Macau Business Daily, Dec 6, 2015

MOP 6.00 Closing editor: Joanne Kuai Year III

Number 701 Tuesday January 6, 2015

Publisher: Paulo A. Azevedo

Toss a coin

Analysts are divided on whether revenues will shrink or grow in 2015. Conflicting signals are muddying the waters. A Morgan Stanley outlook report says the gaming industry will continue registering revenue declines in the first half. Bets are on a second quarter recovery following new casino openings. ‘We expect sequential improvement in GGR, driven by a lower base and the opening of Galaxy Macau Phase 2, and Studio City to result in positive industry growth. Wynn and SJM also plan to add 40 and 10 new tables, respectively, in 2015’, it wrote.

PAGES 6 & 7

Finger on the pulse

Balancing the books No more prevarication.

Yesterday, Chinese local governments had to send their reports on municipal debt to the central administration. The first step in knowing which bonds were to be supported by the top authorities

PAGE 10

HSI - Movers January 5

Name

What we’ve all been waiting for. Now the new Secretary for Social Affairs and Culture has said it. Alex Tam has publicly pledged to improve the quality of the health system. MOP10 billion has been earmarked for upgrades. The gov’t plans to bring another 529 medical staff on board this year.

With salaries to attract outside experts. And reduced waiting times for appointments within a year. “Now things are going to be different”, he said

%Day

China Resources Land

4.79

Hong Kong Exchanges

2.49

Li & Fung Ltd

1.96

Kunlun Energy Co Ltd

1.83

Labour complaints

China Shenhua Energy

1.30

Hengan International

-2.11

Bank of Communicatio

-2.18

China Life Insurance

-2.55

2,000 labour complaints. That’s the number the gov’t handled in the first eleven months of last year.

Nearly 40 per cent related to unpaid wages

Galaxy Entertainment

-2.80

Cathay Pacific Airwa

-3.32

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Source: Bloomberg

www.macaubusinessdaily.com

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Dozens of VIP rooms to close due to market integration

Financial experts predict 2015 Chinese bourse performance

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Japan’s manufacturing data improves PAGE 11

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2015-1-7

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2 | Business Daily

January 6, 2015

Macau Airport passenger numbers up 9 pct The number of passengers using Macau International Airport increased by 9 per cent year-on-year during the whole of 2014. The data was announced yesterday by CAM – Sociedade do Aeroporto Internacional de Macau – which serves as the management company of Macau International Airport. From January to December last year, MIA recorded over 5.48 million passenger movements. Aircraft movements recorded an increase of 7 per cent, topping 53,000. Four new airlines were introduced last year; namely, Jetstar Pacific Airlines, Bassaska Air, Tigerair Taiwan and Xiamenair.

Government to increase salaries of medical staff The Secretary for Social Affairs and Culture is focusing on improving the quality of the health system and he is ready to splash the cash in order to hire more workers. This year, the government plans to recruit another 529 workers for the Health Services João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he Secretary for Social Affairs and Culture said yesterday that the government has to increase the salaries of medical staff in order to attract qualified workers to join the Health System of the Special Administrative Region.

“We have to improve the salaries of the medical staff in order to attract people from this sector to Macau. At the current salary level we will not be able to attract Cantonese speaking medical staff from Hong Kong or Mainland China”, Alexis Tam Chon Weng said yesterday following a meeting with the Council for Medical Affairs. “We can afford to offer better benefits to attract such medical staff”, he added.

According to the latest data provided by the Department of

Health, the government spent a total amount of MOP1.6 billion in staffing costs in 2012. While in that year the general budget for the health department was roughly MOP4.4 billion, this year the budget is set to jump to around MOP10 billion.

“The budget was defined before this cabinet took power. However, I believe that the MOP10 billion will be enough to hire new doctors”, Alexis Tam said. “During this year, we are aiming to hire 529 workers for the Health System. The money is available and we are only waiting for the Health Services to indicate the members that shall be hired. I requested that this be done as soon as possible”, he said.

The Secretary for Social Affairs and Culture stressed as well that

in order to improve the quality of the Health System it is important to reduce the time consumed during the recruitment process.

According to the Statistics and Census Services (DSEC), in 2013 there were a total of 1,514 doctors and 1,854 nurses in Macau.

Demand for better quality During the meeting with members of the Council for Medical Affairs, Mr. Tam said that the People of Macau have the right to request a better Health System.

“The financial resources of the Special Administrative Region of Macau are abundant and they may increase in the future. The people living in Macau contributed to the

financial resources accumulated and so it is only expected that they demand an increase in the quality of the Health Services”, he said.

Yesterday morning, Alexis Tam visited Hospital Conde S. Januário, where he said that around eighty to ninety per cent of the problems related to the health sector are caused by bad management decisions. However he stressed that he is confident that the new team will be able to deal with issues such as shortage of doctors or long waiting time for appointments with specialised doctors.

“I know the team in charge very well and we will have time to improve the system. This team has faced some difficulties in the past but now things are going to be different. I will help this team in order for them to improve the situation. I am confident about this”, Mr. Tam said. “We have our goals defined. In one year’s time the waiting time for the services has to improve. People cannot wait for one year to have an appointment with a doctor”.

“I believe there is room to improve the work done in the last five years.

The situation may be bad but it is not as bad as is sometimes said. There are some indexes where the Macau health system scores very good results”, he explained.

If on the one hand Alexis Tam was open to criticism and showed openness to improving the quality of the Health System, on the other hand he stressed the importance of some people changing their behaviour in relation to the use of the health services.

“During the meeting with the Council for Medical Affairs some members mentioned that some people tend to overuse the health system as it is free. It is important for us to raise awareness of this in order to avoid such behaviour in the future”, he concluded.

Business Daily | 3

January 6, 2015

Macau

Nearly 40 pct of labour complaints related to unpaid wages The gov’t handled nearly 2,000 labour complaints in the first eleven months of last year, with nearly 40 pct related to unpaid wages Stephanie Lai

sw.lai@macaubusinessdaily.com

O

f the nearly 2,000 labour dispute cases filed with the city’s Labour Affairs Bureau in the first eleven months of last year, 724 of the cases – or 38 per cent – related to unpaid wages totalling some 6 million patacas (US$765,872).

The figures were reported by local Portuguese language newspaper Hoje Macau quoting information from the Bureau. Of the 1,879 labour complaints that the Bureau handled during the first eleven months of last year, 724 cases were complaints about unpaid wages, while 482 other cases related to severance pay, involving 2 million patacas.

Business Daily approached the Bureau regarding the number of unpaid wage complaints related to the construction sector but had not received a reply by the time the story went to press.

Unpaid wages to construction workers have been a subject repeatedly raised by legislators in the past few years as a lack of clarity still exists regarding the liable party responsible for paying workers employed by layers of

MISSHA directors missing; HK, Macau outlets closed

F

ollowing the sudden closure of South Korean cosmetics and skincare products brand MISSHA outlets in Hong Kong and Macau, the directors operating the brand in the cities have still to show up to account for the unpaid wages owed to over 100 employees.

Business Daily approached MISSHA’s Hong Kong headquarters - as well as the Seoul-based brand owner Able C & C Co. Ltd. - to seek information regarding the sudden closures over the weekend but did not receive a reply by the time the story went to press.

Founded in South Korea in 2000, MISSHA opened its first store in Hong Kong in 2004. The low-priced cosmetics retailer, which also runs an online store with its Hong Kong operation, eventually expanded to

20 shops in Hong Kong and one in Macau before suddenly suspending business on January 2.

MISSHA’s abrupt closure has occurred at a time when the highly competitive cosmetics retail business has entered into a slower market in Hong Kong.

In an interim report filed last month, the major Hong Kongheadquartered cosmetics retailer Sa Sa International Holdings Ltd. noted the drop in its gross profit margins compared to the interim periods of 2013 and 2012.

Accounting for the performance, Sa Sa noted it was due to the need to sustain high growth in a slowing market that in turn had led to ongoing promotions and discounting to stimulate volume.

S.L.

Part of Parisian Macao construction works suspended

A

n industrial accident occurred yesterday afternoon around 3:00pm on the construction site of Parisian Macao, a Las Vegas Sands Corp development project on Cotai.

According to the Public Security Police, the mainland worker surnamed Li, aged 52, accidentally fell from a platform 10 metres high. The worker was sent to Kiang Wu Hospital, having sustained serious injury to the back of his head and was still in a coma.

In a written reply to Business Daily,

the Labour Affairs Bureau said that the injured man remained under treatment and observation. ‘The Bureau has urged the contractor to improve the area of the construction site where the accident took place and hand in an appropriate improvement plan and await approval before resuming relevant construction works’.

Business Daily contacted the gaming operator for more details regarding the incident but no reply was received by the time we went to press.

subcontractors on construction projects.

In 2012, the Labour Affairs Bureau spoke of a bill that aimed to clarify labour management duties for a construction project’s main contractor and subcontractor. But the lack of progress of the bill has been criticised by the Federation of Trade Union’s legislator Ella Lei Cheng I, who raised the issue in a written enquiry in December.

The construction sector comprises the second largest employed population here after casinos: for the SeptemberNovember period, Macau had a total of 56,800 employees engaged in the construction sector, which was around 14 per cent of the 396,200 employed population; the biggest employer remains the casinos, which had 85,900 employees working at the time, comprising around 24.5 per cent of the employed, latest official data shows.

As for the full year of 2013, the Labour Affairs Bureau handled 2,236 labour complaints, in which 787 cases, or 35 per cent, are related to unpaid wages, the Portuguese news outlet wrote.

4 | Business Daily

January 6, 2015

Macau Brands

Trends

Bamboo and Gucci

Perfect Shape in perfect shape The Hong Kong-listed beauty service provider said its sales of prepaid packages of medical beauty services has leapt in both the Hong Kong and Macau market in the past quarter Stephanie Lai

sw.lai@macaubusinessdaily.com

Raquel Dias newsdesk@macaubusinessdaily.com

I

’m a big fan of backpacks in general but I have to admit they don’t generally look good. Far from it, they tend to be bulky and quite unflattering. However, things might be changing.

Backpacks are back; they’re making their way to cool once more. You see a model in most of the designer brands but Gucci’s redesign of the Bamboo Sac Backpack is perhaps the most chic backpack you’ll own.

Coming to us from the Cruise 2015 collection, the bag is versatile, elegant and efficient. The full leather backpack comes complete with Gucci’s iconic bamboo accents – a curved top handle and bamboo toggles that act as clasps for the backpack’s two front pockets. What makes this bag even more fun is that it comes in an assortment of bright colours, from Light Blue to Lilac to Rose Beige to good old white.

The price tag matches the bag’s originality, and should you choose the colourful python skin version, it will be even heavier.

P

erfect Shape (PRC) Holdings Ltd. has seen a rapid year-on-year increase in its packaged medical beauty services sold to its clients in Hong Kong and Macau in the past quarter ended December 31, 2014, the company said in a filing yesterday.

In the filing, without detailing the revenue figure, Perfect Shape said its sales of ‘prepaid packages’ of beauty services in Macau has seen a 458 per cent year-on-year increase in the past quarter, an even more staggering rise compared to the 293 per cent rise seen in the second quarter and 60 per cent of the first quarter of the financial year 2014-2015.

In its home market in Hong Kong, Perfect Shape’s sales of ‘prepaid packages’ has achieved a year-onyear rise of 293 per cent in the past quarter; while the beauty salon’s sales

of the same plan in mainland China has only amounted to a 9 per cent increase in the period, the company said in its unaudited operation data in the filing.

A prepaid package is a common sales plan employed by beauty parlours here and in Hong Kong that require clients to pay in advance for a set of beauty services that will expire after a prescribed period.

Accounting for the vast growth seen in the sales of these prepaid packages in Hong Kong and Macau, Perfect Shape briefly noted in the filing that it was ‘mainly driven by the increased average spending per customer due to the contribution of medical beauty service’.

Following the filing made yesterday morning, Perfect Shape’s shares rose 7.29 per cent to HK$2.06 (US$0.27)

at the close of trading hours on the Hong Kong Stock Exchange.

Aside from the provision of slimming services and sales of beauty products, Perfect Shape is engaged in medical beauty services, including injection treatments such as Botox, Restylane and Sculptra.

The Hong Kong-listed beauty services provider currently runs one branch at San Ma Lou in Macau.

Perfect Shape’s interim revenue derived from both Hong Kong and Macau reached HK$166 million, representing an increase of 82.2 per cent when compared to the same period last year, the company said in its interim report. Its net profit increased by 68.7 per cent from HK$42.2 million to HK$71.2 million in the interim period ended September-end.

EDP sells 50 pct of EDP Asia to ACE Asia Portuguese power group EDP has sold 50 per cent of its stake in EDP Asia to ACE Asia

P

ortuguese power group EDP - Energias de Portugal - announced last week an agreement with ACE Asia, a subsidiary of CWEI Hong Kong Company Limited (owned by CTG), to sell 50 per cent of its subsidiary EDP Asia - Investimento e Consultoria, Ltda. to the latter, with capital earnings of 110 million euros for the Portuguese electricity company.

In a document sent to the Portuguese Securities Market Commission (CMVM), EDP states that ‘EDP Asia holds a 21.2 per cent share of CEM – Companhia de Electricidade de Macau, the company that operates as an exclusive concessionaire for the transmission, distribution and selling activities of electrical energy in the Macau Special Administrative Region since 1985’.

ACE Asia is a subsidiary of CWEI Hong Kong Company, a whollyowned subsidiary of China Three

Gorges (CTG), the largest shareholder of the Portuguese utility company.

In 2012, two major Chinese firms – China Three Gorges and China State Grid – paid the Portuguese Government more than three billion euros as investment capital for EDP and REN, respectively.

Last year, CEM had some 1,680

Corporate Japanese-Meets-French culinary wizardry From 22 to 24 January, Vida Rica Restaurant at Mandarin Oriental, Macau presents guest chef Takagi Kazuo from Kyoryuri Takagi, a two-Michelin-starred restaurant for five consecutive years in the city of Ashiya between Osaka and Kobe. At Vida Rica, he will showcase his special French-inspired Japanese creations. Diners will be treated to a taste journey of a refined blend of two countries’ culinary traditions with Chef Takagi’s signature dishes such as spider crab with Sturia caviar and shiso flower, and Wagyu beef fillet with foie gras kinome dengaku. Both are featured in a six-course degustation dinner menu that reflects the season and is presented in an artistic style.

Born to a culinary family, with his mother an instructor at a cooking school and his grandfather a chef, Takagi set his goal to be a Japanese chef from an early age. He received rigorous training in traditional kaiseki-style cooking when he worked at Kyoyamato in Kyoto, and was later promoted to Sous Chef at only 29 years old, making him one of the most promising stars on Japan’s culinary scene.

kilometers of electrical lines, 472 MegaWatts (MW) of installed capacity and 4.4 TeraWatts per hour of commercial electrical energy.

‘Both parties valued EDP Asia’s 50 percent participation at 94 million euros and the transaction should produce a 2014 capital gain of approximately 110 million euros for EDP, including the 50 per cent re-evaluation of EDP’s 50 per cent stake in EDP Asia’, the company statement reads.

‘This transaction was agreed within the strategic partnership context that was established with CTG, in December 2011, which came into full force in May 2012, and it confirms the progress in the execution of that Strategic Partnership, since this investment is part of the overall agreement for CTG to invest a total of 2 billion euros’, EDP – Energias de Portugal concluded.

Business Daily | 5

January 6, 2015

Macau

50 VIP rooms to close, says Chinese newspaper Kam Leong

kamleong@macaubusinessdaily.com

T

he city may see some 50 VIP rooms close in the future, Chinese newspaper Macao Daily reported yesterday, claiming that the minimal rolling chips turnover required per table for opening a VIP room had also been decreased to 200 million patacas (US$25 million), following the slowdown in the gaming industry.

The newspaper quoted an unidentified source as saying that between 40 and 50 VIP rooms in the city may be closed in the future driven by the integration of the market.

According to the source, the number of VIP rooms had surged by nearly 100 establishments in the past two to three years following the new openings of casinos.

However, the source said that the adjustment for the VIP gaming industry may be a good thing as the operations of VIP rooms had not been well regulated following the rapid development of recent years. The source also told the Chinese newspaper that the operations of many VIP rooms are not solid enough to be able to chase up

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on loans under the current difficult circumstances.

In addition to the number of VIP establishments to be shut down, the slowdown of the gaming industry had also led gaming corporations to lower their entry requirements for those wishing to open a VIP room on their properties.

According to the newspaper, the minimum amount of rolling chip turnover per table required to open a new VIP room was between 300 and 400 million patacas. This amount had been reduced to 200 million patacas, the original amount before the VIP industry became such a lucrative business.

Business Daily contacted two junket operators in the city to clarify whether the VIP industry was experiencing the circumstances as reported by the Chinese newspaper but there was no reply from them before the story went to press.

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6 | Business Daily

January 6, 2015

Macau

Recovery in second half?

A Morgan Stanley outlook report says the gaming industry will continue posting drops in revenue in the first half. Recovery may start from the second quarter following new casino openings, improving GGR in the second half Kam Leong

kamleong@macaubusinessdaily.com

2

015 may be a ‘tale of two halves’ for the gaming industry in Macau, American bank Morgan Stanley foresees, expecting the industry will continue suffering in the first half of the year before recovering in the second half.

According to its outlook report for 2015 released yesterday, the American bank anticipates that the gross gaming revenue (GGR) of the Special Administrative Region will continue to register year-on-year declines in the first half of 2015, by as much as 18 per cent. Nevertheless, propelled by an increase in supply from the second quarter, Morgan Stanley said that GGR in the second half may rebound by 14 per cent year-on-year.

‘We expect sequential improvement in GGR, driven by a lower base and the opening of Galaxy Macau Phase 2, and Studio City to result in positive industry growth. Wynn and SJM also plan to add 40 and 10 new tables, respectively, in 2015’, it wrote.

In 2014, according to the bank, Macau stocks underperformed the Hang Seng Index by 41%, which Morgan Stanley says was exacerbated

by China pushing for non-gaming expansion and their search for moneylaundering sources.

Morgan Stanley expects that the increase in supply of hotel rooms and gaming tables following the opening of new casino projects will inject the industry with positive catalysts for both the VIP sectors and mass gaming market.

‘We think that the additional hotel rooms and new amenities will attract more overnight visitors and encourage them to stay longer in Macau… The increased volume of customers could drive mass revenue recovery faster.

Although minimum bets and spending per capita are still under pressure we see them stabilising in the near term, along with the decline in premium mass revenue mix’, Morgan Stanley wrote in the report.

In addition, the bank expects the liquidity of junket operators to improve, driven by ‘a more liquid real estate market in China and extension of credit from casinos’.

Regardless, the bank still predicts that the GGR for the whole year of 2015 will still post a year-on-year decrease of 4 per cent, dragged down by the drop in the first half. Sectorwise, Morgan Stanley expects that the revenue from mass market will remain flat while that of VIP sectors will continue to drop by seven per cent year-on-year throughout 2015.

On the other hand, the American

bank notes that some structural challenges driving the gaming revenue down in 2014 may remain in 2015, which include the anti-graft campaign of the central government as well as greater scrutiny of VIP agents, which may continue keeping VIP revenue down this year.

In addition, Morgan Stanley expects that the ramping of new casinos could surprise on the downside due to competition and labour shortage.

Meanwhile, Well Fargo senior analyst Cameron McKnight believes that the revenue of the gaming industry will not increase in 2015.

“With revenue trends still decelerating sequentially, it is now unlikely that the overall Macau market will grow in 2015. Additionally, with China further tightening Macau policy with currency regulations, visibility is low. Also, the China macro environment remains soft high-frequency monthly economic data (credit, PMI, housing, retail sales, exports) suggests that China’s economic growth continues to decelerate”, the analyst wrote.

Q1 predictions If the industry is really to experience recovery from the second

quarter as Morgan Stanley predicts, before that it may still suffer for the first quarter despite the American Bank anticipating sequential growth.

Morgan Stanley sees that the industry may post sequential growth in the first quarter, compared to the last quarter of 2014, driven by the absence of President Xi’s Jinping’s visit, more prevalent use of smoking in premium mass areas as well as customers getting used to the new smoking ban and transit visa restrictions.

Well Fargo Securities and Union Gaming Research predict that the GGR for the first quarter will be down 20 per cent while CLSA predicted it would be down 29 per cent yearon-year.

Well Fargo’s Cameron McKnight predicts that “given the shift of Chinese New Year from January 31 last year to February 19 in 2015, we expect that Macau revenue declines could ease in January. We estimate -10 per cent and -31 per cent growth in January and February, [respectively] or -22% combined”.

The analyst also claimed that the gaming revenues of January could decline in the high-teens if the recent trends of average daily revenue of 750 million patacas continue.

Business Daily | 7

January 6, 2015

Macau

Macau prospects as unpredictable as a coin toss as views clash While analysts last year correctly forecast Macau casinos would suffer a first-ever revenue drop, prospects for 2015 are looking as uncertain as a coin toss. Analysts surveyed by Bloomberg News were evenly split on whether revenue will shrink or grow in the world’s largest gambling hub this year

G

aming revenue fell 2.6 percent in 2014, ending a golden age in which growth spiked more than eightfold over a decade and transformed the former Portuguese enclave into a gambling center larger than the Las Vegas Strip.

Conflicting signals are muddling the outlook for 2015. While Chinese President Xi Jinping’s campaign against graft and extravagance is keeping high-rollers from the Baccarat tables, company steps to target massmarket tourists are making some analysts more bullish even as China’s economy cools.

“We are at the peak of uncertainty right now,” said Grant Govertsen, a Macau-based casino analyst at Union Gaming Group. While the company downgraded the sector in June on the view that “the anti-corruption campaign was a lot more fierce than people were giving it credit for,” it now expects single-digit revenue growth in 2015, he said.

Melco Crown Entertainment Ltd. fell 2.7 percent to HK$62.30 in Hong Kong trading yesterday, the lowest closing price since Dec. 23.

The company said Jan. 2 after the market’s close that it will delist from the city’s stock exchange because of low trading volume, while keeping its Nasdaq listing.

Galaxy Entertainment Group Ltd. declined 2.8 percent, and Sands China Ltd. fell 1.2 percent, while the Hang Seng index slipped 0.6 percent.

Losing streak The most optimistic analyst predicted casino revenue will rise 10 percent this year, while the most pessimistic expected a 9 percent slump, giving a median estimate of a 0.35 percent year-on-year growth from eight analysts surveyed last Friday.

Most agree that there will be an eighth straight month of gaming losses in January, which would beat a record losing streak in 20082009 when revenue dropped seven straight months amid the global financial crisis.

The industry may fare even worse in February due to last year’s record sales over the Lunar New Year, traditionally a peak season for gamblers, according to Credit Suisse Group AG analysts led by Kenneth Fong. The brokerage estimates revenue will drop 14 percent to 18 percent this month and the decline could widen in February, Fong wrote in a Jan. 2 note.

More scrutiny Casinos are also grappling with weakening economic growth in China, as well as more scrutiny over junkets and stricter visa requirements that affect mainlanders going to Macau.

SJM Holdings Ltd., Asia’s largest casino operator by revenue, said Macau’s gaming industry will struggle to have a “breakthrough improvement,” according to a Dec. 31 internal memo obtained by Bloomberg News.

Macau, China’s only city that legally allows casino gambling, is facing pressure from Beijing’s

tightening grip on money flows out of the mainland mostly by the high rollers who made up about two-thirds of its gaming revenue.

We are at the peak of uncertainty right now… the anti-corruption campaign was a lot more fierce than people were giving it credit for Grant Govertsen Union Gaming Group

The government in Macau has restricted the use of China UnionPay Co.’s debit cards at casinos. The gambling regulator is also tightening scrutiny of agents used by junket operators, which arrange trips and provide credit for Chinese highstakes gamblers.

Analysts such as CLSA Ltd.’s Aaron Fischer and Union Gaming’s Govertsen see the new resorts opening from mid-2015 as one silver lining as companies target mass-market customers amid a continued increase in visitors to Macau. The number of Chinese going to the city jumped 27.8 percent in November compared with the previous year, following a 20.5 percent increase in October, boosting demand for hotel rooms and other tourist amenities.

Galaxy’s second-phase expansion of its resort on the Cotai Strip will be followed by Melco Crown’s Hollywood-themed Studio City and Sands China’s Parisian resort featuring a replica of the Eiffel Tower.

In a visit to Macau last month, Chinese President Xi urged the newly re-elected leader Fernando Chui to develop a world tourism center and diversify an economy that relies on gambling for more than 80 percent of total government revenue.

Companies including Sands China and Galaxy are already shifting resources away from the high rollers to bet on vacationing Chinese or other mass-market gamblers by adding malls, theaters, restaurants and hotels.

“The next wave of customers is going to be lower-spending customers,” Fischer of CLSA said.

After the gaming downturn wiped out about $73 billion in market value of casino companies last year, investors still need to exercise caution, according to Fischer.

“While we think that the sector is relatively inexpensive now on valuation ground, most investors will prefer to wait until they see the worst of the news flow,” he said.

Bloomberg

8 | Business Daily

January 6, 2015

Greater China BMW to pay to support car dealers Bayerische Motoren Werke AG agreed to give 5.1 billion yuan (US$820 million) to its distributors in China to help cover their losses after the retailers threatened to stop ordering cars from the manufacturer, a dealer’s group said. The subsidies will be paid by the end of February and represent the largest pay-out by an automaker in China, said Song Tao, a deputy secretary general of the China Automobile Dealers Association, which represented the BMW distributors in the negotiations. The dealers are still in talks with the Munich- based carmaker over this year’s sales targets, he said.

What’s in store for the stock market in 2015?

CITIC Securities says the internationalization of the capital market and reform will collectively push up the stock market in 2015

Taiwan exports grow slower Taiwan’s exports in the final month of 2014 likely rose 1.5 percent from the same period a year earlier, slowing from November’s pace, according to the median forecast of analysts polled

by Reuters. Taiwan is one of Asia’s major exporters, especially of technology goods, and its export trend is a gauge of global demand for technology gadgets worldwide. Inflation is likely to continue moderating with December’s consumer price index seen rising just 0.6 percent from a year ago, compared with November’s 0.86 percent gain, the poll showed.

Commodity prices freed China has freed prices of 24 commodities and services, removing all price controls on agricultural products, among other reforms, its top economic planning agency said. The National Development and Reform Commission (NDRC) issued a document last month, letting the market decide prices of tobacco leaves, the last agricultural product previously under the government’s price control, it said in the announcement published on its website. The official Xinhua news agency in a report said that China began to liberalise the farm produce market in 1978.

Shanghai changes stock supervision Shanghai will start to oversee companies listed on its stock exchange based on industry breakdown rather than on regions from this year, to improve supervision over information disclosure.

Chinese regulators are struggling to conduct reforms to reverse the country’s investment culture of heavy speculation in volatile small-cap firms, encouraging investors instead to trade more in blue chip companies, among other reforms. The Shanghai Stock Exchange has selected 11 major sectors, including property, manufacturing, medical services and finance, as top targets of its supervision in the new system to ensure the health of major listed firms.

D

efying tempered economic expansion, China’s stock market ended 2014 on a strong note, fuelling investors’ hopes of another bumper year.

Chinese shares started the first trading day of 2015 in positive territory, with the benchmark Shanghai Composite Index opening 0.74 percent higher at 3,258.63 points, and the smaller Shenzhen Component Index opening at 11,150.98 points, up 1.24 percent.

Following are the opinions of think tanks and institutions on what 2015

may have in store:

Chinese Academy of Social Sciences: A slow bull “There is a relatively big likelihood of a slow bull run in the securities market in 2015, and currently we are on the cusp of this”, said the academy.

The academy based its prediction on three aspects: Lower interest rates that will make risky assets more attractive, capital flow from the cooling housing sector to new

investment channels, and a clearer outlook on global recovery.

China International Capital Corp.

(CICC) Strategy Research: Reform as the Major Driving Force The CICC believes China’s ongoing comprehensive reform measures will be the core support for the stock market in 2015, citing changes to delisting rules and listing procedures.

Despite the likelihood of some short-term volatilities, the company remains optimistic of the market in 2015, forecasting a 20 percent annual gain on the A-share market.

Hong Kong becomes Vietnam’s second investor Most of investment went to property and textile-dyeing sectors

H

ong Kong surpassed other major investors as Japan, Singapore and Taiwan to become the second biggest investor in Vietnam in 2014, local Saigon Times daily reported yesterday, quoting sources from the Vietnamese Ministry of Planning and Investment (MPI).

Accordingly, companies from Hong Kong had pledged over US$3 billion for 99 new and 23 operational projects in Vietnam in 2014, with huge investments in the property and textile-dyeing sectors.

Huafu planned US$136 million for a project at southern Long An province’s Thuan Dao Industrial Park to dye 20, 000 tons of cotton and produce 30,000 tons of yarn annually.

Meanwhile, Nam Phuong Textile Company has started construction on a 120-million dollars textile project at Viet Huong 2 Industrial Park in southern Binh Duong province.

Hong Kong investors have increased their investments in textile and dyeing projects in Vietnam in anticipation of cashing in on new opportunities when Vietnam joins the Trans-Pacific Partnership (TPP).

Infrastructure development also attracted much investment of Hong Kong enterprises. Dewan

Lately Vietnam is witnessing a holiday resorts proliferation

International’s US$1.25-billion project to develop a major beach resort in coastal central Khanh Hoa province’s Nha Trang City is a typical example.

Phase one of Texhong Hai Ha Industrial Park in northern Quang Ninh province was initiated in November 2014. The project is invested by Texhong Hai Ha Industrial Park Co. Ltd. under the Hong Kong group Texhong with a cost of US$212.74 million.

According to insiders, Vietnam has turned attractive to investors when there are more signs of recovery in

the property market. The property market in Hong Kong is in decline and this is the reason why big names likes Sun Wah, Warburg Pincus and Texhong are pouring hundreds of millions of U.S. dollar into Vietnam’s property market.

As of December 15, 2014, Vietnam’s property sector had attracted US$2.54 billion, accounting for 12.6 percent of the total FDI pledges in Vietnam.

In 2013, foreign investors committed only US$951 million to fresh and operational projects in the sector.

Business Daily | 9

January 6, 2015

Greater China CITIC Securities: Rare historic opportunity Ample liquidity, the internationalization of the capital market and reform will collectively push up the stock market in 2015, said CITIC Securities.

Amid China’s “new normal” era, which is marked by slower growth, improving growth quality and restructuring will present a “rare historic opportunity” that will significantly change the stock market, the firm noted.

China Fortune Securities: Greater volatilities Investment director of China Fortune Securities Qiu Yanying believes the market behaviour at the end of 2014 was mostly driven by highly speculative financial leverage.

“Price bubbles inflated quickly during the bull run [...] the high price and leveraging may trigger greater and stronger volatilities, which in turn [have the potential to] heighten risks,” he said.

Minsheng Securities: Irrational exuberance drags down potential In the short-term, the biggest risks in the stock market stem from pressures from policymakers, as the economic slowdown and inflating asset bubbles constrain further monetary easing measures, Minsheng Securities said. The company added that last year’s “irrational exuberance had used up the market’s upward potential”.

From a medium-term prospective, the biggest risk is the likelihood that rising demand in real economy and higher asset prices may raise the financing cost, which in turn will change people’s investment habits.

Xinhua

Statistics of the ministry showed that property was the second most attractive sector to foreign investors in Vietnam in 2014. Some big projects included the US$2.5-billion tourism complex of the U.S.-based Rose Rock in coastal central Phu Yen province’s Vung Ro Bay and the US$2-billion hotel and office complex in Thu Thiem New Urban Area in southern HCM City.

Hong Kong investors currently have 869 valid projects in Vietnam with combined registered capital of US$15.46 billion, ranking sixth among 101 countries and territories investing in Vietnam.

A project of Hong Kong in Vietnam costs US$17.8 million on average while the average investment of a foreign project in Vietnam is US$14.3 million.

So far, Hong Kong has invested in 17 out of 21 sectors in Vietnam. Of which, processing and manufacturing made up the largest investments of Hong Kong investors with 409 projects having a combined capital of US$7.06 billion while the property sector has 45 projects worth US$2.5 billion, according to the ministry.

Xinhua

US$3 bln

HK investment in Vietnam in 2014 in 99 new and 23 operational projects

Club Med set to back Chinese bid this week Astrid Wendlandt and Matthieu Protard

The Chinese offer values Club Med at more than 15 times the company’s current estimated underlying earnings

F

rench holiday company Club Mediterranee is expected to back an offer from a consortium led by Chinese billionaire Guo Guangchang this week after Italian rival bidder Andrea Bonomi declined to raise his offer on Friday.

Bonomi’s decision puts an end to the longest-running bid battle in recent French corporate history and removes uncertainty over the future of struggling Club Med, which is fighting weaker demand in Europe and heavy restructuring costs.

Investors are hoping Club Med’s new owners will invest in the operator’s upscale repositioning and expansion in markets such as China, which should widen a client base historically dominated by Europeans.

Guo, whom Forbes estimates has a net worth of about US$4.3 billion, has described Club Med as an ideal investment to tap booming demand among China’s increasingly affluent city dwellers for the kind of leisure resorts the French company offers.

The board of Club Med has said in the past it would only respond to the last standing offer for the company.

It is expected to make a statement on the Chinese bid in the next few days, a spokesman for the Paris-listed company said yesterday.

French market watchdog AMF for its part, will vet the offer led by China’s richest man, valuing Club Med at 939 million euros (US$1.13 billion), and set out a timetable.

Guo’s 24.60 euro a share offer was 0.60 euro higher than Bonomi’s last bid and was the eighth offer for Club Med since May 2013 when Guo first offered 17 euros.

The Chinese offer values Club Med at more than 15 times the company’s current estimated underlying earnings, putting it at a premium to the sector’s

A Club Med resort in Marrakech, Morocco

average of around 13 times.

Club Med shares closed at 25.09 euros on Friday. Bonomi’s vehicle Global Resorts said on Friday that shares it currently holds in Club Med would either be sold in conjunction with the bid by Guo’s Gaillon Invest II vehicle or on the market.

Bidder Guo Guangchang has described Club Med as an ideal investment to tap booming demand of such leisure resorts among Chinese travellers

“We take note with satisfaction of this decision,” a spokesman for Gaillon Invest II said at the weekend in reaction to Bonomi’s announcement it would not counterbid.

Club Med management, led by chief executive Henri Giscard d’Estaing, has consistently backed Guo’s offer which is why investors expect it will recommend his offer.

Gaillon Invest II is majority controlled by Guo’s Fosun conglomerate. It now comprises Fosun with a 62.6 percent stake, Portuguese insurer Fidelidade with 20 percent, French private equity partner Ardian with 5.8 percent, the management of Club Med with 2.9 percent and Chinese travel agency U-Tour with 8.7 percent.

Brazilian group Nelson Tanure, with which Club Med will build its fourth resort in Brazil, could also take a stake of up to 20 percent in Gaillon II once the offer goes through.

Reuters

Chinese locomotives delivery to Thailand starts China recently agreed to build a medium- speed rail system for Thailand as part of a joint effort to promote land traffic throughout the Southeast Asian region

A

couple of Chinese-made locomotives were delivered to Thailand, confirmed officials of the State Railway of Thailand yesterday.

The two locomotives, shipped from southwest China to Laem Chabang port in Chonburi province, were the first consignment of a fleet of 20 locomotives, the rest of which will be gradually shipped to the Thai railway firm.

The locomotives, manufactured

by China’s CSR Corp, were designed for cargo trains with an axle load of 20 tons and a maximum speed of 120 kilometres per hour, according to the SRT officials.

The CSR locomotives were purchased to replace the General Electric locomotives which have hauled Thai cargo trains since 1995. No other locomotives had been bought since.

Compared to the relatively

modern CSR locomotives, the old GE locomotives have an axle load of 14 tons and a maximum speed of 100 kilometres per hour.

The other 18 new locomotives are yet to be delivered from Sichuan province in China where they are being manufactured by CSR Corp, the officials said.

In another development, China recently agreed to build a mediumspeed rail system for Thailand as part of a joint effort to promote land traffic throughout the Southeast Asian region.

The Chinese medium-speed rail project is designed to run from Yunnan province in southern China to northeastern Thailand via northern Laos.

The rail system will pass Nong Khai province in north-eastern Thailand, from across the Lao capital of Vientiane, and Saraburi province in the central region of Thailand

with destinations in Bangkok and Maptaput port in the eastern part of the country.

The medium-speed train will not only carry passengers but also cargoes to Thailand which is joining an ASEAN Economic Community, scheduled to open later this year.

Thailand has planned to become core of the AEC bloc in following years, regarding land-based logistics, rail systems and road traffic linking the Southeast Asian country with its neighbour states including Cambodia, Myanmar, Malaysia and Laos.

Besides the expanding rail systems, six-lane motorways will be built to connect Kanchanaburi province in western Thailand with Dawei special economic zone in southern Myanmar and to link eastern Thailand with northwest Cambodia, among others.

Reuters

10 | Business Daily

January 6, 2015

Greater China

A Moody’s report analyses Chinese local debt

Judgment day arrives for cities’ debts China’s provinces submitted their reports classifying all local borrowings yesterday

C

hina’s local government bond issuers face judgment day as authorities in the world’s second-largest economy decide which debt they will or won’t support.

Borrowing costs soared by a record amount last month before today’s deadline for classifying liabilities, on speculation some local government financing vehicles will lose government support after the finance ministry starts reviewing regional authorities’ debt reports. Yield premiums on one-year AA notes, the most common ranking for such issuers, jumped a record 98 basis points in December.

Premier Li Keqiang has stepped up curbs on local borrowings just as LGFVs prepare to repay 558.7 billion yuan (US$89.8 billion) of bonds this year amid economic growth that’s set for the slowest pace in more than two decades. The yield on the 2018 notes of Xinjiang Shihezi Development Zone Economic Construction Co., a financing arm in a northwestern city with 620,000 people, climbed a record 63 basis points in December.

“LGFV bonds that don’t get classified as local government debt will lose government guarantees and their credit risks will be repriced,” said Huo Zhihui, an analyst at China Credit Rating Co. in Beijing.

“Those that get counted as

local government debt will get definitive government support.”

Categorizing debts China’s provinces had to submit their reports classifying all local borrowings within their borders including those of LGFVs as either government debt or not by yesterday, according to a finance ministry statement in October. The announcement didn’t specify further steps after the reports.

The market expectation is that the central government may release aggregate local debt figures, said Zhang Li, a bond analyst in Beijing at Guotai Junan Securities Co., the nation’s third-biggest brokerage. There may not be any announcements on particular LGFV debt classifications, he said.

Local-government debt swelled to 17.9 trillion yuan as of June 2013, compared with 10.7 trillion yuan at the end of 2010, according to data compiled by the National Audit Office.

China is encouraging cities to raise funds for sewage, road and housing through more transparent means including a trial municipal bond market, reducing reliance on more opaque debt. Local authorities set up thousands of funding units after a 1994 budget law barred them from issuing notes directly. The muni program is positive for

regional and local security markets, according to a report from Moody’s Investors Service December 31.

Sales halted Some LGFVs have cancelled offerings in the past month, highlighting the impact of the shift.

Changzhou Tianning Construction Development Co. in the eastern province of Jiangsu said on December 12 it wouldn’t go ahead with a 1.2 billion yuan planned offering after city authorities withdrew backing for the debt. On December 17, Urumqi State-Owned Asset Investment Co. in the northwestern province of Xinjiang halted a 1 billion yuan sale after the local government revoked support.

Expansion in China’s economy will slow to 7 percent this year from an estimated 7.4 percent in 2014, according to analysts surveyed by Bloomberg. The yuan weakened 2.4 percent against the dollar last year, and the yield on benchmark 10-year sovereign notes dropped 93 basis points to 3.62 percent.

“LGFVs are facing a tough financing environment because the government is cutting reliance on them,” said China Credit Rating’s Huo. “We can’t exclude the possibility there may be bond defaults by some lower-level governments’ LGFVs or

some from regions that have difficulty raising money.”

Bigger, better Primary market prices have shown investor aversion to securities from LGFVs in smaller jurisdictions and preference for notes from the highest-level administrative units including provinces and autonomous regions.

Shandong Boxing County Xinda Construction Investment Development Co., a AA+ rated countylevel LGFV, sold 1 billion yuan of seven-year bonds at

The government will impose stricter controls on new local government borrowings Hua Changchun economist Nomura Holdings

8 percent on December 19.

Jilin Provincial Group Co., a similarly rated provincial LGFV, issued 2 billion yuan of bonds at the lower rate of 5.95 percent on December 25.

“Lower-level government bonds will carry more credit risks after LGFVs lose implicit guarantees,” said Qiu Xinhong, a money manager in Shenzhen at First State Cinda Fund Management Co., which oversees 5 billion yuan of assets. “We will shun bonds issued by city or county-level local government financing vehicles.”

Local government financing vehicles sold 288.83 billion yuan of notes in the fourth quarter, the least in 2014, according to data compiled by Bloomberg.

“Differentiation between the bonds of provincial LGFVs and city or countylevel LGFVs will widen,” said Guotai Junan’s Zhang.

“Lower-level governments, cities or counties may find it very difficult to raise money.”

Liabilities in China’s counties soared 77 percent from December 2010, outpacing the 62 percent increase for provinces, according to audit bureau data.

Nomura Holdings Inc. estimated total local government borrowings may have amounted to 24 trillion yuan at the end of 2013, accounting for 40 percent of China’s economy.

Bloomberg News

Business Daily | 11

January 6, 2015

Asia

Thai inflation raises chance of early rate cut

Inflation in Thailand has been benign, with prices curbed by government controls and subsidies plus weak domestic demand

Kitiphong Thaichareon and Pairat Temphairojana

T

hai headline inflation eased to a more than 5-year low in December as oil prices declined, giving the central bank leeway to cut interest rates to spur the struggling domestic economy.

With inflation easing amid more pressure on global growth, Thailand is also grappling with subdued domestic consumption, restrained by record-high household debt levels.

Annual headline inflation in December slipped to 0.6 percent from 1.26 percent in November, and was far lower than 1.1 percent forecast in a Reuters poll. The last time the headline rate was lower than December’s level was October 2009.

The core inflation rate, which strips out fresh food and energy prices, was 1.69 percent in December, slightly higher than a 1.57 percent forecast in the poll.

Inflation in Thailand has been benign, with prices curbed by government controls and subsidies plus weak domestic demand that has been hurt by months of political unrest.

Economists said falling inflation raises the chances for a cut as soon as this month.

“There’s a possibility to cut the policy interest rate to 1.75 percent in the next MPC (monetary policy committee) meeting, if the central bank still sees the

economy is recovering more slowly than expected,” said economist Pimonwan Mahujchariyawong with Kasikorn Research Centre.

Senior economist Nuchjarin Panarode with Capital Nomura Securities in Bangkok expects the Bank of Thailand to cut rates by 50 basis points in the first quarter this year mainly due to the impact of low oil prices on inflation.

The Bank of Thailand has left its policy rate steady at 2 percent since March, when it was cut by 25 basis points to help businesses hurt by the political turmoil. It next reviews policy on January 28.

The army seized power in May in a bid to end the prolonged political unrest but sectors, badly hit by the turmoil, such as tourism are recovering slowly.

Last month, the central bank cut its 2014 growth forecast for Southeast Asia’s second-largest economy to 0.8 percent from 1.5 percent and 2015 estimate to 4.0 percent from 4.8 percent.

The Commerce Ministry still forecasts annual headline inflation at 1.8-2.5 percent for this year after prices rose 1.89 percent in 2014.

The central bank aims to keep core inflation in a range of 0.5-3.0 percent, and sets policy to achieve that. But it wants to switch to targeting headline inflation.

Reuters

KEY POINTS Dec headline CPI +0.60 pct y/y vs +1.26 pct in Nov Dec core CPI +1.69 pct y/y vs +1.60 pct in Nov Economists see greater chance for interest rate cut

Japanese manufacturing brings good news for PM Abe The economy is expected to have resumed expansion in the fourth quarter

J

apanese manufacturing activity showed sustained growth in December, a survey showed on Monday, suggesting domestic demand continues to recover after the economy fell into a surprise recession last year.

The final Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) was 52.0 in December, slightly less than a preliminary reading of 52.1 and unchanged from the final reading in November.

It remained above the 50 threshold that separates contraction from expansion for the seventh consecutive month.

The output component of the PMI index was 52.5, less than a preliminary reading of 53.3 and slightly below 52.7 in November.

New export orders rose for a sixth straight month but at a slightly slower pace than in November.

The economy unexpectedly slipped into recession in the third quarter of last year as a sales tax increase in April hit consumer spending harder than expected, while exports were uneven for most of the year.

However, the economy is expected to have resumed expansion in the fourth quarter as consumer spending recovered and companies increased capital expenditure.

Late in December, Japan’s government approved stimulus spending worth US$29 billion aimed at helping the country’s lagging regions and households with subsidies, merchandise vouchers and other steps, though analysts are sceptical about how much it can spur growth.

The package, worth 3.5 trillion yen, was unveiled two weeks after a massive election victory by Prime Minister Shinzo Abe’s ruling coalition gave him a fresh mandate to push through his “Abenomics” policies to reflate the longmoribund economy, a strategy which has so far had mixed results.

The government said it expects the stimulus plan to boost Japan’s GDP by 0.7 percent.

The government is also expected to start cutting corporate taxes from April in a bid to spur more activity and encourage firms to pay higher wages.

Reuters

People pray on the first business day of 2015 at Kanda Myojin Shrine in Tokyo, Japan, 05 January 2015. Large crowds of Japanese business people from various companies visit the shrine at the start of the new business year to pray for wealth and success

12 | Business Daily

January 6, 2015

Asia

South Korea may ease banks’ forex forward rules The ceiling implemented in October 2010 as part of capital controls aimed at mitigating short-term capital inflow would be one of the first rules to be eased Christine Kim and Lee Shin-hyung

S

outh Korea may ease one of its key capital controls introduced since the global financial crisis in the face of concerns about capital outflow from emerging markets, a senior finance ministry official told Reuters.

Song In-chang, head of the ministry’s international finance bureau, said the ministry was “actively considering” raising the ceilings on the foreign-currency forward positions that banks can hold.

“The ceilings have acted as a breakwater for flows coming in. You can’t keep building up that defence if capital may go out,” Song said on Friday in an embargoed interview, referring to the ceilings introduced to curb inflow of short-term funds.

He did not specifically refer to an anticipated U.S. interest rate increase later this year as a cause for the likely easing of controls but was responding to a question on the growing concerns about capital flowing into the United States.

The ceiling was implemented in October 2010 as part of capital controls aimed at mitigating shortterm capital inflow, and has only been tightened in steps. If the government eases the limits, that would be the first easing in the ceiling.

The current caps on currency derivative holdings have been set at

30 percent of equity for local banks and 150 percent for foreign bank branches since the start of 2013.

Song said South Korean financial markets would not likely experience severe volatility even when the Federal Reserve raises its interest rates, but added that the government was studying several measures in case of heavy capital outflow.

Policymakers have been adamant

The ceilings have acted as a breakwater for flows coming in. You can’t keep building up that defence if capital may go out Song In-chang South Korean senior finance ministry official

Asia’s fourth-largest economy will weather fluctuations in global markets, pointing to huge foreignexchange reserves that are ranked the world’s seventh-biggest and sustained current account surpluses.

“At this point, we don’t know in which direction capital will go (after U.S. rate hikes) because we saw flows coming in when the Federal Reserve started tapering its bond buying programme,” Song said.

Song said the government would

also strengthen its monitoring of banks’ fiscal soundness based on foreign exchange liquidity coverage ratio (LCR), a Basel III regulation aimed at promoting banks’ resilience of liquidity risk profiles.

To keep foreign investors’ money in local assets, the ministry is also looking at cutting taxes for long-term investors in South Korean treasury bonds, Song said, although details have not yet been hammered out.

Reuters

Malaysia’s monsoon floods to shake palm prices again Ranjeetha Pakiam

A

monsoon surge that brought the worst floods in decades to Malaysia, hurting palm oil output in the second-largest grower, is forecast to move south this week, risking further inundations in Johor and Sarawak. Prices rose.

Heavy rains will probably start on January 7 or January 8 in the two states and could last two or three days, potentially causing floods, according to Ambun Dindang, an officer at the Malaysian Meteorological Department. Johor, at the southern end of Peninsula Malaysia, together with Sarawak in Borneo Island account for about one third of the country’s total production.

Palm oil rallied last week to the highest level in almost two months

after the severe flooding in some states in the north hurt harvesting, and Ambun’s forecast raises the possibility of a second wave of disruptions further south. The wetter-thanusual weather that stretched from southern Thailand, through Malaysia and into Indonesia also triggered rubber-supply concerns, sending futures into a bull market.

“At the moment, the cloudy areas are more towards the sea, just at the northeast of Johor and northwest of Sarawak,” Ambun said in a telephone interview from Petaling Jaya, near Kuala Lumpur yesterday. “These patches of clouds are still hovering over this place. So once it moves in, you can see some increase in rainfall amount, especially in Johor

and Sarawak.”

Last month, most-active futures advanced 4.3 percent as the floods spread in Kelantan, Terengganu and Pahang, three states that lie north of Johor along the east coast of Peninsula Malaysia. The price rallied to 2,308 ringgit on December 29, the highest since November 4.

Floods possible “At the beginning of the monsoon season in November and December, normally the north-eastern part of Peninsula Malaysia will get this impact of the monsoon surge, and then it propagates to the south,” said Ambun. “Floods are possible,” he said, referring to areas in Johor

and Sarawak.

Malaysian output may have dropped 22 percent to 1.36 million tons last month, Ivy Ng, an analyst at CIMB Investment Bank Bhd., wrote in a report dated yesterday, citing a survey by the bank’s futures team.

Inventories probably declined to 2 million tons, providing short-term support to prices, Ng said.

Prime Minister Najib Razak is down with E. coli after visiting the flood-hit areas, his media office said in a Twitter posting.

Flood victims are concerned about diseases caused by contaminated water, rubbish and carcasses, the Star newspaper reported on its website yesterday.

Bloomberg News

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Business Daily | 13

January 6, 2015

Asia Australian manufacturing contracts The Australian manufacturing sector contracted in December with fewer new orders, a new report revealed yesterday. The Australian Industry (Ai) Group’s Performance of Manufacturing Index (PMI) dropped 3.2 points to 46.9, back below the 50-point level that separates expansion from contraction. There was a 10.6-point fall in new orders to 43.7 in December, indicating slower growth over future months as well. Employment rose 4.7 points to be expanding at 52.5, with most hiring occurring in the food, beverages, textiles, clothing, furniture and non-metallic mineral products sectors.

Abenomics boost for Japan property shrinks back to Tokyo Rents for prime offices in Tokyo continued to rise in November from October but in all other major cities fell Junko Fujita

S. Korean FDI pledges in 2014 rise South Korea received a record high US$19 billion in pledges of foreign direct investment during 2014, government data showed yesterday, as interest from Europe and China surged. The total is 30.6 percent higher than in 2013, when there were pledges of about US$14.6 billion, according to data from the Ministry of Trade, Industry and Energy.

Pledged inflows from the European Union, the largest foreign investor in South Korea, grew 35 percent to US$6.5 billion while those from China rose 147 percent to US$1.2 billion.

NTT DoCoMo files arbitration request NTT DoCoMo yesterday said it has asked a London court to ensure Tata Sons Ltd finds a buyer for the Japanese carrier’s stake in an Indian joint venture for US$1 billion, after Tata failed to do so by an agreed date. DoCoMo paid 266.7 billion yen (US$2.22 billion) for 26.5 percent of Tata Teleservices Ltd in 2009. Under the agreement, holding company Tata Sons would sell the stake for at least half of the purchase price should undisclosed performance targets be missed, DoCoMo said in a statement.

Glencore to restart Aussie coal mines The company yesterday said it was restarting coal mining operations in Australia, following a three-week suspension aimed at combating a global supply glut made worse by protectionist trade measures introduced in China.

The suspension by the world’s biggest exporter of thermal coal underscored producer concerns about over-supplied coal markets, though it did little to turn depressed coal prices around. Thermal coal spot prices declined steadily during 2014 in response to surplus supply and measures implemented by Beijing to support its domestic coal industry.

Thailand sets coupons for savings bonds Thailand has set the coupons it will pay for 100 billion baht (US$3.03 billion) of government savings bonds to be offered on January 12-23, the finance minister said yesterday. The savings bonds will be sold to individual investors in two tranches, with 50 billion baht of fiveyear bonds carrying a coupon of 3.8 percent and another 50 billion baht of 10-year bonds, 3 to 5 percent, Finance Minister Sommai Phasee told reporters.

Earlier, he said the proceeds from the five-year tranche will finance losses incurred from a rice-buying scheme run by the previous civilian government.

A Tokyo panorama

A

n economic rebound and loose money policy under Prime Minister Shinzo Abe briefly halted a long slide in Japan’s commercial property market, but the benefits of “Abenomics” appear increasingly limited to Tokyo, leaving a moribund hinterland.

For a while, as the Bank of Japan printed money and Abe spent it, commercial property investment, a barometer of economic activity, spilled beyond the capital into the country’s larger regional cities.

In the year to July 1, commercial land prices rose 1.9 percent in Tokyo, and 1.5 percent in Osaka and Nagoya, notching up a second year of gains.

That patchy recovery - prices in the rest of Japan still fell 2.2 percent, marking a 23rd consecutive annual decline - now appears to be narrowing.

Rents for prime offices in Tokyo continued to rise in November from October, but in Osaka they were flat, and those in all other major cities fell, according to the latest data from broker and research firm Miki Shoji Co. “Large foreign investors are directing their focus to Tokyo, where rents for office properties are clearly growing, which could increase the gap in asset values between Tokyo and the rest of the country in the near term,” said J-P Toppino, managing partner of private-equity investor PAG Real Estate.

A huge city block in central Osaka, the priciest section of Japan’s second city, is emblematic of the problem.

It remains undeveloped, except for temporary office structures, since Japan Post Co tore down the Osaka Central Post Office in 2012, intending to build a 40-storey office and retail tower complex.

Japan Post has shelved the project while it “considers the economic environment and development plans

in the neighbourhood”.

The neighbourhood doesn’t look promising. On the other side of the station, within sight of Japan Post’s temporary premises, lies the giant Grand Front Osaka office and retail complex.

That development, which opened in 2013, is 30 percent empty.

No new blood Though Miki Shoji says vacancy rates for prime Osaka offices fell to 8 percent in November from 9.85 percent a year ago, that remains above the 5-6 percent considered healthy, and the city’s average annual office rent has fallen 1.5 percent over the past year.

That’s because there’s no influx of new blood, says Yasutaka Inoue, managing director at Osaka-based developer Keihanshin Building Co.

KEY POINTS REconomic rebound, loose money briefly halted property slide Property recovery was patchy, limited to bigger cities In most of Japan, commercial property fell for 23rd year Now prices in larger cities except Tokyo flat or falling

“When a big office tower is built in Osaka’s city centre, new tenants move in from the same area, not from outside Osaka,” he said.

Keihanshin generates 90 percent of its revenue in Osaka, but wants to increase its focus on the Tokyo market, Inoue said.

In the city of Nagoya, heart of Japan’s third-biggest regional economy and home to Toyota Motor Corp, the property market took heart in anticipation of a super-high-speed train service, though it won’t be in operation for at least 12 years.

The number of Nagoya office property transactions jumped 8 percent in the first half of 2014 from a year earlier to 94 deals, according to local broker Ichi. And the city’s offices are filling up faster than Osaka’s, with the vacancy rate down to 7.5 percent in November from 9.8 percent a year earlier, Miki Shoji data shows.

But that trend looks unsustainable.

More than 330,000 square metres of prime office space is set to come online in the coming two years, including five major office towers.

That would add more than 10 percent to the current total, and one local broker predicts it could push Nagoya’s vacancy rate back as high as 17 percent.

Though some prime office buildings in Osaka, Nagoya and Fukuoka have started to fill up over the past year, rents have not turned higher. Demand is just not strong enough, say developers and brokers, boding ill for a sustained recovery in real estate prices.

“Investors will need greater skill and better expertise to generate good returns on properties outside Tokyo,” said Katsumi Tanimoto, general manager of business development Fukuoka-based property investor Genkai Capital Management.

Reuters

14 | Business Daily

January 6, 2015

International Euro zone sentiment recovers Sentiment in the euro zone improved in January for a third month running as investors and analysts shrugged off uncertainty over new Greek elections and their view of longer-term economic developments reached its most optimistic level in six months. The Sentix research group’s index tracking morale among investors and analysts in the euro zone rose to +0.9 in January from -2.5 the previous month, above a consensus forecast in a Reuters poll for a reading of -1.0. The index returned to positive territory for the first time since August 2014.

UK firms plan to raise investment despite election risk

American Airlines pilots accept contract The union representing American Airlines pilots approved the carrier’s final contract offer, paving the way for a retroactive 23 percent wage hike if its members concur in a vote this month.

The news was a step toward concluding contracts to represent all workers at the airline, which became the world’s largest by passenger traffic after it merged with US Airways in December 2013. Its flight attendants received a new contract in arbitration last month, and while deals for other work groups such as ticketing agents are pending, the carrier is poised to avoid multi-year contract delays.

Greece brings little risk to European banks Europe’s biggest banks have limited risk tied to Greece after selling local units and cutting holdings of the country’s bonds, according to JPMorgan Chase & Co. Six banks in Germany and France have about 5 billion euros (US$6 billion) of credit to Greek clients, JPMorgan analysts Kian Abouhossein and Delphine Lee wrote in an e-mailed report from London yesterday. Credit Agricole SA of France has the highest at 3.5 billion euros, mostly corporate loans, they said.

Maduro travels to China for financing President Nicolas Maduro started a trip to to China for financing talks and visit other OPEC member nations to develop an oil price strategy as his government seeks to pull Venezuela from recession.

Maduro, speaking in a nationally televised address this afternoon, said his foreign trip would begin in China where he’ll hold talks on financing and energy matters with President Xi Jinping.

Bond traders have grown pessimistic about Maduro’s ability to meet debt obligations as plunging oil prices and shrinking GDP sap government revenue.

U.S. hedge fund founder shot dead A U.S. hedge fund founder was found shot to death in his Manhattan apartment on Sunday, and New York police are seeking his son for questioning, authorities said. Thomas Gilbert, was a graduate of Princeton University and Harvard Business School who founded Wainscott Capital Partners Fund in 2011 and was the fund’s chief investment officer, according to a profile on the fund’s website. Gilbert was a co-founder of Syzygy Therapeutics, a private equity biotech asset acquisition fund, and left it in 2011 to form Wainscott, the profile said.

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ajor British businesses plan to step up investment this year despite seeing increased risks from May’s general election and a softer economic outlook, a survey by accountants Deloitte showed yesterday.

Deloitte said firms planned to raise investment by an average of 9 percent this year compared with 8 percent in 2014, which would take business investment to its highest share of gross domestic product since the dotcom bubble in 2000.

“Chief financial officers expect 2015 to be a year of investment and of recovering real earnings ... suggesting the UK will post decent growth through 2015,” said Deloitte chief economist Ian Stewart.

Firms’ investment growth in Britain is likely to be higher than in the United States, euro zone or Japan, Deloitte said. It added that CFOs expected to raise wages by 2.9 percent.

Both investment and wages have repeatedly undershot expectations since 2010. Although they started to

pick up last year, the Bank of England has said that overall economic growth appears unsustainably dependent on consumer spending.

Figures on Friday showed consumer credit growing at its fastest in nearly a decade, while banks’ lending to businesses remained soft and manufacturing growth slowed.

The Deloitte survey showed confidence about the economic outlook slipping from highs reached in 2014, in line with similar reports from Lloyds Bank and the EEF manufacturers’ association, also released yesterday.

CFOs had the lowest confidence about the outlook for their company in two years, while the EEF survey showed the proportion of executives expecting economic conditions in Britain to improve falling sharply from a year earlier.

But a bigger concern for the firms taking part in the Deloitte survey was Britain’s election in May 2015.

Opinion polls show the opposition Labour party slightly ahead of the Conservatives, who currently

Deloitte says firms’ investment growth in Britain is likely to be higher than in the United States, euro zone or Japan govern in coalition with the Liberal Democrats. It is possible once again that no one party will win enough seats for a workable majority.

The possibility of policy change and uncertainty linked to the election topped CFOs’ assessment of risks, followed by the risk of deflation in the euro zone and a future British referendum on leaving the European Union.

Deloitte said this marked a big shift in firms’ thinking. “Going into each year, from 2008 to 2013, CFOs’ main concern was the state of the UK economy. Now the risks are seen as lying elsewhere,” Stewart said.

The survey was conducted between November 27 and December 15 and covered 119 large companies, most of which were listed on the British stock market. The value of the listed firms was equivalent to just under a quarter of the stock market.

Reuters

Chief financial officers expect 2015 to be a year of investment and of recovering real earnings ... suggesting the UK will post decent growth through 2015 Ian Stewart chief economist, Deloitte

Mexico to relaunch high-speed train tender French engineering group Alstom SA and Canada’s Bombardier Inc. have said they would consider taking part in the new tender

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exico will publish preliminary terms on January 14 for a US$3.75 billion high-speed train contract that was abruptly cancelled in November, Mexico’s Transportation Ministry said.

The government revoked the singlebid deal shortly before disclosures that the Mexican president’s wife was acquiring a luxury home from a Mexican company that was part of the winning consortium led by China Railway Construction Corp.

The terms of the tender, which will be open for 180 days, will be similar to the original one, the government said.

A supervisor will oversee the process, the statement added, to ensure “the full transparency and

legality of the process from the start of the bidding process.”

Mexican President Enrique Peña Nieto is under growing pressure to end corruption since a group of trainee teachers was apparently killed after being abducted by crooked police and handed over to a local drug gang on September 26, prompting nationwide protests.

Revelations that his wife was acquiring a home worth nearly US$4 million from Grupo Higa, whose subsidiary was part of the consortium that initially won the train contract, have added fuel to the fire.

The first lady said she would sell the house, but Mexican Finance Minister Luis Videgaray’s admission last month that he had also purchased

a home from the company has kept the conflict of interest scandal alive.

The Mexican government has said CRCC can take part in the new bidding process and the state-owned company will bid again, after expressing shock over Mexico’s reversal.

The government has said it does not expect Grupo Higa to participate in the second tender.

French engineering group Alstom SA and Canada’s Bombardier Inc have said they would consider taking part in the new tender.

The 210-km line to connect Mexico City and the central city of Querétaro is expected to move 27,000 passengers daily at speeds of up to 300 km per hour.

Reuters

Business Daily | 15

January 6, 2015

Opinion Business

wires

Four more years for Abe

Leading reports from Asia’s best business newspapers

THANH NIEN NEWS

Yuriko Koike

Japan’s former defence minister and national security adviser, was Chairwoman of Japan’s Liberal Democratic Party’s General Council and currently is a member of the National Diet

Thailand’s top energy firm Public Company Limited (PTT) has asked the central province of Binh Dinh to partner in upgrading the local Phu Cat Airport into an international hub. Tran Chau, head of the provincial transportation department, told news website VnExpress last week that PTT has expressed interest in partnering with the Airports Corporation of Vietnam (ACV). According to Vietnam’s aviation development plan for 2020, the nation’s sole airport manager ACV will spend more than VND600 billion (US$28,000) doubling the passenger terminal’s capacity to 600 people an hour.

THE STAR The new base rate (BR) mechanism (in Malaysia) will stir up competition among banks and Affin Hwang Investment Research expects banks which have set a lower BR and effective lending rates (ELR) such as Maybank and Public Bank, which also have strong niche in consumer financing, will have an initial edge. “Nonetheless, loan pricing will still depend on management’s risk appetite.

Maintain Neutral on the sector,” it said yesterday, adding its top stock picks are Public Bank and Hong Leong Bank. Affin Hwang Research expects the various banking institutions to offer borrowers the ELR based on the new BR.

TAIPEI TIMES State-run oil refiner CPC Corp, Taiwan (CPC) on Sunday said it would cut gasoline and diesel prices by NT$0.7 per litre yesterday as global crude oil prices plunged 5.58 percent after the US ended a 40-year-old ban on oil exports, adding extra reservoirs to a market that is already oversupplied. The latest price cuts are set to bring domestic fuel prices down an average of 4.43 percent this week from last week, hitting the lowest level in about five-and-half years, CPC said.

THE NEW ZEALAND HERALD Commerce Minister Paul Goldsmith has rejected a request from David Ross’ burned investors to look into the country’s claw-back regime as the first court case looms against those paid out by the fraudster.

Wellington-based Ross Asset Management cost investors around NZ$115 million when it folded in November 2012.

Investors are likely to get only a fraction of this money back. Ross ran the country’s largest ever Ponzi scheme and was sentenced to 10 years and 10 months’ jail in 2013 after admitting fraud and other charges.

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n the December snap election initiated by Japanese Prime Minister Shinzo Abe, the Liberal Democratic Party (LDP) and its junior coalition partner, the Komeito Party, won 326 of the Diet’s 475 seats, retaining their constitutional majority in the lower house of parliament. It was an extraordinary achievement – one that Japan has not witnessed in decades.

Japan’s opposition parties offered no convincing alternative to the Abe government’s policies. The Democratic Party of Japan (DPJ), which led the government less than three years ago, was unable even to field enough candidates to contest every seat. Its road back to political relevance appears long and bleak.

Of course, under the singleseat constituency system, minor parties in Japan are at a distinct disadvantage. Indeed, a landslide victory on the scale of Abe’s may very well lead to some of them completely disappearing from political life.

The only opposition party that made significant gains in the recent vote was the Japanese Communist Party, which nearly tripled its seat total, from eight to 21. The JCP has recently sought to position itself as a “reliable opposition” to the LDP – though it has never proved particularly “reliable,” at least not in promoting realistic policies.

Given this, the JCP’s gains were probably fuelled more by disgruntled voters’ desire to signal their frustration to Abe.

In fact, in those districts where the election pitted JCP and LDP candidates against each other, many citizens did not take the trouble to vote. This contributed to record-low voter turnout of 52% – the one real blemish on the LDP’s victory.

The main actor in the election was undoubtedly Abe himself, whose bold macroeconomic strategy, so-called “Abenomics,” has attracted considerable attention since its initiation two years ago. But three other actors also played important roles in securing Abe’s victory.

The first was Saudi Arabia. At an OPEC meeting in the run-up to the election, the group’s dominant producer, Saudi Arabia, shelved plans to restrict oil production to counteract the rapid decline in world prices, allowing them to continue to fall. This has brought considerable benefits to the oilimporting advanced economies – including Japan.

Had the Saudis decided to reduce output, Japan would have suffered the double blow of increased oil prices and a sudden sharp depreciation of the yen. That would have exposed Abe’s government to widespread criticism, particularly in automotive industry hubs.

The second important actor in Abe’s campaign was China. The appearance of more than 200 ships harvesting precious red coral around Japan’s Ogasawara islands in November opened the eyes of many Japanese to the risks of China’s growing

power. Such scepticism about China’s peaceful intentions has intensified criticism of the DPJ for what many consider an excessively soft approach to managing relations with the People’s Republic.

The third important actor was Japan’s labour unions. The current problem facing Abenomics, as it aims to save Japan’s economy from deflation, is that wage hikes

After decades of rotating leadership, with eight prime ministers in just ten years, Japan finally has a stable government

have not kept pace with the April 2014 consumption-tax increase (from 5% to 8%) or the rise in import prices associated with a weaker yen.

Organized labour’s representatives in wage negotiations, which are conducted every spring, usually come from unions that support the DPJ. But Abe himself has supplanted the unions in demanding big pay rises from companies, helping him to attract significantly more votes from union members in this election than in 2011.

These three players’ interventions have helped Abe secure four more years in power. After decades of rotating leadership, with eight prime ministers in just ten years, Japan finally has a stable government. Though Japan’s parliamentary system distinguishes it from its neighbours, this aligns more closely with norms in the region, where presidential executives serve for six years in Russia and five years in South Korea and China.

(North Korea’s leader, of course, has no fixed term in office.)

Abe now has more political capital – and thus more freedom to manoeuvre – than perhaps any Japanese leader since the end of the Pacific War. He must use it to follow through on the promise of Abenomics, finally enacting the structural reforms that Japan needs to reinvigorate its economy. With such a powerful mandate, there can be no excuses.

Project Syndicate

16 | Business Daily

January 6, 2015

Closing McDonald’s Japan hit by more nugget problems

Smog in Beijing reduced four percent in 2014

McDonald’s Japan said yesterday it was facing more chicken nugget woes after a customer found a piece of vinyl inside the popular menu item. The company said the foreign object was discovered at an outlet in the northern city of Misawa, in a nugget sourced from a Thai company it had switched to in the wake of a food scare at one of its Chinese suppliers. In July, Chinese officials shut food-supplier Shanghai Husi Food Co. after a television report where employees mixed out-of-date meat with fresh product.

Air pollution in Beijing dropped slightly last year, municipal authorities said, although levels of the most dangerous small particulate matter remained more than three times the internationally recommended limit. China’s cities are often hit by heavy pollution, blamed on coal-burning by power stations and industry, as well as vehicle use, and it has become a major source of discontent with the ruling Communist Party. According to the website of the Beijing Municipal Environmental Protection Bureau, levels of most dangerous particle declined by four percent in 2014 compared with 2013.

China struggles to revive shale auction Adding to the technical problems are crashing energy prices Chen Aizhu

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hina is struggling to find attractive shale gas blocks to offer in a third auction of concessions, government sources said, increasing the sense that the country’s output potential may be overblown.

Some 400 wells have been drilled and geological surveys conducted in blocks awarded in China’s first two exploration auctions, yet the world’s top energy user has only one large shale find and few international investors in the sector.

Last year, despite potentially holding the largest technically recoverable shale gas reserves, complex geology, water scarcity and high drilling costs led Beijing to more than halve its 2020 output target to 30 billion cubic metres (bcm), or 18 percent China’s current demand.

Now, the Ministry of Land and Resources’ (MLR) expected third auction may be held up.

“It’s massively challenging (to find good blocks),” said one government source who declined to be named as he’s not authorized to speak to media.

“MLR has set no timeline for the next tender,” another

KEY POINTS Private investors scared off by ‘complicated’ geology National energy giants say still committed to shale spending Sinopec’s 107 bcm Fuling field remains only big commercial find

PetroChina say they are committed to developing the sector despite cheaper oil and gas prices

government source said.

Two years after the second auction, the 16 winning firms none of which had any previous shale experience - have sunk just eight exploration wells across 19 blocks, and only four have completed or reached the stage of horizontal fracturing, or fracking, said a source involved in evaluating the blocks.

In the United States, pioneers of horizontal

fracking drilled more than 65,000 shale wells in less than a decade, according to the U.S. Energy Information Administration.

“If there is one word to describe (China’s) geology, it’s complicated,” said Wang Jingbo, chairman of Titan Gas Technology, one of only two private Chinese drillers.

Adding to the problems are crashing energy prices, which have left investors

wary of pouring money into new projects.

Investors also complain that there is no mechanism to force state energy giants PetroChina and Sinopec Corp to release promising formations, but which they may have no immediate plans to explore.

Still, Sinopec and PetroChina say they are committed to developing the sector despite cheaper oil and gas prices.

China’s biggest shale strike so far lies in southwest China’s Fuling field in the Chongqing municipality. The find has a proven reserve of nearly 107 bcm, but experts say this success is hard to repeat due to higher costs and more challenging geology in other areas.

Sinopec plans to produce 10 bcm a year from Fuling by 2017, still leaving a big gap to fill if annual output of 30 bcm is to be reached by 2020.

Reuters

German inflation slows Tencent launches private ahead of crucial ECB meeting online bank

Singapore launches new international commercial court

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nflation looked set to fall further in December, according to data from several states, raising pressure on the European Central Bank to unveil unconventional new measures to boost prices at a closely-watched meeting later this month.

Data from five German states released yesterday showed across-the-board declines in the annual inflation rate in December, largely a result of falling energy prices.

Prices in the big state of North Rhine-Westphalia inched up just 0.1 percent, down sharply from a 0.7 percent rise in November.

In Bavaria, prices rose 0.3 percent year-onyear, down from 0.8 percent. In Hesse, annual inflation fell to zero from 0.5 percent in the prior month.

The big question for the markets is how the ECB might structure a QE programme - for example whether Greek bonds will be included given uncertainty over who will emerge victorious from an election being held on January 25, three days after the next ECB meeting.

hinese Internet giant Tencent, operator of the popular messaging app WeChat, has launched an online bank, a state-backed newspaper yesterday, as the government seeks to foster private lenders. The online bank, called WeBank, will be fully Internet-based with no physical branches, the China Daily newspaper said.

WeBank, approved by regulators in July, made its first loan at the weekend, although its formal opening is planned for April, the report said.

Shenzhen-based Tencent holds a 30 percent stake in the new bank, with two local investment firms among the other major shareholders, it added.

Nearly all of China’s banks are state-owned, but are criticised for preferring to lend to stateowned firms, stifling the provision of credit to private enterprise, and the government hopes private lenders will introduce more competition to the sector. Last year, China approved the set-up of five privately owned banks, including one to be opened by Tencent rival Alibaba.

Reuters

AFP

he Supreme Court of Singapore launched a new Singapore International Commercial Court yesterday. The specialist court will hear disputes over global business deals. It is part of Singapore’s efforts to position itself as Asia’s dispute resolution hub. Singapore has previously set up the Singapore International Arbitration Centre in 1991, and launched the Singapore International Mediation Centre in November last year. The international judges appointed for the new court include Dyson Heydon, former judge of the High Court of Australia, Irmgard Griss, former president of the Austrian Supreme Court, and Justice Dominique T. Hascher, judge of the Supreme Judicial Court of France. Some of them will still serve as judges in their own jurisdictions.

Chief Justice Sundaresh Menon said that the establishment of an international commercial court will build upon the success of Singapore’s arbitration sector. “At the same time, it will grow our legal services sector and might even expand the scope for internationalizing Singapore law,” Menon added.

Xinhua