Macau business daily, 2015 July 23

MOP 6.00

Song Pek Kei demands answers from CCAC

Closing editor: Luís Gonçalves

David Chow reaches agreement with Cape Verde Government

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Page 5

Swamp country turns into one of hottest gambling towns in US

Local firms invest US$660 million in China during H1 Page 2

Year IV

Number 841 Thursday July 23, 2015

Publisher: Paulo A. Azevedo

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Running Out of Puff All the makings of a soap opera. Originally, the gov’t adopted an inflexible attitude. With a universal smoking ban in casinos slated to take effect Jan. 1. The administration then opened the door to discussing smoking lounges. Now, the committee charged with examining the changes has dropped a bombshell. A universal smoking ban may take one more year to be approved, according to Legislative Assembly member Chan Chak Mo. Apparently, a public consultation is vital. And sectors affected by the law have to be consulted. And there’s lots of other business to discuss so time is short Page

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Fast food, slow construction

Brought to you by

HSI - Movers

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High-end retail stores continue to take a hit. Both here and in Hong Kong. Wealthy Mainland customers are sidestepping both cities for Japan and Europe. Taking advantage of the cheap yen and euro. Hermes sales in Japan, for example, increased more than 20 pct,. Some three times more than here. Lesser segments also continue to sag

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July 22

Parachuted in

Name

A new director of the Transport Bureau (DSAT) has been announced.

Lam Hin San, formerly of the Aviation Authority, has been appointed. He’s identified the city’s traffic problems as a priority.

Suggesting an update of current traffic laws and regulations may be in order. He’s determined to improve bus and taxi services, as well.

Conceding there’s much room for improvement

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%Day

Sino Land Co Ltd

+1.14

China Resources Enter

+0.63

Link REIT/The

+0.55

Belle International Ho

+0.35

Li & Fung Ltd

+0.32

Lenovo Group Ltd

-2.59

Sands China Ltd

-2.68

Hong Kong Exchanges

-2.71

Cathay Pacific Airways

-2.85

China Resources Land

-4.17

Source: Bloomberg

Public Works www.macaubusinessdaily.com

Move to a cheaper labour force. An official from China’s Ministry of Industry and Information Technology says its win-win. Suggesting moving industrial processes to foreign countries can combat domestic overcapacity

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And now for reality. Hong Kong-listed restaurant operator Future Bright is showing signs of frustration. One of 33 local projects recommended by local authorities to Hengqin last year in a blaze of publicity, bureaucracy is taking the shine off. Multiple approval processes are proving lengthy. But the clock has started ticking for completion

Sayonara

Spreading the load

Overruns under scrutiny

I SSN 2226-8294

More paperwork. But for a purpose, says Director of Financial Services Bureau Stephen Iong Kong Leong.

Official departments’ submission of quarterly execution reports on investment plans are now necessary. Making it easier for the Legislative Assembly to spot budget overruns sooner

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2 | Business Daily

July 23, 2015

Macau Local firms invest US$660 mln in China during H1 Mainland China attracted some US$660 million (MOP5.28 billion) of foreign direct investment from firms in Macau during the first six months of the year, the Chinese Ministry of Commerce announced on Tuesday. Regardless, this amount only accounted for one per cent of the total US$64.3 billion that the country had attracted from foreign investment in the period, although it still represents a growth of 56.2 per cent year-on-year, which is the most notable growth that the country had seen from all its investors during the six months.

New DSAT head focusing on city’s traffic problems The Aviation Authority’s Lam Hin San has been appointed the new director of the Transport Bureau (DSAT).

Resolving and improving bus and taxi services and updating the current traffic laws and regulations are some of his goals Kam Leong

kamleong@macaubusinessdaily.com

who had served with the Aviation Authority since 1995, was the previous director of the airport infrastructure and air navigation division of the Authority before taking over the DSAT office.

On the sidelines of his inauguration ceremony yesterday, Mr. Lam told reporters that he is not worried that the tasks in DSAT will be very different from those he has been used to in the aviation industry.

“No matter it is aviation, or transport, the ultimate principle is to protect the safety of residents. As such, for me, the tasks for the two posts [aviation official and DSAT head] are basically the same. And I will do my new job to the best [of my ability],” the new transport leader said.

Director of the Transport Bureau, Mr Lam Hin San (left) with Secretary for Transport Meanwhile, the new DSAT director and Public Works Mr Raimundo do Rosário (centre) said his first task is to resolve the traffic problems in the city, which may mean he government appointed Meanwhile, the new DSAT head said updating current related laws and Civil Aviation Authority his first task will be to sort out the regulations.

“The traffic in Macau has much official Kelvin Lam Hin San traffic problems in the territory. as the new director of the Transport According to the dispatch by room to improve. For now, I will Bureau (DSAT) effective yesterday, Secretary Raimundo do Rosário first sort out the problems we have the Official Gazette has announced. (pictured centre), Mr. Kelvin Lam, in transport. After that, my team

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Rosário: DSAT head a stressful post Meanwhile, at the inauguration ceremony, Secretary Rosario told reporters that it had not been easy to hire a DSAT director due to the stress that accompanies the job.

Asked by reporters whether he is worried that the new Bureau head may not be qualified for the position as he had not served in DSAT before the Secretary said, “Every decision you make in this world has its own risks.”

Nevertheless, the Secretary did not reveal the reasons behind selecting Mr. Lam as the new DSAT director.

“I think the most important thing is that seven months after [I took up the office of Secretary], all the [subordinate] Bureau directors have been appointed, with no more acting heads, which means we can finally start our work stably from now on,” the Secretary remarked.

and I will draft out the resolutions to these problems according to the shortterm, middle-term and long-term,” he said, claiming that these ‘resolutions’ would certainly involve consulting public opinion when appropriate.

Mr. Lam claimed that he also aims to resolve and improve both bus and taxi services in the city, issues of particular concern to residents.

Asked by reporters whether he had hesitated to accept the post which is perceived to be stressful, Mr. Lam said, “Serving residents is my ideal, so I will accept any kind of post,” adding he will accept all future criticism from residents should it arise.

The post of DSAT director had been left vacant since former occupant Wong Wan resigned in May this year.

According to the Official Gazette, Mr. Lam’s term will last for one year.

Japan saves Hermes’ Asia sales amid Macau and Hong Kong slowdowns Wealthy Chinese are choosing to shop in Japan or Europe as high-end products are now cheaper due to the currency exchange

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ermes International SCA has reported a 22 per cent increase in second-quarter sales as growth in Japan offsets a slowdown in Hong Kong and Macau.

Revenue rose to 1.17 billion euros, Paris-based Hermes said in a statement.

Analysts predicted 1.16 billion euros, according to the median of 14 estimates compiled by Bloomberg.

Excluding currency swings, sales climbed 10 per cent, beating analysts’ expectations for an 8.9 per cent advance.

Hermes, like other luxury goods makers, is feeling the effects of slowing demand in China after years of doubledigit growth. Still, the Birkinbag maker’s high prices and limited supply have helped cushion the blow, and the 178-year old company is the least exposed of peers to slumping demand in Hong Kong, where it has seven stores, Sanford C. Bernstein has said.

While the company retains its mid-term goal for revenue growth of about 8 per cent at constant exchange, the firsthalf operating margin should be down ‘slightly’ on the yearearlier period because of the weaker euro, Hermes said.

Hermes said in March currency volatility will continue to drag down profitability. Year-ahead hedging rates mean currency shifts will narrow the operating margin by 0.5 percentage points in 2015, the company said at the time.

Bloomberg

Business Daily | 3

July 23, 2015

Macau

Budget framework law amendments to flag infrastructure budget overruns By requesting official departments to submit quarterly execution reports on investment plans, the DSF director believes it will help flag budget overrun issues on infrastructure sooner for the Legislative Assembly Kam Leong

kamleong@macaubusinessdaily.com

T

he draft amendments to the budget framework law will help the Legislative Assembly (AL) monitor budget overrun issues on infrastructure projects, the director of the Financial Services Bureau (DSF), Stephen Iong Kong Leong, perceives, claiming the new amendments, however, will not affect the efficiency of the government granting budgets.

The amendments, proposed by the government at the beginning of this month, suggest regulating official departments to estimate the total expense and yearly budget for a multiple-year project. In addition, once the project is initiated, official departments will need to submit a quarterly execution report on the project to the AL. Participating in the TDM Radio Macau Forum show yesterday, the DSF director told listeners that the

amendments are expected to enable legislative members to realise the possible changes in an investment project from its original plan at the earliest time, so that they can make possible corrections.

“Regarding the budget overrun issues in infrastructure, the official departments will need to draft a whole budget for a multiple-year project. Meanwhile, we will urge them to estimate such budget based on scientific methods, so that the actual expenses at last will still be similar to their budget,” Mr. Iong said.

Nevertheless, he noted actual expenses do not usually exactly match the budget. The AL will have the power to evaluate whether the expenses are reasonable under the new regulations, Mr. Iong said, adding departments will need to explain to AL and get members’

approval if their expenses exceed their budgets.

Low budget execution rate

Meanwhile, the DSF director said that the city’s low budget execution rate of investment plans (PIDDA) was not necessarily due to budget overrun issues in infrastructure.

“For example, some departments have some funds or subsidy schemes which not many residents apply for, which also drags down the budget execution rate,” he explained.

In fact, the proposed bill also suggests regulating government departments to list all their budgeted expenditure on major investment plans. Some of the listeners of the radio show expressed concern that the regulations could affect the efficiency of the government granting budgets.

However, Mr. Iong perceives that efficiency will not be affected by the

new law as the AL will not put each item on the budget to the vote.

On the other hand, the Bureau head revealed that subsidies to the city’s autonomous bodies will also be cut, when there is a need to apply austerity measures due to the economic slowdown, in addition to the expenses of government departments.

“We have already orally informed departments to be more careful with their expenses under the current economic adjustment...Although we don’t have an exact indicator for this, at the beginning of the year we proposed freezing a certain part of the budgeted expenses for assets or service charges if gaming revenues kept decreasing and if it is necessary,” Mr. Iong claimed, stressing that livelihood benefits would not be affected by the tightening policy.

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July 23, 2015

Macau Song Pek Kei demands answers from CCAC

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Chan Chak Mo, president of the Second Standing Committee

Universal smoking ban may take one more year to be approved The committee examining the changes to the smoking law explained that its work may take one year given their workload and the number of opinions to be taken into account. The introduction of the universal smoking ban at the beginning of next year now seems a mirage João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he Second Standing Committee may take one year to examine the changes proposed by the government to the smoking law, Legislative Assembly (AL) member Chan Chak Mo said yesterday following the first meeting of the committee to discuss the revised bill.

“It’s very hard to tell when the report will be completed. We may take one year to do it”, Mo, the president of the Second Standing Committee, explained. “We understand that there may be some urgency to approve this law and we will take every opportunity to work on it. But it will depend on the number of opinions we are going to analyse”, he added.

The changes proposed by the government, the first reading of which was approved by the Legislative Assembly on 10 July, implements a universal smoking ban inside casinos, the prohibition of electronic cigarette sales and harsher penalties for people caught smoking in prohibited areas, among other changes.

While previous news has quoted officials saying the new law could come into effect at the beginning of next year, this may not be the case because of the time required to meet with the different associations impacted by the changes to the law and the workload of the committee.

On top of that, on 16th August the Legislative Assembly will start its two-month Summer break.

“At the end of the year there will be the Policy Address and the Budget Execution discussion. Also, at this moment we’re working on the higher education and public housing laws.

Besides, the changes introduced are very controversial and may take one year to complete. It will depend on the committee’s workload”, he said.

Public consultation

The president of the Second Standing Committee also announced a public consultation on the new tobacco law that will start on 1st August and run for 60 days until 30th September.

In addition, the committee will meet with representatives of the different sectors that are going to be directly and indirectly affected by the new laws. The goal is to have these meetings before AL’s Summer break. Those meetings include hotels, casino operators, junkets, the smoking vendors sectors and small and medium companies.

“We’re worried about the impact of the changes to the law on different sectors of the economy, as well as how it may affect government revenue”, legislator Chan said.

Mr. Chan also explained that all opinions matter at this time, but that the committee will have to consider some more important than others, based on how people will be affected by the changes.

“We’re going to listen to all opinions. However, if local residents are against smoking in casinos, but we find they aren’t actually going to these areas, then we may have to consider the opinions of the people more directly affected by the amendments to the law”, he said.

This notwithstanding, he also said it is important to consider the opinions of the local workers in these areas.

egislative Assembly (AL) member Song Pek Kei says the Commission Against Corruption (CCAC) must explain its decision to have two officials join the People’s Alliance of Macau association incognito. The legislator is a member of the local association, led by Chan Meng Kam, that had two members found guilty of the crime of vote-buying in the 2013 Legislative Assembly election.

“The prosecution, as Mr. Chan said yesterday, had some CCAC officials joining our association but hiding their identities. What was the purpose of this action? I think CCAC should reply to this question”, she said yesterday in the AL. While People’s Alliance of Macau denied the accusations and has declared it will appeal the decision of the Court of First Instance, Song Pek Kei, one of the three members of the association elected to the AL, raised questions about the number of witnesses called during the case.

“CCAC only listened to two witnesses’ testimonies. And these two witnesses were from the CCAC. Also,

the judge did not accept the testimonies of other witnesses, claiming it was due to his/her free evaluation of evidence through inner conviction. But the judge did not explain why he had to do that”, she said.

“Now we have information indicating that two CCAC officials had intentionally hidden their identity when joining our association. We will use this evidence for the appeal”, she added.

The other members of the People’s Alliance of Macau (Aliança do Povo de Instituição de Macau) elected in 2013 to the AL are its leader Chan Meng Kam and legislator Si Ka Lon.

CCAC says it always investigates corruption cases CCAC says it always strictly abides by the law and conducts investigations into corruption cases, including electoral bribery, in accordance with the duties conferred upon it by law. Despite an appeal being lodged against the ruling made by the Court of First Instance on a bribery case detected during the Legislative Assembly election in 2013, the evidence submitted by the CCAC has already been accepted and verified by the Court of First Instance during the trial.

CCAC added that it would adhere to the principles of impartiality and equality

during the investigation of any signs or information of crime within its competence.

When citizens or associations find any news or get hold of the related information of illegal acts in relation to corruption or electoral bribery they should report it in a timely manner to the CCAC. The CCAC will commence investigation into and crack down on all kinds of corrupt acts in accordance with the law, unwaveringly adhering to its principle that each case received is investigated and any corruption detected is penalised.

Corporate Macau CLOSER Celebrates 100th Issue Macau CLOSER is pleased to be celebrating its 8th anniversary this year and also its 100th issue this month.

The magazine celebrated with its anniversary party at the Macau Design Centre, with an evening of food, drinks, music, lucky draw prizes and more. The event was supported

by Gold Sponsors Wynn Macau, Sands China Ltd., MGM Macau and Banza Restaurant.

Great wines were supplied by Vino Veritas, and flowers by Oulala.

As part of the celebrations, the July issue

of Macau CLOSER features a fresh, all-new layout, logo and cover design as well as a number of new sections and opinion columns to provide readers with an even greater variety of interesting and relevant content. CLOSER has covered a variety of stories and spoken with countless experts both local and international, across many fields - politicians, entrepreneurs, educators, architects, designers, writers, painters, filmmakers, musicians, chefs, sommeliers, winemakers and many more.

Business Daily | 5

July 23, 2015

Macau

Future Bright: Tight timeframe for project completion in Hengqin The Hong Kong-listed restaurant operator said the approval process for construction design and preparation works for piling has proved time-consuming for firms building projects on Hengqin Island Stephanie Lai

sw.lai@macaubusinessdaily.com

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he Hengqin authority’s required construction timeframe for the Macau investment projects on the island could pose challenging for firms considering the layout plan approval process and the tricky land conditions for piling works, restaurant operator Future Bright Holdings Ltd’s managing director Chan Chak Mo has remarked to Business Daily.

Speaking on the sidelines of a Hengqin investment policy seminar yesterday Mr. Chan said that Future Bright is still discussing the construction layout plan with Hengqin authorities for its “international food plaza” project, one of the 33 local projects recommended by the local authorities to Hengqin last year.

“We’re still negotiating with the Hengqin Government on the construction design [of the plaza],” Mr. Chan said, noting that the construction works of the mall project can only start by the earliest next year if the approval process for the construction plan progresses smoothly.

“For some other firms that are preparing the site investigation works in Hengqin, they know that the ground there is soft and hence have to [undertake] special treatment before doing piling works,” the Future Bright boss added. “This treatment alone can take up to 5 to 6 months.”

The approval of construction layout and the preparation works for laying foundations of the projects are the issues that are time-consuming for others also building businesses on Hengin, Mr. Chan remarked.

Within one year following the land auction, the firms will have to start construction of their projects on Hengin. The construction of their project has to be completed within three to four years, Hengin New Area Administrative Committee’s director Niu Jing told media yesterday of the authority’s requirement of the 33 recommended Macau investment projects.

“To complete the whole project in four years is a very tight schedule,” Mr. Chan told us but added that he did not expect a “big change” to his company’s total investment in the Hengqin project considering the current progress.

Food Plaza

Future Bright successfully bid for a site occupying 49,850 square metres buildable gross floor area on Hengin in July last year for its food plaza project, for which the company purchased the plot for about 209.4 million yuan (HK$260.2 million). The company estimated that the total investment of the project was approximately 900 million yuan, according to a filing with the Hong Kong Stock Exchange in July last year.

The food plaza Future Bright is building in Hengqin is a complex that will house up to 50 restaurants and food souvenir shops, as well as an exhibition hall, offices, warehouses and car parks, according to the company’s 2014 annual report.

Future Bright’s site is located in the Guangdong-Macau Co-

David Chow reaches agreement with Cape Verde Government

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acau Legend Development, owned by local businessman David Chow, and the Government of Cape Verde signed an agreement yesterday through the company’s subsidiary MLD CV Resorts to receive a gaming concession and develop an integrated resort in the African country.

The agreement was revealed in a filing with the Hong Kong Stock Exchange and involves an investment of €250 million (HK$2.15 billion) in the resort, which will be located in the capital of Cidade da Praia on Santiago

Island. The resort will have to include a marina, convention centre, and private parking lot with construction works expected to start within one year, after all conditions were granted by local authorities.

MLD CV paid HK$10.1 million as a one-off premium for the gaming licence that will have 25 years duration. The first 15 years of the contract give to MLD CV the exclusive right to exploit gaming in the region. The contract also includes the exclusive licence to explore online gaming and physical and online sports betting for a period of 10 years.

operation Industrial Park, a 4.5 square kilometre site on Hengqin exclusively reserved for the 33 recommended Macau investment projects. The site comprises different zones designated for the tourism and leisure industry, cultural and creative industry, information technology and other trade services scattered throughout the island.

Speaking to media yesterday, the Hengqin Administrative Committee head Niu Jing said that 12 of these 33 Macau investment projects have already completed the land auction.

These 12 projects involve the building of a mall, sales points for medical products and other trade services, Mr. Niu briefly explained.

Enumerators of DSEC to wear new Summer uniform

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he Statistics and Census Service (DSEC) will have all of its enumerators on duty wear the new Summer uniform starting 27 July, providing the team with a fresh new look. The new uniform, made of breathable and moisturewicking fabric suitable for working outdoors in the Summer sun, is a light grey polo shirt with white collar and short sleeves, printed with the DSEC logo on the upper left chest and the letters ‘DSEC’ on the sleeve and on the back.

6 | Business Daily

July 23, 2015

Macau Brands

Trends

Writing Art Raquel Dias newsdesk@macaubusinessdaily.com

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ome brands don’t have to create a tradition and a history, they actually have one. Montegrappa, the Italian brand for writing instruments is one of them.

Although they are now back to being family-owned Italian pen makers, the brand was bought by Richmond. CEO Giuseppe Aquila got to hold it again in 2009.

Family-owned brands manage to keep centuries of knowhow and craftsmanship and are able to produce small numbers of limited editions which is something special in today’s luxury market. Uniqueness is often as fabricated as the products sold.

Montegrappa is known for its bold designs. The extravagant work in their unique celluloid bodies make these pens unique around the world. A century of dedication to these writing instruments means you’re getting the best of the best.

Even if you didn’t previously know of the brand, it is possible that you might have seen the Dragon, a limited edition pen launched in 1995. The pen is quite popular and, even a few years ago you could see it in the windows of Hong Kong’s speciality shops.

One of their latest models will impress you, even if you aren’t into it. Available as a fountain pen only, the Calligraphy writing instruments are made of bamboo black celluloid with sterling silver trim. The fountain pen is fitted with an 18K gold nib enhanced with a bicolour arabesque motif.

There’s also a handmade wooden case devised to protect the pen, and it also keeps a hardback version of the special book ‘Arabic Calligraphy: Worlds Made Precious’.

L’Occitane net sales jump 17.5 pct in Q1

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rench cosmetics retailer L’Occitane International S.A. said its net sales jumped by 17.5 per cent year-on-year to 274.6 million euros (MOP2.38 billion) during the first quarter of its fiscal year ended June 30, driven by the strong sales growth recorded in its Chinese market.

The company told Hong Kong Stock Exchange on Tuesday that the net sales, at constant exchange rates, represents a year-on-year growth of 7.8 per cent.

Some 73.7 per cent of the company’s net sales were generated by its sellout sales, which jumped by 16.8 per cent year-on-year, amounting to 202.3 million euros, while the other 72.4 million euros derives from sell-in sales, a year-on-year increase of 19.4 per cent.

Nevertheless, the company’s same store sales growth for the three months registered only a slight lift of 2.1 per cent year-on-year, despite its e-commerce channels soaring 21.5 per cent year-on-year.

According to the retailer’s filing, its growth in overall net sales is mainly attributable to its Chinese market, which saw sales in the country grow 26 per cent year-onyear in local currency, reaching 25.4 million euros.

Meanwhile, net sales that the company posted in Hong Kong and Macau declined by 5.6 per cent yearon-year to 28.5 million euros, with same store sales growth also plunging 15.3 per cent year-on-year.

Sa Sa's April-June sales down 8.8 pct in HK, Macau

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osmetics retailer Sa Sa International Holdings Ltd. has reported an 8.8 per cent year-on-year decline in sales turnover in its core markets of Hong Kong and Macau on the back of a ‘significant slowdown’ in the growth of transactions attributable to Mainland Chinese customers for the first fiscal quarter ended June 30.

Sa Sa's sales turnover in Hong Kong and Macau are down by 8.8 per cent to HK$1.46 billion (US$188 million) in the period, while its samestore sales in the two cities has also seen a year-on-year drop of 6.8 per cent, the company told Hong Kong stock exchange on Tuesday when submitting its quarterly sales data.

Sa Sa's average sales per transaction in Hong Kong and Macau in the period was HK$334, 9.6 per cent less than the same quarter a year ago.

‘The growth in the number of transactions attributable to Mainland Chinese customers in our Hong

Kong and Macau markets showed a significant slowdown in the first quarter to 3.7 per cent, while the average sales per transaction dropped by 15.3 per cent,’ Sa Sa said regarding its sales drop in the two SARs. Of 287 stores the company operated in the said fiscal quarter, 110 were located in Hong Kong and Macau.

The retailer stated in its filing that the drops in the two Special Administrative Regions are due to ‘the sluggish retail sentiment’ in Hong Kong, as well as the decreasing inbound tourists from Korea that affected the travel retail business.

As at the end of June, the company had three L’Occitane stores in Macau and 9 Melvita stores in Hong Kong.

In addition to the Chinese market, the company said it had recorded strong sales growth in Brazil, Russia and France at constant exchange rates, which rose by 15.2 per cent, 12.7 per cent and 12.4 per cent year-on-year, respectively.

K.L.

The rest were in Mainland China, Singapore, Malaysia and Taiwan.

Groupwide, Sa Sa's sales turnover for the quarter dropped by 8.6 per cent year-on-year to HK$1.82 billion.

The retailer said in the filing that their costs control still fell far short of offsetting the combined effect of reduced sales and decline in gross profit margin on profitability during the quarter ended June, adding that their earnings would still be under pressure in the July-September period.

Sa Sa said it would strengthen the competitiveness of its product portfolio, and expand O2O and cross-border e-commerce business to drive sales.

S.L.

Business Daily | 7

July 23, 2015

Gaming

Gamblers fall for billionaire’s Vegas touch in Swamp Country Once a place known for swamp tours, refineries and petrochemical plants, Lake Charles is transmuting into the new hot gambling town in the US with three bustling casinos. Revenues are up almost 20 per cent

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ome to swamp tours, refineries and petrochemical plants, not to mention the occasional alligator, Lake Charles isn’t often mistaken for Las Vegas.

But the Louisiana city’s becoming a bright spot among recovering U.S. gambling destinations, with its three bustling casinos - the newest of which of has seven restaurants, five bars, a beach, a marina with deep-water yacht slips and a pool that’s open ’til 2:30 a.m.

“It’s very Vegas,” said Brandon Gresham, a 32-year old Houston hair salon owner who has made the two-hour drive to the resort several times this year. “Everything’s shiny.”

Eight months old, the Golden Nugget Hotel & Casino is attracting so many visitors it’s giving the competition a boost. Regulators credit the Nugget with helping lift gambling revenue at what the state calls riverboat casinos by 19.3 per cent to US$179 million in May, making it the best month since they were legalised in 1991.

The Nugget, built for US$700 million, has “far surpassed our expectations,” said Ronnie Jones, chairman of the Louisiana Gaming Control Board. “The market’s on fire.”

Gambling’s on an upswing across the U.S., a turnaround after a casino glut and a falloff in betting forced closures of half a dozen properties and several bankruptcies over the past year, including Caesars Entertainment Corp.’s largest division. Lake Charles and the Nugget, part of a chain owned by Houston billionaire Tilman Fertitta, could stumble if fickle gamblers retrench again - or next-

door Texas makes good on threats to sanction casinos - but for now it’s an example for companies like MGM Resorts International.

Fertitta’s Recipe

“They have proven in Lake Charles that you can grow the market, if you build a product of substantial value and make it attractive,” said William Hornbuckle, president of MGM Resorts, which competes with the Nugget in Vegas and Biloxi, Mississippi.

Fertitta said the secret’s in his recipe for a regional casino, what he described as a first-class product for the everyman. “You don’t have to go to Vegas anymore,” said Fertitta, 58, whose net worth Forbes magazine estimates is $2.7 billion. “It’s that nice.”

The marble-topped check-in desk is equipped with built-in iPads, and the Blue Martini bar has 42 versions of the drink. Boutiques sell Breitling watches, Nanette Lepore fashions and handmade gourmet truffles. But it’s not all swank.

There’s an all-you-can-eat buffet, of course, and RV parking. Non-hotel guests can buy a day-pass to the pool - complete with waterfall, slides, lazy river, swim-up bar and mid-water daybeds - for US$30.

Claim Jumper

“Tilman’s doing something really interesting out there,” said Matt Sodl, an investment banker at Innovation Capital in Los Angeles. “There’s no regional casino operator that is close to doing what he has done.”

Fertitta has a knack for knowing what the average American with

some disposal income wants. He made his first fortune with Landry’s Inc., building two Houston-area restaurants into a global chain.

Brands include the Rainforest Cafe and Bubba Gump Shrimp Co., places that provide a little atmosphere along with their crab cakes and Macadamia nut Mahi Mahi. Vic & Anthony’s Steakhouse and the Claim Jumper are among the Landry brands in the Lake Charles Nugget.

Normally, a new entrant to a gaming market is a negative for veterans but this one has been good to Pinnacle Entertainment Inc.’s L’Auberge, which is next door, and the Isle of Capri Casino Inc. property a few miles away. Jones, the gaming board head, said they’re benefiting from the Nugget, which has been attracting an average 353,000 visitors

They have proven in Lake Charles that you can grow the market, if you build a product of substantial value and make it attractive William Hornbuckle, president of MGM Resorts

a month, according to the casino, or about five times the local population.

Gambler’s Boardwalk

People tend to drop by more than one when they’re in town, and Fertitta made that easy for the L’Auberge; a boardwalk connects the two (key for gamblers who like to relocate if their luck’s running cold). “We’re seeing a younger demographic,” L’Auberge General Manager Keith Henson said.

His casino-hotel’s sales were up 0.4 per cent in the first five months of the year, while Isle of Capri’s were 2.9 per cent higher.

Of course, that’s also due to the national comeback, spurred by rising home and stock prices and lower unemployment. In 20 states tracked

by Well Fargo & Co., gambling revenue rose 4.9 per cent in May, after falling 1.3 per cent in 2014.

Moody’s, which last June lowered its industry outlook to negative, this month raised it back to stable, citing in part growth from new properties such as the Nugget. The recovery’s precarious, according to Moody’s, because gambling is tied to mercurial discretionary income.

Fertitta bought the 69-year-old Golden Nugget in Vegas and its sister in Laughlin, Nevada, in 2005. He now has five locations, after acquiring the Trump Marina Hotel & Casino in Atlantic City, New Jersey, in 2011 and an Isle of Capri property in Bixoli the following year and spending US$300 million upgrading and rebranding them. He has growth plans, although he wouldn’t share them. “Obviously,” he said, “we’re building a big gaming company.”

Bloomberg

8 | Business Daily

July 23, 2015

Greater China

Bets placed on North Korea in gamble to s

Visitors will be able to play golf in Russia during the day, dine in China and then gamble Benjamin Haas

A

t China’s very farthest limits, a town sandwiched between North Korea and Russia stands at the heart of Beijing’s plan to revitalise its bleak, frigid northeastern rustbelt.

Beijing has a vision of turning the nondescript outpost of Hunchun into a regional Asian trading hub, and is spending tens of billions of dollars to turn it into reality.

Less than 70 kilometres away in North Korea, the port of Rason offers access to the sea and a shorter trade route to Japan, one of China’s biggest trading partners, than almost any of its own harbours.

But the ambitious plan relies on Russian and North Korean cooperation and implementation, making it a monumental gamble.

“Hunchun is the effective tip of the commercial spear for China as it tries to get more reliable access to the sea,” said Adam Cathcart, a professor at Leeds University in Britain who also runs SinoNK.com, a website on China-North Korea relations.

“China is more broadly trying to make its frontiers more prosperous and open in terms of trade and less restive and more easily controlled,” he added.

Hunchun has a population of only 225,000 but received investments totalling more than 100 billion yuan (US$16 billion) last year from

Anyone with education or skills has already left to find work elsewhere, but if the government wants this massive trade hub to succeed, they need qualified workers Jin Huxin, Hinchun’s local worker

government and private sources, according to the commerce ministry.

A 42 billion yuan high-speed railway running 360 kilometres and connecting it to the Jilin provincial capital Changchun is slated to open

by October.

City officials have budgeted 30 billion yuan to build a tri-national tourist zone enabling visitors to play

golf in Russia during the day, dine in China and then gamble at a North Korean casino for the evening.

But the North can be a difficult business partner.

Pyongyang has long earned hard currency from seafood exports but restaurateur Li Zhao pointed to a tank of North Korean king crabs he sells for more than 250 yuan each.

“There’s no predictable supply for these crabs, sometimes we’ll have too many and then none at all for weeks,” he said. “It’s not worth the hassle.”

Jin Huxin, who only returned from Shanghai because her mother fell ill.

“Anyone with education or skills has already left to find work elsewhere, but if the government wants this massive trade hub to succeed, they

Dusty offices

China’s northeast used to be the country’s industrial heartland, but market reforms introduced in the 1980s and 1990s led to massive layoffs at the state-owned companies that dominated the region.

Chinese President Xi Jinping visited Jilin at the weekend and stressed the area’s importance to economic restructuring and international cooperation, the official Xinhua news agency reported.

But last year China’s three northeastern provinces -- Heilongjiang, Jilin and Liaoning -- took three of the bottom four positions in China’s provincial economic growth table.

Many of Hunchun’s ethnic Korean Chinese citizens have left to work for South Korean companies, either in China or the South itself, like

Beijing is trying to deepen links with North Korea. Pic

Beijing may be fighting wrong battle in curbing index futures Domestic futures are traded in margins of around 15 percent, making the money involved much less, among other factors that exaggerate turnover

In China, the index futures market is small.

It’s more necessary to expand it

A

uthorities have blamed some futures traders for suspected “malicious” short selling in its efforts to contain a stock market rout, but a Reuters analysis shows it may be barking up the wrong tree.

The correlation between futures markets and the main indexes, including hedging interest and trends in futures turnover, shows that investors were using futures mainly

to hedge against tumbling stock prices, rather than to speculate.

State media coverage about the July futures contract for the small-cap CSI500 index implied that it was used as a vehicle for short-interests to profit from, or even to facilitate, further slides in that index. However, trading in the contract spiked only after the spot market slumped.

Cai Luoyi, vice general manager, Shanghai CIFCO Futures

Given that futures are a hedging tool, traders and industry executives said Beijing should develop the market to create more hedging options, which would help stabilise spot trade.

“It’s a misunderstanding to blame the index futures market for the spot plunge,” said Cai Luoyi, vice general manager of the Shanghai CIFCO Futures Co Ltd. The China Financial Futures Exchange earlier this month limited daily trading in the CSI500 index futures, the product that bore the brunt of heavy selling in small caps in the 30-percent market rout that began on June 12.

The exchange also raised margin requirements for short futures positions and gave itself more power to impose restrictions on trading, turning the futures market into a key battleground in Bejing’s campaign to restore confidence.

Futures lag spot

But correlations between spot and derivative markets don’t back up the premise that futures dragged the spot market down.

The July contract, the nearest for delivery among

the CSI500 index futures, saw open interest peak on June 23, only after the spot market tumbled, with nearly 10 trillion yuan (US$1.6 trillion) wiped off its value the previous week. Turnover hit a record high only on June 19, after the meltdown from June 12.

CSI500 futures were also in backwardation - with near-term contracts priced higher than those further out.

Traders said that indicated near-term contracts were in demand due to slumping equities rather than causing the meltdown.

Too small

Launched in 2010, China’s index futures are too small to influence the spot market much because of various restrictions, including high thresholds for individual investors, traders say.

Exchange data shows that typical nominal daily turnover of all futures, which also cover the blue chip CSI300 index and large-cap SSE500 index, is 3-4 trillion yuan.

While futures are about two or three times the size of spot trade, ratio is far behind that of mature markets.

Among other limitations, individuals must have at least 500,000 yuan in their accounts to trade index futures. Less than 1 percent of China’s 100 million stock investors have that much.

Reuters

Business Daily | 9

July 23, 2015

Greater China

save rustbelt

e at a North Korean casino for the evening

with a Cyrillic sign, had long been abandoned.

A dusty office building called the International Trade Centre was available for rent.

‘Completely unpredictable’

need qualified workers,” she said.

The only foreigners to be seen were a few Russian customers in Hunchun’s main shopping area.

China’s biggest northern neighbour has economic problems of its own,

battered by Western sanctions over Ukraine and low energy prices.

At the Sino-Russian Trade Complex, a business park on Hunchun’s outskirts, the 2,700-square metre China Restaurant, topped

ctured a bridge that links China with North Korea

China’s biggest joint economic project with the North so far has been in Rason, a special economic zone where it invested in two ports.

But visitors describe little shipping and only a handful of operating businesses, while many Hunchun locals say relations with North Korea have been frigid in recent years.

Two Chinese entrepreneurs who have done business in Rason said their confidence was deeply shaken in 2013 when Pyongyang purged and executed Jang Song-Thaek -previously its point man on relations with China.

In the article announcing his death and branding him a “traitor”, the official Korean Central News Agency said Jang sold “off the land of the Rason economic and trade zone to a foreign country for a period of five decades”.

Chinese entrepreneurs describe arbitrary delays and a frustrating business climate.

“Doing business in North Korea is completely unpredictable, they’re really irresponsible,” Peter Wu told AFP. He has been negotiating for almost a year to build a factory in North Korea to make a medicinal herbal drink for export to China, but after spending more than 100,000 yuan has nothing to show for his efforts.

“There’s silence for months on the North Korean side and then finally, just when you think you’ve reached a deal, all the rules change and you need to start over.”

AFP

U.S. Fed raps Construction Bank over money laundering

Industrial sector still faces pressure National industrial sector still faces significant downward pressure and “arduous efforts” are needed to stabilise the economy, the Ministry of Industry and Information Technology said yesterday.

The ministry also told a press conference that firms in some industries were facing increasing difficulties in making profits. Official data showed China’s factory output growth hit a five-month high of 6.8 percent in June compared with a year ago.

Evergrande plans to list spring water unit China’s Evergrande Real Estate said it is aiming for a mainland listing of its loss-making spring water unit, the third spin-off in one month that some analysts said will help boost the indebted property developer’s valuation. The unit, called Evergrande Spring, has applied to list on China’s so-called New Third Board for small enterprises, the second-largest property developer by sales in the mainland said in a statement to the HK Stock Exchange. Earlier this month, Evergrande announced the listing plans of its units Guangzhou Evergrande Taobao Football Club and Evergrande Culture Industry Group.

Huawei says smartphone shipments jumped Huawei Technologies Co Ltd, the world’s fourth-biggest smartphone manufacturer, yesterday said it shipped 48.2 million smartphones globally in the first half of 2015, a 39 percent rise from a year before. Shenzhen-based Huawei, which competes with Chinese smartphone makers Lenovo Group Ltd and ZTE Corp, recorded a 69 percent increase in its consumer business group revenue to US$9.09 billion thanks to strong sales from high-end smartphone models, the company said in a statement.

Investment bank files The Fed did not impose a fine or other sanctions on the bank, for billionaire flotation and did not identify what problems CCB was facing

T

he Federal Reserve on Tuesday told China Construction Bank Corp to ramp up its antimoney laundering framework, the first enforcement action by the U.S. central bank against one of China’s four largest state-owned banks.

Within 60 days, the bank should submit plans for compliance programs for anti-money laundering controls, customer due diligence programs, and methods for spotting suspicious transactions, the Fed said.

Mildred Harper, chief compliance officer for CCB’s New York branch, confirmed the enforcement action.

It is the first time the Fed has taken an enforcement action against CCB, according to the Fed’s website, where a database showed no similar enforcement actions for any of the three other large Chinese banks: Bank of China, Industrial and Commercial Bank of China and Agricultural Bank of China.

The Fed did not impose a fine or other sanctions on the bank, and did not identify what problems CCB was facing.

A tough U.S. policy has found high-profile violators among banks failing to enforce compliance in recent years.

China’s corruption watchdog said yesterday that inspection teams had recently started audits of four branches of CCB, although it did not mention the enforcement action or money laundering.

The Central Commission for Discipline Inspection said in a statement on its website the audits would cover “leaders’ abuse of power for personal enrichment, abuse of power for own interests, corruption and other violations of discipline”.

In July, 2014, BNP Paribas pleaded guilty to two criminal charges and agreed to pay almost US$9 billion to resolve accusations it violated U.S. sanctions against countries such as Sudan, Cuba and Iran.

Late in 2012, HSBC Holdings paid a US$1.9 billion fine to U.S. authorities, a record at the time, for allowing itself to be used to launder drug money from Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel.

Reuters

China International Capital Corp (CICC), the country’s top domestic investment bank, has filed for an initial public offering in Hong Kong that could be worth up to US$1 billion, people with direct knowledge of the plans said. The filing sets the ball rolling for a flotation expected to take place as early as September, Thomson Reuters publication IFR reported. A Beijing-based spokeswoman for CICC declined to comment. CICC itself and ABC International are leading the offering. The company has as its majority shareholder Central Huijin Investment Ltd, a unit of China’s US$747 billion sovereign wealth fund.

Feilo Acoustics makes offer for Osram Shanghai Feilo Acoustics has made a non-binding offer to acquire the lamps business of Germany’s Osram, the Chinese company said, lifting Osram shares on Tuesday. Though Osram said it had not started an active sales process, it has hired UBS to help it to choose a preferred buyer and sources told Reuters last month that the company had been in talks with potential suitors including peers in China. The lamps business has been in decline but is seen as potentially attractive to an Asian buyer because of its sales and distribution channels in Europe and North America.

10 | Business Daily

July 23, 2015

Asia

Australia’s central bank chief sees risks in more rate cuts Comments came as government data showed inflation remained benign last quarter despite a spike in petrol costs Wayne Cole

A

ustralia’s central bank sees scope for yet lower interest rates as inflation stays in the sweet spot for stimulus, though the bar for action is high given concerns it could lure households into taking on too much debt.

Offering a guardedly optimistic outlook on the economy, Reserve Bank of Australia (RBA) Governor Glenn Stevens (pictured) said restrained inflation had already allowed rates to be cut to all-time lows and a further easing remained “on the table.”

Yet he was quick to warn that such a move might encourage a borrowing binge that would end badly for all concerned.

“In meeting the challenge of securing growth in the near term, the stability of future economic performance can’t be dismissed as a consideration,” Stevens told a charity event. “A balance has to be found.”

Investors took his reticence as a cue to scale back wagers on an easing anytime soon. Rates are already down

KEY POINTS RBA chief says easing on table but highlights dangers Onus on lower A$ to provide stimulus, adjustment underway Core inflation marks five years within target range at 2.0 percent having been cut twice this year as the economy struggled with sliding prices for key resource exports and a related downturn in mining investment.

While the easing has fuelled a much-needed boom in home building, it also triggered a rush of investment demand for property and a rapid rise in Sydney house prices.

Analysts suspect the RBA would very much prefer if further stimulus came from a lower Australian dollar, and is getting its wish as the currency sank to six-year lows this week.

It has now fallen 21 percent against the U.S. dollar since July last year, a decline Stevens said was having the desired “expansionary effect” on trade and services such as tourism.

Not too high, nor too low

Stevens’ comments came as government data showed inflation remained benign last quarter despite a spike in petrol costs.

The Australian Bureau of Statistics reported the consumer price index (CPI) rose 0.7 percent in the second quarter, lifting annual inflation a touch to 1.5 percent.

Crucially, the annual pace of core inflation at around 2.3 percent stayed comfortably in the lower half of the RBA’s target band of 2 to 3 percent.

Inflation has now been within the target range for no less than five years

- a goldilocks scenario that was low enough to allow interest rates to be slashed but high enough to dodge the dangers of deflation.

“It’s been a very good outcome, because you really don’t want inflation going too low these days,” said David de Garis, a senior economist at National Australia Bank.

“It means the RBA has time to judge the impact of past easing, without having an urgent need to do any more.”

This is largely due to costs for goods and services that are not open to the rigours of international competition, such as healthcare and education.

Inflation for these non-tradable items ran at 2.6 percent in the year to June, while tradable prices fell 0.3 percent.

Once, stubbornly high nontradable costs were considered a major drawback, but in a world where deflation is the danger they are proving unexpectedly helpful.

Reuters

Japan government says won't meet 2020 fiscal targets Cabinet Office expects inflation to accelerate to 3.1 percent in fiscal 2017

G

overnment said yesterday that it will not achieve its target of returning to a primary budget surplus in fiscal 2020, suggesting further steps will be needed to boost revenue and lower spending.

The target is considered an important checkpoint for Japan as it seeks to reduce a debt/GDP ratio that is the worst in the industrialised world, with public debt standing at around twice the size of its economy.

Giving greater priority to bolstering economic growth, Prime Minister Shinzo Abe’s leading panel of advisers agreed budget guidelines yesterday that eschew spending cut targets, raising concerns the government could easily increase fiscal spending and add to the debt burden.

The Cabinet Office, which helps coordinate economic policy, said it expects consumer prices to rise more slowly than the Bank of Japan’s 2 percent inflation target in fiscal 2016 due to declines in oil prices.

It also forecast the primary budget deficit, which excludes debt servicing

costs and income from bond sales, will reach 6.2 trillion yen (US$50.15 billion) or 1.0 percent of gross domestic product in fiscal 2020.

This is better than a previous forecast in February that put the primary deficit at 1.6 percent of GDP in fiscal 2020. The improvement reflected recent gains in tax revenue.

However, this still falls short of meeting the goal of returning to surplus in fiscal 2020.

Consumer prices were forecast to rise 0.6 percent in fiscal 2015, a far slower than the 1.4 percent forecast in February. The sharp downward revision reflects a collapse in oil prices.

Consumer price inflation is expected to accelerate to 1.6 percent in fiscal 2016, partly as economic

growth picks up due to gains in consumer spending. Still, this is below the previous forecast of 1.8 percent growth.

Bank of Japan Governor Haruhiko Kuroda has repeatedly said he sees a high chance of meeting his 2 percent inflation target in the first half of fiscal 2016, but the Cabinet Office’s forecasts would suggest this is less likely.

Indeed, the Cabinet Office expects inflation to accelerate to 3.1 percent in fiscal 2017, but this would partly reflect a sales tax increase scheduled that year.

From fiscal 2018 onwards, the Cabinet Office expects inflation to stabilise at 2 percent.

Reuters

Business Daily | 11

July 23, 2015

Asia

Bad timing for Singaporean savings bond

Toshiba raised US$8 billion on false profit

Economy contracted sharply in the second quarter, price pressures are subdued and expectations are building for the central bank to ease policy once again at a twice-yearly review in October Vidya Ranganathan

S

ingapore’s plan to launch a savings bond to encourage longterm retail savings is unsettling domestic banks and economists who fear this bond will push interest rates up and suck cash out from an already anaemic economy.

The new bond, which will begin selling in October, will have a term of 10 years. It will offer the same yields as government bonds or ten times the returns on bank deposits, and can be redeemed without penalty at any point.

Such a juicy proposition could cause a flight of cash from bank deposits into these bonds and force interest rates higher as banks compete to attract savers.

The government says it will issue a maximum of S$4 billion worth of bonds this year, which is still more than a fifth of deposit growth in 2014.

The timing of these bonds, which are aimed at meeting a long-felt need for long-term investment options in the low-yielding economy, couldn’t be worse.

The economy contracted sharply in the second quarter as manufacturing slumped and is at risk of tipping into technical recession. Price pressures are subdued and expectations are building for the central bank to ease policy once again at a twice-yearly review in October.

“Launching a retail savings bond now is almost like reverse QE,” said Chua Hak Bin, an economist with BofA Merrill Lynch in Singapore, referring to the unorthodox quantitative easing (QE) policies the United States and other major economies have pursued in the years since the 2007 financial crisis.

Chua points to the already slowing deposit growth in the Singapore banking system, with just S$3.8 billion (US$2.8 billion) of deposits being added in the first five months of 2015, just 20 percent of the total growth last year.

He suspects the government would invest the savings bond flows overseas.

That would further pressure loan growth, by tightening available cash and triggering a rise in deposit rates, he said.

“So the timing is not ideal. The economy has stagnated in the first half and this will worsen the situation,” Chua said.

Citibank analysts expect that of a total S$559 billion of deposits in the banking system, 36 percent are savings deposits held by households. If on average the MAS issued about S$6 billion worth of bonds each year, S$30 billion would flow from the deposit base into bonds over five years, they estimate.

Risk-free and rewarding

Singapore’s central bank, the Monetary Authority of Singapore (MAS), has set a cap of S$100,000 on individual investments in the bond.

MAS Managing Director Ravi Menon played down fears the bond will cannibalise bank deposits.

“The savings bonds issuance numbers pale in significance compared to the total size of the banking deposits,” he said at a news conference this week.

Yet there is little doubt the bonds will draw savers from banks.

Government bonds yield about 0.95 percent for one-year and 2.6 percent for 10-years. Bank deposits fetch around 0.25 percent for a year and just double that for 24 months.

The Singapore Savings Bond is bending the risk-reward paradigm in investors’ favour Zal Devitre, head of investments, Citibank in Singapore

“The Singapore Savings Bond is bending the risk-reward paradigm in investors’ favour,” said Zal Devitre, head of investments at Citibank in Singapore.

Devitre believes retail investors and consumers will be keen to buy the bonds, and yet thinks it is premature to be projecting the impact that will have on rates and banking system liquidity.

Local banks such as DBS, OverseaChinese Banking Corporation and UOB are expected to be impacted if there is a heavy migration of deposits.

But analysts also expect there will be more pressure on global banks such as Citibank, Standard Chartered, HSBC and Malayan Banking Bhd, which have been deemed systemically important by Singapore and therefore need to maintain higher capital than stipulated under the Basel 3 guidelines.

Reuters

Toshiba Corp. issued almost 1 trillion yen (US$8 billion) of stocks and bonds when it was inflating earnings statements, leaving the company exposed to possible regulatory fines and investor lawsuits. The Japanese manufacturer sold 333 billion yen of shares in a public offering in May 2009, and issued 640 billion yen of bonds from May 2009 to December 2013, data compiled by Bloomberg show. Toshiba President Hisao Tanaka resigned on Tuesday, telling reporters that the company will take seriously a third-party panel’s findings that executives were involved in systematic overstating of profit.

Granting insurance licenses suspended in Myanmar The Myanmar Insurance Business Supervisory Board has suspended granting licenses for foreign insurers to operate in Myanmar’s special economic zones for one year, official media reported yesterday. The further licenses will be granted starting next year and three Japanese insurers have so far been allowed to operate in the country’s SEZs, including the country’s first Thilawa SEZ, said Dr Maung Maung Thein, chairman of the board. Of the three Japanese insurers, Sompo Japan Nipponkoa Insurance Inc which is the first granted firm launched its operation in the Thilawa Special Economic Zone in southern Yangon.

Airfares in Singapore increasing Singapore has been identified as one of the six global hot spots where increased business travel demand is driving up air ticket prices, said an industry report released yesterday. The increasing demand is likely to drive up airfares in Singapore by 3 percent, the highest in the Asia-Pacific region, according to the report entitled 2016 Global Travel Price Outlook. The industrial report provides global, regional and country-by- country projections for air travel, hotel, ground transportation, as well as meetings and events prices in 2016.

Costa Group prices IPO near bottom Australian fruit and vegetable supplier Costa Group priced its share listing near the bottom of a target range, a person close to the deal said, as investor jitters sapped demand for Sydney’s second-biggest market debut so far this year. Costa will sell up to 246 million shares for A$2.25 each, near the low end of a target range of A$2.20 to A$2.70. The total proceeds of up to A$553 million (US$409 million) are well below the A$664 million Australia’s top provider of fresh fruit and vegetables.

Adani suspends two Carmichael contractors

Monetary Authority of Singapore headquarters

India’s Adani Mining has suspended two major contractors on its A$10 billion (US$7.4 billion) Carmichael coal project in Australia, the Sydney Morning Herald reported yesterday, raising fresh doubts about the project’s future. Project manager Parsons Brinckerhoff and Korea’s POSCO Engineering & Construction Co Ltd, which is also touted as an investor in the final project, were told late last week to stop work on the Carmichael mine, rail and port project, the newspaper said, citing sources.

A spokeswoman for Parsons Brinckerhoff referred a query on the contract to Adani.

12 | Business Daily

July 23, 2015

Asia Japanese firms to set up investment trust Japan Post Holdings, Sumitomo Mitsui Trust Bank and Nomura Securities Co said yesterday they had agreed to set up a joint venture to sell investment trusts.

The joint venture will start offering investment trust products at Japan’s post offices from next February, the firms said in a statement. Japan Post already sells investment trust products provided by companies such as Tokio Marine Asset Management Co. The venture will be held 50 percent by Japan Post, 30 percent by Sumitomo Mitsui, and 20 percent by Nomura, they said.

Chaos reigns in Indian Parliament over corruption The Indian Parliament yesterday witnessed uproar for the second day in a row, with opposition parties reiterating their demand for resignations of External Affairs Minister Sushma Swaraj and two chief ministers over allegations of corruption and wrongdoing. Both the Upper House and the Lower House had to be adjourned repeatedly after opposition parties, led by Congress party, created chaos, despite the Indian government saying that it was ready for a debate on allegations surrounding Swaraj. Politicians are accused of helping the country’s former cricket boss, currently a fugitive in UK and accused of financial corruption.

Australia files laundering suit against betting company Anti-money laundering agency said it filed a civil court action against gambling giant Tabcorp Holdings Ltd accusing it of failing to take sufficient precautions against money laundering and terrorism financing. The Australian Transaction Reports and Analysis Centre, known as AUSTRAC, filed a statement of claim against the world’s No. 7 listed gambling firm in the Federal Court in Sydney on Tuesday, the court website said without giving details. AUSTRAC Chief Executive Officer Paul Jevtovic said Melbourne-based Tabcorp failed to improve its standards and compliance after a “long and comprehensive” assessment by the watchdog.

Toyota, SMBC, Sparx setting up new fund Toyota Motor Corp, Sumitomo Mitsui Banking Corporation(SMBC) and asset management company Sparx Group Co Ltd said yesterday they are setting up an investment fund to bankroll advanced-technology research. The fund plans to invest in projects related to artificial intelligence, robotics and hydrogen technology, they said in a joint statement. A Toyota spokeswoman said target projects would include research on autonomous driving, and would not be limited to Japan.

Japan firms gear up for capex A Reuters survey said domestic sales have fallen short of plan since the financial year started in April Tetsushi Kajimoto and Izumi Nakagawa

T

wo in five Japanese firms plan to boost capital spending this business year, and more than a third of those say it is because of rising demand, a Reuters poll showed, pointing to a pickup in confidence about the economy.

But tempering that upbeat view was a warning from about onequarter of respondents that their sales are so far undershooting their business plans for the year that started in April. In contrast, just one-eighth of respondents said they were ahead of plan.

The latest Reuters Corporate Survey could offer some relief to Japanese policymakers who are anxious for companies to spend their cash hoards on plant and equipment, rather than hold them in reserve as they fret over Greek debt and swingy Chinese stock markets.

Capital spending has long been the missing link in Japan’s drive for a virtuous cycle of business

KEY POINTS 40 pct of firms plan to raise capex; 49 pct to keep it steady Companies may finally be spending cash pile on investment Quarter of firms see sales undershooting plans China, Greece cited among risks to the outlook

investment, household income growth and consumer spending to pull the world’s third-largest economy out of nearly two decades of deflation.

“This is a positive surprise.

Companies are aiming to boost investment at home in anticipation of higher demand,” said Taro Saito, director of economic research at NLI Research Institute, who reviewed the results.

“Capex plans look really strong but the question is whether they are going to be implemented. I have doubts when seeing that sales are already undershooting plans.”

Japanese companies draft capital spending plans at the start of the April-March business year, which are typically cautious, and revise them if revenue and profits diverge from initial expectations.

For now, the survey of 516 big and medium-sized firms, conducted on July 1-15 for Reuters by Nikkei Research, reinforces recent signals that companies may finally be shaking off their deflationary mind-set.

Greece and China risks

The BOJ’s latest quarterly tankan sentiment survey on July 1 showed that big Japanese firms plan to boost capital spending in the fiscal year to next March at the fastest pace in a decade, while this month’s closely watched machinery orders data showed a third consecutive monthon-month rise.

Managers responded anonymously to the Reuters survey and about 280 companies answered questions on capital spending and sales plans.

The survey found that about 40 percent of respondents plan to raise both overall and domestic capital

spending, while about 50 percent plan to hold spending unchanged from last year.

Automobile and transport equipment makers, along with property and construction companies, were among the more bullish sectors, where those planning to boost spending were more likely to say they would boost production capacity than simply refurbish existing plant and equipment.

“We plan to raise investment at home because we anticipate demand related to disaster prevention and construction works for the Olympic Games,” said one machinery firm in the Reuters survey. Tokyo will host the Summer Games in 2020.

Rising demand and the need to replace ageing equipment were the two main reasons cited for boosting investment, each cited by more than one-third of respondents.

Only 3 percent cited the weak yen, which over the past two years has made Japan’s exports potentially more competitive and provided an incentive to boost domestic production.

Japanese firms have forecast on average a 0.4 percent rise in sales for the year to next March, according to the BOJ tankan survey.

But 27 percent of respondents to the Reuters survey said domestic sales have fallen short of plan since the financial year started in April, while only 13 percent said sales have exceeded. The majority, 59 percent, said sales were on track.

“Underlying sales are firm but the outlook is extremely unclear as Greece’s problems and China’s stock market volatility have shown,” wrote an executive at a chemicals firm.

Reuters

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Business Daily | 13

July 23, 2015

Asia

Doubts put investors off emerging Asian stocks Among major emerging markets, countries with the biggest gaps between investors’ positions and the benchmark were Malaysia, Taiwan, Korea and China Nichola Saminather

G

lobal investors are more conservative on emerging Asian stocks compared with equities elsewhere, as concerns about poor corporate governance and lack of transparency are taking some of the gloss off the region's outperforming markets.

The problems are particularly acute in China, South Korea and Taiwan, which make up more than half of the benchmark MSCI Emerging Markets index.

As a result, international investors are more selective about where they put their money and are underweight Asian equities even as economic growth and stock returns in the region continue to outpace other emerging markets such as those in Latin America.

"While there are opportunities among selected companies in Asia, we have reservations about the quality of companies that make up a significant portion of the index," said Matthew Vaight, London-based manager of M&G Investments' Global Emerging Markets fund.

"We will struggle to move to a significant overweight in Asia."

Global emerging markets funds had only 63 percent of their investments in Asia as of May 31, below the benchmark's weighting of 69.7 percent, according to a survey of 51 funds by J.P. Morgan last month.

Among major emerging markets, countries with

Malaysian Stock Exchange

the biggest gaps between investors' positions and the benchmark were Malaysia, Taiwan, Korea and China, according to the survey.

Governance struggle

The underweight position on emerging Asia comes despite the outperformance of the broader index.

The MSCI Asia Emerging Market index has fallen only 5.3 percent over the past year, compared with a 32 percent slide in its Latin American counterpart and an 18 percent decline in European and Middle Eastern emerging markets.

"We struggle to find companies that satisfy our quality criteria," particularly in north Asia, said Christopher Wong, senior investment

manager at Aberdeen Asset Management in Singapore, who runs its emerging markets fund. "We are uncomfortable with the opaque business structures and the generally poor corporate governance standards."

Take the case of China and South Korea, for example.

A l th o u g h B ei j i n g i s undertaking reforms, the inefficiency of its state-owned enterprises, including its Big Four banks - Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China - has long been one of the country's thorniest problems.

In South Korea, Samsung Group's founding Lee family - which controls global electronics giant Samsung

Electronics - last week scored a narrow win in a landmark proxy battle, led by activist U.S. hedge fund Elliott Associates.

The rare challenge by a foreign fund has stirred public debate about the country's corporate-governance standards, especially amid growing disenchantment with family-owned businesses running rough-shod over minority interests.

Aberdeen's emerging markets fund had 55.9 percent of its investments in Asia as of May 31. It has been underweight Asia, particularly China, Taiwan and Korea, for 10 years.

Indian opportunity

In contrast, while Latin American economies aren't

exactly brimming with confidence, the fund is more exposed to the region than the benchmark.

Companies including retailer Lojas Renner and fuel distributor Ultrapar in Brazil, and Mexican convenience store operator and bottler FEMSA, are well managed, have healthy balance sheets and strong business models that ensure their survival in tough times, Aberdeen's Wong said.

To be sure, some funds are taking the opportunistic approach in places like South Korea.

M&G Investments' Vaight says concerns about corporate governance have compressed valuations to the point where they're attractive.

Korean companies are trading at 11.6 times earnings, which for instance compares with 15.8 in Indonesia and 16.7 in Thailand.

India, home to the biggest number of overweight positions among emerging market funds and favored by global equities funds, is an exception despite the Sensex's high 20.5 times earnings multiple.

"The only appealing investment right now in Asia is India," said Chris Semenuk, manager of TIAA-CREF's US$4.3 billion international equities fund, which is underweight Asia.

"India, in its development, is where China was 10 years ago. The runway for future growth in Indian companies is quite long."

Reuters

Singapore freezes accounts linked to 1MDB probe The Monetary Authority of Singapore said this month it was providing assistance to Malaysian authorities in their investigation regarding 1MDB

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ingapore police yesterday confirmed they had frozen two bank accounts as part of an investigation into possible money-laundering offences related to troubled Malaysian state investment firm 1MDB. The company is under investigation

by Malaysian authorities following reports of irregularities including fund transfers allegedly involving Prime Minister Najib Razak, who has strongly denied any wrongdoing.

“We understand that the Malaysian authorities have launched investigations into certain matters related to 1MDB,” the Singapore Police Force (SPF), which has a unit dealing with financial crime, said in a statement sent to AFP.

The SPF said it was conducting an “investigation into possible moneylaundering offences”.

The SPF said on July 15 it “issued orders under the Criminal Procedure Code to prohibit any dealings in respect of money in two bank accounts that are relevant to the investigation”.

It did not identify the bank accounts and said it would not provide further details as investigations were on-going.

The Wall Street Journal reported on July 3 that investigators had discovered nearly US$700 million had moved through government agencies, banks and companies linked to 1MDB before ending up in Najib’s personal accounts.

Najib dismissed the report as “political sabotage” and threatened

legal action, while 1MDB said it had not transferred any funds to the Malaysian premier, who is also the finance minister.

A special task force in Malaysia set up to probe the money transfers has frozen six bank accounts. It said none of them belonged to Najib.

Facing intense pressure to reveal the whereabouts of allegedly missing 1MDB money, Najib said in March that about US$1.1 billion of its funds had been transferred from the Cayman Islands to an account with Swiss private bank BSI in Singapore.

Critics, however, have accused Najib’s administration of conflicting statements on the nature of those funds and failing to provide full details on the account.

The Monetary Authority of Singapore (MAS), the city-state’s central bank, said this month it was providing assistance to Malaysian authorities in their investigation.

The MAS noted that financial institutions in Singapore “are required to conduct rigorous customer due diligence, regular account reviews, and to monitor for and report any suspicious transactions.”

It warned it “will not hesitate to take any action if there are regulatory breaches”.

Singapore is Southeast Asia’s leading financial centre. It is home to over 200 banks handling assets worth almost two trillion US dollars as of December 2013, according to the MAS website.

Reuters

14 | Business Daily

July 23, 2015

International S. African inflation edges up South Africa’s annual inflation rate rose slightly to 4.7 percent in June, official data showed yesterday, ahead of a central bank decision that could see interest rates increase for the first time in a year.

The 0.1 percent rise in inflation from the previous month was largely driven by the housing and utilities sectors. Nedbank, one of the country’s largest lenders, said the 4.7 percent figure was lower than market expectations of 5.0 percent. It predicted inflation would “continue its upward trend this year”. The Reserve Bank’s target range is between 3.0 and 6.0 percent.

Global rules for asset-backed financing might ease Global regulators may ease restrictions on asset-backed or pooled-debt in a policy shift that banks and European policymakers say is needed if financial markets are to play a bigger role in funding economic growth, two financial industry sources said. Pooled-debt or asset-backed securities based on poor quality U.S. home loans were blamed for triggering the 2007-09 financial crisis, leading to tougher rules for these financial instruments. This tarnished the asset-backed market that is roughly still only half its pre-crisis size in Europe, though it has rebounded in the United States.

Russia extends mortgage lending support The Russian government has extended its mortgage lending support programme to help house builders struggling to increase their sales after a weak economy and high interest rates hurt demand. Russia has already set aside 20 billion roubles (US$350 million) this year to subsidise mortgages by compensating some banks for lowering their interest rates. It said the subsidies should help to issue up to 400 billion roubles in loans. A decree published yesterday raises that ceiling to 700 billion roubles and aims to support the construction of economy-class housing and mortgage lending.

Brazil may cut spending further Brazil may cut spending further to strengthen its finances following a sharp drop in tax revenues, Finance Minister Joaquim Levy said, without ruling out the possibility of lowering the government’s key budget surplus target. With markets leery of the government adjusting its closely watched primary budget surplus goal of 1.1 percent of gross domestic product, Levy took a break from government talks on the matter to assure investors that austerity is here to stay even if the target is changed. The government is considering an additional cut of up to US$4.73 billion in discretionary spending this year.

Ukraine expects IMF decision on disbursal Ukrainian Prime Minister Arseny Yatseniuk said yesterday he expected the International Monetary Fund to make a decision on the disbursal of a second tranche of financial aid worth US$1.7 billion on July 31. Ukraine has so far received US$5 billion from the International Monetary Fund, out of an overall pledge of US$17.5 billion. To get more, it had to implement reforms including legislative changes to the banking system and energy sector.

UAE to free up gasoline, diesel prices in major reform Abu Dhabi, the biggest emirate in the UAE, hiked electricity and water tariffs in January as part of efforts to cut subsidies Maha El Dahan

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he United Arab Emirates said it would let domestic fuel prices move more freely in a politically sensitive reform that could save the government billions of dollars and begin reducing the wealthy country’s love of gas-guzzling cars with big engines.

Gasoline and diesel will be deregulated from August 1 and a new pricing policy linked to global levels will be introduced, state news agency WAM quoted the energy ministry as saying yesterday.

“Deregulating fuel prices will help decrease fuel consumption and preserve natural resources for future generations,” said energy minister Suhail bin Mohammed al-Mazroui.

Matar al-Nyadi, undersecretary of the ministry and chairman of its new Gasoline and Diesel Prices Committee, told Reuters that gasoline prices might initially rise slightly because of the reform, while diesel would fall.

At present, state subsidies keep gasoline and diesel in the Arab world’s second biggest economy at some of the lowest prices in the world. Motorists pay US$47 cents for a litre of gasoline, less than a third of levels in western Europe.

Cutting subsidies and letting fuel prices rise could boost UAE state finances, which have been weakened by a plunge of oil export revenues since 2014 due to the fall in global crude prices.

The International Monetary Fund projects the UAE will post its first fiscal deficit this year since 2009; it estimates the country spends US$7 billion annually on petroleum subsidies.

A panorama of Abu Dhabi skyline

It will also encourage individuals to adopt fuel-efficient vehicles, including the use of electric and hybrid cars UAE energy minister, Suhail bin Mohammed al-Mazroui

The ministry’s statement did not give details of the new pricing policy, beyond saying the prices committee would announce on the 28th of each month prices for the following month, basing its decision on “average global prices with the addition of operating costs”.

Eurotunnel asks help to cope with migrant crisis Migrants problem has been exacerbated by a French ferry workers’ strike Dominique Vidalon

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hannel Tunnel operator Eurotunnel said it has asked the French and British governments to pay it back close to 10 million euros (US$11 million) in security costs as it tries to cope with a migrant crisis at the port of Calais.

Dislocated by war, political turmoil and poverty, some 3,000 migrants are living in makeshift camps in and around the French port city, and every day attempts are made to board lorries and trains heading to the UK. They expect to find illicit employment in Britain’s shadow economy or claim asylum in a system

often seen as more generous than the French equivalent.

As it unveiled a 9 percent rise in first-half core profit yesterday, Eurotunnel said it spent 13 million euros on security in the period, the same as for the whole of last year.

“The increase in pressure from migrants in Calais led to disruption to services during June and could lead to further disruptions to traffic and to additional security expenditure in the second half of the year,” the company said in a statement.

Eurotunnel said it had made a request for 9.7 million euros to be

The global price of Brent oil is currently around US$56 per barrel, not far from six-year lows. But linking UAE prices to global levels could clear the way for substantial hikes in the future, if Brent starts to recover.

Mazroui said fuel price changes would not raise the UAE’s cost of living significantly, while diesel’s expected fall next month would help the economy.

“This will stimulate the economy as a lower diesel price would mean lower operating costs for a wide number of vital sectors like industry, shipping and cargo among many others.”

The announcement put the UAE at the front of economic reform among the rich Gulf oil states. Other governments are grappling with similar financial pressures but have mostly not had the political will to push through major change.

Kuwait raised its domestic diesel and kerosene prices in January but partially reversed the hikes a few weeks later after criticism by some members of parliament.

Reuters

reimbursed, adding that the UK government had already agreed to pay 4.7 million euros.

The problem has been exacerbated by a French ferry workers’ strike, which has blocked traffic around Calais.

Employees of the Eurotunnel-owned MyFerryLink service - whose ferries the company plans to sell - temporarily blocked French road access to the undersea rail tunnel on Tuesday.

Overall, Eurotunnel said business remained “dynamic”, driven by the recovery in the UK economy and partly in the euro zone, although it warned that the “large concentration of migrants in the Calais area” may “continue to cause disruptions”.

The company kept its goal for higher profit this year and next.

First-half earnings before interest, tax, depreciation and amortisation (EBITDA) reached 252 million euros, in line with the average of analyst forecasts in a Thomson Reuters I/B/ E/S poll. It is aiming for EBITDA of 535 million euros this year and 580 million in 2016, against 498 million last year.

First-half revenue rose 9 percent to 649 million euros, with traffic growing 8 percent for truck shuttles and 13 percent for freight trains.

Reuters

Business Daily | 15

July 23, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Gold at low ebb, authorities in ascendance

VIETNAM NEWS

James Saft

Viet Nam’s garment and textile export turnover to countries taking part in the Trans-Pacific Partnership (TPP) negotiations increased by 69.66 per cent in the first five months compared with the same period last year, according to the latest report from the Viet Nam Textile and Apparel Association (Vitas).

Exports to this market also accounted for 66.8 per cent of the sector’s total export turnover. Exports to the US ranked top with US$4.05 billion, accounting for nearly 50 per cent of the export value to the countries joining the TPP agreement, a 53 per cent increase on the year.

Reuters columnist

THE JAPAN NEWS Japanese firms are hiring more foreign graduates from overseas universities in the hope they will eventually be management executives, a trend spurred by improving business performances and difficulty employing capable Japanese graduates. Companies have employed foreign staff in earnest since 2010 when the strong yen sped up the shift of their production bases overseas. Foreign employees are expected to learn Japanese-style work practices at headquarters based in Japan, and then be tasked with managing overseas divisions.

According to Recruit Career, about 12 percent of companies are expected to employ foreign graduates from overseas universities in 2016.

THE PHNOM PENH POST Recent data from the International Labour Organisation say that despite implementing a US$128 minimum wage in January, the Kingdom’s garment and footwear sector has grown by over 10 per cent in the first quarter this year, although experts suggest a wait-and-see approach to determine its full impact. In the first of a newly launched quarterly bulletin on the sector’s performance, the International Labour Organization (ILO) said Cambodia’s garment sector grew by 9.3 per cent to US$5.8 billion last year, employing over 600,000 workers in 640 factories.

THE NEW ZEALAND HERALD Moves to track offshore buyers are rushed and confusing and could increase compliance costs to taxpayers, the Government has been warned. In its submission on the Taxation (Land Information and Offshore Persons Information) Bill, EY (formerly Ernst & Young) said the proposed legislation was being rushed through to come into effect from October 1.

Prime Minister John Key announced changes ahead of the May Budget, which he said would make sure gains on investment properties were taxed fairly, and provide more information on offshore buyers.

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f a rising price of gold is a negative indicator of trust in the global financial system, then the world’s central bankers and policy makers are right now enjoying a glittering authority.

You might argue, and some will, that this confidence, reflected not just in the fall in the value of gold but in the buoyancy of the value of most financial assets, is misplaced. But the narrative of spiralling money creation and inflation that sold easily up until 2011 no longer retails well.

Gold isn’t so much an asset class, much less a barbaric relic, but a kind of shorthand for a belief system. This is the idea that fiat money systems, where currency can be created by authorities at will, inevitably slope towards devaluation. To the extent that this happens little by little, gold tends to simply keep pace, rising a bit as paper money falls a bit. When people think central banks will wittingly or unwittingly engineer a runaway inflation, and with it devaluation of paper currency, then gold trades at a premium.

Gold prices plunged to their lowest in more than five years on Monday, dropping as much as 4.5 percent before recovering slightly to US$1,109.75 per ounce. This compares to a peak above US$1,900 in 2011, when many investors sought to indemnify themselves against the inflation they thought quantitative easing would inevitably bring.

The immediate cause of Monday’s down-draft was news that China’s central bank had amassed less of the precious metal as part of its reserves than analysts expected. The deeper, and broader, reason that gold is

and has been falling is that policy in the U.S. is on the verge of beginning the long process towards more normal monetary policy.

That the Federal Reserve can countenance raising interest rates, and is doing so when there is some doubt that inflation will recover enough to justify the move, says much about the financial state of the world.

QE and ultra-low rates may or may not be a success as economic policy, but thus far they have not generated the devaluation and inflation that gold buyers feared. The prospect of higher rates also makes bonds more attractive relative to gold, which offers the hope of price appreciation but yields nothing.

Anti-investment Interestingly, gold seems no longer to be playing its role as a safe-haven asset in times of uncertainty. When Greece threatened, as indeed it still does, to ricochet out of the euro it was German and U.S. government bonds which got a bump, as well as the dollar.

You could not ask for a neater expression of the faith that investors place in authorities.

In much of the world from Europe and Japan, where QE is on-going, to China, where the government is blatantly manipulating stock markets, authorities are taking extraordinary steps but enjoy, if not universal approval, at least near-universal faith that they will be able to do what they pledge.

That’s partly, of course, because they’ve run these policies and the inflation gold investors feared never materialized. It is

Interestingly, gold seems no longer to be playing its role as a safe-haven asset in times of uncertainty

also because financial markets are peopled by agents who make a much better living when financial asset prices are rising. Trying to beat back against a tide of rising asset prices is an excellent way to run short of clients.

There is a chance, of course, that this faith is excessive.

Central bankers have kept control, but the underlying fundamentals of the economy are still a concern. U.S. total debt is more than three and a third times as big as economic output. While that’s down from the peak in 2010, it is still above where it was going into the financial crisis and an order of magnitude above historical norms. This implies that the motivation for a devaluation still exists, even if we have no real evidence that the current mix of policy will produce one.

On one level we should be pleased gold is in the doldrums.

It is really an anti-investment, something that only pays off when things go badly but which, in itself, improves nothing for anyone who does not own it.

That’s in contrast to stocks, which can enrich investors and improve the lives of the workers and consumers affected by the company, or bonds, which, at least in theory, finance some useful project or spending.

Too much central control of investment, such as the support offered by authorities for markets, will lead to less productive investments than otherwise.

That, a period of low returns due to chronic official-inspired silly investment, is probably what we should fear more than the inflation worries that once supported gold.

Reuters

16 | Business Daily

July 23, 2015

Closing Airbus China plant plans to deliver first A330 plane in 2018

Vice Finance Minister promises “pro-active” fiscal policy

The plant is expected to deliver its first A330 wide-body passenger jet in 2018, one of the European plane maker’s Chinese partners said yesterday. Airbus earlier this month signed an agreement to establish an A330 ‘cabin completion centre’ in the north-eastern Chinese city of Tianjin, where the firm already has a final assembly plant for smaller A320 jets. The agreement was signed with the Aviation Industry Corp of China and the Tianjin Port Free Trade Zone. Airbus hopes the increased presence in China would lead to more demand for the profitable but ageing wide-body A330 jets.

China will pursue a “pro-active” fiscal policy to stabilise investment growth and boost domestic consumption in the world’s second-largest economy, a vice finance minister said yesterday. Liu Kun was quoted as saying on the Finance Ministry’s website that an active fiscal policy was part of six crucial areas that the ministry was focused on, alongside lifting growth in investment and consumption. Other priorities were helping companies to move up the production value chain, strengthening environmental protection controls, accelerating the development of logistic networks, and deepening reforms of food and agricultural product subsidies.

Official proposes shifting industry abroad to address overcapacity Hebei Iron and Steel Group has signed an agreement to move some of its plants to South Africa

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hina’s problems with industrial overcapacity remain severe and the only way to solve them is by shifting production facilities abroad, where demand still has the potential to grow, an official at the industry ministry said yesterday.

A decade of rapid industrial expansion has saddled China with pricesapping supply gluts in sectors

such as coal, glassmaking, cement, aluminium and steel, but despite several policy initiatives, the government has struggled to force out-ofdate and loss-making plants to restructure or shut down.

“The only route is to speed up going overseas for highgrade production capacity,” Huang Libin, an official with the Ministry of Industry and Information Technology, told a briefing.

He said China’s efforts to boost economic cooperation along the old “Silk Road” route, known as the “One Road One Belt” plan, would provide opportunities for industries to shift production abroad.

“For us there is overcapacity, but for the countries along the ‘One Road One Belt’ route, or for other BRIC nations, they don’t have enough and if

we shift it out, it will be a win-win situation,” he said.

Huang said tackling overcapacity would be a key task of China’s next Five-Year Plan covering 2016 to 2020.

He said profits in the coal, cement and glassmaking sectors had fallen more than 60 percent in the first five months of this year and the metallurgical sector saw profits dip 36 percent.

However, loss-making aluminium smelters are unlikely to invest in overseas capacity any time soon as they are struggling in a slow economy, two sources in the sector said.

For us there is overcapacity, but for the countries along the ‘One Road One Belt’ route, or for other BRIC nations, they don’t have enough and if we shift it out, it will be a win-win situation Huang Libin, official, Ministry of Industry and Information Technology

They would also face problems in securing adequate infrastructure such as power and water supplies to support new smelters in less developed countries, the most likely locations, they said. A stable political climate is needed, too.

“At the end of the day, we smelters will ask: where is the profit?” said one of the sources. “The Chinese government may provide funding to us for the investment, but can we repay, and when?”

The steel sector has called on the state to provide financial support for any overseas forays as it bids to escape weak demand and soaring environmental costs at home.

The sector is estimated to have around 300 million tonnes of excess annual capacity. Hebei province alone plans to shed 86 million tonnes of out-ofdate production by 2020.

Hebei is also planning to shift at least 5 million tonnes of crude steel capacity overseas by 2017 and its biggest producer, the Hebei Iron and Steel Group, has signed an agreement to move some of its plants to South Africa.

Record steel exports provided a lifeline for Chinese mills last year after domestic consumption fell 3.4 percent, the first annual drop in three decades, but industry officials say exporters could face antidumping charges this year.

Reuters

IMF warns about investors’ mobility in Mainland markets

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Loans to Chinese property developers cooled slightly

South Korea to tighten household credit standards

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he International Monetary Fund (IMF) has told China about its concern over investors’ ability to enter or leave Chinese financial markets as they wish, said sources with direct knowledge of the matter.

Those worries were raised last month when the IMF met with Chinese officials in China to discuss the chances of including the yuan in the fund’s basket of currencies, also known as the Special Drawing Rights (SDR).

The SDR is an international reserve asset, and Beijing has been lobbying the IMF to include the yuan in the basket to boost the currency’s global clout to complement a rising Chinese economy and reduce China’s reliance on the dollar.

The talks were held before Chinese shares plunged as much as a third in late June, prompting Beijing to stage its biggest-ever rescue of the stock market.

The measures, which included steps such as barring some investors from selling their shares, drew criticism of unwarranted government interference.

ank lending to Chinese property developers cooled slightly in the second quarter but remained at high levels, official data showed yesterday, underlining the government’s efforts to get lenders to support the struggling property market.

Developers took 4.88 trillion yuan (US$785.9 billion) worth of loans by the end of June, up 20.9 percent on an annual basis and slower than a 24.1 percent rise at the end of March, central bank data showed.

In a sign of a nascent recovery in the housing market, mortgages rose 17.8 percent by the end of June from a year earlier, quickening from growth of 17.6 percent by the end of the previous quarter.

Beijing has tried to revive the housing market as it looks to arrest an economic slowdown, but banks are worried about bad debts and are not passing on policy steps such as interest rate cuts and lower downpayment requirements to home buyers.

Increased demand for property loans, however, reflects improved home sales.

Reuters

Reuters

outh Korea will encourage banks to tighten loan standards as household debts grew at a faster pace than income, but the tighter standards may have little effect amid no change in record-low policy rate and looser mortgagefinancing regulations.

The country’s finance ministry, central bank and financial regulator announced a package of measures yesterday to control the rapidly-rising household debts, which reached almost 1,100 trillion won (some US$1 trillion).

Under the package, banks will be induced to lend money based on the debt-servicing capability of borrowers, not on the value of collateral or assets.

Banks will induce borrowers to repay both principal and interest to scale down household debts. The grace period for loans will be shortened to less than a year from 3-5 years, and the fixedrate loans will be favoured by banks.

When OECD revised down 2015 growth Korean outlook, the global agency cited a surge in household debts as one of reasons for the downward revision Xinhua