Macau Business Daily, Jan 27, 2015

MOP 6.00 Closing editor: Luís Gonçalves Publisher: Paulo A. Azevedo Number 717 Wednesday January 28, 2015 Year III

Bilateral Investment Treaties Quandary

M

acau companies risk being left out in the cold. Specifically, out of any of the 130 Bilateral Investment Treaties where it is not clearly stated that the SAR is covered. A Singapore High Court has ruled that the territory is not included in an existing PRC treaty signed with Laos in 1993.

A letter from the PRC Embassy in Laos to the local Ministry of Foreign Affairs clinched the ruling.

The SAR Gov’t does not intend to appeal. But that leaves SAR companies on ambiguous ground PAGE

Gaming unions collecting signatures for full smoking ban PAGE 4

Legislators suggest longer period for conversion of bearer shares PAGE 3

CoD Manila to open next week PAGE 6

Construction leads employment growth PAGE 4

2

Suncity brightens up the gloom

HSI - Movers January 27

Name

Despite the turbulence, falling revenues and a slew of shutdowns, a ray of light.

Suncity Group, one of Macau’s biggest junkets, has announced a 7 pct salary hike for staff.

Gaming labour union Forefront of Macau Gaming (FMG) told Business Daily, however, that some workers remain dissatisfied as it only applies to their basic salary. But there are bonuses on top

Galaxy Entertainment

6.48

Sands China Ltd

2.95

China Resources Powe

2.15

Kunlun Energy Co Ltd

1.60

Hang Seng Bank Ltd

1.35

Belle International

-1.89

Bank of China Ltd

-1.99

China Life Insurance

-2.00

Ping An Insurance Gr

-2.11

China Construction B

-2.18

Source: Bloomberg

I SSN 2226-8294

PAGE 6

Economy ‘mostly free’

Caught in the act

Good news from the Heritage Foundation Index of Economic Freedom. It says the local economy continues to be ‘mostly free’. For the seventh year in a row.

The city ranked 9th in terms of economic freedom among 42 economies in Asia Pacific. And ranks 34 in the world. Hong Kong, Singapore, Australia, New Zealand, Chinese Taiwan, Japan, South Korea and Malaysia are still ahead

PAGE 2

Most companies are playing the game. But a gov’t working group has taken issue with one of them.

Of 100 fuel products tested across seven companies, discrepancies were found in the filling amount of Companhia de Combustiveis United Ltd. Meanwhile, legislator Ho Ion Sang smells more than fumes. He is urging the establishment of laws to deal with the possible unifying of prices by gas companies.

PAGE 5

www.macaubusinessdaily.com

%Day

Healing state firms Large state-owned industrial conglomerates have suffered a decrease. Leading the gov’t to concoct healing measures to return the organisms to health. Now to administer the medicine . . .

Page 8

Macau ranks 5th in World Tourism Barometer 2014 | PAGE 5

Brought to you by

2015-1-28

2015-1-29

2015-1-30

15˚ 19˚

15˚ 19˚

15˚ 20˚

2 | Business Daily

January 28, 2015

Macau

China’s Embassy in Laos pushes Macau away from Chinese Bilateral Investment Treaties Macau companies are risking being left out of any of the 130 Bilateral Investment Treaties where it is not clearly stated that the SAR is covered, after a Singapore High Court ruled the territory is not included in an existing treaty signed with Laos in 1993.

A letter from the PRC Embassy in Laos to the local Ministry of Foreign Affairs, which position is approved by the SAR Government, was essential to the ruling João Santos Filipe

jsfilipe@macaubusinessdaily.com

A

letter from the People’s Republic of China Embassy in Vientiane (Laos) was essential for the High Court of Singapore to rule on 20 January that Macau is not covered by the Bilateral Investment Treaty (BIT), signed in 1993 by the Central Government and the Lao People’s Democratic Republic. The decision, written in a document accessed by Business Daily, was taken as part of the case of the Government of the Lao People’s Democratic Republic vs Sanum Investments Ltd, a Macau-incorporated company since 2005.

The initial dispute arose after Sanum, which has been investing in the Southeast Asian country, accused the Laos Government of imposing unfair and discriminatory taxes. According to the company, as they are based in Macau they are considered investors under the BIT signed

by China and Laos. In their

interpretation, this means that they would not have to pay such taxes. However, the local government denies the company’s claims, stating that the Special Administrative Region (SAR) of Macau is not covered by the agreement.

When this case was taken to a court of first instance, it was considered on 13 December 2013 that Macau was included in the BIT. The decision was based on the application of the general rule that a treaty binds the entire territory of each contracting state. In 1993, Macau was considered a Chinese territory under Portuguese administration.

As the document does not state an intention to exclude Macau from the BIT, the court decided that Sanum was considered a Chinese investor.

After the initial decision, the Laos Government decided to appeal to the High Court of Singapore. This court ruled

last week that the SAR is not included in the treaty. The decision was taken after the PRC Embassy in Vientiane replied to a letter from the Laos Foreign Affairs office on 9 January 2014 saying that the BIT did not apply to Macau ‘unless both China and Laos make separate arrangements in the future’.

The Chinese Embassy explained its position by writing the following: ‘In principle, the bilateral investment agreements concluded by the Central People’s Government are not applicable to [Macau] unless the opinion of the Special Administrative Region Government has been sought and separate arrangements have been made after consultation with the contracting party’. In conclusion, the letter adds that ‘in view of the foregoing, [the PRC-Laos BIT] in Vientiane on 31 January 1993 is not applicable to [Macau]’.

The decision of the High Court of Singapore may affect other Macau-based companies investing abroad under bilateral investment treaties signed by the Central Government. From now on, Macau companies may not be considered Chinese investors under the 130 BITs signed by Beijing unless the document clearly states that the SAR is covered by the agreements.

Contacted by Business Daily, the Macau Economic Services stated that Macau territory is not covered by the agreement and that the government would not appeal against the decision.

‘Since the Macao SAR is not covered by the bilateral investment treaty (BIT) between the People’s Republic of China and Lao People’s Democratic Republic, the Macao Government is not in a position to make such an appeal’, the Macau Economic Services explained.

‘Furthermore, according

to Article 136 of the Basic Law, the Macao Special Administrative Region may on its own, using the name ‘Macao, China’, maintain and develop relations and conclude and implement agreements with foreign states and regions and relevant international organisations in the appropriate fields’, it was explained.

Macau currently has two bilateral investment treaties in force signed with Portugal in 2000 and the Netherlands in 2008.

Business Daily contacted Sanum Investments Limited to know whether they would consider appealing the decision but by the time the story went to press no answer was forthcoming.

Sanum Investment runs the integrated resort and casino Savan Vegas in Savannaket (Laos) and the company has been fully owned since 2012 by the Dutch-based Lao Holdings NV.

Macau ranks 34th freest economy in world The Heritage Foundation has released its 2015 Report on the Index of Economic Freedom, rating Macao’s economy as ‘mostly free’ for the seventh consecutive year. The SAR’s overall score on economic freedom is 70.3, well above the world and regional averages, making its economy the 34th freest of 178 economies Joanne Kuai

joannekuai@macaubusinessdaily.com

M

acau’s economic freedom score is 70.3, making its economy the 34th freest in the 2015 Index according to the Index of Economic Freedom report released yesterday. Its overall score is 1.0 point lower than last year, reflecting declines in labour freedom and monetary freedom that outweigh small improvements in the management of government spending and fiscal freedom.

In the Asia Pacific region, Macao is ranked 9th of 42 economies, just behind Hong Kong, Singapore, Australia, New Zealand, Chinese Taiwan, Japan, South Korea and Malaysia.

The Index of Economic Freedom is an annual index and ranking created

by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom of the world’s nations.

According to the report, Macau has one of the world’s highest economic growth rates, driven largely by gambling and tourism. However, over the past five years its economic freedom has declined by nearly 3.0 points, led by ‘large declines in labour and monetary freedoms’. Its economy is now well down in the ranks of the ‘mostly free’, and prospects for more diversified development are ‘unclear’.

The report also pointed out that despite this disappointing trend, Macau’s long-standing history as a free port city and its openness to international trade and investment

provide strong foundations for economic freedom.

‘The judiciary largely respects property rights, and the government has stepped up enforcement of anti– money laundering efforts. Taxes are low, and government spending is prudent’, the report reads.

The researchers also mentioned that despite Macau’s overall regulatory framework being relatively efficient, reform efforts are largely absent.

‘On average, it takes three to four weeks to incorporate a business.

Licensing requirements vary by type of economic activity. The labour market lacks dynamic growth and remains highly segmented. Monetary stability has been relatively well maintained but government subsidies to households

quadrupled between 2008 and 2014’.

The Foundation says it measures economic freedom based on 10 quantitative and qualitative factors, grouped into four broad categories, or pillars, of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom).

The neighbouring SAR Hong Kong’s economic freedom score is 89.6, and continues to be the top-rated economy in the index, followed by Singapore (89.4), while China scores 52.7, ranking 139.

Business Daily | 3

January 28, 2015

Macau

Legislators suggest longer period for conversion of bearer shares Despite the very small size of companies that still issue bearer shares here, legislators ask to extend the 6-month conversion period for these shares to be changed into registered ones Stephanie Lai

sw.lai@macaubusinessdaily.com

L

egislators suggest that the government extend the period for locally registered companies to convert their bearer shares to registered shares, as the city is looking to pass a bill that abolishes bearer shares in compliance with a review by the Organisation for Economic Co-operation and Development (OECD)’s Global Forum on Transparency and Exchange of Information for Tax Purposes.

The bill, which obtained its first approval by legislators on January 12, proposes a six-month period for the conversion of the existing bearer shares issued by local companies into registered shares.

But the first permanent committee of the Legislative Assembly suggested that the conversion period be stretched further, the committee’s president Kwan Tsui Hang told media after their meeting with the government yesterday. “The government reckons that as there is only a small number of companies here that issue bearer shares, six months should suffice as the conversion period,” Ms. Kwan said after the meeting, adding that the conversion period usually ranges from six months to two years in international cases.

Government representatives said that there are currently only 10 local companies that issue bearer shares.

But the value of these shares and the type of these share issuing companies were not mentioned in the meeting, Ms. Kwan said.

“But we [the committee] think that as this bill involves the rights of asset ownership, the government could set a longer period [for conversion],” noted the sub-committee’s president.

She added that the government had no objection towards the legislators’ suggestion. The term of how long this conversion period should last for has yet to be agreed by the legislative meetings to follow.

According to the bill, the failure of the conversion of bearer shares into registered shares within the stipulated period would result in the annulment of the share owners’ rights.

“You cannot call a shareholders’ meeting or receive any dividends if your bearer shares conversion did not take place within the stipulated period – be it six months or a year,” Ms Kwan said.

“And within one year following this share conversion period, for cases of failure of conversion into registered shares, the owners [of bearer shares] can only exercise their shareholders’

rights by undergoing some court procedures,” the legislator added.

She also told media that within one year following the final approval of the bill, the bearer shares are not transferable – a direction that the sub-committee agreed to.

The draft bill is a response to a review of the Global Forum on Transparency and Exchange of Information for Tax Purposes conducted in September 2013.

The organisation indicated that Macau lacked an effective scheme to obtain information about bearer shareholders.

The Legislative Assembly is to pass the bill soon as the forum is set to conduct a third phase review of Macau’s compliance with international standards on transparency of corporations’ ownership next year.

Bearer shares Bearer shares are a type of freely transferable security of which any person who has them in their possession need not have names included on the shares. By contrast, registered shares or conventional shares are issued in the name of a particular investor and recorded in a share register.

In terms of change of ownership, bearer shares are easier to transfer as it only involves the handing over of the ownership certificates without further formalities.

Lionel Leong: 1H gaming revenue dropping

S

ecretary for Economy and Finance Lionel Leong Vai Tac said that according to gaming results data, in the first half of this year, Macau’s gaming revenue is likely to follow the trend of the second half of last year and continue to drop. He said the government would cautiously prepare for certain situations.

Mr. Leong indicated that in the past seven months Macau’s gaming market has undergone relatively large changes. If there is no surprise, the monthly gaming revenue should reach between MOP23 billion to MOP28 billion this year, possibly improving over Chinese New Year, Labour Day, and National Day – traditional Chinese holidays when Chinese tourists travel most often. He added that so far there are no forecasts

of Macau’s 2015 economy.

Nevertheless, the Secretary expressed his optimism about the long-term development of Macau’s economy.

Lionel Leong was talking to media following a trip to Beijing, to which he accompanied Chief Executive Chui Sai On and visited several ministerial departments.

The Chief Executive visited the National Development and Reform Commission (NDRC) yesterday morning in Beijing. The NDRC vice chairman said that the Commission is in the process of drafting the 13th Five-year plan. He said he has learnt that Chui Sai On visited the Ministry of Commerce, Taiwan Affairs Office of the State Council, and the Bank of China and expressed his wishes to further develop

the co-operation between the Commission and the SAR Government.

“The National Development and Reform Commission has many successful and pleasant cooperation [opportunities] with the SAR Government. We hope to discuss topics of both sides’ interest thoroughly that

would be launched during the 13th five-year plan,” said Xu Xian Ping, vice chairman of the National Development and Reform Commission.

Chui Sai On said that the SAR Government attaches great importance to the regional co-operation between Guangdong and Macau, especially with relation to

how Macau can play a better role in the Guangdong Free Trade Zone.

“We have been studying the regional co-operation, then the 12th five-year plan and Framework Agreement on Co-operation Between Guangdong and Macau as well as the general planning of Hengqin and Nansha in Guangzhou,” said Chui Sai On. “We will visit Guangdong officials right after this trip and study together how to better carry out the development plan and cooperate in alliance with the central government’s instructions.”

Chui Sai On will be meeting Hu Chunhua, Communist Party Secretary of Guangdong Province, the province’s top political office.

The trip to Guangzhou is scheduled for Friday.

4 | Business Daily

January 28, 2015

Macau

Gaming unions collecting signatures for full smoking ban Casino workers say gaming operators are using legal loopholes and the smoking ban on mass gaming floors to gain unsatisfactory results and urge a full smoking ban in casinos Joanne Kuai

joannekuai@macaubusinessdaily.com

T

he Macau Federation of Trade Unions is collecting signatures for a petition urging the government to study the revision of the law and a full smoking ban in casinos.

The ceremony to mark the beginning of this event will be held at the Border Gate Square on Friday.

Secretary General of the Macau Gaming Enterprises Staff Association of Macau Federation of Trade Unions, Choi Kam Fu, said that since 2012 most indoor areas in Macau have introduced smoking bans and since the beginning of this year most entertainment venues have banned smoking as well. Casinos stand out as the exception.

Mr. Choi said that despite smoking being prohibited on mass gaming floors since October 6 last year, the result has been far from satisfactory. As a result, casino workers have been subjected to more serious health hazards.

“The gaming operators use legal loopholes and allow their employees to be subjected to an environment that is even worse than before the smoking ban was launched. For those who fail the air quality tests, the government doesn’t really carry out any tough punishment. We would like to see a full smoking ban to give all the casino workers a healthy working

environment,” said Mr. Choi.

Macau’s gaming revenue has suffered seven consecutive months of slump since the second half of last year, with 2014’s gaming revenue falling 2.6 per cent to MOP351.5 billion (US$44 billion). Many gaming analysts attribute the smoking ban as one of the reasons for this fall.

But Choi Kam Fu said the smoking ban is not the main reason driving the plunge and he doesn’t see that a full smoking ban would further hurt the gaming market, putting casino workers’ benefits and welfare at risk.

“As the representative of the union that works on the

frontline said, the customers have been adapting to the new policy (smoking ban on mass floors). The smoking ban is not the main reason for the gaming market adjustment and it shouldn’t be used as an excuse, either.

The health of the casino workers should be put as a priority,” said Mr. Choi.

The activity will last for about one week and the

Construction industry employment expands Gaming remained the main employment sector; however, construction registered the greatest growth in the fourth quarter last year Sara Farr

sarafarr@macaubusinessdaily.com

T

he construction industry employed an additional 3.9 per cent of workers between the months of October and December 2014, bringing the total to 59,000 - up from 56,800 in the preceding September to November period.

In terms of numbers, that translates into an increase of 2,200 workers for the construction industry.

Official figures released yesterday by the Statistics and Census Service

organiser hopes to reach as many casino workers as possible and plans to collect signatures at various places in Macau. They expect to collect at least 10,000 signatures. The final petition will be handed to the government.

The launching ceremony of the signature collection is going to be held from 10:00am-5:00pm at Portas do Cerco (Border Gate Square). The union has been collecting signatures around the city, through their branches, as well as on the Internet. Residents can submit their opinions on the union’s official website, Facebook page and through Wechat.

APOMAC concerned about fall of international value of Euro

T (DSEC) show that gaming remained the largest sector of employment at 87,000 of the total workforce, up 1.3 per cent from that of the previous period of 85,900.

The second largest growth sector of employment was hospitality, which grew by 3.3 per cent to 27,900 in the third quarter of the year from 27,000 in the preceding three months.

Employment in the retail trade industry was the only one of the

five surveyed that registered a slight decrease of 0.6 per cent to 35,200, while employment in the restaurant industry grew slightly by 0.4 per cent to 28,300.

Macau’s overall labour force participation rate has grown steadily since April 2014, standing at 74.4 per cent between October and December 2014, up from 73.2 per cent in the same period the previous year.

The total labour force increased to 405,500, while total employment reached 398,600, an increase of 2,400 from the September-November 2014 period.

The number of unemployed was 7,000 for the three months ended December, up slightly by 100 from the three months ended November 2014, while fresh labour force entrants searching for their first job accounted for 15.2 per cent of the total unemployed, down 5.1 percentage points.

Concurrently, the territory’s underemployment rate has decreased steadily in the last 12 months ended December 2014 to 1.7 per cent from 1.8 per cent.

The median monthly salary of those employed was MOP14,000 in the fourth quarter of last year, an increase of MOP1,000 from that of the previous quarter, while that of Macau residents alone was MOP16,000, up MOP400 in the same period.

he Macau Retirees Association (APOMAC) is concerned about the impact of the fall of the euro as around 1,300 former Portuguese public servants live in Macau and are paid in this currency.

“This drop in the value of the euro is going to affect all the retired people who transferred their pensions from Portugal. The current exchange rate can harm all [public] servants living in Macau”, the President of the Association, Francisco Manhão, told Lusa.

On Monday, the euro hit a historical low vis-a-vis the US dollar, after the anti-austerity party Syriza was declared the winner of the Greek general election.

In relation to the MOP, yesterday the euro bought MOP8.9. However, this drop has not affected the pensions of retirees yet as the payment of the pension was made on 20 January, when the euro bought MOP9.2.

According to the President of APOMAC, pensions are only affected when the euro buys less than MOP9.

“We are monitoring the situation and if this trend continues we will take the necessary measures”, Mr. Manhão said, revealing that the Association will meet on 4 February in order to take a view on the issue.

Some 1,300 retired Portuguese public servants living in Macau receive their pensions through Portugal.

According to APOMAC, the pensions range from Euro300 (MOP2,700) to Euro4,000 (MOP36,000).

Lusa

Business Daily | 5

January 28, 2015

Macau

Discrepancies found in Combustiveis United’s gas products A government working group has tested nearly 100 fuel products in the city supplied by seven companies, finding errors in the filling amount of some of the products of Companhia de Combustiveis United Ltd. Meanwhile, legislator Ho Ion Sang has urged the establishment of laws to deal with the possible unifying of prices by gas companies.

Kam Leong

kamleong@macaubusinessdaily.com

A

sampling inspection of the fuels and gas products in the city by an inter-departmental government working group revealed that only one of the seven gas companies in Macau - Companhia de Combustiveis United Limitada - was found to have errors in the labelled filling amount and actual amount of its products, the Macau Economic Service (DSE) announced yesterday.

The inter-departmental group tested nearly 100 fuels and gas products of the seven gas companies between July and December 2014; namely, those of Companhia de Petróleo Oriental Lda, Caltex Oil Macau Ltd., Tak Hing Hong Gás (Macau) Limitada, Mei Fong Gas Co Ltd., Nam Kwong Petroleum & Chemical Co., Ltd. and Shell Gas (LPG) Macau Limited, in addition to Combusiveis United which was found to have errors.

Nevertheless, DSE claimed that only a small number of the samples from Combusiveis United were found to have deviated in its products in terms of filling amount, identifying a discrepancy of between -0.9 KG and 0.5 KG. The Bureau added that the working group may take such sampling actions in the future, and will continue studying the change of fuel price and related problems.

Meanwhile, legislator Ho Ion Sang filed a written interpellation yesterday, urging the government to initiate laws regulating fair trade to deal with the doubts of the public that the gas companies in the city have been setting prices of fuel and gas products to dominate the market.

‘The Macau Fuel Industry Association (Associação dos Industriais de Combustíveis de Macau) announced in 2013 that they would stop distributing information of fuel price adjustments,

while individual companies would start announcing adjustments themselves. As such, they should have more

freedom in setting their own prices. However, until now, residents have been reflecting on the time that

the gas companies have been announcing adjustments, as well as on the range of similar adjustment,’ the legislator wrote, perceiving the problem of joint price may exist as the products’ prices of these companies are similar when their sources are different.

In addition, he indicated that the price of gas products in Macau did not follow the international price practice of dropping right away, urging the government to conduct appropriate measures to increase the transparency of information about gas prices.

‘Whenever each gas company adjusts their prices, they do not detail the factors driving the adjustment, such as transportation, storage or wage costs… Given the low transparency in the operations of gas companies, the public does not have any ability to bargain on the price but [can only] afford such expensive gas reluctantly,’ he wrote.

Macau ranks 5th on World Judicial decision Tourism Barometer 2014 pending probe into The SAR holds the place occupied in the scandal-ridden Tsang previous barometer in terms of tourism receipts. In terms of international tourist arrivals, Macau placed 19th

M

acau ranked 5th in terms of tourism expenditure according to the United Nations World Tourism Barometer 2014 Edition published yesterday. The money spent by tourists in the Special Administrative Region increased 13.7 per cent from US$43.7 billion in 2012 to US$51.6 billion in 2013.

Although Macau registered the second largest increase in the top ten in terms of tourism receipts, only after Thailand – which amount went up 24.4 per cent from US$33.8 billion to US$42.1 billion – the SAR maintained the same position as last year. The United States tops this ranking with a total of US$139.6 billion spent.

China ranks fourth (US$51.7 billion spent), right in front of Macau, and Hong Kong is 10th (US$38.9 billion).

In Asia and the Pacific Region, China and Macau achieve roughly the same market share of tourism

receipts with a share of 14.4 per cent each, which puts them top of the list.

In terms of International Tourist Arrivals, Macau cannot make it into the top 10, ranking 19th with a total of 14,268 million international visitors in 2013, an increase of 5.1 per cent from 2012, when 13.577 million international tourists entered the SAR. Mainland tourists are considered national tourists and so they are not counted in the study.

France is the most visited place with a total of 83,013 million visitors in 2012. The French data for 2013 has not been revealed yet. As for China, it ranks fourth, despite registering a decrease of 3.5 per cent from 55.7 million visitors in 2012 to 55.7 million in 2013. Hong Kong ranked 12th with a total of 25,661 million international visitors, an increase of 8 per cent from 2012 to 2013.

J.S.F.

A

s the probe of Hong Kong’s graft buster into allegations that former Hong Kong Chief Executive Donald Tsang Yam Kuen accepted favours from tycoons ends, the city’s Director of Public Prosecutions, Keith Yeung Kar Hung, said a decision on whether Mr. Tsang would face charges would be made soon, Hong Kong media has reported.

Speaking to the Legislative Council on Monday, chief prosecutor Yeung confirmed that the investigation into Mr. Tsang by the Independent Commission Against Corruption (ICAC) since early 2012 has concluded.

Mr. Tsang was embroiled in several scandals before his term ended in 2012, which included reports of his having accepted tycoons’ invitations and travelled by private jet to Phuket and Japan, as well as on yachts to Macau and [accepted] an offer to stay in a topclass suite at The Venetian Macau resort.

Mr. Tsang was also accused of not declaring that he would be leasing a Shenzhen penthouse from East Pacific (Holdings) Ltd. chairman Bill Wong Cho Bau at a bargain price when the Executive Council of Hong Kong was weighing the merits of a radio licence for Digital Broadcasting Corp., in which Mr. Wong was a prinicipal investor, the Standard reported.

Although refusing to cite specifics on the progress of Tsang’s case, Mr. Yeung said on Monday that a decision would be made soon by the Department of Justice.

If Mr. Tsang does face prosecution for alleged misconduct in public office, it would be another major graft case following the disgraced former chief secretary of Hong Kong Rafael Hui Si Yan’s conviction on five of eight charges related to bribery and misconduct in public office – resulting in a seven and a half years jail term.

S.L.

6 | Business Daily

January 28, 2015

Macau

Suncity announces 7pct wage rise The industry may be going through hard times but Suncity Group has announced a salary hike for its workers. Labour union FMG welcomes the rise despite only the basic salary being increased Kam Leong

kamleong@macaubusinessdaily.com

O

ne of the city’s biggest junket operators, Suncity Group, has announced it will increase the wages of its workers by 7 per cent on Monday, despite the slump in the VIP gaming business. Gaming labour union Forefront of Macau Gaming (FMG) told Business Daily that some of the workers of the Group are not satisfied with the hike, as it is only applicable to their basic salary.

“The hike of salary from Suncity has attracted a lot of attention. After all, a 7 per cent increase is quite high in such difficult times in the industry. However, the salary of VIP workers are primarily divided into basic salary and tea money [tips].

As such, the basic salary of workers at basic level is around MOP7,000 (US$875) or MOP8,000 only, which means his salary will only be lifted by MOP560 or less,” the vice president of the union, Lei Kuok Keong, told us in a phone interview yesterday.

“Meanwhile, the management system of Suncity is stricter than

that of other VIP rooms; hence, some of the members have told us that they were not really satisfied with the hike. However, they perceive that it’s better [to have an] increase than nothing given the hard times of the industry,” he remarked.

In addition to the increase in salary, the junket operator will distribute two bonuses to employees, of which the total amount will be worth three

months’ salary to workers.

Suncity is probably the first junket operator to announce an increase in wages for workers this year, whilst some junket operators are closing their VIP rooms.

The vice-head told Business Daily that the union had estimated that nearly one-third of VIP rooms may have actually closed following the dive in VIP gaming revenues.

Asked by Business Daily whether he could provide the names of these VIP rooms that claimed to have closed, Mr Lei said such VIP rooms were small ones that may not be recognised by the public.

“Some of the junket operators may only own one room in Macau.

Nobody knows when they have closed their rooms as people don’t really care about these small operators,” Mr. Lei said.

Nevertheless, on the previous Sunday, Portuguese–language media outlet Radio Macau reported that the number of the city’s VIP rooms had dropped to 183 from 217 in January 2014, without citing their source.

Earlier this month, two local junket operators announced the closure of some of their VIP rooms.

David Group is to shut down three of its seven rooms from this Saturday, while junket operator Gold Moon Group closed one of its VIP rooms in Sands Cotai Central on Tuesday.

CoD Manila to open next week Corporate Melco Crown has announced February 2 as the grand opening date for its Philippines integrated resort and casino

C

ity of Dreams Manila is set to open on Monday February 2, Melco Crown Entertainment’s subsidiary Melco Crown Philippines has announced.

In a statement released yesterday, the company said its integrated casino resort’s grand opening will be officiated by co-chairman and CEO Lawrence Ho, and co-chairman James Packer, as well as Melco Crown Philippines chairman and president Clarence Chung.

“Our official Grand Launch finally delivers our stated commitment to bring Manila its first international integrated leisure destination offering.

The new resort complex will deliver a diverse collection of contemporary leisure and lifestyle brands from all over the world,” Mr. Chung said.

On December 14 last year, the property opened its doors for the day, welcoming around 20,000 visitors. So

far, as many as 600,000 have visited the property during its sneak preview period.

City of Dreams Manila has captured the imagination of the Hollywood elite. The property features in a new promotional trailer, specially commissioned by Melco Crown Entertainment, starring Robert De Niro, Brad Pitt and Leonardo DiCaprio.

The TV commercial was directed

by Academy Award winner Martin Scorsese and was produced by RatPac Entertainment producer and director Brett Ratner.

“Together with the soon-to-beannounced opening of DreamWorks’ DreamPlay, which is an educational interactive playspace for families, an exceptional entertainment experience now awaits all types of traveller and visitor from around the region and the world,” Mr. Chung added.

S.F.

Michelin-starred Sushi Maestro opens outlet in Macau Visitors and guests at City of Dreams Macau can look forward to indulging themselves in an authentic Omakase experience delivered by a team of seasoned Japanese sushi chefs trained by Master Shinji Kanesaka, one of the most renowned sushi chefs in the highly competitive Ginza district of Tokyo. Named Shinji by Kanesaka, the Macau outlet is coming soon to City of Dreams Macau’s Crown Towers, which will mark the reputed Kanesaka brand’s debut in Greater China. The opening will also diversify the premium dining offerings at City of Dreams Macau and further raise its reputation as one of the finest dining destinations on Cotai, Macau. Born in Chiba Prefecture in 1972, the sushi maestro opened his first restaurant Sushi Kanesaka in the prime Ginza district of the capital of Japan at the very young age of 28. The restaurant is considered a temple of sushi by his legion of fans and has been on the Michelin star award list since 2008.

CTM pick up ‘Macau Elite Service Award’ CTM has been awarded ‘Best Public Mobile Telecom Operator Brand’ in the Macau Elite Service Award 2014 organized by Exmoo News and co-organised by TDM. The Macau Elite Service Award 2014 was open for public voting between 15th December 2014 and 9th January 2015, through which the organisers sought to recognise elite corporate brands, as well as encourage more corporations to serve residents with high quality services. More than 70 corporations from 12 industries participated in the campaign.

With CTM’s renowned brand image and unrelenting efforts in providing excellent telecom services over the past 33 years, the company was nominated by a judging committee comprising more than 20 institutions, and was selected as one of the four candidates to run in the voting in the mobile telecom category, eventually winning the accolade of ‘Best Public Mobile Telecom Operator Brand’ on a ‘one person, one vote’ basis.

Business Daily | 7

January 28, 2015

Gaming

Caesars says creditor deal may die if early bankruptcy stands effort that has already spawned several lawsuits.

Looser standard

C

aesars Entertainment Operating Co.’s refinancing deal with senior noteholders may die if a court chooses January 12 as the start date for its bankruptcy, a lawyer for the casino company told a federal judge.

Opponents of the deal brought an involuntarybankruptcy petition against the main operating unit of Caesars Entertainment Corp. on January 12 in Wilmington, Delaware. Caesars filed its own bankruptcy petition for

the unit three days later in Chicago.

The opponents’ filing fell just inside a 90-day cut-off for creditors to challenge certain transactions key to the proposed restructuring support agreement Caesars reached with senior noteholders, said Paul Basta, an attorney for the company.

“If you go to the earlier filing day, you likely jettison the RSA,” Basta, a partner at Kirkland & Ellis LLP, told U.S. Bankruptcy Judge Kevin Gross Monday, referring to

the restructuring support agreement.

Caesars wants the judge to consider its January 15 bankruptcy filing the official start of the effort to reorganise. It also asked Gross to send the case to Chicago.

The decision might make a big difference to the company’s controlling shareholders, Leon Black’s Apollo Global Management and David Bonderman’s TPG Capital, along with other insiders in a restructuring

Federal courts in Chicago apply a looser standard when deciding whether to release company affiliates, owners or insiders from liability related to a bankruptcy. Such thirdparty releases are harder to come by in Wilmington, according to Howard Seife, a bankruptcy attorney at Chadbourne & Parke LLP in New York who isn’t involved in the case.

Basta said the different standard was one factor in Las Vegas-based Caesars’ decision to seek bankruptcy in Chicago.

In testimony today, lowerranking creditors opposed to the restructuring questioned whether the Caesars operating unit could legally file for bankruptcy in Chicago. The company used one affiliate incorporated in Illinois as the legal justification for the filing.

The chief executive and the chief restructuring officers of the main operating unit acknowledged that the affiliate, Des Plaines Development LP, wasn’t insolvent.

To be allowed to file for bankruptcy in a particular court, a company must have

some connection to the area or be incorporated there.

Regardless of venue, the company must also be unable to pay its current or future debts.

Pricey fight The judge who gets the case will referee an expensive legal fight in which the lowerranking creditors will try to lay claim to assets, including a Las Vegas Strip casino, that Caesars shifted to other units and to undo a US$1.75 billion refinancing deal.

“Each side is trying to get in front of a particular court because of how they think that court might rule,” said Charles Tabb, a bankruptcy specialist and professor at the University of Illinois College of Law in Champaign. Tabb hasn’t worked on the Caesars matter, although his law firm, Foley & Lardner LLP, is involved in the bankruptcy.

Caesars has accused the lower-ranking creditors of trying to disrupt a prebankruptcy deal with senior bondholders. The lowerranking creditors say Caesars insiders are trying to dodge responsibility for their actions by picking the court that’s more receptive to shielding insiders.

Bloomberg

Trump Casinos to make law on labour-contract dispute

A

dispute involving two casinos in Atlantic City, New Jersey, owned by Trump Entertainment Resorts Inc. will produce the first appellate-level decision on a labour-law issue that has divided lower courts.

The outcome may mean some bankrupt companies can be stuck with onerous collective-bargaining agreements and forced to liquidate.

Lower courts in New York, New Jersey and Delaware disagree over whether a bankruptcy judge possesses the power to modify a labour contract that, by its terms, has already expired.

Unite Here Local 54 asked the U.S. Court of Appeals for the Third Circuit to weigh an October decision by U.S. Bankruptcy Judge Kevin Gross in Wilmington, who, siding with the casino operator, claimed the power to reduce wages or benefits set out in expired contracts.

Trump Entertainment filed for Chapter 11 protection in September, seeking immediate relief from the labour contract at the 2,000-room Trump Taj Mahal. Its 906-room Trump Plaza had already closed.

Carl Icahn, the dominant holder of US$285.6 million in first-lien notes, has been planning to buy the properties in exchange for debt, although only if labour and benefit costs are reduced.

In permitting changes to the expired contract, Gross said the union “refused to negotiate” and he called some of its behaviour “egregious.”

Gross let the union take a direct

appeal to the Philadelphia-based Third Circuit, bypassing the district court.

The union filed its brief on January 22, making an argument that was adopted by U.S. Bankruptcy Judge Robert Drain in White Plains, New York, who concluded in 2012 in the Hostess Brands Inc. bankruptcy that the power to terminate a collectivebargaining agreement ends when the contract expires.

U.S. Bankruptcy Judge Donald H. Steckroth in Newark, New Jersey, in February reached the same result as Gross in a case called 710 Long Ridge Road.

The casino union told the appeals court that a bankruptcy court has no power to modify conditions of employment that are imposed by federal statute.

The union’s argument goes this way: Until a union contract expires, a bankruptcy court can use Sections 1113 and 1114 of the Bankruptcy Code to modify wages and benefits.

Once the contract expires by its terms, however, the National Labour Relations Act prescribes that the terms of the contract remain in force until the National Labour Relations Board declares an impasse.

The union said post-expiration terms of employment are governed by the NLRA, not the contract. The Bankruptcy Code grants the power to modify only “collective bargaining agreements,” not “employers’ independent statutory obligations under the NLRA,” according to the union.

The appeal may determine whether some companies will be able to successfully reorganise.

Typically, bankruptcy courts move relatively quickly to modify union contracts and cut costs when a company’s survival is at stake. The NLRB can be slower to declare an impasse, when the employer is entitled to impose new terms of employment under the NLRA. Some insolvent companies may be unable to survive the additional time required for NLRB proceedings.

The courts will decide what the words of the NLRA and Bankruptcy Code mean when read together.

However the appeal turns out workers can still determine whether a bankrupt company lives or dies.

Except for airline and railroad employees, who can’t strike even if their wages are reduced, workers are at liberty to shut a company down if they don’t like the wages imposed by the bankruptcy court.

The Third Circuit has expedited the appeal. Trump Entertainment can file an opposition brief on February 5.

The union will reply on February 12.

A hearing is scheduled in bankruptcy court on January 28 to seek approval of disclosure materials explaining the Icahn-backed acquisition plan. Icahn said he will walk away from the deal if the union prevails.

The casinos have been in bankruptcy before. They confirmed a reorganisation plan in 2010, when the existing first-lien debt was issued.

Second-lien creditors became the primary shareholders.

Bloomberg

8 | Business Daily

January 28, 2015

Greater China

Big state-owned industrial firms slide in 2014 Beijing is set to start publishing a series of planning documents before the end of March aimed at boosting the performance of state enterprises

P

rofits from core operations at China’s large state-owned industrial conglomerates fell a hefty 12.3 percent in 2014, the National Bureau of Statistics said on yesterday, adding urgency to central government plans to overhaul the country’s inefficient state sector.

Last year’s total profits at the biggest state industrial firms declined 5.7 percent from a year earlier to 1.4 trillion yuan (US$224 billion) versus a 6.4 percent rise to 1.5 trillion yuan in 2013.

Beijing is set to start publishing a series of planning documents before the end of March aimed at boosting the performance of state enterprises,

19.2 pct

increase in stateowned enterprises financing expenses in 2014

which is widely expected to be the most ambitious reform of governmentowned industry in nearly two decades.

Shrinking profitability at stateowned companies was “very normal and foreseeable”, as companies prioritised structural reforms and upgrades, said Zhang Chunxiao, professor of economics at Peking University and adviser to the Stateowned Assets Supervision and Administration Commission.

The new data will “motivate the Chinese government and state-owned enterprises to think carefully about how to step up structural reforms, upgrading traditional industries

to improve their ability to survive market competition and developing emerging industries and technology innovation,” Zhang said.

State-owned enterprises were hit by surging operating costs, notably a 19.2 percent jump in financing expenses from a year earlier, the Ministry of Finance said in a report last Thursday.

The Central Commission for Discipline Inspection (CCDI), the Communist Party’s anti-graft authority, is targeting insider corruption at 53 strategic state firms, including China Southern Airlines Co and China Unicom, in a bid to prevent the loss of state assets during the reform process.

The CCDI has sent inspection teams into scores of governmentowned conglomerates over the last two years, placing 21 executives under investigation for wrongdoing.

Profits at China’s large private firms reached 2.2 trillion yuan last year, up 4.9 percent from 2013, according to the statistics bureau, while overall China’s factory profits grew at their weakest rate in two years in 2014.

Reuters

IMF to debate adding yuan to basket The yuan has jumped to the top of the list of priorities for those running market operations at the world’s big banks Patrick Graham and Anna Yukhananov

C

hina is expected to make another push for the inclusion of the yuan in the International Monetary Fund’s in-house currency basket in a review later this year and this time round its G20 partners may be willing to listen.

U.S. officials say they will wait for an IMF paper on the issue later this year before taking a view, but officials in Asian and other G20 capitals say that, unlike in the review five years ago, the issue will at least be a live discussion.

The yuan, or renminbi, has made huge strides since Beijing’s last push for more formal international recognition of the currency as global financial leaders were struggling to deal with the fallout of the sub-prime and banking crisis.

The chief argument against its inclusion then in the Special Drawing Rights (SDR), a basket of yen, dollars, pounds and euro used as the IMF’s in-house unit of account, was that the renminbi was far from freely “usable” or convertible.

That argument is gradually weakening as yuan offshore trading surges. This month leading currency platform EBS ranked it in its top five most traded currencies.

One Asian G20 source said it would be welcomed by those like South Korea as an encouragement for more investment generally in China.

But the source said any decision was likely to be a roadmap rather than a cut-and-dried adoption of the yuan.

“I think this could well be the year the yuan is included,” said a senior official at an Asian central bank.

Mechanics The first step in the review of the basket is an informal board meeting in May, followed by a formal review in the autumn. Any changes would

KEY POINTS China pushing for greater recognition of yuan First review of IMF currency basket since 2010 this year U.S. view likely to prove crucial

come into effect in January 2016 but would require a 70 or 85 percent majority on the IMF council.

Either way, officials say U.S. support will be crucial.

Harvard University professor Jeffrey Frankel said it was premature to consider the yuan “freely usable” but there may be other political reasons for a change this year.

The Group of 20 major governments agreed in 2010 to give China and other emerging markets a greater say at the IMF, while reducing the dominance of Western Europe on its board. But those changes have not been ratified by the U.S. Congress.

“I think it is important to acknowledge the rise of China, and let them have a fair, proportionate

weight in institutions like the IMF,” Frankel said.

“If I were at the top of the IMF or the White House, I might feel that since China cannot be accommodated (with quotas) then we have to accommodate them in this other way (through SDRs), which after all won’t do any harm.”

While China has long met conditions on its exports forming a large enough percentage of global trade, the debate is likely to centre on its capital markets.

Although still tightly governmentcontrolled, offshore yuan trading soared some 350 percent on Thomson Reuters trading platforms last year.

Ten nations now buy Chinese assets via its “RQFII” scheme, 14 countries have yuan clearing arrangements, and

28 other central banks have currency swap lines with China.

But David Dollar, a former U.S. Treasury attaché in China now with the Brookings Institution think-tank in Washington, still had his doubts.

“My sense is at the moment, the yuan is not freely usable,” he said.

“A big asset management firm can’t just suddenly decide to take a big position in Chinese yuan, and buy Chinese government bonds. That’s all highly restricted.”

Nevertheless, the yuan has jumped to the top of the list of priorities for those running market operations at the world’s big banks, and London, the world’s main currency trading centre, is clearly enthusiastic.

Reuters

Business Daily | 9

January 28, 2015

Greater China Industrial profits up Profits of Chinese industrial businesses hit 6.47 trillion yuan (US$1.05 trillion) in 2014, up 3.3 percent year on year, official data showed yesterday. The growth rate was 8.9 percentage points lower than that of 2013, the National Bureau of Statistics (NBS) said. The bureau’s calculations include companies with annual revenues exceeding 20 million yuan. In December 2014 alone, these companies’ combined profits fell 8 percent year on year to 850.73 billion yuan, widening from a 4.2-percent decline in November.

Li sees10 mln jobs in 2015 China’s Premier Li Keqiang pledged to create at least 10 million new jobs in 2015, the state run China Daily newspaper said yesterday, despite economic growth that slowed to its weakest pace in nearly a quarter of a century last year. Beijing views healthy employment levels as a top policy priority and an important condition for social stability.

Last year the country created around 13 million jobs. “Stress tests show the possibility of a large amount of unemployment, which could lead to social instability if the economy cools down too fast,” Li said at a meeting with economic experts and business leaders on Monday, the newspaper said.

Foreign service trade deficit grows China continued to see a bigger deficit in foreign service trade in December, data from the State Administration of Foreign Exchange (SAFE) showed yesterday. The country’s service trade deficit amounted to 143.9 billion yuan (US$23.4 billion) in December, widening from 127.9 billion yuan in November, according to the SAFE. Last month, the country spent a total of 252.4 billion yuan in international service trade, more than double the 108.5 billion yuan it made in the month.

For the whole of 2014, the aggregate service trade deficit totalled 1.216 trillion yuan, with 1.138 trillion yuan in revenues and 2.354 trillion yuan in spending.

Zhao Wei buys into Alibaba Pictures Chinese actress Zhao Wei has taken a major stake in Alibaba Group Holdings Ltd’s film division, bringing some star power to a company that warned on Monday it could rack up losses of as much as HK$600 million (US$77.41 million) for 2014. The star of “Shaolin Soccer” and “Red Cliff” and Huang Youlong, her husband, paid more than HK$3 billion for 9.18 percent of Alibaba Pictures Group Ltd, according to Hong Kong stock exchange filings. They made the acquisition through holding company Gold Ocean Media in December.

Imported iron ore prices continue to fall Prices of imported iron ore at 33 major Chinese ports have continued a downward trend due to a sharp decline in the price of steel, a report showed yesterday. For the week ending January 26, the price index for iron ore imports with a 62-percent purity grade dropped two points from the previous week to 66. The index for imports of 58-percent purity grade went down one point to 59, according to a Xinhua-China Iron Ore Index report. Inventories of imported iron ore stood at 101.73 million tonnes, up 2.86 percent, or 2.83 million tonnes, over the previous period.

SHG-HK link giving boost to China bonds Although market participants are expecting further monetary loosening measures from Beijing Michelle Chen

D

espite its lukewarm start, the landmark scheme connecting the Shanghai and Hong Kong stock markets is paying dividends for foreigners interested in another asset class -- Chinese bonds and other fixed-income products.

Hedge funds which had nearly exhausted their China investment quotas have been able to use the Stock Connect to juggle their portfolios and snap up Shanghai-listed convertible bonds, one of the hottest products in Asia markets in the past month as Chinese share prices went through the roof.

Hedge funds aren’t alone in their appetite for Chinese bonds, despite worries about the impact of the cooling economy on credit quality.

The biggest foreign investment quota holder in China, Hong Kongbased CSOP Asset Management, last week launched an exchanged-trade fund (ETF) targeting ultra short-term bonds in the world’s second-largest economy.

“The new bond ETF became available thanks to the Stock Connect, which freed up some of our RQFII quota” by offering another channel for investment, a person with direct knowledge of the matter at CSOP told Reuters.

In the alphabet-soup of Chinese investing, the RQFII or Renminbi Qualified Foreign Institutional Investor scheme allows foreign investors and central banks who hold the yuan currency to re-invest it in Chinese capital markets.

The RQFII quota for Hong Kong, the world’s biggest offshore yuan centre, has been almost exhausted since September, when China’s State Administration of Foreign Exchange (SAFE) allocated all the 270 billion yuan (US$43.18 billion) quota to asset managers based in the former British colony.

As a result, some fund managers

had to turn down their clients’ new orders in the past few months when China’s A-share market surged to more than five-year highs.

Before the Shanghai-Hong Kong Stock Connect was launched last November, the RQFII and its older cousin the QFII (Qualified Foreign Institutional Investor) programme were the main channels through which overseas investors could invest directly in China.

Foreign investors under RQFII can make investments in China’s

Many of the hedge funds have been very active using Stock Connect … . There’s a lot of demand coming in and the market wants to have more Tae Yoo head of client business development & fixed income and currency development Hong Kong Stock Exchange

bond and stock markets at their own discretion; while QFII investors have to invest at least 50 percent of their funds in equities and hold no more than 20 percent in cash.

Equity products account for the lion’s share of RQFII products, compared to bond products. CSOP, for example, saw more than 80 percent of its quota used for stock products before the new bond ETF. But analysts say that may change if fixed-income products prove lucrative and more investment quotas can be re-allocated to bond market with the help of the Stock Connect.

Market participants are expecting further monetary loosening measures from Beijing after the world’s secondlargest economy recorded its slowest growth in 24 years, benefiting bond markets.

In addition to the convertible bonds that hedge funds stampeded into with the hope of benefiting from booming stock prices, other fixedincome products foreign investors like are mainly investment-grade ones, such as government bonds or policy bank bonds.

“The Hong Kong intermediaries (that facilitate foreign investment to China) have been very, very busy in the last two months,” said Tae Yoo, head of client business development & fixed income and currency development at the Hong Kong Stock Exchange.

“Many of the hedge funds have been very active using Stock Connect as a portion of their QFII quota and using QFII quota to access Shanghai’s convertible bonds. There’s a lot of demand coming in and the market wants to have more,” Yoo said.

A convertible bond is a bond with an embedded stock option that enables its holders to convert it to a common stock of the company that issues it.

Reuters

10 | Business Daily

January 28, 2015

Greater China Kaisa failed to unblock sales during government talks

Top-performing Asia fund positive about insurers Bei Hu

The developer’s bond prices have bounced in the past week on hopes the company may be bought out or that the sales block would be removed

T

roubled Chinese property developer Kaisa Group failed to remove a local government block on sales at its Shenzhen projects after a meeting with officials on Monday ended without progress, a company source familiar with the talks said.

Kaisa’s top executives held a high-level meeting with senior local government officials on Monday afternoon in the Longgang district in northern Shenzhen, where sales at two of Kaisa’s new projects are blocked, according to the source.

“There was no progress at all in the meeting,” the Kaisa executive said. “It’s a Central Government order to keep the blockage so even the Shenzhen government has no means to resolve this on its own.”

Trading in Kaisa’s shares has been suspended since December

Greenwoods will continue to hold some A-shares while looking for investment opportunities in Hong Kong-listed stocks (HK stock market pictured)

A

sia’s top-performing large hedge fund is holding on to yuan shares of Chinese insurance and utilities companies, even after the Shanghai Composite Index surged 53 percent in 2014.

Monetary easing in China will help bolster investment-linked insurance sales and make the dividend yields of utility companies more attractive compared with lower-yielding bank deposits and bonds, Joseph Zeng, a partner and Hong Kong office head of Greenwoods Asset Management, said in an interview.

Greenwoods’ US$1.4 billion Golden China Fund returned 30 percent last year, the second highest of 27 hedge funds globally with at least US$1 billion of assets which have reported December numbers, and the highest return for an Asia-focused fund in that category, according to data compiled by Bloomberg. The majority of its return in 2014 was from yuan-denominated class-A shares listed in China, Zeng said.

Easing monetary policies helped drive the Shanghai composite from the worst-performing major stock gauge tracked by Bloomberg in the first five-and-a-half months of 2014 to the best by year-end, raising questions about whether there are still bargains to be found.

In June, “people were pessimistic about A-shares and we told them A-shares presented a rare investment opportunity,” said George Jiang, Greenwoods’ chief executive officer, in teleconference from Shanghai. “We would say to them now that we will continue to hold some A-shares while looking for investment opportunities

in Hong Kong-listed stocks and American depositary receipts.”

Lower rates China’s central bank unexpectedly pumped money into the banking system using reverse-repurchase agreements for the first time in a year last week and repeated the act yesterday, lowering money-market rates.

The Go l d en C h i n a F u n d , Greenwoods’ oldest and largest China hedge fund, makes large investments in its top ideas, with its 10 biggest stock positions accounting for just over half of its assets, according to Zeng.

Its holdings of yuan shares surged to more than 40 percent of assets under management last year, from above 10 percent in late 2013, said Zeng. The fund bought yuan shares in large, high-quality life insurers, utilities, consumer and real estate companies, including Ping An Insurance (Group) Co. and hydro power producer SDIC Power Holdings Co., Zeng said.

‘Slightly undervalued’ Stronger stock markets will improve insurers’ investment returns, in addition to business growth as the government encourages increasing insurance ownership, said Zeng.

SDIC’s share price has more than doubled since March last year.

The strongest full-year rally since 2009 lifted the Shanghai Composite Index’s price-to-earnings ratio to 16 times, from below 10 times in July, according to data compiled by Bloomberg. That compared with more

than 18 times for the Standard & Poor’s 500 Index and nearly 23 times for the Stoxx Europe 600 Index.

Yuan shares have gone from “extremely undervalued” to “slightly undervalued,” said Zeng. The fund’s yuan-share holdings still stand at above 30 percent of its assets. In addition to scouting for opportunities among Hong Kong- and U.S.-listed stocks, the Golden China Fund is shifting some assets to medium-sized companies with growth prospects and lower valuations, Jiang said.

Discretionary consumption companies, such as gold, jewellery retailers, liquor, furniture and appliances makers, may outperform this year, said Zeng.

“They have been hit hard by the anti-corruption campaign and slower economic growth,” said Jiang. “We’re also looking for undervalued property companies with good governance or those that can take over other companies in this softening property markets.”

Greenwoods oversees about US$4.6 billion in various funds and accounts focused on public equities at the end of last year, according to Zeng.

The source said he wasn’t at the meeting in person but was briefed on the discussions by those who were.

A Kaisa spokeswoman said she wasn’t aware of the talks.

The developer’s bond prices have bounced in the past week on hopes the company may be bought out or that the sales block would be removed, rallying after they struck all time lows earlier this month.

Ahead of this news, its bonds due 2017 added around 7 points to trade at 66/69 cents on the dollar amid market talk its projects in Shenzhen will be unblocked in two weeks. That’s near a doubling from the price they hit after Kaisa missed an interest payment on one of its bonds on January 8.

Trading in Kaisa’s shares has been suspended since December.

Kaisa is struggling after a string of senior executives left unexpectedly and authorities blocked sales at some of its projects in Shenzhen late last year.

The company is now in a grace period after missing its interest payment and has until February 9 to pay the money or else become the first Chinese developer to default on its offshore debt.

Bloomberg News

Reuters

The strongest fullyear rally since 2009 lifted the Shanghai Composite Index’s price-to-earnings ratio to 16 times

Business Daily | 11

January 28, 2015

Asia

South Korean exports battered by falling currencies The won has been one the strongest currencies among major trading economies over the past three years Choonsik Yoo

Hyundai Motor, which together with affiliate Kia Motors is the world’s fifth-largest automaker, said falling currencies were having an impact

S

outh Korean exporters look set for their worst performance in several years in the current quarter, with the euro’s plunge to 11-year lows dealing an additional blow as China, their biggest market, cools and their rivals in Japan enjoy a revival.

Home to export powerhouses such as Samsung Electronics and Hyundai Motor, South Korea will release full January trade data on February 1, the first major exporting economy to do so.

The signs are not good for an economy that, with exports last year

equivalent to 51 percent of gross domestic product, is one of the world’s most heavily reliant on trade.

Customs data released last week for the first 20 days of January showed South Korean exports fell 9 percent in dollar value year-on-year. While the figures can be volatile, the calendaradjusted daily average of US$1.7 billion was the worst since January 2010, according to HI Investment & Securities.

Park Sang-hyun, economist at HI Investment, said he was reviewing his 4.5 percent growth forecast for first-quarter exports, measured in

Sri Lanka’s central bank keeps policy rates steady The commercial banks’ statutory reserve ratio was unchanged at 6.00 percent

S

ri Lanka’s central bank kept key policy rates steady at record lows for a 12th straight month yesterday, as expected, and said inflation was expected to ease

further with the economy expected “to record a robust performance” in the period ahead.

It left the standing deposit facility rate and the standing lending facility

nominal dollar-value terms, for a possible revision down to zero or negative.

That would be the worst since late 2012.

An official at Hyundai Motor, which together with affiliate Kia Motors is the world’s fifth-largest automaker, said falling currencies were having an impact.

“It is a burden for us, for example, increasing the cost of marketing,” said the official, declining to be identified.

The yen’s weakening by more than one-third against the dollar since late 2012 has allowed Japanese firms to either cut sales prices abroad or offer fat benefits to customers.

Likewise, the euro has become super cheap after the European Central Bank embarked on its own quantitative easing this month, adopting the money printing strategy pioneered by Japan.

By contrast, the won has been one the strongest currencies among major trading economies over the past three years, up 57 percent against the yen and 18 percent against the euro.

Aside from won’s loss of competitiveness, South Korean exports are facing other threats, ranging from weak demand in major markets to neighbouring China’s industrial policy.

Tumbling oil prices amid slowing

rate unchanged at 6.50 percent and 8.00 percent, respectively.

The central bank also kept on a penalty repo rate of 5 percent that it pays to banks that use the standing deposit facility more than three times a month, to boost credit growth by reducing the banks’ deposits into the central bank.

Private sector credit growth was 6.5 percent in November year-onyear, compared to 5.1 percent a month ago.

“Private sector credit growth is picking up,” the new Central Bank Governor, Arjuna Mahendran, told Reuters after his first monetary policy meeting.

Mahendran said the downward

Newly elected President Maithripala Sirisena is pushing a series of measures to boost economy

demand have also battered South Korean exports of oil products and petrochemicals, which account for one-fifth of overseas sales. In the fourth quarter these exports fell nearly 6 percent year-on-year.

Apart from these price factors, China’s long-tern drive to replace imported materials and components with local production is also accelerating just as demand growth there is slowing, analysts said.

“South Korean exports are in their toughest phase in many years now, with almost no demand growth globally at the heart of the problem and price competition just getting tougher,” said Young Sun Kwon, economist at Nomura in Hong Kong.

Kwon said Nomura’s forecast that exports would drop 0.2 percent in real terms year-on-year in the first quarter -- which would be the worst performance since early 2009 -- could be revised even lower.

Reuters

South Korean exports are in their toughest phase in many years now, with almost no demand growth globally at the heart of the problem and price competition just getting tougher Young Sun Kwon Nomura Hong Kong, economist

pressure on the rupee currency will ease after the government’s budget announcement.

Finance Minister Ravi Karunanayake will present a supplementary budget on Thursday aiming to fulfil election pledges

by President Maithripala Sirisena, including pay hikes for the state sector and price reductions on essential goods.

The central bank said inflation would ease further on the fall in fuel prices and an expected reduction in the administered prices of other key commodities in the budget.

The market had expected the central bank to scrap the lower repo rate, and revise some economic indicators.

Karunanayake on Monday told Reuters that Sirisena’s new government has inherited a “scary” economic situation with the US$76 billion economy “in a precarious position” as a large amount of debt had not been recorded on the government books.

“Going forward it will be interesting if there is going to be a divergence of views between the government and the central bank on macroeconomic performance and numbers,” said Amal Sanderatne, CEO of Frontier Research in Colombo.

Sanderatne added that increasing pressure on the balance of payments after the central bank defended the rupee might require policy tightening policy measures in the near future.

The central bank predicted the economy would expand at 8 percent this year from an estimated 7.8 percent growth in 2014.

Reuters

12 | Business Daily

January 28, 2015

Asia

Bad omens Abenomics Japan’s government debt has tripled since June 1996 to 1.04 quadrillion yen as of September, double the size of the nation’s annual economic output Finbarr Flynn and Tesun Oh

a planned sales tax increase again if it’s seen harming his party’s chances in elections to the Upper House in 2016, according to Uomoto.

Abe’s lifework The government needs a two-thirds majority in both houses of parliament to call a referendum for changing the constitution. Abe has termed his wish to change it his “lifework” and said December 24 that has been a major aim of his Liberal Democratic Party since it was formed. U.S. authorities came up with the constitution draft after World War II. In Uomoto’s most probable scenario that he rates at 40 percent to 50 percent, he sees Abe increasing the sales tax by 2017. Even in this scenario, the risk remains that Abe will delay the levy move before elections, possibly forcing the BOJ to expand bond purchases to hold down “bad” yield increases.

Uomoto reduced to 30 percent to 40 percent the scenario that most closely reflects the government’s targets and includes the central bank beginning steps to taper in 2016 as inflation and gross domestic product rise in the first half of that year. Uomoto rated the scenario at 40 percent to 45 percent in December.

BOJ impact Nomura analyst see trouble ahead for Japan

N

omura Holdings Inc. says the probability that Prime Minister Shinzo Abe’s economic policies will end badly is increasing.

The worst-case scenario for Nomura chief credit strategist Toshihiro Uomoto to the end of 2017: the economy contracts in the first half of 2016, Abe delays a sales tax rise for a second time, and the Bank of Japan boosts asset purchases to suppress interest rates, causing the yen to tumble. This month, he raised the probability of the events unfolding to as high as 20 percent or more, from about 10 percent.

“Signs are mounting that Japan’s fiscal sustainability is beginning to crumble,” said Uomoto, ranked Japan’s No. 1 credit analyst for the past two years by Nikkei Veritas.

Uomoto said January 26 by phone that the drop in oil prices makes tapering by the BOJ more unlikely, prompting him to change the weightings for his three credit scenarios for Japan as a result.

Uomoto’s most grim scenario for Japan is his least probable among three mid-term views through 2017, with the two others more optimistic of Abe’s ability to raise taxes by

that year. Abe’s government will probably do all it can to boost the economy before national elections in 2016, as he seeks to garner support for changing the nation’s pacifist constitution, according to Uomoto.

Japan’s government debt has tripled since June 1996 to 1.04 quadrillion yen (US$8.8 trillion) as

of September, double the size of the nation’s annual economic output.

The BOJ increased its bond buying program last October, pushing yields on sovereign notes as long as five years to minus levels, and average corporate yields to a record low of 0.257 percent on January 20, according to Bank of America Merrill Lynch indexes.

Inflation forecast

Signs are mounting that Japan’s fiscal sustainability is beginning to crumble Toshihiro Uomoto Nomura chief credit strategist

The BOJ on January 21 lowered its core inflation projection to 1 percent for the fiscal year starting in April, from 1.7 percent, citing a drop in oil prices for the revision. Core inflation will accelerate to 2.2 percent in the year starting in April 2016, with gross domestic product expanding 1.6 percent, according to the BOJ’s forecasts, which are based on median projections of the nine-member policy board and strip out the effects of sales-tax increases.

Abe’s government has few new tools with which to support the economy, leaving it reliant on companies to raise wages, according to Uomoto. Abe’s personal commitment to revising Japan’s pacifist constitution is crucial to understanding the direction of his economic policies, and he may delay

For 2015, yield premiums will probably stay tight as the BOJ keeps its bond buying program, according to Uomoto. Risks of widening spreads will increase from 2016 and extra yields on corporate notes will probably increase regardless by 2017, he said.

Any falling borrowing costs this year may not result in more debt sales by companies, who may remain reluctant to boost capital investment for what is in part a “fake” economy supported by BOJ stimulus, according to Uomoto. A weakening yen is already reducing household’s purchasing power and creating deflationary pressure, he said.

The yen may decline to 160 against the dollar by 2017, according to Uomoto, if the BOJ continues the current level of asset purchases. The central bank now buys as much as 12 trillion yen of Japanese sovereign notes a month.

An increase in Japan’s sales tax to 8 percent from 5 percent last April led to a recession in 2014. Abe delayed raising the levy to 10 percent as planned until 2017.

“This is the first time for me to seriously prepare and explain a slide on a scenario that looks at Japan moving to an explosive situation,” Uomoto said at a Nomura seminar for investors in Tokyo on January 22.

Bloomberg News

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

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

Business Daily | 13

January 28, 2015

Asia Vietnam’s plastic highly dependent Plastic industry heavily leans on imports, buying about 80 percent of the polyethylene, polyvinyl chloride E, and polyvinyl styrene it needs (around 3 million tons a year), the Vietnam Plastic Association (VPA) said on its website yesterday. The imports mostly came from South Korea, China’s Taiwan, Thailand, Singapore, Saudi Arabia, Japan and Malaysia. It can only produce certain raw materials like polyvinyl chloride, polyethylene terephthalate and polypropylene locally, according to the association. In 2014, Vietnamese plastic exports reached US$2.05 billion.

Mongolia revises debt-GDP ratio law The Mongolian Parliament yesterday revised law to increase the debt-GDP ratio in response to the economic crisis. With about US$2.36 billion of foreign debt, the Parliament approved that the amount of total debt would be 58.3 percent of the gross domestic product (GDP). The previous law sets the debt ceiling at 40 percent of GDP. Now Mongolia’s foreign reserves are falling as its mineral export value dropped due to lower commodity prices in the world market. More than 90 percent of Mongolian exports consist of coal, copper and other minerals.

Malaysian floods good for palm yields Recent flooding in Malaysia is expected to dent palm oil output in the first quarter but should lead to higher yields for the rest of the year, putting pressure on prices in a well supplied market.

The worst floodwaters in decades that inundated oil palm estates across Malaysia last month have receded in most plantations and crop-friendly sunny weather is returning, industry officials and traders said. Higher palm oil output in Malaysia, the world’s second largest producer, will add to record global vegetable oil supplies and comes amid tumbling crude oil prices - a bearish scenario for palm oil which hit a onemonth low yesterday.

Bid for S.Korea’s Hyundai Securities Japan’s Orix Corp and South Korean private equity firm Pinestreet have submitted bids for a controlling stake in securities brokerage Hyundai Securities Co Ltd, a source with direct knowledge of the matter said yesterday.

Each bidder has offered more than 1 trillion won (US$926.2 million) for the combined 36.7 percent stake held by Hyundai Merchant Marine Co Ltd and other shareholders, the Korea Economic Daily reported, citing unnamed buy-side sources. The stake was put up for sale after parent Hyundai Group announced in 2013 it would sell assets including its financial units to cut debt.

Business mood muted in Australia A measure of Australian business conditions dipped further in December as profits, sales and employment all softened, though confidence improved slightly courtesy of sharp falls in fuel costs.

National Australia Bank’s monthly survey of more than 400 firms showed its index of business conditions eased a point to +4 in December, a shade below its long run average. The survey’s measure of business confidence regained a point to stand at +2, with a drop in oil boosting spirits in the transport and utilities sectors.

Thai exports rise in December Exports and domestic demand are the two main engines of Thai growth, and neither fired well last year Orathai Sriring and Kitiphong Thaichareon

T

hai exports fell for a second straight year in 2014, showing how the economy has not gained traction since the army took power in May and increasing the chance the central bank will face more pressure to cut interest rates.

Yesterday, the Commerce Ministry reported that exports in December rose 1.9 percent from a year earlier, well above the 0.5 percent gain seen in a Reuters poll.

But for all of 2014, exports were 0.4 percent lower than the previous year, when there was a 0.3 percent contraction.

Imports in December were down 8.7 percent, far more than the poll’s projected 2.45 percent, while for the full year they tumbled 9 percent.

The government will report economic growth for the year - likely to be only around 1 percent and the weakest since flood-hit 2011 - on February 16.

In May, after political tensions that began in late 2013, the military took power, saying this was needed to restore order and spark a recovery for Southeast Asia’s second-largest economy.

The coup restored some confidence, but domestic consumption has remained tepid at best, and government spending has not gotten firmly on track.

Record rice shipments Exports, which equal more than half of the country’s gross domestic product, remained flat. At the start of 2014, authorities expected exports

to increase at least 5 percent.

The ministry said exports in December were helped by record high rice shipments, up 67 percent from a year earlier, and a 4.5 percent rise in industrial goods.

But shipments to China were down 19 percent in the month, and 8 percent for the whole year. Exports to the U.S. rose 13.2 pct last month and 4.1 percent during 2014.

The trade data comes one day before the Bank of Thailand’s monetary policy committee holds its first meeting of the year.

A Reuters poll found that 16 out of 20 economists believe the benchmark rate will be held at 2.0 percent, where it’s been since March.

Last Friday, Finance Minister Sommai Phasee said the central bank should cut interest rates to help the sputtering economy.

Reuters

Sumitomo Mitsui 9-month net dips The results show the bank is on track to finish the year better than a double-digit profit drop it has forecast

S

umitomo Mitsui Financial Group Inc. (SMFG), Japan’s third-largest lender by assets, reported a 3.2 percent fall in net profit for the nine months ended in December as weaker client activities hurt its stock brokerage business.

Still, the results show the bank is on track to finish the year better than a double-digit profit drop it has forecast, as smaller bad-loan costs cushion its earnings.

SMFG said yesterday net profit came in at 682.2 billion yen (US$5.78 billion) for the April-December period, down from 704.7 billion yen a year earlier.

The bank saw a drop in brokerage commission revenue and sales of stockrelated products like mutual funds as the Japanese stock market gains lost momentum this year after the initial excitement over ‘Abenomics’ wore off.

The benchmark Nikkei average jumped 34 percent during April-

US$5.78 billion April-December net profit Sumitomo Mitsui

December in 2013, and its gain was a less dramatic 18 percent during the same period of 2014.

The bank left unchanged a previous full-year net profit forecast of 700 billion yen, down 16 percent from the previous year. A poll of

17 analysts by Thomson Reuters averages 778.69 billion yen.

Designed to spur spending and investment by flooding the economy with cheap money, the Bank Of Japan’s massive bond-buying programme launched in April 2013 has been hurting Japanese banks’ earnings by pushing down the returns from loans and bond investments.

SMFG and its rivals face further headwinds after the BOJ introduced additional monetary easing measures in October, which have pushed down already ultra-low interest rates, while demand for loans has yet to show a significant pickup.

Their weak domestic lending business has been partly offset by continued growth in overseas lending.

They also have booked smaller bad-loan costs as there have been fewer bankruptcies amid a mild economic recovery.

Reuters

14 | Business Daily

January 28, 2015

International Global gas prices finally converge Global benchmark prices for natural gas have converged to their closest in five years, a trajectory created by a supply glut and an oil rout. That spells trouble for U.S. and Australian projects coming online this year. Prices in the natural gas hubs of Europe and Asia are at their closest to the U.S. benchmark since 2010 after oil plunged below US$50 a barrel and gas supplies from Australia and the United States created a surplus of cargoes. Asian prices may fall further as new projects come online in Australia and the United States.

Russia’s crisis plan to limit spending Russian Finance Minister Anton Siluanov said yesterday that the country’s anti-crisis plan did not envisage increasing budget spending and that the government’s aim was not to spend Russia’s sovereign reserves irresponsibly. Siluanov also told journalists that the plan was consistent with the finance ministry’s aim of balancing the budget with oil prices at US$70 a barrel by 2017 and that it included new structural reforms. He added that S&P ratings agency downgrading Russia’s sovereign credit rating, possibly didn’t take into account the anti-crisis plan.

Aer Lingus board says go ahead The board of Irish airline Aer Lingus has recommended a raised 1.36-billion-euro (US$1.5 billion) takeover offer from the owner of British Airways, which must now soothe Irish government concerns to win approval. The new offer from International Consolidated Airlines Group (IAG), its third in six weeks, is worth 2.55 euros per share, up from 2.40 euros, and includes a cash offer of 2.50 euros per share and a dividend of 0.05 euros.

Aer Lingus said its recommendation is subject to being satisfied with how IAG proposes to address the interests of relevant parties.

Novartis flags faster sales Swiss drug maker Novartis forecast sales and profits to grow at a faster pace this year as recent drug successes and its portfolio overhaul help it weather the impact of generic competition. Excluding currency moves, the Basel-based firm yesterday said it expected mid-single digit sales growth and core operating income to increase at a high-single digit rate in 2015. Still, a surge in the Swiss franc following a shock move by the Swiss central bank to scrap its policy of capping the currency’s value may complicate Novartis’ efforts to improve margins.

Brazilian inflation to hit 11-year high Inflation rate is expected to hit an 11year high in 2015, the country’s central bank said. Analysts expected that the annual inflation rate will rise from current 6.67 to 6.99 percent, way above a central target of 4.5 percent, and nearly half a percentage point over the government ceiling of 6.5 percent, said the Central Bank’s weekly forecast. The forecast figure will be the highest since inflation reached 7.6 percent in 2004. Market analysts also lowered their growth projections for the country’s gross domestic product (GDP), from 0.38 percent last week to 0.13 percent.

U.K. economy grows less than forecast A report showed that the retail industry was among the strongest performers in the fourth quarter Scott Hamilton

U

.K. economic growth slowed more than economists forecast at the end of 2014 as production and construction shrank, countering strength in consumer demand.

The 0.5 percent quarterly expansion was the slowest in a year and compared with 0.7 percent in the previous three months. While it was also less than the 0.6 percent forecast by economists in a Bloomberg News survey, it still marked the eighth straight period of expansion and capped the economy’s best year since 2007.

Joe Grice, chief economist at the Office for National Statistics, said the cooling was mainly due to “erratic” sectors including construction and mining. “It’s too early to say if there’s a general slowing-down of the economy,” he said in a statement released with yesterday’s data.

Britain’s economy was driven by domestic demand last year. That’s helping to offset a drag from weaker external demand, particularly in the euro area, the U.K.’s biggest trading partner.

Britain’s economy grew 2.6 percent in 2014, the most in seven years, according to the ONS. The International Monetary Fund forecasts

U.K. Prime Minister David Cameron (pictured) is counting on the recovery and rising employment to help him retain power in upcoming election on May 7

that it will expand 2.7 percent this year, which would be the fastest in the Group of Seven after the U.S. Prime Minister David Cameron is counting on the recovery and rising employment to help him retain power in upcoming election on May 7. The economy is now 7.8 percent bigger than it was in the second quarter of 2010, when the last general election took place.

Services surge The fourth-quarter data showed that services, the largest part of the

Banks expect grim results The ECB stimulus programme does have a downside: it is expected to keep interest rates low for several years, depressing bank margins Steve Slater

T

he euro zone’s attempt to kickstart its stagnant economy should provide a bright spot for European bank bosses in a results’ season that will be grim for investment bank revenues, sluggish for returns and where cost-cutting is key.

Banks were given a fillip last week by a 1.1 trillion euro (US$1.2 trillion) programme for euro zone central banks to buy government bonds, which is designed to revive the region’s economic growth and mean fewer bad loans for lenders. It should also reduce banks’ funding costs.

Deutsche Bank’s co-CEO Anshu Jain said QE could cause “real destruction” of net interest margins and banks must quickly adapt models to the new landscape.

It adds to a complex mix of regulatory and investor pressure on bank bosses to find the right size and shape. That is particularly true in Europe, which remains the only region where banks have failed to return to economic profit since the financial crisis.

Jain will be one of the first to outline the impact of the euro zone stimulus plan when Deutsche Bank releases fourth-quarter results today.

His bank is also at the centre of the debate over strategy, and whether it should rein in its global universal banking ambitions and spin off retail banking.

All change?

Deutsche Bank is not alone in assessing if radical change is needed.

Rivals including Barclays, Credit Suisse, UBS, Standard Chartered and HSBC are all changing shape.

Analysts said if U.S. rival JPMorgan is facing calls to consider breaking up, so should firms in Europe.

“Given fixed income continues to shrink, the more obvious answer (than a break-up) is to keep on dieting and optimising the portfolio for today’s realities, which means less capital allocated to the wholesale bank and some of the overseas operations,” Huw van Steenis, analyst at Morgan Stanley, said.

economy, grew 0.8 percent and added 0.6 percentage point to gross domestic product. Retail was the biggest contributor to services. Production fell 0.1 percent and construction plunged 1.8 percent, knocking 0.1 percentage point off GDP. Within production, energy supply contracted 2.8 percent, partly reflecting a mild winter. Today’s first estimate of GDP for the quarter is based on about 44 percent of the data that will ultimately become available.

Bloomberg News

“Every bank needs to re-evaluate its cost base quite radically in the current environment, because persistently low rates are a huge headwind to retail and wholesale banking profitability,” he said. “They need to use technology to transform the operating model and get costs substantially lower.”

Banks in Switzerland could be under particular pressure to cut costs after a surge in the value of the Swiss franc, making domestic costs more painful.

Pressure for banks to cut back trading desks will intensify if European investment banks fare even worse than their U.S. rivals, which had a difficult fourth quarter.

In the United States, the big five investment banks’ fourthquarter revenues from fixed income, currencies and commodities (FICC) fell 28 percent from a year earlier and came in at only half the level in the third quarter.

Equities revenues were down 13 percent from the third quarter, while advisory and underwriting fees were up 2 percent on the quarter, according to Reuters’ calculations.

Santander’s move to cut dividends alongside a surprise 7.5 billion euro cash-raising this month could raise pressure on others to plump up capital buffers. Analysts said Credit Suisse and Standard Chartered could cut their dividends.

In contrast, Britain’s Lloyds is expected to restart its dividend for the first time since 2008. But this can happen only if the UK watchdog is happy with the plan, evidence of the power regulators now wield over the industry.

Reuters

Business Daily | 15

January 28, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE KOREA HERALD Leading South Korean companies are likely to hire fewer new employees in 2015 than last year, as there is no clear sign of an economic recovery, a poll showed yesterday.

The survey by the Korea Chamber of Commerce and Industry (KCCI), which canvassed the country’s top 500 companies by sales, found 180 of them plan to hire 22,844 new workers in 2015, down 2.3 percent from 23,385 last year. New jobs at the top 100 companies by sales are forecast to drop this year due to new regulations.

PHILSTAR The Department of Budget and Management has imposed stricter guidelines on the release and utilization of the 2015 national budget.

Budget Secretary Florencio Abad said the funds would be released directly to the National Government agencies.

Agencies must ensure that priority socio-economic and development program and projects as well as those intended to mitigate and address disaster-related concerns, are executed within one year, thereby allowing the delivery of public goods and services at the soonest possible time, Abad said.

THANH NIEN NEWS Chief executive officers in Vietnam are most likely to be above 50 even though many young people now achieve success early in their careers, a new study has found. Those aged 51 upwards accounted for 57.6 percent of the total number of CEOs at Vietnam’s largest companies last year while only 8.6 percent were 40 or younger, according to data from the latest VNR500 report. More than two thirds of CEOs under the age of 40 were from the private sector.

The report said many young people are very successful these days, particularly in arts and information technology.

Starting South Korea’s new growth engines Lee Jong-Wha

Professor of Economics and Director of the Asiatic Research Institute at Korea University

I

n the last half-century, South Korea has become a model for developing countries, with remarkable economic growth enabling it to become the world’s eighth largest trading country and achieve per capita income of US$26,000. But lately its economy has been faltering, with GDP growth averaging 3.6% for the last ten years – a significant drop from the 8.1% annual growth rate that prevailed in 1965-2005.

And the OECD projects a further decline – to around 2.5% – in the coming decade.

But a forecast is not fate. With a new economic strategy that nurtures more diversified sources of growth, while reducing the country’s excessive reliance on exports and large enterprises, South Korea can reinvigorate and sustain strong growth.

South Korea’s economic performance over the last 50 years was attributed largely to good fundamentals, including a high savings rate, strong human capital, sound institutions, and prudent fiscal and monetary management. Trade openness provided access to inexpensive imported intermediate goods, larger markets, and advanced technologies, thereby contributing to rapid productivity growth in the country’s manufacturing industries.

Performance-based incentives facilitated the continuous upgrading of South Korea’s comparative

advantage in global markets.

The problem is that such policies have led South Korea to become excessively dependent on exports for growth. Exports accounted for about 56% of South Korea’s gross national income in 2013, compared to 34% in 2002 and just 15% in 1970. As a result, South Korea’s economy has become highly vulnerable to changes in external demand – a fact that became starkly apparent during the 2008 global economic crisis.

South Korea’s relationship with China perfectly illustrates the challenges it faces. As China’s economic growth soared, so did its share of South Korea’s total exports, which doubled, from 12% to 24%, in the period from 2001 to 2013. But China’s economy has recently begun to slow, and its growth trajectory is expected to be much less steep in the coming years than it was over the last three decades.

Moreover, China is posing increasingly tough competition for South Korea, by encouraging the emergence of more technologically advanced industries like electronics, information technology, motor vehicles, semiconductors, shipbuilding, and high-end steel products.

China’s efforts to upgrade its own growth model, together with the possibility of long-term stagnation among advanced economies,

raises serious concerns about South Korea’s prospects.

Compounding these problems is the wide imbalance between South Korea’s manufacturing and services sectors. Though services account for 76% of employment, its contribution to overall economic growth is small, owing to low productivity.

Indeed, value added per worker in the services sector remains just 40% of that in the manufacturing sector, and annual productivity growth was only 2% from 1980 to 2010 – significantly lower than the manufacturing sector’s rate of 8.2%.

Against this background, South Korea’s new growth strategy should aim to achieve both a demand-side rebalancing and supply-side productivity increases.

On the demand side, South Korea must begin by boosting household expenditure. This will require reversing the sharp decline in the proportion of middle-income households, which is down to 67.5%, from 75.4% in 1990.

With more than half of these households earning less than they spend every month, household debt has been rising fast, and now stands above 160% of disposable income – one of the highest levels in the OECD. Transferring unused corporate savings to households, while reducing the number of lowwage temporary and part-time

workers, would boost domestic demand and reduce income inequality.

Policies aimed at increasing female labour-force participation and lowering private education spending would also help. At the same time, South Korea should work to improve the investment climate to raise the quantity and quality of investment, particularly of small- and mediumsize enterprises (SMEs) in the services industry.

On the supply side, structural reforms to stimulate productivity growth could, for example, emphasize the development of modern services industries, including health care, education, telecommunications, business processing, and legal and financial services. Efforts to ease product regulations and lower barriers to foreign investment would promote competition and technological innovation.

South Korea must also dismantle the obstacles that start-up businesses face. To this end, the government must redress shortcomings in the venturecapital market, nurture the labour force’s skills, and encourage entrepreneurship. It must also confront the huge, familycontrolled chaebols – such as Hyundai, LG, and Samsung – that contributed significantly to rapid industrialization and technological advancement but also block competition from start-ups and SMEs, stifling dynamism and innovation. Stricter rules are needed to improve corporate governance and prevent unfair practices by those affiliated with the chaebols.

South Korea is at a crossroads.

Though President Park Geunhye’s administration, which took office in 2013, has unveiled many economic initiatives to foster a “creative economy,” their effect so far has been minimal.

But her government still has three years to pursue reforms that support the emergence of the services sector, start-ups, and SMEs as South Korea’s new growth engines, capable of powering a more dynamic and innovative economy for the next 30 years.

Project Syndicate

THE STRAITS TIMES Chinese shipbuilder JES International Holdings has placed out a total of 183 million new ordinary shares at US$0.036 to two subscribers - investment holding company Brilliant Choice International and Mr Sun Yiyi. The new shares represent about 15.5 per cent of the total number of issued shares in JES International, the mainboardlisted company said in a filing with the Singapore Exchange yesterday. JES International will use the US$6.6 million share subscription to pay part of a settlement amount to its main shareholder, JES Overseas Investment Limited (JESOIL).

South Korean President Park Geun-hye’s administration has unveiled many economic initiatives to foster a “creative economy” but with minimal impact

16 | Business Daily

January 28, 2015

Closing Pearl River Delta is world’s largest urban area

HK’s total export up 0.6 pct in December 2014

The Pearl River Delta comprising a cluster of cities in Southern China has overtaken Tokyo as the world’s largest urban area in terms of both population and land area, the World Bank said.

The Pearl River Delta, including Guangzhou, Shenzhen, Foshan and Dongguan, has 42 million inhabitants, a population larger than that of Argentina, Canada or Malaysia, the bank said in a report on urbanization in East Asia. The report said that almost 200 million people in East Asia, which includes Southeast Asia and Northeast Asia, moved to urban areas in the decade ended 2010.

The values of Hong Kong’s total exports and imports of goods both showed year-on-year increases, at 0.6 percent and 1.9 percent, respectively, in December 2014, the city’s Census and Statistics Department announced yesterday. The department released yesterday Hong Kong’s external merchandise trade statistics for December 2014, showing the value of total exports of goods increased by 0.6 percent over a year earlier to HK$312.8 billion (about US$40.36 billion), after a year-on-year increase of 0.4 percent in November 2014. Within this total, the value of re-exports increased by 0.8 percent to HK$308.7 billion in December 2014.

Chinese gold imports from HK tumble Imports in December fell 36 percent from the same month last year, according to the figures, which deduct flows from China into Hong Kong Glenys Sim

G

old shipments to China from Hong Kong fell 32 percent in 2014 from a record a year earlier as lower prices failed to boost the purchases of bars, coins and jewellery amid a clampdown on corruption and an economic slowdown.

Net imports by mainland China were 750 metric tons last year, down from 2013 when shipments more than doubled to 1,108.8 tons, according to calculations

by Bloomberg News based on data from the Hong Kong Census and Statistics Department.

Demand for luxury goods including bullion has been hurt by an anti-graft drive in China, while volatility that sank to a four-year low and a rally in stock markets damped interest in the metal as an investment. The buying frenzy that helped push China’s consumption above India’s after prices dropped into a bear market in 2013 hasn’t been sustained, leading banks including Goldman Sachs Group Inc. to predict further declines.

The metal lost 1.4 percent last year after retreating 28

Chinese demand is stabilizing and we expect it to hold up this year because people still see value in gold Dominic Schnider, analyst, UBS AG’s wealth-management

percent in 2013 as the Federal Reserve ended stimulus and moved closer to raising borrowing costs. Investors cut assets in bullion-backed exchange traded products for a second year in 2014 on prospects for a global economic recovery.

Gold trade Bullion of 99.99 percent purity on the Shanghai Gold Exchange climbed 2.2 percent in December, advancing for

Beijing-Shanghai high-speed link profitable

T

a second month and helping prices rebound 1.5 percent in 2014 after a 29 percent plunge a year earlier.

Net gold imports declined to 58.8 tons in December from 87.2 tons the previous month.

Mainland buyers purchased a total 128.4 tons, including scrap, compared with 149.3 tons a month earlier, data from the Hong Kong government showed.

Exports to Hong Kong from China were 69.6 tons

in December. That compares with 62.1 tons in November.

Mainland China doesn’t publish such data.

China’s consumption of jewellery, bars and coins tumbled 37 percent to 182.7 tons in the three months to September as demand slumped at least 30 percent, according to the World Gold Council. Usage was 638.4 tons in the nine months through

September, according to Bloomberg calculations based on data in quarterly WGC reports in May, August and November.

Demand outlook The London-based council said in April that its long-term demand outlook remained intact as consumption is expected to expand to at least 1,350 tons by 2017 amid rising wealth. Mainland demand was a record 1,275.1 tons in 2013, the council said in November.

China’s central bank cut interest rates for the first time in two years in November and the government accelerated the approval of infrastructure projects to spur growth, fuelling a 53 percent gain in the Shanghai Composite Index last year.

While the world’s secondlargest economy expanded 7.4 percent last year, the slowest pace since 1990, the global flow of gold from west to east will probably last for as long as two decades, the China Gold Association said in June.

Singapore and HK real state pending FED decision

Philips 2014 profits slashed by two-thirds

I

D

he financial situation of the high-speed rail link between Beijing and Shanghai is improving, with profits expected for the first time this year.

About 30 billion yuan (US$5 billion) of tickets were sold last year, Cai Qinghua, former chairman of the Beijing-Shanghai High-speed Railway Company Ltd. told Xinhua this week.

The company is yet to release official financial results for 2014, but stakeholders in the 1,318 km line look set to rake in some 1.2 billion yuan in profits this year, following continual losses since its opening in June, 2011.

“We originally planned to achieve a financial balance in five years and recoup our investment in another 14,” said Cai. The financial situation of other major railways in China remains obscure, but it is widely acknowledged that making profits from pure passenger traffic is difficult for high-speed rail operators. The China Rail Corporation (CRC) manages the world’s largest high-speed rail network and lost 5.4 billion yuan in the first half of 2014.

The company has 3.4 trillion yuan of liabilities.

nvestors seeking to buy property in Singapore or Hong Kong this year may be better off listening to U.S. Federal Reserve Chair Janet Yellen than a real estate agent.

The Fed is widely expected to raise interest rates sometime in the second half of 2015 as the U.S. economy improves and inflation remains benign. As interest rates rise, property prices in Hong Kong and Singapore may fall by as much as 5 percent this year, according to a report on prime residential real estate in the region by property consultant Knight Frank.

In Hong Kong, where the local dollar is pegged to the greenback, a rate hike would lift floating mortgage rates, pressuring property prices. In Singapore, the three-month Singapore Interbank Offered Rate (SIBOR), commonly used to set mortgage rates, has already soared ahead of the expected Fed move. In January, SIBOR rose to levels not seen since 2010.

In contrast, prices in Sydney are likely to rise by up to 5 percent, buoyed by a weaker Australian dollar.

Xinhua

Reuters

Bloomberg News

utch electronics giant Philips yesterday announced profits slashed by almost twothirds after a “challenging” 2014, blamed on ever-slowing markets in China and Russia and unfavourable exchange rates.

Annual net profit tumbled from 1.17 billion euros in 2013 to 411 million euros (US$462 million), the company said in a statement, after issuing a profit warning on January 13.

Sales in 2014 dropped 2.7 percent to 21.39 billion euros, said Philips, which has diversified into high-margin healthcare technology.

The Amsterdam-based company said it expected results to improve in 2015, while remaining “cautious regarding the macroeconomic outlook and expect on-going volatility of some of our end-markets.”

Van Houten said the company, one of the world’s leading makers of lighting, health care and consumer electronic goods, was now 1 percentage point behind on achieving its sales growth target in 2016. In December, a US jury ordered Philips to pay US$466.8 million to American company Masimo for violating two medical device patents.

AFP