Macau Business Daily, Jan 27, 2015

MOP 6.00 Closing editor: Luís Gonçalves Publisher: Paulo A. Azevedo Number 716 Tuesday January 27, 2015 Year III

Is the real estate bubble deflating?

I

t could be a sign. The real estate bubble has touched all sectors, launching prices into the stratosphere. The anticipated subdued growth for industrial units this year, however, could signal a cooling market. Centaline and Midland Realty expect only a ‘slight’ increase in industrial unit prices.

They cite the economic slowdown. Plus several companies are returning to rented space in office buildings. Prices in this sector dropped almost 10 pct in the last quarter PAGE

2

Build and they will come

Diversification is happening in Macau, says AMCM

PAGE 4 Gaming revenues to drop 18 per cent

A study warns of future low-income worker ‘tension’. A professor and urban planner from the College of Architecture and Landscape at Peking University says the signs are there. Macau’s prosperity is becoming increasingly dependent upon interaction with other cities in the PRD and Beijing. And overreliance on foreign migrant workers will have consequences, he says

PAGE 6 IPIM encourage local businesses to exhibit in HK

PAGE 5

Brought to you by

PAGE 3

Three-Way

HSI - Movers January 26

An agreement has been signed. Between the law office founded

by Rui Cunha, the Portuguese office of Abreu Advogados, and the Cape Verde office of Arnaldo Silva & Associados. The idea is to expand services to the Portuguese-speaking jurisdiction. The three-way partnership will increase the possibility of ‘borrowing’ specialised knowledge

www.macaubusinessdaily.com

PAGE 5

Name

%Day

Li & Fung Ltd

4.72

Galaxy Entertainment

3.54

Tencent Holdings Ltd

3.24

Sands China Ltd

2.23

A lot on their plate

China Merchants Hold

2.13

Hengan International

-1.17

China Resources Land

-1.18

What’s in a number? A lot, apparently.

Lucky numbers are rapidly becoming a status symbol. Last year, the Transport Bureau earned over MOP13 million from 890 bids competing for over 200 ‘special car licence plates’. The highest bid – at MOP699,999 - secured licence plate MT28-28

CNOOC Ltd

-1.31

Belle InternationaL

-1.75

China Resources Ente

-3.53

Source: Bloomberg

I SSN 2226-8294

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International the new mantra

Brought to you by

The People’s Bank of China currency strategy has recently reversed. Following an increase in yuan capital outflow. It’s now about moving from protection to fostering its use in international markets.

Page 10

2015-1-27

2015-1-28

2015-1-29

15˚ 20˚

15˚ 18˚

14˚ 18˚

2 | Business Daily

January 27, 2015

Macau

Estate agencies anticipate subdued growth for industrial units Hong Kong agencies say they don’t anticipate a big influx of investors and users interested in industrial units this year Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he average rental cost and selling price of industrial units in the city would no longer see the rapid growth evident in the past three years, while the transaction volume of this property segment is likely to maintain levels similar to the previous year as estate agencies say they see no new stimulants for demand here.

The local units of Hong Kong property agencies Centaline and Midland Realty told Business Daily that they expected the rental cost and selling price of industrial units in Macau would slightly increase this year or maintain levels similar to last year, contrasting sharply with the rapid growth of industrial unit activity seen in the past three years. (See table) “For this year, we don’t anticipate a big [influx] of companies that want to lease storage space in industrial units as seen in previous years due to subdued economic growth,” the chief executive of Midland Realty (Macau) Ltd., Ronald Cheung Yat Fai, told Business Daily, adding that he did not expect any new stimulants for a big increase in the base of industrial unit investors this year.

“Demand by users that rent industrial units as offices may go down as well, as we see that some of them have returned to leasing units in office buildings as their rental costs have softened in the past quarter: the rental cost for some offices has actually slipped by 7-10 per cent yearon-year in this period,” Mr. Cheung said.

Citing similar reasons, the senior regional sales director of Centaline (Macau) Property Agency Ltd., Roy Ho Siu Hang, told us that he estimated the average rental cost for industrial units here for this year may edge up to HK$9 per square foot (HK$96.84 per square metre) from the level of HK$7-HK$8 seen last year, while the transaction value of this property segment will remain at around HK$3,000 to HK$4,000 per square foot.

“The rapid rise seen in the average transaction value of industrial units of Macau

in the past three years have to do with their relatively low base when compared to other types of commercial properties,” said Mr. Ho. “But in 2014, the transaction value of industrial units had already experienced a more subdued growth of some 3040 per cent year-on-year to an average of HK$3,000 to HK$4,000 per square foot.”

“We expect that the price level of industrial units here will stabilise this year unless the government announces a breakthrough in its existing industrial unit revitalisation scheme,” Ho added, saying

Industrial unit transaction table 2011 - 2014 Year

No. of sold industrial units

Total transaction value

Average transaction cost*

Variation of average transaction cost (y-o-y)*

2012

246

MOP1.54 billion

MOP20,812/sqm.

73.40%

2013

267

MOP2.73 billion

MOP33,721/sqm.

62.00%

Jan-Nov 2014

289

MOP4.51billion

MOP55,179.6/sqm.

–

2014

294

MOP4.7 billion

MOP32,380 – 43,040/sqm

Approx. 30 – 40%

Source: Statistics and Census Service (DSEC) and Centaline (Macau) Property Agency Ltd Note: DSEC ‘s data for the full year of 2014 is still unavailable Figures in red provided by Centaline Macau *Q1 to Q3

that he cannot see any new stimulant driving demand for industrial unit investment.

The revitalisation scheme that Mr. Ho mentioned was first launched by the government in April 2011, and requires 70 per cent of the flats in a converted industrial premises to be small, not more than 646 square feet (60 square metres). It also says that the combined gross floor area of the small flats has to be at least half of the total gross floor area of the conversion project.

The scheme, however, conceived by the government as a means to boost supplies of private mid and smallsized flats, has received little interest from developers.

Subdued growth “With the existing laws, we still need 100 per cent of an industrial units’ owners approvals to get a green light on the revitalisation plan,” Mr. Ho said. “But we only manage to get 95 per cent approvals in most cases. So I don’t really see any new backing for more purchases of industrial units this year.”

He predicted that transactions of industrial units this year may amount to some 200 cases. His company, Centaline Macau, previously noted in its 2014 annual review that Macau had posted 294 industrial unit transactions, a 10 per cent rise compared to 2013.

Unlike Centaline Macau and Midland Macau, local property agency Anzac Group adopts a more bullish outlook on the transactions of industrial units for this year.

“This year, the market for industrial units will still be active, though maybe not as robust as in 2013 when investment in the whole property market was really strong,” said Anzac president Nestor Ng. “Aside from the logistics sector’s demand for warehousing, many emergent businesses – like indoor gyms – have also boosted demand for such units.”

“We expect that the rental and transaction value of industrial units may rise by some 10-15 per cent year-on-year for 2015,” Mr. Ng noted. “This percentage will even grow further when logistics demand is triggered by more casino resorts opening next year and beyond.”

Business Daily | 3

January 27, 2015

Macau Wing Hing’s lottery contract extended The government is to extend the licence contract with Chinese lottery company Sociedade de Lotarias Wing Hing Limitada to December 31, 2015, the Official Gazette announced yesterday. According to the announcement, Secretary for Economy and Finance Lionel Leong Vai Tac will oversee the amendment of the contract. The company had previously renewed the contract with the government in February 2014 for MOP500,000 (US$62,500). In 2014, gross gaming revenue from the Chinese lottery stood at MOP6 million, up MOP1 million from 2013.

Increased integration leading to greater dependence Planning priorities and the order in which they’re conducted will be dependent upon economic development and closer integration with mainland China, a new study finds Sara Farr

sarafarr@macaubusinessdaily.com

M

acau may be a Special Administrative Region that enjoys a number of freedoms and has its own financial, legal and educational system. But its future is evermore tied to that of mainland China. This means Macau’s prosperity is somewhat dependent on its interaction with other cities in the Pearl River Delta, as well as nearby provinces and the central government.

A recently published study concludes that the need for and reliance on foreign migrant workers, especially low-income ones, could become a source of ‘future tension.’

The case study is titled ‘Gambling on landfill and infrastructure to reposition Macao in the Pearl River Delta’ and is by John Zacharias, a professor and urban planner from the College of Architecture and Landscape at Peking University.

“The rising proportion of relatively low-income migrant workers needed to support this good life could be the source of significant future tensions,” Mr. Zacharias says. According to him, institutional integration in the Pearl River Delta lags economic integration, unlike in European cities. And Macau’s economic integration with neighbouring Zhuhai is different from that of Hong Kong’s with its mainland opposite number, Shenzhen.

In the Macau-Zhuhai economic integration, Zacharias argues, there is a “relative absence of obvious conflictual relations,” while the integration between Hong Kong and Shenzhen has been rapid, leading to “significant tensions… in the social sphere and to a lesser extent at the institutional level.”

However, in the Pearl River Delta, while unification may shorten travel time between the cities, it also reveals “enormous disparities in income within individual cities” and consequently a source of tension.

“City-led development has not addressed these disparity issues – arguably accentuating them – with these issues referred upward to regional and state authorities,” he maintains.

Planning lagging At the time of the Macau handover in December 1999, Macau lacked a planning system. In fact, it lagged behind its neighbouring Special Administrative Region Hong Kong in pretty much most areas.

It wasn’t until 2011 that the Macau Government launched the first ever public consultation on the expansion plan of the territory, that of the five

plots of land that would be reclaimed from the sea. This would increase Macau’s land size by 10 per cent, or by three square kilometres.

“The current five-islands plan, like many launched throughout China, is heavy on imagery and light on progress,” the urban planner says.

While the government has emphasised time and again that the islands will provide housing for locals as a top priority, given the lack of public housing available, Mr. Zacharias suggests these islands will actually cater to the luxury property market. The reasoning behind this is that this new housing is “isolated by water from existing Macau and largely connected by underground tunnels, parking garages and local facilities, [and] such plans read as virtual gated communities.”

In addition, another of the islands is to house an expanded shopping environment plus office buildings as well as more housing. “Macau lacks a luxury goods shopping hub as exists in Hong Kong… Island 4, in particular, exemplifies the effort on the part of the government to meet the needs of the local population through a public space venue and metro, while attempting to capture yet more capital outflow from the mainland,” he adds.

“The islands promise a green paradise for recreation but are largely isolated and inaccessible to Macau’s present population. But, as the planning documents emphasise, it may be that the realisation of such a utopian vision may spur a genuine project for a sustainable and liveable Macau,” Zacharias suggests.

No hope The urban planner also argues that the islands will offer little or no hope for diversification, except for a “tiny ‘creative industry park’ below the flight path to the airport.”

Aside from this land reclamation, Macau has also managed to strike a deal with authorities in Zhuhai to set up the new campus for the relocation of the University of Macau in Hengqin Island. The campus and Macau are now linked by a tunnel.

“Arguably, the new campus of the University of Macau, with real and symbolic isolation from the gambling heart via a single tunnel to Hengqin Island, is a step in this direction,” he adds.

The new campus location could also spur students to further their education rather than seek easy money by quitting school to work in a casino dealing chips, which up until

now has been seen as an attractive way to make big money in a short period of time. “This important investment in education also represents another kind of gamble – that youth can be weaned off easy money and the casino job market,” he says.

Mr. Zacharias argues that because of the lack of prior planning, any future plan will be prioritised according to economic development and closer integration with mainland China. “A richer Macau in the short

run is accompanied by the promise of longer-term improvements to the public environment, starting with a few highly visible projects in the new territory,” the urban planner says in his study.

He adds that “Macau has adopted much the same strategy as the vast majority of mainland cities, where rapidly deteriorating environmental quality is accompanying a rise in personal disposable income for those with urban resident rights.”

4 | Business Daily

January 27, 2015

Macau Brands

Trends

True luxury Raquel Dias newsdesk@macaubusinessdaily.com

A

lthough we’re used to Louis Vuitton and Gucci being luxury brands, it’s worth remembering that there’s a degree past that. Firstly, because true luxury brands are perhaps more unknown and secondly because, one can argue, entry level products mean most brands are nearing the mass market.

There’s also tradition. People who can afford luxury products usually acquire them for their uniqueness and durability; when they perceive those brands are being bought by anyone they might think twice.

However, some brands do remain true to their origins.

Either because of a different marketing strategy or simply because their products simply just aren’t for everyone.

Such is the case with Moynat.

French trunk-maker Moynat is also owned by the LVMH giant but its history dates back to 1849. Trunkmakers Octavie and François Coulembier joined forces with Pauline Moynat to open their first store close to the Place du Théâtre Français, a few steps from the Comédie Française. The brand is well known for having designed the first women’s handbag, back in the 19th Century.

The brand that has shops in both London and Paris has now decided to set up stall in Asia. Hong Kong is the chosen place for a flagship store just in the Landmark.

The boutique offers its signature personalization service like the handpainting of initials and made-to-measure trunks and handbags. A must see, even if – like me—you’re not planning to purchase anything. As Keats so eloquently put it: ‘A thing of beauty is a joy forever’.

AMCM: GGR down for VIP, up in mass market – a sign of diversification AMCM says Macau’s economy will be more stable and diversified when GGR from the mass market continues to grow and surpass the VIP market. In addition, it predicts that the unemployment rate will stay less than 2 per cent this year Kam Leong

kamleong@macaubusinessdaily.com

T

he Monetary Authority of Macao said in a recent financial review that despite the gross gaming revenue (GGR) of the city posting declines in the VIP sector last year, its growth in the mass market is leading the city to a more ‘vertical diversified’ economy this year, especially as ‘non-gaming elements are on the way’ coupled with a ‘strong base of visitors’.

‘The development of mass market business is timely in acting as a buffer against the shrinkage in the highly volatile VIP business and its impact on Macao’s macroeconomic stability,’ the monetary authority noted in its Monetary and Financial Stability Review published this month, anticipating that the mass market ‘is likely to surpass the VIP market in terms of its share of total gross gaming receipts.’

Baccarat revenues in 2014, which accounted for 90 per cent of total GGR, indicated that that from the VIP sector they had dropped by some 11 per cent year-on-year despite accounting for 67 per cent of the total. Meanwhile, baccarat revenues from the mass market had registered year-on-year growth of 16.3 per cent although only accounting for some 33 per cent of the total, according to data released by the Gaming Inspection and Co-ordination Bureau (DICJ).

The Authority indicated that if gaming revenues from the mass market continue growing, the GDP

growth of the city and its fiscal revenue would follow to be more stable.

‘Macao’s GDP growth would become less volatile as the relative importance of mass market business has been increasing. By the same token, fiscal revenue growth would also be less volatile and hence be conducive to strengthening the predictability of government budgeting and fiscal stability,’ it asserted.

Leading to diversification?

On the other hand, the Authority believes that the increase in nongaming elements that the new casino projects in Cotai will provide will also offer Macau a more reliable source of receipts.

‘The non-gaming development would provide a more stable revenue source, and hence, gradually reduce the reliance on gaming for casino operators and the Macao economy,’ it wrote.

Moreover, it indicated that the strong visitor base of the Special Administrative Region is another key factor diversifying the economy by bringing more business opportunities.

‘A distinct advantage of the Macao economy is its exceptionally strong visitor base, which provides a huge number of readily available customers for Macao’s service providers and tremendous business potential for local firms to tap…Vertical diversification within the tourism sector is a feasible option for future development and

economic sustainability,’ it said in the review.

In addition, AMCM perceives that the upcoming infrastructure of the city such as the Hong Kong-ZhuhaiMacao Bridge will increase the traffic flow of Macau, which will also create business opportunities ‘for those who are ready to meet the demand of a more diversified source of crossborder consumer.’

The sustainability of diversification, however, will require human resources and talent development, the money authority added.

Tight labour market to remain in 2015 Meanwhile, the money authority foresees that labour market conditions in the city will remain tight in 2015, claiming the opening of new casino projects in Cotai will make the unemployment rate ‘likely’ remain at less than 2 per cent if the projects are opened as scheduled.

Currently, the city’s unemployment rate has stood at 1.7 per cent since last November when it fell from 1.8 per cent.

On the other hand, the Authority forecast that the inflation of the city would decline ‘slightly’ in 2015, without quoting an exact percentage but claimed the possible decrease is ‘due to a decline in energy and food prices, disinflation in import sources and an MOP appreciation against non-US$ currencies.’

Business Daily | 5

January 27, 2015

Macau

C&C Advogados enter Cape Verde The law office founded by Rui Cunha and the Portuguese office Abreu Advogados have signed an agreement with the Cape Verde office of Arnaldo Silva & Associados in order to expand its services to the Portuguese-speaking jurisdiction João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he Macau law office of C&C Advogados has signed a threeway partnership with the Portuguese office of Abreu Advogados and the Cape Verde office of Arnaldo Silva & Associados. The agreement was signed last week and will enable the office to offer assistance in different jurisdictions.

“We have been in a partnership with the Portuguese office of Abreu Advogados and together we’ve been developing different projects on jurisdictions that we think we should target. In the past, we had a similar three-way partnership in East Timor and have now decided to do it in Cape Verde”, a partner of C&C Advogados, Nuno Marta, told Business Daily yesterday. “Cape Verde is one of the Portuguese-speaking countries more open to the assistance and inclusion of foreign lawyers”, he added.

The agreement was formalised in an event titled ‘Opportunities to invest in Cape Verde’, whereby C&C was represented by partner Alvaro Rodrigues and which took place in a hotel in the country’s capital Praia. The founder of Arnaldo Silva & Associados represented the local office; Jose Eduardo Martins and

Francisco Pinto were at the event in the name of Abreu Advogados.

“With this partnership we are better prepared to assist any client in Macau that is planning to invest in Cape Verde relying on the assistance of Arnaldo Silva & Associados. In the same way, any investor in Cape Verde that decides to invest in Macau can also be assisted well by contacting

Arnaldo Silva & Associados or C&C”, Nuno Marta said.

The agreement will also contribute for the offices involved to increasing the specialisation of their services and provide assistance to each other.

“The three-way partnership will increase the possibility of the offices ‘borrowing’ specialised knowledge concerning areas that they do not work

Macau to further develop Chinese medicine platform

C

hief Executive Chui Sai On met with the State Administration of Traditional Chinese Medicine of China Director, Wang Guoqiang, yesterday in Beijing. They discussed the development of Macau’s Chinese medicine industry The state regulator of Chinese medicine said that the central government attaches great importance to the development of the field, and had pushed forward many beneficiary policies at state level.

Wang Guoqiang indicated that Chinese medicine is now playing an important role as medical resources, economic resources, technological resources, cultural resources and ecological resources, etc. need to be developed better.

Chui Sai On reiterated the need for Macau to develop Chinese medicine as part of the strategy to further diversify Macau’s economy.

He expressed appreciation for the support of the central government, pledging further co-operation.

Chui Sai On also met with the Chinese Minister of Commerce, Gao Hucheng, for a breakfast meeting.

Both sides exchanged ideas for better promoting the Mainland and Macau’s Closer Economic Partnership Arrangement (CEPA) and its supplements, enhancing the training of talent, deepening regional co-operation and enhancing Macau’s role as the commercial and trade service platform between China and Portuguese-speaking countries.

in on a regular basis. For instance, it will be possible for C&C to send a lawyer specialised in a certain issue to Cape Verde to be of assistance to Arnaldo Silva & Associados if they required us to do. It can also happen the other way around”, he said.

Arnaldo Silva & Associados was approached by C&C Advogados and Abreu Advogados partnership following a business trip from the latter’s office to Cape Verde, where they were looking for potential partners in the African country.

“After a business trip to Cape Verde we identified potential law offices that we considered could be eligible for a partnership with us and our colleague in Portugal. The reason we decided to invite Arnaldo Silva & Associados for the partnership was not only because they are a wellestablished law office in Cape Verde with a lot of prestige but also because they expressed great interest in this partnership and worked very hard for it”, Mr. Mata explained.

C&C Advogados is a law office based in Macau that was established in 1996: its partners include Rui Cunha, Alvaro Rodrigues, Zhao Lu and Nuno Mata.

Telecommunications tops complaints league

T

he Consumer Council issued a statement yesterday saying that in 2014 the Council had processed a total of 1,668 complaints, along with some 5,250 enquiries and 63 suggestions.

The five categories that received most complaints last year were telecommunications services (220 cases),

telecommunications devices (208 cases), food and beverage (121 cases), and public transportation (87 cases). The Consumer Council said that compared to 2013 the top four categories remain the same, while public transportation replaced tourism as fifth in the ranking to receive most complaints.

Rádio Vilaverde receives 5-year FM broadcasting licence

T

he Government has awarded Rádio Vilaverde Limitada a 5-year FM broadcasting licence that came into effect on 13 January, it was announced yesterday in Macau’s Official Gazette.

Rádio Vilaverde will be operating on the 99.5MHz frequency and the broadcaster, which is owned

by Sociedade de Tursimo e Diversões de Macau (STDM), will have to pay MOP150,000 to the Government for the licence.

According to the contract,

the broadcasting licence can be renewed for 5-year periods when requested by Rádio Vilaverde Limitada.

Rádio Vilaverde was founded by the Macanese Pedro José Lobo in the mid20th Century but it was suspended in 1994. However, in the begining of this century it was acquired by STDM and resumed operations.

STDM primarily broadcasts shows related to tourism and entertainment, including horse and greyhound racing results and football scores.

6 | Business Daily

January 27, 2015

Macau Gross Gaming Revenue to drop 16 to 18 pct in January Casinos in Macau will register a drop of 16 to 18 per cent year-on-year in terms of Gross Gaming Revenues (GGR), the data accessed by news agency Lusa suggests. In relation to market share, Galaxy Entertainment Group will have the largest slice of revenue. Data related to gaming promoters MGM, Galaxy and Wynn indicate that for January there will be a drop ranging from 16 to 18 per cent year-on-year, resulting in an amount ranging from MOP23.56 to MOP24.14 billion. Galaxy Entertainment Group, which in May will open Galaxy Macau Phase II and Broadway Galaxy, is tipped to top the market in terms of market share, followed by SJM Holdings and Sands China. GGR registered a year-on-year drop for the first time in 2014, dropping 2.6 per cent from MOP360.7 billion in 2013 to MOP351.5 billion.

Lusa

Gov’t rakes in over MOP13 million from ‘lucky number’ licences Licence plate MT28-28 went for the highest bid of MOP699,999 but was slightly cheaper than last year’s MS28-28 by about MOP20,000 Joanne Kuai

joannekuai@macaubusinessdaily.com

T

he Transport Bureau has earned over MOP13 million (US$1.6 million) from 890 bids competing for over 200 ‘special car licence plates’, the Bureau’s term

for its portfolio of lucky number plates, Business Daily has learnt.

The Bureau announced its first open bid result of the year for 272 special car licence numbers, which

are all prefixed by MT-.

The licence plates, which are categorised into four groups, range from a bottom bid price of MOP20,000 to MOP100,000.

The highest bid – at MOP699,999 - was made for licence plate MT2828; stamp duty pushed the total price up to MOP703,000.

Altogether, six bids were cast for this particular plate; in Cantonese, the figure ‘8’ is often associated with the pun of ‘earning a fortune’, while ‘28’ is associated with ‘easily earning a fortune’.

The MT28-28 plate belonged to the

second most expensive starting price category ‘B’. In the most expensive category ‘A’, the MT22-22 plate was sold for MOP688,000.

The open bids for the ‘special car licences’ is believed to be especially popular amongst junkets and wealthy individuals who have acquired a fortune from the gaming sector.

The Transport Bureau has hosted the open bid auction for special car licences twice, and sometimes thrice, a year since its establishment in 2008, when it only amassed an income of MOP4.1 million from licence plate sales that year.

Corporate H&M to open in Galaxy Macau

IPIM invite local businesses to exhibit in Hong Kong

T

he Macau Trade and Investment Promotion Institute (IPIM) plans to install a Macau Pavilion at HOFEX 2015 – The 16th International Exhibition of Food & Drink, Hotel, Restaurant & Foodservice Equipment, Supplies & Services – which will take place in the Hong Kong Convention and Exhibition Centre from May 6 to 9, 2015.

Local enterprises in the relevant field, including wine, food, hotel supplies and catering equipment that are interested in participating as exhibitors are now invited by IPIM to make the relevant arrangements. IPIM said that due to the limited number of booths available, applications would be processed on a first-come, firstserved basis.

IPIM has consecutively participated in the three previous editions of HOFEX. According to statistics provided by the organisers, the last edition of HOFEX (held in 2013) attracted 1,800 exhibitors from 48 countries and regions, including 44 official delegations, to create a comprehensive business platform.

The 4-day event registered the largest number of visitors ever,

including 30,718 quality buyers, of which some 30 per cent were overseas buyers from 85 countries and regions.

Together with the concurrent events, including forums, competitions and guest media, the total number of admissions reached 33,409.

HOFEX – the 16th International Exhibition of Food & Drink, Hotel, Restaurant & Foodservice Equipment, Supplies & Services will also provide an opportunity for the catering and hotel industry to observe and exchange ideas.

A number of activities have been planned for the forthcoming edition, including the ‘2015 Hong Kong International Culinary Classic 2’, ‘All World Open Cup 2015 – Cocktail Creative Classic & Bartending Flair’, ‘Regional Hotel General Managers´ Forum’, ‘Hospitality Technology Conference’ and ‘Asian Club Managers´ Forum’.

All these events are expected to provide a learning and exchange platform for participants, as well as serving as a reference when analysing the development trends of the hospitality and catering industry.

J.K.

H & M Hennes & Mauritz - know as H&M have announced its up-and-coming flagship store opening at Galaxy Macau. Slated to open in 2015, the company said ‘fashion lovers in Macau will be enjoying a new shopping destination for high fashion and quality basics at affordable prices’.

The flagship store in Galaxy Macau will be the biggest store in Macau, offering fashion items for fashion addicts of all ages. H&M says it will provide more information on the store opening. Through its stores and online channels, H&M offers a broad product range including the latest trends and inspiration for customers to create their own personal styles. H&M’s stores are refreshed daily with new fashion items.

A climate change view via photography Eighth grade students at The International School of Macao (TIS) recently participated in the TIS PhotoVoice Project (TPVP), a process by which people can identify, represent and enhance their community through a specific photographic technique.

Using cameras, they act as recorders and potential catalysts for social action and change in their own communities. At TIS, the purpose of the project was to enable students to explore the issues of climate change and emergencies in Macau by taking photos in their community.

Students identified pollution and the loss of green space and natural habitat due to construction as ways Macau is contributing to climate change. They also expressed concern regarding the possible impact that rising sea levels may have on new construction in low-lying areas of Macao.

Students identified Macau’s recycling programme, its parks, and the presence of emergency equipment and infrastructure as strengths or assets to address climate change and emergencies.

The students’ findings will be included in an article to be presented at the Poverty and Social Protection Conference in Bangkok from March 9-11.

Business Daily | 7

January 27, 2015

Gaming

Atlantic City rating cut by Moody’s on emergency manager plan

A

tlantic City, New Jersey’s struggling gambling hub, had its rating cut six levels deeper into junk by Moody’s Investors Service after Governor Chris Christie appointed an emergency-management team.

The reduction to Caa1 from Ba1 on the city’s US$344 million in general-obligation debt follows the governor’s decision last week to install a management team that includes Kevyn Orr, who shepherded Detroit through its record US$18 billion municipal bankruptcy last year. Orr will serve as a consultant, with Kevin Lavin taking the role of emergency manager.

“The downgrade to Caa1 reflects the appointment of an emergency management team of two bankruptcy specialists mandated to consider debt restructuring, which could involve a loss to bondholders,” analysts Josellyn Gonzalez Yousef and Naomi Richman said in a statement.

Adding to the increased risk of default is the city’s plan to sell about US$12 million of bond-anticipation notes next week to refund debt maturing February 3, the analysts said. The oneyear notes, to be sold today, will refund an equivalent amount of securities issued a year ago, according to data compiled by Bloomberg.

Speaking in Atlantic City last Thursday, Orr and Lavin both dismissed questions of a possible bankruptcy as premature. Orr declined to answer questions about the appointment and the note sale.

Kevin Roberts, a spokesman for Christie, declined to comment.

Christie, a 52-year-old Republican

in his second term, has struggled with a five-year plan to turn Atlantic City around. Casino revenue dropped to US$2.9 billion last year, from a peak of US$5.2 billion in 2006, as Pennsylvania, Delaware, Maryland and New York expanded gambling.

Moody’s dropped the city’s rating to junk in July because of its dependence upon casinos.

The city has borrowed US$345 million since 2010 to cover tax appeals and municipal deficits, and debt service now makes up about 15 per cent of its budget, according to the executive order Christie signed

authorising Orr and Lavin. The city is relying on ‘unsustainable bond issuances’ in part to fund pension payments of US$23 million this year and US$25 million next year, the order said.

Investors are demanding more additional yield to buy Atlantic City general obligations. Debt sold December 2013 and maturing December 2021 traded Friday at an average yield of 5 per cent, the highest since August, data compiled

by Bloomberg shows.

Michael Stinson, the city’s revenue director, said he didn’t think Moody’s

“has a clue’” about a bills pending in Trenton that would help the city.

The legislation would have the stateadministered Casino Reinvestment Development Authority cover as much as US$30 million in debt payments and have the casinos enter into payment-in-lieu-of-taxes agreements to guarantee debt service.

“I’m speechless; I’m in shock,” Stinson said. “These guys came in with the governor’s blessing. Up to this point, any additional state involvement has been met positively by the market.”

Bloomberg

Caesars accused of trying to buy bank lenders’ votes dollars of assets from the operating unit last year.

The latest suit targets Caesars’ parent company and its bankrupt operating unit. By law, a company is required to file a refinancing proposal in court to give all creditors time to object and contribute to the plan.

Normally, they all get a vote.

Explaining what Caesars wanted in return for the payments, the bank lenders said they’d have to give up a firm guarantee of the bank loans and promise not to sue the company over the stripping of billions of dollars of assets from the bankrupt unit. They cited the ‘fraudulent transfers and its directors’ breaches of fiduciary duty that have been detailed in myriad recent litigations.’

Value preservation

C

aesars Entertainment Corp., which has been gathering support for a plan backed

by Leon Black’s Apollo Global Management LLC, has been accused by bank lenders of trying to buy their votes and subverting bankruptcy law.

The lenders, including GSO Capital Partners LP, Silver Point Capital LP and BlackRock Financial Management Inc., asked a judge to bar the casino company from handing out fees to obtain votes, according to a court filing in Wilmington, Delaware on Friday. They own about US$2.9 billion of Caesars’ most senior debt,

they said.

Detailing the ‘improper’ offer, the lenders said they were offered a US$150 million fee to consent to the company’s proposed refinancing, along with opportunities to buy new convertible notes issued by the healthier parent company and take cash from the bankrupt company. In return, they said they were asked to back a pact hammered out with supporting creditors outside of court and not yet filed as part of a Chapter 11 case.

‘Defendants are attempting to subvert the plan and disclosure statement process,’ the lenders told

the judge in the filing. The result would be ‘direct and irreparable harm’ to the company’s most senior lenders, and all others who aren’t part of the selective pact, they said.

Creditors warring Creditors of the operating company are warring with Apollo over the private-equity firm’s bankruptcy plan, put together with a group of supportive lenders. They won a round last week, when a federal judge in Manhattan ruled that Caesars broke the law when it stripped billions of

Apollo is trying to preserve the value of its Caesars’ stake while dealing with a highly competitive casino market and about $25 billion of debt resulting from its takeover of Caesars with TPG Capital in 2008.

In the proposed restructuring, the operating unit would take on $18.4 billion of debt. Few lenders would get everything back on a deal gone bad but Black has promised he and some bondholders would get a payout that others wouldn’t.

Caesars’ Apollo-backed bankruptcy was filed in Chicago on January 15, just days after dissident creditors filed their own in Delaware.

Bloomberg

8 | Business Daily

January 27, 2015

Greater China UBS makes 2015 GDP prediction China’s 2015 GDP growth forecast has been maintained at 6.8 percent, as further policy support and export recovery is expected to help bolster the sluggish economy, said UBS yesterday. “December and Q4’s better than expected data will unlikely trigger any immediate significant new easing measures for now, but the first rate cut may happen (around) March or April, when even lower CPI (consumer price index) and PPI (producer price index) are reported,” said Wang Tao, chief China economist with UBS, said in a research note.

Li Ka-shing move promises bumper year for Asia banks Li’s companies are the fourth-biggest fee payers in Asia over the past decade Denny Thomas

CNR says secured 30 deals China CNR Corp, one of the country’s top train makers, said it had recently signed 24.3 billion yuan (US$3.9 billion) of deals with both Chinese and foreign firms. The 30 contracts involve high-speed trains, urban subways and electric vehicles, and are equivalent to about 25 percent of CNR’s 2013 revenue, it said in a statement. CNR did not provide details on when the deals were signed. They included a 4.1 billion yuan (US$658 million) subway deal with the Massachusetts Bay Transportation Authority, which Reuters reported in October.

Dalian Wanda gets Sydney’s landmark Blackstone Group said it has agreed to sell a prime Sydney office building to China’s Dalian Wanda Group for about A$415 million (US$327 million). Blackstone acquired Gold Fields House, located in Sydney’s central business district and overlooking Sydney Harbour, as part of its purchase of Australian property group Valad in 2011. China’s biggest property conglomerate plans to build a 5-star hotel as well as luxury residential and retail developments at the location, the company said in a statement.

Steel output dips in Hebei Steel output in China’s biggest producing province of Hebei fell 0.6 percent in 2014, with a drop in demand plus campaigns against pollution and overcapacity forcing many local mills to cut production. Hebei’s steel sector, usually responsible for about a quarter of China’s output, produced 185.3 million tonnes over the year, according to data compiled by the National Bureau of Statistics (NBS), amounting to 22.5 percent of the national total.

The NBS has adjusted nationwide steel production for 2013 to 815.41 million tonnes, 4.7 percent higher than its original number.

Cross-Strait economic talks scheduled The seventh regular meeting of the Cross-Strait Economic Cooperation Committee (ECC) will be held on January 29 in Taipei, the Chinese mainland’s Association for Relations Across the Taiwan Straits (ARATS) announced yesterday. Zheng Lizhong, convener of the ECC on the mainland and executive vice president of ARATS, and Gao Yan, ECC chief representative and vice commerce minister, will head the mainland delegation to the meeting, ARATS said in a press release.

The businessman in the centre of the picture

L

i Ka-shing’s hectic start to 2015 has meant record Asia M&A, loan and equity deals so far this month - good news for investment bankers close to the 86-year-old Hong Kong tycoon’s empire.

The brisk business - US$108 billion of Asia M&A makes it the best start to a year, according to Thomson Reuters data - raises hopes that the Chinese Year of the Goat could bring a windfall to a region that has been starved of fees.

Li’s companies have singlehandedly led the deal flurry.

Over the years, Goldman Sachs has emerged as Li’s favoured bank, pulling in an estimated US$220 million in fees from Li’s two main companies Hutchison Whampoa and Cheung Kong Holdings since 2000. That tops the US$136 million earned from Li

by HSBC Holdings, traditionally Li’s go-to bank for financing deals with its dominant local presence and a dedicated team to cover Li’s companies. Bank of America Corp earned US$131 million.

As Asia’s richest man steps up the pace of overseas M&A, eyeing infrastructure, telecoms and retail businesses in Europe, and cranks up a new aviation lease unit, bankers see yet more deals. For banks, maintaining a close and strategic relationship with Li, his son Victor and their trusted lieutenant Canning Fok has become more critical as new advisers hover.

Bankers who have worked with Li and Fok say they are fair feepayers who offer the market rate for financial advice. That makes it even more important to maintain close ties as Asian clients are often reluctant to pay for M&A advice.

Sluggish deal flows and drawnout negotiations can frustrate banks in Asia, forcing some to rely just on

KEY POINTS Li companies have announced $83bln worth of M&A, loans, equity Li’s deal spree gives Asia M&A best start ever Goldman biggest beneficiary from Li dealmaking since 2000 Italy may be next stop for Hutchison – analysts

initial public offers of shares and follow-on share sales for revenue. In contrast, Fok is known for the speed of his deal making.

Big revamp Li this month has overhauled his vast business empire resulting in US$47.7 billion worth of M&A, and has followed up with three overseas bids, including last week’s of US$15.4 billion for Telefonica’s British O2 unit.

To finance these deals, Li is borrowing about US$16 billion from banks and issuing US$600 million in equity, taking his total deal volume to US$83.4 billion, according to Reuters calculations.

If the O2 bid goes through, and the separate US$3.8 billion acquisition of British rolling stock operator

Eversholt Rail, it could be a sign that Goldman’s grip on Li’s dealmaking is slipping.

HSBC and boutique advisory firm Moelis & Co clinched the O2 mandate, while Royal Bank of Canada advised Li on the Eversholt purchase. The Hutchison bid for O2 also revealed something of a strategy shift, with Li willing to partner with private equity to run the business.

Fee bonanza Li’s companies are the fourthbiggest fee payers in Asia over the past decade, Thomson Reuters data shows. State-owned China National Petroleum Corp tops the list, followed

by BHP Billiton Ltd .

Bankers expect Li’s deal flow to continue as the business revamp provides Hutchison with an additional US$7 billion in firepower.

Some analysts say Hutchison’s next stop for telecom consolidation will be Italy, a market where Li has previously tried but failed to strike a deal.

“If we can achieve consolidation on the right terms in relation to any of our properties, we will be there,” Frank Sixt, Hutchison’s group finance director said, when asked about plans for Italy.

Bankers expect Li to eventually float his European telecoms business The Three Group, and IPO bankers are preparing for a potential listing of retail operation A.S. Watson over the next two years. Temasek Holdings paid US$5.7 billion last year for a 24.9 percent stake in the business.

While there’s money to be made working on Li’s deals, it doesn’t come easily.

“These guys are very demanding.

When they want something, they want it now. That’s the way they approach things,” the first individual said.

Reuters

Business Daily | 9

January 27, 2015

Greater China

How Yahoo might sell billions in Alibaba stock and pay no taxes Yahoo’s CEO probably will maintain at least part of the Alibaba holding to keep a finger in China’s fast-growing Web market Jesse Drucker

Y

ahoo! Inc. is expected to reveal something most companies usually try to keep secret: how it plans to avoid a multibillion-dollar tax bill.

The Web portal has spent more than a year figuring out how to cash out a chunk of its US$40 billion stake in China-based Alibaba Group Holding Ltd. Typically, a U.S. company faces a federal tax bill of about 35 percent when it sells stock in another enterprise for cash.

Yahoo took a US$3 billion tax hit last year when it sold about US$10 billion in Alibaba shares. This time around, activist investors are leaning on the Sunnyvale, California-based company to be more savvy.

Marissa Mayer, Yahoo’s chief executive officer, probably will maintain at least part of the Alibaba holding to keep a finger in China’s fast-growing Web market. Were Yahoo to sell the entire stake, it could face a federal tax bill of as much as US$14 billion.

Here are some of Yahoo’s options to avoid capital-gains tax, both legal:

“The tax savings sort of gets carved up between the two parties and they each get a chunk,” said Robert Willens, an independent taxaccounting analyst in New York City.

Channeling Buffett

Marissa Mayer, Yahoo’s chief executive officer

Mimicking malone Last summer, John Malone’s Liberty Ventures wanted to avoid taxes on selling its stake in travel website TripAdvisor Inc. Liberty did so by transferring that stake, as well as online costume-retailer BuySeasons, to a new unit created specifically for the deal.

Under the plan, the new unit took out a US$400 million bank loan. Most of that cash was destined for Liberty and the new unit’s stock spun off to Liberty shareholders.

US$3 billion

Yahoo’s tax payment after Alibaba’s US$10 billion shares sale

The expectation was that TripAdvisor would acquire the new unit in exchange for the travel site’s own stock. TripAdvisor also agreed to repay the US$400 million loan.

When it’s all wrapped up, Liberty Ventures gets cash and exits TripAdvisor -- without incurring the tax bill a straight sale would trigger. Liberty’s shareholders get stock in TripAdvisor as though Liberty had distributed its holding in the site to its own investors.

Liberty’s investors also don’t face taxes on the deal.

In Yahoo’s case, it would spin off its stake into a new entity, which would borrow money and distribute the cash to the Internet company.

Another option is to follow Warren Buffett’s lead, with what’s known in tax circles as the cash-rich split.

Berkshire Hathaway Inc. and Graham Holdings Co. last March agreed to a deal that lets Buffett’s company unload its stake in the former Washington Post Co. while avoiding capital-gains tax.

That deal called for Graham to transfer cash and a Miami television business -- combined, roughly equal to Berkshire Hathaway’s investment -- into a new subsidiary. Graham then shifts stock in that new unit to Berkshire Hathaway, while Buffett’s company moves its Graham stake back to the media company.

Economically, it’s as though Berkshire Hathaway sold its Graham stake for cash -- and a TV station. But because the deal is structured as an exchange of shares, not a straight-up sale, it gets tax-free treatment.

Were Yahoo to follow this route, it would exchange Alibaba shares for a stake in a new unit that would consist mostly of cash. Alibaba would have to shed some assets for Yahoo to get the advantage of such a deal; a cash-only transaction probably would trigger a tax bill. Accounting experts say it shouldn’t be difficult to find something to throw in the pot.

Bloomberg News

Haitong in the fired-bankers quest Chinese securities firms are taking advantage of their dominance in the world’s second-largest equities market to raise money in Hong Kong that they can use for expansion Alfred Liu Lin Yong, deputy chairman and chief executive officer of Haitong International

I

t’s not all doom and gloom for people who lost their jobs at financial firms in Hong Kong this year.

Haitong International Securities Group Ltd., a unit of China’s thirdbiggest brokerage by market value, is talking to workers in the city who were dismissed by global banks including Standard Chartered Plc. “Those who have been fired by foreign firms recently are the people that I need for different business lines,” Lin Yong, deputy chairman and chief executive officer of Haitong International, said in an interview on January 22 in Hong Kong.

A profit jump of at least 50 percent last year is giving Lin the opportunity to add investment bankers and

research analysts as stricter capital rules prompt some competitors to retrench.

Haitong International added about 20 employees last year for operations excluding the brokerage division, spokeswoman Mimzy Si said. It now employs about 120 in those businesses, which are corporate finance, asset management, fixed income, currencies and commodities, structured finance and equity derivatives, she added.

Higher profit Andrew Sullivan joined the firm last week as managing director of sales trading, he said by e-mail yesterday.

Sullivan previously worked at Espirito Santo Securities Inc. in Hong Kong.

Haitong International’s 2014 profit may have increased at least 50 percent because of growth in its corporate-finance, derivatives and margin-financing businesses, the company told the Hong Kong stock exchange January 21.

Chinese investment banks are expanding in Hong Kong after dominating the mainland market.

Among underwriters of share offerings in China last year, local firms held the top 16 spots, data compiled by Bloomberg show.

Haitong Securities is among Chinese brokerages that are selling shares in Hong Kong, saying December 21 it plans to raise HK$29.9 billion (US$3.9 billion) in a private placement, mainly to

develop its short-selling and marginfinancing operation.

Lin said he wants to advise on more large initial public offerings in Hong Kong, after Haitong’s ranking slipped to 11th last year from ninth in 2013, according to data compiled

by Bloomberg. The company worked on 15 IPOs in the city in 2014, the data show.

Financial firms worldwide are under pressure to trim budgets as they grapple with rising legal costs and higher capital requirements.

Banks will cut more jobs this year as the industry overhaul that started during the 2008 financial crisis is prolonged, according to a quarterly Bloomberg Global Poll.

Bloomberg News

10 | Business Daily

January 27, 2015

Greater China

Central bank reacts to yuan outflow Foreign-exchange reserves dropped to US$3.84 trillion as of December from an all-time high of US$3.99 trillion in June Justina Lee

M

anaging the yuan is turning into a different game for China’s policy makers these

days.

After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy.

A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it’s selling foreign currency, while the yuan’s reference rate set daily by policy makers is near its strongest-ever level compared with the market price.

“Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,” Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, said by phone on January 22. “The authorities need to think of a way to keep the audience in the theatre” as the economy slows, he said.

China amassed a world-leading US$4 trillion of foreign-exchange reserves by mid-2014 as exports surged and capital flowed in, attracted by a currency that strengthened for four consecutive years. Now that the yuan’s gains are faltering, the PBOC is trying to prevent its declines from turning into a rout that could deter investment just as the economy suffers its slowest growth in 24 years.

Yuan turnaround The yuan’s onshore rate weakened to 6.2288 a dollar this January 23, from a two-decade high of 6.0406

on January 14, 2014. It retreated 2.4 percent last year, after climbing 12.8 percent in the previous four years.

The declines were partly engineered by the PBOC, which lowered its daily reference rate by 0.9 percent in the first half of 2014 to prevent the currency from becoming a one-way appreciation bet for speculators. The central bank allows the yuan to trade 2 percent either side of that daily rate.

Since then, the PBOC has raised the reference rate in each of the past five months, suggesting policy makers judged the declines had gone too far.

The yuan was 1.5 percent below the daily fixing set by the central bank on January 23, compared with a record intraday level of 1.8 percent

The authorities need to think of a way to keep the audience in the theatre Kevin Lai economist Daiwa Capital Markets

on December 30, data compiled by Bloomberg show.

Capital flight Evidence of capital outflows shows how China is moving beyond using the reference rate to prop up the currency, and also reflects how money is leaving the nation as growth slows.

A key barometer of foreignexchange flows on the central bank’s balance sheet, known as its yuan positions, fell 128.9 billion yuan (US$21 billion) in December from a month earlier, the most since 2003, PBOC data show. China’s foreign-exchange reserves dropped to US$3.84 trillion as of December, from an all-time high of US$3.99 trillion in June.

These data “suggest there’s been net dollar demand in the onshore foreign-exchange market which the authorities have met,” Robert Minikin, the London-based head of Asian currency research at Standard Chartered Plc, said by phone on January 21.

Trade flows Goldman Sachs Group Inc. says China’s official errors and omissions data -- figures used by nations to balance cross-border flows when records don’t match -- point to a record US$63 billion leaving the country in the third quarter of 2014. Bank of America Corp. estimates US$120 billion of capital flowed out of China in the final quarter of last year.

The PBOC didn’t respond to a fax seeking comment on outflows and its

intervention policy.

Curbing the yuan’s losses has become critical since growth slowed to 7.4 percent last year, the worst performance since 1990. The PBOC surprised investors by cutting interest rates in November for the first time since 2012 to give the world’s secondlargest economy a lift, though that also reduces the return generated by yuan assets and undermines the currency.

The yield premium on China’s five-year government bonds over equivalent U.S. debt has narrowed to 2 percentage points, from 3.19 percentage points in November 2013, the widest difference in data compiled

by Bloomberg since 2007.

Boosting prestige A stronger exchange rate would also boost the yuan’s prestige as China seeks to promote it as a currency of global commerce. In the past 12 months, the Asian nation has appointed yuan-clearing banks in cities from London and Frankfurt to Singapore.

An appreciating currency may also reassure U.S. officials who have accused the PBOC of debasing the yuan for economic advantage.

“If there are signs of significant depreciation pressure, the PBOC will intervene,” Kewei Yang, the head of Asia-Pacific rates strategy at Morgan Stanley in Hong Kong, said by phone on January 16. “The risk of capital outflows weighs more in importance than temporary support for exports from a weak currency.”

Bloomberg News

Business Daily | 11

January 27, 2015

Asia

India searches its personal banking revolution Regulations announced by the Reserve Bank of India will create a new way of banking trying to reach a broader part of the population Douglas Busvine and Devidutta Tripathy

I

ndia is betting that mobile phone vendors, fuel stations and corner stores can help it put basic banking within the grasp of hundreds of millions of its poor people living beyond the reach of traditional bank branches.

The clock is ticking down to a February 2 deadline for applications to set up so-called payments banks under new rules that would allow successful bidders to offer services such as remittances and deposits, but not loans.

The regulations announced by the central bank, the Reserve Bank of India (RBI), reflect a realisation that traditional banks alone can’t achieve the objective of financial inclusion championed by Prime Minister Narendra Modi.

In a four-month campaign to end “financial untouchability”, Modi has opened 115 million new bank accounts. Yet of those, 80 million have no money in them, underscoring the huge challenge he faces in delivering on his promise.

Backers of the payments banks say they could help bring those accounts to life by bridging the gap from bank branches in town to India’s 600,000 villages, making it easier to send money home, collect state benefits or do business deals.

“There’s an entirely new set of actors,” said Bindu Ananth, a member

For Oxigen agent Gurmukh Singh, who sells air time, runs an Internet cafe and offers city tours from his tiny shop in New Delhi’s Karol Bagh market, the payments bank model is a new opportunity.

“Now we can only send money to a bank account, but if we could pay out too it would be a good business,” he said as, with a few computer clicks, he made a 2,000 rupee (US$32) bank transfer for a customer remitting money to his family in the Himalayan state of Uttarakhand.

Fee driven

of the RBI committee that designed the payments banks rules. “We said: Let’s create a regulatory framework that allows the participation of nonbanks.”

Mobile operators and pre-paid wallet players are expected to lead the charge, seeking to add transaction fees to revenue streams from products such as phone minutes and bill payments.

Retailers are interested too. Future Group, one of India’s biggest with a presence in more than 100 cities, says it will apply for a permit.

Online players also spy an opportunity to boost client loyalty and scale up volumes. Paytm, a platform that is close to winning backing from China’s e-commerce king Jack Ma, founder of Alibaba Group Holding

KEY POINTS RBI rules pave way for creation of new payments banks Deadline for applications February 2 Mobile operators, payments specialists set to apply E-commerce players spy opportunity to scale up

Ltd, will bid.

“We are aiming at 100-200 million users (overall),” said Vijay Shekhar Sharma, CEO of Paytm, which provides pre-paid wallet services, helps consumers make bill payments online and offers coupon discounts.

Paytm now has 20 million users.

The last-mile bank In the most important change, payments banks will be allowed to not only accept cash, but also pay it out, boosting their appeal for low-income savers. Their precursors, Pre-paid Payment Instrument (PPI) providers, were not allowed to pay out cash.

Payments banks could cut the use of cash in an economy where nine out of 10 transactions are still paid in notes and coins and kick-start the use of low-cost payment forms like mobile money that have been used by only one in every 300 Indians.

That compares with 76 percent of people in Kenya, Africa’s mobile money pioneer, where Vodafone’s M-Pesa affiliate dominates the market.

Payments specialist Oxigen is applying for a licence and wants to become a “last-mile” bank, said group president Rajpal Duggal. Oxigen would treble its 130,000-strong agent network to meet a requirement for the payments banks to have a quarter of their retail ‘touch points’ in rural India.

The business model for the payments banks will be driven by transactions, rewarding players like Bharti Airtel that have already built out their infrastructure.

India, a country of 1.25 billion people, has more than 900 million mobile phones. The cost to a mobile operator of hosting a payments account would be a tenth of that to a regular bank, according to RBI committee member Ananth.

Airtel and Vodafone declined to comment but are widely expected to apply.

Modi, meanwhile, is determined to activate the new accounts opened at conventional banks under his financial inclusion drive, linking them to India’s identity card scheme and paying welfare benefits into them.

By partnering with mainstream banks - as Oxigen has with State Bank of India - the payment banks could deliver “cash out” welfare payments, and become a marketing channel for products like loans and insurance.

Daniel Radcliffe at the Bill & Melinda Gates Foundation sees payments banks as the “engine” to push Modi’s financial inclusion drive over the finishing line.

Depending on when licences are issued, the first payments banks could launch in late 2015 and achieve scale within a couple of years, said Radcliffe, senior program officer at the foundation’s Financial Services for the Poor unit.

Reuters

12 | Business Daily

January 27, 2015

Asia

Global environment lifts Japan’s exports up Overall imports rose 1.9 percent on the year in December versus the expected 2.3 per cent gain Samsung to be main iPhone supplier

Tetsushi Kajimoto

South Korea’s Samsung Electronics Co Ltd will be the main supplier of processors powering Apple Inc’s next iPhone, Maeil Business Newspaper reported yesterday, citing unidentified sources in the semiconductor industry. Samsung will be responsible for around 75 percent of the chip production for the next iPhone, the South Korean newspaper said. The newspaper did not say how much the contract is worth and what other company will be supplying Apple.

Samsung will make the chips from its factory in Austin, Texas, according to the report.

KEY POINTS Dec exports +12.9 pct yr/yr vs f’cast +11.0 pct Dec trade gap eases on cheaper oil but a record for full year

Thailand to boost farmers’ jobs Thailand’s finance ministry plans to borrow 40 billion baht (US$1.2 billion baht) to help boost farmers’ jobs during the dry season, Deputy Finance Ministry Wisut Srisuphan said yesterday. The plan is a short-term measure to help farmers and will be proposed to the cabinet soon, he told reporters. The military government is trying to tackle economic problems and boost the economy after taking power in a coup in May.

Bangladesh’s imports surge Imports surged 11.36 percent year on year to over US$16 billion in the first five months of the 2014-15 fiscal year (July 2014-June 2015), the central bank data showed yesterday. According to statistics of the Bangladesh Bank (BB), the settlement of letters of credit (LCs), generally known as actual imports, stood at US$16,200.84 million in July-November, compared to US$14,548.43 million in the year-earlier period. In July-November, the BB data showed, Bangladesh’s overall import orders increased by 14.77 percent year on year.

NZ services grow at record rate New Zealand’s services sector grew at a record rate last year, according to the latest performance of services index (PSI) out yesterday. The BNZ-Business New Zealand PSI for December was 56.5 up 1.8 points from November and equal to the monthly average for the entire year. The survey showed nothing to suggest the expansion should not continue into 2015, he said. All five main sub-indices were also in expansion, with new orders/business at 60.3, activity/sales at 57.3, supplier deliveries on 56.2, stocks/inventories on 54.8 and employment on 51.9.

Exports seen rising as yen weakens, U.S. recovers Export volume up 3.9 pct y/y, first rise in 2 months

J

apan’s exports grew the most in a year in December, helped by a weak yen and a pick-up in overseas demand led by the United States, an encouraging sign for the recession-hit economy even as doubts persist about the strength of global consumption.

The 12.9 percent year-on-year rise in exports marked a fourth straight month of growth, supported by shipments of cars to the United States and of electronics parts to China, data

by the Ministry of Finance (MOF) showed yesterday.

A recovery in exports, which has been a soft spot in the world’s thirdlargest economy, could be a source of comfort for Prime Minister Shinzo Abe, who is battling to re-kindle growth after an April sales tax hike drove Japan into a recession.

Still, with the exception of the United States, a largely gloomy global economic outlook has cast a cloud over external demand. The slump in

South Korean finance minister warns of price deflation risk Lee Shin-hyung and Choonsik Yoo

S

outh Korea’s finance minister warned yesterday of deflation risks and promised to keep prices at an appropriate level, but analysts played down chances of any policy shift in the short term.

Bond futures prices pared gains and the won was almost unchanged after Finance Minister Choi Kyunghwan made the remarks at a scheduled

meeting with leaders of the country’s largest industry association.

“Regarding the consumer price trends, there are fears of deflation.

The government will make efforts to manage prices at certain (appropriate) levels,” Choi said at the meeting with leaders of the Korea Chamber of Commerce and Industry.

He did not elaborate on the

oil prices to below US$50 a barrel has also heightened global consumption and deflation concerns.

Imports rose less than expected, leaving Japan with a trade deficit for a record 30th month in a row.

“Exports have bottomed out but I doubt whether they will accelerate from now on due to growing uncertainty over the global economy,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The MOF data showed exports to

possible measures.

Analysts said the remarks could be interpreted as either pressuring the central bank to consider further lowering interest rates or warning against currency traders betting on a stronger won, but doubted he would make any change in policy.

“I doubt he meant to flag any new policy but I think he was trying to push companies hard to raise wages higher,” said Park Chong-hoon, economist at Standard Chartered Bank Korea.

He also said an excessive current account surplus would push the won higher and the government would make an effort to keep the surplus from rising. The central bank forecast early this month this year’s current account surplus would rise to US$94 billion from an estimated US$90 billion in 2014.

Reuters

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Business Daily | 13

January 27, 2015

Asia the United States rose 23.7 percent in the year to December, while those to China rose 4.3 percent.

Shipments to Asia, which account for more than half of Japanese shipments, grew 11.0 percent yearon-year in December.

EU-bound exports rose 6.8 percent.

Overall imports rose 1.9 percent on the year in December versus a 2.3 percent gain expected, as sharp falls in crude oil prices cut into the value of purchases.

That helped cut the December trade nearly in half from a year ago to 660.7 billion yen (US$5.62 billion).

For the full-year 2014, however, Japan’s trade deficit hit a record 12.78 trillion yen, largely due to heavy imports of liquefied natural gas as utilities burned more of the fuel to compensate for the shutdown of all nuclear plants for safety checks after the Fukushima disaster of 2011.

Insurance may unlock India-U.S. atomic trade Indian and U.S. diplomats said the idea was to transfer the financial risk to insurers in case of an accident

Double-edged sword But cheap oil also compounds the challenge for the BOJ’s aim of hitting its 2 percent inflation goal around the coming fiscal year from April, which analysts see as impossible to achieve.

Indeed, on Wednesday the BOJ sharply cut its inflation forecast, and Governor Haruhiko Kuroda conceded it may take longer than expected to hit the price target.

The yen has fallen sharply against the dollar although it has pulled back from recent lows. The dollar was at around 118 yen yesterday, off a 7-year high of above 120 yen hit last month, but still about 35 percent higher since Abe took office in late 2012.

Despite the yen’s depreciation under Abenomics stimulus policies, exports have been slow to pick up as Japanese firms shifted production overseas, while others have sought to boost profits by maintaining sales prices rather than cutting them to boost their export volume.

New domestic orders and new export orders both rose at a faster clip in January, a private manufacturing survey showed last week.

Reuters

Indian prime minster Narendra Modi (R) watched by US President Barack Obama during a joint press conference at Hyderabad House in New Delhi, India on 25 January 2015

P

rime Minister Narendra Modi and U.S. President Barack Obama unveiled a plan centred on insurance on Sunday that they hope will convince U.S. companies to build nuclear power stations in India, but stopped short of demands to soften a liability law.

With the 1984 Bhopal gas tragedy still fresh in India’s mind, parliament five years ago passed a law that makes equipment suppliers ultimately responsible for an accident, a deviation from international norms that the companies found hard to swallow.

India’s top diplomat, Foreign Secretary Sujatha Singh, said the new plan was “squarely within our law”.

“The India nuclear insurance pool is a risk transfer mechanism which is being formed by GIC Re and four other public sector undertakings in

the general insurance business in India,” foreign ministry joint secretary Amandeep Singh said.

After India and Washington first reached a nuclear deal in 2006, nuclear commerce worth billions of dollars was meant to be the centrepiece of a new strategic relationship, allowing New Delhi access to nuclear technology and fuel without giving up its weapons program. But the liability issue blocked progress.

GE-Hitachi Nuclear Energy said it would review the governmental agreement in due course.

Both GE and Westinghouse have already been given land in Gujarat and Andhra Pradesh to begin construction of reactors.

India’s foreign secretary Singh said there was a bilateral understanding that India’s law was compatible with

the Convention on Supplementary Compensation. India has yet to ratify the convention.

It is also likely that India will need a similar deal with Japan since many of the reactor components used by the joint U.S.-Japanese companies come from there.

Toshiba Corp’s Westinghouse Electric Co praised the developments on Sunday, and said it looked forward to further meetings and discussions, including a planned “insurance seminar.”

On Sunday, Richard Verma, the U.S. ambassador in New Delhi, said the new plan was based on a memorandum of law and would not require new legislation at this stage.

Until recently, U.S. officials have said that the best solution would be to change the liability law.

That is deemed politically impossible by the Indian government, in a country that suffered thousands of deaths when U.S. company Union Carbide Corp’s pesticide factory leaked gas in 1984. Activists are still seeking financial compensation and a clean-up of the site by parent Dow Chemical Co. Modi is committed to increasing India’s low carbon energy sources to cut a reliance on coal, and nuclear is intended to be a major part of the energy mix. But progress on projects has been slow.

Under the workaround, the Indian state-run insurance company GIC Re and three others would contribute 7.5 billion Indian rupees (US$122.09 million) to the pool and the balance would be contributed by the government on a tapering basis, joint secretary Singh said.

Reuters

Singapore manufacturers get no reprieve Government is persisting with a plan to restructure the economy by slowing the inflow of cheap foreign workers and boosting productivity Sharon Chen

S

ingapore’s manufacturers aren’t catching any breaks.

Industrial production has declined for three of the past four months amid faltering global demand, data released yesterday in Singapore showed, and Prime Minister Lee Hsien Loong says he’s not ready to let up on foreignworker curbs that have led to a labour crunch.

“Nothing in the external environment suggests an improvement in the industrial production output,” said Irvin Seah, a Singapore-based economist at DBS Group Holdings Ltd. “The labour market will remain tight and mismatch in the labour market will continue to exert upward pressure on wages.”

Lee is persisting with a plan to

We have set our immigration policy for now, but will review it after a few years Lee Hsien Loong Singapore’s Prime Minister

restructure the economy by slowing the inflow of cheap foreign workers and boosting productivity, which has raised business costs. That’s compounding the challenge for companies grappling with an uneven global recovery and, in oil-related industries, falling crude prices.

Industrial production fell 1.9 percent in December from a year earlier, according to the Jan. 26 government report. Electronics output slid 2.4 percent and petrochemicals dropped 3.5 percent.

‘Significant pressure’ “The slump in oil prices and also the very sluggish growth momentum from the global economy, these are cyclical issues,” Seah said in a telephone interview. “Some specific

clusters would be under significant pressure” structurally from the labour curbs, including rig builders and construction firms that rely on foreign workers, he said.

Lee’s administration has imposed higher levies for overseas labour and set tighter limits on employing nonSingaporeans in some industries.

The next round of tightening is scheduled for July.

The government may have room to stick to its labour policies as price pressures elsewhere evaporate, according to Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. Consumer prices fell for a second month in December for the first time since 2009, according to data compiled

by Bloomberg.

Bloomberg News

14 | Business Daily

January 27, 2015

International Russia to rethink infrastructure projects Russian officials will have to revise the spending priorities of one of Russia’s two “rainy day” funds, daily newspaper Vedomosti reported yesterday, as officials scramble to find ways to fight a deepening financial crisis. Citing sources in Russia’s financial and economic sectors, Vedomosti said officials needed to find ways of funding its “anti-crisis programme”, which Russian ministers have said will cost 1.375 trillion roubles (US$21 billion). Some 550 billion roubles would now come from the National Wealth Fund. The fund, valued at 4.39 trillion roubles on January 1, was created to cover pension liabilities.

Libya producing 363,000 bpd of oil Oil output from Libya, where ports and oilfields have been shut due to fighting, has fallen to 363,000 barrels a day with exports at about 200,000, the oil minister appointed by forces in control of the capital Tripoli told Reuters. Two governments allied to armed factions are vying for control of Libya four years after the toppling of leader Muammar Gaddafi. The United Nations and Western powers do not recognise the administration that controls ministries in Tripoli. Output has fallen since key facilities were shut down due to nearby clashes or pipeline blockages.

Ukraine to issue US$2 billion in local bonds Ukraine will issue domestic bonds amounting to 31.5 billion hryvnia (US$2 billion) to support state energy firm Naftogaz, a document posted on the government’s website said yesterday. Kiev, which is mired in an economic crisis, is under pressure to reform Naftogaz, whose financial deficit is significantly larger than the national budget deficit and requires government support to pay its bills.

As in previous such transactions, the new bonds are likely to be bought by the central bank to provide cash for Naftogaz to fund its gas imports, a further strain on dwindling foreign currency reserves.

Aer Lingus considering improved bid Aer Lingus is considering an improved 1.36 billion euro (US$1.52 billion) takeover proposal from International Consolidated Airlines Group (IAG), the third attempt by the owner of British Airways to buy its Irish rival.

Aer Lingus said yesterday the new proposal was worth 2.55 euros per share, up from a previous 2.40 euros. The proposal includes a cash offer of 2.50 per euros share and a cash dividend of 0.05 euros per share. It is also conditional on the recommendation of Aer Lingus’s the board and irrevocable commitments from the Irish carrier’s two largest shareholders.

German business morale rises again The Ifo survey showed improvements in the manufacturing sector Michelle Martin

G

erman business morale rose to its highest level in six months in January, climbing for a third consecutive month, a survey showed yesterday, in a sign that 2015 got off to a strong start for Europe’s largest economy.

Ifo’s business climate index, based on a monthly survey of some 7,000 firms, increased to 106.7 in January from 105.5 in December. That was the highest reading since July and compared with the Reuters consensus forecast for 106.3.

“All in all, almost everything is put in place for another strong year of the German economy. At least in a little perfect and linear world,” said ING economist Carsten Breszki.

“However, the aftermath of the Greek elections will show that perfect and linear worlds do not exist,” he added.

On Sunday Greek leftist party Syriza won a snap election in Greece and leader Alexis Tsipras promised that five years of austerity, “humiliation and suffering” imposed by international creditors were over.

German politicians have called on Greece to stick to its agreements and Bundesbank President Jens Weidmann said it was also in the interest of the Greek government to implement reforms.

The Ifo survey showed firms felt more upbeat about the current situation compared with in December and they also became slightly more optimistic about their prospects for the next six months.

Some companies have made upbeat announcements recently,

Almost everything is put in place for another strong year of the German economy. At least in a little perfect and linear world Carsten Breszki ING economist

Reuters

British lawmakers demand freeze on fracking A report is the latest blow to Cameron’s pledge to go “all out” on developing shale gas and oil

A

committee of British lawmakers demanded a national moratorium on fracking due to environmental concerns yesterday, ahead of a crucial vote intended to boost the shale gas industry.

An inquiry by the cross-party Environmental Audit Committee, which examines the effect of government policy on the environment, found the extraction and burning of more fossil fuels was contrary to Britain’s pledge to cut greenhouse gas emissions.

It warned that fracking -- in which water, chemicals and sand are pumped at high pressure underground to extract gas -- posed uncertain risks to public health, air quality, and water supplies.

“A moratorium on the extraction of unconventional gas through fracking is

with sportswear company Adidas and Nivea skin-cream maker Beiersdorf both reporting better than expected rises in 2014 sales.

The Ifo survey showed improvements in the manufacturing, wholesale and retail sectors while construction firms fared slightly worse than in December.

Last week surveys showed investor morale improving and Germany’s private sector expanding faster in January.

The German economy expanded by 1.5 percent last year thanks to private consumption and foreign trade and coalition sources have said the government may revise up its growth forecast for this year to 1.5 percent from 1.3 percent, with economists pointing to low oil prices and a weak euro as positives.

needed to avoid both the inconsistency with our climate change obligations and to allow the uncertainty surrounding environmental risks to be fully resolved,” the report said.

It comes as lawmakers prepare to vote on the Infrastructure Bill, which contains a number of measures intended to kick-start the fledgling British fracking industry.

Britain has pledged to cut greenhouse emissions by 80 percent by 2050, and several MPs on the committee tabled an amendment to the bill to call for a moratorium.

The report was the latest blow to Cameron’s pledge to go “all out” on developing shale gas and oil, which the government says will boost the economy, provide employment and help Britain be less reliant on energy imports.

Last week, a report by Lancaster County Council recommended rejecting plans by British energy firm Cuadrilla to drill at two sites, saying it would have an “adverse affect” on the life of local residents.

The report noted public opposition to fracking, and criticised a provision in the Infrastructure Bill that would make it easier for energy companies to drill beneath homes without residents’ permission.

In addition to the moratorium, the committee recommended that fracking be banned outright in protected areas such as national parks, ancient woodlands, and areas that feed groundwater sources.

The report found that an argument in favour of fracking which contends it could be a “transition” fuel used to replace dirtier coal was invalid, as coal would be phased out by the time large-scale extraction was underway.

The Department of Energy and Climate Change rejected the report.

“UK shale development is compatible with our goal to cut greenhouse gas emissions,” a spokesman said.

“To meet our challenging climate targets we will need significant quantities of renewables, nuclear and gas in our energy mix. Shale gas has huge potential to create jobs and make us less reliant on imports.”

AFP

Business Daily | 15

January 27, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Half-a-loaf growth

THE PHNOM PENH POST The National Bank of Canada (NBC) announced on Friday it has increased its stake in the Cambodia-based ABA Bank. In the announcement, NBC said it had invested an additional US$20 million into the Cambodian bank, taking its overall stake to 42 per cent. NBC initially purchased a 9.99 per cent stake in the local firm in July last year and then upped its holding to 30 per cent again in September.

ABA reported a US$7.5 million net profit last year, an 85 per cent increase from 2013, a press statement said.

THE JAKARTA GLOBE The Indonesian government plans to increase its stake in Freeport Indonesia, the local unit of US gold and copper miner Freeport-McMoRan, to 20 percent by October in a move to benefit more from the country’s natural resources, a minister said on Sunday.

Energy and Resource Mineral Minister Sudirman Said said that Freeport-McMoRan has agreed to divest 10.64 percent of Freeport Indonesia in October.

The central government currently has 9.36 percent of Freeport Indonesia. A 2014 government regulation requires every mining company that operates underground mines to divest 20 percent of its shares to the local entity.

THE TIMES OF INDIA The finance ministry has released refunds worth Rs 1 lakh crore so far this fiscal and is working to clear the remaining arrears by March, as the BJP government signals its intent to clean up the Centre’s accounts books when finance minister Arun Jaitley presents his second Budget next month.

The target of tax refunds for the fiscal year is estimated to be Rs 1.17 lakh crore. “In the next few days, we will go ahead with refunds of Rs 10,000-15,000 crore more,” said an official.

THE NEW ZEALAND HERALD A big marketing drive is on to draw more Chinese people to New Zealand real estate and the businesswoman behind it expects a huge upswing in investment and development, particularly from Canton. Pauline (Bao Min) Gao of Panmure-headquartered MultiMarketing has teamed up with established Auckland building and construction industry publisher Mark Graham to produce the glossy NZ Property Investment & Building Guide, which explains how Chinese can invest in New Zealand and features many properties.

The first bi-annual magazine was produced in 2013 and the latest is just out.

Michael Spence

Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution

A

t a time of lacklustre economic growth, countries around the world are attempting to devise and implement strategies to spur and sustain recovery. The key word is strategy: to succeed, policymakers must ensure that measures to open the economy, boost public investment, enhance macroeconomic stability, and increase reliance on markets and incentives for resource allocation are implemented in reasonably complete packages.

Pursuing only some of these objectives produces distinctly inferior results.

China provides a telling example.

Before Deng Xiaoping launched the policy of “reform and opening up” in 1978, the country had relatively high levels of publicsector investment. But the centrally planned economy lacked market incentives and was largely closed to the global economy’s major markets for goods, investment, and technology.

As a result, returns on public investment were modest, and China’s economic performance was mediocre.

China’s economic transformation began with the introduction in the 1980s of market incentives in the agricultural sector. These reforms were followed by a gradual opening to the global economy, a process that accelerated in the early 1990s. Economic growth surged ahead, and returns on public investment soared, reaching an annual growth rate above 9% of GDP, shortly after the reforms were implemented.

The key to a successful growth strategy is to ensure that policies reinforce and enhance one another.

For example, boosting returns on public investment – critical to any growth plan – demands complementary policies and conditions, in areas ranging from resource allocation to the institutional environment.

In terms of effectiveness, the policy package is more than the sum of its parts.

Of course, the specific portfolio of policies varies depending on the stage of a country’s development; early-stage growth dynamics are distinctly different from those in middle-income and advanced countries. But the imperative is the same. Just as a developing China achieved rapid growth only when a comprehensive policy package was implemented, the advanced countries struggling to restore sustainable growth patterns today have found that incomplete policy packages produce slow recoveries and below-potential growth and job creation.

Consider the post-crisis performance of the European Union and the United States.

Though both have had their share of problems, the US is performing somewhat better (though it still faces major

challenges in generating middleincome employment).

The difference is not that the US launched a large fiscal stimulus focused on public-sector investment; no such stimulus was implemented, though many economists, including me, believe that it would have generated a faster recovery and stronger long-term growth. Nor is the difference greater political effectiveness; few would say that the US government is functioning well nowadays, given rising partisanship and sharp disagreement about its proper role.

The US economy has benefited from two factors: its greater structural flexibility and dynamism relative to Europe, and the broader mandate of the US Federal Reserve, which has pursued a far more aggressive monetary policy than has the European Central Bank. Though analysts differ on the relative importance of these two factors – and, indeed, it is difficult to weight them – it is safe to say that both played a role in facilitating the US recovery.

Europe is now placing a large bet on an increase in public-sector investment, using a combination of EU-level funding and national investment programs, perhaps augmented by a modification of the EU’s fiscal rules. Given that public-sector underinvestment is a common cause of subpar growth, this is a step in the right direction.

But public investment is not enough. Without complementary structural reforms that encourage private investment and innovation – and thus enable economies to adapt and compete in a global, technology-driven economy – a public-investment program will have a disappointingly weak impact on growth. Instead, debt-financed public investment will produce a short-run stimulus, at the cost of longer-term fiscal stability.

The problem is that structural reforms are notoriously difficult to implement. For starters, they face political resistance from short-run losers, including the companies and sectors that existing rigidities protect. Moreover, in order to ensure that such reforms ultimately benefit everyone, there must be a strong culture of trust and a determination to prevent more flexible arrangements from leading to abuses.

Finally, structural reforms require time to take effect. This is particularly true in the eurozone, whose members abandoned a crucial tool for accelerating the process – exchange-rate adjustments to account for different economies’ productivity levels – when they adopted the common currency.

ECB President Mario Draghi (pictured) recently argued that, because individual EU countries’ growth-retarding policies have

negative external effects, perhaps they should not have unimpeded control in certain policy areas.

Though member countries’ financial supervisory authority is already being limited through centralization of bank regulation and resolution mechanisms, Draghi’s suggestion is more far-reaching.

One wonders if Draghi’s proposal is politically feasible in the EU context. Even if it were, would it be necessary? All economies have sub-units across which economic productivity, growth, and dynamism vary considerably.

Indeed, differentials in the quality of governance and policies seem persistent, even in economies that perform pretty well overall.

Perhaps part of the answer is to prevent sub-units – in the EU’s case, member countries – from falling short on reforms. But centralization carries its own costs.

Given the risk inherent in

betting on policy convergence, labour mobility – which enables highly valuable human capital, especially well-educated young people, to leave lagging regions for those that offer more and better employment opportunities – could prove to be a critical tool for adjustment.

As it stands, labour mobility is imperfect in the EU. But, with language training and the implementation of something like the Lisbon strategy for growth and jobs (which aimed to create an innovative “learning economy,” underpinned by inclusive social and environmental policies), mobility could be enhanced.

But more fluid labour mobility is no panacea. As with every other element of a growth strategy, mutually reinforcing efforts are the only way to achieve success.

Half a loaf may be better than none, but half the ingredients do not translate into half of the hoped-for results.

Project Syndicate

Without complementary structural reforms that encourage private investment and innovation, a public-investment program will have a disappointingly weak impact on growth

16 | Business Daily

January 27, 2015

Closing World nuke energy centre shifts to Asia

Disasters cost China 10 billion yuan 2014

The centre of world nuclear energy expansion has shifted to Asia following the Fukushima incident, the International Atomic Energy Agency Director General Yukiya Amano said yesterday. Speaking at a public lecture in Singapore, Amano said about two thirds of the world’s 69 nuclear reactors under construction at present are in Asia, which is also the world’s most dynamic economic region. “The use of nuclear power will continue to expand, but the centre of the expansion has shifted to Asia. This is a big difference,” he said. There are currently 439 nuclear reactors in operation around the world.

The central government allocated 9.87 billion yuan (US$1.61 billion) for disaster relief in 2014, helping more than 75 million people, said an official with the Ministry of Civil Affairs (MCA).

Chen Rifa of the MCA said the ministry plans to improve guidelines on disaster relief. China now has 64.3 million people receiving subsistence allowances, and in 2015 improved policies will seek more efficient ways to help them. The MCA will also put more effort into care for the elderly, with senior day care to cover all urban communities and more than 50 percent of rural communities.

Tsipras to form anti-bailout Greek government after big victory Syriza’s victory will encourage other anti-austerity forces in Europe and add impetus to calls for a change of course away from the focus on budget belt‑tightening and structural reform favoured by Berlin

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reek leftwing leader Alexis Tsipras struck a deal with a right-wing party to form a government to confront international lenders and reverse years of painful austerity following a crushing election victory by his Syriza party.

The success of the antibailout party reignites fears of a new financial troubles in the country that set off the regional crisis in 2009. It is also the first time a member of the 19-nation euro zone will be led by a party rejecting German-backed austerity, emboldening anti-austerity movements elsewhere.

Fresh from trouncing conservative Prime Minister Antonis Samaras on a campaign of “Hope is coming!”, the 40-year-old Tsipras quickly sealed a deal on a coalition with the head of the small Independent Greeks party which, like Syriza, opposes Greece’s bailout deal.

“From this moment there is a government in the country.

The Independent Greeks give a vote of confidence in Prime Minister Alexis Tsipras. There is an agreement in principle,” Panos Kammenos said after

Alexis Tsipras, Greece’s election winner with Syriza party, greets supporters

talks with Tsipras at Syriza’s headquarters in Athens.

A deal with the rightwing party makes an unusual alliance between parties on the opposite end of the political spectrum but brought together by a mutual hatred for the EU/IMF bailout programme keeping Greece afloat.

Reaction from financial markets to Syriza’s victory was largely muted, with the euro recovering from a tumble to a 11-year low against the dollar on initial results. Greek stocks dipped slightly while 10-year bond yields rose.

With almost all votes counted, Syriza won 149 seats in the 300-seat parliament, two short of an absolute majority. But the result marked a comprehensive rejection of the years of austerity demanded by the European Union and International Monetary Fund in return for the 240 billioneuro bailout.

Syriza’s campaign of hope resonated with voters worn down by huge budget cuts and heavy tax rises during the years of crisis that have sent unemployment over 25 percent and pushed millions into poverty.

HK Exchange Fund investment income up

Chinese e-population nears 650 million

H

T

ong Kong’s Exchange Fund, which is used to back the Hong Kong dollar, posted a HK$43.6 billion (US$5.62 billion) investment gain in 2014, the Hong Kong Monetary Authority (HKMA) said yesterday.

The figure compared with a HK$81.2 billion investment gain in the same period a year earlier.

HKMA chief Norman Chan attributed the fall to great market volatility last year, as well as marked swings in major currencies and the U.S. central bank paring down its asset purchase programme.

“I think 2015 will be even more difficult,” said Chan, partly given continued global economic uncertainty.

The investment return for 2014 was 1.4 percent, compared to 2.7 percent in 2013.

The HKMA is the key manager of the Exchange Fund, which is under the control of the financial secretary and invests in equities, bonds, foreign exchange and other securities and assets.

Reuters

“Greece leaves behind catastrophic austerity, it leaves behind fear and authoritarianism, it leaves behind five years of humiliation and suffering,” Tsipras, pumping his fist in the air, told thousands of cheering supporters in Athens on Sunday.

Tspiras will be creating the first euro zone government elected to undo the orthodox conservative polices of strict budgetary rigour that German Chancellor Angela Merkel has championed for the bloc’s most troubled economies although he has

not laid out what his first moves in office would be.

For the first time in more than 40 years, neither the New Democracy party of Samaras nor the centre-left PASOK, the two forces that had dominated Greek politics since the fall of a military junta in 1974, will be in power.

Tsipras also expects to talk to the heads of two other parties, the centrist To Potami and the communist KKE, a sign he may look for their support even if they do not join a formal coalition.

The Independent Greeks, a right-wing party with a hardline stance against illegal immigration, disagrees with Syriza on many social issues which could create tensions but it shares its opposition to the international bailout.

An alliance between the two sides would suggest a hard-line stance against Greece’s creditors, who have dismissed Tsipras’s demands for a debt write-off and insisted the country stay on the path of reforms and austerity to get its finances back on track.

Reuters

Yuan’s rate drops on signs of reverse repos

C

he number of Internet users in China has risen to nearly 650 million, authorities said over the weekend, as the world’s largest online population continues to rise.

There were 648 million Internet users in China at the end of 2014, according to the China Internet Network Information Centre (CNNIC), the official Xinhua news agency reported.

The figure represents an increase of 30 million over 2013.

China defines its online population as those who have used the Internet at least once in the last six months.

China already had more web users than any other country in the world.

It is home to a huge e-commerce market and the web has been used by citizens to spotlight government abuses, creating a concern for the ruling Communist Party.

Beijing maintains tight controls over the Internet, blocking websites it deems politically sensitive in a system dubbed the “Great Firewall of China”.

hina’s benchmark money-market rate fell on speculation the central bank will keep injecting funds to the financial system via reverse-repurchase contracts.

The People’s Bank of China gauged demand for seven-, 14- and 28-day reverse-repo agreements yesterday, as well as 91-day bills, according to traders at primary dealers required to bid at the auctions. The monetary authority used reverse repos, which add funds, last week after halting the operations for a year, while it hasn’t used the 28-day contracts for two years.

The seven-day repurchase rate, an indicator of interbank funding availability, fell four basis points to 3.89 percent in Shanghai, according to a weighted average from the National Interbank Funding Centre.

“The PBOC will probably continue the reverserepo operations to smooth out cash demand before the Chinese New Year holidays in late February,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co.

AFP

Bloomberg News