Macau Business Daily, Dec 30, 2014

MOP 6.00 Closing editor: Joanne Kuai Publisher: Paulo A. Azevedo

Many say it’s long overdue. The maximum amount of dismissal compensation may be increased. The gov’t is proposing a new ceiling of MOP20,000 (US$2,500) for dismissal without cause. The current maximum is MOP14,000 patacas. A draft amendment to the Labour Relations Law is preparing the way. The unions, however, have divided opinions on the revised legislation PAGE

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Year III

Number 697 Tuesday December 30, 2014

Labour law undergoing scrutiny

Lionel Leong appointed to supervise Macau Investment Ltd

Look before you leap

PAGE 2

Shanghai stocks hit five-year record

Caution advised. So say a legislator and lawyer familiar with sales tactics on Hengqin Island. Prices may be attractive but not all realtors play by the book. Business Daily learns that corners are sometimes cut on presale flats. Leaving prospective purchasers legally high and dry.

Due diligence is the order of the day

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South Korean banks to enjoy friendlier regulation PAGE 12

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HSI - Movers December 29

Public works proceeding apace It’s a massive undertaking. The construction of the Barra transport hub is to cost Macau some MOP1.24 billion. The Official Gazette has also disclosed that the gov’t is to spend MOP90 million on the design of Macau’s LRT link to Hengqin Island

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Name

%Day

China Life Insurance

8.73

Ping An Insurance Gr

7.46

Bank of Communicatio

3.30

China Construction B

3.24

Belle International

3.14

Lenovo Group Ltd

0.39

New World Developme

0.34

Kunlun Energy Co Ltd

0.27

Link REIT/The

-0.61

Li & Fung Ltd

-0.83

Source: Bloomberg

www.macaubusinessdaily.com

I SSN 2226-8294

Casting the runes

Seven Typhoons Gross gaming revenue is in the doldrums. Consecutive slumps since June are predicted to continue until 2Q 2015, say analysts. Business Daily grades the ‘typhoons’ which have wrought havoc in the Macau gaming industry this year. And evaluates those that have damaged business the most

PAGE 6 & 7

Another poll. This one forecasts the Purchasing Managers Index results.

The Chinese economy slowdown will persist in Thursday’s official results, it says

Brought to you by

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Number of tourist arrivals up 8% during Christmas holidays | PAGE 4

2014-12-30

2014-12-31

2015-1-1

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12˚ 18˚

11˚ 17˚

2 | Business Daily

December 30, 2014

Macau Green fund extended to end of 2015 The government announced in the Official Gazette published yesterday that it is to extend the deadline of the application period for the Environmental Protection and Energy Conservation Fund from the end of this year to December 31 next year. This is the third time that the government has prolonged the application period of the fund since it was launched in 2011 to subsidise companies and associations purchasing environmentally friendly technology, equipment and other related products. The fund covers up to 80 per cent of the cost of acquisition, or up to 500,000 patacas per grant.

Amended Labour Relations Law proposes increasing severance pay to MOP20K Kam Leong

kamleong@macaubusinessdaily.com

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t has been proposed that the maximum amount of compensation paid by employers to employees upon dismissal is increased to MOP20,000 (US$2,500) from the current MOP14,000 according to a draft amendment to the Labour Relations Law by the government. The spokesman of the Executive Council, Leong Heng Teng, meanwhile, claimed that the hike was not calculated by any formula but in consideration of balancing the benefits of employer and employee.

The government proposes amending Article 70 of the current Labour Relations Law, which was established in 1998. The Article, which has never been changed, regulates that employers must pay their employees severance pay if the employer terminates the contract with

the worker without reasonable cause.

The amount should be calculated according to the employee’s monthly salary as well as the years that the employee has worked for the company.

“The government had considered a few factors [to decide the amount of the hike]. Temporarily, there is certainly no standard [for the decision] … The amount is decided upon balancing different factors. This may not be the best resolution, yet it helps to balance [the different factors]…

We think that the compensation maximum of 20,000 patacas is the most appropriate amount. If you ask me whether the amount is decided based on any percentage, it is not”, Mr. Leong said in a press briefing introducing the amendments yesterday.

The different factors that the

government had considered are the business environment of society, the stability of jobs, the protection of employees’ benefits as well as the affordability of employers, according to Mr. Leong.

In addition, the amendments will introduce the review scheme for compensation, suggesting the government review it once every two years regarding the maximum amount of the monthly salary-based compensation.

Pros & Cons In fact, the hike in dismissal compensation has elicited two totally different opinions from different unions in the city. Ella Lei Cheng I, a legislator from the Federation of Trade Unions, said that the hike was

There have been years of discussion. The government has finally suggested increasing the amount of compensation for dismissal. Yet, legislator Lei Cheng I said some 30 per cent of employees in Macau will not enjoy their compensation based on their monthly salary, whilst a chamber union vice head is satisfied with the draft bill

not able to respond to the demands of the workers in Macau.

“Setting a ceiling for such compensation is not fair to the workers. Such limitation should be cancelled… Even the amount will be adjusted… say, every year; it will never protect the benefits of the workers fairly”, Ms. Lei told Business Daily in a phone interview yesterday.

“Before the handover, when the government set the maximum amount of such compensation at 14,000 patacas, it could protect 90 per cent of the manpower in Macau. However, the maximum compensation of 20,000 patacas now can only protect some 60 per cent of workers, while some other 30 per cent are not able to get their compensation based on their monthly salary”, she said.

The legislator perceives that employers should know the risks and have calculated their capital when they decide to fire their employees without reasonable cause.

“Not every employer has to pay such compensation. When your employees quit the jobs themselves, they do not have to pay”, she said.

Although the legislator said such limitation is “unfair”, the vicepresident of the Macau Chamber of Commerce, Vong Kok Seng, perceives that the bill the government suggests is “pretty good”.

“I appreciate that [the government] suggests keeping the limitation on the maximum amount of such compensation. As a result, employers can estimate the total amount of compensation that they may have to deal with when they decide to end the contract with their employees for whatever reason”, Mr. Vong told Business Daily in a phone interview yesterday.

“If there is no limitation, [employees] can get higher compensation if their salaries are higher or the years that they have worked for the company are longer.

This may lead employers not to be able to afford the amount of compensation, and to run away before giving severance pay”, he said.

Business Daily | 3

December 30, 2014

Macau Secretary Leong to supervise Macau Investment and Development Ltd

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Barra transport hub nearly 1.24 billion patacas The government is also spending nearly 90 million patacas on the design of Macau’s LRT link to Hengqin, an official dispatch notes Stephanie Lai

sw.lai@macaubusinessdaily.com

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he construction of the Barra transport hub located on Macau Peninsula - a complex of bus terminal, car park and link to the light rapid railway (LRT) station - is to cost the Macau Government nearly 1.24 billion patacas (US$155 million) before the LRT Macau section works even begin, a government dispatch released yesterday announced.

The consortium of Zhen Hwa Harbour Construction Company Ltd and China Construction Engineering (Macau) Company Ltd have won the Barra transport hub construction project, which will be a 3-storey underground complex of bus stops and car park for vehicles, buses and tourist coaches that is connected to the light rapid transit (LRT) station to be established in the district. The LRT station at Barra is also the station that will connect to the rail system in Taipa.

The hub, located next to the Customs Service Headquarters and near the Sai Van Bridge, is to have about 10,000 square metres of green space on the surface of the complex.

The construction of the hub, which will take a maximum period of 1,399 days, is starting ahead of the LRT Macau section construction, with the

date of the rail works inception still not announced.

The construction worth disclosed in the official dispatch released yesterday shows that it was one in the range of the bottom bid price.

The government received 11 bids for the project in September, with the highest reaching 1.68 billion patacas.

Another official dispatch released yesterday noted that the government is signing 89.98 million patacas-worth of contracts with the consortium of Ove Arup & Partners Hong Kong Ltd and China Railway Siyuan Survey and Design Group Co Ltd for the design of Macau’s LRT extension linking to Hengqin’s intercity railway.

Ove Arup & Partners Hong Kong Ltd is the same engineering consultancy responsible for the feasibility study of the government’s plan to run the LRT route into the Seac Pai Van district.

In late October this year, the director-general of Hengqin Administrative Committee, Niu Jing, mentioned that the Macau LRT link to Henqin had to run parallel with the extension project of the GuangzhouZhuhai Intercity Railway on the island.

The extension project of the

intercity railway, which will connect Gongbei border in Zhuhai to the east side of Hengqin Island, is expected to be completed by 2016-2017.

ionel Leong Vai Tac, the Secretary for Economy and Finance, was commissioned

by Chief Executive Chui Sai On to supervise Macau Investment and Development Limited effective December 20, 2014, it was announced in the government’s Official Gazette released yesterday.

Macao Investment and Development Limited was established by the Macao Special Administrative Region (94 per cent of shares), Industrial & Commercial Development Fund (3 per cent of shares) and Macao Trade and Investment Promotion Institute (3 per cent of shares). The initial amount of the capital of the company is MOP$400 million, fully subscribed and paid in cash by the shareholders. The company is chaired

by Sou Tim Peng.

According to the company’s official website, the business scope of Macao Investment and Development Limited is primarily the conception, management and exploration of space for the establishment of companies and non-entrepreneurial entities, particularly the acquisition, construction, promotion, transfer or leasing of space as well as direct or indirect supportive services provided to clients.

The company is also a shareholder of Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park Development Co., Ltd. Echo Chan Keng Hong, a director of the company, is also the president of the board of directors of the industrial park company. The other shareholder of the industrial park company is the Zhuhai Da Hengqin Investment Co., Ltd.

4 | Business Daily

December 30, 2014

Macau Brands

Trends

Red Sole Raquel Dias newsdesk@macaubusinessdaily.com

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f there’s one thing girls learned from Carrie Bradshaw it was that shoes are by far the most important feature of any wardrobe. With all the parties hitting town, you might not have chosen the dress for the occasion but you can certainly start by choosing your shoes first.

One brand that can do no wrong (it can’t, really) is the beautiful red-soled Laboutin. It will hurt the wallet a little but it’s for a good cause. Christian Louboutin was born in France and ran away from home when he was 12. The little rebel started designing and sketching shoes in his early teens. His opened his first shop in 1991 after many years of learning and working freelance for the big names in the industry.

Although we cannot find these beauties here, we can certainly take the ferry and find them in our neighbouring town. While you’re there, there’s nothing wrong in checking out one or two parties as well.

After a quick survey of the options out there, we fell in love with these. Laboutin’s ‘Pensamoi’ is a delightfully feminine and flirty style for evenings out. Their elegant ‘d’orsay’ shape is adorned with gorgeous turquoise satin flowers encrusted with crystals.

This 120mm splendour will be the new gem of your red sole collection. They also come in hot-pink but you can’t make a mistake with black…

Tourist arrivals during Christmas holidays up 8%

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he Public Security Police (PSP) has announced that the number of visitor arrivals from 20-28 December totalled some 3.95 million individuals. Of these, 1.3 million were tourist arrivals, representing a 7.87 per cent increase compared to the same period last year. During this period, Macau celebrated the 15th anniversary of the Macau Special Administrative Region and Christmas.

According to data released by the PSP, the Portas do Cerco Border Gate connecting to the Gongbei Border Checkpoint in Zhuhai received most tourists. Some 2.87 million individuals

Number of Visitor Arrivals

Source: PSP

used that border during the holidays, exceeding 72 per cent of the total number. The second most popular border was the Outer Harbour Ferry Terminal usually known as Hong Kong Macau Ferry Terminal. A total of 487,800 individuals used the border during that time.

From 24 to 28 December, 1.82 million individuals used different

borders to enter and exit Macau, including the Gongbei Border Check Point, Outer Harbour Ferry Terminal, Inner Harbour, Taipa Temporary Ferry Terminal, Macau International Airport, Ilha Verde Cross Border Industrial Zone and Cotai Lotus/Hengqin Port.

Of these, 863,000 were mainland Chinese, 614,000 were Macau locals and 224,000 were Hong Kong residents.

Tristate terminates distribution licence of Jack Wolfskin

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ong Kong-listed Tristate Holdings Limited announced last week that it had agreed with outdoor clothing brand Jack Wolfskin to preemptively terminate the distribution licence of Jack Wolfskin and the related T-shirts and polo shirts licence that Jack Wolfskin had granted to the group’s subsidiary 338 Fashion Co. Limited in Macau, Hong Kong and Mainland China, despite the licences being expected to expire in 2015.

The company said that both

pa rties h ad en tered in to an agreement of early termination last Wednesday. This is due to the fact that Jack Wolfskin has set up an operating company - JW PRC Co. and a platform in Mainland China, which has obtained the required legal and regulatory approvals for operating the Jack Wolfskin branded products distribution business in the country, the group told Hong Kong Stock Exchange.

However, according to its filing, Tristate will still provide consultancy

Corporate Galaxy Raise Money for Macau Deaf Association ‘Give the Gift of Joy this Christmas’, organized by Galaxy Entertainment Group (GEG), at Galaxy Macau recently concluded successfully. Guests of Galaxy Macau not only spent the festive season with family and friends while taking photos with Santa Claus but also had the opportunity to share the holiday spirit and give back to those in need. The initiative raised a total of MOP150,000 for Macau Deaf Association, and yesterday GEG specially hosted a cheque presentation ceremony in which Mr. Richard Longhurst, Director of Operations of Galaxy Macau, presented the donation to Mr. Wong Kam Sun, Member of the Council of Macau Deaf Association.

MGM Macau wins MGTO Star Merchant Awards Five signature dining outlets in MGM MACAU have earned a ‘Star Merchant Award – Deluxe Restaurant’ under the Quality Tourism Services Accreditation Scheme (QTSAS) organised for the first time by the Macau Government Tourist Office (MGTO). With Aux Beaux Arts brasserie, Rossio, Imperial Court, Grand Imperial Court and Square Eight all on the winning list, MGM MACAU earned the lion’s share of the awards. The Scheme’s winners are recognised with awards that reflect consistently high levels of service quality through a series of stringent assessments, including a service management system audit plus mystery shopping assessments followed by a final review and approval by an independent assessment committee chaired by the director of MGTO. Committee Members include representatives from government departments, industry associations, consumer rights protection organisations and academic institutions, representing the diverse interests of the tourism industry, consumers and the general public.

services to the newly established company of Jack Wolfskin from the date of termination to December 2017. In addition, it claimed that it will be re-appointed as a distributor of Jack Wolfskin branded products in Hong Kong and Macau.

Tristate is an investment holding company producing formal and office wear, casual and athletic clothing for men and women. It is also engaged in branded product distribution, retail, and trading.

K.L.

Business Daily | 5

December 30, 2014

Macau

Sales traps Bearer shares in place for to be scrapped Executive Council has proposed Hengqin home rush The that the city abandon bearer shares A legislator and lawyer tell of irregularities seen in off-plan sales of new homes in Hengqin amid heated promotions

in order to increase the transparency and exchange of information for tax purposes Kam Leong

kamleong@macaubusinessdaily.com

Stephanie Lai

sw.lai@macaubusinessdaily.com

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ocal residents in search of a cheaper home across the border in Hengqin are lured with sales traps by developers and property agents as most of the new home projects on the island have not yet been issued with presales permits, Business Daily has learnt.

As promotional campaigns of new home projects in the city’s neighbouring Hengqin pick up steam, of which some have yet to see the laying of bricks and mortar, legislator Ho Ion Sang said that residents were already lodging complaints about suspicious sales methods of unfinished flats on the island.

“For some new home projects like Lee Chee Bay or Legend Chief-Hengqin China, where the plots are basically empty or the construction works barely started, some agents have already put forward ‘subscription’ plans that are actually illegal in nature”, Mr. Ho said. The ‘subscription’ plan the legislator mentioned is actually a common home presales method in mainland China, the nature of which is an intentional agreement reached between the home seller and buyer that secures a unit for the latter at a promised price when the sale of the home project is officially launched. The subscription, which is not a formal sales contract, is often applied by developers and property agents when the presales permits have not been issued for home projects.

“There were cases where the subscription of some Hengqin home projects put forward to buyers here are actually bundled up with a sales contract requiring them to settle a down payment,” the legislator said.

“In this case, it’s actually a presales contract in nature while the mainland authorities have not issued any presales permit to the developer”.

According to mainland regulations governing off-plan sales, developers can only launch the sales of the unfinished flats after obtaining a presale permit. To obtain a presale permit, apart from presenting the authorities with a certificate of land plot use, a construction permit, the

intended progress of the construction works and the off-plan sales scheme, developers have to invest at least 25 per cent of the total construction capital in the project.

For Guangdong Province, presales permit will only be issued to the developer once it completes twothirds of a home project that is higher than seven storeys.

As Business Daily understood from Mr. Ho and property agents, some of the subscription ‘pledges’ - an amount buyers pay to secure a home unit - are as high as 150,000 yuan (US$24,102) to 200,000 yuan for some of the new Hengqin home projects.

“This is a large amount that already suggests that the subscription plan has gone beyond the legal means”, said lawyer Li Guobin, a partner familiar with property sales in mainland-based Guangdong Rong Guan Law Firm.

“Usually, a normal pledge is an amount of less than 50,000 yuan”.

“A subscription agreement is only meant as a legal basis to protect the buyers against scenarios when developers do not offer the home at the promised price. [In such cases] buyers can ask for claims at court,” said Mr. Li. “Whenever the pledges, which are usually a small amount of around 10,000 to 20,000 yuan, are being used as part of the payment for a home – it is actually illegal sales behaviour”.

While Hengqin homes still represent a big lure for local homebuyers shut out of the Macau property market, legislator Ho Ion Sang called for closer cooperation between housing regulators here and on the mainland in setting guidelines targeting estate agents involved in cross-border home sales.

In an email reply to Business Daily, the Consumer Council said it has received six cases related to complaints and enquiries from local residents concerning property purchases in mainland China in the first three quarters of this year. One of the cases involves a complaint against lack of clarity in a property sales contract, the Council said.

he Executive Council announced yesterday the draft bill abolishing bearer shares.

In addition, it announced the draft amending the current Commercial Code, which defines the concept of ‘long-term operation’ of companies.

The draft bill and amendments are in response to a review of the transparency and information exchange in Macau by the Organization for Economic Cooperation and Development (OECD) Forum on Transparency and Exchange of Information for Tax Purposes in September 2013. The organization indicated that Macau lacked an effective scheme to obtain information of bearer share holders, according to the spokesman of the Council, Leong Heng Teng, in a press briefing yesterday.

Claiming that the international society has no more recognised bearer shares, the Executive Council proposed in the bill that issues, transfers and holdings of bearer shares be prohibited.

Nevertheless, the bill suggests that a ‘transitional period’ of six months would be given when it comes into force. During this period, bearer share holders should change their shares to inscribed ones.

Bearer shares not changed during the transitional period would be invalid within one year. In addition, the issuing companies of bearer shares will also have to report to the Financial Services Bureau the number of as yet unchanged bearer shares after the period.

Bearer shares are a type of freely transferable security that enjoy the advantage of simplicity and rapid transmission, cost saving and a high degree of privacy, whilst for registered or conventional shares the name of the owner is included and entered in the shareholder’s company register.

‘Long-term operation’ Meanwhile, the draft amendment to the current Commercial Code suggests that any company which has been running under its name in Macau for more than one year, or running discontinuously for five years, should be considered a ‘longterm operation’.

The adding of this definition is because OECD perceives that the current lack of the concept in Macau’s Commercial Code makes it difficult to recognise and confirm companies whose registered addresses or administration are not based in Macau yet keep close contact with Macau and are supervised by the commercial registration act.

The Executive Council also announced the draft anti-domestic violence bill and the bill on the higher education system. The anti-domestic violence bill proposes making domestic violence a ‘public crime’.

Currently, domestic violence is not punishable by law if the victim does not report the incident.

6 | Business Daily

December 30, 2014

Macau

Seven typhoons hit gaming industry in 2014 In March, meteorologists predicted that Macau would get hit by seven typhoons this year. In the end, only one arrived during a rather calm summer.

But for the gaming industry here the prediction was spot on.

The damage provoked by some of the squalls is likely to last well through 2015.

Here are the seven costly ‘typhoons’ selected by Business Daily Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

China anti-corruption campaign Typhoon Signal: 8

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t’s probably the most violent typhoon and the one likely to last longest. Even if its arrival started unobtrusively (the anti-graft campaign didn’t make the majority of analysts’ notes in the first months of the year or was even dismissed) the impact is snowballing and final implications are uncertain. But surely they will be substantial. If enough to be a game changer, time will tell.

The anti-graft campaign launched

by China’s president two years ago intensified this year with the detention of some of the country’s former top officials. The crackdown has to date investigated no less than 75,000 party members and named 690 cadres, whose political careers are over.

Xi Jinping’s anti-corruption campaign also has the objective of dampening the lavish spending of

party members and rich businessmen in China. The crackdown took a heavy toll on Macau and the VIP segment, in particular. Beijing didn’t need to take any overt action as the psychological effect of the crackdown on high rollers has been enough to keep them away from here or at least forced them to adopt a far more discreet manner.

Meaning, betting less money.

To the majority of investors, the anti-graft campaign is the main driver of Macau’s gaming slump this year.

VIP revenues have dropped by 30 per cent, blowing the roof off a market that makes 60 per cent of its money from gamblers who bet millions of Hong Kong dollars a night. Recent reports

reveal that VIP’s are betting just a fifth of what they used to in Macau casinos. The anti-lavish campaign has put these gamblers (and to a certain extent the premium mass) on alert to run up less extravagant expenses.

The market still debates which is the main driver of the Macau gaming crisis but for Lawrence Ho, CEO of Melco Crown Entertainment and son of legendary gambling tycoon Stanley Ho, the corruption drive is the one. In a meeting with investors two weeks ago, Mr. Ho admitted that the antigraft campaign is having “a deep psychological effect” on gamblers here with high-end customers adopting a much lower profile. The impact of the campaign in Macau is even worse than the 2008 financial crisis, the Melco Crown CEO conceded, according to Sterne Agee.

Comparison with a record 2013 Typhoon Signal: 7

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t’s not an event in itself but its effects have been greater than some more concrete ones on our list. Just look at how gaming stocks plunged this year every time casino revenue growth figures were announced. In a single session in Hong Kong, shares from the major operators here could fall from 3 to 7 per cent, ripping millions of dollars from casino investors and, of course, the corporations themselves.

Since June, every first day of each month, when the Gaming Inspection and Coordination Bureau (DICJ) has released the monthly gross gaming revenue figures, the Macau gaming industry knew the day would be one to forget for their stocks.

Especially as DICJ’s final figures were normally worse than market consensus.

The problem was basically how hard it is to follow a great success. And that success was 2013, the second

half in particular. A year in which casinos here made an average of MOP30 billion in revenues every month, with growth rates ranging from 7 to 31 per cent – the year closed with revenues rocketing 18.6 per cent. Now that’s quite a curriculum to show investors. Stocks followed suit, accordingly.

But in 2014, the hangover arrived and by all accounts is likely to last until the second quarter of 2015. It’s not that casinos here made 50

per cent less money or even registered losses. Investors just love growth rates and a good performance (as in 2014) is still a far (psychological) cry from a historic one (as in 2013).

Since June, every month has been compared to a record month the previous year, with rates diving into negative territory. The impact of the headlines on investors was big when Macau revenues started shrinking year-on-year.

Smoking ban Typhoon Signal: 5

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t’s one of the most recent headwinds to have buffeted Macau, and whose impact still divides investors. Some say it’s unknown, unpredictable. Others admit they’re in uncharted waters, while a few assume not so little damage. The smoking ban on mass floors in Macau was rolled out on October 6 and the jury’s still out on how much gamblers are not betting because of the no smoking law.

Take Morgan Stanley, for example.

The US bank predicts the smoking ban on mass floors could slash Macau gaming operators’ profits by US$212 million in the fourth quarter of 2014 and US$780 million up to the Summer of 2015. The impact on revenues could amount to US$1.5 billion in the next three quarters. Union Gaming, on the other hand, says the ‘impact of the broader smoking ban should be minimal, after the initial confusion and construction disruption’.

As the correlation between smoking and gambling is much more psychological and harder to quantify the link to smoking changes from one gambler to another - some can play without smoking, other cannot. The market says it needs more time to assess the real impact of the smoking ban but if we recall that in the US – a country with one of the most restrictive laws against smoking – gamblers are allowed to have a cigar in casinos, maybe it’s because the impact is not that negligible.

The double-digit growth that Macau had recorded for years was over.

With the first quarter of 2014 - being the best quarter ever for the industry here (in February, for example revenues reached almost a staggering MOP40billion) everyone knew how investors would react to a new flow of revenue drops in the next three months. Year-on-year comparisons are not real events but their effects are for sure very real. And big.

Business Daily | 7

December 30, 2014

Macau World Cup

Typhoon Signal: 4

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t was the epicentre of the gaming crisis, even if the World Cup was not “the” reason for the slowdown that followed. Well, it was for a certain time. The Football World Cup, held in Brazil in June and July, was the main sports event this year and attracted billions of viewers around the globe to watch Ronaldo and Messi play. Of these fans, a big chunk were Chinese and some of them were casino customers of Macau.

When gaming revenues here started to decline in June, investors were quick to attribute the shortfall

to the tournament, as a lot of gamblers were diverted from the tables to watch the games. In those summer months, the market consensus was that gaming revenues would start to recover in August and return to normal in September.

We now know that that’s not how the story ended. There were other bigger factors at play, like the slowdown of the Chinese economy.

Nevertheless, the World Cup was a negative factor for the industry as revenues slipped 3.7 per cent in June and 3.6 per cent in July, the first consecutive fall

in five years that made headlines all over the world. The football tournament not only diverted gamblers from casinos here but also their money, as they preferred to bet on lotteries that incorporated World Cup matches. As baccarat revenues started plunging, SLOT revenues, the only lottery operator in Macau, increased takings by 63 per cent. On the Mainland, lotto sales reached a record 36.1 billion yuan (MOP46.4 billion) in June, 1.7 times more than the casinos’ revenue, and the widest margin since 2009.

China’s economy slowdown Typhoon Signal: 8

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he slowdown of China’s economy with all its implications such as tighter credit, lower investment and diminishing industrial production meant that companies on the Mainland were selling less and, money-wise, making less.

The record drop in credit given by banks this year and the slowdown in retail sales visited two mammoth problems on Macau: Junkets short on credit and gamblers

playing lower bets. The combination generated the disruption of the VIP sector, the largest one in Macau, which crashed 20 to 30 per cent this year.

Most of the high rollers here in Macau are owners or managers of companies, with the majority from Small and Medium Enterprises (SME’s), which, in the current soft landing of the economy, are generating less earnings. With business softening, it’s no surprise that

trips to Macau by gamblers became less frequent and on smaller budgets.

For example, Macquarie believes the main driver of the gaming revenue slowdown here is attributable to the tightening of the shadow banking lending in China that cut or reduced credit lines to SME’s. For the Australian bank, the softening of gamblers’ companies’ activity is much more important than the anti-corruption campaign launched by Beijing in terms

of justifying the revenue crisis here.

But probably the big impact of the current credit and economic slowdown in China is the one related to junkets. Gaming promoters are finding credit harder to source and much more expensive to land. According to several analysts, the smaller promoters are already out of business, while the bigger ones are facing huge problems getting gamblers to repay their debts (the standard

repayment period has more than doubled in 2014 to around 30 days).

Standard Chartered wrote recently that Macau’s VIP and junket models are in ‘near broken’ mode and that there’s no short-term solution to reversing this trend. The UK bank says the lack of liquidity has led to weaker revenues and increasing margin pressures for junkets, some of whom have already offloaded properties in Macau to generate cash.

UnionPay

Typhoon Signal: 5

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report from Reuters in March brought the illegal UnionPay scheme in Macau to the world’s attention and was probably the first real sign of the anti-corruption drive emanating from Beijing.

The Reuters piece, the crackdowns that followed and the public discussion on how to solve the problem produced several headlines that put gaming stocks in jeopardy and ignited the volatility in gaming shares this year.

Authorities believed that casinos and nearby pawnshops were using illegal UnionPay terminals that

registered operations made here as being made on the Mainland. This way, gamblers could circumvent the currency controls, while others used

Visa restrictions Typhoon Signal: 3

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he new visa policy for Mainlanders that travel to Macau was another of the negative impacts on the industry in 2014. With reduced time allowed to stay in the territory and authorities focusing on the loopholes of the policy, the market reacted rather negatively to the news with fears of less visitors, gamblers and revenues in the future. Analysts underlined that the tighter visa rules would affect the mass segment in Macau, the most profitable one, and even Grant Bowie, CEO of MGM Macau, said the visa policy was a sign that the central government was taking “some heat out of the market”.

the method to evade tax. Mainland visitors can legally take 20,000 yuan into Macau and withdraw as much as 10,000 yuan a day from cash machines.

The scheme, experts believe, helped to spirit more than 40 billion yuan (HK$50 billion) out of China.

In Macau, the pawnshop industry is believed to make an estimated 200 billion yuan on transactions every year using UnionPay cards, around 20 per cent of them through mobile devices. For the gaming industry, the crackdown affected investors’

confidence and put shares on a negative path, while the prohibition of new terminals since July has undoubtedly meant less revenues for casinos, as gamblers find it harder to get money.

UnionPay is not old news, however. Just two weeks ago, stocks plunged again 5 to 8 per cent in one day after South China Morning Post reported that Beijing will increase its crackdown on illicit money channelled through casinos here that will likely discourage high rollers from playing here.

8 | Business Daily

December 30, 2014

Greater China Taiwan could widen trading range Taiwan’s stock exchange regulator is considering widening the daily range in which shares can trade, but any move may still be half a year away. An official with the island’s Financial Supervisory Commission who is involved in the study said that the daily moves in stocks could be expanded to 10 percent from the current 7 percent. The official, who spoke on the condition of anonymity, said that the hope is to implement the change in the second half of 2015.

2015 growth to reach 7 pct Growth in China’s gross domestic product (GDP) is expected to slow to 7 percent next year from a forecast 7.3 percent this year, partly due to weakness in global economies, a top Chinese government think-tank said in a report published yesterday. “The growth of the world economy may recover slightly in 2015, but it will be difficult to see it fully recovering from weakness seen since the global financial crisis,” the State Information Centre said. China’s consumer price index (CPI) is expected to increase less than 2 percent in 2015.

Net gold imports from HK climb

China’s gold imports from Hong Kong in November rose to their highest level since February on strong demand in the world’s top bullion consumer. Net gold imports from Hong Kong to the mainland rose to 99.111 tonnes in November, compared with 77.628 tonnes in October, according to data e-mailed to Reuters by the Hong Kong Census and Statistics Department.

Total imports to the mainland rose to 149.235 tonnes last month.

New circuit courts in Shenzhen and Shenyang China’s Supreme People’s Court (SPC) will establish its first two circuit courts in Shenzhen city of south China’s Guangdong Province and Shenyang, capital of Liaoning Province in the northeast, a spokesperson said yesterday. SPC spokesperson Sun Jungong said the first circuit court in Shenzhen and the second circuit court in Shenyang will both start handling cases in early 2015. According to Sun, the circuit courts are being established to facilitate judicial cases filed by the public from local communities.

Kaisa says senior executives quit Chinese property developer Kaisa Group Holdings Ltd said two senior executives had left the company, triggering a tumble in its debt prices while trading in its shares was halted yesterday, as worries mount about blocked sales of properties in China. The company did not elaborate on the circumstances behind the departure of its vice chairman and its chief financial officer, announced on Sunday night, saying only that they would devote more time to personal career development. Its chairman also resigned this month and an executive director was re-designated as non-executive.

Official PMI seen dipping to 18-month low A preliminary PMI survey released earlier this month

by HSBC/Markit showed activity in the factory sector contracted in December for the first time in seven months

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rowth in China’s manufacturing sector likely slowed to a 18-month low in December, a Reuters poll showed, adding to signs of a protracted slowdown in the world’s secondlargest economy that may prompt authorities to roll out more stimulus measures.

The median forecast from 11 economists in the poll was that the official manufacturing Purchasing Managers’ Index (PMI) for December will drop to 50.1, the weakest level from June 2013, from 50.3 in November.

The PMI will be released on Thursday.

The official PMI is focused on larger, state-owned factories, as opposed to the HSBC/Markit PMI which focuses more on smaller manufacturers in the private sector. Smaller firms have been facing greater strains, including higher financing costs, though recent data have suggested larger firms are also succumbing to the pressure from the prolonged downturn.

Chinese factories are struggling to cope with widespread excess capacity and falling prices that hurt their bottom lines. Official data released on Saturday showed Chinese industrial profits dropped 4.2 percent

We expect the manufacturing sector to remain sluggish in December, in line with a continued slowdown in the economy as the property sector weighs Nie Wen, economist, Hwabao Trust

in November for a year earlier, the biggest annual decline since August 2012.

Many analysts expect economic growth in the fourth quarter to slow marginally from 7.3 percent in the third quarter, suggesting fullyear growth will undershoot the government’s 7.5 percent target and

mark the weakest expansion in 24 years.

Economists who advise the government have recommended that China lower its growth target to around 7 percent in 2015.

The government is expected to announce more stimuli, such as cutting bank reserve ratios or interest rates, to ward off a sharper growth slowdown could fuel job losses and debt defaults.

The central bank unexpectedly cut interest rate cut for the first time in two years on November 21, while the economic planning agency has been approving more infrastructure projects to help spur growth.

Reuters

HK-Shanghai stock link hurdles Because any Hong Kong broker can now snap up Shanghai shares, Michelle Price

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ong Kong’s off-exchange derivatives market is thriving as foreign funds prevented from using a landmark Hong KongShanghai trading link by technical and regulatory hurdles look for a back door to gain exposure to China’s record-breaking stocks rally.

The development is a blow for Beijing, which has long-feared an influx of anonymous, footloose foreign money could increase volatility in China’s already wild stock markets, and comes as regulators globally look to clamp down on opaque offexchange trading.

Some of the biggest global banks were already able to offer so-called “synthetic” equity products that provide clients with exposure to mainland China stocks, known as “A-shares”, using shares purchased through restricted investment quotas.

Because such over-the-counter (OTC) derivatives are traded offexchange, the identity of the underlying investor, and the size of the market, is often unclear to regulators.

By allowing foreign investors to trade Shanghai shares directly via the more transparent Hong Kong exchange, Beijing had hoped Stock Connect, launched on November 17, would kill off this multi-billion dollar grey market.

But for many U.S. and European funds grappling with the scheme’s operational and legal quirks, including unusual settlement rules and confusion over share ownership rights, OTC products remain the only way to gain exposure to China stocks.

And because any Hong Kong broker can now snap-up Shanghai shares, business in these products is booming.

Several brokers and fund managers told Reuters that the vast majority of trading on Hong Kong-Shanghai Stock Connect is happening away from Beijing’s gaze in Hong Kong’s OTC market.

“Synthetic equity products are the main vehicle for accessing the A-share market at the moment,” said Stephane Loiseau, head of cash equities for Asia-Pacific at Societe Generale in Hong Kong.

“Because of the regulatory and technical challenges, it’s the only way to trade for most investors. It doesn’t look like this is going to change unless access to Stock Connect is made easier for institutional investors.”

No legwork In the meantime, these funds are buying so-called p-notes - relatively simple products that entitle the

investor to the performance of a Chinese stock, or basket of stocks, that the brokerage actually purchases and holds on its own books. P-notes command higher fees than standard trading services, sometimes costing up to twice as much as an on-exchange trade, said one asset manager.

Less regulated funds, meanwhile, have been buying more complex, higher-value equity swap products which are often very profitable for the bank that typically finances the trade.

KEY POINTS Most Stock Connect activity happening off-exchange Funds buying “synthetic” equity products for China exposure Beijing had hoped link would kill off-exchange market

Business Daily | 9

December 30, 2014

Greater China Spreads lead to more risk in high-yield bonds The China Banking Regulatory Commission (CBRC) has asked lenders to step up efforts to rein in lending risks in 2015 Umesh Desai and Pete Sweeney

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he additional spread that investors demand for credit risk in China is at the highest level in nearly 15 months as investors in the country’s corporate bond market start pricing in the impact of an on-going crackdown on low-grade issuers.

The spread between the one-year yield on AAA-rated bonds and those rated AA has widened to 112.4 basis points, a level not seen since September 2013 and wider than the period shortly after China saw its first public bond default by Chaori Solar in March.

“It’s the lagging effect from the new regulations to exclude higher-yield bonds of AA and below from repo business,” said a senior dealer at an Asian bank in Shanghai, referring to a policy announcement preventing weaker issuers from using the bond market as a refinancing tool.

“That means investors are now more aware of the risk of high-yield bonds because of policy guidance.”

KEY POINTS Risk spreads widening since crackdown on lower-rated issuers Spread between AAA, AA bonds at highest in 15 months Chinese officials routinely bail out defaulting firms

A survey published last week by the Chinese central bank (headquarters pictured) showed the number of Chinese bankers who believe the country’s economy is cooling increased in the fourth quarter from the third, and a “confidence index” of bankers dropped

Corporate bonds are still relatively lightly traded in China, with most still bought and held by banks.

Building a healthy bond market as an alternative source of fundraising for corporates is a key goal for Beijing, but while rhetoric has been firm, progress has

been hobbled by the inability of Chinese bureaucrats to tolerate defaults.

For example, the last time the spread widened was in March, during the default of Chaori Solar, a little known Chinese firm that failed to pay interest on a bond by its due date.

That was hailed as a major step forward for risk pricing reform in China, but although the bond was minor and the company economically insignificant, nevertheless officials managed to engineer a total bailout of bondholders paying them both interest and principal - later in the year.

s spark derivatives boom business in these products is booming

An equity swap involves counterparties agreeing to exchange two future cash flows, known as “legs” - one leg might be pegged to a market interest rate, for example,

and the other tied to a stock or index performance.

“We have all types of clients trading synthetics, including long-only institutional funds,”

said Sebastien Mailleux, head of forward trading, Asia, at BNP Paribas Securities in Hong Kong.

BNP’s synthetic trading activity on A-shares has been fairly evenly

But changes in yield do reflect wider market assessment of Beijing’s commitment to financial reform and have fluctuated in response to policy.

The change follows signs of increasing financial stress in China, with non-performing loans on the rise at Chinese banks, sliding deposits at banks and deflationary pressure.

Reuters

split between p-notes and equity swaps, he added.

Hong Kong, which serves as a regional hub for many banks, is home to Asia-Pacific’s most active OTC equity derivatives market, accounting for around 34 percent of regional turnover with a notional value of roughly US$1 trillion, according to end2012 data published last year by consultancy Celent. Information on China A-share equity derivatives was not available.

Data on p-note activity in Hong Kong is not available, so it is difficult to assess the size of the market, but by comparison the value of outstanding p-note investments in India - where such products are also actively traded by foreign investors - stood at around US$40 billion in October. China stocks have soared more than 25 percent over the past five weeks, driven by a surprise cut in interest rates on November 21, but trading has been volatile, with the Shanghai Composite Index posting its biggest one-day fall in 5 years on December 9.

Concerns that the OTC grey market might exacerbate such volatility are not Beijing’s only worry.

Synthetic equity products do not typically confer ownership or voting rights to the end investor, a critical means of boosting corporate governance among China companies, said Sally Wong, chief executive of the Hong Kong Investment Funds Association.

She added: “For the mainland regulators, a key objective of Stock Connect is to diversify the investor base with the ultimate objective of boosting corporate governance.”

Reuters

10 | Business Daily

December 30, 2014

Greater China

Frantic activity for brokers these days

Shanghai stocks rise to five-year high The Hang Seng China Enterprises Index climbed 4 percent to 12,019.75 at the close, the biggest gain since November 18, 2013

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hina’s Shanghai Composite Index yesterday climbed to the highest level since January 2010 and Hong Kong shares jumped the most in a year amid speculation that government steps to spur lending will bolster economic growth.

China Life Insurance Co. and Ping An Insurance (Group) Co. rallied more than 7 percent to lead gains for financial shares in Hong Kong.

Poly Real Estate Group Co. surged 10 percent as developers jumped the most among industry groups in Shanghai. The People’s Bank of China will include savings held by lenders for non-deposit-taking financial institutions into bank deposits from 2015, the official Xinhua news agency reported.

“Expectations of loosening liquidity conditions may further boost market sentiment,” China International Capital Corp. strategists led by Hanfeng Wang wrote. “Some media reported the central bank had issued a document to reclassify banks’ deposits, so that they were not required to set aside reserves for interbank deposits, which may make expectations for liquidity condition loosening more visible.”

Hong Kong’s stock market was shut the last two trading days of last week for the holidays, when the Shanghai Composite surged 6.2 percent. The Shanghai gauge advanced 0.3 percent to 3,168.02 yesterday.

The Hang Seng Index rose 1.8 percent. The CSI 300 Index gained 0.3 percent, while the ChiNext index of small-cap shares slumped 2.4 percent.

The H-shares gauge has climbed 11 percent this year, compared with a 50 percent rally for its Shanghai counterpart. The H measure is valued at 7.9 times 12-month projected earnings, compared with 12 for

Shanghai, according to data compiled

by Bloomberg.

PBOC Measures The Shanghai index rose as much as 2.1 percent yesterday and fell as far as 1 percent with 30-day volatility surging to a five-year high. Trading volumes were 19 percent above the 30-day average, according to data compiled by Bloomberg.

The PBOC will temporarily waive the reserve requirement for such deposits and will help lower banks’ loan-to-deposit ratio, according to Xinhua. The measures are seen as another move to replace a universal reserve-requirement ratio cut that the central bank needs to boost credit and bolster the economy. Concerned that a broad reduction might send

The fundamentals haven’t changed, confidence hasn’t left and the bull market will continue Zhou Lin, analyst, Huatai Securities Co.

out a strong easing signal and bring turmoil to stock markets, the central bank has added liquidity by stealth at least four times in the past four months.

HK stocks In Hong Kong, insurers led gains.

China Life rose 8.7 percent. China Pacific Insurance Group surged 12 percent, while New China Life Insurance Co. soared 11 percent. The H-shares gauge may reach 13,000 next year, according to the median of 12 analysts’ estimates compiled by Bloomberg. Six out of nine brokerages listed Ping An Insurance as a top pick.

Citic Securities Co. rallied 3.2 percent after the biggest Chinese brokerage said it plans to sell up to 1.5 billion shares.

“Further easing of policy may benefit the investment environment,” boosting investment income for insurers, said Dickie Wong, an executive director of research at Kingston Financial Group in Hong Kong. “I expect a further cut to the reserve-requirement ratio or interest rates, giving a boost to Chinese financial shares.”

A measure of property stocks in the Shanghai gauge surged 5.7 percent.

Gemdale Corp. added 5.3 percent.

Shanghai Jinqiao Export Processing Zone Development Co. jumped for a fourth day, adding 5.8 percent after the government said it would expand the city’s free-trade zone to the Jinqiao and Pudong districts.

Profits drop China’s industrial profits fell the most in two years last month, the latest data to show a deepening slowdown in the world’s secondbiggest economy.

Total profits of industrial enterprises in November dropped 4.2 percent from a year earlier, the National Bureau of Statistics said December 27. That follows October’s 2.1 percent decline and is the biggest slide since August 2012, when profits slumped 6.2 percent. Mired in industrial overcapacity, factorygate deflation and a housing slump, China is headed for its slowest fullyear economic expansion since 1990.

The industrial profits data “indicated price weakness is taking its toll on profits,” CICC’s Wang wrote in the report dated yesterday. “The real economy is in need of more monetary policy loosening measures.”

SOE reform Beijing GeoEnviron Engineering & Technology Inc. and Guosen Securities Co. both jumped 44 percent in their mainland share debuts. The brokerage said earlier this month it planned to raise at least 6.84 billion yuan (US$1.1 billion) by selling up to 1.2 billion shares in its IPO. PetroChina Co. gained 2.1 percent in Shanghai and rose 1.9 percent in Hong Kong. The Chinese government raised the threshold for a petroleum windfall tax to US$65 per barrel.

CICC said the change will boost PetroChina’s earnings.

China may announce reforms of state-owned enterprises before the lunar new year, which starts in mid-February, the Securities Journal reported, citing Chu Xuping, head of the research centre of the Stateowned Assets Supervision and Administration Commission. The government should retain over 51 percent ownership in most important state-owned enterprises, Chu was cited as saying.

Bloomberg News

Business Daily | 11

December 30, 2014

Asia

Japanese banks start stress test for ultra-low rates Regional banks, which typically serve smaller businesses, have seen lending fall as Japan’s population ages, and many have cut the interest rates they charge to win business Sumio Ito and Takahiko Wada

Japan’s central bank (pictured) support of government’s liquidity surge is transferring stress to the banks

J

apan’s financial regulator is running stress tests to see if too much cash in the system is stifling smaller banks’ ability to earn, unlike regulatory tests elsewhere that have been designed to see whether lenders had enough capital to cope with financial shocks.

Two people with direct knowledge of the process said the Financial Services Agency (FSA) had initiated the tests on concerns that with 10year Japanese government bond yields near a record low around 0.3 percent, regional lenders in particular could be at risk as the gap between what they pay for deposits and what they collect on loans

and bond holdings shrinks.

The FSA was not immediately available for comment.

The action highlights one of the unintended risks of Prime Minister Shinzo Abe’s programme to end decades of deflation with the support of the Bank of Japan (BOJ), which by injecting monetary stimulus into the economy is helping to keep interest rates at rock bottom.

Critics say policymakers in Europe should be considering such risks, too.

The European Central Bank completed a review of the resilience of euro zone banks in October and came under fire for not including

a deflationary scenario in its stress test hypotheses, even though inflation and bond yields in much of the region are hovering barely above zero.

ECB Vice President Vitor Constancio defended the omission by arguing that a “deflation (scenario) is not there because indeed we don’t consider that deflation is going to happen”.

Loan demand shrinking It was not immediately clear what scenario or assumptions the FSA was using in its assessment of the risk to regional and smaller banks, nor how the

agency would follow up with lenders that appeared to be at particular risk from a period of persistently low, long-term interest rates.

Japan’s more than 100 regional banks account for around 40 percent of the country’s US$4.6 trillion in outstanding loans, but overall loan demand has shrunk 10 percent over the last 20 years.

For over a year, the FSA has been urging regional banks to consolidate or seek customers abroad.

Japan’s second-largest regional lender, Bank of Yokohama, said last month that it was considering a merger with Tokyo-based Higashi-Nippon Bank Ltd in

a potential deal that analysts said could spur consolidation.

Regional banks’ lending rates have come under pressure from the BOJ’s programme of quantitative easing, which began in early 2013. Average lending rates from 64 regional banks have fallen over that period from about 1.5 percent to about 1.2 percent, according to BOJ data.

At the same time, average loan rates for the group of smaller institutions known as the secondary regional banks have fallen from about 1.7 percent to about 1.5 percent.

As a group, profits from core lending by the regional banks dropped 1.7 percent in the most recent quarter from the same period a year earlier and by 3.7 percent for the secondary regional banks, according to data from the BOJ. The FSA has had little response so far to its call for more consolidation among smaller banks, but more have followed calls by officials to seek opportunities offshore.

Earlier this month, 10 regional banks, including Joyo Bank Ltd, joined a syndicate of lenders providing a US$375 million loan to Bunge Ltd, a major trader of commodities based in the United States.

Reuters

S. Korean business sentiment climbs The Bank of Korea said it surveyed more than 1,400 manufacturing companies

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n index measuring South Korean manufacturers’ confidence about the coming month edged up to its highest in 10 months, thanks to improved sentiment among exporters, according to the central bank.

The Bank of Korea said in a statement yesterday that its manufacturing business survey index on the prospects for January rose to a seasonally-adjusted 81 from 80 in December. The fresh level is the highest since March, when the index was 82.

A reading below 100 means companies expecting deterioration in business conditions during the coming month outnumbered those predicting an improvement. The index has been below 100 for nearly four years.

Break-down figures that the central bank provided on a seasonally unadjusted basis showed the January prospects index for exporters jumped by 11 points to 81, contrasting a 3-point drop in the reading for nonexporters to 74.

0.9 pct South Korean quarterly growth July-September South Korea saw quarterly growth pick up to 0.9 percent in July-September from 0.5 percent in the prior quarter thanks to stimulus measures but signs have been growing that the recovery may be slowing.

Asia’s fourth-largest economy derives just more than half of its annual output from private consumption, but exports remain a dominant growth driver as overseas sales influence corporate investment and employment at home.

The Bank of Korea said it surveyed more than 1,400 manufacturing companies.

Reuters

Asia’s fourth-largest economy derives just more than half of its annual output from private consumption

12 | Business Daily

December 30, 2014

Asia SGX to adopt Nasdaq technology

Lighter regulation to boost South Korea’s banks The new head of FSS has pledged to consider ways in which banks can have more room to run operations as they see fit

Singapore Exchange (SGX) will adopt a new generation of derivatives trading and clearing platform based on Nasdaq’s Genium INET solution by the end of 2016, SGX said in a press release yesterday. The upgraded platform, SGX TITAN, is designed to increase efficiency and lower trading and clearing costs for market participants, SGX said. Industry standard access protocols, extensive self-help functionality and improved straight-through-processing will be the significant benefits from the upgraded infrastructure. The core trading and clearing systems are based on Nasdaq’s Genium INET solution, with rollout scheduled towards the end of 2016.

Firms see yen fall almost done Top Japanese firms think the yen will not decline much further next year and may even stage a sizeable rebound despite Prime Minister Shinzo Abe’s easy-money policies, a Reuters survey shows.

The survey of 67 firms, of which 47 responded between Dece 15 and 22, forecasts an average 2015 low for the yen of 125 to the dollar and a high of 112. The Japanese currency has lost about one-third of its value since Abe took power in late 2012, launching an aggressive mix of monetary and fiscal stimulus in an attempt to revive the flagging economy.

Fruit feeds Vietnam’s wallets Vietnam is forecast to earn nearly US$1.5 billion from fruit and vegetable exports in 2014, while it spent around US$521 million on the imports, reported the Vietnam Fruit and Vegetables Association on its website. The figures posted a trade surplus of 956 million dollars for the sector this year. In December alone, fruit and vegetable exports were estimated to hit US$120 million dollars, bringing total export turnover of these products this year to 1.477 billion dollars, a sharp increase over last year’s figure of 1.073 billion dollars, said the report.

Cambodia to welcome 4.5 mln visitors Cambodia is expected to welcome 4.5 million international tourists this year, an increase of around 6 percent from last year, Tourism Minister Thong Khon said yesterday. “During the first ten months of this year, some 3.59 million foreigners visited Cambodia, up 5.9 percent over the same period last year,” he said. “It is expected that Cambodia will receive around 4.5 million foreigners this year, up 6 percent year-on-year.” He said of the figure, China is the second largest source of tourists to Cambodia.

Joyce Lee

S

outh Korea’s banks, whose average returns on equity are the worst among lenders in Asia and are less than half of their Chinese peers, are poised to benefit from a promised move by the country to ease heavy-handed regulation.

Stifling regulation has crimped banks’ freedom in Asia’s fourthlargest economy to charge rates and offer products based on market demand, tying their hands in the struggle against a slowing economy and low interest rates.

Regulatory intransigence was also blamed by analysts for the collapse last month of the government’s fourth effort to sell a controlling stake in No. 2 lender Woori Bank after attracting a lone Chinese bid.

“It’s very hard to suggest new products without getting hemmed in by regulations, written or oral,” said a senior executive at a large Korean lender, declining to be identified

because of the sensitivity of the matter.

In September, for instance, financial regulator Financial

Supervisory Service (FSS) summoned the vice presidents of four of the country’s largest banks to ask them why the interest rates

Thai factory output shrinks more than expected November was the 20th consecutive month in which output was lower than a year earlier Orathai Sriring and Kitiphong Thaichareon

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hai factory output fell more than expected in November, the latest evidence that the country’s economy is still struggling more than six months after the army took power to end prolonged political unrest.

Thailand is grappling with poor exports and still-subdued domestic demand. Tourism is recovering slowly from falls due to political turbulence, public spending has been slow and consumption remains curbed by high household debts.

Yesterday, the Industry Ministry said factory output in November declined 3.5 percent from a year earlier, more than the 2.7 percent stumble forecast in a Reuters poll.

The falls stem largely from weak exports. Industrial goods account for about two-thirds of total Thai exports, which are equal to more than 60 percent of the economy.

Exports, a pivotal engine of growth,

improved in September and October but the gains couldn’t be sustained.

The Commerce Ministry said November exports dropped 1 percent from a year earlier, compared with a 3.6 percent gain a Reuters poll had expected.

On Friday, the central bank said exports will contract 0.5 percent this year and only grow 1 percent in 2015, rather than an earlier-forecast 4 percent.

Southeast Asia’s second-largest economy will grow only 0.8 percent this year rather than the 1.5 percent seen in September, the Bank of Thailand said.

Last month, Udom Wongviwatchai, head of Thailand’s industrial economics office, said factory output in 2014 would drop 4 percent, but predicted it would increase in November from a year earlier.

November capacity utilisation in industry was 59.81 percent, falling

below 60 percent for the first time since April. In October, it was 60.68 percent.

Thailand is a regional hub and export base for global automakers, and sector output in November was 14 percent below a year earlier. Last month, domestic auto sales tumbled 22 percent from November 2013.

The central bank is due to release its economic figures for November, expected to show further weakness in private consumption and investment.

Pimonwan Mahujchariyawong, economist with Kasikorn Research Center in Bangkok, said she expected the output index to improve next year, given 2014’s low base, but by less than 5 percent.

She said production of building materials should improve because of spending on delayed infrastructure projects, which the government is trying to get moving.

Reuters

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Business Daily | 13

December 30, 2014

Asia they charged on some mortgage loans had risen despite a cut in the central bank’s main policy rate.

While the law gives lenders freedom to set their own rates, bankers familiar with the episode said the implication of such unofficial “oral guidance” was clear: the banks should lower their rates.

An FSS official said the September meeting with the bank executives was to hear the banks’ side of interest rate direction in order to understand what is going on.

Things may be about to change, though. The new head of FSS has pledged to consider ways in which banks can have more room to run operations as they see fit.

“We will listen more closely to the market’s hopes for improvements in regulatory customs, such as unclear and arbitrary oral guidance,” said Zhin Woong-seob, as he took the helm of the country’s top financial watchdog last month.

The change will help banks become more proactive, although fundamental market conditions remain challenging. The government on Monday cut its economic growth forecasts for both this year and next.

Inflexible labour rules and lenders’ inability to raise fees in a fiercely competitive environment are the other factors dampening bank returns.

“Korea’s banking sector is facing a number of headwinds from a subdued operating environment and intense competition, which is dampening banks’ profitability and growth prospects,” ratings agency Fitch said in a December 9 report, in an assessment of 2015.

Lenders have started taking steps in response to the market situation. Global players such as Citi and Standard Chartered have been scaling back operations in Korea.

Banks including Korea’s top lender Kookmin Bank have begun cutting costs by trimming branches.

In the year through July, the sector lost nearly 300 bank branches, but this is just 5 percent of the total.

Woori and Shinhan Bank are among those expanding abroad, while Hana Bank and NongHyup Bank are trying to sell more funds or insurance products.

Reuters

Allianz lead reinsurer for missing AirAsia plane JLT Group was the insurance broker for the AirAsia plane, the company told Reuters in a separate statement

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erman insurer Allianz said yesterday it was the lead re-insurer to the AirAsia jet missing off the Indonesian coast with 162 people on board, making it the third major airline accident it has been involved in this year.

The German company, which has Malaysia Airlines as a client, was the main reinsurer to flight MH370 that disappeared over the Indian Ocean in March, as well as to flight MH17 which was shot down in July while flying over Ukraine.

“We can confirm that Allianz Global Corporate & Specialty UK (AGCS) is the lead reinsurer for AirAsia, for aviation hull and liability insurance,” an Allianz spokeswoman said in a statement emailed to Reuters.

Aviation incidents accounted for four of the top 10 major insurance losses not linked to natural catastrophes in the first eight months of 2014, putting pressure on aviation claims that are already rising due to the use of expensive materials and demanding safety regulation, an Allianz report said.

Allianz declined to comment on the extent of its exposure or to identify other insurers with exposure to the missing Indonesia AirAsia plane, an Airbus A320-200.

But Reuters calculations show the minimum pay-out to cover for this accident could be around US$100 million.

As with the two Malaysia Airlines crashes, Allianz and its co-insurers will have to foot the bill for the cost of the missing Indonesia AirAsia aircraft, as well as for payments due to the relatives of the passengers that were aboard the flight.

The Airbus 320 sells for an average price of US$94 million, according to Airbus’s website. However, according to the age of the aircraft, the hull is likely to be insured for a lower sum.

For passenger liability, an international aviation agreement called the Montreal Convention caps initial pay-outs at around US$165,000 per passenger at current exchange rates, or about US$27 million total for the 162 passengers aboard the AirAsia flight.

Reuters

Nippon firms deaf to PM’s higher wages request Abe is pressuring firms to return more of this windfall to employees through higher base pay in order to boost consumption Thomas Wilson

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ajor Japanese firms plan to return their excess cash to shareholders next year rather than spend it on wage rises, according to a Reuters survey, in a rebuke to Prime Minister Shinzo Abe’s call for employers to lift salaries.

Arresting an 17-month slide in real wages is essential if Abe’s economic stimulus policies are to succeed in boosting consumption and dragging the world’s thirdbiggest economy decisively out of decades of deflation and stagnant growth.

However, barely one in 10 firms plan to raise wages in 2015, according to the survey of 47 firms. More than 70 percent said they would spend cash reserves on dividends and share buybacks, with most of these also putting investment ahead of wage rises.

Despite surging profits and cash balances, brought about

by Abe’s massive monetary and fiscal stimulus, employers baulk at raising wages, partly because they are unsure of their ability to pass these extra costs onto consumers through higher prices.

Finance Minister Taro Aso looking at his wristwatch beside Japanese Prime Minister Shinzo Abe (C) posing for an official picture

“Abenomics” has pushed the yen down to seven-anda-half-year lows, giving an outsized boost to major exporters.

Non-financial firms held a record 233 trillion yen (US$1.94 trillion) in cash and deposits at endSeptember, up 12 percent from when Abe took office two years ago and accounting for about a quarter of their assets, according to central bank data.

Abe is pressuring firms to return more of this windfall

to employees through higher base pay in order to boost consumption and promote a durable recovery. Within days of his re-election victory this month, he secured a pledge

by Japanese business leaders to do their “utmost” to raise wages.

But the Reuters survey, conducted in the week of December 15, suggests bluechip companies are not ready to raise salaries, not even to keep pace with Japan’s meagre inflation. Smaller firms, which employ the vast

Reforms “won’t succeed unless companies show their willingness to cooperate” Taro Aso, Finance Minister

majority of Japanese workers, typically lag their larger peers in boosting compensation.

Real wages fell for the 17th straight month in November while wage earners’ total cash earnings fell for the first time in nine months, official data showed on Friday.

Only six companies in the survey, including convenience store owner Seven & i Holdings Co Ltd and Mitsubishi Chemical Holdings Corp, said they would boost pay next year.

Companies such as Daikin Industries Ltd and Fujitsu Ltd said they would use cash reserves to focus on keeping a balance between shareholders’ needs and capital expenditure.

“We’re aiming to achieve further growth by enhancing aggressive investment and shareholder returns,” said Daikin chief executive Masanori Togawa.

Japanese firms have long been criticised for paying poor returns on equity, which average around 5 percent compared with above 15 in the United States.

Reuters

14 | Business Daily

December 30, 2014

International Ukraine approves 2015 budget Ukraine’s parliament backed a budget for 2015 yesterday that it had been under pressure to approve to secure the next tranche of financial aid under a US$17 billion International Monetary Fund loan package, the Interfax news agency reported. Before the budget vote in the early hours of the morning, deputies approved a series of austerity laws, including an amendment to impose additional duties on imports, that Prime Minister Arseny Yatseniuk warned could prove unpopular with Ukraine’s foreign trade partners. Foreign currency reserves have more than halved since the beginning of the year to a 10-year low.

Russia suffers first major contraction since 2009 The slide on the oil market accelerated this month after the exporters’ group OPEC refused to cut output Elena Fabrichnaya and Alexander Winning

Overall the rouble’s weakness will inevitably lead to higher inflation next year by pushing up the cost of imports, threatening President Vladimir Putin’s reputation for ensuring Russia’s prosperity.

Government ministries forecast the slump in oil prices will lead to a 4 percent contraction of the economy next year and that inflation could exceed 10 percent.

Scottish business start-ups soar Registered business start-ups are at a record high in Scotland with a 23.9 percent increase in 2013, official figures showed. The number of registered business start-ups in Scotland increased to the highest level from 17,385 to 21,540 between 2012 and 2013, said Scottish Minister for Business, Energy and Tourism Fergus Ewing. The total number of registered businesses in Scotland has grown by 4 percent in 2014, and by 10 percent since 2007.

The growth in the registered business stock has been driven be a rise in the number of small registered businesses.

Algeria urges OPEC to cut oil output The Organization of Petroleum Exporting Countries (OPEC) should cut oil output to push prices up, the official APS news agency quoted Algerian Energy Minister Youcef Yousfi as saying. “OPEC should intervene to correct the imbalances by cutting oil output to push prices up and defend incomes of the member countries,” Yousfi said at a press conference in the southern Tamanrasset Province. The minister also suggested to maintain the dialogue between members and non-members of OPEC as they all share the same goals.

New rules for IPOs of start-ups in UAE The United Arab Emirates’ stock market regulator is working on rules that would make it harder for start-up companies to sell shares, according to four people with knowledge of the matter. The regulator will only approve listing applications from start-ups if they intend to operate in an industry not represented on the U.A.E.’s stock exchanges and in an area of strategic importance to the economy, three of the people said, asking not to be identified as the plans are private.

IMF mission to visit Ukraine An International Monetary Fund mission will visit Ukraine in early January for more discussions over implementation of an economic reform programme, the IMF said yesterday. “The International Monetary Fund is moving expeditiously to continue discussions with the Ukrainian authorities on the IMF-supported economic reform program aiming to stabilize the Ukrainian economy and restore sustainable growth,” it said in a statement. The IMF, which had previously flagged a visit for sometime in January, said the mission would begin work in Kiev on January 8 and could conclude before the end of the month.

Falling rouble

Russian President Vladimir Putin (L) and Russian Prime Minister Dmitry Medvedev (R) enter a hall to attend a Cabinet meeting

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ussia’s economy shrank sharply in November and the rouble resumed its slide yesterday as Western sanctions and a slump in oil prices combined to inflict the first contraction in GDP since the global financial crisis.

The Economy Ministry said gross domestic product shrank 0.5 percent last month, the first drop since October 2009. With oil exports forming the backbone of the economy, analysts said the contraction is likely to worsen.

The slide on the oil market accelerated this month after the exporters’ group OPEC refused to cut output, and prices are down almost 50 percent from a peak in June. On top of this, the sanctions imposed over Moscow’s role in the Ukraine crisis have deterred foreign investment and led to over US$100 billion flooding

out of the Russian economy this year.

“With the current oil price we expect things to get worse. There is no cause for optimism,” said Dmitry Polevoy, chief economist for Russia and CIS at ING Bank in Moscow.

“This is linked to sanctions first of all, oil and the panic we saw on the market in December. The damage to the banking system and consumer sentiment will take a long time to repair.”

The sanctions have severely reduced the ability of Russian companies to borrow abroad, triggering the worst currency crisis since Russia defaulted on its debt in 1998.

The rouble, which had strengthened on Friday, slumped over 6 percent against the dollar in early trade yesterday in thin trade, although it later regained some of the losses.

The rouble had lost more than half of its value at one stage in December, although it has recovered since then after the government introduced informal capital controls and raised interest rates steeply.

The government issued orders to large state-controlled oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues to shore up the rouble.

Russians have kept a wary eye on the exchange rate since the collapse of the Soviet Union. Hyper-inflation wiped out their savings over several years in the early 1990s and the rouble collapsed again in 1998.

The falling rouble has prompted huge buying of foreign currency in Russia and heavy withdrawals of bank deposits, heaping pressure on a vulnerable banking sector whose access to Western capital markets is restricted by the sanctions.

On Friday, Russian authorities also significantly scaled up rescue funds for Trust Bank, saying they would provide up to US$2.4 billion in loans to bail out the mid-sized lender, the first bank to fall victim to the crisis.

Reuters

Greek Lawmakers fail to elect president A general election is now expected to be held by early February

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reek lawmakers failed to elect a new president in a final round of voting yesterday, leaving the country facing an early election that could derail the international bailout programme it needs to keep paying its bills.

The only candidate in the race, former European Commissioner Stavros Dimas, matched the result achieved in the second round of voting before Christmas but fell short of the 180 votes needed to become president.

Under Greek law, a parliamentary election must now be called, leaving financial markets and Greece’s European Union partners facing weeks of uncertainty that could undermine fragile signs of economic recovery and derail its public finances.

Divisions among potential post-

election coalition partners for both Syriza and Samaras’ conservative New Democracy party have also complicated the outlook, increasing the risk that any new government would be short-lived.

Underlining the potential volatility facing markets, the main Athens stock market index accelerated losses to fall 10.7 percent after the vote, while Greek bond yields jumped above 9 percent.

Prime Minister Antonis Samaras urged lawmakers at the weekend to elect Dimas to succeed the 85-yearold head of state Karolos Papoulias and allow the final round of bailout negotiations to be completed.

But having offered a deal to bring forward elections scheduled for mid 2016 to the end of next year, he ruled out new concessions and said he was

Greek Prime Minister Antonis Samaras arrives at the Parliament building during the third round in the Greek presidential elections in Athens

confident of winning any election.

Samaras, who had been pushing for an early end to the deeply unpopular bailout programme, brought forward the presidential vote earlier this month in a bid to end gathering political uncertainty hanging over his ruling coalition.

A negotiating team from the “troika” of creditors from the EU, IMF and European Central Bank, had been due to resume talks in Athens next month to wind up the 240 billion euro (US$290 billion) bailout and agree an interim, post-bailout programme.

Reuters

Business Daily | 15

December 30, 2014

Opinion Business

wires

The productivity of trust

Leading reports from Asia’s best business newspapers Ricardo Hausmann

THE STRAITS TIMES

Director of the Centre for International Development and Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University

Singapore’s small and medium-sized enterprises (SMEs) are tempering their expectations for the first half of next year as they find new ways to sustain their businesses. Amid weaker market sentiment, an uneven global economy and existing domestic pressures, SMEs are predicting slower growth, according to the latest instalment of an index compiled by the Singapore Business Federation (SBF) and DP Information Group and released yesterday. The index pulled back by 2 per cent this quarter to 54.4. A score of above 50 indicates that SMEs have a positive outlook for their business prospects.

THE TIMES OF INDIA Aimed at completely overhauling the current initial public offering (IPO) process, SEBI (Securities and Exchange Board of India) is working on a proposal that can reduce the time to complete an offer — from opening of bids to public to listing of the shares — in just six days, and also cut costs to go public substantially by eliminating paperwork. At present, it takes about 15-21 days to complete an IPO after it is opened to public. As the time to complete an IPO is reduced under this process, risks for investors will also come down substantially.

THE AGE Motorists have celebrated cheaper petrol prices by going shopping. Pump prices have fallen to the lowest point in four years, giving consumers something to be cheerful about following a run of bad economic news. The Australian Retailers Association, which represents small businesses and department store Myer, says this has encouraged people to spend, since suburban stores reopened after the Boxing Day sales.

“There have been very low interest rates, and even talk about interest rates going down again ... and very low petrol prices,” the group’s executive director Russell Zimmerman told AAP.

VIETNAM NEWS The HCM City government has described the city’s economic situation in 2014 as being the brightest in several years despite the continuing global slump with growth at 9.6 percent and inflation at a mere 1.65 per cent. Reporting on the year’s economic performance, Thai Van Re, director of the city Department of Planning and Investment, said the city’s per capita income has risen by 13 per cent to US$5,131.

The city’s exports were 9 per cent higher at US$32 billion, while imports fell 2.2 per cent to US$25 billion, he said.

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he Nobel laureate economist Paul Krugman once quipped that “Canada is essentially closer to the United States than it is to itself.” After all, most of its citizens live in a narrow band along the more than 3,000-milelong border. Most Canadians live closer to more Americans than they do to other Canadians.

The same can be said of corporations and governments.

Most firms are closer to the government than they are to other firms: they interact with government rules and agencies more than they do with the rest of the business community. The quality of that interaction and its evolution over time is probably the most fundamental determinant of a country’s potential for growth and prosperity.

But this is not the Weltanschauung – the worldview – that permeates private-sector discourse, especially the views expressed by most chambers of trade and industry and business associations around the world. Business organizations often hew to Ronald Reagan’s dictum: “Government is not the solution to our problems; government is the problem.”

It is a great sound bite: short, recursive, and somewhat poetic. Unfortunately, it is also dangerously misleading. After all, even if government were the problem, then changing what it does must be part of the solution.

The truth is that markets cannot exist without governments, and vice versa. Governments are essential to the establishment of security, justice, property rights, and contract enforcement, all of which are essential to a market economy.

Governments must also organize the provision of infrastructure for transportation, communication, energy, water, and waste disposal.

They run and regulate healthcare systems and primary, secondary, tertiary, and vocational education. They create the rules

and provide the certifications that allow firms to assure their customers, workers, and neighbours that what they do is safe. They protect creditors and minority shareholders from miscreant managers (and managers from impulsive creditors).

Saying that governments should get out of the way and let the private sector do its thing is like saying that air traffic controllers should get out of the way and let pilots do their thing. In fact, governments and the private sector need each other, and they need to find better ways to collaborate.

The problem is that in many countries, both developed

The problem is that in many countries, both developed and developing, the current relationship between the private sector and the government is often dysfunctional

and developing, the current relationship between the private sector and the government is often dysfunctional. Not only is it characterized by deep distrust, but the broader society does not find a closer relationship to be either legitimate or in the public interest, and for good reason.

The private sector often engages with the government in order to make itself more profitable.

After all, maximizing profits is what CEOs are supposed to do.

And the government has ways to help: It can force suppliers to sell their inputs more cheaply, repress workers’ wage demands, protect the final market from competition by imports or new entrants, or lower their taxes.

But these schemes make firms more profitable by making their suppliers, workers, and customers poorer. Accepting such demands makes the government rightly illegitimate in the eyes of the rest of society, which cherishes higher priorities than redistribution in favour of the already rich.

Outcomes would be very different if the focus of the relationship were productivity rather than profitability. Productivity improvements, by lowering costs, allow firms to pay their workers and suppliers better, reduce prices for consumers, pay more in taxes, and still make more money for their shareholders.

A focus on productivity is winwin-win.

Governments can do many things, in a variety of areas, to raise productivity. Fresh produce requires a cold-storage logistic system, a green lane at customs, certification of good agricultural practices, and sanitary permits.

Tourism depends on sensible visa requirements, convenient airports, road signs, hotel construction permits, and the preservation of cultural sites and coastlines.

Manufacturing requires dedicated urban space that is adequately connected to power, water, transport, logistics, security,

and a diverse labour force.

All of these productivity-boosting inputs require institutions that teach and extend industry-relevant knowledge and skills. None of them appears in the World Bank’s Doing Business indicators or the World Economic Forum’s Global Competitiveness Index.

And yet, without these public inputs, the industries that depend on them cannot succeed.

That is precisely what happens in the absence of a sound and legitimate basis for cooperation between the government and the private sector. The result is inadequate provision of public goods that raise productivity and make everyone better off.

To create such a basis for cooperation, many countries need a new compact between the government and the private sector. This will not be possible if business groups insist on putting taxes at the centre of the discussion. Instead, they should focus on measures that raise productivity.

More broadly, business groups should seek only those government policies that are unambiguously in the public interest. Demands that are perceived as greedy erode legitimacy and, ultimately, effectiveness. In this context, watchdog NGOs dedicated to scoring the public-interest value of what business groups ask for from the government could facilitate trust.

Perhaps most important, business associations do their members a disservice by seeking to impose on them a single voice. Doing so usually leads to a focus on policies that are preferred by all members – such as lower taxes – instead of measures that are important to the productivity of each member.

Just as monopolies are bad for markets and politics, business representation in the private sector would benefit from more competition.

Project Syndicate

16 | Business Daily

December 30, 2014

Closing Shenzhen will restrict car sales to prevent smog

China, Cambodia ink deal to boost tourism

China’s southern city of Shenzhen said yesterday that it would restrict sales of new cars, joining major cities including Shanghai and Beijing in an escalating war against smog and snarling traffic.

More Chinese cities are expected to follow suit, adding woe to China’s already slowing auto market, and increasing pressure on carmakers such as General Motors Co and Volkswagen AG to accelerate expansion in China’s less affluent, but less crowded western cities. The government of Shenzhen said it would cap the number of new cars to be sold in the city at 100,000 a year.

Cambodia and China yesterday signed a memorandum of understanding (MoU) on tourism strategic cooperation, aiming at attracting more Chinese visitors to Cambodia, both sides said. The deal was inked between Cambodian Tourism Minister Thong Khon and Wang Weimin, Chairman of the stateowned China International Travel Service Corp (CITS) under the presence of Cambodian Deputy Prime Minister and Cabinet Minister Sok An. Sok An said under the MoU, Cambodia’s Tourism Ministry and CITS would become strategic partners in further enhancing cooperation in tourism between Cambodia and China.

Billionaire Milner sees Xiaomi at US$100 billion Xiaomi founder and Chief Executive Officer Lei Jun is expanding overseas and unveiling new products including an air purifier to build on growth in China Jonathan Browning

X

iaomi Corp.’s valuation could more than double to US$100 billion, spurred by its latest financing round, according to investor Yuri Milner.

China’s largest smartphone vendor has the same potential as Facebook Inc. and Alibaba Group Holding Ltd. to reach that valuation, said the billionaire Milner, an early investor in all three companies. Xiaomi yesterday announced it was valued at US$45 billion following a US$1.1 billion funding round that included Milner’s DST, Singapore’s GIC Pte and AllStars Investment Ltd. “I was attracted by the size of the opportunity ahead of them,” Milner said in an interview yesterday. “I don’t think there’s any company that has reached US$1 billion in revenue as fast as Xiaomi. In every conceivable benchmark, it’s almost unprecedented in terms of its speed of growth.”

Xiaomi founder and Chief Executive Officer Lei Jun is expanding overseas and unveiling new products including an air purifier to build on growth in China, where the company overtook Samsung Electronics Co. in smartphone sales. A combination of high-end features and low prices

has lured customers and Lei is now expanding into content and services.

In the September quarter, Xiaomi was the world’s third- largest vendor behind Samsung and Apple Inc. It plans to sell 100 million phones next year. Xiaomi also will unveil a new “flagship product” next month, Lei said in a statement yesterday, without supplying further details.

Hardware focus “It has significant potential to become China’s first global consumer brand,” Milner said yesterday.

Xiaomi is the first company that predominantly sells hardware that

DST has invested in, according to Milner. The firm led earlier funding rounds at a US$4 billion valuation in June 2012 and US$10 billion valuation in August 2013. DST has provided more funding to Xiaomi than any other investor.

Other investors in the latest round include Hopu Fund and Yunfeng Capital, Xiaomi said in an e-mailed statement. Jack Ma, the billionaire chairman of Alibaba, is one of the founders of Yunfeng.

DST invested in Alibaba in 2011, about three years before its record initial public offering, and the e-commerce operator now has a market value of US$262 billion.

Xiaomi can take significant market share globally, but that doesn’t cover the whole opportunity. There are a number of other interesting categories that Xiaomi can target Yuri Milner investor

Milner’s 2009 investment in Facebook, when it was valued at US$10 billion, helped him become a billionaire when the owner of the social network went public in 2012.

The company now has a market value of US$226 billion. Milner has a net worth of US$2.7 billion, according to the Bloomberg Billionaires Index.

Xiaomi’s revenue is set to more than double this year to exceed US$12 billion, according to estimates from Neil Shah, Mumbai-based research director for devices at Counterpoint Research.

At US$45 billion, Xiaomi would be valued at 3.75 times Shah’s estimate for this year.

The Beijing-based company this year expanded beyond its home base into India, Singapore, Malaysia, the Philippines and Indonesia. Xiaomi has said it will add markets including Thailand, Russia, Mexico, Brazil and Turkey next year.

Bloomberg News

China relaxes legal environment Subway investigates reports for private economy of doctored expiry dates

New energy company to clean up Beijing

C

C

hina’s government said it merged Beijing Energy Investment Holding Co. and Jingmei Group into a new 200 billion yuan (US$32 billion) business in line with its policy to improve efficiency in the energy industry and reduce pollution.

The merger of Beijing Energy and Jingmei, a coal supplier based in the capital, will improve electricity supply, Lin Fusheng, head of Beijing’s Assets Supervision and Administration Commission, said in a report by the official Xinhua News Agency yesterday.

The merger took place on Sunday, Beijing Energy, which invests in electricity projects, said on its website. The new company, Beijing Energy Group Co., will manage coal-fired power plants, renewable energy projects, heating supply and coal mine development, Xinhua reported.

“This is in line with a national scheme to combine coal, power and heating resources to boost energy efficiency and cut pollution,” said Tian Miao, a Beijing-based analyst with researcher North Square Blue Oak, by phone.

hina’s Supreme People’s Court (SPC) issued a document vowing a more relaxed legal environment for the development of the private economy yesterday. Private business practitioners should be guaranteed equal legal protection and law authorities should “strictly distinguish crimes and non-crimes, crimes and administrative violations, and crimes and civil and commercial disputes”, according to the document.

The document is aimed at better ensuring the legitimate rights of private entrepreneurs and solving “inevitable disputes” in the fast development of the non-public sector, according to the SPC spokesman Sun Jungong. It asked courts at all levels to fully consider the characteristics of the private economy.

In administrative cases, the courts must stick to the principle that private businesses can do anything that is not banned by the law while the government cannot do anything that is not authorized by the law, according to the document.

If the acts violate relevant rules but have not constituted a crime, they can’t be regarded and handled as crimes, it added.

Bloomberg News

Xinhua

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.S. fast-food chain Subway is investigating media reports in China that workers at an outlet in Beijing doctored food labels and used produce beyond its expiry date, a Shanghaibased spokeswoman for the firm said yesterday.

Chinese media reports that started circulating on Friday said workers at a Beijing outlet for Subway, which operates globally as a franchise business, changed expiry and production dates on meat, drink and vegetable produce to extend their use.

“Our headquarters here is now investigating the matter,” a Subway spokeswoman said. She said the firm had not reached any conclusions.

“We want to investigate what caused the labelling issue and whether or not it was the action of a single franchised outlet.”

The issue highlights the difficulty firms have to control food quality and safety in supply chains and outlets in China, which can cause serious headaches with regulators and hit sales.

The Subway spokeswoman said the firm sent teams to inspect its franchises around the country.

Reuters