Macau Business Daily, Feb 4, 2015

The ripples are spreading.

The slowdown in VIP gaming is now exacting a toll on property prices and investment. Realtors expect 8 to 10pct increase in home prices this year. A far cry from headier days. Luxury and high-end residential unit sales are likely to increase slightly in Q1. But overall, estate agents forecast a flat year ahead. Ricacorp Macau anticipates more transactions in the second half on the back of new casino-resorts in Cotai

MOP 6.00 Closing editor: Sara Farr Year III

Number 723 Thursday February 5, 2015

Publisher: Paulo A. Azevedo

Door closing on real estate growth

Page 4

Emergency largesse

Secretary’s sister Melina Leong appointed Tourism Development Committee representative

Page 3

A newly established fund. And the first of its kind. It will allocate as much as MOP333.6 million to 27 government departments. The name of the fund: Permanent Fund. Purpose?

To cover ‘small-amount urgent expenditure’.

The lion’s share, proportionally, has been allocated to the Office of the Chief Executive

Page

Iao Kun revenues down 37pct in January

Page 4 Record VIP bets lift Echo’s profit at expense of margins

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2

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Not so perfect storm

HSI - Movers February 4

Name

Wynn Macau has reported a revenue drop of 30 percent for Q4. The company’s new project, on Cotai, is facing delays due to labour shortages. And China now poses a big question mark for CEO Steve Wynn. The opening of the US$4.1 billion Wynn Palace will likely move from CNY 2016 to the “first half” of that year

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%Day

Hang Seng Bank Ltd

5.21

Lenovo Group Ltd

4.95

China Unicom Hong Ko

4.36

CNOOC Ltd

4.32

PetroChina Co Ltd

1.86

Hutchison Whampoa L

-1.06

China Life Insurance

-1.60

Want Want China Hol

-1.66

Hengan International

-1.71

Tingyi Cayman Island

-1.79

Source: Bloomberg

www.macaubusinessdaily.com

I SSN 2226-8294

High flying CEO; low-flying VIPs

Priming the pump

Sheldon Adelson is not known for mincing his words. Referring to the “witch-hunt” currently underway against ostentatious spending, the Chairman and CEO of Las Vegas Sands Corp. said high-rollers will keep “under the visibility radar” until Beijing’s crackdown on corruption subsides. Talking to an IFT student audience, he nevertheless commended their choice of career, saying “you guys are in the right industry”

The People’s Bank of China has made a major concession.

Announcing that financial institutions’ reserve requirement ratio (RRR) will be lowered. It will go down by 50 basis points starting today

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2 | Business Daily

February 5, 2015

Macau Forum: Consider tech Gov’t grants biz investment MOP334mln for Permanent Fund A

T

he Office of the Secretary for Economy and Finance granted a total of MOP333.6 million (US$41.7 million) yesterday as a ‘Permanent Fund’ for 27 government departments, of which the Office of the Chief Executive was given the most, totalling MOP1.02 million, the Official Gazette announced yesterday.

The Permanent Fund, according to Articles 26 and 27 of the law regulating the management of public finance, can only be spent by the departments and used for ‘small-amount urgent expenditure’, such as labour, operational costs and compensation. Meanwhile, the amount of each item of expenditure cannot exceed one-twelfth of its total fund.

Following the Office of the

Chief Executive, the city’s Judiciary Police (PJ) was granted the second highest amount from the fund, at MOP880,000, whilst the Unitary Police Service was granted MOP283,000. Macau Prison received the lowest amount of all the departments, with only MOP24,000.

The Public Administration and Civil Service Bureau,

meanwhile, received MOP700,000 for its fund, the third highest amount.

The five Secretaries’ offices were granted some MOP1.65 million, with the fund amount of the Office of the Secretary for Social Affairs and Culture topping its peers at MOP676,932. The other four offices were all granted less than MOP300,000 for their funds.

The Office of the Secretary for Administration and Justice received MOP299,200, while the Office of the Secretary for Economy and Finance received MOP220,000.

The Office of the Secretary for Security was granted MOP250,000, while MOP204,800 was given to the Office of the Secretary for Transport and Public Works.

K.L.

mid calls for Macau to diversify its economy from gaming, the city could consider investing in technology businesses or even financial technology, Nam Tung (Macao) Investment Ltd. said at a session of the Technology Innovation and Industry Investment forum held at the Macau Science Centre.

Speaking at the forum on Tuesday, Stanley Ngai Lap Sun, senior project manager in the investment department of Nam Tung, said that the city could mull the establishment of an equity exchange platform to finance technology business startups – whether they are from Macau or the more resourceful mainland China.

“Macau’s advantage now is that it [has] a growing wealthy population,” said Mr. Ngai. “But in terms of laws, Macau has to catch up with the [regulatory] terms of innovative financial products,

which the city has to learn from the experience of Hong Kong and elsewhere.”

Mr. Ngai’s company, a wholly-owned subsidiary of Bank of China Macau branch, has its equity investment business focused on Macau, Hong Kong and first-tier cities in the Pearl River Delta region. Nam Tung also currently invests in small and medium-sized enterprises (SMEs) in the IT sector, retail and media.

The officials-backed forum, organised by the Macau Association for Promotion of Science and Technology, also hosted a roadshow that attracted 21 start-up business projects: the winner will be awarded MOP1 million in equity investment.

The director of the Association is legislator José Chui Sai Peng, an engineer who is also a cousin of Chief Executive Chui Sai On. S.L.

First phase of new prison ready in Q1

T

he senior advisor of Macau Prison, Lei Ka Nang, said that the first phase of construction of the new prison is expected to be finished during the first quarter of this year, according to local broadcaster TDM radio.

Mr. Lei told the news outlet that up to 90 per cent of construction has been completed, and that the government had started its acceptance check. In addition, he said that Macau Prison is striving to open bids for the second phase of construction within this year.

In fact, the first phase of

CORRECTION In yesterday’s edition of Business Daily (February 4, 2015) we incorrectly stated that Paradise Entertainment would have a total of 120 live multi-game (LMG) terminals with the 78 newly deployed terminals in Grand Lisboa. Our story titled ‘Paradise Ent. deploys new live gaming terminals in Grand Lisboa’ on page 5, should read: ‘Paradise has ‘successfully’ deployed 78 of its live multi-game (LMG) terminals in the Grand Lisboa casino, an addition that would provide for the eventual expansion of such terminals at the casino to a total of 120 terminals.’

In addition, the company did not have 895 live multi-game terminals in 2012, as stated in the article, at the time the city saw a growth pace peak of 187 per cent in revenues.

Corporate Galaxy offers elderlies haircut ahead of CNY Galaxy Entertainment Group recently joined hands with Tony & Guy in offering haircuts to the elderly, members of the Macau Tung Sin Tong Charitable Society. “This hair-cutting event was very meaningful to us not only because our elderlies received new haircuts but more importantly because they were able to feel the care and respect from the community during this festive season,” Tung Sin Tong representatives said. Angus Sin, a sixth-year veteran with Tony & Guy, said “It’s really satisfying to be able to give the elderly a refreshing yet easily manageable hairstyle, and especially to see smiles on their faces.” A Galaxy statement said that while waiting for their haircuts, the elderly ‘enjoyed singing karaoke and playing interactive games with the [company] volunteers.’

the new prison construction, started in 2010, was originally slated for completion in December 2012, according to the official website of the Land, Public Works and Transport Bureau.

Mr. Lei explained that the delay was due to the land on the mountain not being stable when the foundations were sunk, resulting in necessary alterations to the drawings of the second and third phases.

The whole construction of the prison is divided into four phases. The advisor claimed that the drawings of the second phase of construction had already been completed.

Business Daily | 3

February 5, 2015

Macau Choi Lai Hang appointed Security Forces Co-ordination Office head Secretary for Security Wong Sio Chak has appointed the current Chief Superintendent of Macau Customs, Choi Lai Hang, as his co-ordinator for the Security Forces Co-ordination Office, according to the Official Gazette released yesterday. The announcement states that Mr. Choi took office on Monday for a term of two years. Former co-ordinator Cheang Seng Chio retired that same day. Mr. Choi is the MSAR’s first director-general of Macau Customs, an enforcement department established in 2001.

Secretary’s sister Melina Leong appointed Tourism Development Committee representative

M

elina Leong Sio Mok, chief operating officer (COO) of Cotai Ferry Co. Ltd. has been appointed as one of the committee members of the Tourism Development Committee to represent her company, the Official Gazette announced yesterday.

Ms. Leong, sister of the city’s Secretary of Economy and Finance Lionel Leong Vai Tac, will replace the current representative of the company, Seale John Christie, according to the announcement.

In fact, Ms. Leong was only promoted on December 8, 2014 as COO of the ferry company, a subsidiary of gaming operator Sands China, following her brother’s appointment as the new Secretary for Economy and Finance of the city on December 1, 2014.

Before officially taking up the new position on January 1 this year, she had been a senior vice president of public relations and community affairs with Sands China for nearly 10 years.

The chief executive of Sands China, Edward Tracy, said that the reason for the promotion was that “Melina’s performance in public relations and community affairs has been outstanding and being one of our long-serving locals the company would like her to advance further and take up new challenges.”

The ferry company was established in 2007 with its Cotai Water Jet ferries providing services between the Macau Peninsula, Taipa and Hong Kong.

Meanwhile, the Tourism

CEM to replace generators ahead of natural gas supply Joanne Kuai

joannekuai@macaubusinessdaily.com

Development Committee, which is concerned with the city’s tourism development strategies, measures and polices, is headed by the Secretary for Social Affairs Alexis Tam Chon Weng and Director of Macau Government Tourist Office Maria Helena de Senna Fernandes, who are chairman and acting chairperson, respectively.

The Committee comprises a maximum of 52 members, including 13 representatives from the government, according to its official website.

K.L.

Companhia de Electricidade de Macau, S.A. (CEM) plans to replace its old generating units due to environmental concerns but the company says much relies on the government’s decision on importing natural gas

M

acau’s sole electricity supplier CEM – Companhia de Electricidade de Macau – plans to replace the old units that mainly adopt low speed diesel generators that use heavy fuel oil with natural gas generation units. The target is to start commercial service of the first generation set in 2019 and full combine cycle in 2020.

The company said they are going to submit the proposal to the government to review very soon. It added that the implementation of the plan would largely rely on the government’s scheme regarding the importation of natural gas. However, the budget of the extension was not revealed during the press conference.

The plan was introduced during a media tour to CEM’s Coloane Power Station in response to recent media reports regarding black smoke generated by the station, which raised environmental concerns.

CEM Generation Department Senior Engineer Garrick Yuen Chi Vai explained that the black smoke was generated during the combustion process. For around 15 minutes when the engine is starting up or shutting down, brown or black smoke will be emitted.

But the engineer said certain technology and equipment could be adopted to decrease pollution.

“We may shorten the time

and reduce smoke production by increasing the fuel rate.

To achieve this, additional or larger auxiliary blowers are required and higher efficiency turbochargers are needed,” said Mr. Yuen.

Mr. Yuen added that the proposal is prepared and is ready to be submitted to the government for approval.

He added that the smoke emission doesn’t occur on a daily basis, since they only turn the engine on and off for regular maintenance “from time to time” without specifying the frequency.

The Senior Manager of the Generation Department, Ip Kam Veng, explained that the recent running of the

company’s own generator is due to the dropping fuel price. The company usually run its own units “when it’s more convenient or more competitive to generate domestically rather than to import”. Previously, the units were not often operated due to high fuel prices and the unavailability of gas.

According to the latest data provided by CEM, in 2013 gross energy demand in the city was 4409 GWh, of which 222 GWh was produced by CEM and 4187 GWh was acquired from external suppliers.

The energy breakdowns between CEM production and energy importation were,

respectively, 5 per cent and 95 per cent.

Mr. Ip added that CEM has been promoting that using natural gas for power generation is the cleanest fossil fuel energy for power generation. Since the oldest units were built in 1978 and most of them are over 20 years old with relatively low efficiency, some equipment is due for commercial operation replacement.

“The alternative proposed to replace the old engines means a more reliable generation, a better efficiency and a cheaper local production cost,” said Mr. Ip. “It means a more reliable backup power generation

for unforeseen problems in the importation, as well as a more environmentally friendly solution with significant decrease in the level of emissions by burning natural gas.”

Since 1972, CEM has held the exclusive concession to generate, transmit, distribute, sell, import and export electricity in Macau. CEM uses three power stations to generate capacity - Macau Power Station (CMC) on the Peninsula and two on Coloane Island; namely, Coloane A Power Station (CCA) and Coloane B Power Station (CCB). Altogether, CEM has a total installed capacity of 472 MW.

4 | Business Daily

February 5, 2015

Macau opinion

Abundance of questions

Ricacorp: High-end home prices may remain flat The estate agency also predicts that the average growth of home prices in 2015 will slow to between 8 and 10 per cent year-on-year Stephanie Lai

sw.lai@macaubusinessdaily.com

José I. Duarte

But the average price of this type of off-plan sale decreased from HK$150,194 in the first half of last year to HK$98,308 in the second half, according to Ricacorp Macau.

Economist

L

ast year, Macau reported one of the highest gross domestic products per capita in the world. The slowdown in gambling revenue not withstanding, the average Macanese resident is becoming richer. But GDP tells us the value of production created within the borders of Macau, not the amount of income actually received by its residents.

So let us use the more appropriate indicator, national income. In simple terms, it picks the GDP figure, adds income earned by residents outside of Macau and deducts income earned by non-residents in Macau.

If we take the national income per capita, the average resident earned 586,681 patacas last year; that is, the equivalent to 48,890 patacas per month. That is an increase of 14 per cent relative to the previous year, the gambling ‘crisis’ notwithstanding. And it was more than four times higher than the figure scored in 2003, the last year before the new casino era.

Even accounting for inflation, these figures are telling us that the average resident is much richer today than before the gambling boom.

So should we rejoice and open the champagne bottle?

Other indicators refuse to align prettily with this cheerful picture. To start with, the government keeps promising the construction of social housing, in the tens of thousands of units. How that is reconciled with a much wealthier population is, at least, slightly puzzling. As far as I am aware, a clear rationale, based on factual data about the composition of the Macau population and the distribution of income, has yet to be produced.

So, those promises, attractive as they may be to those who may actually need (or can pretend to be eligible for) such flats, is difficult to square with the income figures.

Then comes this idea that Hengqin Island is waiting for the residents of Macau, something that has already resulted in noticeable price rises across the border. We must be talking about significant numbers, expectations big enough to affect the market next door. Macau residents, the richer they become the more they look for cheaper accommodation, further away? If such is the case, this is quite unusual behaviour. Unless we believe that residents have suddenly fallen in love with the island the suspicion must be that many are feeling pushed away from Macau by rising and increasingly unaffordable housing.

Moreover, circumstantial evidence suggests that increasing numbers of people are looking for support by charities, be it for food or accommodation. In a turn of events with an almost funny flavour, a well-known local association that runs a comparatively cheap restaurant for its associates has apparently suspended the admission of new members due to excessive demand for those services.

It is not easy to reconcile the stated statistical average with the perceived social average.

Hopefully, these apparent inconsistencies spur the statistical department to publish more detailed data on the distribution of income.

More sales, slower price growth

F

or this year, the local unit of Hong Kong’s Ricacorp Properties Ltd. says it does not anticipate strong investment sentiment for Macau’s high-end homes, especially luxury unfinished flats, against the background of continual decline in gaming revenues and a slowdown in the growth of property prices.

Classifying high-end homes as those costing around HK$20 million (US$2.56 million) at current levels, the managing director of Ricacorp (Macau) Properties Limited Jane Liu Zee Ka told media yesterday that she expected prices would likely stay at similar levels throughout the year, with aggressive calls retreating for high-end homes.

“I don’t expect a very strong investment sentiment [for high-end homes in Macau] this year. Most of buyers now, or until the first quarter, will be end-users,” Ms. Liu remarked during a press briefing yesterday in a review of property transactions in 2014 and prospects for 2015.

“But then, in the second quarter we’re expecting some new projects [high-end unfinished flats] coming in, [but] I don’t think the price call will be too aggressive when these projects are launched,” the property agency boss said.

The new projects Ms. Liu

mentioned include more units for sale from Carat in ZAPE district, La Bahia No.1 and One Penha Hill in Nam Van district, Nova Park in Taipa, One Oasis Cotai South in Coloane and the new housing projects on land plot ‘T’ and ‘T1’ in the Oriental Pearl District in Areia Preta.

Ricacorp Macau noted that they witnessed less luxury home transactions in the second half of last year, a time that they reckoned the slowdown seen in the city’s gaming revenue growth did impact the property investment ambience here.

News emerged in the final quarter of last year that property agents here had noted a cooling down in property investment sentiment with cases of VIP gaming promoters offloading their luxury flats at discounted prices.

Citing market-wide data released by the Statistics and Census Service, the agency noted that there were only 428 transaction cases of unfinished flats - ‘first-hand homes’ - completed in the second half of last year, which represented a fall from the 832 cases in the first half when the launch of about 1,200 unfinished units was concentrated in the period.

Record-breaking price levels of these high-end homes went as high as HK$193,680 per square metre in late March last year, identified as a unit from the Carat project.

Ricacorp Macau predicts that home transactions for this year will increase to about 8,500 from around 7,200 last year, while the city expects to see approximately 3,000 new homes ready to be occupied.

But the agency also expects slower growth in average home prices here of around 8 per cent to 10 per cent for the year. If Ricacorp’s prediction is correct, it will be a slower growth pace compared to the 20.9 per cent of year-on-year growth seen last year at 100,156 patacas per square metre, according to Business Daily calculations using data from the Financial Services Bureau.

The agency expects more home transactions concentrated in the second half of the year following improved investment sentiment brought about by the completion of new casino-resorts in Cotai.

Iao Kun revenues down 37pct in January

I

ao Kun Group announced yesterday a 37 per cent drop in its January revenues in Macau as VIP gamblers continue to sidestep the city as a destination or spend much less on baccarat bets. Last month, the junket operator posted a rolling chip turnover of US$810 million in its VIP rooms in Macau, Iao Kun announced in a filing sent to Hong Kong Stock Exchange yesterday. That’s a drop of 37 per cent compared to January 2014 when the company made US$1,290 million. The win rate for last month was 3.76 per cent.

Business Daily | 5

February 5, 2015

Macau

China headwinds hit Wynn Macau A difficult quarter for Wynn Macau: revenues and profits missed market expectations, dropping more than 30 per cent last quarter, and the Wynn Palace opening has been postponed due to shortage of workers. China is now a big question mark, says CEO Steve Wynn Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

T

he disappointing figures continue to emerge from the local gaming industry.

Yesterday, it was Wynn’s turn, with its Macau operation – Wynn Macau – buffeted by a slew of bad news from a record drop in revenues and profits to construction delays on its US$4.1 billion Wynn Palace project in Cotai.

With China’s economic recovery and Beijing’s anti-graft campaign as the two big question marks for the future, and a likely full smoking ban in casinos on the way, investors are getting increasingly nervous about the future of the world’s gaming mecca.

Steve Wynn, included.

It was already expected that following an average drop of 25 per cent in gaming revenues in Macau during the fourth quarter of 2014, the financial performance of operators

here would follow accordingly. Wynn Macau, owned by casino mogul Steve Wynn, reported an above-market decline in revenues and profits.

Net revenues (revenues minus promotional allowances) totalled US$761.2 million, a 32 per cent drop from a year ago, while profits were down by 35.5 per cent to US$242 million, the parent company of Wynn Resorts said.

VIP exile Wynn Macau’s fall in revenues last quarter was driven by the casino and retail segment that plunged by more than 30 per cent. Revenue growth from food and beverages was nearly flat in the period, while hotel rooms almost doubled their income.

The diversion of high rollers (and also

“People with money are destabilised at the moment in China” The impact of the anti-graft campaign on the industry is today the most unknown factor as the reaction from high rollers has still to be properly understood. “It’s confusing. People with money are destabilised at the moment in China. I think that – and you’re seeing that all across mainland China, that people are being cautious”, Wynn assed. “I do believe that for all Chinese businessmen there is at the moment a bit of uncertainty as to what the future will hold because so much of everything in China depends upon the policy of the Central Government”.

The Wynn Macau CEO also admitted that there’s “uncertainty in China these days” and that President Xi Jinping has determined that his leadership should eliminate the perception of corruption.

big spenders on luxury products) from Macau was evident in Wynn’s financial accounts. Table games turnover in the VIP segment was down 39.9 per cent, while in the mass market the fall was 15 per cent. “I think what we’re seeing across China is a retrenchment of spending instincts”, Steve Wynn told investors in a conference call after the fourth quarter results were published.

“How long that will last, I don’t know”, he added.

Downgrade Steve Wynn underlined the “uncertainty” regarding the future of China policy with the corruption campaign, which he described as a “big wake-up call”.

For analysts, this uncertainty means problems. Nomura Securities

has downgraded Wynn Macau on the basis that the worst is far from over, while Wells Fargo notes the ‘China remains a big question mark’ sentiment of Steve Wynn with the US bank’s decision to remain neutral on the company stocks “as general uncertainty around the China policy outlook keeps us on the sidelines”.

But the biggest news was the announcement of the delay in the Wynn Palace opening, a US$4.1 billion project in Cotai providing 1,500 rooms and 500 gaming tables.

The property was set to open before Chinese New Year 2016; now the management expects the opening to occur in the “first half of 2016”.

Wynn Macau said that this was down to a delay in work permits by Macau authorities and the current shortage of workers to build Wynn Palace.

Current smoking ban to be extended

Wynn Palace still 1,500 workers short

Steve Wynn believes the current smoking ban in Macau will be upgraded to a full ban in casino buildings. “Will the smoking ban be extended to be absolute in the building? The answer is yes. I believe that to be true”, Steve Wynn told investors yesterday. However, Mr. Wynn thinks he could have some advantage vis-à-vis his peers if the full ban gets approved because Wynn Palace will have several terraces next to the gaming facilities that allow gamblers to smoke between gaming. “So, virtually a huge amount of our gaming facilities have terraces so you can get up from a table and walk outside the door and be on a patio outdoors looking at the water. That’s not why we did it, in anticipation of not being able to smoke in the building, but it turns out that we got a windfall and our plan in our facility”, said the CEO of Wynn Macau.

The delay in work permits issued by authorities here is the main cause of Wynn Palace’s postponed opening, according to the company’s management. The operator is still 1,500 workers short of the total workforce needed to finish the project on time and the last request for permits arrived three months late.

“We had two labour requests to finish. It took 7,000 people to fill the building. We had 4,600, 4,700; we needed 2,300, we got 700. The 700 we got was last week”, Steve Wynn explained to investors.

“And when they – the constructor – says it takes 7,000 people to build six million feet that isn’t a wish list, it’s just a simple practical explanation of the requirements.

And we’re 1,600 or 1,700 away from that now”. Wynn says the request for the remaining 1,500 work permits needed is already in, with the company not having any estimation when the permits will be granted.

6 | Business Daily

February 5, 2015

Macau Brands

Trends

Something old, something new…

Raquel Dias newsdesk@macaubusinessdaily.com

W

e learned from various social networks recently that a Japanese travel agency had planned a new package: they would prepare and organise any girl’s dream wedding, down to every little detail. The only thing was that they would be marrying themselves!

It’s no surprise that couples (or single ladies) are spending a lot more money these days both on the ceremony and on the dress as most luxury brands are entering this segment of the market.

We’ve covered Vera Wang before but now it seems renowned shoe designer Jimmy Choo is willing to take his bite of the cake as well.

The bridal collection features all types of shoes, from the traditional strappy satin sandal to elegant metallic flats, showing that the brand has considered all types of venues and weddings.

The truly exquisite detail of the bridal collection, however, is the personal monogram service. Jimmy Choo launched this option awhile ago but now takes it even further with the option of including symbols.

It really does help give meaning to a pair of shoes.

We truly believe that your wedding day has to be the best excuse to ‘invest’ in one of these.

Adelson: VIP gamblers will stay low until ‘witch-hunt’ levels abate The Chairman and CEO of Las Vegas Sands Corp. visited the Institute for Tourism Studies (IFT) and said that his vision for the growth of Macau is very limited when compared to the American gambling capital João Santos Filipe

jsfilipe@macaubusinessdaily.com

Sheldon Adelson (left)

S

heldon Adelson said yesterday that VIP gamblers will stay below the radar until it is announced that the central government crackdown on corruption is over. The Chairman and Chief Executive Officer of Las Vegas Sands Corp. was at the Institute for Tourism Studies (IFT) yesterday to share his insights on entrepreneurship.

“The high-rollers say, which here [in Macau] are called VIPs, that they will stay low and will not be conspicuous in their spending habits until the witch-hunt - or whatever it is called, the crackdown on corruption levels – goes down”, he said when asked about the eight-month decline in gross gaming revenue. “They want to stay below the visibility radar because nobody, whether they are legitimate business people making millions or billions of dollars, wants to come in and be ostentatious”, he added.

According to Mr. Adelson the antigraft policies of China’s President Xi Jinping are not only affecting the VIP segment but also hitting the premium mass market.

“A lot of these people [premium mass] are laying low as well because they don’t want the government to see them spending what they consider large amounts of money. I would say the premium mass player would be somebody who can bet in US dollar terms 5k to 100k”, the hospitality tycoon said. “Now, everything in life is cyclical. Night follows day, day follows night, recession follows expansion and expansion follows

recession. Everything is cyclical. This, too, will pass - and this, too, will be cyclical”, he stressed.

In relation to the future of the Special Administrative Region, the 81 year-old magnate admitted that he thinks that the room for development in Macau is limited when compared to the American city of Las Vegas.

“My vision for the Cotai Strip -which I named after the Las Vegas Strip, and I also trademarked the name - is relatively small comparing it to Las Vegas. The problem is there is not enough land here”, he told the 200 students at IFT attending the event.

“To expand the tourism industry the PRC has turned over Hengqin Island for development by investors in the Pearl River Delta, Hong Kong and Macau. But they aren’t going to allow any gaming on Hengqin Island and that is augmented by the limitation on the number of gaming tables that the Macau Government, in conjunction with the PRC government, has put.

But on the one hand, that’s good for us who are already here, so we don’t get more competition”, he explained.

“No-one to hire” After being asked whether he believed in a down cycle in Macau which would result in empty construction sites, as happed after the financial crisis of 2008 when Sands Cotai Central was delayed, Sheldon Adelson blamed an incorrect financing strategy.

“Sands Cotai Central was delayed

not because of any cycle of visitation but because of the financial crisis. I had a former president who did not finance what is called the project financing for Cotai Central. And so we parted ways… Actually, I showed him the door”, Sheldon Adelson said.

“And then I got the financing and resumed construction. It’s now the largest building in the world. That was just a financing wrongdoing because we did not take the normal road”, he added.

During his presentation, Adelson praised the decision of the students of IFT because he said that according to the World Tourism Organization (WTO) tourism is the largest industry in the world.

“Does anybody know which industry is the largest in the word?” he asked the students. “I thought it was food because everybody has to eat every day. I was asked that question on a visit to the World Tourism Organization in 1998. They said it was tourism. I just want to tell you [students] that you guys are in the right industry”, he said.

Next year, Sands China is expected to open the Parisian in Macau. And yesterday the chairman of Las Vegas Sands Corp. told students that he is ready to tackle the labour market.

“We’re looking for people in construction for our operation for the Parisian. We’re also going to need thousands more people for the retail here”, he said. “In Macau, there’s a 1.7 per cent unemployment rate and so for us the problem is there’s no-one to hire”.

Business Daily | 7

February 5, 2015

Gaming

Record VIP bets lift Echo’s profit at expense of margins The Australian company has benefited from the exodus of wealthy Chinese from Macau amid the central government’s crackdown on corruption and tightening of visa restrictions

R

ecord bets by Asian high rollers helped Echo Entertainment Group Ltd lift first-half net profit to a three-year high, but the Australian casino firm said the surge was tempered by the amount it paid to the junkets behind these VIP gamblers.

Echo on Wednesday said turnover from VIP gamblers at its Australia casinos nearly doubled to an alltime high of A$23 billion (US$17.96 billion, MOP143.4 billion) as net profit for the period surged 78 percent to A$112.6 million (US$87.59 million).

Chief Executive Officer Matt Bekier, however, blamed junket operators for eating into margins during the six months to December 31, as VIP revenues grew to account for nearly a third of the group’s overall revenue from just 18 percent a year ago.

“Margins in this half are particularly under pressure because a lot of these junkets operated under profit-share agreements,” Bekier said, without disclosing a specific ratio. “We’re now looking at about 84 percent of VIP turnover being booked through junkets.”

Like casino operators in South Korea, Philippines and increasingly

Australia, Sydney-based Echo has benefited from the exodus of wealthy Chinese from the world’s biggest gambling hub Macau amid the Beijing government’s crackdown on conspicuous spending and corruption.

Macau’s gaming revenues last year plunged to their lowest level since 2001.

Junkets such as Jimei International and Suncity Group lure high rollers to casinos by extending them credit and arranging their travel and accommodation, in

KEY POINTS Net profit up 78pct to US$87.6mln International VIP turnover hits record Australian casinos benefiting from Macau crackdown

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exchange for a cut from the casino operators.

On Tuesday, Jimei International said it had entered a junket arrangement with a casino operated

by Echo’s rival Crown Resorts Ltd in Perth, in western Australia.

“This is likely to continue for the foreseeable future because of the current situation in Macau,” said Michael Ting, a Hong Kong-based analyst at CIMB. The involvement of the junkets make betting on VIPs riskier for casinos operators than the more stable mass market segment. Echo’s Bekier also declined to give any forecasts for the VIP unit, citing the short-term nature of junket bookings.

Until recently Echo has come off second best in a fight against larger rival Crown for new casino licences in eastern Australia, losing its monopoly in Sydney and fending off a similar scenario in Queensland state capital Brisbane.

But with Crown facing delays building a rival Sydney casino, Echo has been trying to capitalise on the influx of rich Asians at its Sydney waterfront complex The Star to outperform rivals.

Reuters

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Those people and their actions are our inspiration.

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8 | Business Daily

February 5, 2015

Greater China Dalian Wanda buys sports marketing group The company is buying Swiss sports marketing company Infront Sports & Media AG, marking the property firm’s latest move into entertainment, two sources familiar with the matter told Reuters. Infront is led by Philippe Blatter, nephew of Sepp Blatter, the head of soccer’s global governing body FIFA. The deal will be announced next Tuesday, one of the sources said on condition of anonymity as the matter isn’t public. Dalian Wanda, whose bid beat interest from U.S. sports marketing firms and media-focused buyout group Providence, values Infront at well above 900 million euros (US$1 billion), a second source said.

HSBC services PMI at 6-mth low Services accounted for 48.2 percent of the economy in 2014

KEY POINTS HSBC services PMI falls to 51.8 in Jan, a 6-month low Adds to signs of a manufacturing-led growth slowdown

Beijing airport braced for 10 mln passengers Beijing Capital Airport is expected to transport 9.84 million passengers during Spring Festival, which started yesterday and runs until March 15. The 40-day travel frenzy is known as “Chunyun”, the hectic period surrounding Chinese New Year, which falls this year on February 19. The period of Chinese New Year celebrations is China’s most important family holiday, with hundreds of millions of people heading for their hometowns to reunite with relatives and old friends, putting huge stress on the transportation system.

Sunac to buy 49.3 pct in Kaisa Developer Sunac China Holdings has agreed to buy a 49.3 percent stake in struggling Chinese property firm Kaisa Group Holdings, Bloomberg News reported on Wednesday citing an interview with Sunac chairman Sun Hongbin. Sunac is buying the stake from the family of Kaisa’s former chairman Kwok Ying Shing, who resigned suddenly at the end of last year, the report said. Sun told Bloomberg there is a 50 percent chance the deal will go through. Kaisa is struggling to meet its debt obligations.

Reinforces expectations of more stimulus steps

C

hina’s services sector grew at the slowest pace in six months in January as growth in new business weakened, a private survey showed, raising expectations that policymakers may unveil more stimulus steps to avert a sharper slowdown in the world’s secondlargest economy.

The HSBC/Markit Services Purchasing Managers’ Index (PMI) slowed to 51.8 last month - the weakest since July 2014 - from December’s 53.4, but remained above the 50-point level that separates growth from contraction in activity on a monthly basis.

The weakening performance of the services sector, which has helped cushion the broader impact of a cooling manufacturing sector, could

fan market concerns about China’s economic slowdown in 2015.

“The Chinese services sector continued to expand in January, albeit at a slower pace while both input and output price inflation eased,” said Qu Hongbin, chief economist at HSBC. “Given continued contraction of the manufacturing sector, we believe more easing measures are warranted to support growth in the coming months.”

A sub-index measuring new business eased to 52.5 in January, also a six-month low, but the subindex measuring employment inched up as firms hired more workers for the 17th month in a row.

The continued creation of more jobs could temper Beijing’s policy response as government officials

have signalled they would tolerate somewhat slower growth as long as the labour market remained resilient.

Services accounted for 48.2 percent of the economy in 2014, up from 46.9 percent in 2013, while the secondary sector, which includes manufacturing and construction, accounted for 42.6 percent of the economy last year, down from 43.7 percent.

The economy faces formidable headwinds into 2015 as a property downturn persists while companies will continue to struggle to pay off debt and export demand may remain erratic.

Analysts polled by Reuters in January expected economic growth to sag further this year to 7 percent, even with additional stimulus measures.

Reuters

Provinces plan investment to boost economy The government is attempting to stimulate growth without setting off another round of poorly planned investment

China to regulate cyber accounts The Cyberspace Administration of China (CAC) yesterday issued a regulation banning the use of malicious content, such as avatars and account handles, across all Internet services.

The 10-clause CAC regulation stipulates that avatars and account handles should not include information that violates the Constitution or the country’s laws; subverts state power; undermines national security and sovereignty; or is deemed rumormongering. Malicious content includes the promotion of cults and the dissemination of pornography or extremism, among others, according to the regulation.

Spring Air’s surge lures investors A rush to buy into China’s only listed low-cost carrier has sent Spring Airlines Co shares rocketing just as new arrivals herald the beginnings of a price war that could eat into already-low profit margins.

Since its January 21 market debut, Spring has more than doubled in value to US$3.3 billion as investors scramble for a piece of a still-small industry set for massive growth in China. It leapfrogged Malaysia’s AirAsia to become Asia’s biggest carrier by market value, though operating margins are dwarfed by AirAsia and peers like SouthWest Airlines.

F

ourteen Chinese provinces plan to invest a combined 15 trillion yuan (US$2.4 trillion) in infrastructure and other projects starting this year as part of their effort to help set a bottom on a slowdown in the economy, an official newspaper said yesterday.

The south-western province of Sichuan, the most populous of the 14, was the latest when it announced its investment plan on Monday, aiming to spend 2.99 trillion yuan to boost industrial and other expansion, the Shanghai Securities News said.

The southern province of Fujian would invest 3 trillion yuan on infrastructure projects, including environmental protection, making

it the biggest spender among the 14, the newspaper said.

Others major spenders included the provinces of Hubei, which plans to invest 2.9 trillion yuan, Henan 1.5 trillion yuan and Hunan 1 trillion yuan.

While spending will begin in 2015, not all funds dedicated to the projects be spent in the first year. Sichuan, for example, plans to invest only 418.8 billion yuan of the total 2.99 trillion package in 2015.

Beijing has admitted the economy will continue to feel pressure in 2015.

It has pledged no dramatic central governmental investment support, but has offered “targeted easing” aimed at specific sectors and regions.

US$2.4 tln Chinese provinces investment

The government is attempting to stimulate growth without setting off another round of poorly planned investment as it did in 2009, which saddled China with a massive debt overhang the system is still trying to digest.

Reuters

Business Daily | 9

February 5, 2015

Greater China Nuclear power firms to merge in global vision China is expected by some experts to start exporting reactors after 2020 and become a major exporter by 2030 Pete Sweeney and Charlie Zhu

C

hina Power Investment Corp is merging with the State Nuclear Power Technology Corp, as Beijing drives consolidation in its rapidly expanding nuclear power sector with the aim of eventually exporting reactors.

The Chinese power producer currently controls about a tenth of China’s nuclear power market, while the State Nuclear Power Technology Corp was formed in 2007 to handle nuclear technology transferred from U.S.-based Westinghouse Electric Co..

A merger between the two would create a firm with total assets of more than 600 billion yuan (US$96 billion), industry experts estimate.

Shanghai Electric Power Corp Ltd, the parent of China Power Investment, said in filing to the Shanghai exchange that it had received notice from China’s Assets Supervision and Administration Commission on the merger.

The State Council, China’s cabinet, said in January that it would aid the overseas expansion of Chinese firms, in particular in the rail and nuclear power sectors, raising hackles with some trading partners who fear it signals another wave of subsidized Chinese exports.

China, which now primarily

China is immersed in the process of building 26 nuclear reactors

provides financing and construction services to nuclear power projects overseas, is expected by some experts to start exporting reactors after 2020 and become a major exporter by 2030 when it has fully digested foreign technology and developed its domestic industry.

The global nuclear market is currently dominated by firms such as France’s Areva, Russia’s Rosatom State Nuclear Energy Corp and Japan’s Toshiba Corp, which controls Westinghouse.

Top nuclear power market China Power Investment, parent of Hong Kong-listed China Power

International Development, is one of China’s top five independent power producers with total installed capacity of around 90 gigawatts, a fraction of which is nuclear power.

The tie-up is logical given China Power Investment’s relatively weak nuclear expertise but financial muscle, said analysts.

Consolidation of the nuclear sector is seen as a key to Chinese companies acquiring the scale to compete abroad.

Similar mergers are being contemplated for China National Nuclear Corporation and China General Nuclear, which could lead to the development of an export market for their joint reactor design, the Hualong I model.

China General Nuclear is the state-owned parent of CGN Power, which raised US$3.2 billion in an initial public offering in Hong Kong in December. The group is currently the largest nuclear power producer in China with a 44 percent share of the market, followed by China National Nuclear Corporation with 18 percent and China Power Investment with 10 percent, according to Jefferies research report.

Unlike some other industries where China has tried and failed to use foreign technology transfers to create domestic champions, analysts say China has been successful at trading access to its growing nuclear market for access to key technologies from foreign companies.

Westinghouse Electric Co has already handed over most of the intellectual property for its AP1000 reactor design to the State Nuclear Power Technology Corp.

With 22 reactors in operation, and a further 26 under construction, China is the world’s largest nuclear power market. It aims for an installed nuclear power capacity of 58 GWs by 2020 from the current 18 GW, under a programme estimated to cost US$100 billion.

Reuters

Iron ore imports seen rising China’s iron ore imports grew 14 percent last year even though its steel output grew by just 0.9 percent, the lowest level since 1981 David Stanway

C

hina’s iron ore imports are forecast to rise to a record 1 billion tonnes this year, with main suppliers Australia and Brazil expanding their share in the world’s top market for the raw material, justifying their plans to expand output.

The move by global miners Vale, Rio Tinto, BHP Billiton and Fortescue Metals Group to boost production has fuelled a glut that has slashed iron ore prices by more than 50 percent over the past year.

In taking out smaller, high-cost rivals, the big producers have practically guaranteed themselves a market in China for the millions of tonnes more of iron ore they will produce until the end of the decade even if prices remain low.

The share of China’s iron ore imports taken by Australia and Brazil will expand to more than 80 percent this year from 77 percent in 2014, Li Xinchuang, executive vice secretary-general of the China Iron and Steel Association,

told an industry conference yesterday.

Li expects the country’s imports to rise 7.1 percent this year, reaching 1 billion tonnes for the first time.

That is largely because China’s own iron ore supply is likely to fall by 70 million tonnes this year, Li said, which is about a fifth of domestic output in terms of the equivalent grade of imported ore.

“Because of the rapid fall in prices, China’s efforts to construct overseas iron ore production bases basically made no progress,” he said.

‘All about efficiencies’ Morgan Stanley estimates that around 170 million tonnes of iron ore, or 10 percent of last year’s global trade, has been removed from the market over the past 12 months as prices tumbled to their lowest level since 2009.

“If prices remain low, Chinese imports are bound to increase and the share of

the top four miners is bound to increase,” said Zhang Dianbo, assistant president at Baosteel Group.

The major iron ore producers have added 234 million tonnes to global seaborne supply in the past two years, said Peter Poppinga, executive director for ferrous minerals at No. 1 iron ore miner Vale. By 2020 they would add another 196 million tonnes, he said.

“It is all about scale, integrated logistics and cost efficiencies” in this current environment, Poppinga said.

The projected increase in China’s iron ore imports comes despite a forecast of a 1.1 percent drop in China’s crude steel production to 814 million tonnes this year, with steel demand already at “peaking stage”, said Li. “This is not a short-term situation but long-term,” he

said, adding that Chinese steel companies were facing a lengthy period of weak growth in demand and low prices.

Li said iron ore prices, now just above US$60 a tonne, could fall below that level but were unlikely to stay down there for a long time. He forecast prices would average between US$65 and US$75 this year.

Reuters

10 | Business Daily

February 5, 2015

Greater China

PBOC forces yuan appreciation The yuan’s trading band was broadened from 1 percent in March 2014 and increased from 0.5 percent in April 2012

China doesn’t want the yuan to depreciate too sharp and too fast as that could derail their efforts on yuan internationalization Kenix Lai, foreign-exchange analyst, Bank of East Asia

has advanced against the remainder of 17 major currencies, according to data compiled by Bloomberg.

Potential measures

C

hina’s central bank moved its reference rate for the yuan outside the daily trading band for the first time in 21 months, forcing the currency to strengthen as authorities seek to limit volatility in capital flows.

The People’s Bank of China raised its fixing by 0.08 percent to 6.1318 a dollar, which was 2.06 percent stronger than Tuesday’s closing spot price. The onshore exchange rate can deviate from the reference by a maximum 2 percent. China’s capital account posted a US$91.2 billion deficit in the fourth

quarter, the widest in data going back to 1998. The PBOC may step in to keep the exchange rate stable if the impact from capital flows becomes larger, according to a commentary in the official China Securities Journal yesterday.

The currency rose 0.17 percent to close at 6.2477 a dollar in Shanghai, China Foreign Exchange Trade System prices show. That’s 1.86 percent weaker than the PBOC’s rate. The currency sank to an eight-month low of 6.2606 on Monday.

“It’s obvious that the PBOC is guiding a stronger yuan through the fixing,” said Kenix Lai, a Hong Kongbased foreign-exchange analyst at Bank of East Asia Ltd. China is promoting greater use of the yuan in global trade and investment and depreciation erodes the attraction of the currency, which a report last week showed overtook Canada’s dollar in December to rank fifth in terms of global payments.

While the yuan has weakened against the dollar in the past six months, it

The PBOC is said to be preparing potential measures to help address the risk of volatility in capital flows into and out of the nation in coming months.

Two options under consideration are widening the yuan’s trading band and guiding the exchange rate lower by adjusting the fixing against the greenback, according to two people familiar with the matter, who asked not to be named as the discussions were private.

Prior to the band widening last year, the currency touched both ends of its then-permitted trading range. China kept the yuan basically unchanged against the dollar from mid-2008 for two years during the global financial crisis.

Yuan depreciation has a “much more” positive effect than negative on China’s economy because growth is slow, Yu Yongding, a former PBOC adviser, said in an interview on Tuesday in New York.

Bloomberg News

Alibaba deploys drones to deliver tea in China The option is confined to just three days and a few areas of three Chinese mega-cities

E

choing US online retailer Amazon, Chinese e-commerce giant Alibaba yesterday tested a drone delivery service, promising to whisk ginger tea to customers within an hour despite close controls on airspace.

Alibaba’s flagship consumer-to-consumer platform Taobao, estimated to hold more than 90 percent of the Chinese market, showed off a photo of a black and silver drone with helicopterlike propellers carrying a white box to launch the service.

But the option is confined to just three days and a few areas of three Chinese megacities -- the capital Beijing, commercial hub Shanghai and Guangzhou in the

south -- and applies only to one brand of tea from one particular vendor, with a limit of 450 deliveries in total.

“For consumers... such a cool consumption experience will give them more surprises,” Taobao said in a statement on its microblog.

Airspace in China is strictly controlled, with the majority used by the military.

The government allows limited use of civil drones for activities ranging from rescue to observation, and operators are required to apply for permission beforehand.

The drone launch comes after Alibaba last week locked horns with a powerful government regulator, which delivered an unusual dressing down of the company and

For consumers... such a cool consumption experience will give them more surprises Taobao statement

accused it of allowing “illegal” actions on its e-commerce platforms, including Taobao.

A survey published late January by the State Administration for Industry & Commerce (SAIC) showed only about a third of products sampled from Taobao were genuine.

Taobao has pledged to crack down on counterfeit goods in response and Alibaba founder Jack Ma met with SAIC director Zhang Mao last week, which could signal a de-escalation of the dispute.

Alibaba, founded by Ma in 1999, is China’s biggest e-commerce company. It listed on the New York Stock Exchange last year in the world’s largest public offering to date.

AFP

Business Daily | 11

February 5, 2015

Asia

Japan wages show sign of pickup Although a tighter labour market is expected to push up wages gradually Tetsushi Kajimoto

“Real wages will likely continue to improve in the coming months as inflation slows due to cheaper oil prices. That will be a welcome news for Abe as it supports consumer spending,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

Prime Minister Shinzo Abe has urged companies to raise base salaries through spring labour-employer negotiations - key to his aim of generating a virtuous cycle of higher wages and consumption to reflate the economy and break a two decade cycle of tepid growth and deflation.

Companies cautious

Japanese commuters doesn’t feel yet the increasingly positive effects of Government’s policies

J

apanese wage earners’ cash earnings rose in December and declines in real wages slowed for a second month, a positive sign for policymakers’ plan to re-charge a recession-hit economy though doubts remain about the prospect for sustained growth in wages.

Reflecting improved

corporate earnings even as the broader economy has struggled, special payments, predominantly including bonuses, rose 2.6 percent in the year to December, labour ministry data showed yesterday.

Winter bonuses likely grew for a second straight year, helping boost overall wages, a ministry official said.

The total cash earnings grew 1.6 percent in the year to December, up for the 10th straight month. Real wages adjusted for inflation fell 1.4 percent year-on-year in December – down for the 18th straight month - but the pace of falls slowed from the prior month’s 2.7 percent drop.

In a sign that Abe’s stimulus policies have gained some traction, a Reuters poll showed last month 42 percent of firms said they plan to raise wages as least as much as last year. Still, many are cautious with 44 percent undecided.

“I expect the spring negotiations will result in pretty much the same rate of wage hikes as last year.

Companies are still in no mood to boost base salaries due partly to murky outlook,” Miyamae said.

Regular pay, or base salaries which determine the trend of broader wages, rose 0.3 percent, up for the first time in two months, reflecting

KEY POINTS Dec total cash earnings +1.6 pct yr/yr Real wages fall at slower rate due to cheap oil Winter bonuses push up overall wages Companies seen wary of boosting base pay a growing number of lowwage part timers.

This suggests companies remain cautious about substantially increasing fixed personnel costs, although a tighter labour market is expected to push up wages gradually, with the jobless rate at 17-year low and the job availability at 22-year high.

Overtime pay, a barometer of strength in corporate activity, rose 0.5 percent in the year to December, up 21 months in a row.

For 2014, monthly average cash earnings rose 0.8 percent, up for the first time in four years. Real wages slid 2.5 percent, down for a third straight year.

Reuters

IMF lowers Thai growth forecast in 2015 Although country’s military government has struggled to revive growth in Southeast Asia’s second-largest economy

T

he International Monetary Fund (IMF) lowered its forecast for Thailand’s economic growth to 3.5 percent in 2015, and 0.5 percent in 2014, amid concerns over political stability, weak exports and slow domestic consumption.

The country has room to ease monetary policy further if growth disappoints, the IMF said in a statement yesterday.

KEY POINTS 2015 growth estimate cut from 4.6 pct seen in Oct Says Thailand has room to cut rates if growth unexpectedly weak Says risks to outlook tilted to downside Thai policy rate unchanged at 2 pct since March

“While the current monetary stance is accommodative, there is scope to consider a further easing of the policy stance if the economic recovery is weaker than anticipated,” it said.

Thailand’s policy rate has stood at 2 percent since March, when it was cut by 25 basis points to help business during rising political tension that led to an army coup in May. The IMF’s latest forecast is below

the Thai central bank’s expectation for 4.0 percent growth this year, and marks a downward revision from its previous forecast in October for 1.0 percent growth in 2014 and 4.6 percent growth in 2015.

Thailand’s economy grew only 0.2 percent in the first nine months of 2014, and the central bank sees growth of 0.8 percent for the full year. Official data will be released on Feb. 16.

The IMF said the fall in world oil prices should help fuel a recovery in consumption in 2015, and private investment should also recover after the authorities approved a backlog of projects that built up when the previous civilian government was paralysed by protests.

“Risks to the outlook are tilted to the downside. Domestic risks to the economy come from policy slippages, weaker-than-expected private demand and political uncertainty,” it said, noting external risks including global financial volatility and protracted slow growth in advanced and emerging economies.

With consumer prices falling and economic growth sluggish, some analysts expect the central bank to cut its policy rate again when it next meets on March 11.

However, the Bank of Thailand (BOT) said on Tuesday it had no plans to adjust monetary policy despite the first annual decline in consumer prices in more than five years in January.

Deflation has led to monetary easing elsewhere in the world, but the BOT held its interest rate last week.

Reuters

12 | Business Daily

February 5, 2015

Asia Cambodia, DPRK weigh up boosting trade Cambodian Foreign Minister Hor Namhong met with Vice Foreign Minister of the Democratic People’s Republic of Korea (DPRK) Ri Kil Song yesterday to discuss ways to boost trade and investment ties, a Cambodian spokesman said. “Both sides exchanged views on the strengthening of relations and cooperation between the two countries,” Koy Kuong, spokesman for the Cambodian Ministry of Foreign Affairs, told reporters after the meeting. The spokesman said diplomatic ties between the two sides have been developed well, but trade and investment exchanges are still relatively small.

Foreigners sell Korean stocks Foreigners pulled money out of South Korea’s stock market for a second straight month in January, data from the country’s financial regulator showed yesterday, but the outflows were less than half the previous month. Offshore investors sold a net 0.9 trillion won (US$824.02 million) worth of local shares in January, the Financial Supervisory Service (FSS) said in a statement, compared to net sales of 1.9 trillion won seen in December. Those in the U.K. offloaded the most, selling a net 1.4 trillion won worth of South Korean stocks last month, followed by Norway and Hong Kong.

Sony trims 2014 net loss forecast Japan’s Sony Corp said its net loss for 2014 was likely less than previously forecast as cost cuts and higher-than-expected sales of its image sensors and PlayStation video game consoles helped lift its third-quarter profit. Sony said its preliminary results showed that operating profit had doubled to 178.3 billion yen (US$1.52 billion) while sales rose 6 percent to 2.56 trillion yen in October-December quarter. Analysts had on average expected an operating profit of 96.6 billion yen on sales of 2.38 trillion yen, according to Thomson Reuters data.

Australian vehicles sales steady Sales of new vehicles in Australia started 2015 on a steady note as strong demand for sports utilities helped offset persistent weakness in the passenger car sector, industry data showed yesterday. The Australian Federal Chamber of Automotive Industries’ VFACTS report showed sales of 82,116 in January, down a fraction from 82,285 the same month last year.

Sales were down 15.2 percent on December which is typically a much stronger month. Sales of passenger vehicles fell 4.3 percent, extending their protracted slump.

Bank of Japan official says price uptrend intact Despite oil prices are pushing core consumer inflation to a quarter of the BOJ’s 2 percent target Leika Kihara

B

ank of Japan (BOJ) Deputy Governor Kikuo Iwata said yesterday the recent collapse in oil prices has not hampered a broad uptrend in consumer prices, stressing that the effect of the bank’s monetary stimulus is working its way through the economy.

Iwata, one of the BOJ’s two deputy governors and an architect of the bank’s radical stimulus programme, said monetary policy cannot immediately fix short-term fluctuations in inflation driven by external factors such as oil price falls.

“It takes time for monetary policy to affect prices ... But eventually, it’s monetary policy that determines the broad price trend,” he told business leaders in Sendai, north-eastern Japan.

The BOJ stunned markets by expanding its stimulus in October last year as it attempted to prevent slumping oil prices, and a subsequent slowdown in price growth, from hurting sentiment.

Bank of Japan expanded its stimulus in October

But oil prices have fallen by a further 50 percent since then, pushing core consumer inflation to a quarter of the BOJ’s 2 percent target and stoking expectations it could ease again.

Iwata said that despite the shortterm pressure from oil, there was no change to the BOJ’s view that inflation will accelerate in the long run as the

economy recovers from the shock of last April’s sales tax hike, and starts to feel the benefits of lower fuel costs.

The BOJ must be mindful of the risk that the slowdown in inflation may delay a shift in the public’s deflationary mind-set, Iwata said. “To forestall such risks ... we expanded our stimulus in October last year.”

Weak prices spur Indonesian palm oil takeovers Analysts say smaller Indonesian producers are now more willing to sell out as crude palm oil prices have fallen for three of the past four years Cindy Silviana and Eveline Danubrata

S

ome Southeast Asian agricompanies are exploiting a regulatory loophole and turning to takeovers to expand their oil palm acreage in top exporter Indonesia just as weak demand for the edible oil makes smaller producers more open to deals.

Under a 2013 law, companies can only plant up to 100,000 hectares with oil palms, a limit put in place mainly to protect the smallholders that account for about 40 percent of Indonesia’s palm oil output.

The restriction, however, exempts listed companies majority owned by the public, which makes some of the 11 palm oil firms listed on the Jakarta stock exchange potential takeover targets for others seeking to expand their land bank. Nine of these listed companies have a market value of less than US$1 billion, according to Thomson Reuters data.

“The local regulations do indeed provide strong impetus for private owners to consolidate and list their plantation holdings on the Indonesian stock exchange or inject into a listed company,” Le Sa Cheah, head of Indonesia equity capital market for Singapore’s DBS Bank, told Reuters.

The slowing global economy has cut manufacturers’ demand for palm oil, which is used in everything from soap to foodstuff, while weak crude oil prices and ample global supplies of alternative edible oils have dimmed its appeal.

Green Eagle Holdings, the palm oil business of local conglomerate Rajawali Group, was one of the first movers: late last year, it injected its plantation assets into PT BW Plantation Tbk. This backdoor listing allows Green Eagle to expand its oil palm acreage, under the 2013 law.

Malaysian firm Sime Darby, one of the world’s biggest palm oil producers, recently said it may list its palm oil assets in Indonesia or launch a reverse takeover of an Indonesian firm. Smaller local firm PT Sawit Sumbermas Sarana Tbk has also said it plans to acquire two firms for 1.5 trillion rupiah (US$119 million) this year.

Some agri-conglomerates that have already reached their acreage limit in Indonesia, however, are unwilling to test the regulations and are looking elsewhere, such as in Africa, where land is still abundant and companies are less restricted in increasing their acreage.

Singapore-listed Wilmar International told Reuters it was seeking to expand in Africa. Rival Golden AgriResources Ltd also said it would look to Africa, Brazil or Europe for growth.

Reuters

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Business Daily | 13

February 5, 2015

Asia Mongolians decide mining future in SMS referendum

KEY POINTS Monetary policy can’t respond to short-term price moves-Iwata

Only 10 percent of the country’s 3.3 million mobile phone subscribers responded in the poll held from Saturday to Tuesday

Notes monetary policy determines long-term price trend

Terrence Edwards

Japan’s 15 year experience in deflation meant timeframe needed

In deploying its “quantitative and qualitative easing” (QQE) in April 2013, the BOJ pledged to hit its inflation target in “about two years.”

That timeframe has put the BOJ in a bind as tumbling oil prices force it to further qualify its inflation goals, a move that could prove self-defeating by tempering price expectations.

Iwata defended the timeframe, saying that it was based on the experience of other central banks that found it took about 18 months to 24 months to guide prices to roughly meet their targets.

“In a country that suffered from 15 years of deflation, it wasn’t enough to say the BOJ will hit its inflation target in the medium-term perspective,” Iwata said. “It’s a more binding commitment than other central banks’.”

Reuters

M

ongolians voted in a “text message referendum” to back a multi-billion dollar expansion of the Oyu Tolgoi copper mine instead of tightening the cashstrapped country’s budget to boost its ailing economy.

Mongolia’s new prime minister, Chimed Saikhanbileg, called for the unprecedented vote via mobile phone text message on whether to step up austerity measures or do whatever it takes to get the country’s mining sector growing again.

Out of 302,008 votes, 56.1 percent supported further development of Oyu Tolgoi, while 43.9 percent were in favour of “strengthening economic discipline”, the prime minister’s spokesman said in a statement.

The mine, which is being developed by Rio Tinto and owned by its Turquoise Hill Resources unit and the government, has suffered repeated delays.

Mongolia’s mineral-dependent

economy has been hit by sliding global commodity prices, a slowdown in neighbouring China and a series of disputes over the future of key mining projects like the US$6.5 billion Oyu Tolgoi copper mine.

Foreign investment fell 74 percent in 2014, according to the latest data from the country’s central bank.

The Oyu Tolgoi project was specifically mentioned in the text message delivered to all mobile phone subscribers asking them to vote. It is one of the world’s largest copper deposits and the biggest mine in the country.

Vote welcomed by business “The results of the poll provide a strong case for investment and moving projects forward. We hope these results will create the momentum that this economy needs,” said Jackson Cox, chairman of the American Chamber of Commerce in Ulan Bator.

Rio Tinto put plans for the underground second phase of the project on hold in August 2013 because of disagreements with the government over costs.

More recently, the government said the mine owed an extra US$30 million in tax, which Rio disputes.

“The referendum shows that (the prime minister) is willing to advance the Oyu Tolgoi project further,” said Mongolian Investment Banking Group Chief Executive Bilguun Ankhbayar.

Mongolia’s parliament raised its debt ceiling to 58.3 percent from 40 percent last month after the decline in foreign investment and a number of sovereign bond sales.

The country introduced budget cuts for 2015, mostly affecting infrastructure investment rather than social welfare programmes, and raised taxes on imports such as fuel.

Reuters

NZ central bank anticipates policy stability for some time Financial markets have priced in a 26 percent chance of a rate cut at the RBNZ’s March policy review Naomi Tajitsu and Gyles Beckford

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ew Zealand’s central bank is steeling itself t o look th rou gh slowing inflation and keep rates steady for some time, breaking ranks with other central banks which have been easing policy in the face of collapsing oil and an uncertain global outlook.

Reserve Bank of New Zealand Governor Graeme Wheeler yesterday said the Official Cash Rate could remain on hold at 3.5 percent “for some time”, given a strong domestic economy and cooling inflation.

“In our current situation there are important considerations why a period of OCR stability is the most prudent option,” Wheeler said in a speech to business leaders in Christchurch.

The central bank’s pledge to hold rates stands in stark contrast to monetary easing in Australia, Canada and Singapore in the past two weeks. The European Central Bank also launched a biggerthan-expected stimulus programme as policymakers globally respond to the threat of deflation from collapsing oil prices and faltering growth.

“They’ve made it pretty clear that right here, right

KEY POINTS RBNZ’s Wheeler: Holding rates ‘most prudent option’ RBNZ stance breaks ranks with growing number of easing c.banks Wheeler: Rate cut would require deteriorating inflation outlook now they’re not seriously contemplating a cut,” said Nick Tuffley, chief economist at ASB Bank.

“The message from the speech is that we need a fair amount of deterioration (in the inflation outlook) to cut rates.”

High bar on rate cut Wheeler reiterated the RBNZ’s stance that rates may go up or down depending on data, but placed a high bar on a possible rate cut, after the central bank last

week abandoned its monetary tightening bias in favour of a neutral position because of low inflation.

The governor argued that an easing would be unlikely barring another plunge in oil prices, decreasing demand or an extended easing in inflation due to a drought in the agriculture-based economy or worsening external circumstances.

Wheeler acknowledged easing price risks, saying falling oil prices would temporarily weigh on domestic inflation, which

may slip below the RBNZ’s 1 percent-3 percent target band this year, before moving more gradually back to around 2 percent.

But unlike other countries, including neighbouring Australia which cut interest rates on Tuesday to shore up a sluggish economy, buoyant domestic growth as seen in strong labour market data released yesterday supports the argument for an on-hold policy stance.

A Reuters poll has 14 of 15 economists picking the bank’s next move will be a rate rise,

with a majority expecting a hike in the first half of next year to dampen an expected inflation uptick in a robust economy.

New Zealand’s economy is seen growing at around 3 percent a year, on the back of strong construction activity and household incomes.

However, sharply lower dairy prices, the risk of drought, and a high exchange rate are seen as headwinds, while the outlook for major trading partners, except the United States, is soft Reuters

14 | Business Daily

February 5, 2015

International Euro Christmas sales higher Retail sales in the euro zone were the highest in almost eight years in December as Christmas shoppers splashed out on presents, food and fuel, likely encouraged by falling prices in the bloc. Led by a strong showing in Spain, retail trade volumes rose 2.8 percent in December compared to the same month in 2013, the best year-on-year growth since March 2007, the EU’s statistics office Eurostat said yesterday. That was also better than the 2.0 percent forecast of economists polled by Reuters.

Russia may freeze contributions Russia may consider freezing defined pension contributions in 2016 if in a difficult financial situation, Labour Minister Maxim Topilin said yesterday. Russia has already imposed a freeze on defined pension contributions to private fund managers in 2014 and 2015 to help plug holes in the budget.

U.S. factory orders fall sharply In a sign of weakness, unfilled orders at factories slipped 0.8 percent in December, the first fall in 10 months Lucia Mutikani

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ew orders for U.S. factory goods fell for a fifth straight month in December, but a smaller-than-previously reported drop in business spending plans supported views of a rebound in the months ahead.

Other data showing fairly brisk sales in January by the country’s leading automobile manufactures also offered a silver lining for a sector that has taken a hit from weak global demand and falling crude oil prices.

Greece has started IMF talks

“It suggests that activity will pick up in coming months,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The Commerce Department said new orders for manufactured goods declined 3.4 percent as demand fell across a broad sector of industries.

That followed a 1.7 percent decrease in November and exceeded economists expectations for a 2.2 percent drop.

The department also said orders for non-defence capital goods excluding

KEY POINTS Factory orders fall 3.4 percent in December Business spending plans gauge revised to show smaller drop Unfilled factory orders post first decline in 10 months

Talks over a plan to swap its sovereign debt for growth-linked bonds started, Finance Minister Yanis Varoufakis said in an interview published yesterday. Greece’s new government is trying to restructure its public debt after receiving 240 billion euros in bailout money since 2010, when the euro zone debt crisis brought its economy close to collapsing. The government of leftist prime minister Alexis Tsipras, elected last month on an anti-bailout ticket, is proposing to swap Greek bonds held by the European Central Bank and national governments for either growth-linked or perpetual bonds.

US business tax reform discussed The Obama administration on Tuesday said it saw room for compromise with Congress on a potential overhaul of the business tax code, but a top Republican lawmaker said the two sides remained at loggerheads over taxes on small companies. Treasury Secretary Jack Lew appeared before lawmakers to explain a White House budget proposal that would raise taxes on the wealthy and create new taxes on international companies to increase spending in areas like highways and education. Lew said business tax reform was an area ripe for a bipartisan deal.

Rousseff replaces Petrobras CEO Brazilian President Dilma Rousseff will replace the chief executive and other senior managers at state-run oil company Petrobras this month in an effort to turn the page on a widening corruption scandal, a government source said on Tuesday. Petrobras shares jumped more than 15 percent, their biggest one-day gain in 16 years, after a newspaper first reported that Rousseff intended to replace Petrobras CEO Maria das Graças Foster. Presidential spokesman Thomas Traumann denied the report and later said after a meeting between Rousseff and Foster they had reached no conclusion.

January auto sales meet expectations

Auto sales increased 13.7 per cent in January from a year ago to annual rate of 16.66 million units

aircraft - seen as a measure of business confidence and spending plans slipped only 0.1 percent instead of the 0.6 percent drop reported last month.

Manufacturing is being constrained by weakening demand in Europe and Asia, as well as a strong dollar and falling crude oil prices, which have caused some companies in the energy sector to either delay or cut back on capital expenditure projects.

An on-going labour dispute at the nation’s West Coast ports, which has caused shipment delays, is also hurting activity.

Business spending on equipment in the fourth quarter was the weakest since mid-2009, helping to hold back the economy to a 2.6 percent annual growth pace.

The soft trend in business investment likely persisted early into the first quarter, with a report on Monday showing a manufacturing sector gauge falling in January.

But there is cautious optimism that firming domestic demand will limit the slowdown in manufacturing.

Auto sales increased 13.7 percent in January from a year ago to a annual rate of 16.66 million units. General Motors reported an 18 percent jump in sales, while Ford said sales rose 15 percent. Sales at Fiat Chrysler Automobiles gained 14 percent.

There was some good news in the factory orders report.

Shipments of non-defence capital goods orders excluding aircraft, used to calculate business equipment spending in the gross domestic product report, were revised up to show a 0.2 percent gain in December instead of a 0.2 percent fall.

Economists said that suggested capital expenditure in the fourth quarter was probably not as weak as initially thought.

Daniel Silver, an economist at JPMorgan, said real equipment spending now looks to have declined at a annual rate of 1.3 percent rather than the 1.9 percent pace the government reported last week.

But any boost to GDP growth from more shipments of these so-called core capital goods orders was likely to be offset by a 0.3 percent fall in manufacturing inventories.

The first decline in factory stocks in 18 months suggested the contribution to growth in the fourth quarter from inventory accumulation could be lowered by as much as three-tenths of a percentage point, economists said.

Reuters

S&P to shell out US$1.5 bln for ratings fiasco

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redit rating firm Standard & Poor’s will pay US$1.5 billion to resolve a collection of lawsuits over its ratings on mortgage securities that soured in the run-up to the 2008 financial crisis, concluding one of the U.S. government’s most ambitious cases tied to the housing collapse.

The settlement comes after more than two years of litigation as S&P tried to beat back allegations that it issued overly rosy ratings in order to win more business.

S&P parent McGraw Hill Financial said it will pay US$687.5 million to the U.S. Department of Justice, and US$687.5 million to 19 states and the District of Columbia, which had filed similar lawsuits over the ratings.

Late Monday, the firm reached a separate US$125 million settlement

with public pension fund California Public Employees’ Retirement System, which had sued S&P in 2009, claiming its inaccurate ratings caused the firm hundreds of millions of dollars in losses.

The United States sued S&P in 2013 after initial settlement talks

The rating firms are paid by the banks that issue the securities, a model some liken to a restaurant paying a reviewer

Under the deal, S&P did not admit to any violations of law broke down, seeking US$5 billion and accusing the ratings agency of defrauding investors. S&P argued that its ratings were protected under the First Amendment right to free speech, and described the lawsuit as retaliation for the firm downgrading the credit rating of the United States.

Under the settlement, S&P acknowledged it has not uncovered evidence to support the allegations of retaliation. “This was important to me,” Attorney General Eric Holder said, referring to the allegation as “utter nonsense.”

Under the deal, S&P did not admit to any violations of law, but it did sign a statement of facts acknowledging that its executives in 2005 delayed implementing new models that produced more negative ratings.

Reuters

Business Daily | 15

February 5, 2015

Opinion Business

wires

A Greek morality tale

Leading reports from Asia’s best business newspapers Joseph E. Stiglitz

Nobel laureate in economics, is University Professor at Columbia University

TAIPEI TIMES The government is drafting new rules to help start-ups safeguard their ownership after receiving capital injections from outside the companies, the government’s latest effort to encourage startups, Premier Mao Chi-kuo said. Last year, the Financial Supervisory Commission set up a special trading platform for start-ups to raise funds, Mao said, adding that the government also launched a program to utilize the state-run National Development Fund to support young Taiwanese entrepreneurs.

THE BANGKOK POST Business leaders are concerned the European Central Bank’s move to stimulate Europe’s economy will make the baht stronger and adversely affect Thai exporters. Yesterday, they asked the Bank of Thailand to step in to stabilise the baht so it would be less volatile and stay at a level that could give a competitive advantage to exporters. Boontak Wangcharoen, chairman of the Thai Bankers’ Association, said Europe’s quantitative easing (QE) to pour more money into the market could prompt capital inflows in emerging markets including Thailand and make the baht hurting their business,” he said.

VIETNAM NEWS Crude oil and coal output in January rose some 10 per cent over January 2014, despite falling petrol prices and unfavourable coal mining conditions, reported the Ministry of Industry and Trade. Speaking at a press conference held in Ha Noi on Monday, deputy minister Do Thang Hai said the Viet Nam National Oil and Gas Group (PVN) posted 9.3 per cent year-on-year increase in its output last month, rather than a reduction. The group’s crude oil exploration and exploitation activities were aggressively implemented both inside and outside the country.

PHILSTAR Foreign direct investments (FDI) in the country likely breached the US$6-billion mark in 2014 amid favourable economic conditions, according to the Department of Trade and Industry (DTI). Latest data from the Bangko Sentral ng Pilipinas showed net FDI inflows amounted to US$5.32 billion in the January to October period, up 64 percent from US$3.24 billion in the same period in 2013. The 10-month figure is also higher than the central bank’s US$4.4-billion target for the year.

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hen the euro crisis began a half-decade ago, Keynesian economists predicted that the austerity that was being imposed on Greece and the other crisis countries would fail. It would stifle growth and increase unemployment – and even fail to decrease the debt-to-GDP ratio. Others – in the European Commission, the European Central Bank, and a few universities – talked of expansionary contractions.

But even the International Monetary Fund argued that contractions, such as cutbacks in government spending, were just that – contractionary.

We hardly needed another test.

Austerity had failed repeatedly, from its early use under US President Herbert Hoover, which turned the stock-market crash into the Great Depression, to the IMF “programs” imposed on East Asia and Latin America in recent decades. And yet when Greece got into trouble, it was tried again.

Greece largely succeeded in following the dictate set by the “troika” (the European Commission, the ECB, and the IMF): it converted a primary budget deficit into a primary surplus. But the contraction in government spending has been predictably devastating: 25% unemployment, a 22% fall in GDP since 2009, and a 35% increase in the debt-to-GDP ratio.

And now, with the anti-austerity Syriza party’s overwhelming election victory, Greek voters have declared that they have had enough.

So, what is to be done? First, let us be clear: Greece could be blamed for its troubles if it were the only country where the troika’s medicine failed miserably.

But Spain had a surplus and a low debt ratio before the crisis,

and it, too, is in depression.

What is needed is not structural reform within Greece and Spain so much as structural reform of the eurozone’s design and a fundamental rethinking of the policy frameworks that have resulted in the monetary union’s spectacularly bad performance.

Greece has also once again reminded us of how badly the world needs a debt-restructuring framework. Excessive debt caused not only the 2008 crisis, but also the East Asia crisis in the 1990s and the Latin American crisis in the 1980s. It continues to cause untold suffering in the US, where millions of homeowners have lost their homes, and is now threatening millions more in Poland and elsewhere who took out loans in Swiss francs.

Given the amount of distress brought about by excessive debt, one might well ask why individuals and countries have repeatedly put themselves into this situation. After all, such debts are contracts – that is, voluntary agreements – so creditors are just as responsible for them as debtors. In fact, creditors arguably are more responsible: typically, they are sophisticated financial institutions, whereas borrowers frequently are far less attuned to market vicissitudes and the risks associated with different contractual arrangements. Indeed, we know that US banks actually preyed on their borrowers, taking advantage of their lack of financial sophistication.

Every (advanced) country has realized that making capitalism work requires giving individuals a fresh start. The debtors’ prisons of the nineteenth century were a failure – inhumane and not exactly helping to ensure repayment. What did help was to provide better incentives for good lending, by making creditors more responsible

Greece has also once again reminded us of how badly the world needs a debt-restructuring framework

for the consequences of their decisions.

At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the United Nations, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US has been adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).

The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability.

There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others.

This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors? If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences.

Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it.

So it is not debt restructuring, but its absence, that is “immoral.”

There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.

Seventy years ago, at the end of World II, the Allies recognized that Germany must be given a fresh start. They understood that Hitler’s rise had much to do with the unemployment (not the inflation) that resulted from imposing more debt on Germany at the end of World War I. The Allies did not take into account the foolishness with which the debts had been accumulated or talk about the costs that Germany had imposed on others. Instead, they not only forgave the debts; they actually provided aid, and the Allied troops stationed in Germany provided a further fiscal stimulus.

When companies go bankrupt, a debt-equity swap is a fair and efficient solution. The analogous approach for Greece is to convert its current bonds into GDP-linked bonds. If Greece does well, its creditors will receive more of their money; if it does not, they will get less. Both sides would then have a powerful incentive to pursue pro-growth policies.

Seldom do democratic elections give as clear a message as that in Greece. If Europe says no to Greek voters’ demand for a change of course, it is saying that democracy is of no importance, at least when it comes to economics. Why not just shut down democracy, as Newfoundland effectively did when it entered into receivership before World War II? One hopes that those who understand the economics of debt and austerity, and who believe in democracy and humane values, will prevail. Whether they will remains to be seen.

Project Syndicate

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February 5, 2015

Closing Indonesian parliament rejects state injection

Supervision vowed for scandal-hit milk industry

Parliament has rejected a government plan to inject 5.6 trillion rupiah (US$444 million) into state lender PT Bank Mandiri Tbk, saying there was not a strong enough case for the capital injection, the deputy head of parliament’s budget committee said. Last month, the government proposed to parliament that Bank Mandiri could raise 9 trillion rupiah in a rights issue, 5.6 trillion of which the government would subscribe to. The budget body also rejected a capital injection of 956.5 billion rupiah for PT Krakatau Steel Tbk and cut the proposed injection for state miner PT Aneka Tambang.

China will step up monitoring of the raw milk industry this year to ensure safety and quality of the country’s dairy products, the Ministry of Agriculture (MOA) said yesterday. Dairies and vehicles transporting raw milk are subject to monitoring by local authorities and random inspection will be strictly carried out to ensure no illegal substances are added, said the MOA. The supervision will focus on raw milk produced for infant formula and a source-tracing monitoring system will be established in a bid to guarantee the safety of infant formula.

China cuts bank reserve requirement

interest rates for the first time in over two years, was widely expected by investors, who had bet that monetary policy had to be further loosened to lift economic growth from a 24year low.

The reserve requirement ratio, or RRR, would be lowered by 50 basis points, the People’s Bank of China (PBOC) said in a statement on its website. The cut is effective from February 5 and will take the RRR for big banks to 19.5 percent.

“The move was in line with expectations,” said Wen Bin, senior economist at Minsheng Bank in Beijing. “Capital outflows and yuan depreciation have led to net FX sales in recent months. The central bank has tried to use short-term policy tools to inject more liquidity, but

The cut is effective from today Kevin Yao

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hina’s central bank cut the amount of cash that banks must hold as reserves yesterday, the first industry-wide cut in more than 2-1/2 years, as it

increased efforts to shore up flagging growth in the world’s secondlargest economy.

The move, which came less than three months after China also cut

People’s bank of China headquarters

such tools look not enough, so it has to cut RRR.” He said he did not expect more policy moves in the first quarter.

Underscoring the Chinese government’s concerns about slackening economic growth, the central bank said the RRR would be lowered by an additional 50 basis points for urban and rural commercial banks that lend to small- and mediumsized companies.

The reserve ratio for China Agricultural Development Bank, a bank that lends at the behest of the government to support its policies, would be lowered by an additional 400 basis points, the central bank said.

Some analysts said the latest policy easing may have been triggered by an official survey of China’s mammoth factory sector that showed it shrank unexpectedly for the first time in nearly 2-1/2 years in January.

The survey is known as the Purchasing Manager’s’ Index, or PMI. “The main reason was that the PMI was much lower than expected in January, so if there is no further policy reaction, it’s very likely that China’s Q1 GDP growth could fall below 7 percent,” said Liu Li-gang, an economist at ANZ. China cut the RRR for some banks earlier this year, but this was the first broad-based change in the ratio since a 50 basis point cut in May 2012.

It came after the central bank announced a surprise cut in benchmark interest rates in November after a run of data showing the economy losing momentum.

The economy faces formidable headwinds into 2015 as a property downturn persists, while companies will continue to struggle to pay off debt and export demand may remain erratic.

Reuters

Toyota agrees to pay China dealers

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ABC bank official jailed for life

ICAP fined 14.9 mln euros over yen cartels

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T

oyota Motor Corp. has agreed to pay 1.24 billion yuan (US$200 million) to distributors for one of its Chinese joint ventures, according to the state-backed auto dealers group.

The payments to dealers for FAW-Toyota will be made in three instalments, according to Song Tao, a deputy secretary general of the China Automobile Dealers Association. The pay-out represents about half the 2.2 billion yuan in subsidies that the dealer’s group had sought from the automaker in December to help meet costs resulting from excess inventory.

“The dealers are satisfied with the funding and so is the association and the automaker,” Song said in a mobile-phone text message.

Retailers are banding together under the dealer group to demand lower sales targets and a bigger share of profit from vehicle sales from foreign automakers including Toyota, Renault SA and BMW AG. The protests also form part of a broader push by China’s auto retailers to gain more autonomy from manufacturers, which currently dictate the number and type of cars they sell.

Chinese court has given a former executive of one of the country’s “Big Four” state banks a life sentence for taking bribes of US$5 million, it said yesterday.

Yang Kun, former vice-president of Agricultural Bank of China (ABC), was recently sentenced, the Jiangsu Provincial Higher People’s Court announced on its verified microblog.

From 2005 to 2012, Yang took advantage of his positions at the bank and a financial leasing arm to seek benefits for companies and individuals, accepting bribes worth 30.8 million yuan (US$5.0 million), it said.

Yang, who was expelled from the Communist Party and removed from his posts in 2013, was tried by the Nanjing Intermediate People’s Court in June last year.

Chinese President Xi Jinping has touted a crackdown on graft since assuming the Communist Party’s top post in 2012, targeting both high-level “tigers” and low-level “flies”.

The Bank of Beijing, a mid-sized Chinese lender, said Tuesday that director Lu Haijun was being investigated by authorities for “serious disciplinary violations”, a term that typically refers to corruption.

Bloomberg News

AFP

he world’s biggest interdealer broker, was fined yesterday for rigging the yen Libor financial benchmark, part of a crackdown by EU regulators against anti-competitive behaviour in the industry.

The European Commission said ICAP took part in several cartels, which included UBS, Royal Bank of Scotland, Deutsche Bank, Citigroup, JPMorgan and broker RP Martin.

All of the institutions, except ICAP, admitted wrongdoing and received a reduced total fine of 669.72 million euros in December 2013. UBS escaped a sanction because it alerted the rigging to the Commission.

The European Union antitrust authority said ICAP facilitated six of the seven cartels by disseminating misleading information to certain banks on the yen Libor panel and also used its contacts on the panel to influence the setting of the rates.

European Competition Commissioner Margrethe Vestager, who is currently probing possible wrongdoing in the foreign exchange markets, said the decision sent a strong signal to the industry.

Reuters