Macau business daily, 2015 July 20

MOP 6.00

Sands China: Vickers Reports to remain sealed

Closing editor: Luís Gonçalves

Page 8

Macau Legend to record loss in 1H Page 2

Appeal lodged by Joseph Lau, Steven Lo rejected

Accident kills Mainlander on Venetian Phase V site 5 site Page 2

Year IV

Number 838 Monday July 20, 2015

Publisher: Paulo A. Azevedo

Page 8

Fifty-Fifty

The VIP sector has traditionally dominated. But its share of total gaming revenues dropped in 2Q to the lowest on record since 2005. Revenues from high rollers in this period reached MOP31.5 billion.

Down a massive 42.2 pct y-o-y. Dragging VIP share down to just 55.5 pct. The current gaming crisis is levelling the local gaming market to a 50/50 split between VIP and mass Page

3

Gov’t adopts ‘new normal’ The ‘new normal’. Not the exclusive preserve of the gaming sector. A ‘leaner structure and simpler administration’ is the gov’t mantra. Executive spokesperson Leong Heng Teng says the gov’t is proposing to dismiss the secretariat for the city’s advisory Science and Technology Committee.

And admits the possibility that more secretariats may be under the gun

A result. The city’s Consumer Council says it has come up trumps. Retrieving MOP1.2 million (US$150,000) for residents whose property deals turned sour in Mainland China. Co-operation with the Mainland consumer authorities was key, it claimed

Page 5

Brought to you by

HSI - Movers July 17

Qualified concern

Name

Macau banks’ problems are different. They have little exposure to gaming revenue decline. But a lot to China and the property market. The slowdown in the Mainland economy and real estate prices here are worrying signs, says Fitch. The world’s third largest rating agency, however, says there are mitigating circumstances. Their parent companies are robust

Page 2

Interview www.macaubusinessdaily.com

Watching and monitoring. Beijing authorities have released measures tightening the creation of Internet-based financial institutions. Online financing firms have been probed by regulators. Regarding their role in China’s stock market crash

Page 10

Page 4

Look before you leap

Stricter online financing

%Day

Belle International Ho

+4.67

Lenovo Group Ltd

+3.46

Li & Fung Ltd

+2.86

Kunlun Energy Co Ltd

+2.82

CK Hutchison Holdings

+2.68

Hong Kong & China Ga

-0.38

Hengan International

-0.39

China Petroleum & Che

-0.65

China Resources Land

-0.65

China Resources Powe

-1.44

Source: Bloomberg

Hengqin Oasis Opportunity. That’s what Wilson Chung, Marketing Director of luxury residential project One Oasis, sees in Hengqin’s rapid rise. This will bring more entertainment and light industry to Macau’s doorstep, he tells Business Daily.

Attracting expats and fuelling the property market in the territory. Gaming revenues may drop 30 pct but property prices never will, he avers. One Oasis expects to roll out the pre-sale of its final phase next year

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2 | Business Daily

July 20, 2015

Macau Government to test water in new public housing estates The government has decided to conduct water testing in all newly-constructed public housing estates to ease public concerns about water quality following an incident in Hong Kong. This was announced following a cross-departmental meeting on 16 July convened by the Marine and Water Bureau involving representatives from the Civic and Municipal Affairs Bureau, the Health Bureau, the Housing Bureau, the Infrastructure Development Office and the Macao Water Supply Company Limited.

Officials re-iterated that the current mechanism had a set of strict supervising procedures regarding water quality: water will be tested at least twice before distributing to households, with regular testing ascertaining the level of metals.

Fitch warns on local banks’ high exposure to China and property

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itch, the world’s third biggest rating agency, launched a warning on Macau banks saying the local financial institutions could face some headwinds due to high exposure to the

property market and China.

This could challenge Macau banks as the demand for credit is likely to slow down.

Fitch says that the problem for banks here is not the gaming revenue

decline in itself. The banks’ gaming exposure is small at only 3% of assets at the end of the first quarter. But the effects of the current gaming crisis on other parts of the economy are palpable.

Lifting accident kills Mainland Chinese labourer on Venetian Phase V site

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Mainland Chinese worker died in an industrial accident on The Venetian’s Phase V site at Avenida da Nave Desportiva on Friday, resulting in the suspension of lifting works, according to local media reports and the Labour Affairs Bureau (DSAL).

The accident occurred at a provisional offloading zone on the site, where the worker was hit by the sudden falling of the formwork of a curtain wall weighing 3 tonnes.

In a statement released following the accident, the Bureau said they had found that the contractor had allegedly violated work safety rules as they had not ensured that the lifting appliances used were in good condition. The contractor had also failed to zone an area for lifting works, the Bureau said. The Bureau has ordered the suspension of lifting works at the site and requested the contractor to submit an accident report.

Property prices are going down, the economy’s in recession and Macau’s largest partner, China, is slowing “[Banks] have higher exposure to property and China as well as a decent

exposure (in aggregate) to other sectors that would be affected by further weakening in gaming revenues”, wrote Fitch.

The rating agency expects mortgage quality to remain benign, as long as unemployment remains low. The bank’s exposure to Mainland China (21 per cent of system assets at end-2014) will ‘continue to outpace that of property loans, driven by cross-border trade finance and syndicated loans for property projects, the majority of which are financed by Chinese’.

Despite the challenges, the rating for Macau banks is likely to be maintained ‘because all are underpinned by institutional support from much larger parents’.

The agency also lists some key areas to watch in the future: Chinese authorities’ gaming and anti-corruption policies, banks’ risk appetite and improving anti-money laundering practices, and a likely increase in volatility in liquidity flows across borders.

Macau Legend to record loss in 1H

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asino and hotel operator Macau Legend Development announced Friday that it expects to record a loss in its first half-year results. In a filing sent to the Hong Kong Stock Exchange, the company run by David Chow says that Macau Legend may record a loss for the six months ended June 30 as compared to the profit made in the corresponding period of 2014.

The company says the loss is mainly caused by a decrease in revenue from gaming services due to a decrease in overall gross gaming revenue generated by the gaming tables, an increase in overall operating expenses, particularly staff costs. The

increase in overall depreciation and amortisation charges, particularly the depreciation of Harbourview Hotel, which commenced operations on 2 February 2015, and the amortisation of intangible assets arising from the consolidation of the financial results of New Legend VIP Club Limited since 3 July 2014 were also mentioned as factors.

In the first quarter, Macau Legend saw its operational profit (EBITDA or profits minus interest, tax, depreciation and appreciation) during the first quarter of the year plunge 65.6 per cent year-on-year to HK$74.9 million (US$9.33 million) as the earnings it gained from both of its gaming and hotel businesses experienced sharp declines.

Business Daily | 3

July 20, 2015

Macau

Macau's VIP share drops to lowest on record since 2005 The proportion of gaming revenue from VIP play continued to shrink in the second quarter, occupying only 55.5 per cent of casino revenue here, govt data reveals. VIP revenue is down by 42.2 pct from a year ago Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he city’s VIP baccarat gross gaming revenue for the second quarter has dropped by 42.2 per cent year-on-year to MOP31.57 billion (US$4 billion), while its proportion of overall casino revenue has continued to register less than 60 per cent for the second straight quarter this year, latest data released by the Gaming Inspection and Coordination Bureau (DICJ) shows.

Macau’s VIP baccarat gross gaming revenue for the second quarter occupied about 55.5 per cent of the city’s casino gross gaming revenue at MOP56.87 billion, a further shrinking in the share from the 58.2 per cent posted for the first quarter. VIP baccarat gross gaming revenue has already declined by 42.1 per cent to MOP37.67 billion in the first quarter.

This share of the second quarter VIP baccarat gaming revenue when

compared to casino gross gaming revenue is also the lowest since the fourth quarter of 2005, available data released by the gaming regulator shows.

Meanwhile, the mass market gross gaming revenue here, including that derived from slot machines and electronic gaming machines, has also declined by a year-on-year 30.2 per

cent to MOP25.3 billion for the second quarter. Gross revenue from this segment has already dipped 27 per cent in the first quarter.

Mass market

Of the mass market gross gaming revenue, that generated by the segment of baccarat games registered a decline of 33.6 per cent to MOP18.6 billion in the second quarter from MOP28.03 billion a year ago, official data shows.

Gross revenue derived from slot machines slipped 18.2 per cent to MOP2.96 billion in the second quarter; meanwhile, the revenue segment from live-multi games dropped 11.6 per cent to MOP504 million.

Live multi-game terminals is a type of electronic table game that involves a dealer handling multiple table games such as baccarat, roulette and sicbo.

The gaming regulator announced earlier in this month that the city’s total gross gaming revenue for the first six months of this year had seen a drop of 37 per cent year-on-year to MOP121.65 billion. Total gross gaming revenue for the second quarter decreased 12.2 per cent compared to the previous quarter.

In a note released last week, Wells Fargo said it estimated the gross gaming revenue here for July would track a 31 per cent to 33 per cent yearon-year decline, assuming same store average daily revenue would trend in line with historical seasonality and the ramp of Galaxy Phase II. For the forecast of July, equity research firm Stern Agee CRT said last week that it predicted a drop in gross gaming revenue ranging from 30 to 34 per cent year-on-year to an amount close to MOP18.6 billion.

4 | Business Daily

July 20, 2015

Macau

Science and Technology Committee secretariat to be dismissed The government admits the possibility that more official secretariats may be dismissed in the future

Gov’t to regulate basic scholastic ability of students

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he government is proposing to dismiss the secretariat for the city’s advisory Science and Technology Committee, the spokesperson of the Executive Council, Leong Heng Teng (pictured) announced last Friday, not refuting the possibility that more official secretariats may be dismissed in the future.

According to Mr. Leong, the proposed dismissal of the secretariat is to meet the Chief Executive’s policy of ‘leaner structure and simpler administration’, as well as meeting actual work demands.

The government has disbanded three secretariats since the beginning of the year; namely, the secretariats for the Urban Planning Committee, the Follow-up Committee of the Health System Infrastructure, as well as the Economic Development Committee.

The newly proposed bill by the government suggests that the Sc i en ce a n d Tech n o l o g y Development Fund provide technical and administrative assistance to the Science and Technology Committee once its secretariat is officially dismissed.

Transfers

Mr. Leong indicated that the proposal will affect 10 civil servants currently working for the secretariat, including three with permanent contracts with the government and 7 with nonpermanent contracts. The contracts of these public servants, however, will be transferred to the Science and Technology Development Fund.

Meanwhile, asked by reporters whether the Executive Council is

planning to abolish more secretariats in the city, the spokesperson said, “[the decisions on dismissals] are related to the administrative idea of the SAR Government planning to streamline its administration.

As such, it can be understood that there is a possibility the government will dismiss more secretariats in the future.”

At the beginning of this month, Secretary for Transport and Public Works Raimundo Rosario had hinted that the Science and Technology Committee may leave the Secretary’s supervision within this year. However, the Executive Council spokesperson told reporters last week that the committee will still report to the Secretary even though its secretariat is to disappear.

he Executive Council proposed a bill to regulate the basic scholastic ability of local students at different stages of their education last Friday, which it stated all of the city's regular schools in the local education system will have to follow.

According to the Council spokesperson, Leong Heng Teng, basic scholastic ability refers to the required accomplishments that students should reach at different stages of education.

Such accomplishments will be related to students’ basic knowledge, skills, ability, emotions, attitudes and values.

The purpose of the bill is to manage and evaluate the teaching standards of local regular schools, their course planning as well as the teaching materials they use.

The basic scholastic ability for kindergarten students will be defined in terms of their learning fields, while that for primary school students and above will be defined by their academic subjects.

More specific contents for the requirements on students’ basic scholastic ability will only be published on the Official Gazette by the Secretary for Social Affairs and Culture Alexis Tam Chon Weng, Mr. Leong said.

The bill suggests that the regulation should firstly come into force for kindergarten students from this September, at the beginning of academic year 2015/16, if the bill is passed by the Legislative Assembly.

Requirements on scholastic ability for primary students, as well as both junior and senior high school students, will be effective from the 2016/17 and 2017/18 academic year, respectively.

K.L.

K.L.

Corporate

L’Arc Macau awards ‘2015 Best Employee of the Quarter’ L’Arc Macau recognised outstanding employees for the ‘2015 Best Employee of the Second Quarter’ Award on 17th July.

Ten employees were awarded by Hotel General Manager Mr. Anthony Tam with certificates of recognition and Food & Beverage coupons.

The best employees of this quarter comprised Finance - Chan Sut Man; Food & Beverage - Huang Hua, Hu Hailin; Housekeeping Rooms - Zheng Songjian, IT

Systems & AV - Ho I Sun; Engineer - Lam Kun Wai, Casino Treasury (Cage) - Kuong Kam Leng; Casino Security - Chan Mei I; Casino Operations - Cheang Kuai Lin, Mio Ka Pan. These employees demonstrated high standards and effectiveness in ‘Quality of Work’, ‘Work Efficiency’, ‘Service Attitude’ and ‘Responsibility’.

Meanwhile, the staff party featured a buffet and games to share the happiness with the awarded employees.

Macao Water Open Day to promote water conservation In order to respond to the annual Marine & Water Day and promote water conservation and environmental protection, Macao Water held an Open Day on Sunday. The Open Day received a warm response, with hundreds of residents participating in the event.

Through a visit to its water treatment plant and participation in the water quality testing workshops arranged by the organiser, the company aimed to convey a better understanding of local water

production and supply service to the public, enabling them to realise that every drop of water is valuable; every one of us is responsible for water conservation.

The Open Day this year was encompassing, including a visit to the Ilha Verde Water Treatment Plant – the largest water treatment plant in Macao with the biggest production capacity at present – to realise each professional and rigorous step in local water treatment, monitoring and delivery procedures.

Business Daily | 5

July 20, 2015

Macau Goh Hoon Leum appointed C Y Foundation executive director Hong Kong-listed C Y Foundation announced last week that it had appointed its independent non-executive director Goh Hoon Leum as the new executive director of the company, effective last Thursday. According to the company announcement, as of July 16 Mr. Goh was interested in 1.8 million shares of the company and was interested in share options with the right to subscribe for 1 million shares. The new director will receive HK$1.68 million per annum. Meanwhile, Leung Po Hon has been appointed a new independent non-executive director of the company.

Consumer Council claws back MOP1.2 mln for local consumers buying Mainland homes

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he city’s Consumer Council said that it had recently retrieved MOP1.2 million (US$150,000) for residents purchasing property in Mainland China, claiming its co-operation scheme with the Mainland consumer authorities was effective although it cannot supervise cross-border property purchases.

In a reply to legislator Si Ka Lon’s written interpellation on cross-border property purchase, the president of the Council, Wong Hon Neng, said that the MOP1.2 million it had retrieved represented losses in two cases involving

local residents buying homes in Zhuhai yet encountering disputes with the developers.

It noted that the losses of the residents being chased back is attributable to its cooperation with the consumer association in Hengqin New Area.

According to the council president, residents who have complaints against property markets or encounter disputes outside the territory will be transferred by the local Council to other foreign consumer associations, based on co-operation agreements that the local government had reached with these associations.

“We believe that Macau residents can still access support and assistance when they encounter problems or disputes like purchasing real estate on the Mainland, as long as the co-operation scheme between the local government and the Mainland authorities keeps improving,” Mr. Wong remarked.

In the legislator’s enquiry, he actually complained that the government’s lack of supervision makes crossborder real estate purchase risky for local residents, querying whether the government has effective measures to combat, and follow up on the issues.

“The government did not conduct any clear administrative supervision of local realtors selling uncompleted residential units that without pre-sales permits on the Mainland brings high risks for residents who are planning to make crossborder property purchases,” Mr. Si wrote.

Nevertheless, the Consumer Council president responded that the local government has no right to supervise the non-local property market.

“The Housing Bureau’s information shows that the property market of every country and region is

regulated by their own law.

Hence, before reaching a co-operation network with the countries or regions, it is hard for the Bureau to supervise other regions’ property regulations,” Mr. Wong wrote.

According to the legislator, his Office had received complaints from dozens of residents who claimed that the uncompleted units they had purchased on the Mainland failed to be completed as stated in their purchase contracts with the developers.

He claimed that some of these residents are worried that they will face serious losses.

K.L.

6 | Business Daily

July 20, 2015

Macau

“Hengqin development is a complement to the Macau market” The development of Hengqin Island will bring to Macau’s doorstep more entertainment and light industry, which in turn will increase the value of the property market in the territory. Such is the view of Wilson Chung, Marketing Director of luxury residential project One Oasis João Santos Filipe

jsfilipe@macaubusinessdaily.com Photos: Cheong Kam Ka

must be around HK$18 to HK$20 per square foot. For example, the one-bedroom units rents are around HK$10,000 per month.

For a two-bedroom unit the rental value is between HK$16,000 and HK$18,000 per month, which is quite good. Now, if it is enough to cover the mortgage value, it depends on the time these owner acquired their units. For instance, if they bought in 2010, then the rental value can cover the mortgage payment and still generate profit.

The rental market is very important in supporting the development of the property market. One Oasis does quite well on the rental market because people have confidence in the project. They know if they do not want to live there, they can always rent the flats to other people and generate income from them.

How do you perceive such investment nowadays, considering the new wave of casinos opening in Cotai?

The sales of One Oasis flats has achieved considerable success with all units sold. What are the reasons for this success?

Wilson Chung: First, I believe the location of One Oasis is very important. This is a project where people feel they are living in a resort. One Oasis is just a few minutes drive from the Cotai Strip then add to that the fact that it is just next to the river and the mountain. It really looks like a resort. More importantly, we have internal facilities, like the clubhouse, which allows the project to combine the living style of a resort and a city. We were also helped by the property market, which has performed quite well these few years. So we combined a good project with good timing to achieve good results.

What’s the profile of buyers acquiring units in One Oasis?

Most of our buyers are Macau residents. They represent around 80 per cent of our clients. They have the purchasing power to afford these residential units.

According to the government’s figures the ownership of houses in Macau is higher than in Hong Kong, which is over 70 per cent.

This means that locals have spare money. Another 20 per cent of the

buyers are from Hong Kong and Mainland China. But there are also people from other countries including Europe, America and Australia. There are, as well, Malaysian Chinese who bought property here because they want to invest in the territory.

After acquiring these units, do the owners actually live in them or are theying buy to rent or just as an investment?

Local residents buy the properties and most of them occupy them.

Others see these properties as long-term investments. Also, many residents buy to rent because there are a lot of expats in Macau. These owners are interested in keeping the houses because they want to receive the income from the rent every month.

Focusing on non-local residents, such as Hong Kong and Mainland people, what is the use for them of the flats?

Half of the Hong Kong and Mainland residents keep the houses for themselves while the other half buy for investment.

Now, of course, those people using the houses, given that the price of the properties has increased significantly, will consider selling.

However, some are more keen on

Gaming revenue may drop 20 or 30 per cent but property prices will never drop that much

keeping the properties as a home resort. For example, Hong Kong people can come here during the weekend and instead of staying in a hotel they can stay in their property. The same happens with Mainlanders, who actually do this quite often when they visit Macau.

Is the rental value of One Oasis property enough to cover the investment of acquiring the flats?

The market value of these flats

Prospects are good, mainly because One Oasis units are just a few minutes away from the Cotai Strip, where most of the resorts are concentrated. At this moment, there are 28,000 hotel rooms in Macau but in the coming two or three years the new resorts opening will create 20,000 extra rooms.

These new resorts will also bring to the city lot of entertainment activities and with them people from the upper classes, such as the expats. There are, as well, local residents studying or living abroad who like the lifestyle of international communities.

So, when these people return to Macau they will prefer to live in a place with this international environment, which can be found in One Oasis.

Twelve towers are already completed. Are there other plans for the development of the property?

We’re targeting launching the presale of the last phase of One Oasis during next year. But this phase will take two or three years to be completed, as we’re still building the foundations of the project.

We’re also considering launching in the market during this year our special units in One Oasis Phase III. These units are already completed but haven’t been made available for sale yet. This decision will depend upon the market, as these units are priced at HK$15,000 per square foot for now, although we’re targeting a price of HK$18,000 per square foot.

Have you already determined a name and the design of this last phase of the project?

Business Daily | 7

July 20, 2015

Macau We’re still considering it. For the moment, the designation is the new phase of One Oasis. Whether we’re going to call it this in future we haven’t yet determined. We’ll announce it later.

The luxury residential project One Oasis is the result of a joint venture named Concordia between the Hong Kong-based ITC Properties (who participated in the construction of Altira Macau), Nan Fung Group, Success Universe Group (owner of Ponte 16 casino), Macau-based Linkeast Investments and ARCH Capital.

At the moment the project comprises 12 residential towers which were developed in three different phases.

However, in the next three years an extra phase of the project is expected to be completed.

How many housing units will this project add to the Macau property market?

It’s not yet decided. We’re still planning the flat mix. If we decide to construct more one-bedroom flats, then the project will add more houses to the overall market but if we want the flat mix to comprise larger houses then the number of units added will be less.

Will this new phase change the type of clients targeted or will the focus continue to be the high-end market?

enough parking spaces and shuttle buses. Our residents have good alternatives. Of course, the Light Rail may save you 10 minutes going to the Peninsula but our shuttle buses heading to the Peninsula only take 15 minutes. Another point is that from One Oasis you can easily access the three bridges connecting Taipa to the Peninsula. Our location is very good.

We’ll continue to target the upscale market. One Oasis has created a luxury brand and living style in Macau and we will not change it.

Do you expect the new One Oasis phase to be impacted by the decline in gaming revenues?

We know that since May last year the gaming industry has been declining in terms of revenues.

But we believe the sector will be strong in the mid-term because it is increasing the number of hotel rooms and creating an entertainment hub. At the same time, there is an effort to diversity the economy of the territory. I hope that during this summer we can see some improvement in the gaming industry. But I do not think there is a very clear relationship between gaming revenue and the prices of our properties. Gaming revenue may drop 20 or 30 per cent but property prices will never drop that much.

In fact, the whole property market has already been through a consolidation phase since the fourth quarter of last year up to the first quarter of this year. Now the second quarter is showing signs that the market is warming up again.

How much did prices drop during this consolidation period?

During the consolidation phase market prices fell between 15 and 20 per cent.

How much do you expect the market to grow from the second quarter on?

Now the market is recovering but a return to the time when prices were increasing 10 to 20 per cent ever year is not to be expected. In terms of luxury projects like One Oasis, we predict prices will increase between 5 and 10 per cent.

Is the luxury property market in Macau affected by the anticorruption crackdown and the slowdown of the economy in Mainland China?

They [Chinese people] like to invest in property because it’s more stable than the stock market, which is always moving up and down

Hengqin is developing and a lot of property is being built there.

How is this going to affect the market in Macau and One Oasis?

In the Macau property market the proportion of Mainland buyers does not represent a large share; instead, the largest share is held

by Macau buyers. I may say that there is a small impact affecting Mainlanders that bought property here. However, most of them have enough economic power to hold their properties in spite of the slowdown of the economy. There is not a direct relationship of these factors with the market.

Anyway, we believe the Mainland market will continue to do well in spite of the slowdown. The economy may be growing 6 or 7 per cent now, while in the past it was growing above 10 per cent, but Mainland buyers have the purchasing power and so they are not that affected for the time being by the slowdown.

Did this consolidation also affect the rental market?

The rental market is rather stable and I believe there will be a steady increase in rental values because of the expats coming to work in the new casinos projects in Cotai.

This increase will be driven by this demand. Also there are many local youngster getting married and moving out of their parents’ places

as well as residents increasing their income and considering moving to better houses. These people will create demand in the rental market. At the same time, I believe many people will continue to buy houses here, and Chinese people are very keen on this; they like to invest in property because it is more stable than the stock market, which is always moving up and down.

It’s also worth mentioning that for the past few years the Macau property market was only supplied with 2,000 housing units. In the coming few years the supply will also be less than 3,000. This may continue to drive prices up.

The One Oasis project focuses on the importance of the Light Rail and the bridge connecting Hong Kong-Zhuhai-Macau. But these projects have been delayed. Has this affected the desirability of the property?

We offer to the people living here shuttle buses that run to Cotai as well as the Macau Peninsula. These projects are delayed but most of our residents have their own cars.

We don’t control the public works but our residents are happy with our property because we offer

It is a complement to the Macau market. We don’t perceive it as competition. It will have a good effect on Macau not only because of the property market growing there but because of the whole development of the land, which will bring more facilities, like the University of Macau, entertainment facilities and some light industry. It is a good complement. We do not share the view of some people who consider Hengqin’s development will bring competition to the property market.

Is Hengqin an area where the developers of One Oasis may consider developing projects in the future?

At the moment, we are focused on One Oasis because of the new phase of One Oasis. It is a large area and people from the street can already see the construction site.

The government plans to roll out 28,000 housing units of public and economic housing. Do you believe this will impact the market?

In relation to One Oasis sales it will not have any impact because the people targeted are very different.

Considering the market, there might be a little effect but not much because the type of people living in public housing and buying private housing are different.

However, it is good for society to have these houses because they offer housing to different people.

8 | Business Daily

July 20, 2015

Macau

Sands China: Vickers Reports to remain sealed The documents that could have revealed business ties between the company and alleged high-ranking members of triads in Macau are not going to be made public João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he records of the wrongful termination case involving Las Vegas Sands that could have revealed business ties between the American company and alleged high-ranking members of triads in Macau are not going to be unsealed, according to the Las Vegas Review Journal.

The decision was taken by US District Judge Elizabeth Gonzalez last Thursday based on the existence of sensitive commercial and gaming information in the records that should not be made public.

Previously, British Guardian newspaper, the non-profit organisation Campaign for Accountability, and the hospitality union group Unite Here had filed separate motions to unseal records of the wrongful termination case brought by former CEO of Sands China Steven Jacobs. The motions argue that the reports involve matters

of extreme public interest such as the reputed business ties between Sands companies and Cheung Chi Tai and Heung Wah Keung, alleged organised crime figures in China.

However, and in spite of the three organisations having been refused, according to the American journal in the future there may be a legal reason to unseal the

documents, as the judge stressed that she was not cutting off the groups.

The documents - known as the Vickers Reports - were compiled by private investigator Steve Vickers, a former Hong Kong police officer, concerning the alleged connections between Sands and Chinese triads and were included in the case of Steven Jacobs versus Las Vegas Sands. For his part, Randall Jones, who represents Sands China in court, told the judge that the former employee stole the documents from the company.

The case goes back to July 2010.

After being fired Jacobs decided to sue Sands China, claiming he had been wrongfully fired for refusing to engage in unlawful acts, including promoting prostitution and spying on Chinese politicians to find embarrassing information to be used in obtaining favourable treatment for the casino.

Court of Second Instance rejects appeal lodged by Joseph Lau, Steven Lo The argument presented by the two accused Hong Kong businessmen was not sufficient to overturn their corruption ties with a former disgraced public works Secretary over the La Scala land plots, the Court of Second Instance verdict reads Stephanie Lai

sw.lai@macaubusinessdaily.com

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acau’s Court of Second Instance ruled on Friday that Hong Kong businessmen Joseph Lau Luen Hung (pictured) and Steven Lo Kit Sing’s grounds of appeal against them having been found guilty of bribery and money laundering had failed.

Both were sentenced in March last year by the Court of First Instance to five years and

three months in jail.

Both had been accused of paying a bribe of HK$20 million to the former Secretary of Public Works Ao Man Long to help secure five parcels of land opposite Macau International Airport for the development of luxury residential project La Scala. The land deal was declared void by the Macau Government in 2013 – and

it was ruled by the Court of Second Instance last month that these five plots should be returned to the Macau Government’s possession.

Following the Court of First Instance’s ruling in March last year, Lau lodged an appeal against the court having rejected his request to investigate the sales plan of the five plots and the context for it. Lau wanted to prove

that the local property sector had already been aware of the intended sales of the five plots prior to 2004, which did not make him and his company drafting the development plan of the five plots starting from February 2005 unreasonable – or that Lau’s development plan was necessarily related to Ao. But Lau’s grounds of appeal were rejected by the Court of Second Instance.

‘This does not overturn the fact that the former Secretary [Ao Man Long] had used his authority to interfere in the sales of the five plots of land in the case, nor is this sufficient proof that the appellant is not guilty,’ the verdict of the Court of Second Instance reads.

The verdict also noted that the historical sales record of the five plots and how the previous owners handled them (prior to Lau’s Moon Ocean company’s acquiring the land in 2006) was unrelated to the case.

In 2006, Moon Ocean, the company controlled by Joseph Lau, acquired the five plots of land for MOP1.3 billion.

Five years later, Moon Ocean paid an additional MOP642 million after the contract was revised at a time when Macau authorities were already investigating the operation.

Lau’s appeal to prove the handwriting in the ‘Friendship Notebook’ - the document that allegedly shows payoffs to Ao – was also rejected by the Court of Second Instance.

The validity of the ‘notebook’, also a key exhibit of evidence in Ao’s corruption case processed by the Court of Final Appeal, has already been proved in terms of evidence in Ao’s case, the Court of Second Instance stated in the verdict.

In the same verdict, the Court of Second Instance also turned down Lau’s request for a lighter penalty, saying that the ruling of 5 years and three months of imprisonment is already the ‘lightest possible’ considering the nature of the crime, and Lau’s unco-operative attitude in the processing of the case as he was absent from the trials.

The verdict released on Friday also included the court’s rejection of Steven Lo’s appeal that his document read by a Commission Against Corruption (CCAC) officer in a trial held in 2013 was presented as inferential evidence.

According to the Penal Code, for cases that the Court of Second Instance has affirmed the original judgment of the lower court that involves imprisonment of less than 10 years, an appeal may not be made to the Court of Final Appeal.

Business Daily | 9

July 20, 2015

Greater China

Manage, meddle or magnify?

Corporate debt threat Banks made 1.28 trillion yuan (US$206 billion) in new loans in June Umesh Desai

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eijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world’s biggest corporate debt pile - US$16.1 trillion and rising - is a much greater threat to its slowing economy and will not be so easily managed.

Corporate China’s debts, at 160 percent of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows.

And the debt mountain is set to climb 77 percent to US$28.8 trillion over the next five years, credit rating agency Standard & Poor’s estimates.

Beijing’s policy interventions affecting corporate credit have so far been mostly designed to address a different goal - supporting economic growth, which is set to fall to a 25year low this year.

It has cut interest rates four times since November, reduced the level of reserves banks must hold and removed limits on how much of their deposits they can lend.

Though it wants more of that credit going to smaller companies and innovative areas of the economy, such measures are blunt instruments.

“When the credit taps are opened, risks rise that the money is going to ‘problematic’ companies or entities,” said Louis Kuijs, RBS chief economist for Greater China.

China’s banks made 1.28 trillion yuan (US$206 billion) in new loans in June, well up on May’s 900.8 billion yuan.

The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where

KEY POINTS China’s corporate debt 160 pct of GDP, twice U.S. level Estimated to climb 77 pct to US$28.8 tln over five years Increased bank lending not going to most profitable areas Manufacturers’ loan to core profit ratio rising sharply Loan quality, pricing compromised by ‘open credit taps’

long-term borrowing costs remain high, and banks are reluctant to take risks.

Manufacturers’ debts are increasingly dwarfing their profits.

The Thomson Reuters study found that in 2010, materials companies’ debts were 2.8 times their core profit.

At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit.

For industrials, from 2.5 to 4.2.

Low returns

Gao Hong, investor relationship principal at railway equipment maker Jinxi Axle Co, which has seen its debt-to-core profit multiple triple to 10.25 between 2010 and 2014, said the company struggled to find profitable capital projects to invest in, so put money into short-term bank products that guaranteed returns.

“The risk for these (capital) programmes is so high and the rate of return so low that we have to make the best decision for our investors (by) purchasing bank products. Last year, we made profits thanks to the sale of CNR shares,” said Gao.

Much of the new lending is going to China’s notoriously inefficient state-owned enterprises (SOEs) as part of the government’s fiscal stimulus.

“They are lending more to fund infrastructure projects, and some may be done by SOEs where leverage is increasing as a result,” said Tao Wang, UBS head of China research.

“Prices are declining and revenue is slowing, and in this environment you cannot force too quick a deleverage - that would lead to a hard landing,” said Wang.

S&P expects China’s companies to account for 40 percent of the world’s new corporate lending in the period through 2019.

But quantity is not the only problem.

Getting credit to the most efficient companies, where it has the most impact on the economy, would be easier if inefficient companies were allowed to fail, so markets can price debt effectively.

Policymakers have said they want market mechanisms to play

a bigger role in credit pricing, but in practice have baulked at the consequences, effectively bailing out companies in trouble, as it did last year when state-backed Shanghai Chaori Solar Energy Science and Technology Co Ltd defaulted on a bond coupon payment.

Rapid debt growth, opacity of risk and pricing and very high debt to GDP are a hazardous combination, Standard & Poor’s says.

It took an unprecedented series of measures to arrest the plunge in China’s stock markets, which are worth just over US$8 trillion and are a minority pursuit for the relatively wealthy.

Tackling corporate debt might make that seem like child’s play.

“Managing the debt market is probably more dangerous than the stock market because the scale of the debt market is bigger, and without any high-profile default, the moral hazard is a significant issue,” said David Cui, BofA Merrill Lynch analyst.

Reuters

10 | Business Daily

July 20, 2015

Greater China

Online lenders to face tighter scrutiny They helped fuel an equity roller-coaster that saw the benchmark index rallying more than 150 percent in the 12 months through June 12 before abruptly crashing raising funds illegally, according to the new rules. Online crowdfunding must not “mislead or cheat investors.” The PBOC added that Internet finance activities were bringing new problems and risks as there were “no market entrance threshold, no game rules and no regulatory oversight.”

It will set up an Internet finance association and support financial institutions starting online businesses including in banking, insurance and securities-related offerings.

The rules were drafted by 10 Chinese regulators and ministries, including the Ministry of Public Security and the Cyberspace Administration of China. It’s the first set aimed at taming Internet finance at a time of rising risk.

‘Old approach’

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hina tightened control of online financing, saying it is looking to develop healthy industry growth amid criticism the platforms contributed to an equities plunge that wiped US$3 trillion off the market.

All client funds must be parked at established banks and Internet finance firms will need approval from financial as well as cyberspace regulators, the People’s Bank of China said in a statement on its website on Saturday. They must also provide sufficient disclosure and send risk reminders to customers.

The sites offered 3.1 billion yuan (US$499 million) of new loans for stock investment in May, about six times that of January, according to the Yingcan Group, which tracks the nation’s more than 2,000 peerto-peer finance platforms.

Instead of encouraging the new online firms, they are just pushing existing financial institutions to embrace the Internet Huang Song, secretary-general, Peking University’s Finance and Industry Development Research Centre

“This is a move by the government to tighten regulation of the industry, particularly for smaller companies,” said Xu Hongwei, chief executive officer at Yingcan.

The People’s Bank of China will supervise online payments while the China Banking Regulatory Commission will oversee online lending, trust and consumer finance.

The China Securities Regulatory Commission will handle equity crowd-funding and online fund sales, while insurance will be looked after by the China Insurance Regulatory Commission.

New risks

Peer-to-peer lending websites, which match borrowers with lenders, should serve only as intermediaries and are banned from “enhancing borrower credit worthiness” or

Yingcan estimates that 1,500 of the platforms may go bankrupt or have difficulty paying dues, up from 275 in 2014, while Dagong Global Credit Rating Co. has put more than 1,300 P2P companies on a blacklist that flags them as too risky and opaque.

The CSRC said last weekend it would stop online sites from handing out new loans for share purchases, blaming some “information technology service providers” for illegal practices that it said contributed to the stock plunge.

There will be additional strings on Internet finance firms, such as a minimum capital base and parking of reserve funds with regulators, said Huang Song, secretary-general of Peking University’s Finance and Industry Development Research Centre.

“Putting so many regulators in charge of each section of online finance is an old approach,” Huang said. “The government is trying to use a conventional approach to regulate this most unconventional business.

Bloomberg News

Home prices rise for second month in June The NBS data showed home prices fell 4.9 percent in June on an annual basis Xiaoyi Shao and Megha Rajagopalan

C

hinese home prices rose for a second month in a row in June, on a monthly basis, indicating that government efforts to boost the struggling property sector have started to gain traction.

Average new home prices rose 0.4 percent in June versus May, according to Reuters calculations from official data published on Saturday. That was a faster gain than the 0.2 percent rise in May, the first monthly increase since April 2014.

The second month of rising prices is a sign of bottoming out for one of the country’s key sectors and should ease fears of a sharp slowdown in China’s economy.

A mild recovery in the market could be welcomed by the government as long as it does not turn into a swift rebound, which would risk of rekindling property bubbles.

Sheng Laiyun, spokesman of the National Bureau of Statistics (NBS), said on Wednesday the property sector had shown marked improvement in the second quarter, boding well for the broad economy.

Still, high inventories of unsold homes have weighed in most small cities and developers have slowed the pace of construction, underscoring the unlikeliness of a quick recovery in the property market this year.

“There are many Chinese

cities sitting on a sizeable inventory of unsold homes.

That’s not easy for home prices to be up in those cities,” said Liu Yuan, head of research at property consultant Centaline in Shanghai.

Official data this week showed China’s unsold floor space totalled 657.4 million square metres at the end of June, up 20.8 percent from the same period a year ago.

The government in the past few months has relaxed tax rules and cut downpayments for secondhome buyers.

The government’s progrowth policy, which included four cuts to benchmark interest rates

since November, also helped boost property sales and change market sentiment.

Mixed picture

With sales rebounding and home buyers turning more optimistic about the market, some developers have started to raise prices.

An executive at property company CIFI said this month it was planning to raise prices by 10 percent in the second half, while Country Garden said last week it saw room to lift prices for some projects.

The NBS data showed home prices fell 4.9 percent in June on an annual basis, the 10th consecutive annual fall, but at a slower pace than the 5.7 percent dip in May.

Across China, home prices rose month-on-month in 27 of the 70 major cities monitored, up from 20 in May, NBS data showed.

Prices in the wealthiest cities lead the gains with most third-tier cities still seeing prices falling, highlighting a growing divide in the market.

Shenzhen was the top performer, recording the third consecutive month of rebound, up 15.7 percent in June from a year ago, following a 7.5 percent rise in May. Shanghai’s prices also swung into positive yearon-year growth, rising 0.3 percent in June and reversing a drop of 2.3 percent in May. Reuters

Business Daily | 11

July 20, 2015

Greater China

Vice finance minister highlights learning from stock market rout

Xi says state industry the backbone of economy China’s state-owned enterprises are the backbone of the economy and the government must “avoid the blindness of the market” even as it pursues reform, President Xi Jinping said in remarks published in state media. The government must have confidence in the state-owned enterprise (SOE) system, Xi said on a trip to the north-eastern province of Jilin, adding that reform also meant following the rules of the market economy to enable SOEs to become more competitive and contend with risk, according to an online report by the official Xinhua news agency.

Zhu Guangyao said he was confident China would be able to meet its potential economic growth rate of between 7 and 8 percent over the next five years Karin Strohecker and Sarah Young

Banks lend US$209 bln to margin lender China’s biggest banks have lent 1.3 trillion yuan (US$209.4 billion) to the country’s state-backed margin lender to halt a meltdown in Chinese shares, local media said on Friday, underlining the government’s determination to support stock prices.

Financial magazine Caijing cited unnamed sources as saying that 17 commercial Chinese banks had coughed up the cash for China Securities Finance Corp as of Monday, after China’s central bank said it wanted to extend funding to the firm.

China Merchants Bank Co was the biggest financier, lending 186 billion yuan to China Securities Finance, Caijing said.

Outstanding foreign debt unveiled

C

hina must learn lessons from its stock market rout, the country’s vice finance minister said on Saturday, signalling his intent to focus on supervision and the development of new frameworks to make it possible to weather any future market turbulence.

A market slide sparked China’s biggest rescue effort of its equity market, with the government launching a series of moves that included halting flotations and banning companies and their executives from selling shares.

Zhu Guangyao (pictured) told Reuters Beijing was considering new policies.

“There is a mismatch for supervision, and that is a real challenge,” he said in an interview at the Chinese Embassy in London.

“After the big up and the big down we saw, we need to learn from other countries, mature stock markets including the U.S. and U.K.”

We have full confidence that we have the real capacity to (keep) ... our financial system healthy and sustainable Zhu Guangyao, China’s vice finance minister

The market has bounced in recent sessions and the CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 3.9 percent on Friday to 4,151.50, up 1.1 on the week.

Zhu said China’s intervention to stabilise the market was justified given the level of turbulence and that there would now be an evaluation of what had happened to help draw up policies to handle any future market turmoil.

However he did not say what other policies might be considered.

Some investors have said market reforms and a move towards a marketdriven economy, rather than shortterm steps such as limiting share sales, are what will nurse markets back to health.

Difficult year

Even before panic spread through China’s equity market in mid-June, it was shaping up to be a difficult year for the world’s second-largest economy, feeling the pinch from slowing growth in trade, investment and domestic demand which was compounded by a cooling property sector and deflationary pressures.

State-owned enterprises and private companies, many of which are heavily indebted, have also been feeling the pressure.

Zhu said the government would allow some companies to go bankrupt rather than propping them up in order to create a more efficient debt market. “(In) some cases certainly the borrower should take their responsibility, we’ve been very clear that’s a market principle but we also emphasise we must avoid any negative impact to the regional and the systemic financial risk,” he said.

Longer term, Zhu said he was confident China would be able to meet its potential economic growth rate of between 7 and 8 percent over the next five years through instituting market reforms which would enable productivity to rise.

Asked if he thought China’s 2 trillion yuan debt-swap programme, designed to ease refinancing for highly indebted local governments and rev up economic growth, needed to be expanded, Zhu said the size should be sufficient, for now.

The programme allows provinces and cities to replace high-interest loans with lower-cost municipal bonds with longer-term maturities.

Data from the national audit bureau from June 2013 showed repayments by local governments could amount to 1.82 trillion yuan by the end of the year, he said.

“In my opinion, 2 trillions will cover all. But of course this figure is from June 2013, so certainly something should be more, but I don’t know how much.”

Originally, the debt swap programme had a quota of 1 trillion yuan, but in June the Ministry of Finance doubled it to 2 trillion. Earlier this month, some media reported Beijing was considering boosting the quota by another trillion.

While the debt restructuring helps China tackle its US$3 trillion debt burden, the swap programme has added supply pressure, pushed out other bond issuers and has been criticised for uncertainty over its scale.

Zhu acknowledged the concerns and said Beijing needed to enhance its communication and transparency with the market.

Reuters

Outstanding foreign debt in China, compiled under a new methodology that covered debt denominated in yuan, was at US$1.67 trillion at the end of March, the country’s foreign exchange regulator said. Short-term foreign debt accounted for 70.5 percent of the total while medium- and long-term debt made up for 29.5 percent of the total, the State Administration of Foreign Exchange said. The regulator has changed its methodology for calculating foreign debt, including yuan-denominated debt that was equivalent to US$804.7 billion at the end of March, it said.

Central bank injects into Dev Bank China’s central bank will inject US$48 billion into the country’s biggest policy lender, China Development Bank Corp (CDB), two sources with direct knowledge of the matter told Reuters on Friday, as China steps up reforms at its policy banks to fight an economic slowdown.

The government said in April it would reform its three giant policy banks - CDB, Export-Import Bank of China and Agricultural Development Bank of China - in order to pump-prime the world’s second-largest economy that is set to grow at its slowest pace in a quarter-century.

Equity funds report US$5.3 bln outflows worldwide Funds that invest in Chinese stocks reported US$5.3 billion in outflows globally in the week ended July 15, after record inflows of US$13 billion the prior week, data from a Bank of America Merrill Lynch Global Research report showed on Friday. Stock funds overall attracted $8.3 billion to mark their second straight week of inflows. All of the new money flowed into stock exchange-traded funds. Funds that specialize in U.S. shares attracted US$5.2 billion, according to the report, which also cited data from fund-tracker EPFR Global.

12 | Business Daily

July 20, 2015

Greater China

Foreign investors seek reform of stock suspensions A Reuters analysis of 100 companies shows nearly three-quarters requested a trading halt due to "significant matters" such as deals or asset restructurings Michelle Price and Deena Yao

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oreign investors have called on Chinese regulators to review the mechanism that allowed more than half its listed companies to halt trading in their shares during the recent market crash, trapping investors as prices tumbled.

Around 1,500 companies listed in Shanghai and Shenzhen suspended their stocks, many citing reasons that would not typically require a trading halt or were not borne out by their subsequent actions.

As markets stabilised, more than half the suspended companies resumed trading.

The suspensions reduced liquidity in stock portfolios and exchange-traded funds, forcing some to suspend redemptions and making it difficult for banks to value derivatives based on mainland shares, known as "A" shares.

"We hope that after each and every situation like this, people do go over the rules and make improvements to make the market as investible

as possible," said Rodney Comegys, head of investments Asia Pacific at Vanguard.

Investors said a review of suspension rules was key if China hopes to be included in index compiler MSCI's key Emerging Markets Index, which could bring in big flows of cash from foreign institutions.

"One of the issues (MSCI) may look closely at is shares suspension," said Jack Lee, head of China A-shares research at global investment firm Schroders in Hong Kong.

"This incident shows there is room for improving the share suspension mechanism," he said, noting that these were voluntary actions by listed companies.

FTSE Russell, another index compiler, will look at share suspensions as part of its A share review, said an individual familiar with its thinking.

Rules published on the Shanghai and Shenzhen exchange websites outline a range of circumstances in which companies should request share suspensions, none of which include a market-wide sell-off.

However, the rules afford exchange officers a high degree of discretion to grant suspensions, said one analyst.

A Reuters analysis of 100 companies shows nearly three-quarters requested a trading halt due to "significant matters" such as deals or asset restructurings, though 30 resumed trading without completing a transaction.

The rest cited the creation of employee stock ownership plans (ESOP) or management incentive schemes, an event that does not explicitly require a suspension under China's exchange rules, or in markets such as Hong Kong or London. Half failed to complete the plan.

"Many companies aggressively pursued suspensions under the guise of supposedly establishing ESOP plans and other ownership-related matters, to avoid their share price from plunging," said one Shanghai analyst.

Anthony Wong, A-shares portfolio manager at Allianz Global Investors, said inadequate compliance with existing rules was the real problem.

"The CSRC already has rules and regulations in place to govern stock suspensions.

It would be ideal if the rules and regulations are strictly adhered to," he said.

Reuters

Gold holdings jump 57 pct in 6-year reserve update The PBoC said investment in gold would be beneficial for risk management

C

hina's gold reserves stood at 1,658 tonnes at the end of June, the central bank said, up 57 percent from the last time it adjusted its reserve figures more than six years ago.

Despite the tonnage increase, gold now accounts for 1.65 percent of China's total forex reserves, against 1.8 percent in June 2009. The United States, the biggest official sector gold holder, holds nearly 73 percent of its reserves in gold.

The figures make China the world's sixth largest official sector gold holder after the United States, Germany, the International Monetary Fund (IMF), Italy and France.

Speculation in the gold market has been rife in recent years over the size of official sector reserves in China, which is the world's biggest producer of the precious metal and vies with India for the title of number one consumer.

KEY POINTS China lifts reading of central bank gold holdings by 57 pct Gold now accounts for 1.65 pct of total forex reserves

China considers its gold holdings a state secret and does not report its holdings on a monthly basis to the International Monetary Fund as most other countries do.

It last adjusted its reserve figures in April 2009, when the level was lifted to 1,054.1 tonnes from 600 tonnes.

"On the basis of our assessment of the value of gold assets and our

analysis of price changes, and on the premise of not creating disturbances in the market, we steadily accumulated gold reserves through a number of international and domestic channels," People's Bank of China said in statement.

The increase, which amounts to 604 tonnes, worth US$21.964 billion at today's prices, would help guarantee the security, liquidity and value of China's international reserves, it said.

It said it would remain flexible when deciding whether or not to adjust gold reserves in the future.

A WikiLeaks cable in 2011 cited a Chinese newspaper as saying that the country's large gold reserves would be "beneficial in promoting the internationalization of the RMB." "There has been on-going market chatter that China had been amassing gold, and that had

gained more importance ahead of October, when the Chinese want to be included in the SDR. It was felt by many that they would be more open, and that would mean revealing any increase in their reserves," Societe Generale analyst Robin Bhar said.

Chinese state news agency Xinhua reported in March that Chinese Premier Li Keqiang has asked the head of the IMF to include the yuan in its special drawing rights (SDR) basket, currently made up of dollars, yen, pounds and euros.

Spot gold was steady in the wake of the announcement, though it later slid to its lowest in more than five years after U.S. housing and inflation data boosted the dollar.

"This (figure) was not unexpected.

If anything, it was slightly surprising that it wasn't more," Bhar added.

"The market was looking at a figure north of 2,000 tonnes."

Reuters

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Business Daily | 13

July 20, 2015

Asia

Japan exports seen up in June A poll found imports slipped 4.0 percent from a year ago

North Korea’s economy expanded by 1.0 percent in 2014, the South Korean central bank said on Friday, with a drought expected to hobble growth in one of the world’s most isolated countries this year.

After suffering a contraction in 2010, North Korea’s economy grew, albeit at relatively low levels for four straight years. In 2013, GDP grew by 1.1 percent.

The slightly faster expansion last year was marked by growth in services and signs of rising private consumption, the Bank of Korea said in an annual report.

Kaori Kaneko

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apan’s exports are forecast to have risen for a tenth straight month in June thanks to a weak yen, but limited follow-through gains are seen for shipments as global demand remains sluggish.

Analysts say the recent underlying trend in exports shows only modest growth, and partly reflects a slowdown in China’s giant economy - Japan’s major trading partner which has rippled through to the rest of Asia.

“Exports are weak if you average out April-June,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “China’s economic slowdown and its impact on other Asian economies weigh on Japan’s exports.”

Exports are forecast to have risen 10.0 percent in June from a year earlier, the poll of 19 economists showed.

In May, Japan’s exports rose 2.4 percent on-year, but shipment volumes fell 3.8 percent in a reflection of the crunch in overseas demand.

Shinke’s central scenario is for exports to pick up in July-September as growth in the United States improves and China starts to recover on the back of Beijing’s stimulus steps.

“But downside risks have grown as there is uncertainty over China’s economy,” he said.

The poll found imports slipped 4.0 percent from a year ago, down

N. Korean economy grew 1 pct

Myanmar sees rise in foreign contracted investment

KEY POINTS June exports f’cast +10.0 pct yr/yr VS +2.4 pct in May Export growth trend still modest, China poses risks Trade balance seen +5.4 bln, 1st trade surplus in 3 months Trade data due at 2350 GMT July 22

for a sixth straight month, resulting in a trade surplus of 5.4 billion yen (US$43.51 million) last month, according to the poll. That would be the first trade surplus in three months.

The economy is expected to have stalled in the second quarter on weak exports and household spending, though analysts project it will pick up in the third quarter as rising wages lift consumption.

The Bank of Japan on Wednesday cut its growth projection for the current fiscal year to March 2016 by 0.3 percentage point to 1.7 percent, reflecting an expected stagnation in April-June growth.

Reuters

Indonesian infrastructure promises derailed by bureaucrats

The foreign contracted investment in Myanmar hit US$2.4 billion in the first three months of the fiscal year 20152016, according to official statistics released on Saturday. During the period, the Myanmar Investment Commission approved projects involving 46 domestic and overseas firms in sectors including manufacturing, construction, real estate and hospitality. Some observers believe a potential lull in investment activity in the period surrounding the November 8 general election could make it difficult to reach the target. Meanwhile, Myanmar’s Investment Commission has allowed a total of nine more domestic and foreign firms to make investment in the country.

Thai official says weaker baht is a bigger boost A weaker Thai baht would help the country’s exports and provide more of a boost to the struggling economy than a rate cut, one of the country’s deputy prime ministers said. “When I want to correct the economy, I’d rather play with the exchange rate,” Pridiyathorn Devakula, who is in charge of the economy, told Reuters on Friday. A little more depreciation in the baht, already hovering around its weakest levels in six years against the dollar, would be helpful for exports, he said. “It’s almost at the right level now,” he added.

President Widodo must act fast, as Indonesia risks falling behind neighbours who are aggressively building infrastructure S. Korea budget to assume 3.5 pct nvestors hoping for President construction of a ring road around As the government weighs the GDP growth

I

Joko Widodo to speed work on Indonesia’s infrastructure projects have been disappointed, with a plan for a US$2-billion airport railway line in the capital spotlighting the delays and bureaucratic infighting involved.

Nearly half the 10 projects to which Widodo gave priority when he took office last year are languishing for lack of cooperation among ministries he has been unable to whip into line.

“Somebody has to coordinate the orchestra of stakeholders,” said Emma Sri Martini, head of governmentowned infrastructure finance firm Sarana Multi Infrastruktur (SMI).

Widodo is racing against time to create sufficient jobs for the 2 million Indonesians who enter the workforce annually, as he struggles to revive economic growth that has fallen to the weakest pace in around six years.

His promised splurge on roads, ports and power plants is critical as Indonesia’s traditional engines of growth, consumption and commodity exports, are faltering, while businesses are shedding jobs fast.

When governor of Jakarta, Widodo had managed to break an almost decade-long impasse over

the Indonesian capital, and investors had hoped to see him, as president, repeat the feat on the national level.

Nine months into his tenure, the signs are not encouraging.

The airport railway line, designed to cut the travel time to one of the world’s busiest airports to 30 minutes from as much as three hours, has suffered a delay of at least two years in construction.

Officials have locked horns over its route and how to fund it, but in the absence of significant government support, it hardly offers private investors a worthwhile return.

Just last month, for example, newspaper Bisnis Indonesia reported that Transport Minister Ignasius Jonan had sought a route change to take advantage of existing tracks.

But all the authorities involved must sign off on the change, leading to a delay, SMI’s Martini said. “A single decision might seem simple, but the consequence can be a delay multiplier.”

The route must be hammered out before potential investors from countries such as China, Japan and South Korea will take even the first step, she added.

merits of one-off or deferred funding for the railway project, it expects private bidders to get returns chiefly from future traffic volumes and fares.

Many companies prefer to be paid to build and operate railways for a fixed time, as that carries a lower revenue risk, he added, but such a structure meant the government would have to shoulder most of the costs.

Another question hangs over the financial feasibility of two railway lines to a single airport, as the state railway firm is set to complete a separate line next year, at a cost of 1.2 trillion rupiah (US$90 million).

Government officials say the lines target two different markets, airline passengers and commuters, but investors worry.

Indonesia’s cost of moving goods was as much as 27 percent of gross domestic product in 2013, outstripping Malaysia, Thailand and Vietnam, a study backed by the World Bank showed.

Investors are eager for Widodo to speed things up.

Reuters

South Korea’s finance minister said on Friday next year’s government budget bill, due in September, would assume around 3.5 percent economic growth for that year, up from 3.1 percent growth projected for this year. Minister Choi Kyung-hwan made the comment at a parliamentary committee meeting without elaborating.

India, Sri Lanka sign currency swap agreement India’s central bank, the Reserve Bank of India signed a special currency swap agreement with the Central Bank of Sri Lanka to let the latter draw US$1.1 billion in six months, said local media. The agreement is aimed at helping Sri Lanka in availing a safety net against the probable volatility of its currency and providing short-term liquidity that would contribute to Sri Lanka’ s economic recovery. Signed by officials of the two central banks, the arrangement is in addition to the existing Framework on Currency Swap Arrangement for the South Asian Association for Regional Cooperation (SAARC) member countries.

14 | Business Daily

July 20, 2015

International Italian PM to abolish home tax Italian Prime Minister Matteo Renzi pledged to abolish a much-hated property levy next year and make further tax cuts in the future, and said his plan to bolster growth would not upset public finances.

Speaking at a party assembly outside Milan, Renzi said he would eliminate a tax on primary residences from 2016. Renzi did not say how much that would cost, but past estimates put annual revenue from the levy at 4 billion euros (US$4.33 billion). In the same speech broadcast on his party’s website, Renzi said he would cut corporate taxes from 2017.

U.S. consumer sentiment falls in July U.S. consumer sentiment fell more than expected in July, a survey showed. The University of Michigan’s preliminary July reading on the overall index on consumer sentiment came in at 93.3, down from a final reading of 96.1 in June. It was below the median forecast of 96.1 among economists polled by Reuters. The survey’s barometer of current economic conditions fell to 106.0 from 108.9 in June but was above a forecast of 97.2.

The survey’s gauge of consumer expectations slipped to 85.2 from 87.8 from the prior month’s final reading and was below an expected 87.0.

Google gains billions in value Google Inc’s shares closed up 16.3 percent at US$699.62 on Friday, adding about US$65 billion to its market value, as strong growth in YouTube viewership eased investor concerns about Facebook Inc’s push into video. Google’s class A shares chalked up their largest single-day percentage change in more than seven years on Friday. The surge, which comes a day after it reported better-than-expected profit for the first time in six quarters, sent the Nasdaq composite index to a record intraday high. Google’s shares hit a record high of US$703.

Head of UK financial watchdog quits early The head of Britain’s financial watchdog is stepping down early in a move some industry watchers said was a sign the government wants to take a less confrontational stance towards banks.

Sources familiar with the matter said Martin Wheatley, viewed as a hardliner in regulatory terms, had resigned as head of the Financial Conduct Authority (FCA) after the government refused to extend his contract, due to end in March 2016. In a statement on Friday, finance minister George Osborne praised Wheatley for his work.

Online gambling firm 888 wins battle for Bwin Online casino and poker firm 888 won the battle for larger rival Bwin.party Digital Entertainment, clinching a cash and stock deal worth almost 900 million pounds (US$1.4 billion). 888, which itself rejected a takeover by Britain’s biggest bookmaker William Hill in February, had been battling against a 908 million pound offer from GVC Holdings for Bwin, which put itself up for sale last year. The recommended deal is the latest in a flurry of M&A activity in the industry, a trend set to continue as firms expand.

U.S. housing regulator paid law firms US$373 mln to sue banks FHFA spokeswoman said hiring of private law firms has been a prudent and measured expenditure of resources

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he Federal Housing Finance Agency (FHFA) disclosed that it paid two law firms over US$373 million since 2010 to pursue litigation against several banks over mortgagebacked securities sold to Fannie Mae and Freddie Mac before the financial crisis.

The FHFA, which has acted as conservator for Fannie and Freddie since the government took them over in 2008, disclosed the sums in response to a Freedom of Information Act (FOIA) request by Reuters.

The disclosure marked the first time the FHFA had said how much it had paid Quinn Emanuel Urquhart & Sullivan LLP and Kasowitz Benson Torres Friedman LLP.

The nearly US$373.5 million amounted to less than 2 percent of the US$18.7 billion obtained by the U.S. regulator through settlements and judgments against 16 banks, including US$806 million after it took Nomura Holdings Inc. to trial.

Stefanie Johnson, an FHFA spokeswoman, said its hiring of private law firms “has been a prudent and measured expenditure of resources to recover losses incurred by Fannie Mae and Freddie Mac and the results have been positive for taxpayers.”

The disclosed fees represented amounts paid from 2010 through February 6 of this year, when the FOIA was submitted.

The FHFA has likely paid much more than the US$373.5 million since then due to the trial of Nomura, which along with an underwriter, Royal Bank of Scotland Group Plc, was accused of making false statements in the sale of US$2 billion in mortgage-backed securities to Fannie and Freddie.

U.S. District Judge Denise Cote in Manhattan found the banks liable in May and ordered them to pay US$806 million. Nomura is appealing.

That case was the first to reach trial of the 18 lawsuits the FHFA had filed in 2011 over some US$200 billion in mortgage-backed securities that banks sold to Fannie Mae and Freddie Mac. Reuters

Greek banks to re-open today Opinion polls suggest the PM’s popularity remains high

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he Greek government ordered banks to open today, three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals, as Prime Minister Alexis Tsipras looked to the start of new bailout talks next week.

The decree to re-open the banks came hours after new ministers were sworn in following a cabinet reshuffle in which Tsipras replaced dissident members of his ruling Syriza party following a revolt over the tough bailout terms.

In a move that marked a split with the main leftist faction in the ruling Syriza party, Tsipras sacked hard-line former Energy Minister Panagiotis Lafazanis and two deputy ministers following a party rebellion in which 39 Syriza lawmakers withheld support from the government over the package.

Panos Skourletis, a close Tsipras ally who left the labour ministry to take over the vital energy portfolio, said the reshuffle marked “an adjustment by the government to a new reality”.

The reshuffle allowed Tsipras to replace cabinet rebels with allies of his own or from his junior coalition partners, the right-wing Independent Greeks party.

The first action of the new cabinet was to sign off on a decree to reopen banks today with slightly more flexible withdrawal limits that allow a maximum of 420 euros a week in place of the strict limit of 60 euros a day currently in place.

But restrictions on transfers abroad and other capital controls remain in place.

The move had been widely expected after the European Central Bank agreed to re-open the emergency credit lines which the tottering Greek banking sector needs to survive.

Tsipras now intends to seal the bailout accord with European partners over the next few weeks before likely new elections which Interior Minister Nikos Voutsis said this week could happen in September or October.

“Our aim is to negotiate hard for the terms of the agreement, not just to seal it, but on how it will be implemented. There are many vague terms in the text,” said newlyappointed Labour Minister George Katrougalos.

He said the government, elected in January on an antiausterity platform, would fight for an agreement that was “socially

just” and dismissed suggestions that it would have to take on the powerful labour unions and risk street protests.

“The Left is with demonstrations.

The Left wants the people on the streets,” he said.

Tough bailout terms

The deal, approved with the support of opposition parties on Thursday after 39 Syriza rebels withheld their backing, agrees a painful mix of tax hikes, spending curbs and pension cuts as well as a rollback of collective bargaining agreements.

Acceptance of the tough bailout terms marked a turnaround for Tsipras after months of acrimonious talks and a referendum that resoundingly rejected a less stringent deal proposed by the lenders.

A poll published on Saturday in the leftwing Efimerida Ton Syntaknon newspaper suggested Syriza would get 42.5 percent of the vote if an election were held now, almost double conservative New Democracy’s 21.5 percent.

In addition, 70 percent said they would prefer to accept the bailout deal if it kept Greece in the euro.

Reuters

Business Daily | 15

July 20, 2015

Opinion

China pulling the levers wires nearest to hand Business

Leading reports from Asia’s best business newspapers

James Saft

Reuters columnist

PHILSTAR Developing Asia, including the Philippines, is expected to continue experiencing a low inflation environment given the weak oil prices and falling food prices, the Asian Development Bank said. The bank has lowered its 2015 average inflation forecast to 2.5 percent in its latest Asian Development Outlook Supplement from a 2.6 percent estimate last March. ADB kept its 6.7 percent projection for Central Asia, but cut its forecast for East Asia to 1.4 percent from 1.7 percent. ADB has also reduced its estimates for inflation in South Asia to five percent from 5.1 percent.

THE KOREA HERALD South Korea’s national pension fund plans to make its first investment in overseas hedge funds next year as part of efforts to secure stable returns, an internal document showed yesterday. According to the 2016 asset allocation plan obtained by Yonhap News Agency, the National Pension Service will invest 1 trillion won (US$870 million) in overseas hedge funds in 2016 out of its overall idle funds valued at 86.5 trillion won. As of end-2016, the state pension manager’s investment in overseas hedge funds is expected to account for 0.2 percent of its total assets.

THE STAR 1Malaysia Development Berhad (1MDB) says it has come under “sustained and unsubstantiated” politically-motivated attacks, despite the success of its rationalisation plan. The state investment fund pointed out an immediate outcome of the strategic review announced in February.

However, it said this success and the fact that 1MDB was 100% owned by the Malaysian Government did not stop the negative campaign against the company by politicians and former prime minister Tun Dr Mahathir Mohamad. 1MDB added that various baseless allegations were made, including RM42bil being missing from the fund.

THE JAPAN NEWS The Economy, Trade and Industry Ministry plans to launch a system next fiscal year that will help new Asian university graduates and others invited to Japan find employment in the nation to alleviate a shortage of human resources in information technology.

The ministry will first target Indians and Vietnamese and aim to secure about 10,000 IT workers, according to sources. The ministry envisages creating a system in which Asian university graduates who majored in IT and other people will come to Japan to learn Japanese and then find employment at Japanese companies.

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hina may be throwing its all at the stock market not because that is its most important problem, but it’s the one Beijing can most easily, if ham-handedly, control.

Intimidating short-sellers is, after all, a lot easier, and cheaper, than breathing life into a sagging housing market suffering chronic (and worsening) over-supply.

Allowing people to pledge their houses as collateral for the purchase of more shares is easier than managing the transition from over-investment to, well, whatever comes after.

Suspending trading in major issues, trapping investors, is easier, and quicker, than addressing the ways in which pledged shares are part of the expanding web of indebtedness in China.

China’s resolve to overawe markets into rising seems to harden daily.

Chinese media reported on Friday that the state-run China Securities Finance Corp. (CSF) had received 1.3 trillion yuan (US$209 billion) in loans from banks, money which in turn will be made available for stock purchase loans through brokers.

Last week the CSF, not satisfied with rules that since last year have allowed brokers to issue short-term debt to fund margin loans for stock purchases, took the decision to allow those loans themselves to be securitized and sold to free up more capital for - yes that’s right - more margin loans.

All of this is most impressive, and though as policy it is deeply flawed and will have very high longer-term costs, in the shorter

term it seems to be achieving something close to its aim. The Chinese stock market, if such it can still be called, has stabilized, with the Shanghai composite index closing Friday at 3,957.

That counts as an improvement, being up 13 percent from July’s lows, though down well over 20 percent from June’s peak.

But given the power China has put into the exercise, this hardly counts as a rousing success.

Two weeks ago 21 brokers, presumably under inducement from authorities, pledged to continue to buy shares until the Shanghai index regained 4,500.

But it remains below 4,000.

Housing, debt and over-investment China’s effort to control its stock market is best seen in the context of the difficulties it faces in controlling the rest of its economy, which present problems just as deep but require solutions that may be much more difficult to engineer, or to endure.

“In our opinion, China’s combination of a triple bubble (with the third-biggest credit bubble, the biggest investment bubble and second-biggest real estate bubble of all time) remains the biggest risk to the global economy,” Credit Suisse strategists led by Andrew Garthwaite wrote in a note to clients.

Take housing. Despite falling prices and despite sky-high valuations, with Beijing and Shanghai buyers paying average prices that are more than 20 times average incomes, supply continues to flow unabated.

Housing starts in China are

It is not at all surprising that a housing bubble has gone hand-inhand with a credit bubble, one that Credit Suisse calls the third-biggest they’ve seen

running at 12 percent above demand, according to a Credit Suisse estimate, and 18 percent of completed homes become vacant.

It is not at all surprising that a housing bubble has gone handin-hand with a credit bubble, one that Credit Suisse calls the third-biggest they’ve seen, behind only Spain and Ireland during the last lamentable excess. The ratio of private

sector debt to GDP is not only nearly 200 percent, but the rate of ascent has risen very steeply since 2011, taking it 40 percent above trend. Bank for International Settlements research has found that many financial crises are proceeded by credit rising by only 10 percent above trend.

Investment as a percent of output is now running at 44 percent, compared with the peak of 36 percent in Japan in the early 1970s when it was rapidly industrializing. China recognizes that investment-led growth is a process with a finite limit, and that its economy must transition to one with higher consumption and services as opposed to exports and the laying of concrete over ground.

Given the excesses in China’s economy, and the opaque but undoubted links between its banking system, its web of private, public and quasi-public debts and the stock market, a plunge must have been nothing short of terrifying for authorities.

Debt fault lines, as we’ve seen in other economies, run deeply but can cause much damage.

The reaction to the stock market crash may not be so much a matter of injured prestige, but of looking at the moving pieces and moving those over which China has most control.

If there is one lesson of the last financial crisis, it is that it is easier to manipulate financial markets and hope reality conforms than to try and change reality and wait for financial markets to catch up.

China has learned this point well.

Reuters

16 | Business Daily

July 20, 2015

Closing Single-day box office hits record high of 400 mln yuan

APEC infrastructure development meeting to open this week

China’s total box office sales surpassed 400 million yuan (about US$64.4 million) on Saturday, a record for a single day, data from the State Administration of Press, Publication, Radio, Film and Television (SARFT) revealed yesterday. The biggest contributor was domestic fantasy-comedy “Monster Hunt,” which brought in 180 million yuan Saturday. “Jian Bing Man,” a domestic comedy that tells the story of an actor’s experience in the film industry, came in second, grossing 149 million yuan. Total ticket sales on Saturday broke the 383-million-yuan record made on April 12, when “Fast and Furious 7” opened on Chinese screens.

Senior finance officials and experts across Asia-Pacific region will hold a meeting from July 23 to 24 in central Philippine city of Iloilo, Malacanang, the presidential palace, said yesterday. The meeting, titled “Fostering APEC’s Infrastructure through Long-term Investment and Capital Market Development,” is part of the country’s yearlong hosting of the Asia-Pacific Economic Cooperation (APEC) meetings. Iloilo City is taking advantage of its hosting of the meeting to drum up interest among potential investors in such fields as retail, manufacturing, business process outsourcing (BPO), agro- processing and tourism.

Tech tariff-cutting agreement basis set The 80 WTO countries that participate in the talks account for about 97 percent of global trade in IT products Bryce Baschuk

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rade negotiators tentatively agreed on Saturday to eliminate tariffs on an array of technology products valued at US$1 trillion worth of global commerce.

The breakthrough toward the World Trade Organization’s Information Technology Agreement took place at an ambassadors’ meeting at the European Union embassy in Geneva.

“Very optimistic that we’ll have a final successful deal by the end of next week,” Roberto Azevedo, directorgeneral of the WTO, said on Twitter. “We have the basis for an agreement.”

The U.S. Trade Representative’s (USTR) office hailed a “major breakthrough” in what would be the first significant tariffcutting deal at the WTO in 18 years.

“This will open overseas markets for some of America’s most competitive companies and workers,” USTR Michael Froman said in an e-mailed statement.

In talks that started on

Corp. and Texas Instruments Inc. stand to benefit from the elimination of tariffs on some 250 products.

July 14, members took on the question of various tariffs, notably on LCD screens, which were contested by Taiwan and China, and a EU request concerning car radios.

South Korean negotiators withdrew their opposition to an extended agreement, and members agreed to consider a draft list of covered products.

Tariffs on semiconductors, magnetic resonance imaging machines, global positioning system devices, printer ink cartridges, video game consoles and other products would be cut to zero under the deal, according to the USTR office.

Staging schedules

‘Final approval’

The expanded product list will now undergo consideration from trade ministers at their various capitals.

“We have the basis for an understanding,” Azevedo told Bloomberg BNA in Geneva after the meeting. “The list is out, members are going to consult their capitals, and we will know by Friday whether we have final approval on

Roberto Azevedo, director-general of the WTO

the list of products and the declaration itself.”

The product list could pave the way for a finalized deal that would contribute as much as US$190 billion

to the global gross domestic product and support 60,000 U.S. jobs.

Technology manufacturers like Intel Corp., Samsung Electronics Co., Sandisk

The ITA requires participants to eliminate import tariffs on technology products on a most-favoured-nation basis, meaning that any duty-free terms are applied to all WTO members.

In September, ITA negotiators will start talks on schedules of concessions for tariff reductions, also known as staging. That allows countries to gradually phase in the tariff reductions for certain products deemed too sensitive for the ITA’s various signatories.

Negotiators will also hold technical negotiations with the goal of completing the agreement by the WTO Ministerial Conference scheduled for December 1518 in Nairobi, Kenya.

U.S. technology industry officials are hopeful the deal could enter into force as soon as July 2016.

Bloomberg News

Return of Iranian oil may cause more OPEC tensions

Philippine central bank says it has room to support growth

Taiwan’s Kuomintang nominates woman for presidential race

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he return of oil from Iran following the landmark nuclear energy deal with world powers could create fresh tensions within OPEC but may reinforce the cartel’s output strategy, analysts say.

Tehran and major powers clinched a historic agreement that puts strict limits on Iran’s nuclear activities for at least a decade. In return, sanctions that have slashed the oil exports of OPEC’s fifth-largest producer will be lifted and billions of dollars in frozen assets unblocked.

The Islamic republic’s exports could reach a potential 2.4 million barrels per day (bpd) in 2016, from 1.6 million bpd in 2014, according to data from economist Charles Robertson at investment bank Renaissance Capital.

The Organization of the Petroleum Exporting Countries -- whose 12 members including Iran pump one third of global oil -- is mindful that Iranian oil could worsen a global supply glut and depress oil prices further.

OPEC decided at its last meeting in Vienna in June to maintain output levels.

AFP

he Philippine central bank has policy space to support growth and stem market volatility, its governor said on the weekend, underscoring authorities’ readiness to act as uncertainties cloud the outlook for the global economy.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said authorities must stay vigilant to risks to the economy posed by the euro zone’s debt crisis, slowing Chinese growth and the prospect of higher interest rates in the United States, though he expected the country to weather a “taper tantrum”style shock.

Tetangco was referring to the period in 2013 when global markets took fright at the Federal Reserve’s first hint that it might taper its monetary expansion policy.

“Our macrofundamentals remain sound, inflation expectations are anchored, domestic aggregate demand continues to be firm, the banking system is sound, our policy rates are at historic lows and our foreign exchange reserves are ample by most metrics,” Tetangco told reporters in an email.

Reuters

aiwan’s ruling Kuomintang party nominated its second-highest ranking lawmaker, Hung Hsiu-chu, to contest January’s election to be the island’s next president.

Hung, 67, was formally named yesterday at the 19th National Congress of the Kuomintang, the party’s main biennial gathering involving 1,199 delegates from around Taiwan. Hung will run against Tsai Ing-wen, chairwoman of the main opposition Democratic Progressive Party, who was nominated in April.

Hung’s nomination caps months of speculation over who would run against Tsai in the aftermath of a record defeat in November elections, when the KMT turned over nine of its 15 municipal and county seats to the DPP. President Ma Yingjeou conceded his party chairmanship to take responsibility for the losses, and current KMT Chairman Eric Chu had declared he would not seek the presidency in 2016. Tsai, a 59-year-old former trade negotiator and deputy premier, polled ahead of Hung by 12 percentage points in a survey conducted earlier this month by cable television network TVBS. Bloomberg News