Macau Business Daily, Feb 2, 2015

MOP 6.00 Closing editor: Luís Gonçalves

A six-figure problem M

Year III

Number 720 Monday February 2, 2015

Publisher: Paulo A. Azevedo

OP100,156. A number to remember. Last year, Macau breached a psychological barrier in terms of square metre real estate prices. Property prices went up 21pct, while transactions plunged 36 pct. Flats under construction were 50 pct more expensive than completed ones. Prices in December dropped well below the 2014 average. But the average net floor area of flats shrunk to 69 square metres from the 74 square metres of 2013. The most expensive flats were in Coloane, followed by Taipa and the Peninsula

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Packaged tourists Gaming revenues might be in the doldrums.

But tourists are far from deserting Macau.

Take package tours, for example. They’ve doubled from half a million in 2009 to 1.2 million in 2014. In 2014, package tour visitors increased 25 pct from the previous year to 12.3 million. With Chinese visitation skyrocketing 34 pct

Sri Lanka blocks three casino projects

PAGE 11 University of Saint Joseph to slash tuition fees

PAGE 7 A third of Macau imports come from Mainland

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Chinese New Year January figures budget up by a quarter disappoint MGTO is sponsoring its biggest parade yet for CNY. Macau Government Tourist Office has announced it will spend MOP23 million on the third day (February 21) and tenth day (February 28) of Chinese New Year. Some 25 pct increase on last year.

Famous Hong Kong artists and a grander event are cited for the hike in costs for the ‘Parade for the Celebration of the Year of the Ram’

HSI - Movers January 30

January factory data shrank surprisingly. In a month that traditionally returns positive outcomes. Analysts consider this is one more step towards government action. Even the service sector failed to make the grade.

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Interview

“Consulgal bid was the best option for the Light Rapid Transit” www.macaubusinessdaily.com

Brought to you by

You win some, you lose some. Consulgal head Rogério Monteiro Nunes clearly believes his engineering JV deserved to pick up the LRT contract. He tells Business Daily about his company’s ambitions to expand to Guangdong. And his pride in projects like the automated solid waste collection in Areia Preta. Nunes identifies the difficulties of working here - with its “distorted labour market” - but still believes the company’s 13 years in Macau was a good move, with many ‘emblematic’ projects to show for it

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Name

%Day

Hengan International

3.89

Tingyi Cayman Island

3.24

Cheung Kong Holdings

2.13

BOC Hong Kong Holdin

2.06

New World Developm

1.54

Tencent Holdings Ltd

-1.93

China Overseas Land

-1.97

China Resources Ent

-2.30

Sands China Ltd

-2.93

Galaxy Entertainment

-3.08

Source: Bloomberg

I SSN 2226-8294

Brought to you by

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Guangdong to bring opportunities to Macau, says CE | PAGE 5

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Macau

Government to splash out MOP23 million on CNY parade

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h e M a c a u Government Tourist Office (MGTO) is to spend some MOP23 million (US$2.88 million) to hold a parade celebrating the Chinese New Year (CNY) on the third day (February 21) and the tenth day (February 28) of CNY, Director Maria Helena de Senna Fernandes announced on Friday.

The budget of the

parade - titled ‘Parade for the Celebration of the Year of Ram’ - represents an increase of 5 million patacas over that of last year for the event.

Ms. Senna Fernandes explained that the hike in the budget is because the government has invited famous artists from Hong Kong to perform, and the scale of the event is larger.

Nevertheless, she said she believes the event would not run over budget.

Meanwhile, she predicted that the CNY parade will attract 10 to 15 per cent more spectators than the 68,000 who watched last year.

A total of 1,288 performers from 25 local groups, as well as 9 groups outside the city, from Mainland

China, Hong Kong, Italy, Japan and Portugal, will participate in the two-day parade, featuring 14 floats.

The parade will begin from Macau Science Centre at 8:00 pm, winding up at Sai Van Lake Square at 11:00 pm, followed by a fireworks show, according to MGTO. Secretary for Social Affairs and Culture Alexis Tam Chon Weng will be

heading for Siem Reap in Cambodia from February 3-5 to attend the first World Conference on Tourism and Culture, in conjunction with MGTO officials headed by Director Maria Helena de Senna Fernandes. The event, organised by the World Tourism Organisation and United Nations Educational, Scientific and Cultural Organisation (UNESCO), will receive ministers, official delegates and company representatives from nearly 40 countries who are gathering to discuss cultural preservation, cultural travel and urban regeneration through cultural tourism.

December package tour visitors double in five years Sara Farr

sarafarr@macaubusinessdaily.com

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rom 489,400 in 2009 to 875,800 in 2013 and 1.19 million in 2014. That’s by how much the number of visitor arrivals on package tours have increased over the last five Decembers.

Official figures released on Friday by the Statistics and Census Service (DSEC) reveal that for the month of December alone, the number of visitors travelling to Macau on package tours increased significantly by 35.8 per cent over that of the previous year. Of these, 991,000 were visitors from mainland China, representing a 51.5 per cent jump year-on-year.

Visitors from mainland China made up the majority of hotel guests at 63.2 per cent, followed by those from Hong Kong at 12.1 per cent, Taiwan at 3.2 per cent and South Korea at 1.9 per cent.

For the whole twelve months of 2014, visitors travelling on package tour arrangements totalled 12.3 million, up 26.3 per cent. This also represents almost a quarter of all 31.5 million visitors Macau welcomed last year.

Overall, the number of visitor arrivals on package tours from South Korea decreased by 2.6 per cent to 160,000 for the whole of last year, while those from Hong Kong decreased slightly by 0.5 per cent to 416,900. The overall number of

tourists from Thailand travelling on package tours to Macau dropped most, by 24.3 per cent, to 145,400 for the whole of 2014.

For the month of December alone, the number of visitor arrivals on package tours from Taiwan dropped 6.3 per cent, while those from Hong Kong dropped another 23.2 per cent, and South Korea dropped 8.6 per cent.

Macau residents travelling outbound using the services of travel agencies increased by 5.7 per cent in December alone, with mainland China remaining the primary destination, receiving 87,900 visitors and representing a 21.6 per cent increase over that of the previous year.

South Korea, however, saw a 17.9 per cent decrease in the number of visitor arrivals travelling under travel agency arrangements in December to 4,800. Upon analysing the whole year, this same number increased by 22.5 per cent to 56,300 over that of 2013.

Outbound residents to Taiwan also registered a 20.5 per cent increase for the whole year to total 185,700 in 2014.

The number of outbound residents choosing to travel to Thailand using travel agency services dropped significantly by 47.2 per cent for the whole year of 2014 to 40,800. This same number dropped by 21 per cent to 3,100 in December alone, versus the same period last year.

Business Daily | 5

February 2, 2015

Macau

Guangdong to bring Macau more opportunities, says Chui Chief Executive Chui Sai On recently met with Guangdong party chief Hu Chunhua, with both sides discussing more innovative co-operation projects between the two regions Joanne Kuai

joannekuai@macaubusinessdaily.com

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hief Executive Chui Sai On said that the SAR Government attaches great importance to the development of the Free Trade Zone in Guangdong and expects the project to bring more opportunities to Macau. He expressed his hope of putting the topic on the agenda of the GuangdongMacau Co-operation Joint Conference later this year.

Chui made the comments when meeting with Guangdong Province Communist Party Secretary Hu Chunhua and Guangdong Governor Zhu Xiaodan on Friday evening at Guangzhou Zhudao Hotel. The Macau delegation also included Secretary for Economy and Finance Lionel Leong Vai Tac, Secretary for Transport and Public Works, Raimundo Rosario plus other Macau officials.

The Chief Executive said

that the Free Trade Zone in Guangdong would be advantageous for Macau, as well, especially in terms of liberalising trade and innovating the system. He hopes both sides can enhance co-operation in Hengqin in Zhuhai, and Nansha in Guangzhou, as well as exploring new opportunities in the Free Trade Zone in Zhuhai.

Chui Sai On also pointed out that the two regions

are like ‘brothers’ and that Guangdong has always supported Macau, especially in the essential needs of Macau’s residents, such as in water, electricity and food.

He said that last year the objectives of the Guangdong Macau Co-operation Framework Agreement and the Joint Conference were met and hoped that this year more could be achieved.

When speaking to

reporters after the closeddoor meeting, Chui indicated that the two governments could step up efforts on environmental protection issues such as processing non-recyclable construction waste and unwanted vehicles to make best use of space in landfill areas. More measures are to be announced this year.

Guangdong party chief Hu Chunhua said that last year the province enjoyed a 7.8 per cent growth in gross domestic product (GDP) plus a 13 per cent increase in fiscal tax income. He also revealed that the tertiary sector of the economy (service industry) has surpassed the secondary sector (manufacturing) in the neighbouring region.

Hu added that such indicators show that Guangdong Province is enjoying a good development mode and that this year the

province will follow the central government’s instruction to continue developing steadily. The top official of the province believes that this year the general economy of the province will maintain the healthy momentum of last year.

Chui Sai On indicated that Macau is undergoing some adjustments to its economy. He believes that this year Macau’s economy may not enjoy as fast a growth rate as the past decade but remains confident in Macau’s long-term vision of building the territory into a world tourism leisure hub as well as a platform for China and other Portuguese-speaking countries. Chui reiterated to provincial leaders that Macau is going all out in terms of economic diversification, regional co-operation and cultivating talent.

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February 2, 2015

Macau

Housing prices up 21 pct, transactions plunge 36 pct Official data reveals that the real estate bubble in Macau continued to inflate last year as prices per square metre breached the MOP100,000 barrier, while the number of sales plunged almost 40 per cent Kam Leong

kamleong@macaubusinessdaily.com

China main origin of imports The great majority of imported goods into Macau originate from mainland China, while the primary export destination remains Hong Kong

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ousing prices continued to surge last year, racking up MOP100,156 (US$12,519) per square metre - a growth of 21 per cent compared to the average cost of MOP82,776 per square metre in 2013, the latest data released last Friday by the Financial Services Bureau (DSF) reveals.

According to DSF, total transactions in 2014, by contrast, plunged 36 per cent year-on-year, reaching only 7,218 transactions compared to the 11,306 transactions of 2013.

Of all transactions, those on the Macau Peninsula accounted for the largest proportion at 5,752 of the total. Residential flats in Taipa and Coloane accounted for 1,151 and 315 of the total, respectively.

In fact, although buyers had to pay more for a flat in 2014, it did not mean that they could upscale.

According to DSF data, the average net floor area of the flats purchased in 2014 shrunk to 69 square metres from the 74 square metres of 2013.

Housing prices of December lower than year average Meanwhile, the average housing price in December 2014 reached MOP96,411 per square metre. Despite being lower than the average price of the whole of 2014, it had increased by 5 per cent compared to the average housing cost of MOP91,737 per square metre in November 2014.

In addition, the number of

transactions, which rebounded in November, dropped by 12 per cent month-on-month in December, reaching only 418.

Furthermore, the buildings that are still under construction cost more than the completed ones in the month.

Flats under construction cost on average some MOP145,444 per square metre while completed buildings cost MOP83,037 per square metre.

In terms of area, housing in Coloane is the most expensive, topping MOP138,587 per square metre, followed by Taipa at MOP119,941 per square metre. Residential flats on the Peninsula are, on average, the cheapest, costing MOP85,263 per square metre in December 2014, according to DSF.

ainland China continued to be the main origin of imported goods into Macau, accounting for one-third of all imports.

The latest official figures released by the Statistics and Census Service show that 33.2 per cent of all imported merchandise originated from mainland China, followed by Hong Kong at 10.3 per cent, Switzerland at 9 per cent, France at 8.4 per cent and Italy at 6.9 per cent.

Total merchandise imported expanded by 10.3 per cent to MOP.99 billion for the month of December 2014 compared to the same period a year earlier. The import of mobile phones alone increased by 55.5 per cent year-on-year, although when analysed annually the import of mobile phones grew by 21.5 per cent for the whole of 2014 over that of the previous year.

The fastest growing imported goods were construction materials, which totalled MOP3.47 billion for the twelve months ended last December, up 25.5 per cent year-on-year.

Overall, food and beverages accounted for the largest portion of the merchandise imported into Macau, totalling MOP11.67 billion last year for an annual increase of 21.8 per cent.

The import of handbags and wallets, however, witnessed a 6.6 per cent decrease to MOP3.5 billion in 2014 over that of the previous year.

Merchandise exports reached MOP984 million in December last year, up 7 per cent compared to that of the previous year, while for the whole of 2014 exported goods increased by 9 per cent year-on-year. The value of the latter totalled MOP9.91 billion, of which the value of re-exports increased by 11.4 per cent to MOP7.89 billion, while that of domestic exports reached MOP2.02 billion, a slight increase of 0.7 per cent.

Hong Kong remained the primary destination of exports, receiving as much as 58.6 per cent of the total merchandise shipped from Macau, followed by mainland China at 15.7 per cent, the United States at 3 per cent and Japan at 1.7 per cent.

The value of exported electronic components dropped significantly by 31.6 per cent to MOP657.9 million for the whole of 2014. Knitted and crocheted garments exported totalled MOP254.8 million last year, down by 13 per cent compared to 2013. Overall textile and garments also dropped by 7.7 per cent to MOP781.3 million in 2014 over that of the previous year.

Meanwhile, the value of exported clocks and watches jumped 85.2 per cent to MOP872.2 million compared to the whole of 2013. In the fourth quarter of last year alone, the value of exports of clocks and watches totalled MOP200 million.

Merchandise trade deficit was MOP80.04 billion in 2014, while for the month of December alone the merchandise trade deficit was MOP8.01 billion.

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February 2, 2015

Macau Emperor Jewellery warns of substantial profit decline Hong Kong-listed Emperor Watch & Jewellery Ltd. announced in a filing on Friday that it anticipated a ‘substantial decrease’ in the profit attributable to owners of the company for the year 2014, a result that the company blamed on an increase in rental costs and weakened consumer sentiment in the second half of the year. The jewellery and luxury watch retailer, which also runs stores in Macau, has already posted a 28.2 per cent year-on-year decline in its net profit to HK$290 million (US$37.4 million) for the year 2013.

Jimei’s former University of S. Joseph HK-listed body posts mulls lower tuition fees HK$17.74 mln loss P for 2014 rivate Macau university the University of Saint Joseph is considering downwardly adjusting the tuition fees for its undergraduates in the new academic year of 2015/2016, which will start in September.

A backing by government funding would support the current tuition fees for the university’s local undergraduates to be lowered from the current MOP50,000 (US$6,262) to about MOP40,000 for the new academic year, local public broadcaster TDM quoted the university’s rector Peter Stilwell as saying on the sidelines of its Open Day on Saturday.

The rector added that the university would also consider downwardly adjusting the tuition fees for local postgraduate students – a measure that would be subjected to inflationary

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ollowing an approved name change, Jimei International Entertainment Group Ltd. – formerly known as Sinogreen Energy International Group Ltd. and now controlled by Macau veteran junket investor Jack Lam Yin Lok – has reported a loss of HK$17.74 million (US$229 million) for 2014, its latest filing reads.

In its announcement of 2014 results filed with Hong Kong Stock Exchange on Friday, Jimei International Entertainment posted a loss of HK$17.74 million for 2014 compared against the profit of HK$344 million of the previous year.

In the financial years mentioned, the company noted that its operating segment at the time only included the trading of ‘chemical products, energy conservation and environmental protection products’.

‘The loss was mainly attributable to the absence of a one-off gain for the year ended December 31, 2014,’ Jimei International Entertainment concluded in its Friday filing.

In the financial year 2013, the former body of Jimei International Entertainment, Sinogreen Energy International achieved a profit attributable to shareholders of HK$344.31 million – a result that the company noted as a boost by a one-off gain of about HK$359.4

million following a successful lawsuit in Hong Kong that was related to the unwinding of a television technology business that Sinogreen Energy International had previously acquired.

The Friday filing also showed that Jimei International Entertainment’s total staff costs had surged by 184 per cent year-on-year to HK$9.68 million for 2014, when the company’s roster of employees expanded from 10 in 2013 to 25 in the next year. The directors’ remuneration amounted to HK$4.16 million last year, surging 127.5 per cent from HK$1.83 million in 2013.

Macau veteran junket investor Jack Lam Yin Lok and his associates assumed control of 65.85 per cent of Sinogreen Energy International in September last year, following which the firm then underwent a major board reshuffle and shift of operation focus to the gaming business.

In Jimei International Entertainment’s Friday filing, it noted that following the change of board members in early November – one that resulted in Mr. Jack Lam assuming the position of chairman of the Hong Kong-listed firm – the company has been ‘actively exploring the possibility of extending its business into the gaming and entertainment market to broaden its income sources’.

S.L.

factors and the university’s expenses.

Currently, some 1,300 students study at the University of Saint Joseph, of whom a majority are local residents, the broadcaster said, citing Mr. Stilwell.

The university, currently headquartered in the NAPE commercial district of downtown Macau, will move to its new campus in Ilha Verde in February next year, the rector noted.

The new campus, which also comprises Saint Joseph’s Secondary School (Colégio Diocesano de São José), occupies 38,000 square metres of floor space and is designed to accommodate at least 1,800 university students.

Previous media reports noted that the new campus, inclusive of a dormitory, was scheduled to be completed in April this year.

SL.

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February 2, 2015

Macau INTERVIEW

“No doubt if our LRT bid had been selected things would’ve been different” The Consulgal bid was one of those defeated in the quest to become the project manager of the Light Rapid Transit (LRT) of Macau. Company head Rogério Monteiro Nunes refuses to point the finger at the government but he says that the joint bid of Consulgal and Hong Kong’s MTR was the best option, primarily due to the experience of both companies in developing projects like the LRT. For Consulgal, a major challenge is the distorted labour market, while a future goal is expansion to Guangdong João Santos Filipe Jsfilipe@macaubusinessdaily.com

Consulgal has been operating in Macau since 2002. What were the reasons behind the decision to expand its operations to the Special Administrative Region?

We’ve always been aware of the Macau situation long before the decision to invest here. On a personal level, I’ve known the territory since 1974. However, in 2002 we came to the conclusion that Macau was lacking the new economic cycle, and that the government was ready to begin with a company that could provide the services we do. After talking to local authorities - and as at the time we were looking to internationalise our business - we decided to accept the challenge.

Did the fact that Macau is a former Portuguese enclave and that Portuguese is one of the official languages of the territory contribute to the decision to set up here?

When we decided to invest in Macau we could have made a different choice like many of our competitors did and set up in Hong Kong. But we are a Portuguese company and the connections between Portugal and Macau are obvious. And, of course, the language played a very important role in our decision.

After thirteen years of operating in Macau, how do you assess this decision?

We’re very pleased with it. We’ve been involved in many emblematic projects for Macau, such as the third bridge [Sai Van] connecting Taipa and Macau, the extension of the airport, and the management of the construction works of the new cargo terminal of the airport, among many others. However, the fact that we worked on a pilot project of automated solid waste collection in Areia Preta makes us very proud. We had already installed a similar system in Lisbon and we decided to introduce it to the Macau Government. The government was open to the idea and we are hoping to see this system expand in Macau.

Consulgal was also involved in the viability study for Light Rail Transit (LRT). What was your role in that?

The LRT is a very complex project.

We were responsible for the first viability study conducted in 2003. Then we were asked by the government to monitor the second viability study which assessed the possibility of constructing an underground system and that was done by the Hong Kong company MTR. This last possibility was later excluded because the government

decided it was too expensive.

We also participated in the open tender to be the project managers of the construction of the LRT in a joint venture with MTR.

The LRT project has faced many difficulties to a point that the new Secretary for Transport and Public Works, Raimundo Rosário, called it a hot potato. What’s your view on this project?

The construction works have faced many difficulties. Initially it was planned that the LRT would be ready in 2013. However, in Taipa the construction works are progressing very slowly. On the Macau Peninsula, there were other problems that did not permit the construction works to begin. The LRT was projected as an integrated system connecting the Peninsula to Taipa and the construction works were supposed to start first on the Peninsula, where the number of passengers is expected to be higher. The fact that part of the system is delayed will have consequences for the efficiency of the project.

The fact that part of the system [LRT] is delayed will have consequences for the efficiency of the project

had assumed the role of project managers of this project?

I haven’t any doubt that if our bid had been selected things would’ve been different. MTR was responsible for the subway in Hong Kong and we were the project managers on the light rail system in Porto, which was a system more complex that involved elevated and underground tracks. So I believe that the joint bid of Consulgal and MTR was the best option.

But that was not the final decision and we respect the government’s choice. Let me add this; the LRT project is very complex and any entity in charge of it would face difficulties. The state of the project is dependent upon many decisions that is not only explained by the option to choose one project manager over another.

Macau is often said to be a business platform for Portuguese-speaking countries and China. How did your presence in the SAR help you?

In relation to the Portuguesespeaking countries, I cannot say that Macau helped much because we are a Portuguese company. Now, in relation to the Chinese companies I have no doubt that Macau can actually work as a platform to help these companies go to the Portuguesespeaking markets. However, in our connection with Chinese companies, Macau definitely played a role. Besides that, Macau has been our platform to work in Timor and last week we participated in an open tender in Cambodia. If our bid is chosen to manage the project, due to our location in Macau we will coordinate the operations from here.

Some months ago there was news that companies based in Hong Kong and Macau were in a salary war to hire engineers. Has this affected your operations?

Do you believe that the government would have made a better decision if they’d chosen Consulgal and MTR’s bid for the LRT?

I do not want to criticise the government’s choice nor am I pointing fingers at a time when the LRT project has become a hot topic. The government made a decision and every decision has positive and negative consequences. We respect the decision taken. At the moment, the government is working towards a solution to the project and that’s what is important.

But would the situation be different if Consulgal and MTR

The problem is less about salaries, and more about the lack of qualified workers. Macau has a huge need for qualified workers in all areas. As the import of workers is limited, salaries tend to increase abnormally and this may look good in the short term but in the middle and long-term it is going to bring problems for workers and Macau.

What kind of problems are you anticipating?

At this moment, the labour market is distorted in Macau. As Macau has a limit on the import of labour, people here are privileged. It is natural that they want to retain these privileges but economic cycles are a reality and when the

economic situation of the SAR goes through more difficult times, which eventually will happen because this wave of construction is not sustainable in the future, there will be cuts in salaries. The other option is unemployment. As the construction industry starts to slow down the situation will not be sustainable for companies because of the high salaries and this will cause unemployment.

People have too many privileges and in the future that will result in unnecessary pain.

What are the main places Consulgal hires workers from for Macau?

Mainland China is our first source of workers. We have also hired in the Philippines, Portugal and Brazil. However, in recent years there has been a bigger demand for Chinese speakers and that is the reason why the Mainland is our market.

Is it common to move engineers from Macau to other projects where the company is involved, such as Mozambique, Angola or Brazil?

In theory, our workers are open to the option of integrating into other projects in other parts of the world.

But when you try to take them to have a different experience that is difficult. At this moment, we are the project manager company for a train terminal in the north of Mozambique. The contractor is a Chinese company and our client is a Brazilian company, named Vale. Due to the fact that we have an office in Macau our client hired us as they were having communication problems with the Chinese company and because we have Chinese engineers.

However, when we tried to look in Macau for Chinese speaking engineers interested in working there, whether in our company or outside, we couldn’t find any.

We’d like to expand to Guangdong because of the co-operation agreements of Macau with that region

Business Daily | 9

February 2, 2015

Macau

Profile Rogério Monteiro Nunes is the President and CEO of Consulgal, a Portuguese-based company related to engineering, project management and environmental consultancy services that has operated in Macau since 2002, through its subsidiary Consulasia. The mother company also partially owns Sinogal, which operates in Macau and Mainland China, in the field of solid waste treatment, and the Pearl River, which operates in the Mainland in the field of environmental services.

In addition to Macau, China and Portugal, Consulgal is represented in Brazil, Timor, Angola, Mozambique, Jamaica and other regions of the globe.

Why are people in Macau not interested in working abroad?

As their working conditions are good here and their salaries are very high, they don’t have the motivation to work abroad on other projects, where they could integrate with multinational teams.

In terms of professional experience, it is their loss but they do not understand that. However, it’s easy to accept that living in the north of Mozambique, which is an area that is starting to develop now, is not as comfortable as living in Macau.

What about the qualifications of the engineers who graduate from Macau universities?

There are two types of qualification. The first is the qualification acquired in universities and the other is your professional experience. In relation to the qualification related to your academic experience, the graduates of Macau universities have an acceptable level of qualification.

It could be improved if the universities could reach the top of the rankings. But then, there are many universities that are not at the top of the rankings. As for professional experience, you can see that qualified workers here tend to lack ambition and motivation to go further in their careers. As they have good working conditions, many tend not to feel the need for personal improvement and perfection. That happens in all professions in Macau, not only in the areas we work in. Macau’s labour market would benefit from more competition.

Is Consulgal planning to expand to Mainland China?

As we’re in Macau we have that ambition. We would like to expand to the area of Guangdong because of the co-operation agreements of Macau with that region. However,

there are two problems. The first is that despite the agreements that give to a Macau company the same rights as a Chinese one in Guangdong, the market is not fully open to this. Then, the other problem is related to labour. Our big advantage in comparison to Chinese companies is the skills and qualifications of our workers.

However, as they are not willing to move from Macau to China we lose our advantage in relation to local companies there.

For some years, the economy of Macau has relied on the gaming industry. Is this industry pushing out the others?

Macau has changed a lot in the last thirty years. Many years ago, you would easily find the textile industry operating in Macau.

However, after the handover the territory went through steep changes. The region has benefited from the gaming industry and as casinos are more profitable than textile factories the latter had to move to other places as the price of land in Macau is very expensive.

That happens everywhere. In that sense, not only the gaming industry but the tourism sector have pushed out other industries.

Without a strong industrial sector how can Macau achieve economic diversification?

The gaming industry is reaching its peak, and any balanced economy needs to grow. In that sense, expanding the tourism offers of Macau is the first step in diversifying the economy. But the government can also invest in the development of other services. If the government creates attractive benefits for companies of a certain area related to services, they will establish here. The reason why the gaming industry came to Macau is because they had good incentives.

Macau at your breakfast table.

With Business Daily.

Find us in the following newsstands Pacapio at San Ma Lo Opposite HKSB (Nam Van) Beside Luso Bank Building Wen Hang Bank at San Ma Lo In front of Portuguese Bookshop In front CTM at San Ma Lo In front Daiso shop at San Ma Lo Next to S. Lourenço Market Next to Human Resources Dpt Next BNU at Av. Sidonio Pais San Miu, Av. Horta e Costa Next to Metro Park Hotel

10 | Business Daily

February 2, 2015

Macau

Auto Italia expects to record profit

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uto Italia Holdings Ltd. is expecting to record a profit for the whole year of 2014 based on a preliminary assessment of unaudited management accounts, the company said in a filing with the Hong Kong Stock Exchange.

‘The group is expected to record a net profit for the year ended 31 December 2014 as compared to an audited loss of HK$55.7 million for the year ended 31 December 2013,’ the filing reads.

The primary reasons for the group’s performance is due to an increase in car sales as well as an ‘increase in income from the provision of pre-delivery inspection services in mainland China’. In addition, the group’s gross profit margin grew by mid-single digit percentage points following the introduction of new car models in 2014. ‘Income contribution of approximately HK$20 million from

financing activities comprising the provision of financing services,’ the filing says, also contributed to the group’s increased profits last year.

In September, Auto Italia

announced it had posted a gross profit of HK$130.2 million in the six months ended June 30.

The company, whose principal activity is investment holdings, has

subsidiaries engaged in the import, marketing and distribution of Italian car brands Ferrari and Maserati in Macau and Hong Kong.

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I.T store sales down 4.5 pct in Q3

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ong Kong-listed clothing retailer I.T Ltd. said its comparable store sales had been affected by the Occupy Central movement of Hong Kong last year, resulting in sales growth in the SAR dropping by some 4.5 per cent yearon-year during the third quarter of its fiscal year ended November 30.

‘The group continues to suffer amidst weakened spending momentum and increasing operating costs. The political demonstrations that began in late September in Hong Kong have caused disruptions to the Group’s performance. Due to these factors, comparable store sales growth of our Hong Kong businesses landed in negative territory during the third quarter,’ the group wrote in its third quarter results filed with Hong Kong Stock Exchange last week.

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the 12 months ended March 31, up 13 per cent from that of a year ago.

In its 2013/14 annual report filed with the Hong Kong Stock Exchange, the company announced total assets of HK$3.2 billion, up 10 per cent from HK$2.9 billion last year. Vitasoy’s total turnover was HK$4.5 billion, an 11 per cent increase over that of 2012/13.

Macau and Hong Kong – the sales of which are consolidated – account for 42 per cent of the group’s total, followed by mainland China at 34 per cent. Australia and New Zealand accounted for 11 per cent of Vitasoy’s

K.L.

Correction

Vitasoy halts shares trading itasoy International Holdings Ltd. halted the trading of company shares as of 9:00am Friday morning. In a filing with the Hong Kong Stock Exchange, Vitasoy did not mention when trading is likely to resume.

Trading will resume ‘pending the release of an announcement in relation to a discloseable transaction and inside information of the company,’ the filing reads.

No further information was available.

In July, the company reported a gross profit of HK$2.1 billion for

Although the group has one store in The Venetian Macao it did not mention its sales performance in Macau, as it did in its previous interim report.

Meanwhile, the group’s comparable store sales registered a decrease of 0.2 per cent year-on-year in Mainland China during the three months; in Japan, it posted a growth of 13.5 per cent year-on-year.

Although comparable store sales dropped in two of its major markets during the third quarter, the accumulative store sales of the group during the first nine months of the fiscal year still posted positive growth, up 0.8 per cent, 2.7 per cent and 13.1 percent year-on-year in Hong Kong, Mainland China and Japan, respectively.

total sales, as did North America also with 11 per cent. Singapore accounted for 2 per cent of total sales.

For the full year 2014/15, the company plans to bring in ‘new meaningful innovations’ to both soy and tea. Soymilk will see new packaging, while milk tea will be introduced to expand Vitasoy’s tea offerings.

The maker of soy and plant milk, tea, dairy milk and tofu products distributes goods in North America, Singapore, Australia, New Zealand, and mainland China as well as Hong Kong and Macau.

S.F.

In Thursday’s edition of Business Daily (January 29, 2014), we incorrectly stated that a student from the University of Saint Joseph had received a MOP1.35 million subsidy from the Science and Technology Development Fund. Our story titled ‘Subsidies galore’ on page 4 should read: ‘The University of Saint Joseph also received MOP1.35 million for a principal investigator to lead a team on the petrology and geochemistry of igneous rocks from Macau’.

We apologise for any inconvenience caused.

Business Daily | 11

February 2, 2015

Gaming

Las Vegas betting stalls as baccarat drops, tourists skip tables

L

as Vegas Strip gambling shrank by 2.1 per cent to US$6.37 billion in 2014, halting a four-year recovery in the U.S.’s largest betting hub.

Winnings from slot machines fell slightly, according to state data released Friday and compiled

by CBRE Inc., a real estate brokerage. Revenue from table games such as blackjack dropped 1.9 per cent, while baccarat, a card game favoured by Asian players, slumped 7.1 per cent after five years of growth.

The results, along with new visitor data, show that the U.S. casino industry is doing a good job of attracting tourists but is less successful in getting them to gamble, even in its premier destination. A crackdown on corruption in China that has crimped highend betting in Macau is also hurting Las Vegas baccarat play, according to Brent Pirosch, a CBRE analyst.

“If you’re Wall Street, it’s disappointing,” he said in a telephone interview.

It’s a different story in terms of the city’s total visitors, many of whom come to see shows, eat at restaurants and go to nightclubs. Visitation increased every month in 2014, rising 3.7 per cent to a record 41.1 million, the Las Vegas Convention & Visitors Authority said in a release.

The average daily hotel room rate rose for the fifth straight

year, to $116.73 a night, the report said.

The Strip is home to some of the largest casinos in the world including MGM Resorts International International’s Bellagio,

Caesars Entertainment Corp.’s Caesars Palace and Las Vegas Sands Corp.’s Venetian.

Casino revenue on the Strip peaked at US$6.8 billion in 2007. The market

Sri Lanka blocks three casino projects The gaming industry is one of the targets of the economic agenda of the country’s new government

P

rime Minister Ranil Wickremasinghe confirmed on Thursday that the new government had blocked three casino projects approved by the previous administration, including a US$400million project by Australian gaming mogul James Packer’s Crown Resorts Ltd. and another by John Keells Holdings Plc. In response, Crown Resorts, said it would not proceed with its planned US$400 million development in Sri Lanka following Colombo’s government announcement.

Sri Lanka will not allow casinos in planned mixed developments in Colombo, Prime Minister Ranil Wickremesinghe told the nation’s parliament as the government detailed measures in an interim budget.

Melbourne-based Crown had proposed to construct a 5-star resort with about 450 hotel rooms and suites, gaming areas and restaurants at Beira Lake in the centre of Colombo,

according to a 2013 regulatory statement.

‘We respect the Sri Lankan Government’s decision,’ the company said today in an e-mailed statement.

‘On that basis, our project will not be going ahead.’

John Keells Holdings Plc., which is developing projects in Colombo, said it will ‘engage’ with the government over its decision to restrict space for gaming activities.

Wickremesinghe was appointed prime minister this month after Maithripala Sirisena became president in a surprise election victory that ended the 10-year rule of Mahinda Rajapaksa Sri Lanka’s new government announced a budget that imposed new taxes on cash-rich firms to pay for pay hikes for workers and tax cuts on key commodities, hoping to woo voters as it approaches a parliamentary election.

Reuters/Bloomberg

began its recovery three years later but has yet to top that previous high, according to Bloomberg Intelligence.

Total revenue on the Strip, including rooms, food and beverage, rose 5 per cent to

US$16.3 billion in the 12 months ended June 30, the state’s fiscal year, topping the 2007 record of $15.8 billion, according to state data from CBRE. Bloomberg

Corporate Mandarin Oriental honoured as ‘Luxury Hotel in Macau Star Performer’ Mandarin Oriental Macau was honoured as ‘Luxury Hotel in Macau Star Performer’ by the Hurun Report in its Best of the Best Awards. The Hurun Report is China’s leading luxury publishing group. The ceremony was held in Shanghai last week. Mandarin Oriental Pudong, Shanghai and Mandarin Oriental, Guangzhou received the ‘Luxury Hotel in Shanghai Star Performer’ and ‘Art Lifestyle Luxury Hotel in Guangzhou Star Performer’ awards, respectively. Michael Hobson, Chief Marketing Officer for Mandarin Oriental Hotel Group, attended the event and received the group’s award for ‘Luxury Hotel Brand Star Performer’.

“We are delighted to have received this prestigious award,” said Mr. Hobson. “This recognition shows that Mandarin Oriental’s renowned brand of luxury hospitality combined with oriental charm has set an industry benchmark in the Chinese market.”

12 | Business Daily

February 2, 2015

Hong Kong

China returns five times HK; easy choice for investors Nomura analysts expect Macau casino gross gaming receipts to plunge 19.6 per cent after earlier predicting an 8 per cent drop

recovery any time soon, and have cut forecasts for Macau casino receipts this year. Nomura Holdings Inc. expects gross gaming receipts to plunge 19.6 per cent after earlier estimating an 8 per cent drop, while HSBC Holdings Plc’s projection swung to a 7 per cent decline from a 6 per cent gain. SJM fell 3.6 per cent this year through Friday, with Galaxy declining 3.3 per cent.

Hong Kong’s retail sales growth by value at the end of November was less than a third of what it was at the start of last year, according to the most recent data available. Jewellery chain Luk Fook Holdings (International) Ltd. said same-store sales in Hong Kong and Macau dropped 6 per cent last quarter because of pro-democracy protests. The city’s peg to the U.S. dollar may also push visitors to cheaper destinations, said JP Morgan Asset’s Hui. Luk Fook fell 0.7 per cent this year through Thursday.

“Some Hong Kong retailers are struggling with a weaker consumer market here on lower spending by mainland tourists because of curbs on corruption and China’s economic slowdown,” said Louis Wong, director of Phillip Asset Management (HK) Ltd., which oversees about US$200 million.

Cheung Kong

T

he divide in Hong Kong’s stock market between the city’s own companies and those that make most of their money in China will only get bigger.

That’s the verdict of investors and brokerages from JP Morgan Asset Management to UOB-Kay Hian Holdings Ltd., who watched the MSCI Hong Kong Index rise 2 per cent last year as the Hang Seng China Enterprises Index jumped 11 per cent.

Monetary policy that has favoured Hong Kong since 2010 – stimulus by the U.S. Federal Reserve and restraint from China’s central bank – is reversing course, dimming the outlook for everything from casinos to developers and retailers.

“There will be much more downside for pure Hong Kong plays because people are buying China on a potential rate cut and a more stable economic outlook,” said Steven Leung, director of institutional sales at UOB. “We don’t see positive factors for Hong Kong. Toward the middle of this year there will be the risk of a U.S. interest-rate hike, so people will continue to underweight pure Hong Kong plays.”

The city’s US$4.3 trillion stock market houses local companies, which make sales and borrow money in a currency that’s pegged to the U.S. dollar, and hundreds of Chinese equities influenced by policy across

the border. Last year, the Hang Seng China Enterprises Index outperformed the MSCI Hong Kong Index by the most since 2007. The city’s equities remain more expensive, trading at 15.6 times estimated earnings as of yesterday, compared with 8 times on the H-share gauge, data compiled by Bloomberg show.

Cheaper shares “If I look at the valuations, if I look at growth momentum, Chinese names do offer more interesting prospects,” said Tai Hui, chief Asia market strategist at JP Morgan Asset, which oversees about $1.7 trillion.

JP Morgan Chase & Co. and China International Capital Corp. are among those expecting more cuts to mainland interest rates and reserve requirements after the economy expanded 7.4 per cent last year, the slowest pace since 1990. Gains in the H-share index accelerated after the People’s Bank of China delivered a surprise rate reduction on November 21. The MSCI Hong Kong Index climbed 0.5 per cent Friday morning in the city, while the Hang Seng China Enterprises Index added 0.3 per cent.

On the opposite end of the policy spectrum, some 45 per cent of economists surveyed by Bloomberg said the Fed will raise the benchmark lending rate in June. Higher borrowing

costs would weigh on Hong Kong property stocks, which account for more than a quarter of the city’s MSCI gauge, and are already facing government efforts to cool the real estate market by increasing the amount of available housing.

Property curbs “For the big constituents in the Hong Kong market like property, policy now is that we want to have more supply because that’s what’s good for the general population,” said Joshua Crabb, head of Asian equities at Old Mutual Global Investors (UK) Ltd., whose parent oversees about US$123.2 billion.

The price target set by analysts on Sun Hung Kai Properties Ltd. was nearly in line with the shares’ closing price yesterday, data compiled by Bloomberg show. For Link REIT Ltd., analysts expect a 4 per cent drop.

The earnings outlook for gambling and retail shares is also weak as China’s slower growth and crackdown on graft continue to discourage extravagant spending. Casinos led declines on the MSCI Hong Kong Index last year amid the first-ever annual drop in Macau gaming revenue, with SJM Holdings Ltd. plunging 52 per cent and Galaxy Entertainment Group Ltd. sliding 37 per cent.

Investment banks don’t see a

Leon Goldfeld, investment director at Amundi Ltd., sees a bright spot for Hong Kong’s market in Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., among the biggest advances this year on the city’s MSCI equity gauge. The stocks both jumped 17 per cent as at yesterday since billionaire Li Ka- shing announced on January 9 a US$24 billion proposal to merge and spin off the real estate assets of his two main companies. The MSCI Hong Kong index is heading for a 5.6 per cent advance this month, compared to a 2.1 per cent drop for the H-share index.

Chinese shares sank Friday after Xinhua News Agency reported a mainland regulator was planning a new round of checks in the marginlending businesses of brokerages.

More scrutiny will create volatility, although it’s ultimately good for capital markets, said Steven Rees, global head of equity strategy at JP Morgan Private Bank, which oversees about US$1.1 trillion. The Shanghai Composite Index plunged the most since 2008 on January 19 after regulators suspended China’s three biggest brokerages from adding margin accounts.

H-shares discount There is further upside for H shares, which are trading near the biggest discount to their mainland counterparts since October 2011.

This will prompt investors to sell local stocks and pick up cheaper China shares available in Hong Kong, said Dickie Wong, an executive director of research at Kingston Financial Group.

“The real interest is still in the China market rather than Hong Kong,” said UOB’s Leung. “We will see more policy from the government on the economy and there is still a chance for China to provide more liquidity through RRR or interest rate cuts.”

Bloomberg

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.

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Business Daily | 13

February 2, 2015

Greater China

Factory sector jolted by January shrinkage In the January factory Purchasing Managers’ Index, all but one of the sub-indices in the PMI fell from December, indicating entrenched weakness.

Koh Gui Qing

C

hina’s factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead, an official survey showed, raising expectations that policymakers will take more action to forestall a sharper slowdown.

The official Purchasing Managers’ Index (PMI) fell to 49.8 in January, the National Bureau of Statistics said yesterday, a low last seen in September 2012 and a whisker below the 50-point level that separates growth from contraction on a monthly basis.

The December level was 50.1, and a Reuters poll saw a better result, 50.2 for January. Only one of 11 economists in the poll predicted a January contraction.

Most of the PMI indexes “showed a downward trend, indicating that current economic growth is still in a downtrend,” said Zhang Liqun, an economist at the Development Research Centre, a state think-tank.

Some economists said the January reading was especially downbeat as it suggested that factories did not enjoy a

China’s burgeoning consumption demand and service sector will replace traditional engines of manufacturing and investment to drive economic growth in 2015 Jing Ulrich J.P. Morgan Chase Asia pacific branch, managing director and vice chairman

usual spike in business before China’s annual Spring Festival holiday, which falls in mid-February this year.

The poor January official PMI fuelled bets that more monetary policy loosening was in store in the world’s second-largest economy.

“China still needs decent growth to add 100 million new jobs this year, plus China is entering a rapid disinflation process,” ANZ economists said in a note to clients.

“We (think) the People’s Bank of China will cut the reserve requirement ratio by 50 basis points and cut the deposit rate by 25 basis points in the first quarter,” they said.

Marred by a housing slump, erratic growth in exports and a state-led slowdown in investment, China’s economy has steadily lost steam in the last year as growth sunk to a 24year low of 7.4 percent.

Cooling services And the downturn has also broadened into the country’s burgeoning services sector.

A separate official services PMI, also released yesterday, showed growth in the sector cooled to a oneyear low in January.

The official non-manufacturing PMI fell to 53.7, the lowest level since January 2014, from December’s 54.1.

Accounting for 48 percent of China’s US$10.2 trillion economy last year, the services sector has weathered the growth downturn better than factories, partly because it depends less on foreign demand.

To revive demand, China’s central bank unexpectedly cut interest rates in November after unveiling a stream of stimulus measures.

But despite the steady policy support, analysts polled by Reuters in January still expect economic growth to sag further this year to around 7 percent.

In the January factory PMI, all but one of the sub-indices in the PMI fell from December, indicating entrenched weakness.

Business expectations fell to 48.7, its lowest since records for that began in January 2013, while factory employment dropped to its lowest

in nearly a year at 48.1, compared with the previous month’s 47.9.

Drop in new export orders New export orders, a proxy for the trade industry, fell to 48.4, from 49.1 in December.

In line with recent trends, the factory PMI showed the smallest manufacturers which are often privately-owned were the worst hit.

The official PMI looks more at larger, state-owned firms that a private one by HSBC/Markit, but it includes small factories, which in January was 46.4, versus 50.3 for large manufacturers that are mostly government run.

Underscoring the challenges faced, data last week showed China’s factory profits grew at their weakest rate in two years in 2014.

China’s industrial ministry said last week that it would aim to grow the manufacturing sector by 8 percent this year, down from last year’s actual expansion of 8.3 percent.

Reuters

J.P. Morgan expects steady Chinese economy in 2015 Ulrich forecasts economy will expand at 7.2 percent in 2015 as authorities continue targeted regulatory measures

L

eading investment bank J.P. Morgan Chase predicted China’s economy will maintain steady growth in 2015, boosted by rising consumption and the service sector.

“We are still optimistic about China’s economic outlook in 2015,” said Jing Ulrich, managing director and vice chairman of the bank’s Asia pacific branch.

She said reforms are a significant factor in bettering the economy.

“Reform is the key word of the year of 2015,” she said, “The government will continue economic reforms to

improve competitiveness.”

Ulrich said China’s reforms in finance, taxation, state-owned enterprises and household registration, if successful, will improve the quality of the economy and facilitate restructuring, preluding new growth.

China’s policy makers support her view, confirming the country’s economy has entered into a “new normal” that features quality growth and sustainable development.

“Meanwhile, China’s burgeoning consumption demand and service sector will replace traditional engines

of manufacturing and investment to drive economic growth in 2015,” Ulrich said.

In 2014, the added value from the tertiary sector accounted for 48.2 percent of the GDP and consumption contributed to 51.2 percent of economic growth, both higher than the previous year, data from the National Bureau of Statistics showed.

“The central bank is likely to lower interest rates in the first quarter and cut the reserve requirement ratio twice throughout the year,” Ulrich added.

Xinhua

14 | Business Daily

February 2, 2015

Geater China Luxury consumption predominantly overseas Chinese consumers purchase 76 percent of their luxury goods while overseas, a report published on Saturday said. Chinese people’s domestic consumption of luxury goods was US$25 billion in 2014, down by 11 percent from the previous year, while their luxury consumption in overseas market grew by more than 9 percent annually to 81 billion last year, said a report issued by the Fortune Character Institute, an organization specializing in lifestyle studies of the rich in China. The overall consumption of luxury goods by Chinese consumers registered an annual growth of 4 percent, growing to US$106 billion last year.

Firms prepare for new tax rules Tax specialists say companies need to be aware that China’s tax regime is evolving Michael Martina

Food sector edges up

China doesn’t want to be seen as an undeveloped country with tax rules. It wants to catch up to other international players

China’s major food companies saw combined profits up by 1.2 percent from a year earlier to 758.14 billion yuan (US$123.54 billion) in 2014, latest data showed. The growth slowed from a pace of 13.3 percent reported in 2013, the National Bureau of Statistics said Saturday in a statement. The drop in profit growth came amid the slowdown of China’s economy. The country’s gross domestic product expanded 7.4 percent in 2014, the slowest pace since 1990. Revenue from the main business of food companies rose 8 percent to 10.89 trillion yuan last year.

Roberta Chang tax lawyer, Hogan Lovells

RMB deposit in HK up

Renminbi deposits in China’s Hong Kong increased by 3 percent to 1,003.6 billion yuan (about US$160.6 billion) at the end of December 2014, the Hong Kong Monetary Authority announced.

The total remittance of renminbi for cross-border trade settlement amounted to 657.8 billion yuan in December, compared with 532.8 billion yuan in November, according to statistics published by the authority.

The statistics also show that total loans and advances decreased by 0.1 percent in December. Loans for use in Hong Kong (including trade finance) declined by 1.0 percent, while loans for use outside Hong Kong grew by 1.8 percent.

China Mobile eyes 5G technology The country’s largest 4G mobile network operator, has began development on the next generation of mobile internet following the success of 4G, a senior executive of the company said on Saturday. Xi Guohua, chairman of the board for the telecom giant, made the announcement during the 13th China Enterprise Development Forum held by the Development Research Center of the State Council.

The move suggested the company is trying to maintain its leading position in an increasingly heated competition among the country’s three and only telecom service providers. However, Xi did not unveil more details on the ambitious strategy.

T

he Chinese government’s vow to increase tax scrutiny of foreign companies has sent firms rushing to tax advisors ahead of the implementation yesterday of new rules designed to rein in crossborder tax avoidance.

Tax professionals and business lobbies alike have welcomed the move as an attempt to bring China’s tax regime more in line with international standards.

But it has also caused concern that authorities could use the policy, which came into effect on February 1, as a political tool to put the pinch on foreign companies, on top of what business lobbies lament is an increasingly tough business climate in the world’s second largest economy.

“We’ve definitely been getting a lot of questions from clients on how to avoid being investigated for antiavoidance measures,” said Roberta Chang, a Shanghai-based tax lawyer at Hogan Lovells.

The measures, an elaboration on China’s existing “general antiavoidance rule” or GAAR framework, have more companies taking a hard look at how they structure their businesses.

Under the new policy, for example, a firm that invests in China through companies in Hong Kong or Singapore to take advantage of tax benefits that do not exist between China and its home country could find itself on the wrong side of Beijing tax authorities if it cannot prove it has substantial business operations there or employees on the ground.

“Companies are increasingly putting substance in their holding companies,” Chang said.

Andrew Choy, Greater China International Tax Services Leader at Ernst & Young, said the GAAR rules are a signal that companies need to pay attention to tax planning.

“In general, people will be more conservative,” Choy said.

Chinese regulators hit Microsoft Corp with about US$140 million in back taxes last November, an early case of what could be a wave of “targeted actions” to stop profits going overseas, according officials at China’s State Administration of Taxation.

With a slowing economy likely to reduce 2015 fiscal revenue growth to a three-decade low of just 1 percent, according to a Deutsche Bank report, it makes sense for Beijing to try to boost its coffers.

Tax specialists say companies need to be aware that China’s tax regime is evolving, albeit as part of a global trend to curb tax avoidance.

At a meeting of G20 leaders in Australia in November, Chinese President Xi Jinping endorsed a global effort to crack down on international tax avoidance.

“Compared to the U.S. or the UK, China’s tax rules are still simpler.

But China doesn’t want to be seen as an undeveloped country with tax rules. It wants to catch up to other international players,” Chang, of Hogan Lovells said.

Fair and transparent?

At the forefront of evolving international tax policy is the debate about whether the right to tax should be tilted towards industrialised, capital exporting countries where firms reside, or so-called source

countries such as China, where many generate significant profit.

“There is a large element from a government policy perspective that has to do with whether China is going to tax particular profits or some other country,” said Jon Eichelberger, a tax expert and partner at Baker & McKenzie’s Beijing office.

Chinese state media has said tax evasion and avoidance by foreign companies costs the world’s second largest economy at least 30 billion yuan (US$4.8 billion) in tax revenues each year.

Larry Sussman, managing partner at O’Melveny & Myers’ Beijing office, said the scope of the scrutiny could also reach private equity firms and M&A activity.

“Anything cross-border coming in and coming out, for that matter, which could implicate Chinese investors,” Sussman said.

Despite the elaboration to the GAAR rules, they remain loosely defined, giving tax authorities discretion on whether companies meet the demands for economic substance.

James Zimmerman, Chairman of the American Chamber of Commerce in China, said Chamber members welcomed an upgrade to the tax regime, so long as the policies were consistent with China’s World Trade Organization obligations.

“AmCham-China is hopeful that the Chinese government will apply the tax laws and regulations in a fair, uniform, and transparent manner, and we will be monitoring China’s enforcement record going forward on behalf of our member companies,” Zimmerman said.

Reuters

Business Daily | 15

February 2, 2015

Asia South Korea exports down less than forecast Exports were better than forecast but imports were weaker than anticipated Christine Kim and Choonsik Yoo

S

outh Korea’s exports in January fell less than expected, but effects from a plunge in oil prices, a sustained slump in Europe and slowdown in China all clouded prospects for a turnaround in global demand.

Exports in January edged down 0.4 percent from a year earlier to US$45.37 billion while imports dropped 11.0 percent to US$39.84 billion to produce a US$5.53 billion surplus, the trade ministry said yesterday.

A sharp drop in demand from the European Union and weaker prices of oil and related products were mainly to blame for January’s numbers, the ministry said in a statement.

Analysts said these factors would continue to drag on global trade for a while.

“Europe holds the key for South Korean exports because exports by many countries including China will eventually be influenced by demand from Europe,” said Park Sang-hyun, chief economist at HI Investment & Securities in Seoul.

Shipments to the EU market tumbled 23.0 percent in January from a year earlier, the worst in three years and

KEY POINTS Jan exports -0.4 pct, imports -11.0 pct Exports to EU fall 23 pct, worst in 3 yrs Per-day exports fall 6.7 pct vs year ago Oil price decline, slowing China also a concern

eclipsing a 5.3 percent rise in sales to China, which is South Korea’s biggest export market.

Seventh-largest exporter South Korea is the world’s seventh-largest exporter and the first major exporting economy to report trade data. It is also home to some of the biggest global export manufacturers, such as Samsung Electronics and

Hyundai Motor.

Analysts also played down the better-than-expected January exports, given there were more working days in South Korea this year than last year. The average export value per working day fell 6.7 percent in January both from a year earlier and from December.

The three-day Lunar New Year holiday falls either in January or February, making many South Korean economic indicators during the period

subject to distortions. Last year, the holiday started at the end of January, and this year it is late February.

In addition to the slump in Europe, South Korean exports have also been hit by effects from the won’s appreciation against some of the major currencies and China’s push to localise production of some components.

Many analysts have said South Korea’s central bank needs to deliver more interest

Japanese farming reforms stiff test for Abe To protect local farmers, high tariffs exist on dairy produce, rice, wheat, beef, pork and sugar

Japanese Prime Minister Shinzo Abe

A

fter December’s landslide re-election, Japanese Prime Minister Shinzo Abe’s programme to revive the nation’s economy is set to meet perhaps its stiffest challenge, the nation’s sclerotic farming industry.

He will soon submit legislation to reform agriculture, a sector where a dwindling band of aging farmers works tiny plots, while conducting gruelling negotiations to sign up for the Trans-Pacific Partnership

(TPP), which would cut towering import tariffs that shield domestic farmers.

Standing in his way is Japan Agriculture (JA), a lobby group that controls most aspects of pricing and distribution through its

network of about 700 farming cooperatives, and also supplies feed and machinery.

It doesn’t like Abe’s plans to clip its wings, nor the TPP. And the JA, which has long had close ties to his Liberal Democratic Party (LDP), has financial clout - its banking business had nearly 91.5 trillion yen (US$780 billion) in deposits in March 2014 - and a large membership, which give it influence over lawmakers in rural constituencies.

Though agriculture is only about 1 percent of Japan’s economy, that defeat worries those who fear the government could temper what Koichi Kurose, chief economist at Resona Bank, calls “a symbolic part of Abe’s structural reforms” ahead of nationwide local elections in April.

At home, farmers hurt by another plank of Abenomics loose money and a weaker yen - are also watching closely.

For the consumer, however, high prices and a recent butter shortage are the pitfalls of a closed market for milk and dairy products,

rate cuts to keep the won from strengthening further in the aftermath of a spreading global wave of policy easing this year.

But the Bank of Korea has maintained a firm stance against calls for a further policy easing, saying Asia’s fourth-largest economy would gradually regain momentum this year and that containing household debt was as important a task.

Reuters

where output volume and sales prices are set by the state and a few designated groups under the JA, while imports are under effective state control.

Raw milk production was 7.45 million tonnes in the year through March 2014, down from 8.66 million in 1997, while the number of dairy farmers has fallen to 18,600 in 2014 from 160,100 in 1975. Cow numbers have fallen by a third from their peak.

Meanwhile, Japan imposes a 360 percent tariff on butter imports to protect domestic farmers while maintaining an import quota as a condition for such high tariffs under international rules of trade.

Abe wants to break that system to give local farmers or cooperatives autonomy so they become more productive and profitable.

Other reforms include a scheme to encourage land transactions so farms can expand.

The average Japanese farm is only two hectares.

Structural reform is critical ahead of the TPP, which would link 12 countries covering nearly 40 percent of the world economy.

Disagreement between the United States and Japan, the two biggest, over how widely Japan will open up has delayed progress.

Reuters

16 | Business Daily

February 2, 2015

Closing New Jersey’s Revel Casino sale delayed

Anti-graft watchdog updates inspection results

A U.S. federal appeals court has delayed the sale of the shuttered Revel Casino in Atlantic City pending an appeal by a company that ran its nightclub and boardwalk dance club. The order gives attorneys for Revel until tomorrow to respond to the appeal filed by IDEA Boardwalk. The company, along with several restaurants who had also leased space inside the casino, had lost a challenge to the sale in a January 21 federal court. The sale to Florida developer Glen Straub, who bought Revel in bankruptcy court for US$95.4 million, was expected to be completed by February 7.

China’s anti-corruption watchdog published yesterday a detailed diagram to explain the corrective measures taken by inspected governments and institutes after the second round of inspection. The Communist Party of China (CPC) Central Commission for Discipline Inspection (CCDI) carried out its second round of anti-corruption inspection from July to September in 2014, which covered 10 provincial regions, the General Administration of Sport, Chinese Academy of Sciences, and China FAW Group Corporation. The list of corrective measures was first launched in October 2014 for the results of the CCDI’s first round of inspection.

Keeping the port’s management in state hands was “a strategic move to reconstruct the country’s productive apparatus”, the new government said.

During the election campaign, Syriza lawmaker Theodore Dritsas had said “the state control of the ports is one of the conditions of this reconstruction”.

Dritsas is now deputy minister of the merchant marine in the new government.

Piraeus port U-turn will not hurt China investment

‘Highly concerned’

Analysts note that posturing aside, the new Greek government is unlikely to try to dislodge China from Piraeus

Alexis Tsipras, opposition leader and head of radical leftist Syriza party, greets supporters after the initial election results for the Greece general elections in Athens

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he shipping containers emblazoned with the COSCO logo on the quayside at Greece’s biggest port Piraeus are a sign that China has invested heavily here.

Even though Greece’s new left-wing government set alarm bells ringing in Beijing when it halted the privatisation of the port this week, analysts say Athens is merely posturing.

China will still be a “privileged partner for Greece”, they say.

COSCO, through its Piraeus Container Terminal (PCT) arm, manages the two main container terminals at the port -one of Europe’s busiest- under a 35-year concession signed in 2008.

In a logical move to extend its control, the Chinese shipping giant was one of the bidders for the 67-percent share in the port authority held by the Greek state.

The tender deal was one of the key requirements of the 240-billion-euro EU-IMF bailout for Greece.

Winning the bid would have given COSCO complete control of the port, including its passenger ferry functions used by millions of tourists every year heading for the picturesque Greek islands.

Just days before the general election, then-prime minister Antonis Samaras chose the port of Piraeus as one of the showpiece stops in his campaign to return his conservative

New Democracy party to power.

Surrounded by visiting Chinese officials, Samaras launched construction work on a third container terminal, a 230-millioneuro (US$260-million) investment

by COSCO. Visiting Piraeus in June last year, Chinese Premier Li Keqiang said the port could become “a Chinese gateway to Europe”.

But radical Prime Minister Alexis Tsipras’s Syriza party had barely taken power on Tuesday when it announced it would fulfil its campaign pledge to halt the privatisation of the port of Piraeus and the smaller but still important Thessaloniki docks.

China made no secret of its displeasure at the move.

“We are highly concerned about this,” Beijing’s commerce ministry spokesman Shen Danyang said Thursday, calling on Athens “to protect the legal rights and interests of Chinese companies in Greece, including COSCO”.

Tsipras’ government has been somewhat evasive since its initial announcement, with Dritsas speaking of a “revision of the agreements with COSCO” and of “open horizons” for future cooperation with China.

George Xiradakis, a consultant in the merchant marine sector, said COSCO’s involvement has helped lift Piraeus out of its “lethargy” and has “put it on the map in Europe as an essential thoroughfare from North to South”.

On the COSCO-run dock, new cranes were installed to speed up the unloading of containers.

The Samaras government had regularly stressed that container traffic in Piraeus had increased eightfold since the lease was signed in 2008, under a previous conservative government.

However, the mayor of Piraeus had expressed misgivings about an all-out sale of the port, and there had been concerns that the European Union would have found it difficult to accept a Chinese monopoly on the running of the port.

Obama’s prepares tax on foreign earnings

Abbott punished in Queensland election

Wuhan allows 72-hour visa exemptions

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resident Barack Obama’s budget proposals will include a minimum tax of 19 percent on U.S.-based companies’ future foreign earnings and a 14 percent tax on their stockpiled offshore profits, Bloomberg news said on Saturday, citing two people familiar with the budget.

The planned taxes are part of a US$3.99 trillion budget plan that will be rolled out today and is designed to help middle class and poorer Americans by increasing taxes on the wealthiest, Bloomberg reported. It said the new proposals would be part of a larger effort to overhaul the U.S. tax code and lower the current corporate rate from 35 percent, though few companies pay that top rate. But Obama and the Republicans who now control Congress disagree over how much to cut that rate and over which tax breaks would have to be eliminated or shrunk to offset the lost revenue, the Bloomberg report said.

Reuters

oters dumped Queensland state’s premier in surprise election results that add pressure on Australia’s Prime Minister Tony Abbott amid criticism over his leadership. Campbell Newman, who leads the Liberal National Party, lost his own seat in the state parliament in the January 31 ballot and his government is expected to be ousted after a single term. The opposition Labour Party is on course to return to office, according to Australian Broadcasting Corp. forecasts, after a 2012 poll defeat that left it with just 7 of the state legislature’s 89 seats. Sydney time, with about 71 percent of votes counted, the ABC said.

“It is unprecedented. There’s nothing that comes remotely close to it, certainly not in Australia,” said Norman Abjorensen, a political analyst at the Australian National University in Canberra.

“It’s the most extraordinary comeback in political history.” Abbott’s decision last month to grant a knighthood to Prince Philip, Queen Elizabeth II’s husband, drew widespread criticism.

Bloomberg News

AFP

uhan, capital city of central China’s Hubei Province, will allow 72-hour transit visa exemptions for foreign nationals beginning March, local authorities said yesterday.

Foreigners will be able to visit Wuhan without visas within 72 hours when they are en route to a third country or region via the Wuhan Tianhe International Airport (WTIA), which currently allows 24-hour visa exemptions in a closed-off area of the airport. Following Beijing, Shanghai, Guangzhou, Chongqing, Chengdu, Dalian, Shenyang and Xi’an, Wuhan will be the ninth city in the Chinese mainland to embrace the policy, which is expected to help ramp up the city’s international access. According to the local tourist administration, the city’s management departments, travel agencies and scenic spots have been working on pre-arranged plans and tailored services for the upcoming increase of foreign tourists. Direct flights between Wuhan and Melbourne, Chicago and Dubai are scheduled to be opened this year, according to the WTIA. Xinhua