of their costs with employees.

“Some operators are considering opening dormitories in Hengqin to

Visitors not here to gamble In October, gaming revenue per visitor dropped 31 per cent from a year ago Sara Farr

sarafarr@macaubusinessdaily.com

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he number of visitor arrivals may continue to increase, particularly those from mainland China, giving no indication that China’s economic slowdown is taking a toll on the number of mainlanders travelling outbound. What it has taken

a toll on is the ‘quality’ of visitor, as analysts put it.

While many may still choose to visit the territory, the majority are not here to gamble anymore. At least not like before, and the numbers are starting to show. ‘We believe the visitation figures demonstrate the desirability

[especially of mainland Chinese] to continue to visit Macau,’ analysts at U.S. brokerage firm Sterne, Agee & Leach, Inc wrote in their latest note to clients.

‘However, given October gross gaming revenue was down around 23 per cent year-on-year, we estimate

house staff, which would alleviate some of the cost pressures for the casino operators if this option were to prove to be cost advantageous”, he said.

Jamie Soo also talked with Business Daily about his predictions for November. The analyst is not expecting any change in the trend of recent months, which has been an increasing drop of gross gaming revenue year-on-year.

“We continue to expect softness for both VIP and mass. The November top-line revenue growth is looking to be around minus 20-25 per cent year-on-year”, he said.

Since the beginning of the year gross gaming revenue has increased 2.3 per cent in relation to 2013.

However, in the last five months revenues have been dropping and in October alone shrank as much as 23.2 per cent.

gross gaming revenue per visitor to be down by around 31 per cent versus last year,’ the note reads.

According to the analysts at the brokerage firm, the ‘quality’ of visitors to Macau ‘continues to demonstrate itself as relatively weak’ compared to that of last year.

However, this is, according to Sterne Agee analysts, ‘a product of China’s anticorruption campaign and a choppy mainland [Chinese] macro backdrop.’

So far, analysts have been unanimous in that Macau’s gross gaming revenues for November could reflect between 19 to 22 per cent drop, with casinos raking in around MOP24.3 billion (US$3 billion) at the end of the month.

Tables were earning an

average daily of MOP810 million in the last seven days, according to analysts’ estimates, compared to last week’s MOP720 million and MOP806 million recorded in the first nine days of November. ‘This year’s weekover-week increase of 11 per cent more or less mirrors last year’s trend,’ the U.S. brokerage firm’s note added.

Meanwhile, the Macau Government’s announcement about cross-border hours extension to and from mainland China has been welcomed by many, including analysts who believe that the territory’s 1.6 per cent unemployment rate along with no ‘Occupy-like’ movements enables the SAR to remain a ‘success story for the one-government, twosystems policy.’

Business Daily | 7

November 27, 2014

Macau

Government gaming advisor’s contract to be renewed David Green’s company Newpage Consultadoria Limitada will have its contract with the Macau Government renewed and continue to conduct studies relating to the gaming industry with recommendations to the authorities Joanne Kuai

joannekuai@macaubusinessdaily.com

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avid Green, an Australian lawyer and former gaming regulator, who has advised the Macau Government on gaming regulatory policy since 2000, will have his firm’s contract renewed in 2015.

The Official Gazette confirmed that Manuel Joaquim das Neves, director of the Gaming Inspection and Coordination Bureau (DICJ) has been authorised to sign a ‘service provider contract for a consultancy and study of the gaming industry for 2015’ with Mr. Green’s Newpage Consultadoria Ltda.

Mr. Green – principal of Newpage and a permanent resident of the Macau SAR – was originally part of the Arthur Andersen consulting team hired by the government in 2000 to advise on the

liberalisation of the Macau casino industry.

He was subsequently a partner of PricewaterhouseCoopers in Macau, and later director of the firm’s gaming practice.

Business Daily contacted DICJ regarding further details about the contract renewal but received no reply by the time we went to print.

David Green told Business Daily that his firm’s new

deal “will likely be signed early next year. It will be a continuation of work we have done in the last few fears,” he added. “We will be providing assistance to the regulatory role of the Gaming Inspection and Coordination Bureau.”

The details of the contract, including the key points of the study, have yet to be disclosed, said Mr Green, as it’s a matter for DICJ whether it is prepared to release any

additional information, and the contract is prepared by DICJ. In general, for Macau’s gaming industry regulator, the main challenges lies in the market rather than the industry itself, as junket operators in Macau are still a power in controlling the market, said Mr. Green.

As casinos have traditionally been seen as an obvious means to watch for

criminal proceeds, Macau’s junkets are regarded as a key feature of this landscape.

“There are things that are happening in a broader environment. The United States is combating all aspects of money laundering at home and abroad. Macau has to meet the demands to prevent such criminal activities,” said Mr. Green.

Green has advised on casino regulation in a number of jurisdictions other than Macau, such as New Zealand, Singapore and Taiwan. He has also provided consultancy services on regulating Internet gaming, sports wagering and lotteries. The tax and commercial lawyer served as presiding member of the Independent Gambling Authority in South Australia prior to relocating to Macau in 2001.

Emperor Entertainment gaming revenue dips 10 pct in H1 Unlike its competitors, its gaming revenue from VIP clients was up but from the mass gaming floor it was down. Nevertheless, the overall result was similar – down Kam Leong

kamleong@macaubusinessdaily.com

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ollowing the declining gaming revenues in Macau for five consecutive months, Emperor Entertainment Hotel Limited has experienced a year-on-year decline of 9.9 per cent in gaming revenue, leading the total revenue of the Group fall by 4.2 per cent yearon-year during the first half of its financial year.

The Group filed with the Hong Kong Stock Exchange (HKEX) on Monday afternoon that its interim revenue had dropped to some HK$1.05 billion (US$131 million) from HK$1.09 billion last year, claiming the decline was due to the ‘tempered spending of Chinese visitors triggered by weakening consumer sentiment.’

Despite the hotel revenue of the Group soaring 53 per cent year-on-

year, reaching HK$152.1 million, it could not help with its total revenue turning south following the narrowing gaming revenue growth of the industry as a whole.

Running two hotels in Macau – namely, Grand Emperor Hotel (GEH) and Best Western Hotel Taipa - the Group primarily relies on its gaming business in GEH, which is operated under the gaming licence of Sociedade de Jogos de Macau, S.A. and accounts for 85.6 per cent of its total revenue.

According to its filing, the Group’s gaming revenue dropped from some HK$1 billion to HK$902 billion during the six months ended September 30. Unlike the usual pattern in the gaming industry, the Group’s gaming revenue primarily derives from the mass gaming area,

which accounts for more than 63 percent of its total revenue.

However, its revenue here decreased by 14.1 per cent yearon-year during the first half, amounting to HK$671 million, compared to HK$780 million over the same period of last year. In addition, gaming revenue from the slot machines segment declined to HK$16 million from the HK$19.2 million during the period.

On the contrary, the Group’s self-managed VIP room, with 10 gaming tables, registered a yearon-year growth of 7.2 per cent, archiving HK$214.6 million, yet only accounting for 20.4 per cent of its total revenue.

In fact, the Group admitted that the market has been more challenging since monthly gross

gaming revenue started to fall in May after five years of uninterrupted growth. However, it believes that Macau will still remain the world’s largest gaming hub due to its ‘solid fundamentals’, such as proximity to the Mainland and the propensity of the Chinese to gamble.

Meanwhile, another subsidiary company of Emperor Group Emperor International Holdings Ltd. - also posted its interim results with HKEX on Monday. The revenue of Emperor Int’l dropped 4.9 per cent year-on-year to HK$ 1.41 billion during the first half.

Emperor Int’l claimed that the decline in revenue was due to the softening demand of gaming and hospitality services in Macau, as the segment accounts for 76.1 per cent of the total revenue of this Group.

8 | Business Daily

November 27, 2014

Greater China

U.S. reluctant about extradition

Less service trade deficit Only “a small number” of officials have been repatriated from the Un China recorded a smaller deficit in foreign service trade in October, data from the State Administration of Foreign Exchange (SAFE) showed yesterday. The country’s service trade deficit reached 105.6 billion yuan (US$17.25 billion) in October, compared with 133.4 billion yuan in September, according to the SAFE. Income from trade in services stood at 75.9 billion yuan last month, while expenditure in service trade reached 181.5 billion yuan, the SAFE said. In the first ten months, the aggregate service trade deficit totalled 824 billion yuan, with 1.05 trillion yuan in revenues and 1.87 trillion yuan in spending.

Closer relations between China and U.S. seems not to help in corruption prosecution collaboration from the American side. Pictured Chinese Prime Minister Li Keqiang and Barack Obama, President of the United States.

Market access easier to boost investment China will further ease market access to key industries in a bid to spur investment through innovating financing and investment regimes, the State Council announced yesterday. The move aims to fully mobilize social investment, maintaining the pivotal role of investment in stabilizing economic growth, according to a guideline released by the State Council, the cabinet. The easing in market access should further break industrial monopolies, reduce market barriers, and lower the access threshold, the guideline said.

2014/15 corn stockpiling scheme released China will start this week to buy corn from farmers, a government body said, offering the same prices as last year as it seeks to shore up domestic prices and boost rural incomes for a seventh year in a row. Beijing will pay 2,2202,260 yuan (US$362-US$368) a tonne to farmers in its northeast provinces during a stockpile scheme that will last until the end of April 2015, the State Administration of Grain said in a statement. The industry had expected the government to again stockpile large volumes of corn.

Cross-Strait entrepreneurs summit arranged The annual meeting of the Cross-Strait Entrepreneurs Summit is scheduled for Taipei from December 15 to 16, a government spokesman said yesterday.

This year’s theme will be “deepening cooperation and promoting transformation and upgrading of enterprises,” said Ma Xiaoguang, spokesman for the State Council Taiwan Affairs Office, at a press conference. More than 600 representatives across the Taiwan Strait will attend the meeting, he said.

Mainland negotiator to visit Taiwan The president of the Chinese mainland-based Association for Relations Across the Taiwan Straits (ARATS), Chen Deming, will visit Taiwan this year, a spokesman said yesterday. Chen’s trip will include seeing Taiwan’s agriculture, bio-technologies, green tourism and volunteers’ groups, said Ma Xiaoguang, spokesman for the State Council Taiwan Affairs Office, at a press conference.

The visit is part of the annual plan of exchanges between the ARATS and Taiwan-based Straits Exchange Foundation, he said.

C

hina called for the U.S. to send back more corruption suspects for trial, saying the country and Canada are the main safe havens sought by fleeing officials.

Only “a small number” of officials have been repatriated from the two countries, Xu Hong, director general of the department of treaty and law at China’s foreign ministry, said at a briefing yesterday in Beijing.

Efforts to bring back suspects are being hampered by judges with “bias” against China’s legal system and the lack of an extradition treaty, he said.

“We have mentioned this to the

United States, saying that in view of the increasing exchanges between China and the U.S. should we consider signing such an extradition treaty?”

Xu said. “It looks like the U.S. is not ready yet. Under these circumstances, we have to resort to alternative solutions.”

Those solutions can include enforcement of violations of immigration law, or in some cases China resorting to litigation by suing individuals in the U.S., he said.

China is increasingly seeking to apprehend corrupt officials and other economic criminals who have

fled abroad. The effort, dubbed “Operation Fox Hunt 2014,” started in July as part President Xi Jinping’s anti-corruption campaign and has netted more than 300 people from dozens of countries and regions, according to official figures.

Congress opposition Efforts to bring back corrupt officials and their ill-gotten gains dovetail with a broader campaign by the ruling Communist Party against corruption, which Xi has said was so bad that it threatens the party’s

China soy imports may take a hit A slowdown in imports by China, which buys more than 60 percent of globally traded beans, could add to pressure on global prices Naveen Thukral and Niu Shuping

F

alling soymeal prices in China are threatening to derail China’s booming demand for U.S. beans as crush margins have started turning negative after holding mostly positive since early September.

Fat soybean processing margins and four-year low Chicago prices sparked a rush by Chinese buyers last month to snap up U.S. cargoes for November-December shipment.

But expectations of big arrivals are taking a toll on soymeal values in the country and dragging down crushing profits.

A slowdown in imports by China, which buys more than 60 percent of globally traded beans, could add to pressure on global prices that rallied to a four-month high earlier this month on the back of strong demand.

“China has definitely overdone, there’s a huge volume of beans on its way,” said a trading manager at a Singapore-based company which ships beans to China and owns processing plants.

“Soymeal prices in the Chinese market are falling and as a result crushing margins are turning flat and even negative in some cases.”

Soymeal prices in China’s Dalian region have dropped 6.7 percent since the start of last week. This has

pushed crush margins into the red after being largely profitable since early September.

Chinese importers overbought at the end of last year, encouraged by higher processing margins but record shipments coupled with a slowdown in demand after an outbreak of bird flu, reduced demand and triggered defaults.

Traders said China is not yet in a similar situation, despite falling prices and the big arrivals.

Although soybean shipments are forecast to reach around 21 million tonnes in the November-January period, traders are seeing signs of a slowdown early next year as profit margins are squeezed.

China usually ships 5.5-6.0 million tonnes a month.

“If they priced soybeans at around US$9.00 a bushel, the margin should be good but if they did not, giving the weakening domestic soymeal prices, we expect the margin will be negative if (Chicago) soy prices keep rising,” said Li Lifeng, one analyst with an industry consulting firm, www.cofeed. com.

“Meal prices early next year would be pretty weak.”

U.S. FOB Gulf soybean basis values for December were offered at 127 cents over CBOT January soybeans this week, down from a high 205 cents over the November contract two months, indicating a potential slowdown in demand, said a second Singapore trader.

“U.S. basis have crashed as Chinese buying for January and February shipment is slowing down,” he said.

Reuters

Business Daily | 9

November 27, 2014

Greater China

n treaty

nited States and Canada

Pacific Economic Cooperation summit in Beijing earlier this month. The agreement aims to enable cooperation between 21 APEC member countries in combating transnational bribery and money-laundry and in repatriating suspects and returning illicit assets via various channels.

Judicial deals

Legally there are no obstacles standing between two countries to sign an extradition treaty, and it will benefit both countries. But it will need to be passed by the U.S. Congress, which opposes such a treaty because it distrusts the Chinese judicial system Huang Feng, law professor, Beijing Normal University

grip on power. Australia is taking part in operations with China to seize illegal assets, while China has sent investigators to Thailand, the Philippines and other nations.

Xi this month successfully pushed the “Beijing Anti-Corruption Declaration” to be passed at the Asia-

China this year made “unprecedented efforts” internationally that resulted in completing 10 extradition or criminal judicial assistance negotiations with other countries, Xu said. While China “has made progress” improving law enforcement mechanisms with the U.S. and some fugitives had been brought back, there is still no extradition treaty in place, Xu said.

Still, China also encounters opposition in the court system, Xu said.

“Many foreign judges don’t really understand China and its legal system,” Xu said. “In fact sometimes they even harbour certain bias or prejudice against China. In that case, they sometimes simply return a judgment of refusing to cooperate.”

While China understands other countries must follow their own laws and processes, there should be greater effort to implement the spirit of the United Nations’ convention against corruption as a basis for pursuing fugitives where no bilateral extradition treaty exists, Xu said.

That’s especially true in the case of the U.S., he said.

“We sincerely hope that both parties shall continue their efforts with greater speed, more aggressively, so as to achieve greater results,” Xu said.

Bloomberg News

Microsoft to pay for ‘tax evasion’ The company channels earnings through “foreign regional operations centres” in Ireland, Singapore, and Puerto Rico in order to reduce taxation

C

hina has levied about US$140 million in back taxes from Microsoft Corp in the first major case concerning cross-border tax evasion in the country, as regulators ramp up pressure on U.S. corporations doing business there.

According to an article published by China’s Xinhua official news agency, an unnamed U.S. multinational must pay the Chinese government 840 million yuan (US$137 million) in back taxes and interest, as well as more than 100 million yuan in additional taxes a year in the future.

The article refers only to a company whose name starts with “M,” is one of the world’s biggest 500 firms and which established a wholly-owned foreign subsidiary in Beijing in 1995.

Microsoft is the only company that fits that description.

The Redmond, Washington-based company did not confirm the report, but also did not deny that it was the company involved.

“In 2012 the tax authorities of China and the United States agreed to a bilateral advanced pricing agreement with regards to Microsoft’s operations in China,” said a Microsoft spokesman

in an emailed statement. “China receives tax revenue from Microsoft consistent with the terms of the agreed advanced pricing agreement.”

An advanced pricing agreement sets the tax treatment of transfer pricing, or methods of booking prices and sales between subsidiaries, which Microsoft uses across the globe.

According to its fiscal 2014 annual report, Microsoft’s overall effective tax rate was 21 percent - well below the standard U.S. corporate rate of 35 percent - primarily because it channels earnings through “foreign regional operations centres” in Ireland, Singapore, and Puerto Rico.

According to Xinhua, “M” reported losses for six years in China of more than 2 billion yuan while peers enjoyed profits and so the tax authorities concluded its behaviour was unreasonable. It said the U.S. company admitted to tax evasion and its mainland subsidiary had agreed to pay the central government.

The tax payment is only the latest headache for Microsoft in China, where it is already under investigation by anti-trust regulators.

Reuters

HK rights offers most in 9 years Hong Kong-listed companies have announced US$12.3 billion of such share sales this year, more than double the tally of 2013, the data show Billy Chan

H

ong Kong rights offerings have jumped to a nine-year high, as property developers seek funds from the stock market amid a dearth of credit to the industry from Chinese banks.

Deals proposed this week by underground mall developer Renhe Commercial Holdings Co. and investment firm Mastermind Capital Ltd. brought the number of planned rights offerings this year to 100, the most since at least 2005, according to data compiled by Bloomberg.

Chinese developers are seeking cash after their average total debt-to-equity ratio rose to 125.9 percent, from 117.7 percent at the end of last year.

Some builders are turning to equity sales, which allow more freedom in the use of proceeds, to avoid increasing their debt levels too much, according to Standard & Poor’s corporate ratings director Christopher Yip. HSBC Holdings Plc. ranks first among advisers on Hong Kong rights offers this year with a 19.6 percent market share, according to data compiled

by Bloomberg. Standard

These rights issues are concentrated in some specific sectors, particularly property developers. In the past few years they have been facing pressure from high funding costs and difficulties to raise capital in domestic Chinese markets Kinger Lau, Goldman Sachs, strategist

Chartered Plc., which makes about three-quarters of its earnings in Asia, is second with 13.6 percent, the data show.

Bond buyback Renhe said November 24 it will sell US$436 million of shares at a 32 percent discount to fund a bond buyback. It joins hotelier Shangri-La Asia Ltd., insurer PICC Property & Casualty Co. and Hong Kong builder New World Development Co. in seeking funds through rights offerings this year.

Rights offerings give a company’s existing investors

the option to buy a set number of new shares at a discount for each share they already own. Holders who opt not to purchase their allotment can sell those rights to other investors.

The deals also show how Hong Kong’s appeal to the financial community has withstood pro-democracy protests that threatened to become the city’s biggest political crisis in decades.

Eighty-seven percent of respondents in a Bloomberg Global Poll this month said the democracy movement that blocked major roads and shopping districts for eight

weeks hasn’t diverted financial activity away from the city.

Hong Kong’s benchmark Hang Seng Index has risen 2.4 percent this year. Last week, the former British colony and Shanghai opened a stocktrading link that allows a net 23.5 billion yuan (US$3.8 billion) of daily cross-border purchases.

Initial public offerings are booming as well, with CGN Power Co. and Dalian Wanda Commercial Properties Co. planning first-time share sales in Hong Kong that could bring proceeds to the highest since 2010.

Bloomberg News

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November 27, 2014

Greater China

Rate cut halting home sales slide More than 40 percent of respondents in a SouFun online survey said they would bring forward their home purchase plans following the central bank’s rate cut

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hina’s first interest-rate cut since 2012 is set to halt a slide in property sales, reducing developers’ stock of unsold homes that has weighed on prices.

The central bank’s surprise reduction in its benchmark rate on November 21 adds to discounts of as much as 12 percent on mortgages banks are already offering to firsthome buyers, according to SouFun Holdings Ltd. China’s home sales and prices have declined this year after four years of property curbs to stem speculation.

Sales slumped 10 percent in the first 10 months from a year earlier and prices fell in all but one of the 70 cities tracked by the government in the past two months.

The rate cut “is a strong catalyst for the China property sector,” said Johnson Hu, Hong Kong-based property analyst at CIMB Securities Research. “Home buyers may see it as a signal of property market stabilization, lifting sentiment and thus boosting home sales and lowering housing inventory.”

Lenders’ weighted average mortgage rate climbed 76 basis points over two years, amid higher funding costs and default risks, to 6.96 percent in the third quarter, Essence Securities Co. analysts led

by Beijing-based Wan Zhi wrote in a November 24 report.

More cuts He predicted single-digit growth in home sales next year.

The PBOC cut is equivalent to about a 2.5 percent reduction on a 1 million yuan (US$162,900) apartment, according to Barclays.

China’s average new-home prices fell 1.9 percent this year through

October, according to SouFun, which tracks 100 cities.

The central bank in September made it easier for people to obtain mortgages to stem the slide in property prices. It extended preferential treatment originally available to firsthome buyers, including a 30 percent down payment and mortgage- rate discounts of as much as 30 percent, to people buying a second home as long as they’ve paid off existing debts.

Cheaper mortgages In the four-year campaign to stem a surge in home prices, the government raised the down payment for secondhome buyers to 60 percent and suspended lending to people buying a third property. Many cities also imposed restrictions on the number of homes residents could buy. Most of those measures have been eased or removed this year.

In Beijing, more than half of the banks have started offering discounts of as much as 10 percent on first-home mortgages, according to Bacic & 5i5j Group, the city’s second- biggest realtor for existing homes. Some banks in Qingdao in eastern Shangdong province provided 12 percent reductions, according to SouFun. Major banks in Shanghai, which are granting discounts of about 5 percent to first-home buyers, are likely to increase them to about 10 percent early next year, CIMB’s Hu said.

Buying intentions Mor e th a n 4 0 p er cen t o f respondents in a SouFun online survey said they would bring forward their home-purchase plans after the

If interest rates are cut a few more times, as is the expectation now in the market, the impact will certainly be bigger. Should sales keep rising, prices surely will go up too Gao Jian, analyst at Northeast Securities

central bank’s rate cut, according to results published by the nation’s biggest real estate website owner as of November 24.

Almost 60 percent of the participants in the survey said home prices will rebound in Shanghai after the rate reduction. Prices in the city fell 0.6 percent in October from the previous month and 2 percent from a year earlier, official data show.

“Developers may gradually narrow the price discounts at new launches, or even start to raise prices” in the first quarter of next year, Bocom International Holdings Co.’s Hong Kong-based analyst Alfred Lau wrote in a November 24 report.

The rate cut will ease developers’

financing costs, potentially saving them a combined 4.6 billion yuan in annual interest payments, equivalent to 3 percent of the 136 listed homebuilders’ net income this year, according to UBS. It’s time to overweight property stocks as housing sales may rise 5 percent next year, according to China International Capital Corp.

Vanke, Poly Developers such as China Vanke Co., Poly Real Estate Group Co. and CIFI Holdings (Group) Co. will benefit the most because they focus on residential, mass-market housing and have a higher portion of their total borrowings from domestic banks, according to Moody’s Investors Service.

“The rate cut should spur residential property sales in the next few months in conjunction with the PBOC’s mortgage- policy relaxation” on September 30, Moody’s senior analyst Franco Leung wrote in a report. As mass-market buyers generally rely on mortgage financing, “expectations that borrowing costs will decline will likely encourage them to purchase homes, which will boost sales volumes for developers.”

Moody’s expects developers’ sales will likely move closer to their 2014 full-year targets.

Developers should view the PBOC easing as a “good opportunity” to clear inventories rather than raise prices, Haitong International Securities Co.’s Hong Kong-based analyst Hugo Hou wrote in a report on November 24, citing widespread oversupply and uncertainties, including a potential property tax. It’s “time for destocking, not celebrating.”

Bloomberg News

Business Daily | 11

November 27, 2014

Asia

India’s state lenders to face capital raising hardships Powerful banking unions are reluctant to back plans that would cause the government’s shareholding to fall fearing job losses Devidutta Tripathy

I

ndia’s state-run banks face major obstacles in their plans to raise as much as US$60 billion in new capital over the next few years, with investors sceptical about the prospects for most of them and workers wary of the government’s grip loosening.

With the tailwind of a strong recent stock market performance on optimism about a new government led

by Prime Minister Narendra Modi, the banks are preparing to raise capital to meet upcoming global regulations and to build a buffer against rising bad loans. Banks such as State Bank of India have appointed advisers for share sales.

But with their assetquality deteriorating and credit demand slackening due to a sluggish economy and politically motivated lending, tapping the capital markets won’t be easy for them.

Moreover, about a quarter of India’s 26 state-owned lenders have a leadership vacuum. United Bank of India, which has the country’s heaviest bad-loan burden, has had no chairman for nine months now.

“When you don’t know what’s going on, and why what’s being done is done, you can’t responsibly put your money,” said Eric Mookherjee, a Paris-based fund manager at Shanti Asset Management, who has

KEY POINTS State-run banks need as much as US$60 bln capital by FY19 Rising bad loans, poor governance in state banks worry investors Unions, fearing job cuts, don’t want gov’t to dilute stake

The government has promised to reform the state-run banks, but it remains to be seen if the changes will come quickly and be effective

one Indian state-run lender - Bank of Baroda - in his portfolio.

New Delhi’s stakes in the state-run banks range from 56 percent to 84 percent. If these lenders, who account for 70 percent of India’s total outstanding loans of about US$1 trillion, are unable to raise the full capital sought or only some of it, the government will have to step in.

But the government may have a limited appetite to infuse such large funds directly. Investment bank Jefferies estimates that it has already pumped nearly US$13 billion into state-run

banks over the past decade. So instead, New Delhi might ask state financial institutions, such as Life Insurance Corp of India Ltd (LIC), to invest if the banks’ capital raising is not successful.

Among state-run banks, only SBI, Bank of Baroda and Union Bank are well positioned to raise share capital on the strength of their balance sheets, said Manish Ostwal, banking analyst at brokerage K.R. Choksey.

SBI, India’s biggest lender, is amongst the bettermanaged state-run banks but still had a return on assets ratio - a measure of profitability - of only 0.65.

State-run Bank of Baroda had 0.75, compared with 1.73 for leading private sector lender ICICI Bank and 1.90 for HDFC Bank.

And profit per employee at SBI and its associate banks, with close to 300,000 staff, was 600,000 rupees (US$9,710) for the year to March 2013, compared with 1.4 million rupees for ICICI. Valuation of the shares could be another stumbling block. Of the 24 publicly traded state-owned banks, all but the two biggest have a price-to-book value of less than 1, meaning bigger dilution of existing shareholders.

Another challenge will be India’s powerful banking unions, which are reluctant to back plans that would cause the government’s shareholding to fall, fearing job losses.

Vishwas Utagi, a bank union leader, said the Basel III global norms on capital requirements should not matter to state lenders: “The government nameplate is more than enough.”

Instead, he said, the government should come up with stringent laws to recover bad and stressed loans - estimated at US$97 billion. “Good money is being wasted for bad money.”

Reuters

BOJ’s latest easing protects its credibility Sayuri Shirai, Bank of Japan’s board member, supported Kuroda’s plan in order to strengthen the institution’s consistency

A

Bank of Japan board member who voted for last month’s huge monetary expansion programme said that failing to act would have cast doubt on the bank’s determination to hit its price goal and undermined its credibility.

Sayuri Shirai, one of the two academics who held casting votes in last month’s close-call decision, said she initially thought about holding off on further boosting the stimulus and maintaining the existing pace of asset purchases.

But she eventually decided to support Governor Haruhiko Kuroda’s expanded stimulus plan to head off the risk of slowing inflation and demonstrate the BOJ’s conviction to achieve its 2 percent inflation target.

“By not acting, the BOJ might risk its credibility. Such a circumstance would not only render my outlook unfeasible but would also undermine

the feasibility of the 2 percent target,” she told business leaders in Hiroshima, western Japan.

Shirai’s comments are similar to the justification Kuroda gave for

Bank of Japan’s headquarters

expanding the stimulus last month, a decision that exposed a deep rift within the board over the controversial nature of the BOJ’s quantitative and qualitative easing (QQE) program.

Last month’s easing was decided by a 5-4 vote, with dissenters arguing that the cost of easing policy outweighed the benefits, and that it was doubtful whether printing more money would help increase inflation expectations.

Shirai, a former International Monetary Fund economist, acknowledged that it wasn’t easy to convince the public that inflation will accelerate to 2 percent, given Japan’s prolonged history of deflation.

She also repeated her personal view that the BOJ should allow itself more than two years to meet its 2 percent inflation target if it wants to achieve it “without putting excessive burdens on households and companies.”

But that did not mean the BOJ should abandon its efforts to hit the price target, she said, adding it was “crucial to stick with the goal without any hesitation.”

Reuters

12 | Business Daily

November 27, 2014

Asia Vietnam’s trade surplus hits US$2 bln Vietnam will post a trade surplus of US$2 billion up to the end of November this year, with exports rising faster than imports and on track for a third straight surplus year, a state-run newspaper said yesterday.

Exports in the January-November period rose 13.7 percent from a year ago to an estimated US$137 billion, while imports increased 12.6 percent in the same period to US$135 billion, the Dau Tu (Investment) newspaper said, cited government data.

India moves toward ban on loose cigarettes India moved a step closer to banning the sale of unpackaged cigarettes, with a view to discourage smoking in a country where close to a million people each year die of tobacco-related diseases. More than 70 percent of the cigarettes sold in India are loose.

The federal health ministry has accepted the recommendation of an internal panel and will seek cabinet approval before imposing the ban, Health Minister J.P. Nadda told parliament in a written statement.

S. Korean consumer sentiment slips South Korea’s key consumer sentiment index for November dropped to its lowest level in 14 months, central bank data showed yesterday, holding above the neutral line but illustrating how lifting domestic consumption is a struggle. The Bank of Korea’s composite consumer sentiment index fell for a second straight month in November, to 103 from 105 the previous month, the central bank said in a statement.

The November reading was the lowest since September 2013, when it was 102.

Weaker prices harm Aussie projects The number of resource projects reaching financial commitment in Australia has fallen as sagging minerals and energy prices lead companies to tighten their belts, the government’s chief commodities forecaster said yesterday. In the six months to October, just three new projects worth A$597 million (US$510 million) reached the committed stage, the lowest number and value of projects in a decade, the Bureau of Resources and Energy Economics (BREE) said. As of October, 44 resource projects worth A$228 billion stood at the committed stage, down from 48 projects worth A$229 billion (US$195.22 billion) in April, BREE said.

Samsung sells shares S.K. Samsung Group said yesterday it is selling stakes in four chemical and defence firms for 1.9 trillion won (US$1.72 billion) to Hanwha Group, the latest move in the massive task of restructuring the country’s largest conglomerate. Samsung Group is reorganising its business empire as the children of Samsung Electronics Co Ltd chairman and patriarch Lee Kunhee, 72, who has been hospitalised since May following a heart attack, prepare to take over the family enterprise.

Japan’s war on deflation faces its toughest battle The cornerstone is a 2.0 percent inflation target designed to reverse price drops that gave consumers an incentive to delay purchases knowing that goods would be cheaper down the road Anne Beade

A

s Japanese Prime Minister Shinzo Abe heads to the polls next month, the success of his war on deflation hinges on convincing people like 24-year-old Ryo Tatemichi to shrug off fears about the future and start spending.

That’s a tough sell when young workers like Tatemichi are struggling with insipid wage growth and declining job security, and as the economy slips into its fifth recession since 2000.

“If things keep going like they are, salaries could drop. That’s why people need to save now,” said Tatemichi, an information technology worker who puts aside as much as one-third of a 200,000 yen (US$1,700) a month salary before overtime pay.

“It would be good if people who do have money spend it... But all we hear about is economic gloom. People are scared of spending their cash.”

Japan’s economy shrank between July and September, the second consecutive quarterly contraction, in the wake of an April sales tax rise that was designed to help pay down one of the world’s largest public debt mountains.

The levy hike delivered a body blow to Abe’s efforts to rev up growth, just as the world’s number three economy appeared to be turning a corner.

The weaker-than-expected figures convinced Abe to put off another sales tax hike, due in 2015, and call a snap election that he described as a referendum on his policies, dubbed “Abenomics” -- although observers said it was a strategic move to fend off party rivals ahead of a leadership vote next year.

The move set off a flurry of speculation about whether Abe’s grand economic experiment had died

on the operating table, and sparked questions about what Japan’s struggle with falling prices means for the eurozone as it teeters on the edge of deflation.

“The lesson for Europe is that what counts most is not to fall into deflation” in the first place, said Atsushi Nakajima, chairman of Japan’s Research Institute of Economy, Trade and Industry.

Spread the wealth While many economists say it is still too early to judge the success or failure of Abenomics, changing Japan’s so-called “deflationary mindset” has proven to be a Herculean task for Abe and his hand-picked Bank of Japan chief Haruhiko Kuroda.

“The narrative is this: the government wants to eradicate deflation, which has long-term,

India may give banks more leeway to deal with bad loans From April next year, new rules will abolish the “restructured” category and prompt banks to chase customers for payment or set aside billions more reserves, once non-performing loans are recognized

I

ndia could give banks more flexibility to restructure distressed loans in a bid to steer funding towards cash-strapped infrastructure projects, Reserve Bank of India (RBI) Governor Raghuram Rajan said.

Rajan said, however, the RBI would continue to ensure lenders flag and deal with problematic loans quickly, given the dangers to India’s financial system should banks engage in “ostrich-like” behaviour of “hoping the problem will go away”.

Reviving investment and boosting infrastructure are two key objectives for Prime Minister Narendra Modi, who won elections in May promising to rekindle India’s faltering economy after two years of growth below five percent.

A major factor slowing credit flows to infrastructure projects has been the amount of bad loans on banks’ books.

Including restructured loans, stressed

Raghuram Rajan

assets are estimated at 6 trillion rupees (US$97 billion), or nearly a tenth of total loans.

Still, Rajan said the central bank would oppose any delay by banks to recognize bad loans.

About 45 percent of stressed loans have already gone sour. The remainder is in the “restructured” category, which means the loans have problems but banks only need to set aside minimal reserves.

“The fundamental lesson of every situation of banking stress in recent years across the world is to recognize and flag the problem loans quickly and deal with them,” Rajan said.

“So regulatory forbearance, which is a euphemism for regulators collaborating with banks to hide problems and push them into the future, is a bad idea.”

Rajan also warned of the negative consequences of borrowers defaulting without suffering a financial hit as this raised the cost of loans across the financial system -- reiterating his previous comments.

Rajan estimated that power loans were three percentage points more expensive than home loans due to banks’ concerns about recovering debts from these types of borrowers.

The central bank tightened rules against these defaulters in September.

Reuters

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Business Daily | 13

November 27, 2014

Asia

Japan desperately needs drastic structural reform to exit from deflation -- the first and second arrows of Abenomics are phony Satoru Madono, Reitaku University, economics professor

Japanese Prime Minister Shinzo Abe

structural costs,” said Marcel Thieliant from Capital Economics.

So “the BoJ has provided aggressive stimulus, which has weakened the yen.

This has boosted corporate profits, but has undermined household

purchasing power.

“The key question is how to ensure that the benefits to the corporate sector are eventually passed on to consumers.”

Japan Inc., which once led the

world in innovation, is facing stiff competition from emerging nations including China, while a falling number of working age Japanese is shrinking its tax base even as soaring ranks of seniors strains the public purse.

It’s a demographic conundrum that exacerbates caution among the public, two decades after a stock and property price bubble popped, sending the economy into years of stagnation.

“Many Japanese save a lot because they worry as more and more people (hit) retirement age, and fewer (people) join the workforce, that

public pensions and possibly private pensions as well will not be able to guarantee them the standard of living today’s retirees are enjoying,” said Robert Dujarric, the director of Asian Studies at Temple University’s Tokyo campus.

Abe’s much-touted plan consisted of “three arrows”: big government spending -- such as infrastructure projects -- as well as massive central bank monetary easing and an overhaul of the highly regulated economy.

Deflation ‘not so bad’ But the battle to end deflation isn’t welcomed by seniors such as 69-year-old Eiji Shimojima, who worry that higher prices will erode their retirement income.

“Deflation might not be good for the economy overall, but from an ordinary citizen’s perspective it’s actually not so bad because you can afford more things,” Shimojima said.

Niigata University economics professor Ivan Tselichtchev added in an e-mail: “If the BoJ reaches its two-percent inflation target (which is doubtful), it will not necessarily be a good news for the Japanese economy, especially for households. The major task should be growth, not inflation. “ Abe has made some progress on growth-oriented reforms -- the “third arrow” of his plan -- such as trying to cut farm subsidies and deregulating the electricity sector, but his ambitious blueprint has also put him on a collision course with the politically powerful agricultural lobby, among others.

AFP

Philippines Q3 GDP slows amid Government scandal Weak farm output in the September quarter, due to typhoons that damaged rice and corn crops, may have dampened economic growth too

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he Philippine economy is forecast to have slowed slightly in the third quarter from the previous three months after a spending scandal crimped public investment, casting doubt on the government’s ability to hit this year’s growth target.

Analysts say a slowdown in economic activity and cooling inflation should provide the central bank enough reason to extend a pause in its rate tightening cycle, allowing it to hold policy steady for a second straight month in December.

Gross domestic product is seen up a seasonally adjusted 1.4 percent in the JulySeptember period from the previous quarter, according to a Reuters poll, slower than the 1.9 percent quarter-onquarter growth in April-June.

A bigger drag on the economy was probably a pull back in government investment following a spending scandal.

The Supreme Court in July declared aspects of an economic stimulus fund illegal, putting big infrastructure projects at risk.

“The budget deficit continues to narrow significantly implying that infrastructure spending may miss our expectations,” ANZ bank said. ANZ cut its 2014

The declining growth in infrastructure spending is putting a dampener on investment growth ANZ bank statement

Philippine growth forecast to 6.2 percent from 6.9 percent, below Manila’s growth target of 6.5-7.5 percent this year.

After climbing 44 percent on-year in June, public spending fell 15 percent in July.

While spending recovered in August and September, the government still has room to boost investment given an expansionary budget. The nine-month budget deficit was only at 31 billion pesos (US$690 million) versus its 266 billion pesos deficit goal.

The overall economic

The Supreme Court (pictured) in July declared aspects of an economic stimulus fund illegal, putting big infrastructure projects at risk

picture is encouraging, with growth expected to have clocked a solid annual pace of 6.6 percent, the poll showed. This would make the Philippines the fastest growing economy in Asia after China’s 7.3 percent in the third quarter.

The central bank is widely expected to leave the key policy rate steady at 4.0

when it meets on December 11 after hiking rates by 25 basis points in each of July and September.

“We expect a decision to extend the pause now that inflation pressures are easing,” said Joey Cuyegkeng, economist at ING. Some analysts expect the central bank to resume

raising interest rates as early as in the first quarter of 2015 to prepare for an eventual policy normalisation by the U.S. Federal Reserve.

Inflation has averaged an annual 4.3 percent in the 10 months to October, within the central bank’s 3-5 percent target.

Reuters

14 | Business Daily

November 27, 2014

International HSBC probed in U.S. The U.S. Justice Department is investigating allegations that an employee of HSBC Holdings Plc leaked confidential client information to a major hedge fund, the Wall Street Journal reported, citing people with knowledge of the matter. The alleged leak is believed to have taken place in March 2010, when HSBC was advising British insurer Prudential Plc on a major acquisition and was working on a related multibillion-dollar currency transaction, the Journal reported.

Kenya’s central bank chief appeals Kenya’s central bank chief filed an appeal asking a court to throw out a case accusing him of abusing his office through his involvement in issuing a tender to install security software at the bank. Earlier this month, Kenya’s High Court ruled the government’s anti-graft agency and chief prosecutor could pursue the case against Central Bank Governor Njuguna Ndung’u. Ndung’u has denied involvement in the case, saying he was not involved in the tender process and the tender was awarded by an authorised body.

Kazakhstan on brink of WTO membership The 160-member World Trade Organization is in active discussions with 10 countries aiming to become members, including Kazakhstan and Afghanistan, WTO Director General Roberto Azevedo said in a report. Seychelles is set to take the 161st spot, since its membership is sewn up and only needs domestic ratification. But several bigger countries are queuing up, led by Kazakhstan. “The accession negotiations of Kazakhstan are at an advanced stage of maturity and on the threshold of conclusion, as soon as the remaining decisions are taken,” Azevedo said.

Brazil soy moratorium extended Brazil extended a moratorium on buying soy grown in illegally cleared land in the Amazon rainforest as the government tries to protect the region, Environment Minister Izabella Teixeira said. Satellite imagery presented by Teixeira showed the area of soy grown on illegally deforested land grew 61 percent to 47,028 hectares in 2013/2014 from the previous harvest. “There was pressure from high commodity prices that led some growers to plant soy in illegally deforested areas,” Teixeira said after signing the moratorium, which runs through May 2016, with a group of Brazil’s largest soy exporting and processing firms.

Santander names new CEO Santander chief Ana Botin overhauled the management of the euro zone’s biggest bank, turning the page after her late father’s 28-year leadership and giving the Spanish lender a younger, more international profile. The bank ousted CEO Javier Marin and replaced him with finance boss Jose Antonio Alvarez, a move welcomed by investors as a sign that Botin, 54, was putting her stamp on a business emerging from a long economic downturn at home.

The overhaul aims partly to answer big international investors’ concerns that Santander’s board was not independent enough.

Juncker unveils investment plan focusing on jobs EU officials say the Union is setting aside just 8 billion euros to help provide 21 billion of capital for a special fund Jan Strupczewski

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uropean Commission President Jean-Claude Juncker presented a plan yesterday to leverage some 300 billion euros (US$375 billion) of largely private new investment in the European Union, saying it was time to kick-start growth without adding to public debt.

Underlining the need to maintain efforts at structural reforms of ageing economies and pare back debt and deficits run up during the financial crisis, the EU’s new chief executive told the European Parliament in Strasbourg that his plan would be the third leg of a strategy to get Europeans back to work.

“Europe needs a kick-start and today the Commission is applying the jump leads,” yesterday said Juncker, a conservative former prime minister of Luxembourg who took office this month.

He acknowledged criticism of the plan for lacking a major component of new public spending. EU officials say the Union is setting aside just 8 billion euros to help provide 21 billion of capital for a special fund, managed with the European Investment Bank, that they believe can trigger 315 billion euros of investment over the next three years.

But, insisting that the EU was not just “moving money around”, he said that adding to public debt would not help, Juncker said: “We don’t have a money-printing machine. We need to attract money to make it work for us.”

Jean-Claude Juncker, President of the European Commission, stands in front of the stars of the European Union flag before his speech about the jobs, growth and investment package at the European Parliament in Strasbourg, France, 26 November 2014

He believed Europe was in an “investment trap”, where private investors were hesitating to commit funds despite being awash with liquidity, some of it provided by the European Central Bank as it tries to stave off deflation.

By providing guarantees to absorb the initial risks of key projects that could improve Europe’s infrastructure, Juncker said the EU could draw in more private investment.

The 315 billion euros was not a cap on the ambitions of the European Fund for Strategic Investment, he said. Governments and others will be able to contribute to its capital.

He assured researchers and others whose grant funding may be affected by a shift in the EU budget towards capitalising the EFSI that they would not lose and could benefit from more investment generating further funding.

After Juncker spoke, the president of the European Investment Bank, Werner Hoyer, told lawmakers his institution was ready to work quickly to get money flowing. Hoyer acknowledged that “this is not the silver bullet” for Europe’s economic woes, but it was a useful part of EU strategy.

Reuters

U.S. economy resilient in Q3 The third quarter was the fourth out of the past five that the economy has expanded above a 3.5 percent pace, well above the level economists consider being trend

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he U.S. economy grew at a much faster pace than initially thought in the third quarter, pointing to strengthening fundamentals that should help it weather slowing global demand.

The Commerce Department raised its estimate of GDP growth to a 3.9 percent annual pace from the 3.5 percent rate reported last month, reflecting upward revisions to business and consumer spending, as well as to inventories.

The rise in output followed a 4.6 percent advance in the prior three months to mark the two strongest back-to-back quarters since the second half of 2003. It underscored the economy’s resilience against a backdrop of a Japanese recession, an anaemic euro zone and a slowing China.

Economists had expected growth would be trimmed to a 3.3 percent pace. When measured from the income side, the economy grew at its fastest pace since the first quarter of 2012.

But the otherwise upbeat picture was marred somewhat by other data

showing consumer confidence sliding to a five-month low and a further moderation in house price gains.

U.S. stocks were little changed while the dollar slipped against a basket of currencies. Prices for U.S. Treasury debt rose marginally.

The ebb in consumer confidence in November was surprising given falling gasoline prices and a firming jobs market.

Some of the momentum appears to have carried over into the final three months of the year, with data from manufacturing to employment and retail sales suggesting continued strength.

But with inventories rising more than previously estimated in the third quarter, economists expect the pace of restocking to slow, holding growth below a 3 percent pace in the fourth quarter.

Strong fundamentals Highlighting the economy’s strong fundamentals, growth in domestic demand was raised to a 3.2 percent

pace from the previously reported 2.7 percent rate.

The U.S. central bank has kept benchmark borrowing costs near zero since December 2008, but is expected to start raising them around the middle of next year.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up to a 2.2 percent pace in the third quarter from the previously reported 1.8 percent rate.

Business spending on equipment was raised to a 10.7 percent rate from a 7.2 percent. While exports grew, the pace was less brisk than previously reported, leaving trade contributing only 0.78 percentage point to GDP growth instead of 1.32 percentage points.

Growth in wages and salaries was revised lower for both the second and third quarters. Economists said that brought the GDP-based wages and salaries measures into line with earnings figures from the government’s survey of nonfarm employers.

Reuters

Business Daily | 15

November 27, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

TAIPEI TIMES The European Chamber of Commerce Taiwan urged the government to further liberalize the nation’s markets, saying that it is crucial for Taipei to fend off dips in trade due to free-trade agreements (FTA) signed by export rivals such as South Korea. The chamber made the suggestion in its annual position papers, which comes at a time of heated debate in Taiwan between government officials and economists about how much the recent conclusion of the China-South Korea free-trade deal negotiations will affect Taiwan’s economy.

PHILSTAR Banks and other financial institutions have been given a year to tweak their systems and incorporate the new Consumer Protection Framework, the Bangko Sentral ng Pilipinas said. The Governor of the institution indicated that the periodic assessment for banks and other financial institutions’ consumer protection practices will also be issued a year after the effectiveness of the new measure. The framework details how financial institutions should deal with their customers on disclosure and transparency, protection of client information, fair treatment, effective recourse, and financial education.

THE STRAITS TIMES The Ministry of Finance announced yesterday that it is seeking the views of all Singaporeans for ideas and suggestions on possible measures for Budget 2015.

Starting from yesterday, November 26, 2014, contributors can visit the REACH Pre-Budget 2015 microsite to submit their views online. The feedback exercise will close on 29 January 2015. The Ministry of Finance (MOF) has also launched the Budget 2015 website through which the public can access the latest updates on Budget 2015, as well as general information on the Singapore national budget process.

THE PHNOM PENH POST Kampot’s new ferry terminal is expected to begin construction next year after approval of an US$18 million loan from the Asia Development Bank. With a target completion date of 2019, the construction project is expected to increase visitor numbers to one of Cambodia’s lesserknown tourism destinations.

“The development of this passenger pier will support an increase in tourism in southern coastal areas and help establish a new gateway between Southern Cambodia, Vietnam and other destinations in the Gulf of Thailand,” Eric Sidgwick, ADB country director for Cambodia, said in a statement.

‘Für Deutschland’ (For Germany) is a common conception that many periphery Europeans think informs German Chancellor Angela Merkel’s Euro-behaviour

Europe’s German ball and chain Daniel Gros

Director of the Centre for European Policy Studies

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storm-tossed ship near dangerous cliffs needs a strong anchor to avoid finishing on the rocks. In 2012, when a financial storm engulfed the eurozone, it was Germany that kept the European ship off the shoals of financial disaster.

But now Europe’s anchor has become a brake, hindering forward movement.

Of course, German Chancellor Angela Merkel acted in 2012 only when she could tell her domestic constituency that there was no alternative. But in the end, Merkel agreed to a permanent bailout fund for the eurozone. She also backed the formation of a banking union, which remains incomplete but still represents a key step toward a financial system supervised by the European Central Bank.

Thanks to these measures, and ECB President Mario Draghi’s vow, which Germany tacitly approved, to do “whatever it takes” to save the euro, the financial storm abated.

But now the eurozone seems incapable of escaping near-deflation, with little economic growth and prices barely moving upwards.

That was not supposed to happen. When the crisis struck, the economies of the eurozone periphery were buffeted by the twin shocks of spiking risk premiums and a collapsing housing market. At the same time, the German economy benefited from the return of capital fleeing the periphery. Real (inflation-adjusted) interest rates in Germany became substantially negative, triggering a housing boom. It was assumed that this would generate strong domestic demand in Germany, helping the periphery to export more.

Instead, the German economy

has barely grown; indeed, weaker world trade threatens to put it in recession. The current-account surplus, which was supposed to decline sharply, has actually increased, as savings have remained higher – and investment lower – than expected.

Another problem, at least from the point of view of the rest of the eurozone, is that inflation in Germany remains too low.

With German prices rising at less than 1% annually, the eurozone periphery needs falling prices in order to regain the competitiveness lost during the pre-2008 boom years.

This lack of dynamism at the core of the eurozone has now become its key problem. With no growth in Germany, the rest of the eurozone might not be able to reduce debt via external surpluses. And there might be no solution short of a magic button to increase German domestic demand.

Obviously, the German government is in charge of the country’s public finances. But fiscal policy has been roughly neutral in recent years, and thus cannot be blamed for the German economy’s lack of dynamism. This year, the public-sector budget might move from a small deficit to what German officials call a “black zero” – a very small surplus. But this tightening by a fraction of a percentage point of GDP implies no adverse effect on growth.

The root cause of Germany’s sluggish economic performance in recent years is the continuing unwillingness of its households and enterprises to consume and invest. And it is difficult to see what the government can do about this.

Indeed, investment has fallen despite financing conditions

A weak German economy makes the necessary structural adjustments in the eurozone periphery much more difficult

for enterprises that have never been easier, both in terms of ultra-low interest rates and banks’ willingness to lend. Yet Germany’s corporate sector remains reluctant to borrow and invest in the country, because it sees little reason to expect long-term economic growth, given that the population is set to decline and productivity gains remain anaemic.

With investment unlikely to become a motor for the German economy, consumption holds the key to stronger demand growth in Germany. Its weakness is somewhat surprising: real incomes are up, and the coalition government that came to power last year has introduced a series of generous welfare measures, including a large increase in the minimum wage, a reduction of the retirement age, and a special top-up pension for women with children.

But even these measures, which foreign observers have largely overlooked, have failed to boost consumer demand. So what more could the German government do to wean the Germans off their abstemious habits?

Public investment is the one area where the government could act. But the growth fillip from public-sector infrastructure spending can only be modest.

Increasing infrastructure spending by a quarter, which would represent a huge administrative effort, would lift GDP growth by just 0.4 percentage points.

The main danger now is political. A weak German economy makes the necessary structural adjustments in the eurozone periphery much more difficult.

That, in turn, fuels the perception that responsibility lies with the German government, which is seen as unwilling to take the steps needed to strengthen domestic demand – even as it prohibits the periphery governments from spending more themselves. As unemployment remains stubbornly high and incomes stagnate in much of the eurozone, the temptation to blame “the Germans” is becoming ever stronger.

The German government, no surprise, does not even acknowledge that there is a problem.

With unemployment remaining near record lows, the lack of demand growth is simply dismissed, and the absence of inflation is taken as a sign of success.

This is a mistake. Europe’s German anchor has become stuck, and the rising tide of anxiety among Germany’s partners should not leave its government indifferent.

Project Syndicate

16 | Business Daily

November 27, 2014

Closing Saudis signal no push for oil cut

Thai exports beat forecast in recovery sign

OPEC leader Saudi Arabia signalled yesterday it was unlikely to push for a major change in oil output at the producer group’s meeting this week, a day after Russia refused to cooperate in any production cut. Saudi Oil Minister Ali al-Naimi said he expected the oil market “to stabilise itself eventually” but did not comment on talks with Russia held on Tuesday, which produced no firm pledge from Moscow to help support flagging oil prices. Iranian Oil Minister Bijan Zangeneh said some OPEC members, although not Iran itself, were gearing up for a battle over market share.

Thailand’s exports rose for a second straight month in October, adding to evidence the trade-reliant economy is gaining a stronger footing after months of political unrest. Southeast Asia’s second-largest economy is struggling to gain traction as shipments have been weak and domestic activity remains sluggish even after a May coup ended the turmoil. Exports, accounting for more than 60 percent of the economy, in October rose 3.97 percent from a year earlier, the Commerce Ministry said in a statement. That compared with a 0.8 percent rise in a Reuters poll and a 3.19 percent increase in September.

Medicines price cap to disappear next year The full removal of caps should ease price pressures on both domestic and international pharmaceutical firms

C

hina plans to scrap retail price caps on all drugs as early as the start of next year, an official newspaper reported yesterday, giving the market a larger role in an industry where price controls have contributed to supply shortages.

The National Development and Reform Commission, China’s planning agency, has prepared a draft law for review by the industry and could lift the caps as early as January 1, the official Securities Times reported on its website.

Officials at the NDRC had no immediate comment on the report.

China has been slowly stepping back from caps on consumer prices for drugs but faces a difficult task balancing the need to ensure steady supplies of vital medicines with its desire to keep prices low.

China removed price caps on a limited number of drugs in April after criticism that its controls had caused shortages of a number of critical drugs used by millions of patients to treat hyperthyroidism and other ailments.

We continue to expect very limited impact, since most drugs are sold in hospitals and the pricing is determined by tender process Jack Hu, Deutsche Bank, healthcare analyst

The full removal of caps should ease price pressures on both domestic and international pharmaceutical firms hoping to tap a healthcare market that McKinsey & Co estimates will grow to US$1 trillion by 2020, nearly triple its size in 2011.

A recent crackdown on high prices pushed

some Chinese firms out of business and forced global drug makers - which have long banked on being able to charge steep premiums in emerging markets - to rethink their China strategy.

The caps, however, play only a limited role in the government’s price control regime, analysts said, with around two-thirds of drugs still sold in China’s vast hospital network where prices are kept low through a tendering system.

“We continue to expect

very limited impact, since most drugs are sold in hospitals and the pricing is determined by tender process,” Deutsche Bank healthcare analyst Jack Hu said in a note yesterday.

President Xi Jinping has made a priority of providing affordable, accessible healthcare in a country struggling with rising healthcare costs, long waits for care and lapses in medicine safety.

The draft rules, which were sent to eight industry

bodies on Tuesday seeking feedback, propose to “cancel government-set prices on drugs, and through insurance price controls and the tendering process, allow the actual transaction price of drugs to be set by market competition,” the newspaper said.

Prices would be set by a combination of health insurance departments, existing tendering processes and multi-stakeholder negotiations, it said.

Mercedes-Benz owners are wealthiest

ADB ready to work with new AIIB

China approves more railway projects

M

T

C

ercedes-Benz owners in China are probably successful and wealthy entrepreneurs while those who drive a Cadillac are likely whitecollar workers, according to a brand study released today.

Those were among the attributes associated with owners of eight major luxury car brands in China, according to a report released today by the Shanghai-based Hurun Research Institute. The research company held focus groups and surveyed 800 premium car owners in 10 cities to describe the characteristics of owners of the different marques.

Luxury auto brands are building their image to attract consumers in China, which McKinsey & Co. predicts will overtake the U.S. as the biggest premium auto market in 2016. Most consumers there are buying a car for the first time with little brand loyalty, offering opportunities for newer entrants like Nissan Motor Co.’s Infiniti and Ford Motor Co.’s Lincoln to gain market share from more established nameplates.

The average luxury-car owner in China is 33.5 years of age, with an annual household income of 984,000 yuan (US$160,318), according to the report.

Bloomberg News

he head of the Asian Development Bank said yesterday he is ready to work with China on a new infrastructure investment lender proposed by Beijing, despite fears it could undermine his institution.

The Manila-based ADB is too large and established to be threatened by the proposed lender, Takehiko Nakao told a foreign correspondents forum in the Philippines.

“If the AIIB (Asian Infrastructure Investment Bank) is established, we are very happy to have the appropriate collaboration,” Nakao said, adding the banks could potentially co-finance projects.

Last month, China and 20 other Asian countries signed a memorandum of understanding to establish the AIIB, an institution whose development has been driven by China and which will be based in Beijing, according to the Chinese state news agency Xinhua.

However the proposed lender is seen as a potential rival to existing Western- and Japanesedominated institutions such as the World Bank and the ADB. Nakao said it was “understandable” that Asian countries would want such an institution.

AFP

Reuters

hina has approved construction of four railway lines worth 66.24 billion yuan (US$10.79 billion) as the government steps up infrastructure investment to boost growth.

It is the third time this month that China approved new railway projects.

The new railway lines will run in north-eastern Jilin Province, south-western Chongqing, Shaanxi Province and Inner Mongolia Autonomous Region, the National Development and Reform Commission (NDRC) said.

By the end of October, the country had invested 590 billion yuan in railway projects, or 74 percent of the total earmarked for railways this year, Fei Zhirong, head of NDRC’s infrastructure bureau, said at a press conference yesterday.

Fei said the 800 billion yuan railway investment target for this year will be achieved.

China plans to operate 7,000 kilometres of new railway lines this year. However, only about 32 percent was in use as of October, he said.

The country stepped up its pace of infrastructure investment in recent months to bolster the cooling economy.

Xinhua