Macau Business Daily, Jan 15, 2015

MOP 6.00 Closing editor: Sara Farr Number 708 Thursday January 15, 2015

Publisher: Paulo A. Azevedo

Special stamp duty dilemma

M

Year III

ore harm than good. So say realtors of the special stamp duty implemented by the gov’t in 2011.

They are calling for it to be abolished. Introduced as a means to help cool down commercial and residential property, they say that the situation is now different. And that 2015 will be a good and stable year for the property market. In October 2012, the gov’t expanded the tax on re-sales of homes to cover offices, shops and car parking spaces but not industrial space PAGE

3

Illegal online gambling ad re-activated, says Chan Meng Kam Page 6

Kwan Tsui Hang urges information on land involved in Ao Man Long case Page 6

Reality cheque

Banks are granting less credit for mortgages. With the cooling economy the likely reason. New residential mortgage loans dropped 26.6 pct for Macau residents in November. Non-residents requested 38.2 pct less

Page 6

Page 2

HSI - Movers January 14

Disposing of lots

www.macaubusinessdaily.com

Ng Kuok Cheong labels LRT ‘countless budget, dateless construction’

Name

Survival way

Upbest Group is offloading two north Taipa lots of land. Selling price: HK$559 million. The buyers are reputedly two Macau businessmen.

The proceeds of the sale will go towards other ‘appropriate investment opportunities,’ the company said in a filing

President Xi Jinping is adamant. He will continue stamping out corruption.

It’s a matter of life or death for the Communist Party of China, he reiterates

Page 5

Page 10

Sign on the dotted line This is the end game. Macau’s gaming industry is going to need up to 18,000 more workers this year. Unemployment is minimal at 1.6 pct. Thus, analysts are warning that labour costs are likely to soar as operators try to retain their staff.

And that’s right across the industry spectrum. Competition is expected to continue into next year

Page 4

%Day

China Overseas Land

2.28

China Unicom Hong Ko

1.22

Cathay Pacific Airwa

1.14

Power Assets Holding

0.79

Lenovo Group Ltd

0.75

China Shenhua Energy

-1.54

MTR Corp Ltd

-1.64

Tingyi Cayman Island

-1.71

Sun Hung Kai Propert

-1.94

Want Want China Hol

-2.10

Source: Bloomberg

I SSN 2226-8294

Brought to you by

2015-1-15

2015-1-16

2015-1-17

9˚ 18˚

11˚ 19˚

12˚ 19˚

2 | Business Daily

January 15, 2015

Macau

Credit bonanza reality shock Mortgage lending dropped 27pct in November to MOP3.3 billion as the economy cooled with local banks conceding MOP1.3 billion less in credit compared to October. It’s also the smallest amount since February Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

M

acau families are asking banks for less credit to buy a house as the economy and real estate prices slow. Mortgage lending in November dropped by almost 30 per cent to reach a nine-month low in 2014 with financial institutions here seeing lending slashed

by MOP1.3 billion in a single month. The brake on credit lending had banks report the smallest monthly profit in 2014.

According to data released yesterday by the Monetary Authority of Macau, banks lent MOP3.3 billion in new mortgages in November, a 26.9 per cent decrease from the previous month (MOP4.6 billion). Families here asked for MOP1.3 billion less credit than in October, helping to drop the amount of new mortgages to a nine-month low. Only in February of last year did the value of new mortgages compare.

But historically February is the slowest month in terms of credit for banks.

The drop was especially noticeable among nonresident customers. Banks approved MOP81 million in new mortgages for nonresidents in November, 38.2 per cent less than in the previous month. In October, loans to non-residents totalled MOP131 million.

For residents, the decline in new credit for housing was 26.6 per cent.

The monthly drop could mean that the banks are going through a credit slowdown as families and companies demand less money. There’s still no official Gross Domestic Product (GDP) data for the fourth quarter of 2014. But with gaming revenues dropping 25 per cent in that period and with casinos being responsible for more than 50 per cent of the economy it will be no surprise if GDP remains in

negative territory. In the third quarter, the economy contracted by 2.1 per cent.

Healthy business In a year-on-year basis, credit flows, despite being positive, are also softening.

November’s MOP3.3 billion in new mortgages represented a 14.2 per cent rise compared to the same month in 2013, AMCM said yesterday. Credit for local clients went up 15.8 per cent and was down by 27.1 per cent for nonresidents.

PSP monitoring taxi hailing app

T

he Public Security Police Force is monitoring the recent mobile application that provides an instant taxi and 7-passenger limousine booking service, the head of the Macau Traffic Police Department, Che Wai, announced yesterday after meeting with representatives of the Macau Taxi Driver Mutual Association.

“At the moment, we are monitoring this case but we have not received formal complaints. However, we are following it closely and we will act according to the law”, Mr. Che Wai told journalists.

The Macau Taxi Driver Mutual Association yesterday met with representatives of the Public Security Police Force in order to tell the authorities about their concerns. One of the main topics was the existence of

a ‘small group’ of taxi drivers fishing which refers to taxi drivers who refuse to offer service if passengers do not pay the off-meter fee set by the drivers – while refusing to accept passengers and overcharging create a bad opinion of the sector in Macau society.

“The Public Security Police Force has the competences, the capacity and the determination to correct these problems”, Mr. Che Wai said. “We also asked Macau Taxi Driver Mutual Association to spread the word among taxi drivers that such behaviour will not be tolerated”, he added.

During 2014, the Public Security Police Force registered 43 cases of fishing and 254 of refusing customers.

Other offences related to taxi drivers totalled 1,666 cases.

J.S.F.

For banks, companies were less a headache as the demand for commercial real estate loans continued to be strong. In November, new commercial real estate loans reached MOP3.6 billion from 3.9 billion in October. Still a 5.7 per cent decrease in monthly terms but a fifth of the decline recorded in the mortgage segment. On a yearly basis, commercial loans rose 12.9 per cent.

In total, the amount of credit given by banks to companies and families

up to November topped MOP250 billion, more than half of Macau’s GDP. Nonperforming loans continued also at a record low in terms of international standards of 0.7 per cent.

The credit softening in Macau made bank profits reach the lowest level in 2014 and 30 per cent below the year’s average, AMCM data revealed earlier this week. Financial institutions profited MOP721 million in November, MOP200 million less than 2014’s first eleven months average.

Business Daily | 3

January 15, 2015

Macau New directors for housing, telecom bureaux The Official Gazette yesterday announced the new heads of the Housing Bureau and the Bureau of Telecommunications Regulation (DSRT). Ieong Kam Wa, who served as acting director of the Housing Bureau from August to December 2014, has been appointed the new head of the Bureau. Meanwhile, Hoi Chi Leong has been appointed the director of DSRT; he had been the acting director of the Bureau since October 2013. Mr. Ieong and Mr. Hoi entered government in 1991 and 1990, respectively.

Realtors want ‘special stamp duty’ cancelled Property agency Centaline urged the government to abolish its Special Stamp Duty as it’s losing its cooling effect on the housing market and does “more harm than good” Joanne Kuai

joannekuai@macaubusinessdaily.com

C

entaline (Macau) Property Agency Ltd. said 2015 would be the right time for the Macau Government to abolish the special stamp duty as it’s losing its effect in curbing skyrocketing housing market prices and creating an even more serious shortage of supply, driving prices up.

Jackey Shek Po Tak, Centaline Macau Director, said that last year the housing market in Macau experienced an adjustment: lifting the special stamp duty at that time might have created the wrong signal and stimulated prices to rise even higher.

But in 2015, the housing market will enter a relatively stable year, which would be the right timing for the government to lift the measure.

“The [special stamp duty] measure should be lifted as soon as possible for shops and office buildings. The neighbouring SAR Hong Kong has never set any restrictions on those kinds of property”, Shek said. “Macau as a commercial, free international city attracts many foreign enterprises to come here and invest, and they would like to purchase commercial properties for self-use. It’s unreasonable to ask these overseas businesses for this kind of punishment taxation”.

The Macau Government sought to contain speculation in the housing market by passing Law 6/2011, which imposed a special stamp duty on property or property rights transactions to be collected in the first two years after payment of the tax stamp on the document, paper or act evidencing such transaction.

In October 2012, the government expanded the special stamp duty on re-sales of homes to cover offices, shops and car parking spaces but not industrial space.

The special stamp duty is a levy of 20 per cent on the sale of a property if it is sold within a year of being purchased, or 10 per cent if it is sold between one and two years of being purchased.

Mr. Shek indicated that the main problem in the housing market is the shortage of supply and urged the government to pay attention to the real issue.

“In residential building, relying solely on a special stamp duty creates more harm than good,” said Mr. Shek. “We hope the government can look into the root of the problem and increase supply through ‘Macau people, Macau land’ to cater to the different housing demands of locals and to provide a sustainable and

practical plan to effectively solve the problem”.

Brighter future The Centaline Macau director also said that the company forecast in the first half of 2015 the housing market will enter a stage of stability. As he expects some new foundations to be laid and some developers will acquire the permit to sell, the market will pick up. He estimates that the transaction volume of residential units in 2015 will reach 8,000 with prices going up 20 per cent compared to 2014.

Centaline representatives were speaking at a press conference reviewing 2014 and previewing the 2015 housing market yesterday afternoon at their office in Macau Square.

Senior Regional Sales Director Noel Cheung introduced the situation of 2014 residential units market, the transaction volume of which they estimate to be around 7,000 cases, a 38 per cent decrease compared to a year before, and a 24-year low.

Mr. Cheung said in the beginning of 2014 the opening of new properties projecting the characteristics of being small but luxurious - such as La Bahia No.1 and the Carat - drove up the

market; and in April, the average price of a residential unit reached HK$91,615 per square metre, which is 16 per cent higher than when the year started at HK$78,925.

However, due to limited supply and the increasingly heated Zhuhai housing market, especially in Hengqin Island, the local scene slowed down. By the end of 2014, the company expects the average price to have decreased to around HK$70,000 per square metre.

Nevertheless, in shops and office buildings, despite the drop in volume of transactions, the selling price as well as rent increased last year, said Roy Ho, another senior regional sales director.

Industrial buildings even stood out as a black horse – not only the transaction volume but also the average selling price and rent has increased.

Managing director of Centaline Macau, Stanley Poon, said the property agency had gone through a tough year in 2014 and that they had raked in HKD203 million in commission.

Mr. Poon said they believe the market will pick up in 2015, and as a result they are planning to expand the business by opening two or three new branches as well as increasing the number of staff to 150 or 160 from the current 120.

4 | Business Daily

January 15, 2015

Macau

Gaming industry needs up to 18,000 extra workers in 2015 As casino operators prepare to open their new resorts, the gaming industry workforce will have to expand by at least 27.8 per cent during this year to staff the new facilities. As inflated labour costs kick in – mooted at up to 15 per cent the hiring peak is expected to arrive in the first half of 2016 João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he opening of Studio City and of Galaxy Macau Phase II will require gaming labour to expand by 16,000 to 18,000 within this year, which represents an expansion of 27.8 to 31.3 per cent. As the currently unemployed population of Macau accounts for just 6,900, labour costs in the industry are expected to soar as operators fight to staff their new resorts.

Among the analysts, the consensus is that in 2015 labour costs will increase by 10 to 15 per cent.

On Monday, the co-chairman of Melco Crown Entertainment, Lawrence Ho Yau Lung, unveiled Studio City, saying that from March on the company would start to recruit 8,000 to 10,000 workers. However, and bearing in mind that Galaxy started a recruitment process to hire 8,000 workers this month, the CEO of Melco Crown admitted that he was “a bit worried” about how this could be achieved.

According to data from the Statistics and Census Service (DSEC), from November last year the Macau workforce totalled 403,100

employees, while 57,550 (14.3 per cent) of the total labour force was employed by the gaming industry.

At the same time, the unemployed population totaled some 6,900, or 1.7 per cent.

While immigration is the main key to solving the problem, there are two factors that will contribute to increasing labour costs for gaming operators: the competition of gaming operators for the most experienced and talented workers and the prohibition of hiring non-resident workers as croupiers. These factors were explained by Deutsche Bank research analyst Karen Tang, who predicted inflation would hit 15 per cent per year until 2017.

For 2015-2017, we expect wage inflation [including bonuses] will remain high at around 15 per cent per year Karen Tang, Deutsche Bank research analyst

“For 2015-2017, we expect wage inflation (including bonuses) will remain high at around 15 per cent per year. We think new casinos will offer higher pay to attract the well trained and experienced staff from competitors to work for them”, the analyst explained in a report dating from September. “The market is under the misconception that wage inflation is only serious in this category of staff.

In reality, according to government data, wage inflation for non-dealer casino staff, which do not need to be locals by law, is even more acute”, she added.

According to DSEC, the average earnings of full-time employees by industry in June was MOP20,106 per month for gaming employees, which represented an increase of 6.7 per cent year-on-year. Dealers were paid MOP17,530 per month in June, which at the time was an increase of 4.8 per cent year-on-year.

Taking action If on one side the rising costs of the workforce may be a dark cloud over the gaming industry on the other the operators have started to adopt measures to curb inflation, as a report from Morgan Stanley published on Tuesday explained.

‘The total increase in 2015 may be lower than the 10-15 per cent mentioned by most operators during our Asia conference in November, as casinos began to take various costcutting measures’, it was written.

The cost-cutting actions adopted by gaming operators involve encouraging employees to take unpaid leave, which can reach 3 to 4 days a week.

The fact that SJM employees accepted a 5 per cent wage increase, while Civil servants in Macau will receive a 6.75 per cent raise this year is also one of the factors casting a brighter light on the industry.

‘Casino staff are aware of the seven consecutive year-on-year declines in gross gaming revenue for the industry, hence they are willing to compromise’, the report stressed.

However, and despite the more upbeat Stanley Morgan report, the worst for casino operators, and the best for gaming industry workers, has yet to come, as Sands China’s Parisian and Steve Wynn’s Palace are slated to open during the first half of next year. According to the report by the American company, demand for labour will reach its peak at that time.

‘The most labour intensive stage is usually the final fitting out. This implies the peaking of labour demand during 2015 and the first half of 2016 because Galaxy Phase II and Studio City are opening in 2015, while Sands and Wynn are opening around the first quarter of 2016’, the report noted.

Business Daily | 5

January 15, 2015

Macau STDM looks into workers’ grievances STDM said in a statement last night that it is investigating complaints by workers of the group’s Restaurante Palacio Lisboa. “STDM have always abided by the labour laws of Macau. We will provide all required assistance to the Labour Affairs Bureau to ensure that the rights of the employees are protected in accordance with the labour laws of Macau,” the company said.

Nearly 100 workers from the restaurant filed a complaint with the Labour Affairs Bureau (DSAL) saying they were overworked and underpaid.

HK-listed Upbest disposing of Taipa lots The two plots of land, both located in Cheok Ká Chun in Taipa, are to be sold for HK$558.9 million to two Macau businessmen, Upbest said in a filing Stephanie Lai

sw.lai@macaubusinessdaily.com

S

tockbroking and property investment company Upbest Group Ltd. has entered into an agreement with two Macau businessmen to sell them two plots of non-industrial land in Taipa for HK$558.9 million (US$72 million), the company told the Hong Kong Stock Exchange after trading hours on Tuesday.

Both plots of land are located in Cheok Ká Chun in Taipa, of which the larger plot - known as TN11, with a site area of approximately 1,974 square metres - is to be sold for HK$331.2 million, according to the filing; the smaller plot - known as TN15b and occupying about 989 square metres - will be disposed of for HK$227.7 million.

Upon completion of the disposal of the two plots,

Upbest said it could increase its net assets by about HK$355 million.

‘The company considers it can reutilise the proceeds towards other appropriate investment opportunities for better return for its shareholders’, Upbest Group noted. ‘Further, the proceeds from the disposal can further strengthen the cash flow of the Group and will allow it to reallocate its resources for future development’.

The plots titled TN located in Cheok Ká Chun are part of Taipa’s northern district, a zone which the Macau Government announced in late 2013 was to be included in a revised urban plan that can supply more public and private flats.

The Land, Public Works and Transport Bureau has earmarked 71 plots in the

Taipa northern district, of which 33 are privately owned undeveloped parcels that could provide 5,400 flats. The government also earmarked 12 plots in the area for the public land reserve, with the potential to supply up to 1,000 flats, while the remaining plots will be either developed or zoned for public facilities.

The buyers of the two Taipa non-industrial plots are both Macau citizens and businessmen, and identified as Mr. Choy Wang Kong and Mr. Mike Lam In Wai, as disclosed in Upbest’s latest filing.

Both Mr. Choy and Mr. Lam are known to be shareholders of the new hotel project Hollywood Roosevelt

Macau located next to Macau Jockey Club, local media reported on October 23, 2013 following a groundbreaking ceremony of the hotel project.

Macau-based businessman Mr. Lam is also a former consultant and general manager at the Taiwanese legacy carrier TransAsia Airways Corp’s Macau office, Business Daily learnt.

Iao Kun re-applies for dual listing in Hong Kong The Nasdaq-listed VIP gaming promoter has refreshed its interest in pursuing a listing on the Hong Kong Stock Exchange Stephanie Lai

sw.lai@macaubusinessdaily.com

M

acau-based VIP gaming promoter Iao Kun Group Holding Co. Ltd., already listed on Nasdaq in New York, has re-submitted its application proof to get a dual listing on the Hong Kong Stock Exchange following its lapsed attempt to do so last year.

While the listing timetable is redacted on the application proof document, Iao Kun noted that it is applying again to get listed by introduction to the main board of Hong Kong Stock Exchange. The document was made publicly available following an update on January 9.

The sponsor of Iao Kun’s intended Hong Kong listing is Rothschild.

The VIP gaming promoter, which has already been traded on Nasdaq in New York since July 2010 saw its application to get listed in Hong Kong lapse last year.

Iao Kun is currently engaged in the VIP gaming promotion business in designated VIP gaming rooms

in five sites in Macau: namely, StarWorld Hotel and Casino, Galaxy Macau Resort (owned by Galaxy Entertainment Group); City of Dreams Macau (owned by Melco Crown Entertainment Ltd); Sands Cotai Central (owned by Sands China Ltd) and L’Arc (owned by SJM Holdings Ltd).

Of the five sites, Iao Kun has been very much reliant on Galaxy Entertainment as its VIP rooms located in both StarWorld and Galaxy resort already accounted for 73.9 per cent of its revenue for the nine months ended September 2014, and 76.3 per cent in 2013.

Citing research house Union Gaming in its latest application proof document, Iao Kun said its market share of total VIP gaming revenue in Macau generated by gaming promoters was approximately 2.7 per cent, 2.5 per cent and 2.1 per cent for 2011, 2012 and 2013.

Iao Kun has taken a refreshed

interest in getting listed in Hong Kong in order to get exposed to a wider range of private and institutional investors, while the gaming industry here has experienced a slowdown in recent months.

The VIP gaming promoter noted in its initial listing document that it has seen revenue drop by a yearon-year 2.72 per cent to US$181.55 million for the first nine months of 2014, primarily driven by lower win rate in the period, a slower revenue growth of VIP baccarat as compared to the city’s overall gaming revenue as well as the tightening of credit in mainland China – the major source of Macau’s VIP players.

Iao Kun has also seen a net loss of US$65.78 million for the first nine months of last year, as compared to the net profit of US$10.9 million in the same period in 2013. The VIP gaming promoter attributed the loss to the increase in commission paid to junket agents, decreased revenue

and an increase in selling, general administrative expenses related to listing, and increased management salaries and staff costs. ”We expect competition in Macau’s VIP gaming promotion business to increase in the near future as additional casinos and hotels commence operations, which is likely to result in a significant increase in the number of VIP gaming rooms, which may attract the VIP players from the VIP rooms,” Iao Kun said of its possible business risk in its listing application document.

With the city’s gaming revenue experiencing seven months’ consecutive decline, Iao Kun is not the only local VIP gaming promoter seeking a listing in Hong Kong.

In late November, local VIP gaming promoter Sing Hou Entertainment Group Ltd. also submitted application proof to seek a Hong Kong listing to expand its client base and market share.

6 | Business Daily

January 15, 2015

Macau Brands

Trends

Life on the go

Illegal online gambling ad re-activated, says Chan Meng Kam

Raquel Dias newsdesk@macaubusinessdaily.com

Chan Meng Kam

G

adgets and travelling are a must these days.

One must perfect the art of carrying all the extra weight and keep it handy for airport security lines.

We hate to be the person looking desperately for the iPad somewhere in the hand luggage while fellow passengers kill us with their eyes.

On the other hand, cool and elegant leather cases have been used for years to carry all your I.D. and credit cards; if only someone had had the forethought to combine the two necessities into one neat little carrying case…

Look no further, British brand Knomad have done just that. The stylish and well thought out Knomo Knomad Mini Power portable organiser is just what you need for those dreadful long-haul flights.

Underneath the canvas the Knomad Mini holds a 5,000mAh battery that’s good for at least two complete recharges of an iPhone 5S, as well as two sixinch cables - one for Apple Lightning and the other the Android/Kindle micro USB cable. The battery gets its own little place while there’s just room for your airplane ticket. There’s also a passport pocket, three other credit card slots and a little space for your precious SD cards.

With your life literally stored in one place, Knomad gives you a needy extra, with a unique ID number on a tag at the top of the interior so you can find it more easily.

Find some products of the brand in the Rolling Luggage at Sands Cotai Central shopping mall or in Hong Kong Airport, level 5.

T

China]. Currently, they receive such messages even when they are at the Zhuhai border. It is doubtful that [the criminals] have transferred their fake base station to the mainland just to stay away from the investigation of the police in Macau,’ the legislator wrote in his interpellation.

‘In addition, many residents think that flyers promoting online gambling have been distributed near the Border Gate... Moreover, many related advertisements are also posted on taxis’, he said.

As such, the legislator queried whether fines for people posting illegal gambling advertisements are high enough to stop them from breaking the law, as well as if the government has actual measures in the future to combat the illegal advertisements.

In addition, he asked whether the government should co-operate more deeply with the Zhuhai authorities to avoid further junk messages, and whether the government has set a timeframe for amending the current law regulating advertisements, following the negative effects which such illegal gambling advertisements have on the image of the city.

ext messages and advertisements promoting illegal online gaming look as though they may be active again despite the Judiciary Police and the Bureau of Telecommunications Regulation (DSRT) having busted a fake base station in Macau sending out such

messages recently, legislator Chan Meng Kam wrote in an enquiry to the government yesterday.

‘Before [the arrest by the departments], people only received junk [spam] messages promoting gambling after entering the territory of Macau [from mainland

Legislator urges info on land involved in Ao Man Long case

Ng Kuok Cheong: LRT – “Countless budget, dateless construction”

L

egislator Kwan Tsui Hang has submitted a written enquiry regarding the idle plots of land and called the government ‘incompetent’ for not having revoked these [titles] and putting them back into use.

She said several concession contracts regarding a handful of plots of land involved in former Secretary for Land and Public Works Ao Man Long’s corruption case were deemed as invalid by the courts but the authorities have never informed the public with follow-up information regarding the procedures involved in processing these plots of land.

Kwan Tsui Hang pointed out that since 2009 the government has carried out works regarding idle land inventory and has announced that there are 48 plots of land of which interested parties can be identified.

But after the government said they had taken action such as hearing to declare the invalidity of the concession contracts and other legal procedures none of the plots were resumed, neither is there any information.

The legislator stressed that land is a scarce resource in Macau. Even though land is being reclaimed the project will take years to finish. In order to meet the need of housing, transportation and other infrastructure building of local residents, idle land that already exists should be made the best use of as soon as possible.

L

egislator Ng Kuok Cheong said the budget for the Light Railway Transit (LRT) jumped to MOP11 billion in 2011 from MOP7.5 in 2009, while the new budget only covers the Taipa side of the project and the purchase of the trains. He said the project would experience cost overruns and that the government cannot even give an estimated budget for LRT Phase I. Construction of the LRT’s Macau side hasn’t started yet, despite the government’s promise in 2009 that the first phase which would link the Border Gate, Zapa, Nam Van and Barra would be operational in 2014.

Legislator Ng Kuok Cheong submitted a written enquiry urging

K.L.

the new government to review the delay of the project and give the public a report on it. He said that the first phase of the LRT is in a stage of “countless budget, dateless construction”.

Ng Kuok Cheong pointed out that despite the government’s plan to put the LRT’s Phase I into operation in 2014, by 2016 only the Taipa side has the possibility of running. And only by 2018 or 2019 would the LRT reach the Macau side. In addition, there is not even a starting point for the construction of Phase II, which would link the Inner Harbour, Barra and the Border Gate. The legislator urges the government to review the timetable of the LRT opening dates.

Business Daily | 7

January 15, 2015

Gaming

Apollo’s Caesars bankruptcy bet needs to pass fairness test Caesars’ takeover in 2008 resulted in a US$25 billion debt, which creditors are now discussing how best to deal with

B

illionaire Leon Black will have to convince most creditors of Caesars Entertainment Corp. that his plan to save the value of his stake in the Las Vegas casino company is fair.

That’s the rule in bankruptcy court, and it won’t be easy to do now that lower-ranking creditors have sought to push Caesars into court involuntarily before Black and fellow buyout investors could make their own planned filing later this month.

The opponents called for a probe of Apollo insiders yesterday, accusing them of plundering the company and playing favorites among bondholders.

The fight is over how to deal with about US$25 billion in debt resulting from the takeover of Caesar’s in 2008 by Black’s Apollo Global Management LLC and TPG Capital.

In the proposed restructuring, no one would get everything back on a deal gone bad, but Black has promised some bondholders a payout for them and himself that the rest won’t get.

The idea is to get enough creditor backing to win a judge’s approval for his plan.

Plan opponents could protest when it gets to court. Their argument that the proposal just isn’t fair to all concerned could prompt a judge to order Black to revise a deal to cut about US$10 billion in debt with help from his chosen creditor group.

Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., Stephen Cohen at Teneo Holdings, a spokesman for Caesars, and Owen Blicksilver, a spokesman for TPG, declined to comment on the disputes.

Fair shake In bankruptcy court, everyone with a stake in the outcome is entitled to a fair shake, and when too many say they aren’t getting one, judges can send companies back to the drawing board.

“You can’t just pay creditors you like to help you,” said Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll LLP in Kentucky.

“You have to be fair and equitable to everyone with skin in the game.”

Black’s opponents include top-ranking creditors fighting for bigger payments. A second set, including David Tepper’s Appaloosa Management LP, has tried to wrest control of the restructuring from him in the involuntary bankruptcy filing, complaining his plan would strip its rights as lenders.

Caesars could challenge their action, or ask to convert the case to a voluntary bankruptcy.

Inducements offered Caesars offered US$206 million of inducements to creditors who agreed to back its plan by January 12, the Appaloosa group has said.

The fairness rule can have real bite. It was the basis for killing a plan by Dallas-based power company Energy Future Holdings Corp. to finish a US$42 billion refinancing that handed out special benefits to favoured creditors. The rest mutinied and a bankruptcy judge in Delaware told the company to work out a more evenhanded program.

Caesars had planned to put its

money-losing operating unit into bankruptcy court sometime from today to Tuesday next week (January 20), where it would be converted into a real e s t a t e investment trust with less debt.

B l a c k proposed giving some bondholders huge equity stakes in Caesars Palace and other prime casinos, leaving little for the majority of other lenders that oppose him.

Swapping debt Paul Singer’s Elliott Management Corp. and other backers have provisionally agreed to help refinance the unit, swapping old debt for new.

Promised rewards for the most privileged bondholders include several special fees and payments.

The Appaloosa group, offered much less equity, would have gotten a bit more had it fallen in behind Apollo’s plan, Caesars said in regulatory filings.

The company said the plan’s current supporters are entitled to abandon the agreement if Caesars misses its deadlines for going to bankruptcy court or fails to win approval of the program down the road.

Black had won battles involving his bankrupt ventures before, but Caesars poses a new challenge for him and his $168 billion privateequity firm.

Caesars, the biggest U.S. casino company, faces a legion of savvy creditors – including Appaloosa’s Tepper and Howard Marks at Oaktree Capital Group Holdings LP – who have unleashed lawsuits accusing Apollo of “plundering” the unit of the casino company that owes them money and carries most of the company’s overall debt.

Tepper didn’t return a call and e-mail seeking comment on the lawsuit. Marks declined to comment on the litigation.

“The action speaks for itself,” he said.

Persistent fights The company’s notoriety and the persistent noisy fights over its future mean a bankruptcy judge will probably give some weight to plan opponents, as happened with Energy Future.

Eight groups of the Texas power company’s creditors protested that a few of management’s backers, such as Fidelity Investments, were being overcompensated at the expense of the rest. Some had already sued the company.

When the judge sided with the rebels, the company caved in to their demands to put its prized Oncor electricity distribution unit up for

company’s casinos in Atlantic City, New Jersey, and other regions aren’t doing as well, and it has failed to gain a foothold in Macau, the most lucrative gambling centre in Asia.

The buyout sponsors had to sweeten the pot to attract enough backers willing to swap old debt for new. Caesars said it would put up about US$1.5 billion, mostly for payments to entice this select group.

The Caesars unit that runs the casinos will have big interest and lease costs even after bankruptcy, making any swap less appealing, said Alex Bumazhny, a credit analyst at Fitch Ratings in New York, in an interview. auction. Apollo, incidentally, is a big lender to Energy Future, but was never in a controlling position in that bankruptcy.

Allan Koenig, an Energy Future spokesman, declined to comment for this story.

If enough creditors say the Caesars plan is unfair to them, its Chapter 11 case will probably “mirror” Energy Future’s, said Bruce Markell, a retired bankruptcy judge.

Examiner sought That became even more likely Tuesday when Tepper and Marks filed a petition to put the Caesars operating unit into bankruptcy and sought the appointment of an examiner to review intracompany transactions.

Black, 63, and TPG Capital co-founder David Bonderman, 72, bought Caesars for US$30.7 billion.

Apollo invested more than US$1 billion. Over the past year or so, the owners “looted” billions of dollars of valuable assets from the unit that owes them money, making bankruptcy inevitable, the Appaloosa group said in a lawsuit filed last year.

The buyout partners lowballed prices for three casinos in the top U.S. market of Las Vegas, ferrying them to an affiliate they controlled for their own gain, leaving behind “toxic assets” including less successful casinos, the bondholders said in an August court filing. Online gambling assets, a lucrative rewards program and a Las Vegas shopping mall were among the other goodies snatched away, while Caesars reneged on a guarantee of their bonds, the creditors said.

Tie-up The bondholders could renew their litigation in bankruptcy court once the company files, and ask the judge there to restore the assets to the operating unit. That could tie up the case for months. Those lenders stand to lose much less if they take back the thriving casinos, while Black and Bonderman would forfeit some of their wealth, if forced to do that.

Caesars, started 75 years ago in Reno, Nevada, runs about 50 casinos, mostly in the U.S. Caesars Palace in Las Vegas is the flagship, attracting high-stakes baccarat players. The

‘Key issue’ “Fairness becomes a key issue when companies are fighting stakeholders, or they’re fighting each other,” said Bowles, the Kentucky bankruptcy lawyer.

In bankruptcy court, “fair” doesn’t mean “equal.” Banks usually stand first in line to collect their debts, with other lenders behind them in order of the strength of their claims. Caesars this week announced a process to attract support from holders of bank loans as well, inviting them to share in a US$150 million “consent fee” for supporting a “separate but similar” restructuring deal.

A majority of those loan investors, including Blackstone Group LP’s GSO Capital Partners and Fortress Investment Group LLC are banding together to try to change the terms of the company’s plan, according to three people familiar with the matter, who asked not be named because the information hasn’t been made public.

Momentive Performance Caesars’s move toward bankruptcy comes on the heels of Black’s victory over dissidents who lent money to another of his soured buyouts.

The Chapter 11 case of Momentive Performance Materials Inc. shows how pushing too hard can backfire on dissident creditors.

Apollo paid US$3.8 billion in 2006 for the silicone maker, which foundered last year thanks to too much supply and too many debts.

Black persuaded the judge to let him cut the payout to one lender group and improve his own position, with others who held similar securities.

His opponents wanted extra money for backing the plan but wound up with no premium and a lower interest rate than they had asked for.

The judge said they had lobbied for more than they deserved and other creditors would object if they got it. He criticized them for creating conflict, instead of working toward a more popular plan.

It doesn’t necessarily follow that Black will win with Caesars, said Bowles. The Momentive Performance lenders were just “too piggish” for their own good, he said.

Bloomberg

8 | Business Daily

January 15, 2015

Greater China

Housing inventories seen piling up Despite property investment growth will slow to around 8 percent this year according to Nomura Clare Jim

Most third to fourth-tier cities still have a big problem; they account for 60 to 70 percent of market share.

If developers focus on top tiers their sales may still go up, but overall, sales won’t be very good Hua Chang Chun economist, Nomura

N

ine out of 12 listed Chinese developers surveyed by Reuters said they will launch more housing projects in 2015 as they strive to meet sales targets and boost market share - at the risk of adding to already-bloated inventories.

“The market will be better than last year because of the macro environment’s support. There’s more confidence in the market,” said Ada Wong, vice-president of Guangzhoubased China Aoyuan Property Group.

“Home prices usually rise 3-5 percent annually, so we may see such a rebound in first and second-tier cities in 2015.”

China’s real estate market has

been plagued by falling prices and high inventories in recent months, crimping demand in 40 economic sectors ranging from steel to cement to furniture, dragging on the country’s slowing economy.

Executives at nine of the 12 listed developers contacted by Reuters said they will increase new launches at levels ranging from single digits to more than 20 percent, while the remaining three said they had not yet confirmed their plans for 2015.

On Thursday, China’s fifth-largest developer, Evergrande Real Estate, said its contract sales target for 2015 is 150 billion yuan (US$24 billion).

To reach that goal - which is 36

percent higher than a year earlier the company may well have to launch more new projects. Evergrande declined to comment when contacted

by Reuters.

Listed developers have generally moved out of third- and fourth-tier cities, where supply accounts for up to 70 percent of the whole country.

“Inventories are high. We can’t raise prices until after the market digests them,” said the chief executive officer of a developer based in southern Guangdong province. “The sales went up but prices didn’t - it won’t be easy for us to raise prices.”

Nomura’s China economist, Hua Chang Chun expects home prices

Foreigners allowed to own Chinese e-commerce companies The movement will be allowed just inside the borders of Shanghai Free Trade Zone

C

hina has allowed foreign investors to fully own e-commerce companies in Shanghai’s free trade zone as part of a pilot scheme, the official Xinhua

news agency said yesterday, citing the Ministry of Industry and Information Technology.

Foreign investors previously required a Chinese joint-venture

partner to operate an e-commerce firm in the highly competitive market.

The pilot scheme could provide an easier route for overseas companies to enter the ring and fight for a slice of one of the world’s biggest e-commerce markets.

Telecommunications authorities in Shanghai will regulate the scheme and the foreign investors, according to a Ministry of Industry and Information Technology (MIIT) statement reported

by Xinhua.

Since the launch of the free trade zone (FTZ) in September 2013, policy makers have trumpeted reforms and relaxed regulations to boost China’s e-commerce industry, dominated by Alibaba Group Holding Ltd. But foreign e-commerce firms have struggled in China against the likes of Alibaba and No.2 JD.com. Amazon.

to ease further in 2015 as supply continues to rise.

“Most third to fourth-tier cities still have a big problem; they account for 60 to 70 percent of market share.

If developers focus on top tiers their sales may still go up, but overall, sales won’t be very good,” Hua said.

Growth in real estate investment slowed to 11.9 percent in the first 11 months of 2014 - the slowest in more than five years.

Property investment growth will slow to around 8 percent this year, Nomura’s Hua forecast, from 20 percent in 2013 and 12 percent in 2014.

China housing price data for December is due for release on Sunday.

Reuters

com only holds a sliver of the market, while eBay pulled out of the country in 2006 after a long and bitter battle with Alibaba.

In August, Amazon said it would set up shop in the Shanghai free trade zone, hoping to benefit from less stringent trade regulations to sell a wider range of products in the country.

Going in the opposite direction, Alibaba has been making forays into the United States, as it looks to link up American retailers and merchants with Chinese consumers.

At the same time, it has made moves to assure regulators of its good intentions. Alibaba agreed to prevent the sale of 15 illegal or dangerous toys in the United States, the country’s Consumer Product Safety Commission said on Tuesday.

Reuters

Telecommunications authorities in Shanghai will regulate the scheme and the foreign investors

Business Daily | 9

January 15, 2015

Greater China

2015 monetary policy, prudent with fine-tuning

Green vehicles factory planned

Easing inflationary pressure will give the central bank more room to initiate measures to support growth

A

nalysts may be divided over possible rate cuts in China’s future, but they agree the country’s monetary policy going forward will be cautious, with only minor adjustments being made.

China will maintain prudent monetary policies in 2015 with better coordination of tight and loose monetary measures and proper fine-tuning, said the People’s Bank of China (PBOC) at a 2015 work meeting last Friday.

The central bank will strengthen support for the real economy, cut fund-raising costs and boost financial reforms, including reforms on interest rates, the yuan exchange rate and foreign exchange management.

Zeng Gang, researcher with the Chinese Academy of Social Sciences, said monetary policy should support the real economy and structural adjustment amid increasing downward pressure. He expects more liquidity in 2015.

The growth of M2, a broad measure of money supply that covers cash in circulation and all deposits, slowed to 12.3 percent year on year by the end of November.

The PBOC implemented new tools to tackle 2014’s changing economic landscape, including Medium-term Lending Facility (MLF) and Pledged Supplementary Lending (PSL).

According to China Securities Journal, on Tuesday several large state-owned banks said the PBOC extended the terms of a 280-billionyuan MLF that was due, so as to ease tight liquidity.

The new tools are more flexible and targeted to ensure sufficient liquidity, support the real economy and facilitate structural adjustment, Zeng said. Traditional measures like adjustment in interest rates and

Alibaba to control AdChina

reserve requirement ratio (RRR) still remain an option.

Zhao Xijun, deputy director of Finance and Securities Institute under Renmin University of China, expects the scheme to be carried out this year and lower risk while improving banks’ capacity to serve the real economy.

Zhang Zhiwei, chief economist with Deutsche Bank, said he expected policy easing in the form of an RRR cut, interest rate cut, a rise of total social financing or even an official statement indicating policy shift.

“We forecast the first RRR cut in Q1 and first rate cut in Q2, more likely to start in March,” Zhang added.

J.P. Morgan’s chief China economist Zhu Haibin said weak domestic demand and low inflation will create a loose trend for the monetary policy.

According to the National Bureau of Statistics, growth in the consumer

China streamlines securitisation deals for second-tier banks

C

hina has approved 27 secondtier banks to sell asset-backed securities (ABS) through a streamlined registration system, sources with direct knowledge of the matter said, allowing the banks to raise capital without tipping yet more cash into China’s brimming money supply.

Official data shows that Chinese banks issued 277 billion yuan in ABS products in 2014, nearly doubling the roughly 140 billion they floated a year earlier.

The 27 banks, which included Ping An Bank and Shanghai Pudong Development Bank, now need only to register with the regulator to float ABS products from now on, the sources, told Reuters late on Tuesday.

Under the previous system, issuers had to apply to regulators for a review and approval before they could issue asset-backed securities.

The issuer sells securities created

An electric and alternative fuel vehicle manufacturing base capable of producing 300,000 new energy cars per year is being planned for north China’s Hebei Province. With an investment of 3 billion yuan (490 million U.S. dollars), the Hongxing new energy car base in Xingtai County will help shift Hebei’s economy away from iron, steel, glass and cement production. The first phase will see a production capacity of 150,000 new energy cars after introducing two mature car models from Core Power New Energy Automobile.

by packaging together a pool of underlying assets, typically car loans or credit-card balances, which are difficult to sell individually.

China’s State Council, the cabinet, has over the past two years pushed banks to use ABS to invigorate their existing assets to help the government to curb rapid growth in money supply, with the broad M2 supply has now reaching a record high of more than 121 trillion yuan (US$19.5 trillion).

The first-tier Chinese banks, mainly the big four state-owned banks, such as the Industrial and Commercial Bank of China and China Construction Bank, are managed by a different bureau under the China Banking Regulatory Commission (CBRC) and are expected to win similar approval soon, said the sources, who could not be quoted by name as they are not authorised to speak to media.

CBRC officials declined to

price index (CPI), the main gauge of inflation, rebounded slightly to 1.5 percent in December from November’s 1.4 percent, its slowest increase since November 2009.

The producer price index (PPI) slumped 3.3 percent in December from one year earlier, the sharpest fall in more than two years, and dropped 1.2 percent year on year in 2014.

Easing inflationary pressure will give the central bank more room to initiate measures to support growth.

“Our forecast looks for average CPI at 1.5 percent and PPI at -1.5 percent in 2015,” Zhu said, “Low inflation and PPI deflation will become the bigger concern.”

He also believes one interest rate cut and two RRR cuts will happen, and are more possible in Q1 and Q2, which will likely be accomplished by other quantitative measures like MLF and PSL. Xinhua

China’s e-commerce giant Alibaba Group Holding Ltd said yesterday it had bought a controlling stake in online marketing company AdChina, an investment aimed at bolstering its advertising business. Alibaba did not close the size of the deal or the stake it would take in AdChina, a Shanghaibased firm founded in 2007. The internet marketing firm, which generated US$51 million in sales in 2011, had filed for a US$100 million initial public offering in February 2012, but pulled the listing a year later.

Trainmakers deny insider trading China CNR and CSR Corp said share deals made by senior executives ahead of a merger announcement was not insider trading as these executives did not have prior knowledge of the reorganisation.

The state-backed companies, which announced they would merge on December 31 after an over twomonth-long trading suspension, said in regulatory filings late on Tuesday that they were responding to local media reports alleging insider trading.

CNR said senior management of both firms, including CNR’s president and chairman and their relatives, conducted share deals in the six months before trading was suspended on October 27.

Newfield retains China assets

The first-tier Chinese banks are expected to win similar approval soon

Oil and gas producer Newfield Exploration Co said it would retain its assets in China, saying a slump in oil prices had created “headwinds” in the sale process. The company said in early 2013 that it planned to exit its international business. “The recent and significant pull back in global oil prices created headwinds for our China sales process... Although our intent was to monetize the asset, it was not a sale at any price,” said Chief Financial Officer Larry Massaro.

HK to address aging issue comment immediately.

By allowing ABS products to be issued via a registration system Beijing has demonstrated its policy readiness to establish market-oriented mechanisms to issue securities.

There are also plans to migrate the management of initial public offerings (IPOs) of shares to a registrationbased system, similar to those used in major developed markets, from the current approval system.

Reuters

Hong Kong will adopt a series of measures including extending the retirement age to ensure adequate manpower resources, Hong Kong Chief Executive Leung Chun-ying said yesterday. Delivering his annual policy address, Leung said the government has decided to extend the service of civil servants and will encourage other employers to implement appropriate measures to extend the working life of their employees. Hong Kong is faced with shrinking labour force which is expected to decline from around 2018.

10 | Business Daily

January 15, 2015

Greater China

Xi vows to wage enduring anti-corruption campaign Ting Shi

The Communist Party chief has said rampant corruption threatens the legitimacy of the party and its 65-year grip on power

Building at Peking University, said in a phone interview. “Only beating big tigers can exert a sufficient deterrent effect.”

In the speech, Xi cited for the first time the names of Zhou Yongkang, a former member of the party’s Politburo Standing Committee in charge of domestic security, and Ling Jihua, a former top aide of retired president Hu Jintao, as high-profile examples in his graft-busting efforts.

These cases “demonstrated to the world the Communist Party has a head-on approach to problems and correcting mistakes,” Xi said, calling the effort “self-purifying.”

In laying out goals and challenges for this year, Xi stressed the importance of institutionalizing his campaign.

“Only by making it into a habit, a norm” can we deliver long-run and lasting impacts, he said.

Accountability mechanisms

P

resident Xi Jinping said there will be no let-up in his “fierce and enduring” battle against corruption, which has already taken down thousands of senior officials including the country’s former security chief.

Xi vowed to maintain “high pressure” and “zero tolerance” on graft this year, as corruption “has not vanished” and “temptations still remain,” in speech at a plenary session of the Communist Party’s top disciplinary agency in Beijing on Tuesday.

“The anti-graft work in 2014 was effective and the campaign was a matter of life-or-death for the party and the nation,” Xi was quoted by the official

Xinhua News Agency as saying at the plenum of Central Commission for Discipline Inspection. “The situation remains arduous and complex.”

Xi’s graft-busting drive, kicked off weeks after he assumed the mantle as party boss in November 2012, has snared more than 100,000 communist cadres, including both “flies and tigers,” or low- and highlevel officials, according to CCDI figures released last month.

‘Catching tigers’

Only beating big tigers can exert a sufficient deterrent effect Li Chengyan director of the Research Centre for Government Integrity Building at Beijing University

The past two years bear out the importance of “catching tigers,” Li Chengyan, director of the Research Centre for Government Integrity

Xi said this year’s anti-graft work would focus on strengthening official accountability mechanisms, keeping a closer eye on family members and close allies of potentially corrupt officials, and improving supervision of state-owned enterprises, a corruptionplagued area that saw hundreds of senior officials toppled in the past two years.

“The party’s work-style construction and anti-graft campaign is always on the road,” Xi said.

Xi’s speech shows this year’s anticorruption work won’t be light, said Li of Peking University.

“It’s wise and necessary to single out the SOEs as one of the focuses, as it’s a high-risk area and has become a hotbed of corruption,” Li said.

Bloomberg News

Lower infant formula demand profits hit producers China’s infant formula market is set to grow from US$17.8 billion last year to US$43.3 billion in 2019 Donny Kwok and Adam Jourdan

C

hinese milk powder maker Yashili International Holdings Ltd said yesterday it expects its 2014 net profit to fall about 40 percent, hit by slowing demand for baby formula and higher marketing and compliance costs.

The profit warning by Yashili, owned by China Mengniu Dairy Co Ltd and French dairy Danone SA, highlights the challenges local and foreign firms face as intense competition makes growth more elusive in the world’s largest infant formula market.

Yashili is one of China’s top ten infant formula makers by sales.

Chairman Sun Yiping said there were still challenges ahead for the “overall operation and financial position” of the company, which also blamed its poor performance on a lack of new product launches.

“The decrease in profit of the

group is primarily due to a slowdown in the growth of the paediatric milk powder industry,” Sun said in a filing to the Hong Kong exchange.

Yashili, due to announce its annual 2014 results in March, saw its net profit slide 28.7 percent in the first half of 2014 against a year earlier.

Euromonitor said its 2014 market share also fell to 4.6 percent from 5.1 percent a year earlier.

The firm’s shares plunged 6 percent yesterday before reversing to be up 0.9 percent. The Hang Seng Index was down 0.2 percent.

“Consumption was still increasing in 2014, just not quite at the pace that everyone was anticipating,” said Con Williams, Wellington-based agriculture economist with ANZ, adding that high product prices had dampened some consumer demand.

“What it (Yashili’s profit warning) highlights is that the dairy story,

KEY POINTS Milk formula maker Yashili issues profit warning Says 2014 profit likely to drop 40 pct y/y China global No. 1 infant milk formula market

or any demand story, doesn’t occur at any price point, it still has to be affordable.”

China’s infant formula market is set to grow from US$17.8 billion last year to US$43.3 billion in 2019,

according to Euromonitor.

Analysts said competition between foreign and local brands for market share was hitting profits as companies spend more on marketing. Tougher manufacturing regulations for the sector that took effect in 2013 and 2014 also raised costs.

Yashili’s rivals have felt the pinch too.

Beingmate Baby & Child Food Co Ltd said in its half year report that adapting to sector reform had slowed sales and it was spending more to stave off market rivals. The firm saw profit in the first half of the year drop 72.1 percent.

Slower demand for infant formula is also likely to hit milk powder imports to China, the U.S. Department of Agriculture said in December. Key whole milk powder imports are likely to dip in 2015, it added.

Reuters

Business Daily | 11

January 15, 2015

Asia

Japan approves record budget The budget projects the primary budget deficit will narrow by 4.6 trillion yen to 13.4 trillion yen Tetsushi Kajimoto

J

apanese Prime Minister Shinzo Abe’s cabinet approved yesterday a record US$812 billion budget for the fiscal year starting on April 1, while cutting new borrowing for a third straight year in a bid to balance growth and fiscal reform.

The 96.34 trillion yen (US$812.45 billion) general-account budget draft, the third since Abe swept to power in late 2012, marks a rise from this fiscal year’s initial 95.88 trillion yen, reflecting higher welfare spending and military outlays.

A projected rise in tax revenue to a 24-year high of 54.53 trillion yen on an expected economic recovery allows Tokyo to cut new bond issuance to a six-year low of 36.86 trillion yen.

That accounts for 38.3 percent of the budget, a six-year low.

With Japan’s public debt above twice its gross domestic product (GDP), the industrial world’s heaviest burden, Abe sought to restore fiscal health while lifting growth in the world’s third largest economy.

“I believe the budget will contribute to achieving economic revival and fiscal consolidation at the same time,” Abe told reporters.

Abe said Japan is on course to meet his promise of halving the primary budget deficit - excluding new bond sales and debt servicing - in the next fiscal year from levels seen in 2010/11. But the improvement is largely a result of the tax revenue windfall from rising corporate profits under the easy-money policies of “Abenomics.”

Fitch Ratings last month threatened to cut its A plus rating on Japan’s government debt if the budget did

KEY POINTS Spending at record 96.34 trln yen; new debt at 36.86 trln yen Tax income seen at 24-yr high 54.53 trln yen due to recovery Japan seen to halve deficit; budget-balancing goal still distant Budget highlights balancing act for growth and fiscal reform

Abe’s new budget increases military expenditure

not offset revenue from Abe’s delay of a planned sales-tax hike.

“This budget underlines slowness in fiscal consolidation and it highlights the risk of relying too much on growth to cover rising spending,” said Yasuhide Yajima, chief economist at NLI Research Institute. “It’s impossible to achieve a primary budget balance without credible measures for spending restraint.”

Masaki Kuwahara, senior

economist at Nomura Securities, said the budget is neutral for his 2.2 percent GDP growth forecast for next fiscal year.

The budget projects the primary budget deficit will narrow by 4.6 trillion yen to 13.4 trillion yen. But Finance Ministry projections show that without further efforts, the government can’t keep its promise of balancing the budget by 2020/21.

The largest budget item, social

welfare spending, will rise 1 trillion yen to a record 31.53 trillion yen.

Defence spending also hit a record 4.98 trillion yen, up about 100 billion yen from this fiscal year and rising for a third straight year.

Despite the narrower budget deficit, the growing stock of outstanding debt will push interest payments and redemptions up 200 billion yen to a record 23.45 trillion yen.

Pacific trade deal closer

which would link 12 countries from the United States to Japan and New Zealand and cover nearly 40 percent of the world economy, but no deadline has been given.

“On the Trans-Pacific Partnership, the U.S. Trade Representative has been calling a number of us and saying that he thinks we are sort of on a twomonth trajectory to getting something he’d like us to take up in Congress,” Senator John Cornyn told reporters.

The U.S. Trade Representative’s office said in a statement substance would dictate when to complete the deal, which seeks to lower tariffs and set common rules on issues ranging from copyright to labour protections.

“The coming months will be an important time in trade policy. At home, we are working on bipartisan trade legislation. And with our TPP partners we are making important progress, though the substance of the negotiations will drive the timeline for completion,” USTR spokesman Trevor Kincaid said.

Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel told business representatives and diplomats at the Japan Society in New York that TPP was “almost there.”

Paul Ryan, the head of the House of Representatives committee responsible for trade, said fast track authority would help get a better deal from trading partners and Congress would push ahead with legislation “first thing.”

Fast-track gives Congress only

an up-or-down vote on free trade agreements in exchange for setting negotiating goals and laying out rules for consulting with lawmakers.

Republican Paul Ryan, the new chairman of the House Ways and Means Committee, said it was premature to talk about when the legislation could be introduced or whether it would differ from a bill introduced last year, which never reached a vote.

“We’re going to go through all these issues with our members to get consensus on our agenda and our timeline and we are going to consult with the Senate as well to get things to match up,” he told reporters, noting trade would be discussed at a retreat for Republican lawmakers on Thursday and Friday.

Negotiators hope to wind up talks this year but no deadline has been given

Michael Froman (R), top U.S. trade representative with U.S. Secretary of State John Kerry (L) during the latest APEC meeting in Beijing

T

he top U.S. trade official, Michael Froman, told lawmakers a major trade pact with Pacific Rim trading partners is “on a two-month trajectory,” the No.

2 Republican in the U.S. Senate said, although the trade office said there was no set timeline for the deal.

Negotiators hope to wind up talks this year on the Trans-Pacific Partnership,

Reuters

Reuters

The coming months will be an important time in trade policy Trevor Kincaid U.S. Trade Representative spokesman

12 | Business Daily

January 15, 2015

Asia Australian job vacancies hit high Job vacancies in Australia rebounded in the three months to November to hit their highest in two years, pointing to improving demand for labour.

Yesterday’s data from the Australian Bureau of Statistics showed total job vacancies rose 2.6 percent in the November quarter, following a fall of 0.4 percent the previous quarter.

Vacancies of 150,400 were up 8 percent on the same quarter of 2013.

Vacancies in the private sector rose 2.8 percent in the November quarter, from the previous quarter, to stand at 137,900.

Myanmar refutes critique on stock exchange The Myanmar government has refuted a critique over probable failure to set up a stock exchange in the country, saying that the establishment of the stock exchange is a business rather than politics, official sources said yesterday. Referring to a critique that Myanmar’s first planned stock exchange is likely to fail and is only to show off timing politically with the upcoming 2015 general election in October-November, Myanmar Deputy Finance Minister U Maung Maung Thein said “We will be able to exit the list of countries with no stock exchange soon.”

Japan LNG spot price falls Liquefied natural gas (LNG) spot prices for Japanese buyers extended declines in December after two previous months of gain, Japan’s trade ministry said yesterday, as well-stocked buyers in Asia remained mostly on the side-lines. Spot LNG contracted in December for delivery to Japan averaged US$11.60 per million British thermal unit (mmBtu), down from US$14.40 a month earlier, the Ministry of Economy, Trade and Industry (METI) said. Cargoes arriving last month averaged US$15.10 per mmBtu, compared with US$14.30 in November.

S. Korea’s job growth hits 12-year high Jobless rate came in at 3.5 percent in 2014, up 0.4 percentage points from a year earlier

S

outh Korea’s new jobs grew the most in 12 years in 2014, but the jobless rate among youngsters reached a record high as job increase stemmed mostly from those aged over 50, a government report yesterday.

The number of those employed totalled 25,599,000 in 2014, up 533,000 from a year earlier, according to Statistics Korea. It was the largest yearly increase since 2002 when the job growth reached 597,000.

The robust employment was led by those in their 50s and 60s, whose job creation reached 239,000 and 200,000 each in 2014. Job growth among those aged 15-29 increased 77,000, with the figure for those in their 40s gaining 38,000 last year.

The figure for those in their 30s reduced 21,000.

The unemployment rate among those aged 15-29 reached a record high of 9 percent as job growth came mostly from the elderly.

The number of those unemployed was 937,000 in 2014, up 130,000 or 16.1 percent from a year ago.

The hiring rate increased 0.7 percentage points from a year earlier to 60.2 percent in 2014. The employment rate among those aged 15-29 was 40.7 percent last year, up 1.0 percentage points from the prior year.

The rate gauges the percentage of working people to the working age population or those aged 15 or more.

It is used as an alternative to jobless rate. The government has targeted

the 70 hiring rate in the long term.

By industry, those hired by manufacturers and service firms increased last year, but employers in the agricultural and finance sectors recruited less workers than a year before.

Among wage earners, regular workers expanded 3.8 percent in 2014, taking up 64.9 percent of those hired on a regular, irregular and daily basis. It was the highest in the country’s history.

The economically inactive population, or those aged over 15 minus the sum of those employed and unemployed, was 15,977,000 in 2014, down 246,000 from a year earlier.

It was the largest reduction in the country’s history as more potential job seekers, mostly those in their 50s and 60s, rushed to the labour market.

Among them, those in housework fell 2.2 percent, or 131,000, in 2014 from a year earlier, and the so-

937,000 unemployed in South Korea in 2014

called “take-a-rest” group reduced 6 percent, or 92,000, last year.

The group refers to those who replied that they took a rest during the job survey period. It is important as it can include those who are unemployed and too discouraged to search for work for a long time.

Those who were too discouraged to continue their search for jobs surged 129.2 percent, or 222,000, in 2014 from a year earlier. Discouraged workers are those who want to work and are available to do so but failed to get a job due to tough labour market conditions.

They are those who looked for a job sometime in the prior 12 months.

The participation rate of labour force advanced 0.9 percentage points from a year earlier to 62.4 percent in 2014, marking the highest since 1997 as the economically inactive population reduced last year.

Meanwhile, the “sentiment” jobless rate, which the statistical agency began to unveil from November 2014, was 11.2 percent in December.

The official unemployment rate gauges the percentage of those unemployed who actively sought jobs in the past four weeks to the sum of people employed and unemployed.

The sentiment jobless rate included part-time workers who hope to get a regular job working more than 36 hours a week and those who want to work but reply during the job survey period that they conducted no job-searching activity in the past four weeks.

Xinhua

Singapore’s housing rental prices decline Singapore’s rental prices for public housing units and non-landed private housing units fell further in December 2014, according to flash estimates reported yesterday. The Singapore Real Estate Exchange (SRX) said in a report that rentals for homes built by private developers dipped by 0.8 percent month on month in December.

It was the 11th consecutive month of decline. The rental volume for private units also fell by 2 percent.

Meanwhile, the rental prices for public housing flats built by the Housing and Development Board (HDB) dipped by 0.4 percent in December.

By industry those hired by manufacturers and service firms increased last year

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

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 editor editor@macaubusinessdaily.com newsroom newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

Business Daily | 13

January 15, 2015

Asia

India’s benign inflation data fuels rate cut calls But some analysts say RBI Governor Raghuram Rajan may delay the rate cuts amid mounting concerns over the government’s fiscal health

the rate cuts amid mounting concerns over the government’s fiscal health.

Sluggish revenue receipts have driven up the federal fiscal deficit to 99 percent of the full-year target in just the first eight months of the year that ends in March, casting doubts on Finance Minister Arun Jaitley’s ability to trim the shortfall to a seven-year low of 4.1 percent of gross domestic product (GDP).

Concerned over slow economic growth, some government aides are

All indicators now point that the RBI should cut rates by at least 25 basis points in its next policy meeting on February 3 Aneesh Srivastava chief investment officer IDBI Federal Life Insurance

Food prices recorded a 1.9 percent fall in December from a month earlier

P

lunging global oil markets helped India post slowerthan-expected wholesale price inflation in December, raising hopes for an early cut in interest rates to help the economy out of its longest phase of sub-par growth since the 1980s.

The wholesale price index (WPI) rose 0.11 percent year-on-year compared with a 0.6 percent jump forecast by economists in a Reuters poll. Wholesale prices were unchanged in November.

Data released on Monday showed consumer price inflation quickened

at a slower-than-expected pace of 5 percent in December, remaining well within the Reserve Bank of India’s (RBI) medium-term target of 6 percent.

With a near 60 percent fall in global oil prices since last June and food prices remaining in check despite poor monsoon rains last summer, some analysts expect the RBI to reduce its repo rate at a policy review on February 3. The repo rate has stood at 8.0 percent for the past year.

“Falls in commodity prices have brought down WPI, CPI (consumer

price index) alike,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.

Wholesale fuel prices fell an annual 7.82 percent last month, their biggest fall since September 2009. Monthon-month, the prices were down 2.4 percent.

Similarly, food prices recorded a 1.9 percent fall in December from a month earlier. However, they were up 5.2 percent year-on-year compared with a 0.63 percent gain in November.

However, some analysts say RBI Governor Raghuram Rajan may delay

also pushing to row back on fiscal deficit targets when Jaitley announces the 2015/16 federal budget next month. They have advocated more spending on infrastructure projects that could lift growth.

Rajan, however, has set fiscal consolidation as a pre-condition for lowering rates.

“Given the uncertainties, the RBI might prefer to monitor the content of the end-February’s budget and credibility of fiscal targets before easing rates,” said Radhika Rao, an economist at DBS Bank in Singapore.

“This suggests rate cuts might begin April 2015 onwards, with a small probability of inter-meeting cut in March.”

Reuters

As debts pile up, Japan tries to extend bonds maturity The Ministry of Finance plans to auction 152.6 trillion yen of bonds in the next fiscal year Hideyuki Sano

J

apan plans to issue more longdated bonds in the next fiscal year from April, trying to lock in low long-term borrowing costs at a time when bonds yields are depressed at historic lows due to the Bank of Japan’s aggressive buying.

The Ministry of Finance (MOF) announced yesterday it will increase the issuance of 30-year and 40-year Japanese government bonds in fiscal 2015/16 even as higher tax revenue lets the ministry reduce total debt sales.

In the budget for the fiscal 2015/16 Prime Minister Shinzo Abe’s cabinet approved yesterday, the ministry slightly reduced new JGB issuance, or borrowing to finance spending in the year that will start April 1, by 4.4 trillion yen (US$37.1 billion) from the initial budget for this fiscal year.

Based on that budget and other factors including rollover of maturing debt of almost US$1 trillion, the MOF

plans to auction 152.6 trillion yen of bonds in the next fiscal year, down from 155.1 trillion yen in the current year under the initial plan.

That would make the coming fiscal year the second in a row in which the ministry has managed to reduce debt sales through auction.

The ministry, however, plans to increase 30-year debt sales by 1.6 trillion yen and 40-year JGB issuance by 0.4 trillion yen, while reducing its offering of two- and five-year bonds.

As a result, the average maturity of JGBs is expected to rise to eight years and five months by March 2016 from around eight years in March 2015, the finance ministry said.

The move is aimed at taking advantage of current ultra-low yield levels to reduce the need for future debt rollovers as Japan’s public debt continues to snowball. Japan’s public debt has reached 230 percent of its

KEY POINTS Total debt sales through auction trimmed 1.6 pct to Y152.6 trln To increase 30-, 40-year bond issuance by a total of Y2 trln Average maturity seen rising to 8 1/2 yrs by March 2016 Market reaction seen muted due to BOJ’s heavy buying

gross domestic product (GDP) and is still rising.

The yield on 30-year JGBs, on the other hand, fell to 1.080 percent last week. It has never been that low except for less than a few hours in extremely volatile trade right after the Bank of Japan’s easing in April 2013.

The market is likely to take the increase in long-dated bond sales in its stride as the BOJ’s heavy bond buying has led to a severe shortage of bonds available for investors.

After its additional easing in October, the BOJ has committed itself to increasing its holding of JGBs by 80 trillion yen a year, excluding oneyear government bills.

To achieve that goal, the BOJ is buying 8 to 12 trillion yen of couponbearing JGBs per month, an equivalent of 80 to 120 percent of the ministry’s debt offers through the auction.

Reuters

14 | Business Daily

January 15, 2015

International Cuba, Trinidad and Tobago to boost tourism Trinidad and Tobago will sign an agreement with Cuba this month to boost bilateral tourism cooperation, local media reported. “At the end of the month we will be signing a memorandum of understanding with Cuba. The intention will be for Trinidad and Tobago to join hands with Cuba as a co-destination,” said Gerald Hadeed, tourism minister of Trinidad and Tobago. The agreement to pair both Caribbean nations in tourism route packages will offer them abundant tourism resources, said Hadeed.

U.S. surplus at US$2 billion The U.S. budget surplus was US$2 billion at the end of December, down 96 percent from the same period last year, according to data released by the Treasury Department. Analysts polled

by Reuters had expected a surplus of US$3 billion last month. The surplus was US$53 billion in December of 2013.

The fiscal year-to-date deficit at the end of December was US$177 billion compared with a deficit of US$173 billion in the comparable period last year. Last month’s budget results were affected by differences in the calendar.

Brazil tax hikes not severe Brazil’s Finance Minister Joaquim Levy denied the severe consequences of planned tax increases. “We don’t intend to unleash a bag, or package, of evil,” Levy told reporters at a press conference, “but we are going to have to take some steps.” Levy, who took office this month as part of President Dilma Rousseff’s second-term cabinet, is responsible for matters concerning raising tax revenues, lowering public-sector spending, and reactivating the economy that closed the year with two quarters of negative growth.

Moody’s cuts Venezuela’s rating Moody’s Investors Service cut its rating on Venezuela by two notches to the agency’s third lowest, citing a high risk of the country defaulting on its debt due to lower oil prices. Moody’s cut the rating to Caa3 from Caa1 while raising its outlook to “stable” from “negative” on the view that even if the oil prices drop further, the losses to bondholders would be consistent with the current Caa3 rating. Moody’s said bondholder losses, which are likely to exceed 50 percent on the sovereign’s external debt instruments, are also one of the key reasons for the downgrade.

U.S. SMB confidence at 8-year high U.S. small business optimism jumped in December to its highest level in more than eight years, the latest sign of strength in the economy even as dark clouds settle over global growth. The outlook was further bolstered by other data showing job openings approached a 14-year high in November. “There are concerns about global growth, but the fundamentals for the U.S. economy are very solid and what’s going on overseas should only be a minor drag,” said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.

U.S. oil output growth to decelerate 2016 production would mark the end of an almost decade-long rise in U.S. production

T

he U.S. government said it expects domestic oil output in 2016 to grow only 2.2 percent, the slowest pace in years, as the relentless rout in prices puts the brakes on the country’s five-year shale boom.

In its first forecast for next year, the U.S. Energy Information Administration said domestic oil production will rise about 200,000 barrels a day to 9.5 million bpd in 2016. That amount in barrels is the smallest increase since 2011.

While this would be the secondhighest annual average level of production in U.S. history, the slowdown in growth reflects the longterm impact of plunging prices on output as drillers curb higher-cost capacity in some shale formations.

The EIA held its estimate for 2015 at a rise of 720,000 bpd to around 9.3 million bpd. Output rose to 9.13 million bpd by the end of 2014, according to EIA data.

Oil production in the Lower 48 states excluding the Gulf of Mexico is expected to expand during the first four months of 2015, data shows.

Between April and May, production is expected to remain unchanged, then it will taper off until the end of the year.

Vikas Dwivedi, global oil and gas strategist for Macquarie, said the outlook is a “tale of two halves.”

He explained that 2015 forecasts show residual output growth from investments made before oil prices collapsed, while cuts in drill rigs already under way should feed through to production rates by the

end of the year if prices remain around US$50 per barrel.

The EIA, the data arm of the U.S. Department of Energy, raised its expectations for world oil demand growth for 2015 and expects world oil demand to hit 93.42 million barrels a day in 2016, up 1.03 million bpd from its 2015 forecast.

Meanwhile, the EIA revised its gasoline consumption forecast between 2014 and 2015 from a decline of 20,000 bpd in the previous outlook to an increase of 60,000 bpd. The change was a result of lower gasoline prices, particularly as the 31 percent decline in the annual average price of regular-grade gasoline between 2014 and 2015 is the largest since at least 1981.

The EIA estimates that global oil inventories increased by almost 800,000 bpd in 2014, the largest build since 2008.

Stocks are expected to continue to grow by 900,000 bpd during the first half of 2015, but taper off by yearend as non-OPEC supply growth, particularly from the United States, weakens because of lower oil prices.

The agency expects prices to remain weak this year, with a forecast of Brent crude oil trading at US$58 a barrel in 2015 and $75 a barrel in 2016.

In addition to a slowdown in U.S. output growth, the EIA expects crude oil production from OPEC to remain flat in 2015 and fall by 0.3 million bpd in 2016.

Reuters

World Bank cuts global economic outlook The immediate impact of lower crude prices was limited to a 0.1 percentage point boost to the global outlook this year Anna Yukhananov

T

he World Bank lowered its global growth forecast for 2015 and next year due to disappointing economic prospects in the euro zone, Japan and some major emerging economies that offset the benefit of lower oil prices.

The global development lender predicted the global economy would grow 3 percent this year, below a forecast of 3.4 percent made in June, according to its twice-yearly Global Economic Prospects report.

World GDP growth will reach 3.3 percent in 2016, as opposed to a June forecast of 3.5 percent, before dipping to 3.2 percent in 2017, it said.

“The global economy is at a disconcerting juncture,” World Bank chief economist Kaushik Basu told reporters. “It is as challenging a moment as it gets for economic forecasting.”

The world economy has been more sluggish than expected since the 20072009 global financial crisis.

The World Bank said strong growth prospects in the United States and Britain separated them from other rich nations, including members of the euro zone and Japan, which continue to face anaemic economies and deflation fears.

Among emerging markets, Brazil and Russia in particular weighed on the bank’s global growth predictions, along with China, which is in a managed slowdown as it transitions away from an investment-led growth model.

Basu said India’s economic growth should finally catch up to China’s next year and in 2017, at a clip of about 7 percent.

Like other forecasters, the World Bank predicted the roughly 60-percent drop in global oil prices since June

of last year should be a net positive for the world economy, boosting oilimporting countries.

But while the World Bank expected oil prices to stay low this year, it said the positive price shock could take several years to feed into its growth outlook, while increasing shortterm market volatility and reducing investments in unconventional oil such as shale and deep sea oil.

The immediate impact of lower crude prices was limited to a 0.1 percentage point boost to the global outlook this year, the World Bank said.

Falling oil prices could also depress inflation around the world. Fears of deflation, along with overall gloomier global prospects and stagnant U.S. wages, could encourage the U.S. Federal Reserve to raise interest rates more slowly than anticipated, Basu said.

Reuters

Business Daily | 15

January 15, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE AGE You might want to press the fast forward button on 2015 even though it’s only just started because the sooner it’s over the better.

Australia limped into the new year barely growing 2 per cent. Most economists think growth will improve slowly to 2.5 or 3 per cent.

That would make the end of this year feel much like the beginning of last year so the share market should again pick up the scent early on.

If growth is weaker, not to worry. Rates would drop, the dollar plunge, and the share market should take off.

THE JAKARTA GLOBE Indonesia will attract more new factories than any other Southeast Asian nation over the next few years, a survey of 75 manufacturers showed, bolstering President Joko Widodo’s drive to revitalize the economy. Manufacturers plan to build 54 new plants in Southeast Asia’s biggest economy by 2019, a 68 percent increase that will allow Indonesia to overtake Malaysia and Thailand with 133 factories in total, according to the Economist Intelligence Unit survey sponsored by Baker & McKenzie and CIMB Group Holdings. The companies all currently produce goods in the region.

PHILSTAR The exposure of banks to the (Philippine) real estate sector climbed 23 percent to P1.160 trillion as of September last year from P939.775 billion in the same period in 2013, the Bangko Sentral ng Pilipinas reported on Tuesday. Real estate loans, which accounted for the lion’s share of banks’ real estate exposure, went up 24 percent to P977.085 billion from P787.967 billion.

Central bank data showed banks increased their loans to land developers, construction companies, and other corporate entities by 24 percent to P592.966 billion as of September from P479.688 billion a year ago.

THE NEW ZEALAND HERALD New Zealanders increased their spending on debit and credit cards in December, with gains in apparel, consumables and hospitality offsetting a drop in spending on durables.

The value of core retail sales on electronic cards, which strips out spending on fuel and vehicle related items, rose 0.1 percent in December from the previous month, to a seasonally adjusted NZ$3.84 billion, following November’s 0.3 percent gain, Statistics New Zealand said. Including fuel and vehicle spending, total retail spending dropped 0.1 percent to NZ$4.71 billion, led by a 4.2 percent drop in fuel.

Don’t bet on a stronger dollar Barry Eichengreen

Professor at the University of California, Berkeley, and the University of Cambridge

E

conomic pundits, almost without exception, are predicting a stronger dollar in 2015 – an expectation that is leading investors to place some very large bets. But that market strategy could turn out to be a very large mistake.

The consensus reflects the fact that the United States is currently the only major economy where growth prospects are improving.

Most recently, the US Commerce Department revised upward its estimate of GDP growth for the third quarter of last year, to 5% – the highest rate in 11 years.

Moreover, the revision was based mainly on personal consumption and business investment – the most stable and persistent components of GDP. Consumer sentiment is at its highest level since 2007. Low oil prices, which reduce the cost of gas at the pump, provide an additional boost by giving US households more cash to spend at the mall. The unemployment rate is 5.6% and falling.

All of this not only enhances confidence that strong US growth will persist; it also reinforces the belief that the US Federal Reserve will begin raising interest rates, conceivably as early as April. For investors, this makes buying dollars even more attractive.

The other major economies, by contrast, are stagnant, slowing, or both. Europe’s economy is dead in the water, and the dreaded spectre of deflation is looming ever larger. Because policymakers are out of options, there remains little doubt that the European Central Bank will pursue quantitative easing, whether Germany likes

it or not. European officials will welcome a weaker euro, which will improve competitiveness, at least modestly.

Meanwhile, in Asia, the Japanese economy’s sputtering indicators have spurred the Bank of Japan to increase its securities purchases, which likewise point to the prospect of a weaker yen. And unmistakable signs of slowing growth in China are leading investors to ask, for the first time in years, whether China’s government will seek to engineer a weakening of the renminbi’s dollar exchange rate.

Other emerging markets’ growth

The Fed will raise interest rates when it senses that the economy is nearing full capacity and that inflation – wage inflation, in particular – is accelerating

prospects are even worse – not least because of low commodity prices. As a result, these countries can expect lower capital inflows, again making for weak local currencies.

Such is the supposedly airtight case for a stronger dollar. How might it spring a leak?

A first reason to doubt projections of a stronger dollar is that none of the news on which they are based is really news. The expectation of relatively strong US growth is already being reflected in the markets, with the dollar up 9% in trade-weighted terms since mid-2014.

Given this, only a change in fundamentals – the US economy outperforms the consensus forecast and the Fed initiates monetary tightening earlier than anticipated, or other economies’ performance is even worse than expected – would cause the dollar to strengthen further. In short, with the market’s best guess already incorporated into the exchange rate, the dollar is as likely to fall as it is to rise.

The second risk is that, even based on current growth expectations, investors may have gotten ahead of themselves in anticipating monetary-policy tightening. The Fed will raise interest rates when it senses that the economy is nearing full capacity and that inflation – wage inflation, in particular – is accelerating.

Labour-force participation will be key to shaping this environment.

As it stands, the low official unemployment rate can be explained partly by declining participation rates, especially among workers aged 25-54.

But there are now signs that the participation rate of these workers is stabilizing, and may even be set to rise. If it does, the unemployment rate may stop falling, and upward pressure on wages would be limited. The Fed would then delay tightening for longer than anticipated.

Last but not least, unexpected financial problems – which lower oil prices could catalyse – would interrupt US growth and discourage the Fed from tightening. After China and Japan, oil-exporting countries, including Russia, are the largest holders of US Treasury securities. If oil revenues fall further, they may be forced to sell those holdings, using the dollars to intervene in the foreign-exchange market and support their currencies or to bail out troubled banks, like Russia’s Trust Bank, the mid-size institution that the government rescued in December.

Such developments would cause US debt yields to spike, disrupting growth. The dollar would become weaker, leaving investors wrong-footed. The dislocations could be severe.

Currency forecasting is a mug’s game. Exchange-rate movements over horizons as long as a year do not function according to theoretical models.

The behaviour of currency markets has repeatedly confounded and even bankrupted sophisticated investors. With so much currently staked on the market moving in one direction, it is worth contemplating the consequences if this happens again in 2015.

Project Syndicate

16 | Business Daily

January 15, 2015

Closing Sri Lanka’s ex-president faces graft accusation

Beijing to scrap taxi fuel surcharge

Sri Lanka’s Marxist opposition party has filed corruption complaints against former president Mahinda Rajapakse (pictured) and his family and asked the anti-graft body to prevent them from leaving the country, a spokesman said yesterday. The JVP, or People’s Liberation Front, has lodged complaints against Rajapakse, his legislator son Namal and two brothers -Basil and Gotabhaya -- who held powerful positions in the former president’s administration that was ousted after last week’s elections. The election was partly fought on claims of misuse of public funds and nepotism, with the Rajapakse family accused of amassing huge wealth during 10-year.

Beijing will stop charging the taxi fuel surcharge following an oil price drop, the municipal commission of development and reform said yesterday.

Starting from Thursday, passengers will not pay the one-yuan (US$0.16) per trip fuel surcharge that is added to taxi fares, said a statement from the commission. Adjustment of taximeters will take place from Thursday to January 21. During the period, passengers still must pay the surcharge if the taxi’s meter has not been adjusted. The retail prices of gasoline and diesel have been cut by 180 yuan and 230 yuan per tonne, respectively, since Tuesday.

Davos guest list unites Li and Kerry with Ma and Sandberg Russia’s delegation won’t be headed by either the president or prime minister for the first time since 2012 Simeon Bennett and Simon Kennedy

C

hinese Premier Li Keqiang, German Chancellor Angela Merkel and U.S. Secretary of State John Kerry will be among the political heavyweights attending next week’s annual meeting of the World Economic Forum.

Li will lead China’s highest-level delegation since 2009 to the meeting in the Swiss ski resort of Davos, while Kerry will be the most senior U.S. official to attend since President Barack Obama took office.

The forum, which takes place from January 21 to January 24, will draw some 2,500 participants from more than 140 countries, the Geneva-based organization said today. The falling oil price, Russia’s incursion in Ukraine, the likelihood of quantitative easing in Europe and the renewed threat of terrorism are topics set to be discussed.

“2015 is a year when we are at a crossroads,” said Klaus Schwab, founder and executive chairman of the forum. “A world of

disintegration, of hate, of fundamentalism, and on the other hand a world of solidarity, of cooperation.

We have seen both of those worlds last week in Paris.”

Among business leaders attending are Jack Ma, chairman of Alibaba Group Holding Ltd., Microsoft Corp. founder Bill Gates, Yahoo! Inc. Chief Executive Officer Marissa Mayer and Sheryl Sandberg, the chief operating officer of Facebook Inc. Economic policy makers present will include International Monetary Fund Managing Director Christine Lagarde, Bank of England Governor Mark Carney and Bank of France Governor Christian Noyer.

Russia delegation

Premier Li in a past edition of the World Economic Forum

Russia’s delegation won’t be headed by either the president or prime minister for the first time since 2012, with the country suffering international sanctions over the annexation of Crimea.

Attending the forum this

year will be First Deputy Prime Minister Igor Shuvalov and Deputy Prime Minister Arkady Dvorkovich.

“The World Economic Forum serves the international community as a platform for public-private cooperation,” Schwab said.

“Such cooperation, to address the challenges we all face, is more vital than ever before.”

At least 40 heads of state or government and 13 Nobel laureates are participating, the forum said. The opening ceremony will feature Italian tenor Andrea Bocelli.

The forum is co-chaired

by Google Inc. Executive Chairman Eric Schmidt, World Bank President Jim Yong Kim, Jubilant’s Hari Bhartia, Alliance Trust CEO Katherine Garrett-Cox, Oxfam’s Winnie Byanyima and Itau Unibanco Holding SA CEO Roberto Egydio Setubal.

High-profile delegates at this year’s forum will be transported to Davos via helicopter, the Swiss army said January 8.

Bloomberg News

Draghi sees few options left aside from QE

China announces appointment Bad-debt manager Huarong of senior officials plans US$3 bln IPO

T

T

he European Central Bank does not have many options left apart from sovereign bond purchases to ward off deflation in the euro area, its president Mario Draghi said yesterday.

“All members of the ECB’s governing council are determined to fulfil our mandate,” Draghi told the weekly newspaper Die Zeit, when asked about his plans to launch a controversial programme of large-scale buying of government bonds known as quantitative easing or “QE”.

Financial markets are betting that the ECB council will announce plans for a QE programme when it holds its first policy meeting of the year on January 22.

Other central banks around the world have used QE programmes to kick-start their economies.

But there are critics of such a programme in Europe, notably the German central bank, which believes QE will take away the pressure on governments to reform and is effectively a licence to print money to get them out of debt.

AFP

C

he State Council, China’s Cabinet, said yesterday that it had appointed and removed some senior government officials.

Wang Xiaotao was named deputy head of the National Development and Reform Commission.

The National Bureau of Statistics had Zheng Jingping and Jia Nan as vice directors, who replaced Xu Yifan and Li Qiang.The State Council also appointed Huo Ke as vice director of the National Tourism Administration, and Xu Zhanbin as deputy chief of the State Administration of Science, Technology and Industry for National Defense.

Yan Shujiang was named vice director of the State Administration of Traditional Chinese Medicine, replacing Wu Gang. Cao Yu was appointed as vice chairman of the China Banking Regulatory Commission, replacing Yan Qingmin. Xiong Weiping was named chairman of the Board of Supervisors for Key Large-Sized State-Owned Enterprises, replacing Shi Dahua. Jin Zhongxia was appointed as International Monetary Fund (IMF) executive director for China, replacing Zhang Tao.

hina Huarong Asset Management Co Ltd, the country’s biggest bad-debt manager, plans to raise US$3 billion in a Hong Kong initial public offering in the second half of 2015, IFR reported yesterday, citing people familiar with the transaction.

Huarong’s deal would be the second IPO by one of China’s so-called asset management companies (AMCs), following on the footsteps of China Cinda Asset Management Co Ltd, which raised US$2.8 billion in a Hong Kong listing in December 2013.

Citigroup, Goldman Sachs, HSBC and ICBC International were named sponsors of the proposed IPO, IFR said. The roster of banks will likely grow, as more firms are added to the deal later.

Huarong’s media relations department in Beijing was not available for comment on the IPO plans.

The state-owned company last year sold a stake of about 20 percent to investors including Goldman and private equity firm Warburg Pincus for about US$2 billion.

AFP

Reuters