Macau business daily, Mar, 31, 2015

MOP 6.00 Closing editor: Joanne Kuai Publisher: Paulo A. Azevedo Number 760 Tuesday March 31, 2015

Fiscal reserves review L

Year III

ooking for better returns. Secretary for Economy and Finance Leong Vai Tac says the gov’t is planning to invest in new projects. China Development Bank and Guangdong Province are the likely vehicles. This would be prior to the foundation of the sovereign wealth fund suggested by the Chief Executive. An amendment to the budget framework law will enter legislating procedures this year. The gov’t will also scrutinise gaming concession plans. And is pushing for a verifiable promotion scheme for locals PAGE

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Ironic arraignment It’s a Wonderful World. But not always. The founding operator of the ‘Wonderful World’ website has found himself on the wrong side of the law. Having ‘named and shamed’ Macau casino gambling debtors, he also has charges to answer. He faces a court hearing on April 16 for violating local data protection laws

Galaxy brightening

Page 2

GEG is hopeful. In January and February, Galaxy Entertainment Group generated 26 pct of total VIP revenues.

From some US$3.2 billion (MOP25.5 billion) according to Deutsche Bank. Its mass market take is lagging. But GEG’s new properties opening in May could change all that

Page 5

What goes around...

Mainland tourists are turning their backs on Hong Kong. With a plunge of 80 pct reported last month in the neighbouring city. Local harassment is cited as the overarching reason. The retail trade is having a rethink. As are landlords faced with demands for cheaper rentals

HSI - Movers March 30

Name

Bumpy ride

A disastrous year for profits. City flag carrier Air Macau Co. Ltd. plunged 51 pct Y-o-Y to 106 million yuan (US$17 million) in 2014.

The airline’s management attributes the rough ride to increasing competition among PRD airports. And price wars. A majority of the 22 city destinations it serves are in Mainland China Page 4

www.macaubusinessdaily.com

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%Day

Hong Kong Exchanges

7.94

China Merchants Hold

6.21

China Life Insurance

5.42

China Shenhua Energy

4.89

China Overseas Land

4.21

CLP Holdings Ltd

-0.15

Tingyi Cayman Island

-0.47

HSBC Holdings PLC

-0.59

China Resources Powe

-1.03

Link REIT/The

-1.34

Source: Bloomberg

I SSN 2226-8294

Brought to you by

Angela Leong: Canidrome’s historical value shouldn’t be forgotten

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CEM’s net profit in 2014 reached MOP608 million

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Paradise Entertainment posts 36 pct decline in 2014 profit

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Bonjour profits dive 17 pct in 2014

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2015-3-31

2015-4-1

2015-4-2

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2 | Business Daily

March 31, 2015

Macau Macau IFT director receives PATA award Dr. Helena Lo, an alumna of the Institute for Tourism Studies, Macau (IFT) and Director of Pousada de Mong Há – Educational Hotel of IFT, was honoured by the Pacific Asia Travel Association (PATA) with the 2015 PATA Face of the Future Award on 18 March, 2015. Founded in 1951, the Pacific Asia Travel Association (PATA) is a not-for profit association that is internationally acclaimed for acting as a catalyst for the responsible development of travel and tourism to, from and within the Asia Pacific region.

Operator of ‘Name & Shame’ casino debtors website arraigned The operator of the debtors’ blacklist website is being sued by the government for violating personal data protection laws Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he operator and founder of the ‘Wonderful World’ website that names and shames Macau casino gamblers over bad debts faces a court hearing next month for violating local data protection laws, Business Daily has learned.

The website 99world.com - branded ‘Wonderful World’ - discloses debtors’ personal information including their photograph, name, nationality and the amount of debt owed to the casinos.

The website, launched in August 2013 and originally in Chinese and English, is now only available in Chinese and remained operational as of yesterday despite local police ordering it be taken down since last year.

The founder and operator of the name-and-shame website, Charlie Choi Kei Ian, is to face the first hearing of a lawsuit on April 16, with authorities charging him with violating the data protection laws, Mr. Choi told Business Daily during a phone enquiry.

Mr. Choi, however, declined to comment further on the operation of Wonderful World and the lawsuit.

Choi was ordered by police in March and April last year to remove all personal data from his Internet site listing personal information about delinquent gamblers. He received a letter in August that indicated possible criminal consequences if he did not follow the earlier order issued by the police.

After more than half a year of investigation, Judiciary Police arrested Mr. Choi in early April last year for alleged ‘failure to comply with the obligation to protect personal data’, which falls under Article 37 of the data protection laws.

Under the Article, an offender can be imprisoned for a maximum of one year or fined up to MOP1.2 million (US$150,249).

Lai Changtu, a younger brother of Yuanhua Group founder Lai Changxing, jailed for life for smuggling and bribery, will be among six witnesses summoned to Choi’s case, Hong Kong’s Chinese-language newspaper Hong Kong Economic Journal reported yesterday.

Angela Leong: Canidrome’s historical value shouldn’t be forgotten

No progress on visa-free entry to North America

T

Source: DICJ

he government is considering amalgamating Macau’s horse and greyhound racetracks.

Chief Executive Fernando Chui Sai On mooted this in response to a suggestion

by Assembly member Lam Heong Sang that the government build community facilities on the site now occupied by the dog track, the Yat Yuen Canidrome.

Macau (Yat Yuen) Canidrome Co. Ltd. owns the track. The company’s greyhound racing concession expires on October 31. Managing director and deputy president of the company, Angela Leong, said its historical value shouldn’t be forgotten.

“If the government talks with us about the future development (of the

Canidrome) I believe there’s a lot of room for discussion”, said Angela Leong. “But we shouldn’t forget about the history. The Canidrome contributed a lot to Macau’s economy back in the day.”

Angela Leong added that they have not started discussing renewing the concessions with the government yet, and even if the horse and greyhound racetracks were to be combined many technical issues would need to be resolved. The management of the Canidrome has also pointed out the non-casino gaming sector’s role in diversifying Macau’s tourism offerings.

“The historical value of the Canidrome resembles that of the

D Lisboa Hotel. It’s part of all Macau people’s memory. We would like the government to consider its tourism value before taking any decision,” said director and president of the executive committee of the Canidrome, Ng Chi sing. “Even though its contribution to Macau’s gaming revenues is insignificant it helps to diversify the gaming culture here in Macau. “ Greyhound racing at the Macau Canidrome generated gross revenue of MOP306 million in 2014, 16 per cent less than the year before, according to the latest data from the Gaming Inspection and Co-ordination Bureau (DICJ). The figures also reveal that it takes 0.87 per cent of the total gross revenue from different gaming activities in Macau.

J.K.

irector of Identification Bureau (DSI) Ao Ieong U said the United States and Canada were not willing to give Macau passport holders visa-free access despite the DSI meeting with the authorities of the two countries in an effort to reach an agreement.

The director told local broadcaster TDM yesterday morning that the US authorities only consider granting visa-free access to national passport holders, but not to regional passport holders such as Macau residents.

In addition, the director claimed that the reject rate of Macau passport holders applying for visas to the US and Canada does not meet the requirements of the two countries regarding the granting of visa-free access. She said that the required reject rate for visa-free access to America should be less than 3 per cent, while that in Canada should be lower than 4 per cent for three consecutive years.

Currently, some 114 countries grant visa-free or visa-on-arrival to Macau passport holders.

Business Daily | 3

March 31, 2015

Macau Travelex money exchange officially closed in Macau Permission for the world’s largest foreign exchange specialist Travelex Ltd. to operate money exchange services in Macau has been officially terminated by the government, the Official Gazette announced yesterday. In fact, an Official Gazette in January of this year indicated that Travelex had already closed their business in the MSAR on July 31, 2014. The first Travelex Ltd. counter in Macau opened in 2012 In AIA Tower. Currently, the city is serviced by 11 foreign exchange companies.

Gov’t eyeing new investments via China Development Bank Kam Leong

kamleong@macaubusinessdaily.com

T

he government is seeking to invest in projects through the China Development Bank and Guangdong Province to increase the return rate of the city’s fiscal reserve investments. These investments will be made prior to the establishment of the proposed Investment Development Fund, Secretary for Economy and Finance Leong Vai Tac revealed yesterday.

“Our return rate of investment from fiscal reserves was only 2 per cent last year, due to the change of exchange rate of the Chinese renminbi.

Currently, we are discussing with the China Development Bank how to invest in projects via The Fund for Development Co-operation between China and the Portuguese-speaking Countries,” the Secretary said, assuring that the investment in the Chinese bank will be secure as it would protect the capital and guarantee the interest gained.

In addition to the Development Bank, the government is looking for similar investment opportunities in Guangdong Province, Mr. Leong said.

However, he indicated that the return rate from the future investment projects in the two parties would not be as high as Macau’s inflation rate of 6.05 per cent last year. Claiming the return rate from the Development Bank is still under negotiation, the Secretary said that the return rate from projects in Guangdong Province may reach between 4 and 5 per cent.

In fact, such investment plans may be perceived as a way of increasing the city’s revenues prior to the foundation of the Investment Development Fund suggested

by Chief Executive Fernando Chui Sai On in his Policy Address. A so-called sovereign wealth fund could only be established after amending the current related law, according to Mr. Leong.

“Based on our current law on fiscal reserves, we don’t have an upper limit for excess reserves… As such, we have to amend our current law to set such a cap amount for the excess reserves. Only after that can we decide how much we would put into the Investment Development Fund or grant for public benefits,” the Secretary claimed.

Legislation amending budget framework law by 2015 Meanwhile, Secretary Leong revealed that the amendment of the budget framework law, which seeks to list all the budgeted expenditure on major infrastructure projects and investment plans here, will be passed for legislation

procedure by the end of this year.

The amendment to the law will regulate that the over-budget of the total expenditure of the government will need approval from the AL, in addition to prohibiting budgets to be transferred between government departments, and between different items, according to the Secretary.

In addition, the bill will also require that the investment budgets for large scale infrastructure projects should identify each item and its purpose individually, categorise the items by years, and indicate the estimated effectiveness of the projects.

Furthermore, an interim report of the budgets will have to be submitted to the AL every July in order to increase the transparency of the execution rate of the budgets, the Secretary said, claiming that the city’s autonomous bodies will also have to regularly announce their execution of the budget.

According the Mr. Leong, the Financial Services Bureau (DSF) has already finished the draft of the amendment of the law. The draft will be sent

to the Commission of Audit and other legal departments for internal consultation during the second quarter of this year, while public consultation sessions will be conducted during the third quarter.

Gaming corporations to submit contractexecution reports Mr. Leong also indicated during his presentation that he is to require the city’s gaming operators to submit information on their execution of their gaming contracts, and their investments in developing non-gaming elements in the city.

He said that the information will be taken into consideration for granting new gaming tables, as well as for the interim review of the gaming industry.

In addition, the Secretary claimed that the government is urging the gaming corporations to establish a promotion scheme for local gaming workers, with proposals and timeframes to be submitted to the government this year as well.

CEM’s profit growth Corporate continues slowing in 2014 GEG invites

C

ompanhia de Electricidade de Macau - CEM, S.A. (CEM) announced that in 2014 total gross consumption reached 4,677 GWh, representing an increase of 6 per cent compared to 2013. The peak demand was 845 MW. The net profit in 2014 was MOP608 million (US$76.1 million), which is 4.6 per cent increase compared to 2013.

The electricity supplier made a net profit of MOP581 million in 2013, some 6 per cent more than in 2012.

In 2012, its net profit was 14.4 per cent bigger than the year before.

The company explained that despite the plunge in oil price at the end of last year, it was still relatively high for the whole year of 2014, with its average price seeing an increase of 3.6 per cent compared to 2013.

In addition, the price of imported electricity increased by about 1.6

per cent due to the appreciation of the renminbi.

The CEM annual general meeting was held yesterday at CEM Building where the 2014 Annual Report was approved. The company says the capital investment of CEM was MOP743 million in 2014, of which MOP539 million was spent on the upgrade and expansion of the transmission and distribution network.

It added that with the approval of the Macau SAR Government, CEM continued to maintain stable tariffs and offer TCA discounts of up to 18 per cent to 22 per cent for all Tariff Group A customers, accounting for 99 per cent of total customers. They were mainly residential customers as well as small and medium enterprises.

The total subsidy reached MOP142 million in 2014.

local SMEs to Broadway Macau

In order to enhance the partnership with small and medium-sized enterprises (SMEs), Galaxy Entertainment Group (GEG) has invited local SMEs in the sectors of retail and food and beverage to open outlets in Broadway Macau. The new project will have its grand opening on May 27, following over HK$5 billion in investment.

Owners and representatives of more than 20 co-operating brands attended the launch ceremony, marking a new milestone in the co-operation between gaming operators and local SMEs. Mr. Francis Lui, Vice Chairman of GEG, said: “Looking back at Macau ten, twenty years ago, there were many distinctive small stores full of character. Striving to retain these traditional characteristics of Macau, we hope to spur the growth of small and medium-sized enterprises and share the fruits of economic success through the healthy diversification of the gaming industry.”

4 | Business Daily

March 31, 2015

Macau

Air Macau profit plunged 51 pct last year Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he city’s flag carrier Air Macau Co. Ltd., a subsidiary of state-owned Mainland China operator Air China Ltd., saw its profit after tax for 2014 tumble 51 per cent year-on-year to 106 million yuan (US$17 million or MOP136 million) as the pace of growth of its aviation and transport business slowed in the period.

Air Macau’s revenue generated by its aviation and transport business

grew 3.85 per cent last year to 2.64 billion yuan, a sharply decelerated pace when compared to the 9.27 per cent growth seen in the previous year, according to Air China’s annual results filed with Shanghai Stock Exchange.

The flag carrier’s revenue passenger per kilometre (RPK), a measure of sales volume of passenger traffic, climbed 17 per cent to 3.52 billion yuan during last year. Passenger load

factor has edged up a minimal 0.29 percentage points to 68.2 per cent.

The airline’s revenue tonne per kilometre (RTK), a measure of revenue generated by tonnes of cargo carried multiplied by distance flown, increased by 17 per cent to 24 million yuan.

Air Macau experienced a rougher ride in its net profit in the first half of last year, posting a 74.4 per cent year-on-year plunge to 21 million

The flag carrier, which saw its profit fall by nearly 5 per cent in 2013, advised of a further drop last year, the latest filing from its parent Air China reveals

yuan; nevertheless, results turned around in the second half, the airline’s chairman, Mr. Zheng Yan, told reporters at a company event on March 17.

The Air Macau boss referred to increasing competition among the airports operating in the Pearl River Delta given improved land and sea transportortation networks, which in turn pressured the airline’s profit. Air Macau also had to face the downward adjustment of its flight fares to remain competitive in the market.

The airline operated 23 routes last year, which is two more when compared with the previous year. A majority of the 22 city destinations that the airline flies to are located in Mainland China.

The airline’s chairman noted that the company would develop more regional routes this year such as Bangkok and Vietnam as well as major cities in South Korea and Japan.

Air Macau introduced two new aircraft to its fleet last year, making it a total of 16 aircraft. The average age of the airline’s fleet is 11.16 years.

Air China holds 66.9 per cent stake in Air Macau, the parent company noted in its filing.

McMacC o. Ltd. (McDonald’s Macau)

26th March Advertisement.indd 1

3/26/2015 3:07:21 PM

Business Daily | 5

March 31, 2015

Macau Drafted amendment for advertising law submitted in April Secretary for Economy and Finance Leong Vai Tac said the draft for amending the city’s law regulating advertising activities will be submitted in April this year. Responding to legislator Chan Meng Kam’s enquiry yesterday on the city’s illegal gaming advertisements at the Legislative Assembly, the director of the Economic Services Bureau (DSE), Sou Tim Peng, revealed that the Bureau had handled a total of 359 cases of illegal gaming ads from January 2015 up to yesterday, of which more than half were posted on the panels of buses and taxis, while outdoor ads accounted for 47 cases of the total. In addition, he indicated that the government had removed some 63 ads, including an outdoor ad at the Border Gate.

Uptick in Galaxy VIP revenue, eye on mass market In 2014, Galaxy emerged as the strongest player in the VIP market, with the trend continuing into this year. While its mass market take has lagged, GEG openings in May could boost its fortunes João Santos Filipe

jsfilipe@macaubusinessdaily.com

G

alaxy Entertainment Group is becoming stronger in terms of revenue in the VIP segment, according to the latest report

by Deutsche Bank. Last year, the group founded by Lui Che Woo overtook SJM Holdings in terms of the revenues from this segment, which is part of the reason its market share has approached those of the main players: SJM and Sands China. This year, the gap at the top of the board is widening.

In the two months January and February Galaxy Entertainment Group generated 26 per cent of the revenues of the VIP segment (US$824 million / MOP6.6 billion) totalling around US$3.2 billion (MOP25.5 billion) according to the calculations of the German bank. For the whole year of 2014 in the VIP segment Galaxy occupied some 24.6 per cent, which means it is improving its results.

In relation to the top end of the market, SJM is going through a

different cycle with its market share shrinking. While for the whole of 2014 the group founded by Stanley Ho Hung Sun had a 23 per cent slice of market share, for the first two months of this year its share was reduced to 21 per cent, for around US$665 million (MOP5.3 billion) of the total VIP revenue generated.

For its part, Melco Crown seems to have found the Midas touch during the first two months of the year. After accumulating a share of 14.2 per cent in 2013, last year that share was reduced to 13 per cent. According to Deutsche Bank, however, the group controlled by Lawrence Ho Yau Lung and James Packer boosted its share of the market to 18.3 per cent in just two months. From the total cake of US$3.2 billion the group that owns City of Dreams generated US$580 million (MOP4.6 billion).

With regard to the VIP segment, however, the bad news for every player is that this segment alone dropped 40.3 per cent year-on-

year during the first two months of the year.

Galaxy goes all out in May The consolidated position of Galaxy in terms of the VIP segment comes at a time when the group is preparing to increase its mass market capacity with the opening of Galaxy

Macau Phase II and Broadway at Galaxy Macau on May 27. These resorts arrive at a time when the Macau gaming industry is becoming more mass market focused.

Galaxy has been lagging behind in the mass market segment in recent years. From 2013 to last year, the share of the group in this segment went from 15.5 per cent to 15.1 per cent. However, this year has been kinder to Galaxy and since January it has managed to increase its slice of the mass market to 16.4 per cent (US$368.5 million / MOP2.9 billion) from the total cake of US$2.2 billion (MOP17.9 billion). Galaxy continues to be the third force in terms of market share behind Sands China (31.6 per cent/US$710 million) and SJM (24.5 per cent / US$551 million).

While the mass market has shrunk 26.1 per cent in the first two months of the year, the good news for Galaxy is that second place in terms of the all-market share can be transformed into a comfortable first place, in front of SJM, with the extended capacity of Phase II of Galaxy and Broadway.

Market Share (January and February 2015) Overall Market

VIP Market

Mass Market

Galaxy

22.0%

26.0%

16.4%

SJM

22.5%

21.0%

24.5%

Sands China

21.7%

14.7%

31.6%

Melco Crown

14.6%

18.3%

9.4%

MGM

9.6%

10.6%

8.2%

Wynn

9.6%

9.4%

9.9%

Source: Deutsche Bank

Paradise Entertainment posts 36 pct decline in 2014 profit

H

ong Kong-listed gaming equipment maker Paradise Entertainment Ltd. said its profit for 2014 dropped by nearly 36 per cent year-on-year to HK$66.54 million (US$8.58 million) in a period where the firm said it was operating in a ‘challenging working environment’ with a lack of new casino openings.

‘Reasons for the reduced profit were the full year impact of Waldo Casino which was loss-making, the

initial overheads of Casino Macau Jockey Club, as well as the higher amortisation from the acquisition of patent and patent applications in the U.S. completed in June 2013,’ Paradise Entertainment said of its profit decline in its annual results filing.

Paradise Entertainment’s subsidiary LT (Macau) Ltd. started to provide services including ‘sales, marketing, promotion, player development and referral’ to Waldo

Casino (licensed under Galaxy Entertainment Group) on the Macau Peninsula last year. The Hong Konglisted firm has also started provision of the said gaming services to Casino Macau Jockey Club (licensed under Sociedade de Jogos de Macau S.A.) last year while offering the venue live multi-game terminals, e-baccarat tables and slot machines.

In the filing, Paradise Entertainment said it is opening slot halls in Waldo

Casino and Casino Macau Jockey Club this year, following the installation of 172 extra slot machines in Waldo Casino in December and 84 slots in Casino Macau Jockey Club.

Paradise Entertainment’s revenue for 2014 rose by 15.7 per cent yearon-year to HK$1.19 billion, where the increase is mainly attributable to Casino Kam Pek Paradise, which grew by 16 per cent, the firm said.

S.L.

6 | Business Daily

March 31, 2015

Macau Brands

Trends

Watch your Swatch Raquel Dias newsdesk@macaubusinessdaily.com

W

hen I was a kid, there was nothing I loved receiving more than a Swatch. Back then, having a colourful, often plastic (but not always) new watch was as good as it got. Their average price in those days was something like MOP250-450, unless you were buying from the ‘Iron’ collection and you wouldn’t do that unless you were splashing out on your boyfriend.

The brand first appeared in 1983 when it fought the market tendency to go digital. Swatch, a Swiss company, chose its name to underscore its ‘Second Watch’ positioning. They took the world by storm by merging the durable quartz movement with a playful style and synthetic materials. In 1985, the watch was officially turned into an actual art piece with the launch of Swatch Art Special, a series of collaborations with world famous or up-andcoming artists.

If, however, I was thinking my fairly large collection of Swatches was something to be proud of, the feeling just evaporated.

Mr. Paul Dunkel has for 25 years (1983-2007) collected more than 5,800 examples, one of the world’s largest Swatch collections in private hands ever known.

So, if you’re a fellow admirer your opportunity to appreciate Mr. Dunkel’s collection is near at hand.

Sotheby’s Hong Kong is presenting the Swatch & Art collection Art Art from the Dunkel Collection, which will lead the Important Watches Spring Sale taking place on April 7 at the Hong Kong Convention and Exhibition Centre.

Bonjour profits dive 17 pct in 2014

C

osmetic retailer Bonjour Holdings Ltd. saw its profits in 2014 plunge by 17 per cent year-on-year, amounting to HK$226 million (US$28.2 million), due to slower sales growth and changing consumer spending patterns.

The retailer told Hong Kong Stock Exchange last Friday evening after trading hours that its retail and wholesale turnover reached HK$2.79 billion in 2014, a slight increase of 2.6 per cent year-on-year.

‘The performance resulted from a

6.2 per cent increase in the number of transactions and a 2.4 per cent drop in total average sales value per transaction, illustrating the fact that the customer base is still growing while there is an increasing demand for lower-priced products,’ the company wrote.

Meanwhile, the group’s business in Macau generated a total of HK$231 million in revenues in 2014, which is actually a year-on-year increase of 6.7 per cent, while its Hong Kong business also slightly increased

by 3.2 per cent year-on-year in terms of revenues, amounting to HK$2.52 billion.

However, the Mainland market of the retailer experienced revenues slumping by 33.5 per cent, dropping from HK$59 million to HK$39 million last year.

‘Given the current social unrest expelling the PRC tourist inflow to Hong Kong and the change in tourist mix with less spending pattern, Bonjour is inevitably facing a challenging environment…

[However,] we are trying to turn the challenges into opportunities’ the retailer stated, believing the future implementation of the Hong KongZhuhai-Macau Bridge will bring it more Mainland tourists from lower tier cities in China.

K.L.

Crocodile interim profits tumble 24 pct

M

en’s clothing retailer Crocodile has announced its interim results ended January 2015, of which the profits attributable to company owners had slumped 24 per cent year-onyear, amounting to tHK$50 million, despite the result being better than the group’s original expectation.

According to the company’s filing with Hong Kong Stock Exchange last Friday, its revenues dived 20 per cent, reaching only HK$218 million in the six months, compared to the same period of last fiscal year.

In fact, in the middle of the month, Crocodile issued a profit warning alerting shareholders that

the profits of the company may fall as much as 27 per cent year-on-year to HK$48 million.

The sharp plunge in profits, according to the group, was due to its garment and related accessories business having ‘grappled with difficult operation conditions’.

‘Weakening spending of both domestic customers and inbound visitors, unusually warm weather conditions during the Christmas and New Year period, heavy sales discounts offered by competitors, ever-rising rental expenses, these factors collectively affected the performance of the Garment and Related Accessories Business,’ it

wrote, claiming revenues generated by the segment posted losses of HK$14.7 million.

In addition, the company’s property investment and letting business was another factor driving its overall profit plunge. The group said in its filing that rental revenue generated during the six months amounted to HK$25.1 million, compared to the HK$22.6 million of last year.

Fair value gains on investment properties of the group also slumped 18 per cent to HK$65.6 million from HK$80.4 million during the same period of 2014.

K.L.

Business Daily | 7

March 31, 2015

Macau

Prada posts 28 pct drop in profit amid slowdown in China The Italian luxury goods company said sales in its largest market – Asia-Pacific region – dropped 3 per cent, driven by poor performance in Hong Kong and Macau

P

rada SpA reported a 28 per cent drop in full-year profit as fewer Chinese shoppers splurged on US$2,950 leather handbags and other luxury products.

Net income in the year through January fell to 450.7 million euros (US$490.9 million), Milan-based

Prada said Monday in a statement.

Analysts had predicted 468 million euros, according to the average of estimates compiled by Bloomberg.

Prada plans to open fewer stores and introduce more bags priced in the range of 1,000 euros to 1,200 euros as it seeks to revive revenue that fell last

year amid a slowdown in China.

The moves are designed to redress errors such as having an overly expensive product mix and a lack of novelty that have led shoppers to spend elsewhere, according to Exane BNP Paribas.

Revenue fell 1 per cent to 3.55

billion euros, the owner of brands including Miu Miu said in February.

Prada’s shares fell 1 per cent to close at HK$49.85 in Hong Kong trading, while the benchmark Hang Seng Index advanced 1.5 percent.

Revenue fell 1 per cent to 3.55 billion euros, the owner of brands including Miu Miu said in February. Prada’s shares climbed 3 per cent to HK$51.85 as of 9:38 a.m. in Hong Kong trading, while the benchmark Hang Seng Index advanced 1.3 per cent.

Global economic uncertainty and political and social tension have affected several markets, while fewer tourists have also weighed on sales, the company said.

Sales in the Asia-Pacific region -- the group’s largest market, contributing 36 per cent of the total -- dropped 3 per cent, driven by poor performance in Hong Kong and Macau, the company said. Revenues in Europe were down 5 per cent, it added.

Chinese President Xi Jinping’s crackdown on corruption and official extravagance have damped Chinese tourists’ demand for luxury goods and kept high rollers away from Macau, the world’s largest casino gambling hub.

Mainlanders accounted for 78 per cent of Hong Kong’s visitors last year, and their changing habits have rippled through the economy and dragged down luxury companies. Sales of luxury goods plunged 14 per cent last year, when the city saw its first annual drop in retail sales since 2003.

Revenues in the Middle East surged 14 per cent, helped by demand for footwear and Miu Miu-branded products. Sales rose 8 per cent in Japan and 1 per cent in Americas, the company said.

Bloomberg

8 | Business Daily

March 31, 2015

Greater China

Hong Kong retail rents drop as Chinese shoppers stay away

Tour groups visiting Hong Kong from China plunged about 80 percent this month

Yimou Lee and Donny Kwok

A

drop in Chinese tourist numbers is driving down shop rentals in Hong Kong, with vacancies increasing in the same prime areas that just three years ago piped New York’s Fifth Avenue to become the world’s most expensive retail real estate.

Spooked by months of crossborder tensions and pro-democracy protests, tour groups visiting Hong Kong from China plunged about 80 percent this month, dealing a blow to the retailers that had built their businesses around these mainland visitors’ once insatiable demand.

A Chinese government crackdown on lavish spending which shows no signs of letting up has also encouraged tourists to shop further away from home, just as a drop in the yen and the won make Japan and South Korea more attractive destinations.

That has further dimmed the appeal of Hong Kong’s Causeway Bay, where renting a 46 square metres - the size of a school classroom - can cost HK$500,000 (US$64,000) a month.

“If they don’t cut the rent, I will leave,” said the head of a consumer goods chain that also has a shop in Causeway Bay. Revenues have fallen 30 percent over the past year as the number of mainland visitors fell by half, he said.

“We can’t bear the costs,” he added, declining to be named as he did not want to highlight his company’s financial situation.

Hong Kong retail sales in January fell to their lowest level since 2003, a factor property agents said prompted more retailers to negotiate lower leases, or just move out.

Chinese Mainlanders’ presence in Causeway Bay (pictured) has shrunk

The decline in sales also coincides with plans by several luxury retailers, including Chanel and Compagnie Financiere Richemont SA’s Cartier, to cut prices in Asia to counter the sharp decline in the euro.

“Their businesses aren’t doing so well, so they decided to essentially hand the keys back to landlord,” said Tom Gaffney, head of retail at property consultancy Jones Lang LaSalle.

Property consultancy Savills says average prime street shop rentals fell 8.5 percent year-on-year in 2014, as the number of Chinese tourists began to fall.

This year, a luxury goods retailer in Causeway Bay managed to negotiate a 15 percent discount on its lease while another retailer renewed their contract

at the same terms, a property agency involved in the deals told Reuters.

The slowdown is forcing many retailers to adapt.

Paul Tang, the owner of a tiny shop in the heart of Causeway Bay, said sales of his eclectic mix of banned Chinese books and milk powder fell 25 percent this year, forcing him to courier goods to clients in China.

“It’s no use sitting in my shop and crying,” he said.

A possible restriction by the authorities on multiple daily visits to Hong Kong could further add to the pressure on landlords more exposed to the retail market, such as Hysan Development, Wharf Holdings Ltd and Sun Hung Kai Properties.

Day-trippers accounted for about 60 percent of the 47 million mainland visitors to Hong Kong last year often buying daily necessities such as milk powder. But some landlords are worried that protests by activists accusing mainland visitors of crowding public transport and causing shortages of goods could make things worse.

“The current political and social sentiment may diminish mainlanders’ enthusiasm to visit and shop in Hong Kong,” Roger Hao, chief financial officer of market leader Hysan, told Reuters. “But Hysan has a diverse yet balanced retail portfolio ... and that should minimise the impact.”

Reuters

Silk Road trade to exceed US$2.5 trln Projects under the plan include a network of railways, highways, oil and gas pipelines, power grids, Internet networks, maritime and other infrastructure Sui-Lee Wee

C

Railway infrastructure is key to Silk Route’s development

hina’s President Xi Jinping said he hoped its annual trade with the countries involved in Beijing’s plan to create a modern Silk Road would surpass US$2.5 trillion in a decade.

Xi also pledged to protect the interests of foreign companies in China amid investors’ rising concerns that Beijing is enacting policies that could hurt their businesses.

Under the so-called “One Belt, One Road” initiative, China aims to create a modern Silk Road Economic Belt and a 21st Century Maritime Silk Road to boost trade and extend its global influence. Commerce Minister Gao Hucheng said previously that more than 50 countries had shown interest in the initiative.

Projects under the plan include a network of railways, highways, oil and gas pipelines, power grids, Internet networks, maritime and other infrastructure links across Central, West and South Asia to as far as Greece, Russia and Oman, increasing China’s

connections to Europe and Africa.

Speaking at the side-lines of a high-level event in the southern city of Boao on Sunday, Xi said the scheme would stimulate trade and investment between China and countries along the route, according to a statement on the foreign ministry’s website.

“We hope that the annual trade volume between China and these countries surpasses US$2.5 trillion in a decade or so,” Xi told 40 company representatives from China and overseas.

By way of comparison, China’s trade with the European Union in 2013 amounted to 428.1 billion euros (US$466.1 billion).

Chinese industries expected to benefit from the plan include agriculture and mining as the route encourages exploration for minerals.

In addition to trade efforts, China is seeking to boost its global influence by signing up countries to its Asian Infrastructure Investment Bank.

Xi, meanwhile, sought to address

concerns from foreign businesses, which have complained of an increasingly tough business climate in the world’s second-largest economy.

“China will be more open. China’s policies that encourage the use of foreign investment will not change, and the protection of legitimate rights and interests of foreign-invested businesses will not change,” Xi said.

The United States is concerned about China’s restrictions on the use of foreign information technology equipment by the banking sector, according to a filing published by the World Trade Organization on Thursday.

New cyber-security regulations would force technology vendors to Chinese banks to hand over secret source code and adopt Chinese encryption algorithms.

U.S. companies have also cried foul over China’s oversight of monopoly and pricing issues and antitrust enforcement.

Reuters

Business Daily | 9

March 31, 2015

Greater China Lew says marketdriven FX rate critical It is critical for China to move towards a more market-determined exchange rate, U.S. Treasury Secretary Jack Lew said in Beijing yesterday. The U.S. supports China’s efforts to transform its economy to relying more on domestic demand, he said during a meeting with China’s vice premier Wang Yang, while the United States looks forward to China deepening its financial reforms. “It is critical that China continues to move towards a market-determined exchange rate and a more transparent exchange rate policy,” he said.

SK expects a 4-5 pct stake in AIIB South Korea expects to take a stake of 4 percent to 5 percent in the China-led Asian Infrastructure Investment Bank (AIIB), in which it is seeking to be a founding member, a deputy finance minister said yesterday. South Korea also seeks to play an important role in the management of the proposed bank, Deputy Minister Choi Hee-nam said on radio, noting that the senior management positions had yet to be discussed. He said South Korea has a 5.1 percent stake in the Asian Development Bank.

Official PMI seen contracting for 3rd month The PMI factory numbers will be released on Wednesday

A

ctivity in China’s factory sector likely contracted for a third straight month in March, a Reuters poll showed, reinforcing expectations that Beijing will have to step up policy easing to support economic growth that may be on the verge of dipping below 7 percent.

The official manufacturing Purchasing Managers’ Index, or PMI, is forecast to edge down to 49.7 from February’s 49.9, according to the median forecast of 19 economists in the poll.

January brought the first contraction in nearly 2-1/2 years, and if the March number is 49.7, it would be the lowest since August 2012.

The official survey looks more at larger, state-owned firms, while the HSBC/Markit survey focuses on smaller firms.

“The onset of March will typically result in a rebound in certainty after the Chinese Lunar New Year holidays, but leading indicators show no signs of such a rebound this time round,” said Chester Liaw, an economist at

The onset of March will typically result in a rebound in certainty after the Chinese Lunar New Year holidays, but leading indicators show no signs of such a rebound this time round Chester Liaw Forecast Pte, economist

Forecast Pte in Singapore.

In a bid to support growth, reduce financing costs and stem outflows of capital, the central bank has delivered two interest rate cuts and a reduction in the amount of money banks must keep in reserve since November, but analysts believe more easing is needed.

Monetary policy should be loosened given that first-quarter economic growth may dip below the government’s new full-year target of 7 percent, the China Securities Journal yesterday quoted Chen Yulu, a central bank policy adviser, as saying.

Central bank governor Zhou Xiaochuan warned on Sunday that the country needs to be vigilant for signs of deflation and said policymakers were closely watching slowing global economic growth and declining commodity prices.

The PMI factory numbers will be released on Wednesday, April 1, alongside the official services PMI and the final HSBC/Markit PMI. Reuters

Global yuan payments beyond HK Payments in the yuan are increasingly being handled by offshore yuan hubs besides Hong Kong, as more clearing banks have been assigned in the past two years, transaction services organisation SWIFT said yesterday.

Though Hong Kong still takes the lion’s share with over 70 percent of the market by value, offshore centres excluding Hong Kong handled 25 percent of global yuan payments in February, compared to 17 percent two years ago. Singapore and London, which are strong financial centres in their respective regions, played a key role in driving yuan adoption outside of Hong Kong, SWIFT said.

China Pacific 2014 net profit up China Pacific Insurance (Group) Co., Ltd., the country’s third largest health insurance provider, announced 11 billion yuan (US$1.8 billion) of net profit in 2014, up 19.3 percent year on year. The Shanghai-listed company had business revenue of 219.8 billion yuan and earnings per share of 1.22 yuan in 2014, up 13.8 percent and 19.3 percent year on year respectively, according to its annual report. The company, which has a joint venture with German insurance giant Allianz, delivered steady growth in both life and asset management business.

Officials probed for corruption Five Chinese officials are under investigation after being suspected of taking bribes, the Supreme People’s Procuratorate (SPP) announced yesterday.

Cui Lifu, former deputy director of Jilin provincial human resource and social security department, was arrested and being investigated for corruption. Lin Guosheng, former Communist Party chief of the Wuhan federation of trade unions, is under investigation for taking bribes. The Guangdong Procuratorate is investigating Huang Jianjun, former Party chief of the Guangdong Grid, Cai Guangliao, former deputy Party chief of Guangdong public security department and Liang Yimin, former Party chief of Maoming city.

Web pharmacies on the horizon While China hasn’t specified when it might allow prescription medicines to be sold via the Internet, analysts expect the government to permit web sales this year

T

he Chinese are prolific Internet shoppers, buying everything from diamond rings to toilet seats online. E-retailers like Alibaba Group may soon be able to gain a foothold in yet another area: prescription drugs.

The shift could gradually reshape the country’s US$149 billion market for such drugs, by moving sales to web retailers and away from hospitals, which sell almost three quarters of medicines prescribed in the country.

That monopoly often leads to higher prices for patients and contributes to corruption in the public health system, according to Yanzhong Huang, author of the book ’Governing Health in Contemporary China.’

The Asian country presently only allows online sales of some treatments and products that don’t require prescriptions. For companies that have scale, permission to sell prescription therapies online would “definitely be good news,” said Liu Lei, chief executive officer at China Jo-Jo Drugstores Inc., which says it has an agreement with

Alibaba’s health subsidiary to sell medicines through its platforms after approvals come through.

China’s second biggest medicine distributor -- Shanghai Pharmaceuticals Holding Co. -- this month announced its plans to build its own Internet drug company to position itself “at the key time when the gate of online sales of prescription drugs is about to be opened.”

Opening up the market “can indirectly decrease corruption by dispersing the power as more players will have control,” Angus Cole, a consultant at Deloitte China, said via e-mail. Patients will also benefit from the increased competition through lower prices, better service, and more convenience, he said.

China has for years sought to clean up its public health system and make it more efficient. Last month, the National Health and Family Planning Commission said in a statement that new rules had been issued on medicine procurement at public hospitals to address problems including “medicine

kickbacks and commercial bribery cases happening frequently.”

Former chief drug regulator Zheng Xiaoyu was executed in 2007 for taking bribes amid a clampdown on fake medicine. Drug maker GlaxoSmithKline was fined 3 billion yuan (US$483 million) in September after Chinese judicial authorities found it guilty of bribing nongovernment personnel.

In China, doctors who work for hospitals write prescriptions that are then filled at the hospital pharmacy.

So, a shift to the Internet would be “a fresh effort from China to try and separate doctors’ prescriptions from the supply of medicines,” Huang said.

Industry experts predict it will take years to iron out the details and build a workable, trusted model. Along the way, Chinese regulators and companies will be faced with some tough questions: How to ensure the drugs are real? What mechanism to use for prescription authentication? Will patients be willing to wait for their medicines?

Bloomberg News

10 | Business Daily

March 31, 2015

Greater China

Mutual fund offerings snapped up

Much money is going into technology and other growth sectors targeted by Beijing for support as part of its “Made in China 2025” industrial upgrade project

Samuel Shen and Pete Sweeney

C

hina’s once-struggling mutual fund industry is cashing in on the country’s surging stock market, with new funds snapped up in days by investors who long shunned shares as too risky.

This marks a success for policymakers working to build confidence in equities and a relief for China’s fund management industry.

But the influx will keep the pressure on Beijing to prevent the rally from imploding.

Collapses in 2007 and 2009 made many people swear off stocks for years.

In January and February, 75 funds, mostly equityfocused or balanced ones with both equity and bond investments were launched, raising nearly 110 billion yuan (US$17.7 billion), according to Shanghai-based fund consultancy Z-Ben Advisors. It said 35 funds, collecting less than 50 billion yuan, were formed in the same period last year.

The market’s huge gains - more than 50 percent last year and about 13 percent this year - have revived enthusiasm for mutual funds.

“People are rushing into mutual funds because many think it’s just the beginning of an unprecedented bull market,” said Mark Zeng, analyst at Howbuy Wealth Management,

a Shanghai consultancy which helps mutual fund companies sell products.

Reduced risk Brokerage Shenwan Hongyuan said the risk of investing in stocks has been reduced, due to expectations of more monetary easing ahead, buttressed by further reforms to state enterprises and a big shift of wealth from real estate to equity.

The brokerage says the Shanghai benchmark could reach 4,500 points this year, 22 percent above Friday’s closing of 3,691.10.

“The worst time for China’s stock market is over, and there’s high probability that the market will continue to rise,” said Pan, a Shanghai office manager in his mid-40s who only gives his surname.

In 2014, Pan missed the market boom as his money was in bank deposits and money market funds. This year, he’s entered mutual funds because friends who invested in property or wealth-management products (WMPs) “are all moving money into stocks”.

Pan said that last week he shifted 5 million yuan into three equity-based mutual funds, and when another 5 million yuan in WMPs matures, he’ll plough that in too.

He and others are responding to signals that the government is comfortable with the rally. The relaxation of government warnings about share bubbles, excitement driven by signs of incoming liquidity and the expectation of more have breathed life into a rally that showed signs of stalling in January.

Quickly sold out Penghua Fund Management Co raised 3.74 billion yuan (US$602.47 million) in just one day.

Other funds slashed their subscription periods after

quickly selling out.

Analysts estimate that up to 80 percent of China’s stock transactions are by individuals, who have been reluctant to pay fees to mutual funds, especially given the generally miserable performance of Chinese indexes until recently.

But the rally is lifting their role. In February, their assets under management were 4.86 trillion yuan, up 37 percent from a year earlier.

Da Cheng Fund Management Co plans to launch a balanced fund next month focusing on internetrelated stocks, chasing an IT

index that’s up more than 50 percent this year, while the once-favoured real estate index is down 3 percent.

Some analysts do see risks, noting that the rally has been underpinned by unprecedented levels of leverage, thanks to liberalised margin financing tools.

Beijing’s monetary easing is aimed at discouraging capital outflows rather than providing aggressive stimulus, they warn.

Still, investors are encouraged that Premier Li Keqiang vowed to aid the economy if growth slows further.

Reuters

Guangdong Rising makes new bid for PanAust State-owned Guangdong first approached PanAust last April and then sweetened its offer in May James Regan

C

hina’s Guangdong Rising Assets Management launched a fresh US$850 million bid to buy copper and gold miner PanAust Ltd, but priced its offer at a quarter less than 10 months ago, underscoring the rout in mineral commodities.

Analysts said the renewed bid demonstrated an ongoing appetite among Asian enterprises to take full ownership of Australian-listed assets, rather than buy into passive partnership roles.

Hong Kong billionaire Li Kashing’s Cheung Kong Infrastructure Holdings Ltd (CKI) bought gas pipeline company Envestra Ltd for A$2.2 billion last year, while Chinese investors have also been active in property markets.

PanAust said yesterday it had received a letter from 22.5 percent shareholder Guangdong saying it plans to offer to buy all remaining shares at A$1.71 each, valuing PanAust at A$1.1 billion (US$852

million). The offer would be 26 percent below the A$2.30 a share it offered last May. PanAust shares, which have fallen in line with weaker copper and gold prices, jumped 40 percent to match the latest offer price, a four-month

high for the stock.

State-owned Guangdong first approached PanAust last April and then sweetened its offer in May. PanAust, which rejected the May bid as too low, said it would consider the fresh approach but noted it was

made at a time when PanAust’s stock and copper and gold prices are near 5-year lows.

PanAust mines copper in Laos and paid US$125 million in late 2013 for the rights to the Frieda River copper project in Papua New Guinea. It cut 5 percent of its workforce in January as copper traded around its lowest level in half a decade.

Guangdong urged shareholders to accept the all-cash offer, warning that PanAust may need to raise additional capital to get the Frieda River project into production, potentially sending its shares lower.

Analysts expect PanAust to spend between US$1.5 billion and US$1.8 billion to develop a mine producing 100,000 tonnes of copper annually from Frieda River and 160,000 ounces of gold.

PanAust said it is being advised

by Rothschild and Herbert Smith Freehills in relation to the third Guangdong approach.

Reuters

Business Daily | 11

March 31, 2015

Asia

Japan industrial output decline extending doubts

February’s output slump was the biggest since June last year, when production also fell by 3.4 percent

Stanley White

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apan’s industrial output fell in February at the fastest pace in eight months due to declines in production of machinery, cars and electronics in a worrying sign that domestic demand could be faltering.

Economists were already braced for a fall as many companies were expected to trim output due to the timing of Lunar New Year holidays, but the 3.4 percent month-on-month decline in February was much worse than expected at almost double the median estimate for a 1.8 percent fall.

Manufacturers’ forecasts for the coming months still point to a gradual recovery in output, but the outlook is less certain and could complicate the Bank of Japan’s task as the economy slowly rebounds from last year’s recession.

“These results are a little worrying, because the decline in auto output could be due to weak domestic demand,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Output is still on course to recover, but another disappointing number makes this scenario less likely.”

February’s output slump was the biggest since June last year, when production also fell by 3.4 percent.

Manufacturers surveyed by the trade ministry expect output to fall 2.0 percent in March and rise 3.6 percent in April.

In January output rose 4.0 percent, the biggest increase in nearly four

KEY POINTS Feb industrial output -3.4 pct m/m vs f’cast -1.8 pct Manufacturers see output -2.0 pct in March, +3.6 pct in April Robust output necessary factor to achieve higher economic growth

years partly as demand surged before the Lunar New Year.

Many economists had said that rise was unsustainable, but the pace of decline last month suggests that the Lunar New Year is not the only reason why companies curbed output.

If output continues to weaken, it would suggest that consumers are buying less goods and that companies will need to hire less workers, in turn hampering Tokyo’s plan to revitalize

the world’s third-biggest economy and shake off years of deflation.

The output data came two days before the BOJ’s closely watched tankan survey, which is expected to show business sentiment improved in the first quarter as a weak yen boosts corporate earnings.

Data last week showed Japan on the brink of deflation in February and consumer spending remained lacklustre, casting doubt on how

long it will take the BOJ to meet its inflation target.

The BOJ launched quantitative easing two years ago to boost inflation to around 2 percent, and while it has managed to lift inflation expectations some economists say domestic demand is still not strong enough to meet the central bank’s price goal by its selfimposed deadline of sometime around next fiscal year.

Reuters

New Zealand opens up more deep sea areas to drilling Environment campaigners said the size of the offshore area was unprecedented and included protected conservation areas

T

he New Zealand government yesterday unveiled controversial plans to open up more of the country ‘s offshore waters to deep-sea oil and gas drilling.

Energy and Resources Minister Simon Bridges launched Block Offer 2015, the annual tender for oil and gas exploration permits, a day after more than 3,000 people marched through central Auckland to protest against deep sea drilling.

Block Offer 2015 included four offshore areas, covering the upper west and lower east of the North

Island and south and southeast of the South Island, and three onshore areas.

The total area comprised 4,093 square kilometres onshore and 425,205 square kilometres offshore.

Bridges said in a published speech to a petroleum industry summit in Auckland that New Zealand had built a strong, world-class regulatory framework to ensure the necessary environmental and safety protections.

“Oil is our fourth largest export, and brings in around 700 million NZ dollars (US$527.58 million) each year in royalties and taxes,”

said Bridges.

“It is clear that companies are seeking frontier acreage and longterm opportunities like those which New Zealand has to offer, and this government remains committed to attracting major international companies to invest in exploration and development in this country.”

The tender would close on September 30 and permits would likely be granted in December.

Environment campaigners said the size of the offshore area was unprecedented and included protected conservation areas and the home of the critically endangered Maui’s dolphin, which is believed to have a population of just 55.

“It’s clear the government doesn’t care about protecting our precious last remaining Maui’s dolphins when they are offering up their home for oil and gas exploration while it is known that seismic surveying can seriously harm marine mammals,” opposition Green Party mining spokesperson Gareth Hughes said in a statement.

“The strategy of luring oil companies to New Zealand is failing and this block offer shows how increasingly desperate the government is becoming with the latest block larger than the size of

Greenland,” he said. “The amount of our land and oceans being offered up to foreign oil companies has increased 125 percent since 2012. It raises the question if they will stop at nothing to help foreign oil companies make a buck,” he added.

Xinhua

The amount of our land and oceans being offered up to foreign oil companies has increased 125 percent since 2012. It raises the question if they will stop at nothing to help foreign oil companies make a buck Gareth Hughes New Zealand’s Green Party mining spokesperson’s statement

12 | Business Daily

March 31, 2015

Asia

Thai factory output rises in February

In February, car production rose a second straight month, by 2.79 percent from a year earlier

Kitiphong Thaichareon and Orathai Sriring

into products later exported, so the incoming shipments could auger well for exports.

Exports in February were down 6.14 percent from a year earlier, showing that this pivotal growth engine of the economy - weak since 2013 - was still not firing well.

Ten months after the army seized power to end the political turmoil, the military government has struggled to turn around an economy struggling with both weak internal and external demand.

Car production gains

capacity utilisation was 61.40 percent, from January’s revised higher 61.48 percent.

Exports contracted in 2013 and 2014, and the central bank sees only 0.8 percent growth in shipments this year.

With commodity prices low and global demand soft, the government is under increasing pressure to ramp up infrastructure spending to rev up growth.

The central bank recently lowered its 2015 growth estimate 3.8 percent from 4.0 percent. Growth last year was just 0.7 percent.

Reuters

Car factory in Thailand

T

hai factory output unexpectedly rose in February from a year earlier, ending a 22-month streak of falls and giving some hope of improvement in the beleaguered economy.

The Industry Ministry said output in Southeast Asia’s second-largest economy in February rose 3.55 percent from a year earlier, the first increase since March 2013.

“The output rise was driven by car production,”

ministry official Somsak Jantararoungtong said, adding that while February output normally isn’t high “this time it bucked the trend, making us confident that there will be a clear recovery.”

The ministry forecast that output, down 4.6 percent last year, could increase 3-4 percent this year.

February output easily beat the most optimistic forecast in a Reuters poll for a 0.59 percent increase. The

poll median was for an 0.25 percent drop.

This is the second piece of February data indicating some improvement in an economy that came close to recession in 2014 as political protests damaged consumer sentiment and discouraged investments.

Imports last month increased 1.5 percent from a year earlier, compared to January’s 13.3 percent fall.

Some of Thailand’s imports go

Thailand is a regional production and export hub for global automakers. In February, car production rose a second straight month, by 2.79 percent from a year earlier.

January’s 2.3 percent increase ended a 19-month decline.

But the gains are from a low base, and domestic car sales in February slipped 10.8 percent on-year.

Electronics production slipped 0.04 percent from a year earlier while electrical appliances slid 5.06 percent.

In that sector, Thailand has been losing competitiveness to neighbours.

February’s factory

KEY POINTS Feb output +3.55 pct y/y, first increase since March 2013 Reuters poll had projected Feb output -0.25 pct y/y Confident of recovery this year - Industry Ministry officiaL

Australia looks at GST, company tax in planned tax overhaul The Australian government collects up to 70 percent of its revenue from company tax and personal income tax

A

ustralian Treasurer Joe Hockey hinted yesterday at changes that could force digital companies like Apple, Google, Alibaba Group Holding and Uber to pay more tax on transactions that take place in Australia.

“I want to find a way for them to pay the GST,” Hockey told reporters, referring to the goods and sales tax, after releasing a discussion paper on the country’s “unsustainable” tax system.

“We’re not collecting the revenue that we should be collecting and that we want to collect, that is fair,” Hockey said.

The long-awaited 200-page “Re:Think” report does not outline any definitive changes but political

and market analysts believe its focus on a few key areas heralds forthcoming changes.

Up for discussion are a cut to Australia’s corporate tax rate, a broadening of the goods and services that are included in the GST and a new levy on bank deposits.

Australia led a push by the Group of 20 as its chair last year to develop stricter rules on cross border taxation to close loopholes that have allowed companies like Google, Amazon.com and Starbucks to avoid paying taxes.

The Australian government collects up to 70 percent of its revenue from company tax and personal income tax, a level that Hockey said is unsustainable.

New technology, changing consumer behaviour and increasing global trade are threatening the medium and long-term viability of our taxation system Joe Hockey Australia’s Treasurer

It needs the support of the state governments to make any changes to the GST, which at 10 percent is one of the lowest in the developed world.

At the other end of the spectrum, Hockey suggested that Australia’s company tax was too high and is being eroded by online-based companies.

Australia’s 30 percent company tax rate is higher than many of its competitors’ and a third of all company tax is paid by just 12 companies.

Hockey stressed that the existing bank deposit levy of 0.5 percent on deposits up to A$250,000 was introduced by the previous labour government and suggested it was not enough.

Reuters

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Business Daily | 13

March 31, 2015

Asia Business sentiment in S.Korea improves Confidence among South Korean businesses improved for two straight months due to cheap oil and weak currency, central bank data showed yesterday. Business survey index (BSI) for manufacturers stood at 77 for March, up 3 points from a month earlier, according to the Bank of Korea (BOK). It marked the second straight month of increase. The index, which gauges expectations for business conditions, means that pessimists outnumber optimists when it stays below 100. The improved business sentiment came as lower oil prices and the South Korean currency’s slide to the U.S. dollar.

Weak consumption holds back Korean recovery According to Bank of Korea governor’s comments

Brokerages to lend in foreign currencies

Thai telecoms auction in Nov-Dec Thailand’s telecoms regulator said yesterday it would auction high speed fourth-generation (4G) mobile spectrum at year-end, allowing telecom operators to expand lucrative data services to offset declining revenues from voice calls. The National Broadcasting and Telecommunication Commission (NBTC) said yesterday the auctions would be held on November 11 and December 15, with the winners announced by December. The military government had postponed the auction after it took power in May, as the authorities scrutinised state-owned companies and major projects.

Sacombank to expand Laos operations Vietnam’s central bank said yesterday it would allow Sacombank to expand operations at its branch in Laos, so it can offer full banking services.

Sacombank, Vietnam’s six-largest partly private lender by assets, must expand the branch’s operations by March 26, 2017, the State Bank of Vietnam said in a statement. The Laos bank would have a registered capital of US$39 million.

MYOB to file for Australia IPO this week Bain Capital is preparing to launch a A$2.8 billion (US$2.16 billion) initial public offering of Australian software firm MYOB Ltd as early as today, the Australian newspaper reported yesterday. The Australian said the USbased private equity firm looked on course to raise between A$700 million and A$800 million from institutional fund managers with the business scheduled to debut on the stock exchange at the end of April. Earlier in the month, Reuters reported that Bain Capital planned to file a prospectus for the sale by end-March.

Chevron exits Caltex Australia S. energy giant Chevron sold its entire stake in refiner Caltex Australia Ltd for A$4.7 billion (US$3.7 billion) in Asia’s biggest block deal this year, as falling oil prices and high costs hurt margins.

Offshore institutional investor demand for the 50 percent stake in Australia’s biggest refiner was strong, with bidding driving the final price to A$35 a share, a spokeswoman for Goldman Sachs, the sole underwriter for the deal, confirmed on Saturday. The bank offered the 135 million shares at a floor price of A$34.20 each late on Friday.

Bank of Korea Governor Lee Ju-yeol

W

eak consumption is the biggest factor holding back South Korea’s economic recovery, the country’s central bank governor said, cautioning that a return to solid growth is some way off.

“Sluggish domestic demand centred around consumption is the main factor that we see harming the pace of economic recovery,” Bank of Korea Governor Lee Ju-yeol told reporters at a lunch briefing at the central bank headquarters in Seoul on Tuesday.

“Meanwhile looking at exports, they are expanding in terms of volume but cannot be seen as a factor that can change our economic outlook greatly.”

The news conference was held to mark his first anniversary as governor.

The stuttering economic recovery has prompted the central bank to ease policy three times since last year, the most recent being on March 12

when the benchmark rate was cut by a quarter percentage point to a record-low 1.75 percent.

“It will be difficult for the economy to escape current difficulties in a short period of time,” Lee said.

“However, we have hopes the situation will become gradually better as the global recovery is on-going and the government is bolstering efforts for structural reform.”

Lee’s comments come just a day before February output data is released by the government, which analysts have tipped to have edged up 0.4 percent on monthly terms, after production declined at its biggest pace in six years.

On Sunday data showed revised retail sales in February grew at the fastest pace in six months thanks to a major holiday falling on the month, but lagged earlier estimates.

South Korea is to allow top local brokerages to provide foreign-currency loans to their clients under a longanticipated deregulation drive in the sector, the finance ministry said yesterday.

The move, effective today, was in line with ministry plans, but the threshold eligible for the measure was newly set at 1 trillion won (US$905 million) in terms of equity capital, under which nine companies qualify, it said in a statement.

They are Daewoo Securities Co, Woori Investment & Securities Co, Samsung Securities Co, Korea Investment & Securities Co, Hyundai Securities Co, Shinhan Investment Corp, Mirae Asset Securities Co, Daishin Securities Co and Hana Daetoo Securities Co. The regulations do not specify what the foreign funds must be used for.

The ministry also said it would ease regulations on foreign-currency borrowings by brokerage companies when they borrow up to US$50 million.

Reuters

In a nod to the gloomy indicators, the central bank is widely expected to downgrade its economic forecasts on April 9 when it makes its quarterly revision as well as its next monthly policy decision. The Bank of Korea currently sees GDP growth for this year at 3.4 percent.

Lee reiterated that South Korea is unlikely to slip into deflation, while adding that household debt will not pose any systemic risks to the economy.

Reuters

Japan weighing income tax hike on wealthy Japan’s outstanding debts are more than twice the size of its US$5 trillion economy

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apan’s government is considering raising income taxes for the wealthy and increasing the inheritance tax if it looks unlikely to reach its goal of returning to a primary budget surplus in 2020, government sources said. Prime Minister Shinzo Abe’s government plans to raise the nationwide sales tax to 10 percent from 8 percent in April 2017 to help pay for rising welfare and healthcare costs.

“Abe is determined to not raise the sales tax any further,” said one source who declined to be identified.

“But we still have to make sure spending matches revenue, so we would have to consider measures to either cut spending or increase revenue.”

The government will conduct a

mid-term assessment of the country’s finances heading into the start of fiscal 2018, the source said.

If this assessment shows the government is not on track to return to a primary budget surplus in fiscal 2020 then further steps would be needed, the source said.

A primary budget is an important indicator of a country’s underlying fiscal health because it excludes income from bond sales and debt servicing costs.

“This has not made its way into any government documents yet, but raising other taxes could become an option,” another source said.

The government will compile a stimulus package to offset the short-

term impact on the economy when the sales tax rises to 10 percent, several sources said.

The government is particularly worried because a sales tax increase last year to 8 percent from 5 percent hurt the economy more than expected and helped trigger a mild recession.

However, fiscal discipline is also important because Japan’s outstanding debts are more than twice the size of its US$5 trillion economy, which is the world’s worst debt burden.

Abe’s government wants to see how the economy performs after the sales tax rises to 10 percent, but it also wants to make sure it meets its fiscal discipline target, the first source said.

Reuters

14 | Business Daily

March 31, 2015

International Iceland could lift currency controls Most members of Iceland’s parliament say the coalition government led by Premier Sigmundur D. Gunnlaugsson will be able to lift capital controls before its term comes to an end in two years.

All but three lawmakers that support the coalition government said Iceland will have completed the removal of capital controls by 2017, in a Bloomberg poll of members of parliament. The poll excluded members of the cabinet.

Iceland imposed capital controls in 2008 following the US$85 billion default of its three biggest banks.

World Bank’s CO2 auction in June The World Bank will hold an auction worth US$25 million in June for U.N.backed carbon credits from projects designed to cut methane emissions, the bank said yesterday. The so-called Pilot Auction Facility will offer tradable put options, giving project owners the right to sell credits to the bank’s Methane and Climate Change Fund at a set price, said Brice Quesnel, a senior carbon finance specialist at the World Bank. Germany, Sweden, Switzerland and the United States have contributed a total of US$53 million to the fund.

Dufry to raise 3.6 bln euros via rights issue Switzerland’s Dufry plans to raise around 3.6 billion euros (US$3.9 billion) through a mixture of debt and equity financing for its planned takeover of Italy’s World Duty Free, Dufry said yesterday. The company expects to raise at least 2.1 billion euros through a rights issue, and up to 1.5 billion euros via long-term debt instruments.

On Saturday, Dufry said it had agreed to buy a majority stake in World Duty Free in a deal which values the Italian firm at 3.6 billion euros, making the combined group the world’s biggest travel retailer.

Western banks axed 59,000 jobs last year Steve Slater

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op European and U.S. banks axed 59,000 jobs last year as they restructured and cut costs, with headcount expected to shrink further in Europe as bosses strive to improve profitability that has been hit hard by tougher regulation.

Lenders have also sold or shut businesses to narrow their focus to avoid falling foul of regulators concerned that some have become too big and complex.

Analysts said that European banks, especially those in the euro zone, are likely to wield the knife again because they remain the most unprofitable in the world.

Eighteen of Europe’s biggest banks cut a combined 21,500 jobs last year, but that was less than half of the 56,100 jobs cut by the same banks in 2013, according to data compiled

by Reuters.

Six of the biggest U.S. banks cut a total of 37,500 jobs last year, having shed 45,700 in 2013.

That means more than 160,000 jobs have been cut across the 24 banks in the past two years. The six U.S. banks shed 7.3 percent of staff in the period, against 4.1 percent for the Europeans, the data shows.

Boston Consulting’s Saleh said that the majority of banks that have not restructured much could have to cut

more jobs, though those that moved early could be in a position to add staff in selected areas.

An IMF study last year of 300 large banks showed that only about 30 percent of euro zone lenders had a structure that was able to make a reasonable rate of return over time, compared with 80 percent of U.S. banks.

Second wave Tens of thousands of staff were axed during and after the 2007/09 financial crisis, but a fresh wave of cuts swept through the banking industry in 2013 as trading income slumped and economic growth slowed.

Barclays shed 7,300 jobs last year

KEY POINTS More than 160,000 jobs lost across 24 banks in two years -data U.S. banks axed 7.4 pct of staff, European lenders cut 4.1 pct

The biggest cuts last year were made by banks in the United States, Britain, Italy and Spain

as part of Jenkins’ three-year plan to cut 19,000 staff, or one in seven employees, and save more than 2.4 billion pounds (US$3.6 billion) a year.

Royal Bank of Scotland shed 10,000 staff and more could follow as it sells overseas businesses and shrinks its investment bank further.

Some banks added staff last year after sharp cuts in 2013, including HSBC, Standard Chartered and BNP Paribas, the data showed.

U.S. banks with large consumer operations, such as JPMorgan and Bank of America, made substantial job cuts in the past two years as they worked through troubled mortgages left by the financial crisis and refinanced many loans at lower interest rates.

Citigroup also eliminated jobs as it consolidated back offices and quit some international markets.

Banks are also closing branches and laying off staff as a growing number of customers shift to mobile and online banking.

The shift to digital banking and more efficient processing is expected to exert renewed pressure on staffing in the coming years.

Analysts at Citi last month estimated that 54 percent of financial services jobs were at “high risk” from the impact of digitisation.

Reuters

Naftogaz extends Gazprom gas deal Ukrainian state-run energy firm Naftogaz said yesterday it had proposed to Russian gas producer Gazprom that its current gas supply agreement be extended until April 1, 2016, and that it was ready to discuss the proposal.

“Naftogaz welcomes the proposal by the European Commission to extend the so-called ‘winter package’ until the end of the next autumn-winter period,” Naftogaz said in a statement.

“Naftogaz has sent a letter to Gazprom in which it suggested the possibility of an extension of the ‘winter package’.

Barclays shed 7,300 jobs last year

Greece says not backing down on debt relief goal

Cash-strapped Greece will run out of Hedge fund criticises money by April 20 if it does not secure Bollore role in Vivendi funding from its European partners U.S. hedge fund P. Schoenfeld Asset Management (PSAM) has accused French media group Vivendi of giving too much leeway to chairman and largest shareholder Vincent Bollore to boost his stake at “undervalued prices”. PSAM, which says it owns 0.8 percent of Vivendi, is trying to rally other shareholders to vote for two resolutions at an upcoming annual meeting that would require Vivendi to boost returns to shareholders to 9 billion euros (US$9.8 billion) after asset sales left it with a pile of cash. PSAM took aim at billionaire businessman Bollore saying he was putting his own interests above those of other shareholders.

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reece has not given up on its aim to renegotiate its debt to render it manageable, the country’s deputy finance minister said on yesterday as talks between Athens and its lenders on reforms to unlock aid continue.

“The government has not abandoned any claim regarding its aim to make the country’s debt viable,” Deputy Finance Minister Dimitris Mardas told financial daily Naftemporiki.

Greece’s public debt burden reached more than 177 percent of national

output last year. The country’s new government came to power in January promising to demand that its euro zone partners let it write off a large part of that debt.

But it has said little about the issue in recent weeks, as Greece struggles to cope with a cash crunch and the government focuses on reaching agreement with its lenders on reforms that would unlock the remaining funds of the country’s bailout.

Mardas reiterated a plan to link the repayment of Greece’s 318 billion euros of debt with economic growth

or exports, along the lines of a deal applied for post-World War Two Germany.

Representatives from the European Commission, European Central Bank and the International Monetary Fund -informally called the Brussels Groupdiscussed Greece’s reform proposals over the weekend. Lenders said it could take several more days before a proper list was ready.

Cash-strapped Greece will run out of money by April 20 if it does not secure funding from its European partners, a source familiar with the matter told Reuters last week.

Greek Prime Minister Alexis Tsipras chaired a cabinet meeting late on Sunday which approved the reforms list and targets for a primary budget surplus of 1.5 pct of national output this year and growth of 1.4 percent, a government official said.

Officials in Athens and Brussels are continuing talks in hopes of making enough progress for euro zone finance ministers to reconvene soon to discuss the reforms.

Reuters

Business Daily | 15

March 31, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE JAPAN NEWS Japan and the United States will hold another round of workinglevel talks on automotive trade in April as part of Trans-Pacific Partnership multilateral free trade negotiations, after their talks ended inconclusively last week. The talks in April, expected to be held in Tokyo, will address both auto trade and tariffs on agricultural products. After winding up five days of working-level bilateral talks in Washington, Takeo Mori, ambassador for economic diplomacy, said the two countries have not yet reached a stage where they can hold ministerial talks.

THE KOREA HERALD The default rate of corporate bills in South Korea improved to its lowest level in 20 months in February as the amount of default corporate bills at cashsqueezed conglomerate Tong Yang declined, data showed yesterday. The corporate bill default rate reached 0.08 percent last month, hitting the lowest level since 0.08 percent in June 2013 when the figure dipped on a fall in default corporate bills at logistics-focused conglomerate STX, according to the data by the Bank of Korea. The February reading also marks a 0.11 percentage point drop from the previous month.

THE STRAITS TIMES Companies in Singapore have turned moderately more optimistic about business in the next three months, although confidence is still significantly below what it was a year ago, the Singapore Commercial Credit Bureau (SCCB) said yesterday.

Following three consecutive quarters of decline, business confidence has shown signs of improvement for the first time since the third quarter of last year according to SCCB’s latest quarterly Business Optimism Index (BOI) study.

Companies are expecting their sales, profits, employment, new orders, inventories, and selling prices to increase in the April-June quarter of this year.

PHILSTAR Philippine economic growth should accelerate this year despite increasing political risks ahead of the 2016 polls, UK-based Barclays said. In its latest Emerging Markets Quarterly, the bank kept its 6.5-percent economic growth target for 2015. The figure is faster than the 6.1-percent growth recorded last year but short of the government’s seven- to eight-percent target for this year. The bank said it sees three key growth drivers for this year, led by the lower oil prices which should support the country’s external balances and boost domestic consumption.

Secular stagnation for free Ricardo Hausmann

Director of the Centre for International Development and Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University

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omething is definitely rotten in the state of capitalism. Despite unprecedentedly low interest rates, investment in most advanced countries is significantly below where it was in the years prior to the 2008 crisis, while employment rates remain stubbornly low. And even investment in the pre-crisis period was unimpressive, given low prevailing interest rates.

For some reason, achieving a level of investment that would generate full employment seems to require negative real (inflation-adjusted) interest rates, which is another way of saying that people have to be paid to invest. But in a world of low inflation and zero nominal interest rates, getting to the required negative real rate may be a challenge. This is the ailment that Larry Summers, recalling a 1938 paper by Alvin Hansen, has dubbed “secular stagnation.”

The policy consequences of this state of affairs remain open to debate (the issues are well summarized in an e-book edited by Coen Teulings and Richard Baldwin). For Keynesians, the answer is unconventional monetary policy (for example, quantitative easing), fiscal stimulus, and a higher target inflation rate. But, as Summers and others point out, lax monetary policies may trigger asset bubbles, and prolonged fiscal stimulus may end in a debt crisis.

Moreover, the Keynesians’ preferred policies address only the consequences of secular stagnation, not its causes – about which there is even less agreement. For some, the problem is a savings glut associated with slower demographic growth, rising life expectancy, and static retirement thresholds – a combination that forces people to save more for their old age. But, as Barry Eichengreen points out, the rise in

savings appears to be too small to explain this.

For others, the problem is lower investment demand, caused partly by the fact that machines are now much cheaper and that technological progress has slowed since 1970. Economists like Robert Gordon and Tyler Cowen argue that the technological breakthroughs of the past, including piped water, air conditioning, and commercial air travel, had a greater social impact – giving rise to the suburban lifestyle of cars and shopping malls, for example – than many of today’s advances.

This assessment bothers optimists like Joel Mokyr or Erik Brynjolfsson and Andrew McAfee, who do not believe that technological progress has slowed. Instead, they argue that the traditional concept

The fact that so much innovation is given away for free does not only create a measurement problem for economists; it is also a real problem for those trying to find investment opportunities

used to measure economic output and growth, gross domestic product, understates that progress. After all, our lives have been made dramatically more productive thanks to Google, Wikipedia, Skype, Twitter, Facebook, YouTube, Waze, Yelp, Hipmunk, Pandora, and many other companies. But all deliver their services for free, which means that the benefits they provide are not counted in GDP. As Edward Glaeser has argued, it is hard to believe that the median family in the United States, which supposedly is worse off than in 1970, would be willing to give up its cell phones, Internet access, and new health technologies in order to return to that halcyon era. Thus, the GDP numbers must be excluding much progress.

The fact that so much innovation is given away for free does not only create a measurement problem for economists; it is also a real problem for those trying to find investment opportunities. In the good old days of the post-World War II boom, if you wanted an air conditioner, a car, or a newspaper, you had to buy one, making it possible for producers to earn money by providing them.

Information-intensive products – typical of today’s technologically advanced economies – are different. Because the cost of providing an extra copy is almost nil, it is hard to charge for them.

Broadcast radio and television were the first to confront this problem, because they could not prevent those with a receiver from getting the signal.

They had to develop an advertising-based model, making it possible for others to pay for the benefits received by the consumer. This is supposedly what makes Google so profitable, though I have trouble believing that the enormous

benefits I receive as an assiduous and happy user are paid for by my rather infrequent Internet purchases.

So we live in a world where much of the progress that new technology permits is embodied in products that must be given away for free. A somewhat haphazard sub-set of potential products can, with the right business model, be profitable – say, through advertising or by selling the information that they passively collect from users.

But many others, like Wikipedia and public radio, have trouble making ends meet. Free products also depress the value of close substitutes. While it may require charging US$100 per ticket to recover the costs of a US$1 million theatre play, some filmmakers can make money on a US$200 million film by selling US$10 tickets to consumers who are unwilling to wait a few weeks until their cable TV provider offers it.

The e-book mentioned above, which prompted this column, is available to you, the reader, for free (as is this column). No wonder so many people have trouble making ends meet. But the Centre for Economic Policy Research, which published the e-book, and Project Syndicate, which distributes this column, are both (at least to some extent) donor-funded.

This may not be a coincidence.

To harness the possibilities of new technology, we may need non-market forms of payment for valuable contributions. The traditional capitalist model may have made Bill Gates rich, but his foundation now finances valuable technological breakthroughs in unprofitable ways.

As with negative real interest rates, but in a more targeted and efficient manner, we may have to pay to make valuable investments happen.

Project Syndicate

16 | Business Daily

March 31, 2015

Closing China reduces second-home down payment

Thailand’s February tourist arrivals up 29.6 pct

China lowered the down-payment requirement for some second homes, further easing mortgage policies as the government seeks to prop up the property market amid an economic slowdown.

The People’s Bank of China cut the minimum downpayment to 40 percent from 60 percent for people who haven’t paid off their existing mortgage but are buying a second home to improve their living conditions. The central bank made the announcement on its website. Yesterday’s move adds to efforts from September to ease restrictions that had been aimed at curbing property speculation.

The number of tourists arriving in Thailand rose for the fifth straight month in February, up 29.6 percent from a year earlier, continuing to recover after an army coup last May. Foreign tourist numbers were 2.69 million in February and arrivals are expected to be robust for the rest of the year, Krisada Chinavicharana, director general of the Finance Ministry’s Fiscal Policy Office, said yesterday. In the first 13 days of March the number of foreign tourists jumped 27.6 percent from a year earlier to about 1.1 million, he added.

This magic number can make or break you in China IPO market In China the power of 23 is uncanny

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t’s the magic number in China, a figure that conjures up public companies and private fortunes.

The number is 23 -- and it’s one of the most powerful forces in China’s US$6.4 trillion equity market today.

As the Shanghai benchmark index posts the world’s biggest rally, 23 has become a ceiling for firms trying to tap into it. Even though market valuations have climbed, virtually no companies have gone public at prices of more than 23 times their earnings per share.

That’s no coincidence, bankers say. Chinese authorities have quietly quashed attempts to take businesses public at richer prices. By hewing to the multiple 23, regulators are handing investors an almost guaranteed profit when new shares start trading.

Companies, on the other hand, get short-changed with smaller cash infusions than investors are ready to commit.

What’s so special about 23? The number itself is less important than what it says

about the Chinese government and its hold on the nation’s financial markets.

Instant profits Though regulators have made no official announcement about the ceiling, it first emerged after they tightened oversight of the IPO process in January 2014 to prevent companies and certain investors from colluding to drive up prices -- a practice that had saddled individual investors with losses. The China Securities Regulatory Commission didn’t respond to requests for comment on IPO valuations.

The 68 companies that started trading in China since January 1 have surged about 200 percent on average, compared with a 17 percent gain for the Shanghai Composite Index this year, according to data compiled by Bloomberg. The benchmark gauge rose 2.6 percent yesterday.

Granted, companies everywhere leave money on the table in IPOs. Bankers often under price offerings to ensure stocks rise from day

one. The strategy can hand a favoured few instant profits and generate buzz around the shares.

But in China, the power of 23 is uncanny. Only two of the 147 companies that went public during the past 12 months sold shares above that valuation, data compiled

by Bloomberg show.

Trial and error The two that broke through didn’t get far: circuit-board maker Guangdong Ellington Electronics Technology Co. fetched 23.2 times profit in its June offering, while fertilizer producer Hubei Forbon Technology Co. priced at

23.01 times later that month.

In all, more than half of the 147 IPOs were valued at levels between 22 and 23 times reported earnings.

Companies have learned that if they try to price shares above 23, their IPOs won’t get approved, he said.

Underwriters are reluctant to talk on the record for fear of upsetting authorities, who, unlike their counterparts in the U.S. and Europe, control the timing and pricing of deals. One banker said he only discovered what pricing level they would accept through trial and error.

And so 23 keeps working its weird magic. This year, three companies with almost

nothing in common, other than that they are Chinese, went public at the exact same multiple: 22.96.

Premier Li Keqiang pledged on March 5 to introduce a registration system for first-time share sales, indicating a change to a listing model where markets determine most aspects of an IPO. “It will take a long time,” said Alexandre Werno, a Shanghai-based executive vice general manager at Fortune SG Fund Management. “No one expects reforms can finish within just one to two years.”

So for now, 23 is the number that counts.

Bloomberg News

Yuan falls in global payment rankings

Xi Jinping details emailed in error to football body

China, Zambia vow to further promote ties

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hina’s yuan has dropped to seventh place among the world’s payments currencies, global transactions organisation SWIFT said yesterday, even as Beijing tries to push greater international use of the unit.

The yuan -- also known as the renminbi -- held a 1.81 percent share in world payments based on value in February, SWIFT said in a statement on Monday, down from 2.06 percent in January, when it stood in fifth place.

The Swiss franc and the Canadian dollar overtook the Chinese currency last month, SWIFT data showed.

It attributed the weaker showing to the “seasonal effect” of the Chinese New Year, when business slows because of a week-long holiday.

But the demotion also comes amid mounting worries over China’s slowing economy, though officials have denied strong capital outflows.

China keeps a tight grip on the value of the yuan out of concerns that unpredictable currency inflows and outflows could harm the economy and weaken its financial control.

AFP

he personal details of world leaders, travelling to Australia for the G20 summit, including Chinese President Xi Jinping, were mistakenly emailed to a member of the Asian Cup football local organising committee, a report said yesterday.

Australia’s immigration department confirmed there had been a data breach, but gave no details and did not say whether the world leaders had been informed.

“The breach was immediately referred to the Office of the Australian Information Commissioner,” a spokeswoman for the Department of Immigration and Border Protection said in a statement.

“The data was immediately deleted by the recipient and was not distributed further.”

The Guardian reported that an Australian immigration official accidentally emailed the passport numbers, visa details and other information about world leaders including Barack Obama and Vladimir Putin to an Asian Cup organiser on November 7.

AFP

hina and Zambia vowed to further promote their traditional friendship and expand cooperation yesterday.

The pledge came out of talks between Chinese President Xi Jinping and Zambian President Edgar Lungu, who is here for a state visit at the invitation of Xi and the annual conference of the Boao Forum for Asia (BFA).

Xi said the traditional friendship between China and Zambia is a common wealth for the two countries and should be cherished. China is ready to work with Zambia to make the relationship an example featuring equity, mutual trust, cooperation and reciprocity.

He asked the two countries to maintain high-level engagements, increase experience sharing on national governance and continue to support each other on issues involving core interests and major concerns.

Xi called on the two countries to give full play to the current trading and investment promotion centre, agriculture promotion centre and trade to deepen cooperation in areas including infrastructure construction, mining, agriculture, processing manufacturing, investment and trade.

Xinhua