Macau Business Daily, Feb 26, 2015

M

arket leader SJM Holdings has announced its audited results for 2014. Gaming revenues reached HK$79.3 billion, down 8.8 pct on 2013. The decline was more than three times the industry average. Directors nevertheless saw their remuneration climb 18 pct.

The company makes 60 pct of its gaming revenue from VIPs, the main driver behind last year’s plunge. SJM expects to reopen its Jai Alai property in late 2015, with a new hotel offering 130 rooms, restaurants and retail outlets

MOP 6.00 Publisher: Paulo A. Azevedo

Closing editor: Joanne Kuai

Precarious lead

Year III

Number 737 Thrusday February 26, 2015

PAGE 5

Esprit de corps Macau was Asia’s best market. And the world’s second best for clothing company Esprit during the second half of 2014.

The group’s total sales dropped 13.2 pct. Macau, however, advanced 0.9 pct PAGE

2

Most Chinese stocks decline after holiday; Macau casinos plunge PAGES 4 & 10

Kimpton to register trademark in Macau PAGE 7

HSI - Movers

Brand Oscars

February 25

Name

Status time again. Fortune Magazine has compiled a list of the World’s Most Admired Companies. All the brands listed in the Hotels, Casinos and Resorts industry can be found in Macau. Apple led the overall classification. While Marriot International led in its sector

PAGE

6

%Day

China Resources Land

2.23

Li & Fung Ltd

2.05

China Overseas Land

1.95

China Resources Powe

1.49

Power Assets Holding

1.47

China Merchants Hold

-0.86

China Unicom Hong Ko

-1.84

Want Want China Hol

-2.14

Galaxy Entertainment

-5.13

Sands China Ltd

-5.80

Source: Bloomberg

www.macaubusinessdaily.com

Fragrant Harbour Finances

I SSN 2226-8294

New ideas. Hong Kong’s Financial Secretary John Tsang pledges to explore them. And to strive for diversity. All to help Hong Kong people realise their aspirations. Yes, it’s the Fragrant Harbour’s 2015-16 Budget. The economy expanded 2.3pct last year

PAGE

8

Santé!

Macau likes its wine. Last year, it imported MOP1.461 billionworth. Some 2 pct growth Y-O-Y. French wines accounted for 77pct of the market. Meanwhile, second-placed Australia occupies 7pct with sales surging 44pct in a year. Third-placed Portuguese wine decreased 4pct in 2014. Both Old World and New World wines are digging in with gusto

PAGE 3

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2 | Business Daily

February 26, 2015

Macau Housing Bureau warns residents of scam The Housing Bureau said they’ve received reports from residents saying some individuals pretending to be working at the Bureau are soliciting bribes to hasten the residents’ application to purchase an affordable housing unit. The Bureau said they have processed all applications in accordance with the law and warn residents against such scams. Regarding the scam, the Bureau said that even though they haven’t been provided with evidence or more details, it still pays close attention to the case and condemns such behaviour. In its statement published yesterday, the Bureau appeals to anyone with information to report it to police.

Over one million tourists visit Macau during CNY holiday

A

total of 1.029 million tourists visited Macau from the first to last day of the Chinese New Year holiday, according to data released by the government. This is an increase of 3.24 per cent in relation to last year’s CNY holiday period.

“There was a growth of 3 per cent year-on-year of inbound visitors during the Chinese New Year Holiday.

The growth of Mainland Chinese visitors was 5 to 6 per cent, which is in line with our expectations”, Maria Helena de Senna Fernandes, Director of the Macau Government Tourist Office (MGTO) said of the data recorded during Chinese New Year.

“I believe the 24-hour border entry at Hengqin is a beneficial factor for Mainland visitors to choose to come to Macau in different time slots”, she

Border Crossing Movement during Chinese New Year Arrivals Departures

added regarding the higher growth of the number of Mainland tourists in comparison to the overall increase.

In relation to border movements it totalled 2.87 million during the same period, as the number of entries stood at 1.46 million, while total

departures stood at 1.41 million.

In terms of checkpoints, the Border Gate registered the largest amount of traffic accounting for 934,677 arrivals and 949,947 departures over the seven days. The Outer Harbour Ferry Terminal was the second busiest

18-Feb

143,448

158,739

19-Feb

154,211

155,521

20-Feb

199,728

202,690

21-Feb

246,476

221,391

22-Feb

245,700

228,767

23-Feb

241,653

221,364

24-Feb

225,107

220,851

Sub-Total

1,456,323

1,409,323

Total

2,865,646

Source: Public Security Police Force

checkpoint totalling 226,177 arrivals and 213,274 departures.

J.S.F.

Bossini’s interim profit up 17 pct to HK$87.47 mil

C

lothing retailer Bossini International Holdings Ltd. has seen a 17 per cent yearon-year increase in its profit for the six months ended December 31 on the back of ‘record-high’ sales achieved in its core market of Hong Kong and Macau, the company announced in unaudited results submitted to the Hong Kong Stock Exchange after trading hours yesterday.

Bossini’s profit attributable to owners of the company rose by 17 per cent to HK$87.47 million for the interim period, while its groupwide sales revenue stood at HK$1.32

billion - a 3.69 per cent year-on-year increase compared to the HK$1.27 billion in the same period of 2013.

Basic earnings per share in the interim period were HK5.37 cents.

The clothing retailer said it has seen a same-store sales growth of 5 per cent in Hong Kong and Macau during the interim period, where sales ‘decelerated’ towards the end of last year under the influence of the pro-democracy movement of Occupy Central, the filing noted.

Bossini’s retail operation from its 41 stores in Hong Kong and Macau reached HK$921 million for the interim period,

rising year-on-year by 3.68 per cent.

The company’s operations in the two Special Administrative Regions, which includes both retail and export franchising business, account for 70 per cent of its total revenue.

As of end-December, Bossini ran 949 stores worldwide. The clothing retailer’s overall same-store sales growth for the interim period was 4 per cent, a slower pace when compared to the 7 per cent growth seen in the same period in 2013.

Bossini’s operating profit for the interim period hit HK$104 million, with its operating margin edging up

1 percentage point to 8 per cent in the period, according to the filing.

Despite relatively stable market conditions in the Hong Kong and Macau segment, Bossini said in the filing that there was still some ‘ongoing uncertainty’ as the political issues of Hong Kong have not been resolved.

The clothing retailer also noted that the discounting policies in some markets and the growth of online retail platforms is putting pressure on margins. Bossini declared an interim dividend of HK2.70 cents per share, payable on or before April 8.

S.L.

Macau Asia’s best market for Esprit in 2H Sales here increased by 0.9 per cent in the second half of 2014 boosted by a new store. Revenues from the overall group registered a 13.2 per cent decline with the Hong Kong market falling 9.5 per cent Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

M

acau was the world’s second best market performer and Asia’s best for clothing company Esprit during the second half of last year. In a filing sent yesterday to the Hong Kong Stock Exchange, Esprit announced that sales in Macau advanced 0.9 per cent to HK$64 million from HK$63 million a year ago.

Despite an almost flat growth in revenues, Macau remained the exception. From the more than 20

markets in which Esprit operates, only two registered an increase in sales ( Macau and Spain with a 7.9 per cent growth). The group’s total sales went down 13.2 per cent to HK$10.7 billion in the second half of last year with some markets losing 20 to 30 per cent in revenues.

In Asia, the hit was rather strong in Esprit’s biggest markets like China, Australia and Hong Kong. Mainland revenues dropped 21 per cent, in

Australia and New Zealand 14 per cent and in Hong Kong revenues slid 9.5 per cent, ten times more than here.

Even if not specified in the report, Occupy Central is likely to have been the main driver for the weak performance in Hong Kong as the demonstrations disrupted businesses in some of the main shopping areas.

In Macau, the opening of a new store during the second half of last year boosted overall sales here and

compensated for any spillover from Hong Kong’s slowdown. Today, Esprit operates five stores in Macau, with revenues accounting for 0.6 per cent of the group’s total turnover.

By region, Esprit sales in Asia plunged 16.9 per cent, in Europe 12.2 per cent and north America 19.2 per cent. Total gross profit amounted to HK$5.4 billion in the second half of 2014, compared to a gain of HK$6.4 billion a year ago.

Business Daily | 3

February 26, 2015

Macau Customs bust counterfeit goods retailer A shop owner selling counterfeit clothing, handbags and suitcases in Fai Chi Kei area has been busted by Customs, who released a statement yesterday saying that on February 24 they inspected over a dozen shops, finding several suspected counterfeit goods involving internationally renowned brands. Upon appraisal by interested parties, the goods were confirmed to be fake and involved legal infringements. The 45-year old local female shop owner, surnamed Wong, was prosecuted. Customs said the case of the 45-year old local female shop owner, surnamed Wong, would be passed to the Public Prosecutor’s Office.

Macau-licensed car entry to Hengqin to be confirmed this year The mainland Chinese administration is also busy building two more transport links connecting Hengqin Island to the rest of Zhuhai City, officials say Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he details of the Mainland Chinese authorities’ policy permitting Macau-licensed vehicles to travel freely in the neighbouring Hengqin New Area will be confirmed this year as the island is now seeing ongoing construction of more supporting transport infrastructure to accommodate the future heavier passenger traffic.

The Macau Insurers’ Association mentioned to media in November that it was “highly possible” owners of vehicles with Macau registration plates could purchase a single crossborder motor insurance plan in either Macau or Hengqin in Zhuhai this year, as insurance industry representatives from both the city and Guangdong have been paving the way for a motor insurance policy for locally-licensed cars that can eventually drive freely on Hengqin Island.

While currently only one bridge connects Hengqin to the rest of Zhuhai, where the possible entry of over 240,000 Macau-licensed vehicles can impose considerable pressure, Mr. Lao believes that Hengqin authorities will soon announce specifics of the

entry policy for local vehicles this year.

The only link now connecting the checkpoints of Macau and Hengqin is the Lotus Bridge, where only dual Guangdong-Macau licensed cars and the shuttles of local public bus TCM (Sociedade de Transportes Colectivos de Macau) and Kee Kwan Motor Road Co. Ltd. are allowed to run.

Speaking to media at an event on Tuesday, Deputy Party Secretary for Hengqin New Area Mr. Ye Zhen remained tightlipped on when the Macau-licensed cars might enter Hengqin.

Nevertheless, Mr. Ye noted that his administration was speeding up the construction of the second bridge connecting Hengqin Island to Zhuhai, and expects the project to be completed by the National Day holiday in October, ready for traffic within this year.

The construction of an underwater tunnel connecting Hengqin and the rest of Zhuhai City, meant to be a third link safe from typhoons, would also start soon, the Hengqin official informed media.

Macau imported MOP1.461 million-worth of wine in 2014 Macau wine imports grew two per cent to MOP1.461 billion during 2014.

In terms of market share, French wines are the most popular in the Special Administrative Region, accounting for 77 per cent of market share João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he import of wines to the territory increased two per cent in 2014 to MOP1.461 billion-worth from MOP1.432 billion in 2013, Rádio Macau reported yesterday. According to the Portuguese-speaking radio station, French wines continue to be the tipple of preference and increased exports to the SAR by three per cent, following a drop of 16 per cent in 2013. Last year, French wine imports were valued at MOP1.128 billion.

“France is one of the countries with more demand in terms of wine.

The trend in the Macau wine market follows the global trend. France has always been the queen of sales in terms of wine”, the Food and Beverage Manager at the Institute for Tourism Studies, Hugo Bandeira, told Rádio Macau.

The second most import wine in Macau comes from Australia, which has increased its sales in the territory by 44 per cent in 2014 to MOP116 million, an increase of MOP36 million from MOP80 million in 2013. This rapid increase has enabled Australian

wines to grab 7 per cent of the wine market share.

Portugal’s wines place third at MOP58.5 million, a decrease of four per cent from MOP62 million in relation to 2013, occupying four per cent market share. Of the wine finding its way from Portugal to the SAR, 67 per cent is red, while port and white wine take 9 per cent of the share. In spite of the decline, wine is the product most exported from Portugal to the territory.

“Most people that choose wines to import to Macau have limited knowledge about Portuguese wines.

So it’s natural that they prefer wines from Australia or France over the Portuguese”, Bandeira explained.

Fourth place in terms of share is occupied by German wines. The import of products from Deutschland, however, dropped by 33 per cent from around MOP69 million in 2013 to MOP46 million during 2014.

Wines from the United States (5th), Chile (6th), Italy (7th), Spain (8th) and South Africa (9th) rank next.

4 | Business Daily

February 26, 2015

Macau Echo Chan to helm Forum Macau The government has nominated Echo Chan to substitute Rita Santos as the Deputy Secretary-General of the permanent secretariat of Forum Macau, the Official Gazette announced yesterday. Ms. Chan has served as the Executive Director of the Macau Trade and Investment Promotion Institute (IPIM) and is also a former President of the Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park Development and Macao Investment and Development. According to the Official Gazette, Ms. Chan has a Bachelor’s degree in Economics, Business/Managerial Economics from Jinan University, Guangdong and a Master of Business Administration (MBA) with a specialization in Business, Management, Marketing and Related Support Services. The Forum for Economic and Trade Co-operation between China and the Portuguese-speaking Countries was established to deepen economic relations between the two regions.

Macau casinos plunge on weak gambling over Chinese festival

M

acau casino shares plunged in Hong Kong trading on weak gambling over the Lunar New Year holiday period and expectations revenue from Chinese high-rollers will continue to slump in coming months.

Wells Fargo & Co. said its checks suggested weak revenue trends in both VIP and mass segments, with a number of mass tables empty on the third and fourth days of Lunar New Year, analyst Cameron McKnight wrote in a note. Macau gross gaming revenue may fall 53.5 percent this month, according to the median estimate of eight analysts surveyed

by Bloomberg, worse than the 40 percent drop forecast before the holiday started.

China’s Lunar New Year, which started on Feb. 19 this year, is

traditionally a period for Chinese to travel and a peak gambling season in the former Portuguese colony.

Last February was a record high for Macau’s casinos, which have since been hit by Chinese government crackdowns on graft and stricter travel rules, deterring high rollers from entering the territory.

“We’re still cautious on gaming stocks,” Daphne Roth, head of Asian equity research at ABN Amro Private Banking which manages about $218 billion, said over the telephone. “The Chinese government is determined to pursue its anti-corruption drive and that’s negative on the casino stocks.”

Deteriorating Situation Macau’s casino revenue had slumped an eighth straight month

in January for the industry’s longest losing streak since monthly records started in 2005. The 53.5 percent year-on-year slump predicted for February would be the all-time worst.

“We believe the situation is likely to deteriorate in the coming months,” Credit Suisse analyst Kenneth Fong wrote in a note today. “On the VIP side, with more junkets shutting down business post Chinese New Year and working capital in the system shrinking, revenue may see another leg down.”

China’s public holiday for the Lunar Festival was February 18 to February 24.

MGM China Holdings Ltd. fell 7.2 percent to HK$17.68 at the close of trading in Hong Kong, the biggest decline since May 8 2014. Sands China Ltd. dropped 5.8 percent and

Galaxy Entertainment Group Ltd. fell 5.1 percent, the worse performers on the benchmark Hang Seng Index, which gained 0.1 percent.

Wynn Macau Ltd. and Melco Crown Entertainment both lost 5.9 percent, and SJM Holdings Ltd. declined 5.1 percent. The shares extended their declines from yesterday after a senior Macau official said the city wants to study restrictions on mainland Chinese tourists to ease overcrowding.

Shares of Genting Singapore Plc dropped 6.2 percent to S$0.98, the lowest close since May 2010 after reporting a 36 percent slump in fourth-quarter profit, hit by declining VIP gaming revenues as fewer players from China visited its casino in the Southeast Asian city-state.

Bloomberg

Genting Singapore profits down 24 per cent, pessimism up for 2015 VIP revenues plunged in the fourth quarter, hurting profits, with management “extremely negative” regarding the recovery of the high roller sector this year.

Japan and South Korea are bright spots in an otherwise gloomy outlook Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

S

ingapore gaming operators are sharing the same pain as their Macau peers as VIP gamblers sidestep both destinations now that the anti-graft campaign launched by Beijing is expanding beyond China’s borders. The latest news reveals that high rollers are already moving to Australia or playing much less here and in Singapore.

Take Genting Singapore, for example. The company that operates Resort World Sentosa and dominates the casino market in the territory with Las Vegas Sands, the latter through Marina Bay Sands, yesterday reported a drop of 25 per cent in its profits in the fourth quarter of 2014, with revenues sliding 8 per cent. The main cause? The plummeting VIP segment.

The performance missed by far analysts’ expectations and some even underlined the negative tone emanating from management. Net revenues (revenues minus promotions, allowances) totalled SG$637 million in the fourth quarter of 2014, some 8 per cent less than a year ago and far from market estimations (SG$774 million, according to Union Gaming

forecasts). Profits for the same quarter went down by 24 per cent to SG$190 million.

The performance of mass and VIP segments were opposing, however.

Mass tables generated 6 per cent more in terms of revenue in the fourth quarter on year-on-year terms, while VIP tables saw revenues fall 21 per cent.

In a conference call with investors, Genting Singapore’s management

noted the headwinds coming from the VIP segment and that it is likely not to register any recovery throughout 2015. According to a Union Gaming note to clients, the company says its high rolling gamblers are cashstrapped, while debt collections are now harder and taking longer.

Genting plans to cut its credit lines and is expecting debt provisions to weigh on the company’s results for the next two quarters. “In our view,

the tone struck by management was much more negative than that of the company’s Macau-based peers, which perhaps is a function of Genting Singapore only being able to conduct VIP business on a direct basis, rather than via the junket system as in Macau”, the brokerage said.

Despite capturing 54 per cent of all Singapore’s rolling chip volume, Union Gaming is expecting volumes to drop now by 14 per cent this year versus a previous “very modest growth”. The total gaming revenues at the Sentosa property are expected to decline 3 per cent.

Despite the gloomy outlook, some bright spots appeared, especially regarding expansion to other Asian markets. Investors are expecting Japan to pass the casino bill in the Summer, opening the doors for Genting to apply for a licence. The same is happening in South Korea, with Jeju Province also likely to approve a gaming bill this year.

For the full 2015, Genting Singapore profits are expected to drop to SG$1.37 billion from 2014’s SG$1.46 billion.

Business Daily | 5

February 26, 2015

Macau

SJM revenues fall more than three times Macau average in 2014 Directors’ remuneration was up 18 per cent despite profits declining 10.5 per cent in 2014. In VIP rooms, the gaming operator saw HK$10 billion evaporate in one year Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

L

ast year, SJM’s gaming revenues dropped three times more than Macau’s average, missing by a wide margin the investors’ estimations after VIP rooms lost HK$10 billion in revenues. The historic casino operator is one of the most affected operators by the current high roller crisis in Macau caused by the antigraft campaign launched by Chinese authorities.

The company reported yesterday that its gaming revenues reached HK$79.3 billion last year, a drop of 8.8 per cent compared to 2013 (HK$86.9 billion). The decline was more than three times the average of the industry here. Gaming revenues in Macau decreased 2.6 per cent last year, according to Gaming Inspection and Co-ordination Bureau data.

The performance was also a disappointment for investors. The market was expecting a marginal advance in SJM revenues to HK$88.9 billion last year, with predictions ranging from HK$91 billion to HK$85 billion, according to 18 analysts contacted by Bloomberg.

In the end, SJM revenues last year were around 10 per cent short of what the market was expecting.

The EBITDA (profit minus interest, taxes, depreciation and appreciation, also known as operational profit) declined 10.5 per cent to HK$7.8 billion last year, with the profit attributable to owners of the company plunging 12.7 per cent to HK$6.7 billion. In other words, SJM made HK$1 billion less in profits than in 2013.

Generous pay Despite the underperformance compared to its peers here and a drop in revenues and profits, the company announced that directors’ remuneration last year went up 18 per cent. SJM paid its management HK$102 million in 2014, around 1.5 per cent of the group’s total profit, the report revealed.

The VIP segment, where SJM makes 60 per cent of its gaming revenues, was the main driver behind last year’s plunge. High rolling

gamblers generated HK$48.2 billion in revenues, 17.3 per cent less than in 2013 (HK$58.3 billion). In other words, SJM’s VIP rooms ‘lost’ HK$10 billion last year.

But there’s more. The drop in VIP revenues growth rate in SJM’s casinos was also 70 per cent higher than Macau’s average (an overall decrease of 10.9 per cent). ‘The downturn in VIP gaming revenue, which manifested itself mainly in the second half of the year, was brought about primarily by changes in administrative policies of Mainland China. These changes, combined with weakness in some sectors of the China economy, affected upper-end play in each of the Group’s gaming segments: VIP, mass market and slot machines’, wrote the company in a filing submitted to the Hong Kong Stock Exchange yesterday.

Mass problems Mass market growth last year

Compared to its peers, SJM’s VIP revenues declined 70 percent faster, while mass revenues grew at half of the pace

wasn’t, however, enough to offset the VIP weakness as mass tables only account for a third of SJM’s total revenues. Mass revenues increased 8.9 per cent to HK$29.7 billion from HK$27.2 billion in 2013. Still, the

growth rate was slightly half that recorded by its peers. Macau’s total mass revenues went up by 15.5 per cent, DICJ said.

With revenues going down and staff costs rising, the company’s profit margin shrunk to 9.7 per cent from 9.9 per cent in 2013.

The casino operator also said that its upcoming project in Cotai, Lisboa Palace, completed ‘substantial foundation work’ last year and is slated to open in 2017. The integrated casino resort will have three 5-star hotels and 2,000 rooms, with one of them the first hotel in the world fully designed by Karl Lagerfeld with a 20-storey tower and 270 rooms.

In Grand Lisboa, the company expanded its mass tables from 250 to 274 and reduced VIP tables from 181 to 177. SJM expects to re-open its Jai Alai property in late 2015, with a new hotel offering 130 rooms, restaurants and retail shops. Renovation work at Jai Alai is currently halted pending government approvals.

Bank of America Merrill Lynch tells investors to dump Wynn Macau stocks

B

ank of America Merrill Lynch downgraded Wynn Macau to ‘Sell’ yesterday with a new price target of HK$20.9.

This decision was a consequence of the Macau gaming industry’s underperformance over Chinese New Year, with Gross Gaming Revenue expected to tank around 50 per cent year-on-year in February

to less than HK$20 billion.

During the second half of next year, Wynn is slated to open its new Wynn Palace resort in Cotai.

‘We believe investors will only be willing to look far ahead and seriously consider the Cotai valuation after the sector stabilises and visibility improves’, Bank of America Merrill Lynch said in a note.

6 | Business Daily

February 26, 2015

Macau Brands

Trends

Singapore slings a port party Raquel Dias newsdesk@macaubusinessdaily.com

O

ne of the great things about Macau’s multiculturalism has to be wine. Yes. Portuguese wine in Macau is sometimes cheaper than buying a bottle back in the old country, mostly because of taxes. Most non-Portuguese expats would probably never have tried Portuguese wine if they hadn’t been to Macau.

Whether you’re a great fan or just the occasional drinker, you have to admit most of the time the quality/price ratio is great.

The exception to this relatively unknown Portuguese industry is port. Port wine is one of those epic drinks that everybody has heard of.

When I went to England and browsed the supermarkets for cheap Portuguese wines I could only find two things: port wine and Mateus Rosé.

I always went for the former.

Surprisingly, even in England, port suffered from a popularity problem. It was extremely uncool to drink it. Bartenders would really look at you three times. You see, even in the U.K. - the country that brought port to the world - only older (or extremely ‘posh’) people were expected to consume it.

In recent years, I believe the trend has changed. The introduction of the ‘port and tonic’ cocktail and new trends of white and rosé ports are making the drink more palatable with the younger crowd.

It is therefore quite interesting that to celebrate Singapore’s 50th anniversary port specialist company Colheitas together with port producer Kopke have come up with a Colheita (single harvest tawny port) harvested in 1965. The 50-year-old port was bottled just this year, and was selected by Singaporebased Matthieu Delaunay, founder of Colheitas, after tasting 30 different single-cask ports from Kopke, Burmester and Barros. The nectar from the northern Portuguese region is definitely sustaining its tradition of being the country’s most international drink.

Hospitality sector attracts world’s most admired companies All companies in the Hotels, Casinos and Resorts industry ranked among the World’s Most Admired Companies 2015

by Fortune Magazine are represented in Macau. Marriot International, which will open two resorts in May at Galaxy, led the sector João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he Hotels, Casinos and Resorts industry in Macau continues to prove its vitality with all seven corporations in the sector featured in the World’s Most Admired Companies 2015 ranking operating in Macau.

Apple led the overall classification published by Fortune Magazine but in the Hotels, Casinos and Resorts sector Marriot International tops the rankings.

The World’s Most Admired Companies ranking takes into account the following key attributes to assess the different corporations: innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment value, quality of products/services and global competitiveness.

After being considered to have delivered a top performance in all key attributes, Apple scored 8.29 and was the leader for the second consecutive year. Marriot International is the first company operating in the Hotels,

Casinos and Resorts industry and comes in 37th place overall, with a score of 7.21. The American brand, which will open two luxury hotels (JW Marriot and Ritz-Carlton) in May in Phase II of Galaxy Macau is the only representative of the industry to make it into the overall top 50. All the other companies failed to do so, thus their ranking is only shown in relation to their sector.

Hilton Worldwide Holdings ranked second in terms of Hotels, Casinos and Resorts industry with a score of 6.75. The hotel group operates in Macau through its luxury brand Conrad Macao. This is the first time that the group founded by Conrad Hilton entered the ranking.

Third place was occupied by Wynn Resorts, holding the same place as that occupied during last year’s ranking. The company founded by Steve Wynn in 2002 scored 6.69 but in terms of the quality of services/ products offered it scored the highest in the industry.

Hyatt Hotels climbed a place in year-time and is now ranked 4th.

The company, which in Macau is integrated into the City of Dreams Resort, scored 6.66 points.

Starwood Hotels & Resorts is fifth (dropping from second place) and was ranked a total of 6.44 points out of ten. In Macau the company owns Sheraton Macao Hotel and will open in August, according to its website, The St. Regis Macao at Cotai Central.

InterContinental Hotels Group, which controls Holiday Inn and Crowne Plaza in Macau, ranked sixth, while in 2014 it was fourth in the sector. The only company that is not headquartered in the United States scored 6.34. Last place was occupied by Las Vegas Sands. The group founded by Sheldon Adelson in 1988 scored 6.21 and operates in Macau through Sands China, which controls Sands Macao, The Venetian Macao, Four Seasons, Sands Cotai Central and is preparing to open the Parisian in 2016.

Business Daily | 7

February 26, 2015

Macau

Kimpton Hotels and Restaurants Group to register in Macau American brand Kimpton Hotels was acquired by InterContinental Hotels Group which runs Crowne Plaza and Holiday Inn in Macau - in December. Now the new owner wants to expand the brand globally and is registering it in the territory João Santos Filipe

jsfilipe@macaubusinessdaily.com

A

merican hotel chain Kimpton Hotels and Restaurants Group has applied to register its brands in the Macau market, according to the Official Gazette. In addition to the main brand of the group, Kimpton has applied to register its upscale Hotel Palomar and Hotel Monaco sub-brands.

Kimpton has not launched any hotel outside the United States, where most of its hotels if not under the moniker of Palomar or Monaco are run under their own independent brand names. This move, however, cannot be considered a complete surprise as the group was acquired last December by InterContinental Hotels Groups [IHG].

IHG, which runs Holiday Inn and Crowne Plaza in Macau, paid MOP3.4 billion (US$460 million) for Kimpton and have announced that they plan to expand the brand outside America.

“The acquisition is another step in IHG’s well-established asset-light strategy of investing in high-quality growth, and building on a strong

track record of developing iconic global brands. We will use our scale, network of owner relationships, and powerful digital platforms to accelerate Kimpton’s growth both within the US and internationally”, Richard Solomons, Chief Executive Officer of IHG, explained at the time of the announcement of the deal.

“Kimpton is a unique business with a strong track record of excellence in everything from design and innovative hotel concepts to financial and operational performance. It also has enormous potential for growth, both in its home market of the US and globally” Mike Depatie, Chief Executive Officer of Kimpton Hotels

& Restaurants, said.

Kimpton was founded in 1981 and manages 62 hotels, totalling around 11,300 rooms, in the United States across 28 different cities. The brand is preparing to expand its capacity as it has 16 hotels under development that will add another 3,000 rooms to the company portfolio.

8 | Business Daily

February 26, 2015

Hong Kong 2015 Budget Address

Gov’t to sell 29 residential sites in 2015-16

H

government revenue for 2015-16 is estimated to be HK$477.6 billion, of which earnings and profits tax is estimated at HK$194.6 billion.

Land revenue is estimated to be HK$70 billion.

The financial chief also made medium range forecast, saying the average annual growth rate is expected to be 3.5 percent in real terms from 2016 to 2019, and the underlying inflation rate will average three percent. Fiscal reserves are estimated at 948.8 billion HK dollars by end-March 2020, representing 33.6 percent of GDP and equivalent to 22 months of government expenditure.

ong Kong’s Financial Secretary John Tsang yesterday said the 2015-16 Land Sale Program will include 29 residential sites, capable of providing 16,000 units in total.

When delivering his budget speech in the Legislative Council, Tsang said a total of 20 residential sites were put up for sale by government in 2014-15, capable of providing 6,300 private residential units.

Taking into account the railway property development projects, the Urban Renewal Authority’s projects and private redevelopment or development projects, the land supply has a capacity of producing 20,000 units, he said.

Tsang also mentioned that the government promulgated the new Long Term Housing Strategy last year, setting the target for public housing supply at 290,000 units for the coming decade.

As for the Housing Reserve he set up last December, Tsang said the initial injection is the investment returns generated in 2014, which amounted to HK$27.5 billion (US$3.54 billion).

Further injections will be considered at an appropriate juncture.

Talking about the property market, Tsang said it has revived since April last year, with both flat prices and transactions showing renewed pick-up.

Meanwhile, the external environment is volatile.

“The timing and pace of the U.S. interest rate hike as well as the further monetary easing measures of the central banks of Eurozone and Japan could have significant impact on the local property market,” he warned that the public should be extra cautious when making decision on purchasing property, and carefully assess the potential risk they need to bear in case of a market downturn.

“The government will continue to monitor the market conditions closely, and I will not hesitate to introduce measures when necessary, in order to maintain the healthy and stable development of the property market and safeguard the stability of our macroeconomic and financial systems.”

Xinhua

Xinhua

John Tsang

Secretary Tsang expects surplus of HK$36.8bln in 2015-16

H

ong Kong’s Financial Secr et ar y John Tsang yesterday said that he forecast a surplus of HK$36.8 billion (US$ 4.72 billion) in the Consolidated Account in the coming year.

When delivering his budget speech in the Legislative Council, Tsang estimated fiscal reserves to be HK$856.3 billion by the end of March 2016, representing 36.8 per cent of GDP and equivalent to 23 months of government expenditure.

Tsang said that operating expenditure for 2015-16 is estimated to be HK$354.3 billion, representing an increase of 11.5 percent or HK$36.6 billion over the revised estimate for 2014-15.

Recurrent expenditure accounts for HK$324.6 billion, or over 90 percent of the 2015-16 operating expenditure, which is an increase of HK$18.3 billion or 6 percent over the revised estimate for 2014-15.

Of the recurrent expenditure for the next financial year, almost 60 percent will be deployed for education, health and social welfare, the three major livelihood-related policy areas. Expenditure on education, the largest spending area, will be HK$71.4 billion, or 22 percent of recurrent expenditure.

Tsang also forecast that capital expenditure for 2015-16 will be HK$86.5 billion, including HK$70 billion on capital works. Total

Hong Kong’s RMB trade settlement Disneyland Resort phase 2 to be up 60pct to US$1tln in 2014: Tsang developed: financial secretary

T

he RMB trade settlement conducted through Hong Kong banks amounted to 6.3 trillion yuan (US$1 trillion) in 2014, rising 60 percent from a year ago, Hong Kong’s Financial Secretary John Tsang said in the Special Administrative Region yesterday.

Delivering the 2015-16 budget speech, Tsang said that as the world’s largest centre for offshore RMB banking, financing and asset management, Hong Kong aims to expand the RMB business links with the rest of the world.

He said the RMB bond issuance in Hong Kong rose 70 percent yearon-year to 200 billion yuan last year, while the average daily turnover on Hong Kong’s RMB Real Time Gross Settlement system increased 80 percent to 850 billion yuan in the fourth quarter of 2014.

Tsang said Hong Kong will also work with the mainland authorities to further increase the investment quota for the RMB Qualified Foreign Institutional Investors Scheme and strive for early implementation of the arrangement for mutual recognition of funds.

As for the Shanghai-Hong Kong Stock Connect, Tsang said the project has been operating smoothly since its launch in November last year, and Hong Kong will continue to stage roadshows on the Chinese mainland to attract investors.

He also said Hong Kong shall review the experience of the implementation of this project, and discuss with the relevant authorities of the Central Government the launch of the Shenzhen- Hong Kong Stock Connect and enhancement of the Shanghai-Hong Kong Stock Connect.

Xinhua

H

ong Kong’s Financial Secretary John Tsang said yesterday in his budget speech that Hong Kong Special Administrative Region government will discuss with the Walt Disney Company the Phase 2 development of Hong Kong Disneyland Resort.

Tsang said Phase 2 will cover an estimated area of 60 hectares, similar to that of Phase 1, with attractions, hotel development and retail facilities.

Tsang said new hotel projects in Hong Kong Disneyland, Ocean Park and the airport’s North Commercial District will come on stream, providing more than 2,200 rooms.

“Ocean Park has also invited expressions of interest for the development of the proposed Fisherman’s Wharf Hotel,” he said.

“The construction of the ‘Iron Man Experience’ in Hong Kong Disneyland

and the waterpark at Tai Shue Wan in Ocean Park is expected to complete in 2016-17. The new Central harbourfront will add new elements to the renowned scenic views of Victoria Harbour, “ said Tsang.

Tsang said that in addition to sightseeing facilities such as the Observation Wheel, a variety of carnivals, exhibitions and open-air concerts will take place from time to time.

The secretary also said the tourism, making up five percent of GDP and employing 270,000 people, has been driving the growth of many industries. “In 2014, visitors to Hong Kong exceeded 60 million, an increase of 12 percent over last year. Total spending went up by nine percent to more than 350 billion HK dollars,” Tsang added.

Xinhua

Business Daily | 9

February 26, 2015

Greater China

China said to prepare steps to counter housing market slump

C

hina is preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter said.

The government could reduce down-payment requirements for secondhome purchases, the people said, asking not to be identified as the information isn’t public. Another possible step: removing the sales tax after homeowners hold their property for two years – down from a fiveyear minimum now.

The contingency plans come amid signs of a deepening decline in the real-estate industry in the world’s second- largest economy. China’s new-home prices posted a record yearon-year decline in January, according to Bloomberg Intelligence analysis of government data tracking 70 cities.

While a gauge of manufacturing Wednesday indicated some stabilization in what has been a protracted slowdown in China’s factories, economists still anticipate that policy makers will increase stimulus measures to shore up growth.

“The government is quite concerned,” Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong, said by phone yesterday. While the manufacturing data “shows some rebound, the overall economic downturn is not arrested. The government will carefully monitor the

The government is quite concerned… the overall economic downturn is not arrested. The government will carefully monitor the economic data and react Ding Shuang, Citigroup Inc. senior China economist

economic data and react.”

Implementation of the new easing policies will depend on whether an economic downturn continues or worsens, the people said. The Finance Ministry didn’t immediately respond to faxed questions on the measures.

Second mortgages News of the possible stimulus measures helped the Hang Seng Composite Properties & Construction Index rise as much as 0.8 percent yesterday afternoon trading in Hong Kong, the biggest intraday gain in almost two weeks. The gauge was up 0.1 percent.

Guangzhou R&F Properties Co. gained 1.3 percent while China Overseas Land &

HK aims to get third runway ready by 2023

H

ong Kong, the world’s largest international air cargo airport, aims to start construction next year on a third runway that will open by 2023 as regional rivals step up efforts to capture growing passenger traffic and cargo demand in Asia.

The new facility will help Hong Kong International Airport boost capacity to 100 million passengers and 9 million tons of cargo a year by 2030, Financial Secretary John Tsang said in his budget speech yesterday.

The airport said it handled 63.4 million passengers and 4.38 million tons of cargo last year, both records.

“It is imperative for us to take forward the development of a threerunway system in order to meet our long-term air traffic demand and to maintain our status as an international and regional aviation centre in the face of fierce competition from other airports in the region,” Tsang said in a prepared statement.

Tsang’s pledge comes after Singapore announced plans Monday

Investment Ltd. rallied 2 percent.

China’s central bank already lowered interest rates in November, and officials previously removed some curbs on the property industry that had been put in place in past years to address the danger of a bubble.

The central bank on September 30 allowed people applying for a loan to buy a second home to qualify for lower down payments and mortgage rates previously available only to first-time homebuyers, so long as they had paid off their initial mortgage.

Under existing rules, firsthome buyers need to make a 30 percent down payment, compared with at least 60 percent for a second home.

They can also get as much as a 30 percent discount on mortgage rates from the central bank benchmark.

“Whether the policies are rolled out depends on trends in transaction volume,” Citigroup’s Ding said. “The news is generally positive. The message is: the government will not let the real-estate market go into free-fall.”

Any new measures may help boost an economy that grew 7.4 percent last year, the least since 1990.

The country’s leaders are forecast to unveil a 2015 growth target of around 7 percent at a gathering of the national legislature in Beijing next month, down from about 7.5 percent last year.

Bloomberg News

Air traffic up during Spring Festival holiday

to spend S$3 billion (US$2.2 billion) to begin developing a fifth passenger terminal at Changi International Airport over the next decade, and as other countries gear up to tap growing travel demand from China and other parts of Asia.

Beijing has started construction on a second international airport, while the southwest Chinese city of Chengdu has received regulatory approval for a new 69.3 billion yuan (US$11.1 billion) airport that will have three runways.

Hong Kong’s third runway is projected to cost HK$150 billion (US$19.3 billion).

Hong Kong’s total trade came to HK$8.4 trillion last year, with air cargo through the airport comprising nearly 40 percent of exports and imports by value, Tsang said yesterday.

Tsang also announced plans to develop air financing in Hong Kong and pledged to explore measures to promote such business.

Bloomberg

C

hina’s airlines operated over 60,000 flights during the week-long Spring Festival holiday travel season, up 7.8 percent from last year, according to an article posted on the official website of the Ministry of Transport yesterday.

Airlines in China carried more than 1.35 million passengers each on February 23 and February 24, hitting an all-time daily high during the Spring Festival travel season. Chinese passengers made 8.25 million trips by air during the week-long holiday, up 7.3 percent year on year, the article said, quoting data from the Civil Aviation Administration of China.

The number is about 85 percent of railway trips nationwide during the Spring Festival holiday travel season.

Traffic authorities estimated Tuesday that about 9.7 million trips were made by train during the holiday.

Back in 2008, air passenger traffic was only about one-ninth of railway passenger traffic during the Spring Festival travel season, but today more Chinese people can afford air travel.

According to data provided by the Beijing Capital International Airport, some 1.6 million passengers travelled via the airport during the seven-day holiday, up 7.14 percent from the previous year.

Over 10,540 aircraft departed from or arrived at the airport over the past week, up 6.69 percent over the previous year. Yesterday, the first working day after the holiday, some 1,675 aircraft will depart or arrive at Beijing Capital Airport. The Spring Festival, or Chinese Lunar New Year, which fell on February 19 this year, is traditionally a time for family reunions.

Every year, tens of millions of Chinese return to the cities where they work or attend school after reuniting with family during the weeklong Spring Festival holiday.

The pre- and post-holiday travel rush known as “chunyun” in Chinese has been called the world’s largest human migration.

Xinhua

10 | Business Daily

February 26, 2015

Greater China Over 100mln people exchange mobile “lucky money” for CNY

O

Gauges of financial companies and technology shares fell more than 1.7 percent on the CSI 300, while an index of utilities gained 2.2 percent.

China Life pared this year’s advance to 7.3 percent. Poly Real Estate completed its biggest decline since February 6. A gauge of property stocks in Shanghai slid 1.4 percent, snapping a seven-day advance.

China is preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter said. The government could reduce down-payment requirements for second-home purchases, the people said.

ver 100 million people sent gift money via mobile apps during the Chinese Lunar New Year holiday, according to Alipay, the payment system run by Chinese Internet giant Alibaba.

The period from last Wednesday, or Lunar New Year Eve, to Saturday was the peak for gift money with a total of 4 billion yuan (US$652 million) paid via the e-payment platform, according to figures released by Alipay.

Giving “lucky money” in electronic form has become a trendy spin on the Chinese tradition of giving red envelopes, or “hongbao,” filled with money to children on Lunar New Year Eve. The custom is more than 1,000 years old.

Alipay’s figures suggested that, unlike the tradition of elders giving red envelopes to children, over half of those sending “e-hongbao” were people in their 20s from the cities of Shanghai, Hangzhou, Beijing and Guangzhou. They gifted money to relatives and friends in their mobile contact lists, according to Alipay.

Several Internet companies, including Tencent, Alibaba, Sina and Baidu, released red envelope features to grab a slice of the e-payment market for the holiday. Users must link their debit or credit cards to their accounts to send the gift money.

“Lucky money” payments worth one yuan were the most popular choice with over 19.5 million one-yuan e-hongbao given during the holiday.

E-hongbao in88-yuan denominations were also popular and 3.2 million were exchanged during this year’s festivities.

Bloomberg

Xinhua

Chinese stocks decline after holiday break

C

hinese shares declined, led by financial and technology companies, as mainland markets traded for the first time after a weeklong holiday. Casino stocks plunged in Hong Kong on speculation declines in revenue will deepen.

China Life Insurance Co. dropped 4.5 percent and Poly Real Estate Group Co. lost 3.5 percent. Hundsun Technologies Inc. pared its gain this year to 37 percent. Galaxy Entertainment Group Co. and Sands China Ltd. sank at least 6 percent after analysts including UBS AG predicted a more than 50 percent drop in Macau casino revenue this month. An index of utility stocks rose after a Chinese manufacturing gauge increased in February.

The Shanghai Composite Index fell 0.6 percent to 3,228.84 at the close, erasing its gain for the year. The manufacturing purchasing managers’

index for February from HSBC Holdings Plc and Markit Economics came in at 50.1, unexpectedly rising from 49.7 in January after economists projected a reading of 49.5. Readings below 50 signal contraction in the sector.

“The PMI number was slightly better than expected but investors are still nervous that the economy is not strong enough to generate topline growth,” said Khiem Do, who helps oversee about $60 billion as Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd. “There’s a gap of perceptions between investors and the government.

The economy needs more monetary easing measures.”

Trading on the Shanghai exchange was 20 percent below its 30-day average. The CSI 300 Index lost 1.2 percent, while the Hang Seng China

Enterprises Index and Hang Seng Index was little changed.

Insurers drop

China’s aid conforms Agricultural modernization with Pacific islanders’ reduces rural poverty, promotes organic farming conditions: expert

C

hina’s policies towards Pacific island countries have been very successful, and China’s aid to these countries is in accordance with their national conditions, a Chinese scholar has said.

A symposium was held in the Samoan capital of Apia yesterday, where scholars and officials from China and Oceania discussed China’s evolving role in the Pacific region.

Co-organized by the Centre for Oceania Studies at China’s Sun Yat-sen University, the National University of Samoa and New Zealand Contemporary China Research Center at Victoria University of Wellington, the three-day conference, themed “China and the Pacific: The view from Oceania”, is expected to take a multidisciplinary approach to examining Pacific islands perspectives

on China’s evolving relations with countries in the Pacific region, primarily Polynesia and Melanesia.

In an exclusive telephone interview with Xinhua shortly before the conference kicked off, Prof. Yu Changsen, executive deputy director of the Centre for Oceania Studies at Sun Yat-sen University said, “On assistance towards Pacific island countries, China now ranks the third on the donor list, right after Australia and New Zealand, which I think is a very rapid progress.”

“China’s infrastructure assistance has solved the lack of infrastructure problems in many island countries, and is welcomed by the island countries, which I think is a good deed,” Yu said, adding that it simultaneously complements the assistance of other countries, so the entry of China is a positive factor.

Xinhua

M

iao Yuchun, a farmer from Zichang County in northwest China’s Loess Plateau, never imagined he would have a life of financial stability.

The 33-year-old man was forced to drop out of high school due to poverty, and a botched attempt at growing tomatoes left him penniless, driving him to look for work in the city. However, Miao could not forget his farming roots, even when he was doing well in the city.

Three years ago, inspired by organic soilless cultivation, he returned to his hometown to grow strawberries. He enrolled in technical training programs organized by the local government, consulted with experienced farmers, and explored ways of improving his crops so they could meet “green product” standards.

Miao’s organic farm last year earned him 500,000 yuan (US$ 81,460) and he

employed 15 people.

The government is encouraging more farmers to follow Miao’s path out of poverty through agricultural modernization, helping farmers change to either industrial, intensive farming or organic, sustainable agriculture. Top policymakers have called for more efforts to modernize agriculture, boost farmers’ consumption and spur rural investment.

In response, the central government earlier this month, pledged to develop agriculture with a balanced emphasis on quality and quantity rather than high output, which comes at the cost of resource depletion.

It also promised to boost policies that would benefit farmers, deepen rural reforms and strengthen the rule of law in rural issues.

The Communist Party of China’s (CPC) flagship magazine “Qiushi” last

Monday published an article

by Premier Li Keqiang that advocated agricultural modernization. Li wrote that agricultural modernization could stabilize economic growth and promote structural transformation.

Tian Guangping, a sweet potato farmer in Ganguyi Town, Yan’an City, could benefit from the push.

With techniques passed through generations and soil particularly suited to sweet potatoes, Tian made 90,000 yuan last year from a half hectare plot of rented land.

However, Tian has big dreams. The government in his town plans to launch a 24-hectare organic sweet potato farm. He hopes to be involved in the project so his sweet potatoes can be labelled “green products”, as the domestic market is preoccupied with food safety concerns.

Xinhua

Business Daily | 11

February 26, 2015

Asia

Indonesia tempts households with sukuk premium The country aims to attract overseas funds with 10-year bond yields at 7.19 percent, the highest among 13 Asian nations after India’s 7.69 percent

I

ndonesia is offering sukuk to individuals at the highest premium over existing securities in two years as it seeks to lure funds away from deposits and reduce reliance on overseas investors.

The Finance Ministry plans to sell about 20 trillion rupiah (US$1.6 billion) of three-year Shariahcompliant retail bonds paying 8.25 percent at its regular annual sale, and will market the debt from February 23 to March 6, according to a February 18 statement. The yield is 55 basis points more than that for similar outstanding sukuk and lower than the average 8.39 percent on one-year deposits from Islamic lenders, Financial Services Authority data shows.

The government has expressed concern that the level of foreign ownership of bonds makes the nation vulnerable to capital outflows, particularly after the central bank unexpectedly cut interest rates this month for the first time since 2012.

Global investors have boosted holdings of Indonesian sukuk and non-Islamic debt to a record 40 percent of all tradable rupiah securities, according to the Finance Ministry.

“The benefit of selling retail sukuk is twofold in that it balances out the foreign holdings and improves Islamic finance awareness,” Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas, a unit of the nation’s largest lender by assets, said by phone from Jakarta February 18. “The government has to compete with deposit rates, which are still high.”

Lower deposits The government sold a record 19.3 trillion rupiah of Shariah-compliant retail bonds at the last offering in February 2014, exceeding the 18.5 trillion goal as bids totalled 19.4 trillion rupiah. The premium it’s giving this time is the biggest since the 1.5 percentage points in 2013 that equated to a yield of 6 percent.

Indonesia is attracting overseas funds with 10-year bond yields at 7.19 percent, the highest among 13 Asian nations after India’s 7.69

percent, data compiled by Bloomberg shows. Monetary easing in developed economies from Japan to the European Union is also bolstering demand as the Federal Reserve prepares to raise interest rates.

Bids at this year’s three auctions of regular Islamic bonds from Indonesia have averaged 7.4 times the amount available, exceeding the 2.2 level for all of 2014, according to Finance Ministry figures. Investors submitted 11.6 trillion rupiah of orders on February 10 and an unprecedented 19.1 trillion rupiah on January 27.

Local lenders may seek to lower their deposit rates after Bank Indonesia cut benchmark borrowing costs by 25 basis points to 7.5 percent on Feb. 17, reversing an increase made as recently as November.

Sale boom “The rate cut was a boon for the retail sale,” Dian Ayu Yustina, economist and fixed-income analyst at PT Bank Danamon Indonesia, said by

phone Feb. 18. “The government is frontloading sales before Fed rates rise, so it needs to make sure it doesn’t oversaturate any one market.”

The rupiah is Asia’s worstperforming currency in the past three months after Malaysia’s ringgit, having depreciated 5.8 percent. The cost to insure the nation’s debt for five years using credit-default swaps has dropped 17 basis points, or 0.17 percentage point, in February to 142, CMA prices show. That’s down from 2014’s high of 253 reached in January last year.

‘Less risky’ Indonesia is raising funds from individuals to diversify the investor base and ensure it can meet financing plans amid the uncertain global economic outlook, Robert Pakpahan, director-general at the financing and risk management office, said at a briefing in Jakarta Feb. 20. The government plans to sell 79 trillion rupiah of Islamic bonds this year,

S. Korean private equity firms interested in Asiana Airlines’ parent stake

S

outh Korean private equity firms MBK Partners and IMM have expressed interest in buying a controlling stake in Asiana Airlines Inc’s parent firm, sources with knowledge of the matter said yesterday.

Builder Hoban Construction Co and a fund led by securities brokerage IBK Securities Co also said separately that they had entered letters of intent to buy 57.5 percent of construction firm Kumho Industrial Co Ltd, which had a market value of about 515 billion won (US$469 million) yesterday.

Shinsegae Group, whose E-Mart Co Ltd unit is the largest discount

KEY POINTS Private equity firms, builder showed interest Kumho Ind entered debt restructuring in 2010 Asiana shares close down 3.5pct

store chain in South Korea, also submitted a letter of intent, Yonhap reported citing an unidentified Shinsegae official.

The stake sale would complete the debt restructuring of Kumho Industrial, which came under creditors’ control in 2010 when its parent Kumho Group ran into financial trouble after paying some 10 trillion won on acquisitions in 2006 and 2008.

MBK Partners and IMM declined comment. Shinsegae declined to confirm whether it submitted a letter of intent.

Kumho Industrial deferred

which includes the retail notes and a dollar-denominated offering in the first half, he said.

Globally, sales of Shariahcompliant debt are off to the worst start to a year since 2010, totalling US$1.8 billion, according to data compiled by Bloomberg. Issuance was US$46.3 billion last year, short of the all-time high of US$46.8 billion in 2012.

Indonesia’s planned retail sukuk will be the government’s seventh since the debut in 2008. Last year’s offering was taken up by 34,692 investors, almost double the 17,783 that participated in the 2013 sale, Finance Ministry data shows.

“Retail sukuk is very expensive,” I Made Adi Saputra, fixed-income analyst at PT BNI Securities, a unit of the nation’s fourth-largest bank, said by phone Monday. “But it’s beneficial in the long run, as having a solid domestic investor base is less risky and will consequently lower borrowing costs.”

Bloomberg News

comment to Korea Development Bank (KDB), its lead creditor, which confirmed it had received several letters of intent, but declined to give any details about the bidders. The sources declined to be named as the matter remained confidential.

Kumho has a 30.1 percent stake in Asiana, South Korea’s secondlargest airline. Kumho shares closed 3.5 percent lower and Asiana shares ended 3.5 percent down compared to a 0.7 percent gain in the benchmark.

Once the preferred bidder is identified, Park Sam-koo, the chairman of Kumho Asiana Group and a member of the larger Kumho Group’s founding family, has right of first refusal to buy a 50 percent stake plus one share in the builder by matching the price of the preferred bid, a KDB official said.

KDB and Credit Suisse are advising the sellers on the sale.

Reuters

12 | Business Daily

February 26, 2015

Asia

Japan Inc.’s US$2trn cash fuels overseas purchases Fast Retailing Co., which runs the Uniqlo clothing chain, may buy one or two brands to Europe

J

apanese companies are on an overseas buying spree.

Canon Inc., Japan Post Holdings Co. and Itochu Corp. have led US$28 billion of purchases abroad so far this year, the fastest start on record for Japanese acquirers, according to data compiled

by Bloomberg going back to at least 2006. They’re paying up, too, with takeover premiums that are about double the global average, the data show. The trend is set to continue.

After years of building up cash to a record 233 trillion yen (US$2 trillion) as of the end of September, Japanese companies are looking to convert those stockpiles into future growth by investing overseas where the outlook is brighter. While the yen’s 14 percent drop against the dollar in the past year has made foreign acquisitions more expensive, economists project the Japanese currency will weaken further amid Prime Minister Shinzo Abe’s campaign to fight deflation.

That gives companies the incentive to spend now.

Japan Tobacco Inc., Asia’s biggest listed cigarette maker, has declared a “year of investments” while machinery maker Mitsubishi Heavy Industries Ltd. and brewer Kirin Holdings Co. are also considering growth through takeovers abroad.

“Japan Inc.’s sense of urgency in making acquisitions abroad is strengthening,” said Makoto Shiono, managing director of Tokyo-based consultancy Industrial Growth Platform Inc. “Japan’s massive monetary easing slashed the value of cash. So if you have tons of cash, investors will be pressing you to invest in companies to generate cash flow for future growth.”

Hefty premiums Companies in Japan have agreed to pay an average 39 percent premium for overseas takeovers and majorityinterest purchases announced since Jan. 1, compared with the global average of less than 20 percent during the period, data compiled

by Bloomberg show. The Japanese purchases valued their targets at a median 23 times earnings before interest, taxes, depreciation

acquisitions in Southeast Asia as the company targets 100 billion yen sales in the region this year, Asahi spokesman Takuo Soga said by phone February 20.

“Japanese food and beverage makers need more stomachs abroad,” said Tomonobu Tsunoyama, an analyst at Tokai Tokyo Securities Co. “Asia, Indonesia for example, must be their primary focus because of the region’s large and young population and a culture where Japanese brands are welcomed.”

Fast retailing and amortization, compared to the global median Ebitda multiple of 9.4.

The takeover activity has been broad in nature, spanning a number of industries. This week alone, Hitachi Ltd. agreed to buy Rome-based Finmeccanica SpA’s stake in Ansaldo STS SpA, in a deal valuing the maker of driverless metro trains at 1.93 billion euros (US$2.2 billion). Japanese chemical producer Asahi Kasei Corp. said it will buy Charlotte, North Carolinabased Polypore International Inc. to expand its battery business.

Hitachi fell as much as 3.3 percent in Tokyo on Wednesday, the first day of trading after the Ansaldo acquisition was announced.

The shares were down 0.9 percent at 820.5 yen.

‘Radical moves’ E arlier th i s m o n th , Japan Post offered A$6.5 billion (US$5.1 billion) for Melbourne-based transport firm Toll Holdings Ltd. in the biggest Australian acquisition by a Japanese company.

Canon said Feb. 10 it made a 23.6 billion-krona (US$2.8 billion) cash bid for Sweden’s Axis Communications AB, expanding into video surveillance as smartphone competition erodes digital camera sales. And in January, the 157-year-old trading house Itochu agreed to the US$5 billion purchase of a stake in China’s Citic Ltd. The combination of large cash hoards, cheap financing and Japan’s shrinking and aging population is driving

companies to invest overseas, said Shintaro Okuno, a partner at Bain & Co. who specializes in mergers.

“They’re coming to a point where they have to do these radical moves,” Tokyobased Okuno said. “And also, money here is so cheap.”

Willing lenders Even after weakening to 119 yen against the U.S. dollar from a postwar high of about 75 yen in 2011, Japan’s currency may still decline to 128 yen next year, according to the median of estimates compiled by Bloomberg.

Japan’s economy is forecast to grow 1 percent this year, compared with 3.1 percent for the U.S. and 1.2 percent for the euro area, data compiled

by Bloomberg show.

Overseas purchases are likely to continue, and lenders are willing to finance deals, Japanese Bankers Association Chairman Nobuyuki Hirano said February 19. That will help companies like Mitsubishi Heavy Industries, which said last August it’s looking for more takeover opportunities as it targets 5 trillion yen in revenue by 2017. The industrial company was thwarted in a bid for Alstom SA’s power business in June, after the French government backed a competing offer from General Electric Co.

Seeking stomachs Japan Tobacco President Mitsuomi Koizumi said earlier this month that the company will speed up deals relating to other types

of tobacco products, such as e-cigarettes. It’s also interested in acquisitions in countries where it doesn’t have much presence such as Brazil, Singapore and Bangladesh, Koizumi said. The cigarette maker completed 11 acquisitions totaling US$2.1 billion in the past five years.

Kirin, Japan’s secondlargest brewer by market value, is seeking acquisition opportunities in Southeast Asia and China, President Senji Miyake said February 12. Its larger rival Asahi Group Holdings Ltd. is also weighing

Japan’s massive monetary easing slashed the value of cash. So if you have tons of cash, investors will be pressing you to invest in companies to generate cash flow for future growth Makoto Shiono, Industrial Growth Platform Inc managing director

Toshiyuki Mitsuzawa, head of cross-border M&A at Frontier Management Inc., expects other Japanese consumer-products companies will join Mizkan Group Corp. in making U.S. purchases. Mizkan, a condiment maker founded in 1804, bought the Ragu and Bertolli pasta-sauce business from Unilever NV for US$2.15 billion last year.

“Beverage, food and confectionery makers will perhaps be pouring some of their investment into the U.S. this year,” Matsuzawa said by phone February 20. “They are being hit the hardest by the aging and declining population in their home market.”

Fast Retailing Co., which runs the Uniqlo clothing chain, may buy one or two brands in Europe, said Mikihiko Yamato, deputy head of research at JI Asia in Tokyo. A representative for Fast Retailing declined to comment.

Such deals could help this year surpass the record US$103.8 billion in annual Japanese outbound deals announced in 2012, led by SoftBank Corp.’s takeover of Sprint Corp. and the purchase of U.S. grains collector Gavilon by trading house Marubeni Corp. Many Japanese companies have boosted profit in recent years by cutting costs rather than increasing sales, said Bain’s Okuno.

“That’s not sustainable, so now they’re coming to the inflection point where they really have to think about growth,” Okuno said. “And they have enormous amounts of cash.”

Bloomberg News

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

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Business Daily | 13

February 26, 2015

Asia Top Japanese, U.S. diplomats to meet next month Top diplomats of Japan and the United States are expected to meet in mid-March in efforts to arrange a U.S. visit by Japanese Prime Minister Shinzo Abe in April and to discuss a series of issues of common concern, local media reported yesterday. The meeting between Japanese Foreign Minister Fumio Kishida and his U.S. counterpart John Kerry is expected to cover counterterrorism as two Japanese nationals were killed recently by the Islamic State militants, local report cited unnamed diplomatic source as saying.

Kishida and Kerry would also discuss Japan’s defense legislation related to bilateral defense relationship and the thorny and deadlocked issues over the U.S.-led Trans-Pacific Partnership free trade talks. Abe plans to visit the United States late April through early May for a summit with U.S. President Barack Obama.

New Delhi capital to let people decide how to spend municipal budget

T

he new government in the Indian capital will let the people decide its annual municipal budget in a bottom-to-top way by seeking opinions of the voting constituencies who projected the antigraft Aam Aadmi Party (AAP) to power last month, said local media reports yesterday.

Chief minister Arvind Kejriwal, who is president of AAP, will begin a pilot project to get citizens’ views for area-specific budget planning for the 2015-16 fiscal, said Times of India daily.

Five to 10 assembly constituencies

will be selected next month for the “experiment plan” and the feedback will be used to shape budget allocations, said the report.

Indian Prime Minister Narendra Modi has promised to give local state and municipal governments more power in deciding their own budget plans while the national budget, to be announced next week by the central government, will guarantee the funding for the projects.

“We want to try an experiment by involving people in area- centric budget planning. It will be a policy of the people and they would make the budget,” the

newspaper quoted Kejriwal as saying.

“At present budgets are made each year with departments seeking a budget for their various projects.

The budget amount keeps going up but a person who may have been waiting for a new road in his area for years may still not get covered.

Now we want to bridge this gap and remove the discrepancies by going out to the people,” he added.

The AAP came to power in a landslide victory of local legislative election by taking 67 out of 70 seats in the local assembly.

Xinhua

S. Korea’s smartphone banking registration jumps 30pct Smartphone banking registration in South Korea jumped 30 percent in 2014 in tandem with growing usage of smartphones, central bank data showed yesterday. The number of smartphonebased banking users was 48.2 million as of end-2014, up 30 percent from a year ago, according to the Bank of Korea (BOK). The figure was based on users registered with 17 domestic banks and the Korea Post. The smartphone banking users kept surging from 13,000 in December 2009 when the wireless banking service was introduced, to 2.61 million in 2010, 10.36 million in 2011, 23.97 million in 2012 and 37.19 million in 2013. The number of Internet banking users, including mobile phonebased users, was 103.19 million as of end-2014, up 8.1 percent from a year earlier. The daily average transactions via Internet banking amounted to 36.85 trillion won (US$33.51 billion) in 2014, up 9.5 percent from a year ago.

Malaysian defence minister visits Vietnam to boost ties Malaysian Minister of Defence Dato’ Seri Hishammuddin Tun Hussein is paying a visit to Vietnam at the invitation of Vietnamese Defence Minister Phung Quang Thanh. The two-day visit, started Tuesday, will contribute to strengthening bilateral relations on the principle of mutual trust and understanding between the two peoples and two armies, said Thanh in Vietnam’s capital Hanoi on yesterday.

Thanh made the remarks at talks with his visiting Malaysian counterpart held in capital Hanoi on yesterday, reported Vietnam’s state-run news agency VNA. The Malaysian guest, for his part, said that his delegation’s visit aims to further boost the bilateral relations in the coming time. At the talks, the two sides reviewed Vietnam-Malaysia defense cooperation over past time based on a memorandum of understanding on defence cooperation signed in 2008.

Vietnam ranks 75th in Global Talent Competitiveness Index: survey

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ietnam is ranked 75th among 93 countries and territories in the annual Global Talent Competitiveness Index, which measures a nation’s competitiveness based on the quality of talent it can produce, attract and retain.

The ranking was from results of a survey, the second edition of this kind, conducted by INSEAD, one of the world’s leading business schools, the Human Capital Leadership Institute of Singapore and Zurich-based Adecco Group, one of the world’s leading provider of human resources solutions, reported local Vietnam News daily yesterday.

Vietnam scores relatively high in global knowledge skills despite its low performance in developing the country’s own talent via formal

education, said the survey.

According to Nicola Connolly, country manager of Adecco Vietnam and chairwoman of the European Chamber of Commerce in Vietnam, even though the talent pool is not large, Vietnam is good at employing its existing talent and higher skills in innovation activities and entrepreneurship.

She also said that its key challenge lies in growing new talent, as Vietnam does not perform well in terms of formal education and lifelong learning, thus creating a wider skill gaps moving forward. In the ranking of 93 countries this year, European countries continue to dominate the list with 16 of them in the top 25.

Switzerland maintains its number one position, while four non- European countries are among the top 10

including Singapore, the United States, Canada and Australia.

The survey, which aims to provide a practical and strategic tool for governments, businesses and not-forprofit organizations to inform policies in areas such as education, human resources and immigration, found that investment in “employable skills” and vocational education underpins success in developing, attracting and retaining talent.

The 93 surveyed countries represent 83.8 percent of the world’s population and 96.2 percent of the world’s gross domestic product.

Vietnam was ranked 82nd among 103 countries and territories in the first edition of Global Talent Competitiveness Index.

Xinhua

14 | Business Daily

February 26, 2015

International

Oil market stabilising, US$60 OK for now: Gulf OPEC delegate

O

il prices have started to stabilise around current levels of US$60 a barrel and demand is showing signs of improving in Asia and other regions, a senior Gulf OPEC delegate said on Tuesday.

The comments indicate that the core Gulf members of the Organization of the Petroleum Exporting Countries are showing no sign of wavering in their strategy to focus on market share rather than cutting output, despite concerns from other members about falling oil revenue.

“Oil prices seem to stabilise around the current level... there are a lot of indications showing that demand is growing,” the senior Gulf OPEC delegate told Reuters. “The market is stabilising as well as prices,” the delegate said, adding that US$60 a barrel is “okay for now.”

Oil traded higher near US$60 a barrel on Tuesday, up more than 30 percent from a near six-year low close of US$45 on January 13.

Prices collapsed from US$115 in June due to oversupply, in a decline that deepened after OPEC refused to cut output.

The delegate said oil demand was showing signs of recovering in Asia, emerging economies, Latin America and the United States. It is expected to grow more strongly in the second half of 2015 as the global economy picks up, helping

Greece not to complete power utility, grid operator sales

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reece will not go ahead with privatising its dominant electricity utility PPC or power grid operator ADMIE, Energy Minister Panagiotis Lafazanis said, despite promising its creditors not to halt sales that are underway.

The comments from Lafazanis appeared to mark the first sign of open dissent from a minister on the far left flank of the new Greek government over a deal with the euro zone to extend the country’s bailout programme.

The Public Power Corporation has already launched a tender to sell a 66 percent stake in its power grid operator ADMIE, and several investors including

state Grid Corporation of China (SGCC) and Italian grid operator Terna have been shortlisted as buyers.

“The tender for ADMIE will not go ahead,” Lafazanis told Ethnos newspaper in comments published on Wednesday. “The companies have not submitted binding bids so it will not be completed. That is also the case with PPC.” The government of Prime Minister Alexis Tsipras had to stage a climbdown to secure agreement last Friday from the euro zone on extending the bailout programme by four months, including undertaking to respect the privatisation process where tenders have been launched.

The energy privatisations are jointly handled by Lafazanis and Finance Minister Yanis Varoufakis, who has overall responsibility for asset sales. A finance ministry official said on Tuesday that all the sales would be reviewed case by case.

The previous conservativeled government had passed legislation to spin off PPC and sell about 30 percent of its production capacity under a privatisation plan agreed with the country’s EU/IMF lenders.

Soon after taking office last month, the new government promised to halt a series of privatisations.

Reuters

to absorb excess crude supply in the market, he added.

At OPEC’s last meeting in November, Saudi Arabia and its Gulf allies argued that the group needed to ride out lower prices in order to defend market share against shale oil and other competing supply sources, rather than cut output.

The price decline since last year has hurt the economies of smaller OPEC producers, whose budgets depend more on higher oil prices than the Gulf members, and some of them have continued to lobby for OPEC cuts.

In a sign of concern about the impact of the price collapse, Nigerian Oil Minister Diezani Alison-Madueke told the Financial Times she would call an emergency OPEC meeting if oil prices fell any further.

But the senior Gulf delegate added OPEC was unlikely to meet before its next scheduled gathering in June, and defended its November decision not to cut output since non-OPEC countries did not offer to help.

“It is unlikely to have an emergency meeting especially with the market and prices starting to stabilise,” he said.

“OPEC has to keep its market share and not to sacrifice for other producers outside the group. Russia and other non-OPEC producers still refuse to cooperate with OPEC.” Reuters

German chemical 2015 sales to drop instead of rising on Europe

T

he German chemical association VCI reversed a forecast for sales growth this year, saying it now expects revenue in the chemical and pharmaceutical industry to drop amid weaker demand from Europe and increasing competition.

Sales in 2015 will probably fall 0.5 percent to 192.2 billion euros (US$218.6 billion), with prices declining 2 percent, VCI said in Frankfurt, where the group is based. Previously, the lobby group had predicted a sales gain of 1.5 percent and a price drop of 0.5 percent.

The sales contraction will be the second in the industry since 2002, said VCI, which represents more than 1,650 German chemical companies including BASF SE and Bayer AG. On top of weak demand from Europe, export markets are slowing, with Russia hurt by lower oil prices and trade sanctions, decelerating economic growth in China and a recession in Brazil, VCI said.

“Increasing competitive pressure has led to a deterioration of business expectations for the industry,” Utz Tillmann, the head of VCI, said told journalists Tuesday.

“Restrained business

expectations are due to weak growth in Europe, which will continue through the next few months. The export markets outside Europe are hardly any better.”

Only the 2015 forecast for an increase of production of 1.5 percent was left intact, according to VCI. W i t h o u t t h e pharmaceutical industry, the drop in sales and prices is more dramatic, VCI said. The chemical industry on its own will probably post a revenue decline of 1.5 percent and a price decrease of 2.5 percent in 2015.

The negative sentiment is reflected in the figures for the final three months of last year, VCI said.

“For the German chemical industry, the turbulent business year 2014 ended with a disappointing final quarter,” as demand for chemicals was hurt by customers destocking and the expectation of a further price drop in raw materials, Tillmann said.

Bayer reports annual figures today and BASF, the world’s biggest chemical maker, publishes figures a day later.

Reuters

Business Daily | 15

February 26, 2015

Opinion Business

wires

Steady on the Renminbi

Leading reports from Asia’s best business newspapers Stephen S. Roach

Yale University faculty member and former Chairman of Morgan Stanley Asia

PHILSTAR A manifesto outlining the country’s masterplan for microinsurance was launched recently involving six key government agencies. The one-page document spells out the country’s goals for insuring low-income Filipinos as protection for risks brought about by climate change. Finance Undersecretary Gil Beltran said that microinsurance is one of the best tool for poor countrymen to help them adapt to climate change. “With microinsurance, they have a better chance of recovering from financial shocks caused by typhoons, floods and other natural or man-made calamities,” he added. Microinsurance is insurance sold in sachet form. It cost as low as P25 and provide payouts as low as P5,000. It sold to farmers, fisherfolk, vendors, and other low-income groups.

THE TIMES OF INDIA STD and roaming bills will soon see a major reduction with telecom regulator Trai slashing a key rate charged on calls made outside the home network.

The relief comes a day after Trai had paved the way for a cut in local mobile as well as landline tariffs by reducing the charge companies pay to terminate calls on competing networks.

Issuing an amendment to the Telecommunication Inter-connection Usage Charges Regulations, Trai issued a new order that reduces the per-minute ceiling for carriage of inter-state calls from 65 paise per minute to 35 paise per minute.

SYDNEY MORNING HERALD The federal government plans to charge fees to foreign nationals buying residential property and fine those who break foreign investment laws, in an attempt to improve housing affordability amid some of the world’s highest property prices.

The scheme could raise about A$200 million a year by charging foreign home-buyers A$5,000 for properties valued under A$1 million and an additional A$10,000 for every additional A$1 million, Treasurer Joe Hockey said.

Mr Hockey said a register of foreign nationals buying real estate would be established and those who break the law would face a fine up to a quarter of the value of the property and could be forced to sell.

The STRAITS TIMES Profit at Overseas Education dropped 2.8 per cent to S$22 million for the full year ended December 31 owing to lower revenue from tuition fees, school bookshop sales and enrichment programmes.

Revenue dipped 0.9 per cent to S$102.1 million as Overseas Education said there was softness in the enrolments of its junior school. Total costs were little changed at S$75.7 million, although personnel expenses rose 1.8 per cent to S$57.1 million due to increase in salaries and higher Central Provident Fund contributions. That was offset by an absence of a share subsidy given out to staff in the previous year.

C

urrency wars are raging worldwide, and China is bearing the brunt of them. The renminbi has appreciated sharply over the past several years, exports are sagging, and the risk of deflation is growing. Under these circumstances, many suggest that a reversal in Chinese currency policy to weaken the renminbi is the most logical course. That would be a serious mistake.

In fact, as China pursues structural reforms aimed at ensuring its continued development, forced depreciation is about the last thing it needs. It would also be highly problematic for the global economy.

On the surface, the situation certainly appears worrisome – especially when viewed through the currency lens, which captures shifts in Chinese prices relative to those in the rest of the world. According to the Bank for International Settlements (BIS), China’s real effective exchange rate – an inflation-adjusted trade-weighted average of the renminbi’s value relative to the currencies of a cross-section of China’s trading partners – has increased by 26 percent over the last four years.

China’s currency has appreciated more than any of the other 60 countries that the BIS covers (apart from dysfunctional Venezuela, where the figures are distorted by multiple foreign-exchange regimes). By comparison, the allegedly strong US dollar is up just 12 percent in real terms over the same period. Meanwhile, China’s emerging-market counterparts have experienced sharp currency depreciations, with the Brazilian real falling by 16 percent, the Russia ruble by 32 percent, and the Indian rupee by 12 percent.

This currency shift is, of course, the functional equivalent of a large hike in the price of Chinese exports. Add to that continued sluggishness in global demand, and the once-powerful Chinese export machine is suffering, with total exports down by 3 percent year on year in January. For an economy in which exports account for about 25 percent of GDP, that is not a trivial development.

At the same time, a stronger renminbi has made imports less expensive, putting downward pressure on China’s price structure. Unsurprisingly, this has exacerbated the fear of deflation, with the consumer price index (CPI) rising by just 0.8 percent year on year in January, and the annual decline in producer prices steepening, to 4.3 percent. While these trends are undoubtedly being amplified by plummeting world oil prices, China’s core CPI inflation rate (which excludes volatile food and energy prices) was near 1 percent in January.

Against this background, it is easy to see why many antic-

ipate a tactical adjustment in China’s currency policy, from appreciation to depreciation.

Such a move would certainly seem appealing as a way to provide temporary relief from downward pressure on growth and prices. But there are three reasons why such a move could backfire.

First and foremost, a shift in currency policy would undermine – indeed, undo – the progress that China has made on the road to reform and rebalancing.

In fact, a stronger renminbi is consistent with China’s key objective of shifting from export-intensive growth to consumer-led development. The generally steady appreciation of the renminbi – which has risen by 32.6 percent against the US dollar since mid-2005 – is consistent with this objective and should not be reversed.

It strengthens Chinese consumers’ purchasing power and reduces any currency-related subsidy to exports.

During the recent financial crisis, the authorities temporarily suspended China’s renminbi-appreciation policy, and the exchange rate was held steady from mid2008 through early 2010. Given that current circumstances are far less threatening than those in the depths of the Great Crisis, the need for another tactical adjustment in currency policy is far less acute.

Second, a shift to currency depreciation could inflame anti-China sentiment among the country’s major trading partners – especially the United States, where Congress has flirted for years with the prospect of imposing trade sanctions on Chinese exporters. A bipartisan coalition in the House of Representatives recently introduced

If China intervenes to push its currency lower, US political support for anti-China trade actions will undoubtedly intensify, pushing the world’s two largest economies closer to the slippery slope of protectionism

the so-called Currency Reform for Fair Trade Act, which would treat currency undervaluation as a subsidy, allowing US companies to seek higher countervailing duties on imports.

Similarly, President Barack Obama’s administration has just brought yet another action against China in the World Trade Organization – this time focusing on illegal subsidies

that China provided to exporters through so-called “common service platforms” and “demonstration bases.” If China intervenes to push its currency lower, US political support for anti-China trade actions will undoubtedly intensify, pushing the world’s two largest economies closer to the slippery slope of protectionism.

Finally, a renminbi-depreciation policy would lead to a sharp escalation in the global currency war. In an era of unprecedented quantitative easing, competitive currency devaluation has become the norm for the world’s major exporters – first the US, then Japan, and now Europe.

If China joined this race to the bottom, others would be tempted to escalate their actions and world financial markets would be subject to yet another source of serious instability.

Just as China resisted the temptation of renminbi depreciation during the Asian financial crisis of 1997-98 – a decision that may have played a pivotal role in arresting regional contagion – it must stay the course today.

That is all the more important in a disorderly climate of QE, where China’s role as a currency anchor may take on even greater importance than it did in the late 1990s.

Strategy is China’s greatest strength. Time and again, Chinese officials have successfully coped with unexpected developments, without losing sight of their long-term strategic objectives. They should work to uphold that record, using the strong renminbi as an incentive to redouble efforts at reform and rebalancing, rather than as an excuse to backtrack. This is no time for China to flinch.

Project Syndicate

16 | Business Daily

February 26, 2015

Closing Lego movie helps toymaker beat rivals

Boris Mints considers acquiring Immofinanz stake

Lego A/S said full-year revenue advanced 13 percent, outpacing the building-block maker’s key rivals, helped by toys based on “The Lego Movie.”

Sales rose to 28.6 billion kroner (US$4.4 billion) in 2014, with double-digit growth in all regions, the Billund, Denmark- based company said in a statement yesterday. Net income rose 15 percent to 7 billion kroner. The toymaker has increased annual sales every year for the past decade as Chief Executive Officer Joergen Vig Knudstorp focused on the Lego bricks and sold theme parks.

Russian investor Boris Mints is considering a bid of about 420 million euros (US$477 million) for a stake in Immofinanz AG, his second deal in the Austrian property industry. Mints’s O1 Group Ltd. and CA Immobilien Anlagen AG may make an offer to buy around 15 percent of Immofinanz for about 2.51 euros a share, Tuesday’s closing price, CA Immo said in a statement. Immofinanz climbed as much as 12 percent in Vienna trading, the most since November 2009. “CA Immobilien Anlagen and O1 Group confirm that they are considering a minority investment in Immofinanz,” CA Immo said in the statement.

HK pledges HK$34bln sweeteners in post-protest budget

H

ong Kong unveiled HK$34 billion (US$4.4 billion) of sweeteners in its budget yesterday, including help for businesses hit by prodemocracy protests, as it works to rebuild confidence in a city that some fear is losing its competitive edge.

The government has warned that the Asian financial hub must make economic stability a top priority after more than two months of pro-democracy protests late last year paralysed parts of the city and unnerved authorities in Beijing.

The budget was presented as Hong Kong’s embattled leader, Leung Chun-ying, seeks to bolster support following months of political upheaval in which demonstrators demanded free elections and triggered widespread calls for him to quit.

Financial secretary John Tsang announced measures worth HK$290 million to help businesses hurt by the Occupy Central demonstrations, including waiving licence fees for 26,000 restaurants and other food outlet operators, and running events to promote Hong Kong to investors and tourists.

In spite of this generosity, he expected a budget surplus of HK$63.8 billion for the

financial year ending March 31, handily beating the government’s earlier forecast for a HK$9.1 billion surplus.

With Hong Kong’s large budget surpluses, taxpayers have become accustomed to sweeteners, accounting specialists said, although some questioned if this was the best long-term strategy.

“Over the past six or seven years, the financial secretary has given away HK$272 billion as one-off sweeteners.

If that much money was spent elsewhere it could actually benefit Hong Kong more

Thailand plans to borrow US$1.2bln for road projects

T

in the long term,” said EY managing partner for tax for Hong Kong and Macau, Tracy Ho. The government is under pressure to ensure the financial hub, which returned to Chinese rule in 1997, remains on a steady keel while at the same time maintaining strong ties with Communist Party rulers in Beijing.

Tsang noted that the economy grew 2.2 percent in the fourth quarter of last year. That was slightly better than a median expectation for growth of 2.1 percent among

six analysts polled by Reuters, but marked a slowdown from annual growth of 2.7 percent in the third quarter.

The economy grew 2.3 percent last year compared with expansion of 2.9 percent in 2013 and the government forecast growth of 1 percent to 3 percent this year. A Reuters poll of analysts had estimated the economy would grow 2.7 percent this year.

Tsang said the city’s ageing population posed one of the biggest challenges and the government would allocate resources to improve

services for the elderly.

Financial secretary Tsang said a 2015-16 land sale programme would include 29 residential sites capable of providing 16,000 new homes in one of the world’s most expensive property markets.

“There has been a doubledigit increase in the prices of small and medium-sized flats,” Tsang said. “I will not hesitate to introduce measures when necessary, in order to maintain the healthy and stable development of the property market.”

Petrofac full-year profit falls on project delays

World solar flight to make Myanmar stopover

P

T

he Thai government plans to borrow 40 billion baht (US$1.23 billion) overseas to fund road construction, a deputy prime minister said yesterday.

Spending on road construction and upgrades was aimed to help spur domestic economic activities from the middle of this year, Pridiyathorn Devakula told reporters after meeting economic ministers. “It will be overseas borrowings. The finance ministry will then swap them into baht currency to limit any risk exposure,” he said.

The borrowing plan will be proposed to the cabinet for approval next week, Pridiyathorn said.

Road construction is part of the ministry’s 80 billion baht (US$2.46 billion) plan to help revive Southeast Asia’s second-largest economy, which is barely growing. The planned spending is on top of the country’s annual budget.

The military government is trying to tackle economic problems after taking power in a coup in May, but disbursement of its investment budget has been slow.

etrofac Ltd., a U.K. provider of services to the oil and gas industry, said full-year profit fell 10 percent as projects were delayed amid a slump in energy prices.

Net income declined to US$581 million from US$650 million a year earlier, the London-based company said yesterday in a statement. That beat the US$572 million average estimate of 11 analysts in a Bloomberg survey.

The company warned in November that oil’s slump would hurt earnings as projects slipped and some got canceled. Oil companies have announced spending and job cuts in to protect dividends in the face of lower prices.

“Having taken robust action to address the challenges we have faced on the Ticleni, Greater Stella Area and Laggan- Tormore projects, Petrofac enters 2015 in a much stronger position,” Chief Executive Officer Ayman Asfari said in the statement. “Notwithstanding the current lower oil-price environment, we continue to see an attractive pipeline of bidding opportunities in the year ahead.”

Reuters

Bloomberg

Reuters

he first around-the-world solar flight, Solar Impulse 2 (Si2), is expected to make a stopover in Mandalay, the second largest city of Myanmar on March 10, official media reported yesterday.

Scheduled to stay for three day at Mandalay International Airport, it will be the 4th stopover of Si2 after taking off from Adu Dhabi of the United Arab Emirates in early March, said the Global New Light of Myanmar, quoting a pre-arrival press conference on the flight on Tuesday.

With the joint efforts of the government and Swiss Embassy, the solar flight to Myanmar will help inspire energy innovation in Myanmar, the report said. During the visit, around 1,000 students from surrounding universities will have the chance to meet the pilots of the aircraft and learn about the plane and renewable energy. A team of Swiss technicians and scientists worked together to design the solar-powered plane.

Myanmar is the only southeast Asian stop among the planned landings in China, the United States and southern Europe or northern Africa, the report added Xinhua