Macau business daily, Mar, 11, 2015

MOP 6.00 Closing editor: Joanne Kuai Publisher: Paulo A. Azevedo Number 746 Wednesday March 11, 2015

Gov’t grants four 4G licences

G

Year III

reat expectations. The gov’t has awarded four 4G licences. The technology is expected to deliver much faster data. Plus widespread Internet connection that far outstrips the capabilities of 3G. China Telecom hopes to introduce its service during Q3. While Hutchinson will launch its service in Q4. CTM and SmarTone have yet to announce their launch schedule.

All companies are required to launch their service by year-end PAGE

Tragedy again Another fatal construction site accident has occurred.

A mainland worker passed away at Galaxy Cotai Phase II yesterday. Both the company and authorities vow a thorough investigation. What more should be done to really raise safety awareness on Macau’s construction sites?

PAGE 2

Beware the Ides of March

3

HSI - Movers March 10

Name

Recovery is still not in sight. Many investment banks predict gaming revenues are likely to drop about 40 pct in March. With stock prices dropping accordingly. If so, it will be the worst quarter on record. SJM is expected to consolidate market share leadership this month. With Galaxy claiming second spot at Sands China’s expense

%Day

Belle International

4.62

China Merchants Hold

2.54

MTR Corp Ltd

1.90

Li & Fung Ltd

1.86

China Shenhua Energy

1.67

China Resources Ente

-2.53

Lenovo Group Ltd

-3.00

China Unicom Hong Ko

-3.29

Sands China Ltd

-3.71

Galaxy Entertainment

-4.75

Source: Bloomberg

I SSN 2226-8294

Brought to you by

JETCO to explore mobile services in HK and Macau PAGE 2

Guangdong Free Trade Zone to open March 18 PAGE 7

www.macaubusinessdaily.com

China’s inflation unexpectedly rebounds

PAGE 8

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5

Strong pataca, please

Baby boomer boomerang

China, Taiwan and South Korea. Overwhelmingly the most popular destinations for Macau tourists. Meanwhile, the weak euro is also tempting locals to Europe. The number of Macau tourists checking out the Continent has jumped 255 pct Y-O-Y

The consequences of an increasingly aged Chinese population.

Now all too apparent during the recent national congress.

The human resources minister says workers will need to put off retirement. In order to sustain the pension system

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2015-3-11

2015-3-12

2015-3-13

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13˚ 16˚

15˚ 19˚

2 | Business Daily

March 11, 2015

Macau

Mainland worker falls to death on Galaxy Macau Phase II site This accident is the third fatal industrial case to happened on Cotai casino-resort sites under construction so far this year Stephanie Lai

sw.lai@macaubusinessdaily.com

A

mainland Chinese worker accidentally fell to his death from scaffolding at the Galaxy Macau Phase II project in Cotai yesterday afternoon, resulting in a suspension of the works at the site ordered by the Labour Affairs Bureau (DSAL).

The fall of the 55-year-old worker occurred at around 4:05 pm yesterday from a height at 12 metres above the ground, according to the Public Security Police and DSAL. An investigation conducted by DSAL found that the worker’s safety belt had not been secured properly at the time the accident happened when he was working from scaffolding at the casino-resort site.

‘The Bureau will continue to

investigate the cause of the accident, and pursue the legal responsibilities of relevant parties,’ a statement issued

by DSAL said yesterday.

All scaffolding works at the accident site were to be suspended, and the contractor also had to submit an accident report to DSAL, the statement reads.

The Galaxy Macau Phase II casino-resort is slated to open on May 27, the same day as the opening of the refurbished Grand Waldo complex branded as Broadway Macau, the Hong Kong-listed casino operator Galaxy Entertainment Group Ltd. announced in late January.

Galaxy Macau Phase II includes the world’s first all-suite RitzCarlton hotel and JW Marriott,

with over 1,000 rooms, according to the company at the time of the announcement.

Business Daily approached Galaxy Entertainmentabout the impact the fatal accident has on the upcoming opening of the project, to which the company replied: ‘As the case is currently being handled by the police, we apologise that we are unable to provide further details . . . It is regrettable to learn about the accident and we would like to express our deepest condolences to the family of the deceased.’

The industrial accident that happened at the Galaxy Macau Phase II site yesterday was the third fatal case to occur on a Cotai casino-resort site this year.

Outbound travel by local residents reached 1.5 mln in 2014 China, Taiwan and South Korea are the most popular destinations to have received the majority of Macau tourists.

Meanwhile, Europe saw the number of Macau tourists jump by at least 254.9 per cent

The most recent fatal constructionrelated accident occurred on Friday on the MGM Cotai building site, where a Mainland Chinese worker was reportedly hit by a concrete pump whilst pouring cement.

Another accident had occurred not long before on a neighbouring construction site at Melco Crown Entertainment Ltd.’s City of Dreams Macau retail arcade expansion project, where a local construction worker operating a lifting appliance on the second floor of the expansion site fell to his death on January 20. An alleged over-lifting of the appliance the worker had been using was a suspected cause of the accident, according to DSAL at the time.

JETCO and Gemalto partnership exploring mobile services in HK and Macau

Kam Leong

kamleong@macaubusinessdaily.com

T

he number of Macau residents travelling outside the territory reached some 1.5 million last year, which is a year-onyear increase of 5 per cent, according to calculations by Business Daily based on the official data of the Statistics and Census Service (DSEC).

Calculations also indicate that the number of Macau residents travelling to Europe increased by 2.5 times.

In 2014, a total of 950,708 outbound travel journeys by Macau residents under their own arrangement using the services of travel agencies were recorded, up 6 per cent year-on-year. Meanwhile, those travelling on package tours had increased 6.7 per cent year-onyear, amounting to 586,078.

As official data does not cover the number of individual travellers – those not using any agency services - it suggests that the exact figure of outbound travel journeys by Macau should be even higher.

According to DSEC, Mainland China remained the major destination, absorbing 60 per cent of total outbound travellers from Macau. Some 501,510 residents travelled to the Mainland using agency

services, while some 435,094 visited the country on tours.

Taiwan, South Korea, Thailand and Japan were the other four chief and most popular destinations for locals, after the Mainland.

The data indicated that Taiwan received a total of 185,762 residents last year, a jump of 20.5 per cent, compared to the 154,126 of 2013.

Japan and South Korea also welcomed tourists from the MSAR, jumping 22.9 per cent and 30 per cent year-onyear, amounting to 56,435 and 27,880 of the total, respectively.

The number of local residents travelling to Thailand, however, dived 46.5 per cent, reaching only some 41,296, compared to the 77,204 of 2013.

The sharp decrease of local residents travelling to the Southeast Asian country was apparent following its political conflict during the first half of last year.

Nevertheless, Thailand is not the only country that saw less Macau residents. Malaysia had also seen the number of outbound Macau tourists drop, by 8.8 per cent last year, amounting to only 24,535.

Meanwhile, the number of Macau residents travelling to Europe soared. Residents travelling to the continent on tours surged 254.9 per cent, reaching 3,478, compared to only 980 in 2013.

The general number of Macau residents visiting Europe using agency services, however, is not available.

Based on the number of Macau tourists visiting Europe on tours the average number of residents travelling to the continent started climbing from March 2014 when the Euro started to drop.

Following its more significant drop in Summer the increase in outbound Macau residents to Europe became more apparent. In July and August, the continent received 663 and 497 tourists from Macau. After the summer, Europe received on average 261 tourists from Macau per month, compared to less than 100 Macau tourists visiting the continent every month in 2013.

Meanwhile, in addition to Europe, Vietnam is also another increasingly popular destination for Macau residents.

In 2014, some 11,103 residents visited the country, up 43.3 per cent year-on-year.

J

ETCO, the largest ATM network in Hong Kong and Macau with a network of 32 member banks, has launched mobile NFC (Near Field Communication) services in the region using Gemalto’s Allynis Trusted Services Hub. Amsterdam-based Gemalto is the world leader in digital security. This will allow users to pay for their goods, services, and transport with a simple tap of their smartphones.

Gemalto technology provides JETCO with a single connection and immediate access to the broadest base of users, allowing it to quickly deploy NFC services across a comprehensive portfolio of smartphones and mobile networks.

Hong Kong, with a population of 7.2 million,

has the highest smartphone penetration in Asia Pacific, and a user base that is already familiar with contactless payment.

“Hong Kong is experiencing major growth in cross border payments, particularly with Mainland China,” said Mr. Angus Choi, CEO of JETCO Hong Kong. “Gemalto’s TSH enables JETCO to play the role of a trusted third party, eliminating the need for multiple individual contracts,” said Suzanne Tong-Li, President for Greater China and Korea at Gemalto. “With a strong track record of NFC deployments in Asia, we can empower JETCO to play a leading role in transforming Hong Kong into a fully cashless society.”

Business Daily | 3

March 11, 2015

Macau

4G services available in third quarter Now the government has granted 4G licences to the operators, China Telecom aims to introduce its service during the third quarter of the year. Hutchinson will launch its service in the fourth quarter, while CTM and SmarTone have yet to announce their launch schedule João Santos Filipe*

jsfilipe@macaubusinessdaily.com

T

he 4G service in Macau can start during the third quarter of the year, after the Bureau of Telecommunications Regulation (DSRT) announced on Monday that Companhia de Telecomunicações de Macau (CTM), China Telecom (Macau), Hutchison Telephone Macau, known as 3Macau, and SmarTone had been granted licences to operate the service.

For the time being, the operators are still waiting for the decision of the government to be published in the Official Gazette and for other formalities to be finalised before installing the network and equipment needed to provide the service. The companies are required to launch the service by the end of the year.

“We are very happy with the decision of the government and we are prepared to start to install the 4G network. We are waiting for the decision to be published in the Official Gazette and for other formalities”, the Assistant General Manager of China Telecom (Macau), Samuel Chan, told Business Daily

yesterday. “Our goal is to cover 90 per cent of the territory by the end of the year and to start to provide 4G services to our clients in some regions of Macau by the third quarter of the year”.

Chan also praised the decision of the government to provide the licence to the existing operators in Macau.

In his view, this choice is the most beneficial to the telecommunication users of the territory.

CTM CEO Vandy Poon likewise applauded the decision of the government. The company also said it will continue to support the

government’s policy for the industry.

More details about the 4G service and its network are set to be revealed on 25 March during its media launch, CTM told Business Daily.

Hutchison Telecom Macau is ready to splash MOP300 million, announcing that it will start providing 4G services during the last quarter of the year.

“We thank the Macau DSRT for granting us this 4G mobile telecoms networks and services licence”, Ho Wai Ming, Chief Executive Officer of Hutchison Telecom Macau, said.

“3Macau will invest more than MOP300

million to develop a 4G network”.

Smartone said through a press release that it is pleased with the 4G licence but told Business Daily that for the time being it has no further comment on the issue.

Meanwhile, U Hong and China Mobile Hong Kong were prospective newcomers to Macau’s telecommunications market but were not granted 4G licences. A representative of U Hong Patrick Yang told Business Daily that they respect the decision of the government.

“We were confident that we would get a 4G licence but as we are a new company we lack the experience.

Of course, we have the experience in telecommunications but not in 4G wireless service”, Mr. Yang explained. “We respect the decision of the government”.

Business Daily also contacted China Mobile Hong Kong for a reaction to the decision of DSRT but by the time the newspaper went to press the company had not replied to our enquiry. *with Kam Leong

4 | Business Daily

March 11, 2015

Macau Macau Property Opportunities secures loan of US$28.4 million Macau Property Opportunities announced on Monday that it had secured a US$28.4 million (MOP227 million) loan for the development of the residential project in Macau The Fountainside. According to information from Alliance News, the fund managed by Sniper Capital generated US$15.5 million (MOP123.9 million) with this refinancing deal after repaying US$12.9 million (MOP103.1 million) of an existing loan. The fund said its cash balance after the refinancing will increase to about US$22 million (MOP175.8 million). The Fountainside - totalling an investment of US$23 million (MOP183.8 million) - is in its final sales phase.

Le Saunda same-store sales growth accelerated in Q4

Air China re-launches Macau-Beijing route

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N

ational flag carrier Air China re-launched its Macau-Beijing route last week, according to Macau International Airport Company Ltd. (CAM).

Air China is providing one round-trip flight per day between the Special Administrative Region and the Chinese capital city after a gap of more than a decade.

Before the re-launch last Thursday, the city’s flights

serving the Macau-Beijing route were all provided by the national flag carrier’s local subsidiary Air Macau, which provides three roundtrip flights between the two cities every day.

In 2009, Air China increased its 51 per cent stake in Air Macau to almost 81 per cent as a capital injection.

Meanwhile, Taiwanese low-budget carrier V Air is also planning to commence flights between Macau and

Taipei in the middle of April, according to Chineselanguage newspaper China Times of Taiwan.

V Air, a subsidiary wholly owned by TransAsia Airways, will become the fifth airline providing a TaipeiMacau route if the launch is confirmed. Currently, flights between Taipei and Macau are operated by Air Macau, Eva Air and low budget airline Tiger Air and TransAsia Airways.

UM appoints new dean

ong Kong-listed shoe retailer Le Saunda Holdings Ltd. said its self-owned retail business recorded a same stores growth of 3.9 per cent year-on-year in the fourth quarter of the financial year 2014/15, a further acceleration from the growth at 1.9 per cent in the previous quarter.

Le Saunda, which operates stores in Mainland China, Hong Kong and Macau, said its self-owned stores recorded a total sales growth of 1.1 per cent year-on-year for the fourth quarter, which is the three-month period ended

February 28, the company said in the unaudited operation data submitted to the Hong Kong Stock Exchange on Monday.

But Le Saunda’s Monday filing did not contain any sales revenue figures.

As at the end of February, Le Saunda had a total of 904 outlets in Mainland China, Hong Kong and Macau, representing a net decrease of 24 outlets compared to the same period last year.

These 904 outlets comprised 770 self-owned outlets on the Mainland, in Hong Kong and Macau as well as 134 franchised outlets on the Mainland, according to the Monday filing.

In its interim report up to the month of August last year, the shoe retailer expected the sales contribution by Hong Kong and Macau to gradually decline over the long run.

Le Saunda noted in the report that for the interim period its retail business in Hong Kong and Macau dropped with a year-on-year sales decrease of 9.9 per cent to HK$95.7 million.

K.L.

SL.

Corporate

for Faculty of Health Sciences Meet the Artist – Joana Vasconcelos MGM MACAU has hosted a private dinner for Joana Vasconcelos. By exhibiting Joana Vasconcelos’ ‘Valkyrie Octopus’, MGM MACAU seeks to showcase and make art available for all walks of life in the community. Through the exhibition and the private dinner, MGM MACAU is further creating a platform for arts and cultural exchange between Macau and Portugal by featuring Portuguese artist Joana Vasconcelos’ first solo exhibition in China.

Before dinner, the young Portuguese artist toured the installation with guests, explaining its creation and conceptual inspiration for the astonishing work of art. Joana Vasconcelos talked about the various stages of her most recent installation, and gave guests a detailed account of the progress made in each of the stages of Valkyrie Octopus. This major exhibition is a new monumental installation specifically created for the Grande Praça, the heart of MGM MACAU.

T

he University of Macau (UM) has appointed Chair Professor Chuxia Deng, a leading American Chinese scientist in the field of life sciences, as the dean of its Faculty of Health Sciences (FHS).

After assuming office as FHS dean, Prof. Deng plans to focus on building a state-of-the-art infrastructure and operating system for the faculty and will assist it in making important scientific discoveries in medical sciences and healthcare to fill the gaps in these areas in Macao.

Professor Deng was a senior investigator of the Senior Biomedical Research Service (SBRS) at the United States National Institute of Health (NIH), the chief of the Mammalian Genetics Section at the United States National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), an investigator of the NIDDK’s Genetics of Development and Diseases Branch, and a postdoctoral fellow of the Howard Hughes Medical Institute and the Department of Genetics at Harvard Medical School.

He is the author or co-author of over 310 papers with a total citation frequency of over 30,000 and a fellow of the American Association for the Advancement of Science.

He has received numerous awards in recognition of his outstanding achievements in teaching and research, including the NIH-APAO Outstanding Achievement Award (2000, NIH, USA), Outstanding Overseas Scholar from National Science Foundation (2002, China), and NIDDK Director’s Award.

Business Daily | 5

March 11, 2015

Macau

Gaming revenues to plunge 40 per cent in March Macau gaming revenues are expected to drop 40 per cent this month with no early recovery in sight. Suffering from several downgrades, casino stocks have already lost more than 50 per cent of their value since the 2014 peaks and investors predict further drops Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

T

hey call it perfect but the storm currently affecting the gaming industry in Macau is also likely to last far longer than expected. Investors are predicting gaming revenues will drop 40 per cent in March, making the performance of the first quarter of 2015 the worst growth on record. With so steep a fall in revenues, it’s also no surprise that casino stocks are following, with today’s shares at half the price of last year’s peak.

With mid-March approaching, investors estimate revenues from casinos in Macau will drop 40.5 per cent this month from a year ago, according to the average outlook of three banks (Wells Fargo, Nomura and HSBC). The predictions range from a fall of 37 per cent to 46 per cent, with Nomura the most bearish of all.

If a 40 per cent plunge is confirmed in March, then the first quarter will be the worst ever in Macau for the industry, with gaming revenues dropping around 35 per cent. This follows decreases of 24.5 (Q4) and 7.1 per cent (Q3)in the previous two quarters, respectively. The world’s gaming mecca is now navigating its ninth straight month of diminishing revenues and the longest in its history.

MOP700 million daily Wells Fargo, for example, lowered its estimations for this month to a 37 to 41 per cent drop from a decrease of 35 per cent, the US bank said in a note to clients.

According to company checks, casinos here took in a daily average of MOP675 million in revenues in the first week of this month. That’s 8 per cent less that the daily average recorded since the beginning of the year (MOP766 million) and far removed from the good times, when gaming tables in Macau were generating a MOP1 billion every 24 hours. For the rest of the month, daily revenues are expected to fall between the MOP675-734 million mark, says Wells Fargo.

The main driver of this month’s plunge was again the high roller segment. VIP revenues are expected to drop 50 per cent. The mass segment will also not bring too much good news, either, as gains are likely to decrease between 25 and 40 per cent.

Bottom Nomura, who predicts a decrease in the range of 40 to 46 per cent, says the market will probably adapt to the new norm in Macau of having daily revenues of around MOP700 million.

JP Morgan, who downgraded the majority of casino operators’ stocks here, said this week that the current downturn in Macau is still ‘cyclical in nature’. The US bank adds that the industry ‘will resume its healthy growth once it finds the bottom’.

In terms of market share, March could see SJM further consolidate its leadership this month, with Galaxy climbing to second place at Sands China’s expense (see table). The biggest market share win will be by

Gaming Revenue Growth (Year-on-Year) Brokerage

Variation (%)

Mid-Point

Wells Fargo

(-37) to (-41)

-39

Nomura

(-40) to (-46)

-43

HSBC

(-38) to (-41)

-39.5

Average

-40.5 Q1 2015 - A Dark Quarter Month

Variation (Y-o-Y)

January

-17.4

February

-48.6

March*

-40.5

Sources: Analysts Market Shares February

March*

SJM

23.1

23.3

up

Sands China

23.3

21.8

down

Galaxy

21.5

22.1

up

MPEL

14.4

14.6

up

MGM

9

8.7

down

Wynn

8.6

10.9

up

Source: DICJ / Wells Fargo *Estimation

35%

Size of drop in gaming revenues during Q1 2015, the worst performance ever in Macau

Wynn Macau, from 8.6 per cent in February to 10.9 per cent in March.

‘Macau Government comments reinforce our view that we should not expect a ‘VShaped’ recovery in the new normal’’, Wells Fargo says. This view is based on Macau’s Secretary for Economy and Finance Lionel Leong’s recent words that it is ‘’unrealistic’’ to expect a ‘’miraculous’’ recovery in the next couple of months and that there’s ‘’no way to determine’’ how many more months Macau revenues may continue declining.

Stock crisis But if a flat recovery is already assumed by the government, the stocks still have to hit bottom. With weak revenue growth, shares are likely to feel additional pressure given the upcoming review of gaming licences this Spring and the evolving policy regarding Mainland tourists. ‘We believe the market would not give the benefit of the doubt, until such regulatory issues are proven to pass without any significant surprises’, J.P. Morgan declared.

Of all the big six operators, only Galaxy and Melco Crown Entertainment escaped downward revisions by the US bank. Sands China and MGM China stocks were downgraded from buy to neutral, while Wynn Macau and SJM were cut from neutral to sell. Gaming shares have already lost more than 50 per cent since last year’s peaks and several investors are predicting new drops in the coming months. Yesterday, Deutsche Bank cut five Macau casino operators to sell from hold or buy, while maintaining its sell rating on shares of the sixth, SJM.

6 | Business Daily

March 11, 2015

Macau

Expensive pataca to boost To re-balance or not inflation and imports opinion

José I. Duarte Economist

H

alf a dozen mega-facilities are under construction or expected to open in Cotai in the next few years. Their full operation will require several tens of thousands of workers. The residents’ labour pool cannot fulfil that demand. Consequently, most – almost all, in fact - of the necessary effectives will have to be recruited from elsewhere. That is, the number of non-resident workers is bound to increase. Rough estimates suggest that those new casinos plus associated premises – namely, hotels, restaurants, resorts plus commercial facilities – will need some 50 to 70,000 workers.

Such growth is bound to further stretch the city’s public infrastructure and strain an already stressed residential market.

The real estate market and, in particular the residential segment, is already severely distorted. The average price per square metre for residential transactions rose from slightly less than 8,300 patacas in 2004 to just below 100,000 last year, a 12-fold increase in just 10 years. That is to say, the price of one square metre ten years ago would today buy less than a square foot!

The measures taken earlier to cool the market – and that the Chief Executive has already declared will be kept in place – did little to achieve their supposed aim and, if anything, made buying a flat less accessible for those who needed it most. The average size of unit transacted rose from about 675,000 patacas in 2004 to 6.5 million patacas in 2014. The number of years necessary for the median wage earner to buy the average house rose from 11 to 41 years in the same period.

Of course, we are not talking about that same type of house, on average, nor the same profile of buyers. Most of the recent transactions will fall into the luxury category, meaning (much) bigger units and (supposedly, at least) much higher building standards. They are certainly not meant for the regular resident or imported worker. They, obviously, simply cannot afford such prices; they will have neither the savings nor the financial worth that would allow the banks to lend the required amounts. These values are then not, even remotely, affordable for the typical income of the average family.

However, contrary to what is often claimed, the main drivers of this state of affairs are not primarily external ‘speculators’. Almost all the credit for residential units granted by the local financial institutions was contracted with residents. As there must be few locals, organisations or individuals, that have the resources and credit worthiness that would allow them to obtain loans for units sold at prevailing prices, this evolution must also represent a staggering transfer and concentration of wealth.

The revenue trends affecting the casino sector will force many operators to review their expansion plans, both in terms of size and timing. That may not be completely bad.

The current economic slowdown might be a welcome lull, if only it was used to re-balance the hugely distorted residential market. But one would be wise to hedge such a bet.

A

stronger pataca this year is envisaged by some experts and observers as not only encouraging more Macau residents to travel abroad but has wider implications for the local economy - it could help offset the soaring consumer prices of recent years and benefit the territory’s trade in goods, which now mostly relies on imports.

The euro has fallen to its lowest since 2004 against the US dollar - at US$1.11 on January 23 - after the

European Central Bank unveiled a landmark quantitative easing plan involving the buying of 1.1 trillioneuro (US$1.25 trillion) assets to boost the economies of the 19 euro members.

But the greenback has already gained momentum since early last year on the back of the US economic recovery and the tapering of its bond-buying programme which once pummelled the currency.

Indirectly pegged to the US dollar through the Hong Kong dollar at

MOP1 to HK$1.03, the pataca has jumped on the bandwagon. The trade-weighted effective exchange rate index of the pataca - a gauge of the rates of the city’s currency against its major trading partners - reached an average of 98.12 in 2014, increasing 0.6 per cent from 2013, the Monetary Authority of Macau said, the highest level last seen in 2010.

Jack Chang Chak Io, vicepresident of the Macau Association of Economic Sciences, believes that the city’s currency could remain on the upside this year with the US dollar, reasoning: “It’s expected the US Federal Reserve will soon raise interest rates; on the other hand, the economy of the euro zone will remain weak and the fluctuations in the yuan will continue.”

“A weaker yuan [against the pataca] also eases the inflation here as the Mainland [China] is the major import source of the daily necessities and goods in Macau,” he said. The pataca strengthened against the yuan by 1.87 per cent year-on-year to RMB100 per MOP129 as at the end of 2014, against the backdrop of a recovering US economy and the deceleration of growth on the Mainland.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com.

The plot thickens

T

he urban planning law, Macau’s first legal framework on the issue, has been in effect for a year without hitting any major potholes, except for the recent jolt of the cancellation of a secretariat.

Some observers and insiders take this as a good sign that the new law is successfully restricting the discretion of the administration; some blame this on the failure of the authorities to come to grips with details in support of the law; and some say this is due to the reluctance of developers to put forward major projects amid the transitional period of the government.

But there is a consensus: the tug of war among competing interests will only escalate as time progresses.

“Not much has happened since the implementation of the law, which proves to a certain degree it works well,” said legislator Au Kam San. “For example, we don’t see any blatant decisions by the government of exercising its discretionary right to relax the height cap of a project from 10 metres to 50 metres as in the past.”

The urban planning law was approved by the Legislative Assembly in the summer of 2013, and came

into force on March 1, 2014, together with the cultural heritage law and amendments to the land law. The three legal frameworks were billed as steps forward for the government to manage its land resources and development in a more open and transparent manner, bidding farewell to past practices lambasted for breeding collusion.

The highlight of the law is the establishment of the urban planning committee - an advisory body comprising officials, experts and civic

leaders - to advise the government on strategies for the urban development of Macau and ‘urban conditional plans’. As enshrined in the law, developers are obliged to apply to the Land, Public Works and Transport Bureau for an urban conditional plan that determines construction area, height cap and plot ratio before proceeding with their projects.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com.

Business Daily | 7

March 11, 2015

Macau

Seven directors resign from Birmingham International The company, which has been in receivership since last month, announced two sackings and two suspensions from the board. Stephen Liu Yiu Keung and David Yen Ching Wai were appointed Chairman and Chief Executive Officer João Santos Filipe

jsfilipe@macaubusinessdaily.com

B

irmingham International Holdings International announced a major reshuffle yesterday to its board with the resignation of seven directors, including the Chairman and Vice-Chairman. Two directors were fired and another two members of the board were suspended.

The changes were revealed in a filing submitted by the company to the Hong Kong Stock Exchange.

These major changes were announced after it was reported that Carson Yeung Ka Si, former executive director of the company imprisoned for money laundering practices, had called an extraordinary general meeting. Mr. Carson retains a significant stake in the company and according to Hong Kong newspaper South China Morning Post used his position as a shareholder to unilaterally call the meeting, which he could influence from his prison cell through proxy votes.

Birmingham International has been under receivership since last month, and yesterday the receivers announced that

they are “conducting an investigation into the affairs of the company”.

Concerning the departures from the company, Cheung Shing resigned as Chairman of the Board and Ma Shui Cheong resigned as Vice-Chairman, Chief Executive Officer and Managing Director. In addition, Chen Liang and Panagiotis Pavlakis left their positions as Executive Directors and Gao Shi Kui, Liu Enxue and Li Hanguo left their positions as non-Executive Directors.

The company also clarified that the Executive Directors Peter Pannu and Chan Shun Wah had been fired, while Cheung Kwai Nang and Carson Wong Ka Chun were suspended from their duties as Executive Director and non-Executive Director, respectively.

The employees of Ernst & Young and receivers of Birmingham International Stephen Liu Yiu Keung and David Yen Ching Wai were appointed Chairman and Chief Executive Officer of the company.

Birmingham International went into receivership last month because of

Guangdong Free Trade Zone unveiled next Wednesday

G

uangdong Free Trade Zone, which is expected to deepen economic integration between Guangdong, Macau and Hong Kong, will open on March 18, Hong Kong newspaper South China Morning Post (SCMP) reported yesterday.

The newspaper said that the launch date was confirmed by the Guangdong Cross-Border E-Commerce Association and by an unidentified source which the newspaper claimed to be close to the matter.

According to SCMP, the government-supported association told its members on its official microblog that the date of the Zone’s official establishment had been changed to next Wednesday as the Communist Party head of Guangdong Province, Hu Chunhua, and the governor of the province, Zhu Xiaodan, will attend the launch ceremony.

“The provincial leaders intend to launch the Free Trade Zone on [March 18], if no surprise arises,” the newspaper quoted the source as saying.

The Guangdong Free Trade Zone, announced together with the Fujian and Tianjin trade zones by Chinese Premier Li Keqiang last December, occupies a total of 116 square kilometres and will serve the Pearl River Delta, which includes Hengqin in Zhuhai.

The newspaper said that the original launch dates of the three new zones were scheduled for February 27 and March 1 but were later postponed due to the annual National People’s Congress and The Chinese People’s Political Consultative Conference.

It remains unknown whether the other two zones will be launched on the same date as the Guangdong zone.

Last month, Macau Chief Executive Fernando Chui Sai On said that the Guangdong Free Trade Zone will bring more opportunities and advantages to Macau in terms of liberalising trade and innovating systems, and hoped the Special Administrative Region and the Chinese province could enhance co-operation in Hengqin as well as in Nansha in Guangzhou.

K.L.

internal disputes between the different factions on the board, English football team Birmingham City, controlled by the company, explained in a press release to supporters.

‘With no apparent resolution to the fractious and inharmonious relations within the management, the majority on the BIHL Board decided that it had no other option but to openly and voluntarily request reputable receivers to take over the management of BIHL on its behalf.’

The problems for Birmingham International Holdings Limited started at the beginning of 2014 when former Chairman and Executive Director Carson Yeung Ka Si was convicted on five counts of money laundering and sentenced to six years imprisonment.

According to Birmingham International’s annual report for 2014, the company registered a net loss for the year ended 30 June 2014 of approximately HK$156 million. For the year of 2013, the net loss amounted to HK$121 million.

Agile Property pre-sales down 22 pct Y-O-Y in February

G

uangzhou-based property developer Agile Property Holdings Ltd. gained 2.46 billion yuan from pre-selling its residential projects in Mainland China in February this year, according to its latest unaudited operating figures filed with the Hong Kong Stock Exchange on Monday evening after trading hours.

The pre-sales value of 2.46-billion yuan that the Chinese company generated last month represents a drop of 21.7 per cent year-on-year, compared to its pre-sales values in February 2014.

According to the filing, the developer pre-sold gross floor area occupying 219,000 square metres last month, which was pre-sold at 11,211 yuan per square metre.

Meanwhile, for the first two months of the year, the accumulated pre-sales value of the company reached 4.67 billion yuan, which is a fall of some 17.4 per cent year-on-year. The accumulated gross floor area that was pre-sold in the two months amounted to 464,000 square metres, costing some 10,045 yuan per square metre.

Last year, Agile Property missed its pre-sales target. Total pre-sales value of the company was 44.16 billion yuan, some 3.84 billion less than its expected total presales of 48 billion yuan.

Agile Property, whose residential projects are primarily in Mainland China, is popular with local and Hong Kong investors.

K.L.

8 | Business Daily

March 11, 2015

Greater China P&G’s Crest fined Chinese authorities have fined Procter & Gamble Crest toothpaste division nearly US$1 million for what regulators say is false advertising, a Shanghai watchdog said yesterday. The U.S. brand overplayed the effects of some of its toothpaste and used digital software to “touch up” images used in advertising to make teeth look whiter, the Shanghai Administration for Industry & Commerce said in a post on its official Sina Weibo microblog. The regulator said it has fined Crest 6.03 million yuan (US$963,000), an amount described by Chinese media as the biggest fine of its type on record.

Alibaba taps Jeff Zhang The company appointed Jeff Zhang to oversee its main services, bringing Taobao, Tmall and Juhuasuan into a newly created “China Retail Marketplaces” division. The appointment marks one of the highest-profile personnel shuffles since China’s largest e-commerce company went public in September.

Together with the creation of the new division, the move will streamline operations and enhance efficiency. The company, which now handles more ecommerce than Amazon.com and eBay combined, has been struggling to sustain the rip-roaring pace of growth it enjoyed in past years as it gains scale.

Xinjiang eyes “core area” of Silk Road Northwest China’s Xinjiang Uygur Autonomous Region is gearing up its efforts to become a “core area” of the Silk Road Economic Belt, a senior official said yesterday. Located in the centre of Asia, Xinjiang played a role as a “bridgehead” in China’s westward opening, said Zhang Chunxian (pictured), Communist Party of China chief of Xinjiang, who was attending an annual session of the country’s top legislature in Beijing.

“East to the region, is about 1.3 billion domestic population, while in its west, is almost the same number of foreign population.”

China, UN to co-host global women’s summit China and the United Nations (UN) Entity for Gender Equality and the Empowerment of Women (UN Women) will co-host a global women summit in September at the UN headquarter in New York, officials from China and UN Women said. Song Xiuyan, Vice Chairperson of China’s State Council Working Committee on Women and Children, Vice President and First Member of the Secretariat of the All-China Women’s Federation, made the announcement at the 59th session of the Commission on the Status of Women.

Chinese investors heading for Victoria A Victorian state government proposal that will see 206 overseas investors arrive in Melbourne, Australia, began yesterday ahead of next weekend’s Australian Formula One Grand Prix. The “Victorian Invitation Program” will host high-profile business leaders from 19 countries, with the overwhelming majority of them Chinese. It is anticipated that 104 of the 206 delegates will be Chinese, representing the country’s strengthening trade partnership with Victoria, which is worth a reported US$14.5 billion.

February inflation rebou

The consumer price index target was set at around 3 percent for th Pete Sweeney and Kevin Yao

T

he pace of Chinese inflation unexpectedly picked up in February, but producer prices continued to slide, underscoring the intense pressure on profit margins at Chinese companies and adding urgency to policymakers’ efforts to find new ways to support growth.

The producer price index (PPI) declined 4.8 percent in February, the National Bureau of Statistics said yesterday - the most negative reading posted since Oct 2009 - extending a long-running factory deflation cycle that began in 2012 to nearly three years.

Economists and policymakers worry that the risk of deflation is

KEY POINTS Statistics bureau attributed the 1.4 percent rise in consumer prices to higher costs for vegetables

CPI +1.4 pct yoy, vs forecast +0.9 pct PPI -4.8 pct yoy, vs forecast -4.3 pct PPI deflation sharpest since Oct 2009 Social security minister warns of labour market pressure

rising for the world’s second-largest economy, as drag from a property market downturn and widespread factory overcapacity is compounded by an uncertain global outlook and soft commodity prices.

China’s statistics bureau attributed the 1.4 percent rise in consumer prices to higher costs for vegetables and fruit, while the decline in PPI - which analysts had expected to

come in at minus 4.3 percent - was blamed on sliding prices for global commodities, in particular energy, which have undermined profitability at China’s industrial heavyweights.

“February’s seasonal pick-up in food inflation will likely prove shortlived and we still expect inflation to fall back below 1 percent in coming months,” wrote Julian EvansPritchard of Capital Economics in

Sugar industry in favour of controlling imports China imported 3.49 million tonnes of sugar in 2014 Dominique Patton

C

hina needs to introduce measures to strictly control sugar imports, with low tariffs and cheap overseas shipments damaging the local industry, an executive at a large Chinese sugar processor said.

China’s sugar mills, caught between state-set prices for sugar cane to support farmers and cheap imports of raw product, lost a combined 9.8 billion yuan (US$1.56 billion) in 2014, said Ge Junjie, vice president of state-owned Bright Food Group Co. “Global sugar imports have already damaged China’s sugar industry. I believe there needs to be measures to strictly control imports,” he told Reuters, without directly calling for a raising of the tariff.

China imported 3.49 million tonnes of sugar in 2014, with the first 1.94 million tonnes at a tariff rate of 15 percent as part of the country’s commitments to the World Trade Organisation.

The tariff for non-quota imports is 50 percent, but this was below the global average for sugar tariffs of 97 percent, he said.

Ge, who is a delegate to the National

Global sugar imports have already damaged China’s sugar industry.

I believe there needs to be measures to strictly control imports Ge Junjie, vice president, Bright Food Group

People’s Congress, the government’s legislative arm currently meeting for its annual parliament session, said an automatic import licensing system recently introduced by the Ministry of Commerce would help to control imports.

He also called for an investigation of trade remedies. China’s sugar sector has previously lobbied for an antidumping investigation into imports but the government has not yet taken any action to support the demand.

Shanghai-based Bright, one of China’s biggest food companies with a focus on dairy, confectionery and wine, has a sugar processing capacity of 1.5 million tonnes and boosted its share of the domestic milling sector with a purchase of a Guangxi mill last year.

China was the world’s top sugar importer in 2013, but imports fell 23 percent last year after a fall in local prices boosted demand for homegrown sugar.

Ge also called for further support for cane growers, including more subsidies.

Chinese farmers produce 4 tonnes of cane per mu (equal to 1/15th of a hectare) compared with 10 tonnes in Brazil, according to Bright data.

Ge said China’s sugar consumption will reach about 14 million tonnes this year, and said Bright plans to use its presence in China’s top cane growing regions, Guangxi and Yunnan, to build a national distribution network.

Reuters

Business Daily | 9

March 11, 2015

Greater China

unds

his year

and fruit

Singapore. “Nonetheless, today’s inflation data suggest that downward pressure on broader prices has begun to ease.”

But some economists questioned the significance of the price rise, saying it was disappointing in the context of Lunar New Year, and noted there was no significant increase in the price of pork, which usually rises around the week-long festival.

Annual changes in China’s consumer prices will remain positive in the foreseeable future, the Shanghai Securities News yesterday quoted vice central bank governor Yi Gang as saying, while economists note the structure of consumer inflation is changing, showing rising costs for services, clothing, healthcare and recreation instead of residential inflation, which slowed to 0.6 percent.

“We continue to expect inflation to remain relatively low and still see disinflationary pressures in the economy,” wrote Nomura economists in a research note after the news.

“To offset headwinds to economic growth, we expect monetary policy to be loosened further.”

The question is how long it will take for easing measures to take effect.

The issue is becoming more pressing because unemployment, which has remained comfortably low even in the face of a weakening economy, is seen as coming under further pressure, the social security minister said yesterday.

Indeed, some economists suspect that many jobs are artificial, with factory workers being put on halfpay or no pay, or migrated to lowend service sector jobs in tourism by local officials to avoid social unrest from layoffs and the negative career consequences of high unemployment rates in their jurisdictions.

The consumer price index target was set at around 3 percent for this year. Annual consumer inflation was 2 percent in 2014, well below the government’s target of 3.5 percent.

Combined January and February industrial output, retail sales and investment data will be released today. All are expected to show slowing growth. Loan and money supply data will also be released this week.

Reuters

Pension fund forces retirement age rise In coming years the proportion of Chinese over the age of 60 will rise to 39 percent of the population

C

hina’s pension fund will come under tremendous pressure to break even in coming years and as such, the government needs to gradually raise the official retirement age to salvage the finances, a top official said yesterday.

Yin Weimin, minister of human resources and social security, said the government will gradually raise the official retirement age, which is as low as 50 for some female workers, but stressed that any policy changes will be phased in over five years.

He did not say when retirement ages will be raised.

Analysts have long warned about China’s state pension crisis and the severe funding shortage, with some estimating that the cash shortfall could rise to as high as nearly US$11 trillion in the next 20 years.

Yin said the finances were not as dire for the moment, but warned about challenges ahead.

“The pension fund faces tremendous pressure in terms of breaking even in future,” he told reporters at a news briefing on the side-lines of the annual meeting of China’s parliament.

The fund’s income stood at 2.3 trillion yuan (US$367.3 billion) in 2014, exceeding its expenditure of

KEY POINTS Pension fund will come under break even pressure in coming years Govt to gradually raise retirement age - minister Says any policy changes to be phased in over five years

2 trillion yuan for the year, he said.

But in coming years, the proportion of Chinese over the age of 60 will rise to 39 percent of the population, from 15 percent now, Yin said.

That would depress the dependency ratio - the ratio of the number of people younger than 15 or older than 64 to the working age population - to 1.3 from the current 3.04, he said.

Reuters

Hebei pays “huge price” in war on pollution Industrial production fell 0.6 percent last year to 185.3 million tonnes David Stanway

C

hina’s biggest steelproducing region, Hebei, is paying “a huge price” for the country’s war on pollution, the province’s top Communist Party official said, days after the central government offered more financial support.

Hebei, which surrounds the capital Beijing, churns out nearly a quarter of Chinese steel output, but it is now bearing the brunt of a campaign aimed at easing the country’s dependence on heavy and polluting industrial capacity.

Production fell 0.6 percent last year to 185.3 million tonnes, official data showed.

Annual economic growth in the province slipped to 6.5 percent last year, missing an 8 percent target, with steel demand hit by a nationwide slowdown as well as the campaign against pollution.

“In order to solve the problems of industrial restructuring and pollution, Hebei has made huge efforts and paid a huge price,” Zhou Benshun, the province’s Party secretary, told reporters on the sidelines of China’s

annual parliamentary session on Monday.

At a closed meeting with the Hebei delegation on Saturday, Premier Li Keqiang said the state needed to help the province in its efforts to wind down excessive steel production capacity.

“Hebei’s easing of steel overcapacity needs state help and we need to offer some preferential policies in aspects such as financing,” Li was quoted by state media as saying.

Hebei governor Zhang Qingwei also urged Beijing to provide long-term loans to

In order to solve the problems of industrial restructuring and pollution, Hebei has made huge efforts and paid a huge price Zhou Benshun, Hebei’s CPC secretary

his province to help cover the costs of cutting overcapacity.

Provincial officials told reporters that Hebei’s steel firms had already reached state requirements but said they were being forced to go even further to cut excess capacity.

Hebei comprises seven of China’s 10 smoggiest cities, according to official 2014 air quality data, and local officials have long complained that it has been asked to sacrifice too much for the “war on pollution”.

It vowed to close 60 million tonnes of out-dated and polluting crude steel capacity in the 2014-2017 period and met its target to shut 15 million tonnes last year. It also aims to cut coal consumption by 30 million tonnes over the same period.

However, Hebei has struggled to find alternative sources of economic growth and hopes a new state plan aimed at integrating the province’s economy with the prosperous cities of Beijing and Tianjin will help reduce its reliance on steel and coal.

The plan aims to break down administrative barriers and improve transportation networks in the region. It will also involve the relocation of “non-essential” industries and government functions from Beijing to Hebei.

Reuters

10 | Business Daily

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Greater China

Ensuring employment harder than expected Government aims to create more than 10 million urban jobs and ensure that the registered urban unemployment rate does not rise above 4.5 percent

C

hina is faced with a more complex and arduous task of ensuring employment in 2015 against the backdrop of an economic slowdown, China’s human resources minister said yesterday.

About 15 million young students need to find jobs in 2015, consisting of 7.49 million college graduates and a similar number of those graduating from vocational, technical schools or middle schools, said Yin Weimin, the minister of human resources and social security.

Another 3 million surplus labour force in the rural areas will be seeking employment in towns and cities, according to the minister.

Yin made the remarks at a press conference on the side-lines of the on-going National People’s Congress annual session.

China aims to create more than 10 million urban jobs and ensure that the registered urban unemployment rate does not rise above 4.5 percent in 2015, according to a government work report last week.

“Urban employment in

We are still very confident in fulfilling this year’s task and delivering the target of creating more than 10 million urban jobs An employment convention

January and February fell from the same period last year,” Yin also revealed yesterday. This was in line with a series of disappointing data at the start of the year, including indices measuring industrial activity, consumer prices and trade.

Last year, despite the slowdown, a total of 13.22 million new urban jobs were created, beating the full-year target of 10 million.

Yin highlighted the

country’s fast-expanding service sector amid economic restructuring, and vigorous small and micro businesses thanks to streamlined government administration, both main sectors for job creation.

“We are still very confident in fulfilling this year’s task and delivering the target of creating more than 10 million urban jobs,” said the minister.

Ensuring employment for college graduates will be

a top priority and relevant unemployment insurance policies will be implemented, he stressed.

He also pledged efforts to encourage mass entrepreneurship and innovation and to beef up vocational training services.

Ensuring employment has been a top concern for the Chinese government as the country eyes higher-quality growth while standing up to downward pressures.

Yin Weimin, China’s minister of human resources and social security

Premier Li Keqiang, when giving his government work report on the annual parliamentary session, stressed that China must maintain a steady growth rate to ensure employment and income continue to increase.

Xinhua

Deficit plans put squeeze on local financing Ministry of Finance announced on Sunday that local governments would be permitted to swap up to 1 trillion yuan of high interest, maturing debt for low interest municipal or provincial bonds

C

hina’s plan to run its biggest fiscal deficit since the global financial crisis may help develop its bond market, but the extra competition for funding could sink some of the major providers of local government financing.

Local government financing vehicles (LGFVs), which were invented to skirt restrictions on local government fundraising, are already under pressure from Beijing’s drive to reduce local debt and migrate provincial financing to a more transparent municipal bond model.

With over US$3 trillion in outstanding debt that funded essential infrastructure, along with some vanity projects and speculative adventures, LGFVs are finding it hard to service their existing debts, let alone raise new money when loans fall due.

Some fear they could go under.

“There is no way we can survive, and the pressure on the company is huge,” said an executive at an LGFV in Yanghou city in Jiangsu province, who spoke on condition of anonymity.

His company has several billion yuan in debt raised to build roads

Chinese Finance Minister Lou Jiwei gestures during a press conference on the sidelines of the ongoing Third Session of the 12th National People’s Congress (NPC) in Beijing

and lay pipes.

“Our loans are due, and we can’t repay them. If financing remains this tight, some companies will die.”

To service China’s 1.12 trillion yuan (US$180 billion) deficit for 2015, up 170 billion yuan from last

year, state borrowers will also turn to the bond markets, competing for cash with LGFVs just as investors grow wary that the vehicles no longer enjoy the tacit government guarantees they enjoyed in the past.

Greater liquidity and transparency

in the bond markets should improve a major structural weakness in China’s economy, the inefficient allocation of capital, but LGFVs benefited from such inefficiencies.

“In the past LGFVs would issue bonds with ridiculously low yields,

Business Daily | 11

March 11, 2015

Greater China

Auto sales soar in first two months Sales of SUVs and minivans surged 66 percent and 20 percent, respectively

C

hina’s auto sales accelerated in the first two months of this year, led by demand for sport utility vehicles and minivans.

Retail deliveries of passenger vehicles increased by 16 percent to 3.49 million units in January and February, the China Passenger Car Association said on its website yesterday. Sales of SUVs and minivans surged 66 percent and 20 percent, respectively. The first two months of sales data are taken together to rule out the impact of the week-long national Lunar New Year

holiday, which falls on different days each year.

The faster pace of growth marks a strong start to a year when sales are forecast by the state-backed China Association of Automobile Manufacturers to increase 8 percent to 21.3 million vehicles. That compares with the target of about 7 percent economic growth announced by Premier Li Keqiang, the slowest annual expansion for China since 1990.

“According to current market demand, there isn’t a high

expectation for growth to exceed projections for the entire year,” said John Luo, a Hong Kong-based analyst at Guosen (HK) Securities Co. “The economy plays a big role.”

Wholesale deliveries of passenger vehicles in January and February climbed 8.7 percent to 3.43 million units, according to the state-backed China Association of Automobile Manufacturers. Vehicle sales rose 4.3 percent to 3.91 million units, the association said today.

Concerns that more cities may be pressured to cap the registrations of new vehicles were fanned by a popular Chinese documentary film, later removed from major websites, highlighting the air pollution choking many of the country’s big cities. The official Xinhua News Agency reported President Xi Jinping as saying that the country will “punish, with an iron hand, any violators who destroy ecology or environment, with no exceptions.”

Cities such as Nanjing and Chengdu may announce curbs this year, according to Harry Chen, a Shenzhen, China-based analyst at Guotai Junan Securities Co. Among foreign automakers, General Motors Co. posted a 0.8 percent drop in combined January and February sales, while Ford Motor Co.’s deliveries increased 15 percent in the same period.

Toyota Motor Corp. and Nissan Motor Co. reported gains of 14 percent and 12 percent, respectively, with Honda Motor Co. the only major Japanese automaker to register a decline in deliveries, down 8 percent from a year earlier.

Japanese automakers may operate their vehicle assembly plants at a 77 percent utilization rate this year, the lowest of foreign producers in China and an indication of its sales prospects, according to projections

by Bloomberg Intelligence. South Korean producers have the highest utilization rate among foreign automakers, followed by U.S. and European carmakers, the data show.

Bloomberg News

which would then be purchased by local banks,” said Zhou Hao, economist at ANZ Bank in Shanghai.

“Now LGFVs will have to issue bonds according to market standards.

It is going to be a big year for LGFV bonds maturing, and many of them will have to find ways of refinancing at higher rates.”

Funding gap If big state issuers squeeze LGFVs out of the primary bond market, it could also hit capital spending at a time when growth in China is already at quarter-century lows.

ANZ estimated that the total impact of proposed changes to the fiscal system would force local governments to deal with a funding gap worth 4.2 percent of China’s US$10 trillion economy.

Beijing says it has plans to deal with such problems.

“We have to steadily deleverage, but must also prevent the economy from falling off a cliff,” Finance Minister Lou Jiwei told reporters on Friday, saying local governments had an estimated 100 billion yuan of maturing debt this year.

He said local government funding would move from the LGFVs toward a municipal bond market, as in the United States.

100 bln Maturing debt this year (Yuan)

But that doesn’t help with existing debts, particularly those linked to projects without a steady income stream, and the muni-bond market is currently limited to a few top-tier regions and a quota of only 500 billion yuan for all of 2015.

To address this problem, the Ministry of Finance announced on Sunday that local governments would be permitted to swap up to 1 trillion yuan of high interest, maturing debt for low interest municipal or provincial bonds.

In the meantime, LGFVs like Anhui Bozhou Jianan Investment Holding Co Ltd, the financing vehicle for the Bozhou city government in Anhui province, one of China’s poorest regions, will continue to struggle to service per capita debt that stood at about 3,100 yuan in 2013 from per capita revenue of just 1,635 yuan.

As a partial solution, the government is also pushing a PublicPrivate Partnership (PPP) model for local governments that would convert existing debt into corporate bonds.

But local governments fear they will get stuck with the debt raised for projects that might have been necessary but are not financially attractive, while the private sector cherry-picks the best.

“The construction projects were meant for us, but now the central government says it is not giving them to us,” said a sceptical official at an LGFV in Bozhou, who declined to be named.

“The projects have been given to (private investors), and you still want us to represent the government and manage the PPP?” Reuters

Citi-linked broker sets IPO price Although China has stepped up the pace of listings this year in an attempt to temper the country’s red-hot stock market

C

hinese brokerage Orient Securities Co Ltd, the joint venture partner of a Citigroup Inc unit, has priced its IPO which could raise more than 10 billion yuan (US$1.59 billion) in the largest mainland initial public offering (IPO) since 2011.

Orient’s IPO comes amid concerns on China’s brokerages facing imminent competition from its banks after the securities regulator said on Friday it is considering issuing brokerage licenses to banks. Brokerage stocks, as a consequence, had fallen on Monday.

Brokerages like Orient have seen profits double as retail investor numbers jump and trading volumes soar, spurred by the central bank’s surprise interest rate cut in November.

Volumes have also been boosted by the Stock Connect scheme, which opened the same month, allowing direct trading of Hong Kong and Shanghai stocks on each other’s bourses.

Orient Securities is selling 1 billion shares at 10.03 yuan, it said yesterday in a prospectus posted on the Shanghai stock exchange website, making it the largest IPO in China since Sinohydro Group Ltd raised US$2.11 billion in September 2011.

The funds will be used for working capital purposes and to expand business, among other things.

China has stepped up the pace of listings this year in an attempt to temper the country’s red-hot stock market, which gained over 40 percent in the fourth quarter last year.

Orient Securities’ IPO price gave it a price-to-earnings ratio of 22.98 times its 2014 profit on a diluted basis, far lower than an industry average of 76.17 times for the month up to March 6, according to the firm’s prospectus.

Orient Securities operates a joint venture with Shanghai-Citigroup Global Markets Asia, according to the JV’s website.

Everbright Securities Co Ltd is underwriting the IPO. Reuters

12 | Business Daily

March 11, 2015

Asia Indonesia retail sales grow Indonesia’s annual retail sales in January grew at a much faster pace of 10.4 percent bolstered by information and communication equipment as well as food, beverages and tobacco, a Bank Indonesia survey showed yesterday.

January’s retail sales were faster than December’s 3.3 percent growth, which was revised from an initial 4.3 percent.

The 650 retailers in 10 major cities surveyed said they expected annual retail sales growth in February would continue to accelerate. The survey also showed that price pressures in the next three months would ease on the smoother distribution and supply of goods.

Vietnamese brokerages raise funds to build war chest They will likely raise a total of US$340 million in the two years ending this December

No lift for Aussie business confidence A measure of Australian business confidence fell to its lowest since late 2013 in February as a cut in interest rates seemingly failed to dispel uncertainty over the economy and government policy. National Australia Bank’s monthly survey of more than 400 firms showed its index of business confidence dropped three points to zero in February, even as its measure of business conditions held steady at +2.

The drop would be a disappointment to the Reserve Bank of Australia (RBA) which cut rates to record lows of 2.25 percent early in February in part to help revive “animal spirits” in the business community.

S. Korean dept. store sales rebound Sales at South Korea’s top department stores rebounded sharply in February from the previous month, government estimates showed yesterday, reflecting this year’s change of timing for the Lunar New Year holiday. Combined sales last month at department stores run

by Hyundai Department Store, Lotte Shopping and Shinsegae Co rose 7.1 percent from a year ago, the finance ministry said. This was the fastest gain for department store sales since a 10.5 percent rise seen in August last year and compared to a 11.0 percent drop in January, which was the steepest contraction on record.

NZ infant formula threatened New Zealand police said yesterday that a threat had been made to contaminate infant formula as a protest against the use of an agricultural pesticide.

A trading halt was placed on shares in Fonterra, the world’s largest dairy exporter. Shares in smaller dairy firms A2 Milk and Synlait Milk were also suspended. Anonymous letters had been sent to a national farmers’ group accompanied by contaminated packages of infant formula, with a threat of contamination unless use of the poison known as “1080” ceased by the end of March.

B

ig brokerages, flush with profits from a banner year, are busy amassing a financial war chest for investment in Asia’s fastest-growing stock market and in preparation for a wave of borrowing from local margin traders.

The main VN index has risen 33 percent in the past two years, supported by Vietnam’s low inflation, economic growth, promises of finance reforms and plans to “equitize”, or privatise, hundreds of state firms.

The gains have rewarded the top 12 brokerages, which posted an average

81 percent jump in net profit last year.

Nine of the 12 brokerages that Thomson Reuters spoke to have either raised funds through stocks and bonds or are planning to venture into the capital markets in the months ahead. They will likely raise a total of US$340 million in the two years ending this December, according to company estimates compiled by Thomson Reuters. “Our goal is to stay in the top 10 and to increase our market share. We also expect liquidity to be solid,” said Nguyen Hoang Thien Truc, general manager

of Maybank Kim Eng Securities in Vietnam.

Vietnam’s brokerages are racing to secure a bigger foothold in the highly competitive sector as the government moves to upgrade the stock market to emerging from frontier status, lift restrictions on foreign holdings, and merge the Ho Chi Minh Stock Exchange and the far smaller Hanoi Stock Exchange to attract foreign investors and boost liquidity. As of early March, Vietnam had made the most gains among Asian bourses this year, up more than 10 percent.

All of this comes with a health warning. An illiquid market driven by margin lending exposes shares to sharper declines in the event of an external shock. Retail investors missing their margin calls risk sinking into debt. Retail investors also account for most of the market’s deals, and they have tended to be shorter-term investors, selling shares quickly at the first sign of trouble. This means brokerages are vulnerable to volatility in earnings. Foreign investors are not necessarily enamoured by the market either. When state-controlled Vietnam Airlines launched its initial public offering late last year, barely any foreign investor came forward.

Reuters

JG Summit on the lookout for acquisitions The company’s acquisitions would focus on consumptionrelated businesses Neil Jerome Morales

J

G Summit Holdings, the Philippines’ second-largest conglomerate by market value, remains on the lookout for acquisitions following its food subsidiary’s US$609 million takeover of a New Zealand snacks maker, its president said.

“I know our balance sheet and cash flows would support further acquisitions if necessary or if a reasonable one appears,” JG Summit President Lance Gokongwei told Reuters in an interview at his office in Manila yesterday.

The conglomerate is biased toward business it is familiar with, he said. JG Summit subsidiary Universal Robina Corp bought New Zealand Snack Food Holdings, the parent of Griffin’s Foods Ltd in July.

JG Summit, which started as a corn starch producer in 1957, is also involved in the snacks and

beverage, property development, airline, banking and petrochemicals businesses.

Gokongwei said the company would focus on consumption-related businesses that are boosted by low oil prices and higher consumer spending, even as it expanded into power generation and petrochemicals.

“Clearly, we are a very big beneficiary of oil prices going down because oil is 50 percent of my raw material,” Gokongwei said.

JG Summit plans to build an up to 600 megawatts coal-fired power facility south of the capital while its almost US$1 billion naphtha cracker plant will reach full capacity in the coming months, with the project contributing US$800 million to US$1 billion in annual revenues.

For its part, property unit Robinsons Land Corp will open three

new malls this year while the office segment’s gross leasable area will climb to more than 400,000 square metres (sqm) in two years from the current 275,000 sqm, Gokongwei said.

Cebu Air Inc, operator of the country’s largest budget carrier Cebu Pacific, is taking delivery of 37 new Airbus aircraft until 2021 while selling old and gas-guzzling models, he said.

On financial services, commercial lender Robinsons Bank will double its capital to 12 billion pesos as it prepares for a long-term expansion programme, Gokongwei said.

JG Summit founder John Gokongwei is ranked by Forbes as the Philippines’ second richest person with a net worth of US$5.8 billion, jumping from fifth place last year.

Reuters

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Business Daily | 13

March 11, 2015

Asia

South Korea to hold rates in March Pressure for the central bank to lower rates has intensified after January factory output declined

C

entral bank is likely to keep interest rates unchanged on Thursday but cut them next month when it revises its forecasts to reflect a more tepid economic recovery than initially expected, a Reuters poll showed.

Twenty-nine of 33 analysts polled said the Bank of Korea would keep its monetary policy rate steady at 2.00 percent for a fifth straight month on March 12.

The remaining four said the central bank would cut the rate to a record-low 1.75 percent.

Out of those who saw a hold this week, however, 19 respondents said the BOK would cut rates in April or some time in the second quarter.

In its last forecast made in January, the Bank of Korea cut this year’s growth projection from 3.9 percent to 3.4 percent, while adding quarterly growth would remain around 1 percent throughout 2015.

“The pressure is on to cut rates.

Data early this month was worse than expected and now the market thinks it’s time for the government and the central bank to do something to boost the economy,” said Oh Suktae, economist at Societe Generale.

“The BOK can’t help but eye when the Federal Reserve will start raising rates. The first half of the year will be the only time when the BOK will be able to cut.”

KEY POINTS 29 out of 33 analysts see rate on hold on Thurs 19 out of 29 analysts see rate cut in Q2 2015 Bank of Korea reviews policy on March 12

In the Reuters poll, only one brokerage forecast the central bank would hike rates later this year after holding them steady while six respondents saw the bank keeping rates unchanged for the rest of the year.

Pressure for the central bank to lower rates has intensified after January factory output declined at the fastest pace since December 2008, although the government downplayed the weakness as temporary.

Exports have also been wobbly as shipments suffered their worst fall in two years in February, while on a yearly basis they have been unable to recover to double-digit growth rates seen through most of the years from 2000 to 2011.

The recent weakness has led to forecast downgrades at brokerages, with Nomura yesterday trimming its 2015 growth forecast to 2.5 percent from an already below-consensus 3.0 percent.

The finance minister also has recently started speaking up about the weak economy, adding more should be done to boost activity.

The government was widely seen as influencing the central bank when it began its easing cycle in July 2012, and especially after incumbent Finance Minister Choi Kyung-hwan took office in July last year.

Reuters

Long-term investors help Japanese shares Last month, both the Nikkei and the Topix rose above their respective 2013 peaks in dollar terms Tomo Uetake

J

apan’s stock markets are again attracting foreign investors, and there are signs some of them will park their money for a long time rather than a brief stay.

When the Japanese market rallied in early 2013 on excitement about new Prime Minister Shinzo Abe’s reflationary thrust, that was driven by speculators such as hedge funds.

As Abenomics lost its lustre, many foreign investors moved off.

The latest influx involves some money managers with a long-term investment time frame. This gives some hope that Japan, whose stock market has been one of the world’s choppiest, could see a “serene” rally - steady gains without sharp volatility and abrupt reversals.

While investors are not convinced if Abe’s reforms will boost corporate Japan’s productivity, they have some reasons to be optimistic, such as possible rises in wages and consumption.

“Today the market reflects higher earnings due to a strong global economy, a weaker yen, the hope of further reform from Abenomics and some evidence of better corporate governance,” said Robert Taylor, partner and portfolio manager at Harris Associates, a Chicago-based mutual fund manager.

During 2014, according to exchange data, foreigners were net

Japanese stock market is less driven by speculators than in the past.

Reduced volatility

sellers of 337 billion yen (US$2.79 billion) of futures in the Nikkei and the Topix. Last month, they were net buyers of 2.386 trillion yen - which Daiwa Securities analyst Shingo Kumazawa says was the largest monthly amount since the brokerage began keeping such records in 1997.

The preferred market What caught market players’ attention was not just the volume of foreign February purchases, but that a large amount of the funds were invested in Topix, rather than Nikkei, futures.

So far this year, the Topix is up 8.8 percent, compared with a 5 percent drop in the same period of 2014.

Many long-term investors prefer the Topix to the Nikkei, as the latter gives disproportionately heavy weighting to a handful of companies whose shares have high prices, such as Fast Retailing.

So when foreigners in February were net buyers of 1.471 trillion yen in Topix futures, smashing November 2014’s monthly record of 979 billion yen, that was seen as a signal longterm investors had stepped up their market participation.

Market players said some of the buying in the Topix futures likely came from major “real money” investors, such as sovereign wealth and pension funds.

The options market provides further evidence that the overall

Implied volatilities, or the level of choppiness investors expect, have been falling, with the Nikkei volatility index flirting with five-month lows around 19 percent.

“When hedge funds buy, they typically buy call options. So the fact that implied volatilities are not rising shows that the latest rally is driven by long-only investors rather than hedge funds,” said Naohide Une, managing director and head of equity derivatives trading at Goldman Sachs.

He also said that the way implied volatilities of all tenors of options are falling “suggests that markets are pricing in a serene rally”.

Falling volatility, by itself, could encourage long-term foreign investors to invest in Japanese shares, whose frequent past volatility has cut their attractiveness.

At the same time, the returns in Tokyo for dollar-based investors have been increasing.

Last month, both the Nikkei and the Topix rose above their respective 2013 peaks in dollar terms.

So far this year, Topix has gained 7.6 percent in dollar terms, handily beating the 0.6 percent rise for the S&P 500.

Reuters

14 | Business Daily

March 11, 2015

International UK retail sales growth holds steady British retail spending kept shops busy in what is normally a quiet month in February, suggesting a plunge in inflation has given consumers a boost, an industry survey showed yesterday.

The British Retail Consortium said retail spending was 1.7 percent higher last month than in February last year, speeding up a touch from a 1.6 percent rise in January. In February 2014, when bad weather added to the usual slowdown in shopping, sales rose 0.7 percent. The survey adds to other signs that Britain’s consumers are feeling more confident.

Credit Suisse to replace CEO

Long-standing Credit Suisse boss Brady Dougan is set to quit as chief executive of the Swiss bank and will be replaced by Prudential head Tidjane Thiam, people familiar with the moves told Reuters. Thiam, a former Ivory Coast government minister who has led Prudential since 2009, will become one of the few top insurance executives to transition into banking when he takes charge of Zurich-based Credit Suisse, a global lender reeling from U.S. penalties and under increasing regulatory scrutiny.

Airbus could raise A320 output again

Global deflation threats seen hidden in ECB’s QE Pressure from a rising dollar threatens to rattle emerging markets, undermine U.S. stocks and curb commodities prices

M

ario Draghi’s inflation bomb could prove to be a dud.

That’s because the weakness in the euro resulting from the European Central Bank’s 1.1 trillion euro (US$1.2 trillion) quantitativeeasing program risks being more than offset globally by the deflationary impact of a stronger dollar.

Making that case as the euro trades around its lowest in 11 years against the greenback is David Woo, head of global rates and currencies at Bank of America Merrill Lynch in New York. He’s telling clients that pressure from a rising dollar threatens to rattle emerging markets, undermine U.S. stocks and curb commodities prices.

Here’s how: First, the higher the dollar goes the more likely investors will flee developing nations; that will make their borrowings in the U.S. currency more expensive, damaging their already-shaky outlook for growth.

As Woo notes, the Turkish lira and Mexican peso have both reached or traded near all-time lows against the dollar in the past few days and Brazil’s

The obvious implication is that investors are becoming concerned about the ability of the U.S. economy to cope with the strengthening dollar David Woo head of global rates and currencies Bank of America Merrill Lynch New York

Bloomberg News

Audi 2014 profitability narrows Revenue last year rose 7.8 percent to 53.8 billion euros Christoph Rauwald

Airbus could commit to a new production increase for its A320 jet family before the end of the year, but a final decision depends on its top management and the health of the supply chain, its sales chief said. Sales chief John Leahy made the prediction days after the European plane maker announced plans to raise production from 42 planes a month now to 50 a month in 2017, almost matching a monthly rate of 52 targeted by Boeing for 2018 onwards.

the R8 coming out this year, Audi is revising its best-selling A4 lineup, with the new model to be presented at the Frankfurt auto show in September.

Even as the A4’s changeover is likely to temporarily reduce demand for that model, Audi said it expects to deliver “significantly more” cars in 2015.

A version of the flagship A8 sedan, targeted for rollout in 2017, “will be the first model with which we move from assisted to piloted driving,” Ulrich Hackenberg, Audi’s development chief, said at the press briefing. The division is also preparing a battery-powered SUV with a range exceeding 500 kilometres to go on sale in early 2018, he said.

Equity Bank of Kenya profit up Equity Bank of Kenya reported yesterday a pretax profit of 22.4 billion shillings (US$245.08 million) in 2014, up from 19 billion shillings in 2013. The lender, the biggest in the east African country by the number of depositors, said profit rose due to a rise in net interest income and loan book.

Poland to choose missile supplier Poland plans to choose the supplier for its medium-range missile defence system within the next few weeks, Deputy Defence Minister Czeslaw Mroczek said yesterday. “In the next few weeks we will make the decision regarding the supplier for this system,” Mroczek told reporters. Last year, Poland short-listed a consortium of France’s Thales and European group MBDA, as well as U.S. firm Raytheon, in its tender for a mid-range missile defence system.

real is at its weakest since 2004.

China, which manages the value of its yuan against a basket of other currencies, may be forced to devalue to keep its products cheap in the international marketplace.

Next, because commodities are priced in dollars, the higher the greenback goes the more downward pressure will be applied to oil prices.

Bank of America already says the likelihood is greater that crude falls rather than rises.

Finally, Woo estimates the dollar’s rise is starting to undermine profits at home. U.S. companies in the Standard & Poor’s 500 Index get 40 percent of their earnings from overseas and the index has fallen in 19 out of 27 trading days this year in which the greenback gained.

“The obvious implication is that investors are becoming concerned about the ability of the U.S. economy to cope with the strengthening dollar,” Woo said in a report to clients Monday. “The decline of euro/dollar below 1.10 may be less benign than it may appear at first.”

A

udi AG’s profitability slipped in 2014 as the luxury-car division of Volkswagen AG invested in adding manufacturing capacity and developing new models like the revamped Q7 sport-utility vehicle.

Operating profit narrowed to 9.6 percent of sales last year from 10.1 percent in 2013, Audi said yesterday in a statement. The margin this year will be within the manufacturer’s 8 percent to 10 percent target corridor.

“In 2014, we delivered more than promised,” Chief Executive Officer Rupert Stadler said at a press conference at Audi headquarters in Ingolstadt, Germany. “After a very positive start into the current business year, we’re targeting a new sales record.”

To underpin expansion plans, Audi is spending about 4.8 billion euros (US$5.2 billion) a year through 2019, a 9 percent increase from its previous

rolling five-year budget. With models ranging from the US$18,400 A1 hatchback to the US$165,000 R8 sports car, the world’s second-largest maker of luxury autos is pushing to overtake No. 1 BMW by the end of the decade. Audi’s deliveries in the first two months of 2015 exceeded BMW’s by almost 4,300 vehicles.

Ebit rises Audi’s revenue last year rose 7.8 percent to 53.8 billion euros, while earnings before interest and taxes increased 2.4 percent to 5.15 billion euros. The brand is Volkswagen’s biggest earnings contributor and key to the Wolfsburg, Germany-based company’s goal of overtaking Toyota Motor Corp. as the world’s biggest carmaker.

In addition to the Q7 and standardfuel and electric- powered variants of

VW’s Forecast VW said last month that efforts to increase earnings in 2015 might face economic headwinds in markets including Russia and Brazil. It forecast a profit margin in a range of 5.5 percent to 6.5 percent, compared with 6.3 percent last year.

In the first two months of 2015, Audi’s deliveries rose 7.4 percent to 260,250 autos. While that’s almost twice the projected growth in the global car market this year, Daimler AG’s Mercedes-Benz, the third-largest maker of luxury vehicles, narrowed the gap as sales jumped 14 percent to 246,135 cars. BMW’s two-month deliveries increased 5.7 percent to 255,981.

The profit margin at Mercedes last year amounted to 8 percent of revenue.

BMW has yet to report earnings.

Bloomberg News

Business Daily | 15

March 11, 2015

Opinion Business

wires

The stock-bond disconnect

Leading reports from Asia’s best business newspapers

Kenneth Rogoff

Former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University

THE KOREA HERALD The number of bank branches in South Korea dropped to its lowest level in five years in 2014 in the latest sign that lenders are increasingly focusing on non-contact channels to cut costs, data showed yesterday.

The number of bank branches in the country totalled 7,433 last year, falling by 268 from the previous year, according to the data by the Bank of Korea. It marks the second consecutive year of decline. The on-year fall is mostly attributed to weakening demand for faceto-face service at lenders. Faceto-face transactions accounted for only 11.6 percent of the total last year.

THE TIMES OF INDIA The verdict on what keeps employees engaged with the company is in, and it’s not money. What it reinforces is the cliche that people leave bosses and not companies.

Even as companies try to get it right on all counts, an employee engagement study

by Dale Carnegie reveals a somewhat grim picture in Indian companies. According to the report shared exclusively with TOI, a large section (44%) of the workforce is only partially engaged, while a good 10% is entirely disengaged, leaving a huge scope for improvement on this front.

THE PHNOM PENH POST Due to a lack of funding, the Ministry of Industry and Handicrafts has delayed publishing guidelines that are meant to increase clarity on inspection procedures for small and medium enterprises (SMEs). Expected last year, the standards were intended to cover a range of businessinspection procedures, such as food hygiene and health and safety, to ensure that SMEs were both clear on the law and to protect business from extortion attempts by corrupt inspectors, Cham Prasidh, minister at the Ministry of Industry and Handicraft, said in October.

TAIPEI TIMES The purchasing managers’ index dropped to 47.8 percent last month from 53.5 in January, weighed down by a drastic decline in new orders and production, the Chung-Hua Institution for Economic Research said.

The Taipei-based think tank blamed the retreat squarely on fewer working days last month as a result of the Lunar New Year holiday and the three-day Peace Memorial Day weekend. “Taiwanese manufacturers are generally positive about their business outlook,” CIER president Wu Chung-shu told a news conference.

H

ow should one understand the disconnect between the new highs reached by global equity indices and the new depths plumbed by real interest rates worldwide? Several competing explanations attempt to reconcile these trends, and getting it right is essential for calibrating monetary and fiscal policy appropriately.

The most popular explanations downplay risk factors in a way that can be dangerously misleading. For example, the “secular stagnation” theory claims that low interest rates tell the true story. The global economy is suffering from a chronic demand shortfall, which can be remedied through sustained growth in government spending.

According to this view, soaring stock markets merely reflect low discounting of future profits. Moreover, labour’s share of profits seems to have fallen markedly in recent decades across the world’s eight largest economies, with the possible exception of the United Kingdom. Conversely, capital’s share of profits has been rising, which of course raises the value of equities (though, stock prices have continued to rise in countries like the US and the UK where labour shares have begun at least a cyclical recovery, and where interest-rate hikes may soon be on the horizon).

Proponents of secular stagnation argue that government spending as a share of GDP, which has more than doubled in most advanced economies since the 1950s, should continue to rise. Although one can readily agree that high-yielding government investments in education and infrastructure are especially justified today, the idea that demand permanently

constrains supply in a significant way is dubious. More refined studies of the recent recession suggest that the lasting so-called “hysteresis” effects on unemployment have been limited, at least in the US. Another possible explanation of low interest rates is financial repression. The European Central Bank and the Bank of Japan, like the Federal Reserve before them, are gluttonously buying bonds. At the same time, a host of new regulations to promote financial stability are forcing banks, pension funds, and insurance companies to stock up on government securities.

Thus, today’s low interest rates are more a reflection of distortions in financial markets than of low growth expectations.

Proponents of the financial repression explanation essentially view low interest rates as a hidden tax on bondholders, who receive a lower interest rate than they would otherwise. This is not necessarily a bad thing, given that all taxes are distorting, and that there really is no way to deal with today’s outsize debt burdens that does not impinge on growth in some way.

But the financial repression tax is not nearly as progressive as a more general wealth tax would be, because lower-income households typically have a smaller share of their assets in equities. In any event, it is unclear how financial repression can be the whole story. The fall in bond yields has extended to a far broader range of debt than just government paper.

Other factors are contributing to today’s ultra-low interest-rate environment as well.

Adverse demographics and declining labour-supply growth in most advanced economies are undeniably important. The puzzle, though, is that this trend

Although one can readily agree that high-yielding government investments in education and infrastructure are especially justified today, the idea that demand permanently constrains supply in a significant way is dubious

has played out in a very gradual and predictable way, whereas the decline in interest rates has been more rapid and somewhat unexpected (certainly by central banks). And it is difficult to argue that weak demographics is the main driver of strong stock prices, though some have tried.

Curiously, heightened risk and fears of further disruptions – not just another financial crisis, but also geopolitical instability and pandemics – do not seem to carry much weight in current policy discussions, though the idea has been around.

Though bonds are hardly a

perfect hedge against such risks, they typically beat stocks (except, perhaps, in cases of global conflagration, when both fare badly). In recent work with Carmen and Vincent Reinhart, we show that even relatively minor shifts in disaster risk – say, a rise from a normal 2-3% to 3-4% – can lead to a massive decline in global real interest rates, even taking them well into negative territory. This can be the case even if expected growth is strong.

But the policy implications of this are not straightforward. If the government has superior information and analysis, and correctly assesses that public fear is not justified, then of course it makes sense to take advantage of the information – by issuing more debt, for example.

If, on the other hand, the public is basically right about heightened disaster risks, the policy issues become much more complex. The problem is that the government likely faces high costs if a disaster strikes, which implies a high option value to preserving fiscal space for when it is most needed.

The idea that hyper-low interest rates are merely symptoms of deficient demand or financial repression is dangerously simplistic. Surely heightened public concern about the risk of future economic catastrophe in the wake of the financial crisis is still playing an important role, reinforced by lingering fragility in the eurozone and rising instability in emerging markets. This makes the public understandably more cautious. But if the risks that might help explain the price trends for stocks and bonds are real, policymakers, too, should be careful not to throw caution to the wind.

Project Syndicate

16 | Business Daily

March 11, 2015

Closing E-commerce law to have draft version before 2016

China adds 10.6 GW solar capacity in 2014

A draft of China’s first e-commerce law will be completed by the end of 2015 for further deliberation by the top legislature in 2016, a lawmaker said yesterday during a press conference on the side-lines of China’s annual parliamentary session. Yin Zhongqing, deputy director of the National People’s Congress Financial and Economic Affairs Committee, which is tasked with drafting the e-commerce law, said the main purpose of the law is to spur innovation and competition while taking into account regulation, since e-commerce is still flourishing. Yin said the law will include provisions for an honest trade environment.

China added 10.6 gigawatts (GW) of photovoltaic (PV) power capacity in 2014, accounting for one fifth of the world total, the National Energy Administration (NEA) said. China’s cumulative installed capacity for solar PV power reached 28.05 GW by the end of 2014, up 60 percent year on year, according to NEA figures. Of the cumulative installed capacity, 23.38 GW came from solar power stations and 4.67 GW from distributed solar projects, said the NEA. China has been working to increase its share of non-fossil fuels in the power matrix, including hydropower, wind power, solar power and nuclear power.

CIA sought to hack Apple iPhones from earliest days

Efforts to break into Apple products by government security researchers started as early as 2006

Eric Auchard

C

IA researchers have worked for nearly a decade to break the security protecting Apple phones and tablets, investigative news site The Intercept reported yesterday, citing documents obtained from NSA whistle-blower Edward Snowden.

The report cites top-secret U.S. documents that suggest U.S. government researchers had created a version of XCode, Apple’s software application development tool, to create surveillance backdoors into programs distributed on Apple’s App Store.

The Intercept has in the past published a number of reports from documents released by whistle-blower Snowden. The site’s editors include Glenn Greenwald, who won a Pulitzer Prize for his work in reporting on Snowden’s revelations, and by Oscarwinning documentary maker Laura Poitras.

It said the latest documents, which covered a period from 2006 to 2013, stop short of proving whether U.S. intelligence researchers had succeeded in breaking Apple’s encryption coding, which secures user data and communications.

Efforts to break into Apple products by government security researchers started as early as 2006, a year before Apple introduced its first iPhone and continued through

I want to be absolutely clear that we have never worked with any government agency from any country to create a backdoor in any of our products or services Tim Cook Apple’s CEO

the launch of the iPad in 2010 and beyond, The Intercept said.

Breeching Apple security was part of a top-secret programme by the U.S. government, aided by British intelligence researchers, to hack “secure communications products, both foreign and domestic” including Google Android phones, it said.

S ili co n Va l l ey tech n o l o g y companies have in recent months

sought to restore trust among consumers around the world that their products have not become tools for widespread government surveillance of citizens.

Last September, Apple strengthened encryption methods for data stored on iPhones, saying the changes meant the company no longer had any way to extract customer data on the devices, even if a government ordered it to with a search warrant. Silicon Valley rival Google said shortly afterward that it also planned to increase the use of stronger encryption tools.

Both companies said the moves were aimed at protecting the privacy of users of their products and that this was partly a response to wide scale U.S. government spying on Internet users revealed by Snowden in 2013.

An Apple spokesman pointed to public statements by Chief Executive Tim Cook on privacy, but declined to comment further.

“I want to be absolutely clear that we have never worked with any government agency from any country to create a backdoor in any of our products or services,” Cook wrote in a statement on privacy and security published last year. “We have also never allowed access to our servers.

And we never will.”

Leaders including U.S. President

Sony’s PS4 China debut set for March 20

S.Korea to ‘punish’ firms that bow to North

S

outh Korean companies will be penalised if they yield to pressure from North Korea to raise the salaries of workers in their joint Kaesong joint industrial complex, Seoul officials said yesterday.

Seoul has been seeking talks for several weeks since Pyongyang announced it planned to unilaterally raise the basic salary of the 53,000 North Korean workers employed across more than 100 South Korean firms operating in Kaesong.

The move would increase the average monthly sum the South pays for each worker -- including allowances, welfare and overtime -- from US$155 to US$164.

The South has rejected the idea, citing an existing agreement that any wage rise had to be agreed by a joint committee overseeing the management of the complex, which lies just over the border in North Korea.

The North has refused to engage in dialogue with the South over the issue.

The South’s unification ministry, which handles cross-border affairs, said yesterday the firms in Kaesong would face “legal and administrative punishment” if they agree to raise wages.

AFP

S

ony Corp. will release its PlayStation game consoles in China March 20, ending two months of uncertainty after sales were put on hold to accommodate changes sought by the Chinese government.

The PlayStation 4 will sell for 2,899 yuan (US$463) and the handheld PlayStation Vita will cost 1,299 yuan, Tokyo-based Sony said in a statement yesterday. The company had originally planned to sell the devices from January 11.

Sony and Microsoft Corp. are entering China after the end of a government ban imposed in 2000, and are now targeting a generation of players who have shifted to computers and mobile devices. PS4, which is leading the current generation of consoles with 20.2 million units sold, is key to Chief Executive Officer Kazuo Hirai’s plan to raise profit to the highest level 1998 in three years.

The PS4 and PSP will be introduced with games including versions of Square Enix Holdings Co.’s Final Fantasy, as well as other titles including Knack and Rayman Legends, Sony said yesterday.

Bloomberg News

Barack Obama and British Prime Minister David Cameron have expressed concern that turning such privacy-enhancing tools into mass market features could prevent governments from tracking militants planning attacks.

The CIA did not immediately reply to a request for comment.

Reuters

Twitter opens office in Hong Kong

T

witter has opened a Hong Kong office, its first in the Greater China region, the company whose micro blogging services are blocked on the mainland said yesterday.

The office, to be headed by Twitter executive Peter Greenberger, will allow the San Franciscobased company to tap China for advertising revenue, the company said, even if Internet users on the mainland cannot see those ads.

Twitter collected US$479 million in fourthquarter revenue from advertisers who paid to inject their ads, known as “promoted tweets”, into Twitter users’ timelines. The company has 288 million users worldwide.

China’s censors have blocked Twitter’s microblog since 2009 along with U.S. social media platform Facebook and YouTube.

Beijing officials say this censorship is necessary to maintain social order. Twitter was credited with helping fuel the popular uprisings in the Middle East and has maintained a stridently pro-free speech stance to the extent that it has attracted international criticism for failing to police sexist and racist abuse.

Reuters