Macau business daily, 2015 July 29

MOP 6.00

Gucci sales in HK and Macau remain weak

Closing editor: Luís Gonçalves

Page 5

Hengqin mulling shorter ‘negative list’ Page 3

Lippo, HKC complete share disposal of Macau Chinese Bank

Guangdong-Macau Branded Products Fair eyes Chinese market Page 2

Year IV

Number 845 Wednesday July 29, 2015

Publisher: Paulo A. Azevedo

Page 5

Society’s

Shame

Human trafficking. Macau has its fair share. Primarily a destination rather than a source, says a U.S. report. The MSAR has made ‘significant efforts’ but falls short on victim protection. The U.S. State Department’s Office for Monitoring and Combating the Trafficking in Persons says this is because the gov’t does not fully comply with international standards. Prosecution, as well as protection, are identified as the city’s primary weaknesses

July 28

Name

%Day

China Resources Enter

+2.94

CNOOC Ltd

+2.67

AIA Group Ltd

+2.65

PetroChina Co Ltd

+2.01

Slowing but still sliding

China Mengniu Dairy C

+1.94

Swire Pacific Ltd

-0.96

Lenovo Group Ltd

-1.26

Month-end means prediction time. Sterne Agee CRT predicts a 35 pct drop in gaming revenues for July. Down on its previous estimate of 32.5 pct. If confirmed, it would mark the fifth consecutive ‘less bad’ month in y-o-y growth results. A trend, it is believed, that could continue through the remainder of the year

China Overseas Land &

-1.78

Ping An Insurance Gro

-2.44

China Resources Land

-2.73

Page

3

Source: Bloomberg

I SSN 2226-8294

Page 6

Oiling the wheels Blue Card holders. Always the touchstone for debate. The number of Blue Card holders in the city, non-resident workers, increased 16.2 per cent y-o-y to 180,523 as at endJune. Mainland China supplied 117,316, while 23,152 Filipino nationals toil here.

Construction and hotels & restaurants dominate with a share of around 25 pct each, while domestic helpers account for 13 pct

Page 2

Bus stop sign

Motor vehicle taxation. Last looked at a long time ago. Rapid development now makes it a necessity. The Transport Bureau (DSAT) says revisions will be submitted to the Legislative Assembly in Q3.

Tax exempt tourist buses are in the firing line. But Macau Travel Industry Council President Andy Wu Keng Kuong says the expense will only be passed on to tourists. Up to 70 pct of the vehicle’s price comprises tax, he said

Page 4

China www.macaubusinessdaily.com

HSI - Movers

Suspicious Sales The China Securities and Regulatory Commission. It’s investigating Monday’s share dumping. When Chinese markets suffered their worst single-day plunge in more than 8 years. Shares continued falling yesterday while authorities tried to calm the markets

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2 | Business Daily

July 29, 2015

Macau

Guangdong-Macau Branded Products Fair eyes Chinese market The annual four-day fair, co-organised by the local and Chinese governments, starting tomorrow will introduce a new area for the city’s young entrepreneurs, and continue functioning as a platform for Portuguese-speaking countries eyeing China Kam Leong

kamleong@macaubusinessdaily.com

T

his year’s Guangdong and Macau Branded Products Fair is slated to kick off tomorrow, adding new sections to support the city’s young business start-ups, co-organiser Macau Trade and Investment Promotion Institute (IPIM) announced yesterday.

The four-day event wraps up on August 2 at the Convention and Exhibition Centre of Macau Fisherman’s Wharf. Occupying a total of 6,000 square metres, the fair will accommodate 289 booths, of which 107 will feature Macau specialty products, while the other 182 booths are from Guangdong Province.

To meet with the government’s policy of supporting young people setting up their own businesses, the executive director of IPIM, Irene Lau Kuan Va, said the fair has established the new exhibition areas of ‘Young Business Starters’ and ‘Cultural and Creative Industries for Young Entrepreneurs’.

“It aims to provide a platform for young entrepreneurs to showcase their products and give them greater public exposure, thus bringing more vitality to the event and attracting more young consumers,” the IPIM executive director said yesterday.

According to the co-ordinator of the fair, Macau Fair & Trade Association

president Tony Lam, 10 enterprises set up by young entrepreneurs will exhibit their products at four booths in the ‘Young Business Starters’ area, while another four individual companies will exhibit in the cultural and creative area.

Platform

Meanwhile, this edition of the products fair will keep the Portuguese Products Exhibition and Sales Area in order to promote the development of trade and business co-operation

service platform between China and Portuguese-speaking countries.

“In fact, this fair not only serves local enterprises but also those from Portuguese-speaking countries that are very interested in seeking business in Mainland China through the platform,” the IPIM official said.

Claiming these Portuguesespeaking companies will exhibit on the Mainland right after the fair in the city, Ms. Lau indicated that the event seeks to help foreign companies enter the “big market” in Mainland China,

16.2 percent more Blue Card holders as at June

Government should step up efforts to tackle overstaying Ella Lei Cheng I urges the authorities to suppress overstaying in order to prevent possible safety hazards to social security

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egislator Ella Lei Cheng I recently submitted a written enquiry to the government, urging the authorities to tackle the problem of overstaying which may result in burglary, illegal working and document forgery, which she considers potential risks to Macau’s social security.

Ms. Lei cited statistics from the police saying that in the first quarter of this year

the number of individuals staying in Macau longer than permitted had dropped significantly to 8,251 from 12,292 in the same period of last year. However, the legislator pointed out that the number of cases of overstaying in the SAR for longer than 30 days has increased.

The authorities recently increased fines for overstaying and tightened the visa policy in order to combat such

rather than looking for businesses in the Special Administrative Region.

The four-day event will also provide business matching and procurement negotiation services for companies from China and the Portuguese-speaking countries, Ms. Lau said, believing this will introduce broader business opportunities for the enterprises.

“Being a major trade and economic co-operation platform and branded exhibition in Guangdong and Macau, we hope that [the fair] will continue to strengthen business and trade links between Guangdong and Macau, by creating a wider range of opportunities for partnerships,” she said.

Meanwhile, the deputy director general of another co-organiser - Ma Hua of the Guangdong department of Commerce - hopes the fair will boost the trade co-operation between the Chinese province and Macau by jointly building a commercial cooperation platform for China and the Portuguese-speaking countries.

In addition, the fair will feature several entertainment elements such as a kitchen area where celebrities will make appearances and engage in cooking demonstrations. The organisers hope such elements can increase attendance at the event from last year’s 135,000.

infringements. However, Ella Lei considers the measures lack effectiveness, as in recent years Macau has still recorded more than 30,000 individuals overstaying each year. The number stood as high as 48,154 last year and put more pressure on the security works of the city.

The legislator urges the government to look into the matter and tackle the problem at root.

J.K.

T

he government’s Human Resources Office’s latest data shows that the number of non-resident workers in the SAR, commonly known as blue card holders, rose 16.2 per cent year-on-year to 180,523 as at the end of June.

However, the Office has issued 212,381 permits for employees to hire nonresident workers and 85 per cent of the spots have been filled so far.

Of the 180,523 non-

resident workers, Mainland China has the biggest share with 117,316 people working in the SAR, while the Philippines comes second with 23,152 nationals. Third placed nationals are from Vietnam, with 14,203 people working here.

In terms of industry, the majority of non-resident workers are in construction, with 48,692 people, followed by 45,680 in hotels and restaurants, and 22,555 domestic helpers.

J.K.

Business Daily | 3

July 29, 2015

Macau

Report: Macau demonstrating decreased efforts in protecting trafficking victims The U.S. report on human trafficking praises the efforts of Macau authorities but warns that protection for the victims is relaxing João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he Macau authorities are making ‘significant efforts’ to eliminate human trafficking. However, when it comes to protecting trafficking victims, they have shown decreased effort.

These are the conclusions of the Trafficking in Persons Report for 2015 of the U.S. State Department’s Office for Monitoring and Combating the Trafficking in Persons.

The report - organising countries worldwide into four different tiers, depending upon their compliance with the U.S. Trafficking Victims Protection Act (TVPA) - places Macau in the second tier for the third consecutive year. This tier includes governments that do not fully comply with the TVPA’s minimum standards but are making effort to comply with them.

‘Macau authorities do not fully comply with the

minimum standards for the elimination of trafficking; however, they are making significant efforts to do so.

Authorities convicted six traffickers and continue to build judicial and prosecutorial capacity by training officials’, the report reads.

At the same time Macau is identified as ‘primarily a destination’ and less a source territory for women and children subjected to sex trafficking and forced labour. The main criticisms are focused on prosecution and protection.

Criticism and recommendations

In terms of prosecution, ‘law enforcement and judicial capacity constraints’ are identified as major challenges in addressing trafficking crimes. Also, the

fact that when dealing with crimes involving elements of trafficking, prosecutors preferred use of the ‘procuring of prostitution’ provision is criticised because even if it is easier to prove it results in lighter penalties than the trafficking law.

The fact that the number of identified victims of human trafficking decreased from 2013 to 2014 was also pointed to by the U.S. Government as a bad sign from the Macau authorities.

‘Authorities demonstrated decreased efforts to protect trafficking victims.

Authorities identified five victims of forced prostitution, a sharp decline from 38 in 2013, in which 24 were child victims’, they say. Of these five victims, four were from Mainland China.

The analysis of the situation in Macau includes

Hengqin mulling shorter ‘negative list’

H

engqin New Area, which is part of the Guangdong Free Trade Zone, is mulling a shorter ‘negative list’ for Hong Kong and Macau investments in a bid to further liberalise bilateral trade with the SARs, the island's Administrative Committee director, Niu Jing, said in a press briefing yesterday.

This new list, which targets investments from the two cities, will only contain about 90 items of restricted areas for investment, according to Mr. Niu. The central government earlier unveiled the list of restricted areas for foreign investment for the country's four Free Trade Zones; notably in Guangdong, Tianjin, Fujian and the Shanghai Free Trade Zone that opened in September 2013.

The list - known as the ‘negative list’ - is a set of unified restricted areas for foreign investments to be applied

in the four zones. The negative list includes 122 items, down from the 139 items stipulated for the Shanghai Free Trade Zone, and includes sectors such as news, banking and publishing.

Mr. Niu spoke of the intended change at a press briefing yesterday, when the Hengqin Government announced a master plan for administrative and financial reforms for the Hengin New Area of the Guangdong Free Trade Zone.

According to the plan, the Mainland authority will explore rules allowing banks from Hong Kong and Macau to be able to provide mortgage services to firms and residents from the two cities to buy properties in Hengqin.

The Mainland authority will also actively search for and encourage qualified financial institutions from overseas, especially from Hong Kong and Macau, to establish banks in Hengqin New Area.

S.L.

five recommendations in order for the Special Administrative Region to be promoted to tier one, which is used to classify countries whose government fully complies with the TVPA’s minimum standards.

The recomamendations to the Macau Government are increased efforts to investigate, prosecute and convict sex and labour traffickers, improvement in the implementation of proactive victim identification methods, the education of authorities and the population about forced labor and sex trafficking, conducting of sex trafficking awareness campaigns for visitors, and finally a survey of the migrant labour population to identify its vulnerability to trafficking.

Hong Kong and China

The neighbouring region of Hong Kong was also placed

in the second tier along with Macau. However while the MSAR is primarily a destination for the victims of sex trafficking and forced labour, Hong Kong is perceived as a destination, transit and source for men, women and child victims of trafficking.

The bad news for the former British colony is that the region failed again to achieve the first tier, in which it was placed in 2008. For its part, Macau was relegated to the third tier in 2012, named also tier 2 watchlist, but since then has made the second tier.

Mainland China is placed on the third tier. While the U.S. Government report recognises the efforts of the Central Government, it says that over the course of one year efforts were not increased, which justified the decision to place China in the third tier.

4 | Business Daily

July 29, 2015

Macau opinion

Living scripts

DSAT: Vehicle tax law revision to AL in 3Q The Transport Bureau intends to exclude tourist buses from the list of tax exempt vehicles Joanne Kuai

joannekuai@macaubusinessdaily.com

José I. Duarte Economist

A

t last, at last, the serial is reaching an end - but not without some last minute, uncanny, developments.

Let us remember. For years, publicly, notoriously, openly, patently, the cable TV concession contract was not respected and the government, one of the signatories, turned a blind eye to it.

Why was it so? Enter the knights of free TV. We could call them the ‘antennae independent operators’, for want of better description. (The Portuguese nickname could actually be appropriated here. Maybe we could craft a similar name in English, such as the ‘antennists’?). Never mind: bent on bringing world TV to the masses (or was it the other way round?) they insisted on violating the concession contract.

(And, possibly, just possibly, other laws.

Copyright legislation, for instance, springs to mind…). Actually, for all practical purposes the contract was never complied with throughout its duration, which must have set a record somewhere.

The concessionaire kept complaining.

Then, some years ago, the government body responsible for the sector tried to do something about the patent violation of contract and laws and issued an ultimatum to the illegal operators, setting them a deadline to cease operations. Mayhem in the sector, threats of social instability, a menace to TV democracy, God knows what!

Higher powers intervene and so let’s go man man, let them negotiate and reach an agreement – and the issue duly subsided.

Next chapter: the company, unable to operate normally, is sold (on the cheap, some would say) to one of the illegal operators – no, you did not see this coming!

And the owner does what? Sues the government for not enforcing the contract and asks for an indemnity (no, sorry, this one was so, so foreseeable). Ironies of life, not without a pinch of humour, we could be excused for thinking in hindsight.

In court, the company claimed losses of 238 million patacas and was awarded 200 million. Not bad, one would think. Illegal actions, tolerated for about two decades render a company unprofitable; one of the offenders buys it at a fire sale price, and then, as the new owner of the company, finally gets indemnified in court for the losses. (Is it possible that this is what some had in mind when claiming that here the rule of law prevails?)

Well, surprisingly, that was not the end of it; someone was not happy. To defend the public interest, we have to suppose, the government appeals the sentence invoking that the 38 million patacas-indemnity reduction it got was not properly justified…!

Let us try to understand the underlying reasoning. It must be something like this: OK, we lost; we knew we would. But you gave us a ‘discount’ we cannot understand; therefore, the process should be void and, consequently, we should pay nothing! Or something even stranger, one gets confused here. The appeal failed. The court could not understand the argument, either. The End. Ideas for a script for a TV serial, anyone?

T

he Financial Services Bureau has finalised a draft on the revision of motor vehicle taxation and plans to submit it in the third quarter of this year to the Legislative Assembly, said the Transport Bureau (DSAT).

Chiang Ngoc Vai, Deputy Director of the Transport Bureau, said in a written reply to legislator Chan Meng Kam’s enquiry regarding controlling the number of vehicles in the city that the current taxation regulation of vehicles hasn’t been changed for 20 years and cannot keep up with the current pace of society’s development.

Mr. Chiang said that economic measures such as adjusting taxation policy are a common practice internationally in the management of

the number and conditions of vehicles in a region in the long run. However, the SAR’s law on that matter is very outdated and “has lost its effect in loosening the burden on traffic or controlling the increase in the number of vehicles”.

The DSAT deputy director indicated that the government would adjust the tax on the purchase, possession and use of a vehicle, as well as following up on the matter of tourist vehicle tax.

Not on the list

According to the DSAT deputy director’s reply, the Financial Services Bureau has finished the revision on vehicle tax regulation, with the new version proposing tourist vehicles be delisted from tax exemption.

Macau Travel Industry Council President Andy Wu Keng Kuong said this measure may lead to the expenses being shared by tourists, according to a report on TDM Chinese Radio.

Mr. Wu said that currently the tax of tourist buses accounts for 60 to 70 per cent of the vehicle’s price. If the revision was put into practice, the price of a tourist bus would increase to around MOP1 million.

While the amount may be insignificant to gaming operators, it may greatly affect local travel agencies. In the end, tourists will be the ones to bear the cost, said Mr. Wu. The tourism industry’s representative appealed for more support from the government. He said the government could consider the possibility of launching more beneficial policies for the industry to renew the vehicles if the tax exemption policy is to be abolished.

Pressing matter

The Deputy Director of the Transport Bureau, Chiang Ngoc Vai, indicated in his reply that several government departments had been working on shortening the period of vehicle inspection and speeding up the process of weeding out highly polluting cars.

One certain clause revision mandates that light passenger vehicles, as well as heavy motorcycles, must undergo inspection annually in order to speed up the ‘obsolescence’ process.

In addition, Mr. Chiang noted that the new car inspection centre in Cotai will be operational in 2016 in order to better facilitate the new policies.

Canada Life Assurance lost MOP16.6 million last year

T

he Macau Branch of Canada Life Assurance increased the amount received in gross premiums in 2014 but at the end of the year generated losses totalling MOP16.6 million.

Last year, the company which in the territory is only involved in life insurance policies, managed to increase gross premiums to MOP2.63 million from MOP2.61 million in 2013, representing an increase of

0.7 per cent. However, in terms of results, while in 2013 the company generated a profit of MOP33,167, last year it lost MOP16.6 million.

In terms of market share by gross premium, the company was outperformed by the overall market.

While the market expanded in the course of a year by 39.7 per cent, to MOP6.93 billion from MOP4.96 billion, the company’s gross premiums expanded 0.7 per cent. Still in market

share terms, the company grabbed 0.04 per cent of the market in 2014, while in 2013 it had reached 0.05 per cent of the market..

The Macau Branch of Canada Life Assurance Company is headquartered in Avenida Praia Grande and was fist authorised to operate in Macau in October 1986. Until 2013, the company operated in the territory under the name of Crown Life Insurance Company.

Business Daily | 5

July 29, 2015

Macau Lippo, HKC complete share disposal of Macau Chinese Bank

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contraction in Asia Pacific region (excluding Japan) Kering announced in its first half results report.

This downward trend in Asia Pacific region was ‘entirely due to the ongoing decline in consumer spending in Hong Kong and Macau’, despite sales of Gucci in Mainland China still up year-on-year in the first half and South Korea and Australia reporting ‘a very solid sales performance in line with the rise in tourist numbers’, the report said.

Kering also said that for its sales of the luxury division in the Asia Pacific region the upturn in Chinese customers’ spending in South Korea, Taiwan and Australia did not offset the sales contraction in Hong Kong and Macau, while year-on-year revenue in Mainland China remained stable.

ong Kong-listed property developer Lippo Ltd. and Hongkong Chinese Ltd. (HKC) jointly disclosed on Monday that they have completed the sale of an aggregate of 49 per cent of the issued share capital of Macau Chinese Bank Ltd. (MCB) to the state-owned Nam Yue (Group) Company Ltd. and individual Chinese investor Yang Jun. Pursuant to the share disposal agreement at completion, both parties reached an amended loan agreement whereby Nam Yue and Macau businessman Wong Garrick Jorge Kar Ho lent MOP144 million (about HK$140 million) and MOP135 million, respectively, to Winwise Holdings Ltd., a wholly-owned subsidiary of HKC, according to the joint announcement filed after trading hours on Monday.

Under the loan agreement, Winwise could repay the loan in cash or set off the loan amount by way of transferring 416,000 MCB shares to Nam Yue and 390,000 MCB shares to the new lender, Mr. Wong Kar Ho. As of Monday, no agreement in respect to this share settlement had been entered into.

The filing said Mr. Wong is a renowned businessman in Macau whose scope covers property development, food distribution and trade in Africa.

The disposal of the share in Macau Chinese Bank is for a consideration of an aggregate of MOP441 million (about HK$428 million) according to the joint announcement made by Lippo and HKC to the Hong Kong Stock Exchange on June 26 when they first announced the sale of shares in the Macau bank. This announcement also noted that upon completion of the deal, Lippo and HKC would own 51 per cent share in Macau Chinese Bank via Winwise.

The purchasers have shown interest in acquiring a further 31 per cent interest in MCB at any time after completion subject to further approval of the Monetary Authority of Macau, Lippo and HKC, the June 26 filing said.

* with Bloomberg

S.L.

Gucci sales in Hong Kong and Macau remain weak Kering, the group that controls Gucci, says it has already started renegotiating rents for its stores in the two cities Stephanie Lai*

sw.lai@macaubusinessdaily.com

G

ucci sales grew for the first time in almost two years and reported first-half earnings that beat analysts’ estimates, although the company’s luxury sales in Hong Kong and Macau in the period have remained weak.

Kering, the group that controls Gucci, has started renegotiating rents in Hong Kong, Macau and Mainland China, Chief Financial Officer JeanMarc Duplaix said on a call to analysts.

The company may even close some stores in Hong Kong if landlords don’t lower the amount they charge as the business climate in the island city isn’t very encouraging, he said.

Global sales of the Gucci luxury brand increased 4.6 per cent in the second quarter, Kering said late Monday, defying the median of analysts’ predictions for a 3.2 per

cent decline. First-half recurring operating income was 773 million euros (US$859 million). Analysts estimated 758 million euros. Shares rose as much as 7 per cent.

Gucci rebounded from a 7.9 per cent drop in the previous three months.

The unit was supported by demand from Chinese tourists in Japan and Western Europe, and by sales of discounted merchandise in China.

Gucci offered markdowns of as much as 50 per cent in China to clear inventory designed by its former creative director, Bloomberg News reported in May. Gucci’s sales in emerging markets, which accounted for 46.8 per cent in the brand’s sales in directly-operated stores, moved back 1.8 per cent on a comparable exchange rate basis, primarily as a result of a 3.6 per cent

Corporate Aristocrat appoints Iain London new Product Management and Business Development Director - EMEA Sofitel Macau at Ponte 16 inaugurate Love and Heritage Photo Exhibition To celebrate the soon to be released movie ‘Guia in Love’ directed by Hong Kong awardwinning director Sam Leong, Sofitel Macau at Ponte 16 collaborated with Entertaining Power to organise the Love and Heritage Photo Exhibition on July 24 in the hotel Lobby and Rendezvous lounge featuring beautiful photos with the historical flavours of Macau.

The exhibition, which is open to the public for free from July 24 to August 16, shows

10 short-listed photos demonstrating the originality and creativity of photography enthusiasts. Three photos, the image composition of which was particularly impressive, have been awarded Grand, 1st runner-up and 2nd runner-up recognition.

Additional highlights should go to the 10 stunning images from director Sam Leong’s collection which co-exhibit in this photo exhibition.

Aristocrat Technologies has appointed experienced industry professional Iain London (pictured) to the newly created post of Product Management and Business Development Director – EMEA. Iain brings over 20 years of gaming industry experience spanning both operations and supply in Europe, Africa and Asia-Pacific, relinquishing his most recent position as Vice President, International for Zitro. James Boje, Aristocrat Managing Director – EMEA, commented on the appointment, “As part of a regional restructuring programme, we have split our sales and product management functions to create a more customer-focused organisation. Iain has a proven track

record across many areas of our industry and his experience and expertise will be instrumental in steering the successful delivery of Aristocrat’s growing, marketleading product portfolio across the EMEA region.”

6 | Business Daily

July 29, 2015

Macau Melco Crown to release 2Q results on August 6 Melco Crown Entertainment Limited announced yesterday that it will file its unaudited financial results for the second quarter of 2015 on Thursday, August 6, 2015. Following the publication of its financial results, the casino operator that runs City of Dreams here will held a conference call with investors on the same day at 8:30 am Eastern Time (or 8:30 pm Macau Time). Additional information regarding the upcoming property Studio City is likely to be a hot topic among analysts and the management

Gaming revenues to decline 35 per cent this month Sterne Agee CRT says that the public acknowledgement of potential austerity measures caused by the precipitous decline in gaming revenue may be beneficial for future policy decisions impacting the industry

E

quity security research agency Sterne Agee CRT has updated its forecast of the July gross gaming revenues of the city predicting now a 33 to 36 per cent decrease. This compares to the previous predictions of 30 to 34 per cent drop in year-onyear terms.

Analyst David Bain wrote in his report that according to their channel checks, Macau table-only

gross gaming revenue was MOP14.86 billion (US$1.87 billion) from July 1 to July 26. Including slot assumptions, the July gross gaming revenues run rate indicates a 35 per cent year-on-year monthly decline and a total of MOP18.4 billion for the whole month.

In addition, the analyst pointed out that July gaming revenues are typically 9 per cent higher than in

June, which suggests MOP18.9 billion or a 33 per cent year-on-year gross gaming revenue negative growth result.

Sterne Agee CRT also expects that if the July gaming market drops 35 per cent, it would mark the fifth consecutive month of “less bad” yearon-year growth results, a trend that they expect to continue through the remainder of the year.

“Wake-up call”

The Secretary for Economy and Finance, Lionel Leong Vai Tac, has estimated that July gaming revenue may come in below MOP18 billion, in which case the Macau Government would consider introducing austerity measures to control spending as early as next month.

However, Sterne Agee CRT sees this piece of news as potentially positive for Macau’s gaming operators. They said that the public acknowledgement of potential austerity measures may be beneficial for future policy decisions impacting GGR. ‘In essence, discussions could act as a ‘wake-up call’ for policymakers of key gaming topics, including stronger smoking restrictions and table allocations for new property openings,’ the Monday report reads.

Macau’s aggregate gross gaming revenue for the first half of this year stands 37 per cent lower than in the same period of 2014, at about MOP121.65 billion. Casino revenue has fallen for 13 consecutive months year-on-year.

J.K.

Business Daily | 7

July 29, 2015

Macau

Macau Vice Gerry Sullivan, who runs the fund formerly known as Vice worth US$238 million buys defence contractors, big tobacco, liquor and gambling, namely shares from the big operators in Macau

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aving trailed his benchmark for a second year, this asset manager is sticking to his guns. And cigarettes, and beer. Even casinos, despite a crackdown on corruption in China that has sent Macau houses into a tailspin.

Gerry Sullivan, who runs US$238 million in what was formerly known as the Vice Fund, buys defence contractors, big tobacco, liquor and gambling. He calls them the four legs of his stool. That one of them fell off is no reason to panic, he says, after the fund handed investors a loss in the 12 months ended June.

The Barrier Fund, as it’s named today, matters less for its size than its strategy of buying so-called sin stocks, at the other end of the spectrum to ethical investing. For years this has spurred debate on whether vice paid, with academics saying it did. As Xi Jinping’s antigraft campaign calls that into question for now, Sullivan says it’s an inevitable risk of whittling down the investment universe to just a few industries.

“We’ve been doing poorly over the past 12 months with the evisceration of the gaming sector,” Sullivan, 54, said in a phone interview from Summit, New Jersey. “It’s hard to make up with one sector down 25 per cent. The key is, you don’t want to say, oh gosh, we need to revamp the strategy.”

Gross gaming revenue in Macau fell 36.2 per cent in June from a

year earlier as President Xi’s drive to eradicate corruption kept highrollers away and a dimming Mainland growth outlook compounded casinos’ woes.

Shares in Galaxy Entertainment Group Ltd. plunged 45 per cent in the 12 months up to last week, the worst performer on Hong Kong’s Hang Seng Index. Wynn Resorts Ltd. and Las Vegas Sands Corp., which each get more than 60 per cent of revenue from Macau, have sunk at least 26 per cent over the past year.

he said. “A woman named Miriam told me and the host we were both going to hell.”

The fund’s name change last year was requested by its distributors, Sullivan said. They wanted something that wouldn’t scare investors.

Double-edged sword

“It was a double-edged sword. Being called the Vice Fund we got a lot of publicity but on the flip side the name may have made you believe

High barriers

Macau Hit

“We’ve had an event in gaming that’s taken it well beyond what would be considered a proper correction,” Sullivan said.

In his four years as manager, Sullivan’s fund has delivered a 11.6 per cent total return, short of the 14.2 per cent for the Standard & Poor’s 500 Index. It posted a 4 per cent loss in the 12 months through June, versus a 7.4 per cent gain for its benchmark. Since inception in August 2002, the fund has posted an average annual return of 9.9 per cent, beating the 8.7 per cent for the S&P 500.

The Macau slump isn’t the only turbulence Sullivan has experienced after swapping quantitative investment for vice.

“The first interview I ever did as portfolio manager was a radio interview from Park City, Utah,”

the methodology and intelligence employed wasn’t as professional as something with a less novelty name,” he said. “Vice was a great name.

People loved the name, people hated the name, and now nobody hates or loves the name.”

The fund, which owns about 50 stocks, counts three tobacco companies as its biggest holdings: Reynolds American Inc., Philip Morris International Inc. and Altria Group Inc. The top 10 also includes Las Vegas Sands, MGM Resorts International and Honeywell International Inc. Sullivan’s open to adding other vices to the list.

“Since marijuana is illegal at the federal level, we wouldn’t invest in a distributor,” he said. “But it’s possible that we could invest in a company that provides a service, like security to dispensaries, or some form of business that you would say would be a legitimate business.”

[Regarding Macau] We’ve had an event in gaming that’s taken it well beyond what would be considered a proper correction Gerry Sullivan, The Barrier Fund formerly known as the Vice Fund

Sin stocks typically have high barriers to entry and are often capable of delivering profits in any economy. According to one study, they outperform the market because institutional investors neglect them, thus the shares are initially undervalued.

There was more than US$32 trillion in environmental, social and governance-focused investment strategies in 2012, according to data compiled by Northern Trust Corp., a U.S. money manager.

Many of those shun the stocks that Sullivan owns.

Sullivan won’t be adding to Macau’s casino revenue himself: He only bets on horses, and only occasionally. He doesn’t smoke, although he likes a drink.

“I only gamble on things with four legs,” he said. “On casinos, I know the odds.”

Bloomberg

8 | Business Daily

July 29, 2015

Greater China

Stocks fall again, despite government efforts Asian markets mostly fell again yesterday but Hong Kong closed up 0.62 percent

I sold 90 percent of my stocks since I saw several reports saying that the market is due for a correction Ling Lihui, manager at a market research company

C

hinese shares sank yesterday, a day after Shanghai’s steepest one-day slide in eight years, defying renewed government vows of support that analysts warned were not enough to soothe nervous investors.

The fresh losses, in a volatile session, came despite an unprecedented effort by the government of the world’s second largest economy to shore up prices following a month-long rout.

The recent turmoil followed a stock boom encouraged by the authorities, and their willingness to

intervene in the market has raised questions about their commitment to economic reforms.

The Shanghai Composite Index fell 1.68 percent, or 62.56 points, to 3,663.00 on turnover of 685.1 billion yuan (US$112.0 billion) after falling as much as 5.0 percent and rising up to 0.93 percent during the day.

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, ended down 2.24 percent, or 48.39 points, at 2,111.70 on turnover of 618.8 billion yuan.

Some of China’s legions of

small investors -- who dominate the market, unlike most exchanges worldwide, where institutions are the largest stockholders -- say they are heading for the exits.

Monday’s 8.48 percent fall in Shanghai was the biggest drop since February 27, 2007 and sent tremors through global bourses.

After the market closed yesterday, the securities regulator warned it would investigate Monday’s “abnormal” fall, blaming it in a statement on “concentrated” selling of shares. It gave no further details.

Although Chinese equity markets are relatively closed to outside investors, there are worries about the health of the underlying economy, which is a key driver of global growth.

On Wall Street the Dow fell 0.73 percent on Monday while London, Paris and Frankfurt also lost ground on China worries.

After Monday’s collapse the China Securities Regulatory Commission said it would continue to “stabilise” prices.

The state-backed China Securities Finance Corp., tasked with supporting the market, would increase its shareholdings, the commission said in a statement.

Infrastructure-linked stocks fell in Shanghai. Longjian Road and Bridge plunged by its 10 percent daily limit to 6.77 yuan while Offshore Oil Engineering slumped 7.94 percent to 11.25 yuan.

But banking shares rose on expectations they are the target of government buying. In Shanghai, China Minsheng Banking rose 4.11 percent to 9.11 yuan, China Construction Bank added 3.19 percent to 6.15 yuan and Shanghai Pudong Development Bank gained 2.21 percent to 15.24 yuan.

Analysts warned that regulators’ comments might not be enough without concrete action.

Some analysts believe the market rout has yet to become a crisis for the banking system, but warn it could have an impact on economic growth.

AFP

Mainland fund buys Australian office blocks The purchase indicates that China’s interest in Australian real estate is broadening from the residential sector Byron Kaye

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overeign fund China Investment Corp (CIC) plans to buy Australia’s biggest office block portfolio from Morgan Stanley for US$1.82 billion, highlighting Beijing’s appetite for stable assets offshore as the mainland economy sputters.

The US$200 billion CIC made its biggest Australian

investment just as Sydney’s commercial property market braces for a glut of new office space, despite little apparent appetite from tenants to expand their footprints in the country’s main business hub.

“It’s a gamble, particularly considering U.S. rates might be going up for the first time

this year and when they rise, we’ll probably rise as well,” said CLSA senior real estate analyst Michael Scott.

“The big tenants aren’t expanding that much, everyone’s a bit costconscious,” he said.

The nine office towers in Sydney and Melbourne would make up the biggest of

several offshore commercial real estate purchases by CIC in recent months. In June, French media reported that CIC bought 10 malls in France and Belgium from U.S. real estate group CBRE for 1.3 billion euros (US$1.44 billion).

The purchase is the biggest by a Chinese State-Owned Enterprise of an Australian real estate asset and the fourth-largest by an SOE of an Australian asset of any kind, Thomson Reuters data showed.

The Morgan Stanley purchase, which requires approval from Australia’s Foreign Investment Review Board, indicates that China’s interest in Australian real estate is broadening from the residential sector.

China invested A$27.65 billion (US$20.17 billion) in Australia in 2013-14, overtaking the United States as the largest source of foreign investment, with almost half going into real estate, FIRB has said.

The deal bodes well for the Australian government as it counts on interest from China to support a wave of large privatisation sales, including a A$17 billion government-owned electricity distribution network and ports serving some of the country’s biggest cities.

Morgan Stanley will still seek to sell the commercial property management business which it also put up for sale with the office blocks earlier this year, a source with direct knowledge of the deal told Reuters.

That business has contracts to manage A$8.9 billion worth of buildings, including the buildings bought by CIC. Tenants in the office blocks bought by CIC include government regulator the Australian Prudential Regulation Authority, telecommunications giant Telstra Corp Ltd and miner Rio Tinto.

Reuters

Business Daily | 9

July 29, 2015

Greater China State planner optimistic on economy

Student e-shops create 300,000 jobs in 2014

The official expects consumer prices to edge up mildly in the second half of 2015 China’s top economic planner said yesterday that it was optimistic on the outlook for the economy in the second half of 2015, but was paying close attention to volatility in the country’s stock markets.

Improved performance in the first half of the year boded well for the economy but and growth momentum was still “insufficient”, Li Pumin, secretary general of the National Development and Reform Commission (NDRC), told a news conference.

“Some firms still face operational difficulties while there is relatively big pressure on fiscal revenues (growth) and the job market,” said Li. “There is also an outstanding issue that the flow of capital does not translate into the real economy smoothly.”

Beijing is facing an uphill battle to channel money into the real economy but banks are reluctant to lend as the slowing economy fuels a rise in bad loans and they tend to charge higher lending rates as credit risks grow.

Watching stock market Li said policymakers were paying close attention to fluctuations in China’s stock markets and described the recent activity as “abnormal”.

“The fundamentals of China’s economy are stabilising and turning better. So we have the foundation and necessary means to keep the healthy development of capital market including the stock market,” Li said.

Online shops run by college students created 300,000 jobs in 2014, the People’s Daily reported yesterday, citing a report by the China Association of Employment Promotion (CAEP). Nearly 60 percent of online shops operated by individuals rather than enterprises are run by either college students or college graduates. Specifically, 22.9 percent are run by college students or graduates with employees, while 36.8 percent are run by students or graduates without staff. On aggregate, by the end of 2014, China’s online shops had created 10 million jobs.

Insurance funds raise stock

Beijing is facing an uphill battle to channel money into the real economy

KEY POINTS Optimistic on economic outlook in H2 Downward pressure still weigh on the economy Watching the stock market closely

Asked by the inflation outlook, Li said he expected consumer prices to edge up mildly in the second half of 2015, thanks to the stabilizing of pork prices.

Speaking at the same briefing, Gao Gao, vice-director of the integration department of the NDRC, said that he was not optimistic on the outlook for external demand.

Gao reiterated that China will keep policy stable in the second half and accelerate construction of key development and infrastructure projects to lift the economy.

Reuters

Gold imports to plunge as financing deals unwind China’s gold imports via main conduit Hong Kong dropped to a 10-month low in June Rajendra Jadhav

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hina’s gold imports could fall as much as 40 percent this year as demand for bullion used to back domestic financing deals decreases, the world’s biggest refiner Valcambi said.

A lot of the gold China imported in the last three years was used to secure cheaper loans due to a liquidity crunch, but that is now flowing back into the market as lending rates drop.

“All this gold that was used for financing has been given back as there is liquidity in the market and liquidity is cheap,” Valcambi Chief Executive Michael Mesaric told Reuters.

“There is no need to use gold anymore,” Mesaric said.

Lower demand from China, which accounts for nearly a fifth of global consumption, may add pressure on global prices that tumbled last week to US$1,077 an ounce, the lowest since 2010, and have yet to recover strongly.

Chinese firms may have locked up as much as 1,000 tonnes of gold in financing deals, the World Gold Council said in a report last year.

But Mesaric said after China’s

central bank has continuously cut lending rates to support the economy, China’s gold imports had been dropping.

“The market is supplied by itself by gold coming out of loans, financing,” he said.

China’s gold imports via main conduit Hong Kong dropped to a 10-month low in June, data showed on Monday. Imports fell to 813.13 tonnes last year from a record 1,158.16 tonnes in 2013.

China does not provide official trade data on gold and the Hong Kong numbers serve as a proxy for flows to the mainland. The Hong Kong data, however, does not provide a full picture as Chinese imports also come directly through Shanghai and Beijing.

Mesaric was referring to China’s imports via all routes in estimating the fall in this year’s purchases.

The decline in China’s appetite is evident in modest premiums on the Shanghai Gold Exchange over the global benchmark, said ANZ Bank commodity strategist Victor Thianpiriya.

Chinese insurance funds invested 14.84 percent of their capital in stocks and securities in the first six months of 2015, a rise of 3.78 percentage points from the end of 2014, the country’s insurance regulator said yesterday. Insurance funds invested 60.11 percent of their capital in banking deposits and bonds over the same period, a 5.17 percentage point drop from the end of last year, the China Insurance Regulatory Commission said in a press release issued at a briefing in Beijing.

Widodo relies on China Indonesian President Joko Widodo hoped that China will build Indonesia into an Asian production base with ever increasing economic cooperation between the two countries. Widodo expressed his hope during his meeting here with the visiting Chairman of the National Committee of the Chinese People’ s Political Consultative Conference (CPPCC), Yu Zhengsheng, said Indonesian Foreign Minister Retno Marsudi.

Addressing a press conference after the meeting between Widodo and Yu, Marsudi said that China’s increasing overseas investment makes it possible to have more factories built in Indonesia.

Chongqing to launch PPP projects China’s central Chongqing province plans to launch 800 billion yuan (US$129 billion) worth of projects over the next six years which it will invite private investors to build, own and operate, the China Securities Journal reported yesterday. The public-private partnerships (PPP) will be part of some 1.8 trillion yuan worth of infrastructure projects that the province will undertake in the years up to 2020, provincial mayor, Huang Qifan, told the newspaper.

PPP projects launched so far this year include an expressway, hospitals, and carparks, he said.

Survey of senior citizens’ lives “In the past two years we’ve seen a big pickup in the Shanghai premium which makes it profitable for traders to import gold and sell them on the domestic market and we’re not seeing that premium pick up this year,” said Thianpiriya.

Lower imports from China could pull gold towards $1,025 an ounce, said Mesaric.

“I think US$1,025 is a good support. In worst case scenario gold can drop to US$950, but I don’t think at the moment that is going to happen.”

Reuters

China will start a nationwide survey on Saturday to assess the living conditions of the elderly and prepare data for measures to cope with an aging society.

About 40,000 survey takers are expected to visit households and make inquiries starting on Saturday, Wu Yushao, deputy director of the China National Committee on Aging (CNCA), said at a press briefing yesterday. The questionnaires will touch on such aspects of the senior citizens’ lives as medical services, housing and entertainment, according to the CNCA. The survey is scheduled to cover a population of 224,000 in a month. Similar surveys are taken every five years since the first in 2000.

10 | Business Daily

July 29, 2015

Greater China

With banks pinched by bailouts, PBOC turns to state allies Government received a fresh warning last week that monetary and fiscal easing to date has had a patchy effect so far

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s China’s leadership pulled together very public efforts to address local-government debt strains and a stock selloff in recent months, officials took less conspicuous steps to strengthen the state’s lending capacity.

With the fixes for the equity market and local authorities relying on credit from commercial banks, a recapitalization of China’s so-called policy banks will help sustain loan growth.

The central bank has put US$48 billion into China Development Bank Corp., people familiar with the matter said this month.

Export-Import Bank of China got US$45 billion, Caixin magazine reported.

The People’s Bank of China’s stakes in the two lenders make it easier for the central bank to conduct targeted easing through institutions whose loans reflect the social and foreign policy objectives of the Communist leadership. With exports faltering this year, the moves offer capacity to support foreign projects that could help the commercial sector.

“The central bank is doing some of the quasi-fiscal jobs” by boosting capital in the policy lenders, said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong, who previously worked for the PBOC. “Local governments are finding it hard to keep spending, and the central bank is providing funds to the policy banks to make up the gaps.”

The PBOC, CDB and Export-Import Bank all didn’t respond to faxes seeking comment. Included in the recent initiative by the government was 100 billion yuan (US$16 billion) from the Ministry of Finance for Agricultural Development Bank of China, also a policy bank, Caixin reported. The magazine has said that the PBOC would become among the two biggest shareholders in CDB and the Exim Bank.

Domestic role

The move by the PBOC follows action taken in 2014, when it extended 1 trillion yuan in lending support to

Hu Xiaolian, a former PBOC deputy governor who used to look after China’s foreign-exchange reserves, is now Export-Import Bank’s chairman

As foreign capital inflows are slowing down, the PBOC has invented a lot of tools to inject liquidity into the economy Zhao Yang, chief China economist, Nomura Holdings

CDB to fund the clearing of shanty towns in China.

China received a fresh warning last week that monetary and fiscal easing to date has had a patchy effect so far, with a private gauge of manufacturing falling to a 15-month low in July.

Policy makers are also grappling with an on-going battle to shore up the stock market. The benchmark stock index on Monday fell the most since February 2007, amid concern a three-week rally sparked by unprecedented government intervention is unsustainable.

“As foreign capital inflows are slowing down, the PBOC has invented a lot of tools to inject liquidity into the economy,” said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. “The current capital injection, in terms of the quantity of liquidity, amounts roughly to one RRR cut,” he said, referring to the required reserve ratio for commercial banks.

PBOC Governor Zhou Xiaochuan has already lowered the required reserve ratio three times for most banks this year, and cut

benchmark interest rates four times since early November.

Go abroad

Since the capital provided by the PBOC to China Development Bank and Export-Import Bank are denominated in dollars, the funds will mainly be used to finance China’s go-abroad strategy, Zhao said. President Xi Jinping has championed a “one belt, one road” vision of developing economic ties along the land and maritime routes of the old Silk Road.

Exporters are struggling under the weight of a stronger yuan, which is up about 13 percent year-on-year on a real trade-weighted basis, according to Bloomberg Intelligence.

China Development Bank has no deposit-taking business and normally relies on bond issuance for funding. Urbandevelopment loans from the bank amounted to 419.8 billion yuan in the first half of 2015, more than for all of last year, out of a total of more than 1.3 trillion yuan in loans.

For its part, Export-Import Bank’s job is to boost exports of Chinese mechanical and electronic products and to help home-grown companies invest

abroad -- it provided 178.6 billion yuan in loans to Chinese exporters last year, according to its annual report.

Personnel link

Hu Xiaolian, a former PBOC deputy governor who used to look after China’s foreign-exchange reserves, is now Export-Import Bank’s chairman. The bank has already signed deals in the Chinese provinces of Jiangxi and Hunan to help companies based in these places to explore markets along the one-belt-one-road routes.

“Compared to bond issuance, direct government recapitalization also means a low cost of funding for the lenders, and this also serves China’s overall plan of reducing financing costs,” said Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a research agency that sometimes advises the Chinese government.

China also needs policy lenders to finance risky projects, Yi said. “Some projects will be too risky for commercial lenders, and there’s a need for the policy lenders to be active,” he said.

Bloomberg News

Business Daily | 11

July 29, 2015

Asia

Thailand cuts 2015 GDP forecast The first June data has confirmed economy continues to stumble Kitiphong Thaichareon and Pairat Temphairojana

KEY POINTS 2015 GDP growth forecast cut to 3.0 pct from 3.7 pct Exports in 2015 seen -4.0 pct vs +0.2 pct earlier GDP expanded 3 pct y/y in first half 2015 - official June factory output -8.0 pct y/y, biggest fall since March 2014

Tourism is still performing strongly in Thailand

T

hailand’s finance ministry yesterday cut its economic growth forecast for the third time this year due mainly to shrinking exports, a big obstacle to the tradedependent country regaining traction.

The ministry now expects the economy to grow 3.0 percent this year, instead of the 3.7 percent seen three months ago. A year ago, shortly after the military seized power, the ministry forecast 5.0 percent growth for 2015.

Since then, growth targets for Southeast Asia’s second-largest economy have been steadily cut because

exports, worth about two-thirds of the economy, have long been weak and domestic demand has not picked up.

Growth last year was 0.9 percent, the lowest since 2011.

Thailand now expects exports to shrink 4.0 percent this year instead of rising 0.2 percent, Krisada Chinavicharana, director-general of the Fiscal Policy Office, told a news conference.

“Despite falling exports, clearer public investment in the second half and stronger-than-expected growth in tourism will help drive economic

growth to 3 percent this year,” he said.

Earlier yesterday, the Industry Ministry said factory output in June fell 8 percent from a year earlier, more than a Reuters poll forecast of 5.15 percent and the biggest drop since March 2014, before the army took power.

On an annual basis, the output index has fallen every month for two years except in February 2015.

Steep export fall

On Monday, the government reported that exports in June fell at the steepest rate in more than three years.

Philippines targets US$300 million from fuel smuggling crackdown The customs bureau is now seeking at least 10 speedboats and 14 single-engine patrol planes to help curb smuggling along the nation’s coastline Karl Lester M. Yap

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he Philippines will reintroduce a system to identify fuel products this quarter to help recover up to US$300 million a year of lost revenue from smuggling, Customs Commissioner Alberto Lina said.

The customs bureau is in talks with oil companies to add a chemical marker to show products that have been taxed, Lina, 67, said in an interview in Manila yesterday.

The program is estimated to cost US$25 million and could result in US$200 million to US$300 million of additional revenue a year, he said.

“We are doing whatever we can to curb smuggling,” said Lina, whose term is set to end next June. “It’s like we are in the fourth quarter of a basketball game. We’ll shoot and shoot” to get the score up, he said.

When he took office in April, Lina vowed to battle corruption and decongest Manila’s ports. Customs’ ability to maintain an improved performance and good governance poses a test for President Benigno Aquino’s efforts to institutionalize reform in the country, Moody’s Investors Service said in June.

The government halted the program marking duty-free kerosene and diesel imports in 2014. The customs bureau is now seeking at least 10 speedboats and 14 single-engine patrol planes to help curb smuggling along the nation’s coastline, Lina said.

It will also seek closer cooperation with the navy and coast guard in its campaign, he said.

Rice deals

Import deals that are struck between governments for rice would help curb smuggling in that commodity, another

Last month, the central bank cut its 2015 GDP growth estimate to 3.0 percent from 3.8 percent, with exports down 1.5 percent, a third straight year of contraction.

Slow external demand and reliance on shipments of products becoming obsolete have hurt Thai exports. Low commodity prices have cut farmers’ purchasing power while record high household debt have restrained domestic spending.

Official second-quarter GDP data will be announced by the state planning agency on Aug. 17.

In January-March, the economy expanded 0.3 percent on the quarter and 3.0 percent on the year.

Despite the slowing economy, the central bank’s monetary policy committee is expected to keep the benchmark rate unchanged again at 1.5 percent when it next meets on August 5. It surprisingly cut the rate in March and April to try to lift growth.

Reuters

priority for the agency, Lina said. The passage of a long-delayed customs modernization bill that proposes raising salaries and simplifying procedures, is also needed to tackle corruption, he said.

Lina, a businessman who headed customs briefly in 2005, said last week he expects to miss this year’s collection goal because of lower oil prices. He estimated revenue would be about 400 billion pesos (US$8.8 billion), compared with a goal of 436.6 billion pesos.

Philippine economic growth slowed to a three-year low in the first quarter as government spending and exports faltered. Customs collection made up about one-fifth of state revenue in 2014, with the agency meeting its goal last in 2008.

Collection increased 21 percent last year under former commissioner Sunny Sevilla. During his term, Sevilla investigated his staff, clamped down on the release of illegal rice shipments and set up a public price database of frequently imported goods to make it easier to spot irregularities.

President Aquino, who steps down next year, yesterday submitted to lawmakers a 3 trillion-peso budget for 2016, double the amount in 2010 when he took office.

Bloomberg News

12 | Business Daily

July 29, 2015

Asia

Malaysian Prime Minister changes key characters in 1MDB case Embattled Malaysian Prime Minister Najib Razak yesterday replaced his deputy premier and sacked his attorney general amid a growing scandal that threatens his hold on office

Any difference in opinion is not supposed to be expressed in an open forum, which is against the concept of collective responsibility in the government Najib Razak, Malaysian Prime Minister Najib Razak, Malaysian Prime Minister

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eputy Prime Minister Muhyiddin Yassin, who has been critical of Najib’s handling of the scandal involving state-owned development company 1Malaysia Development Berhad (1MDB), was replaced, Najib said in a televised address.

State-run Bernama news agency said the premier also sacked Attorney General Abdul Gani Patail, who was involved in investigations into

corruption allegations related to the Najib-linked company.

The prime minister and 1MDB have vehemently denied any wrongdoing.

Muhyiddin had repeatedly lent his weight to mounting public calls for Najib to answer allegations that hundreds of millions of dollars of 1MDB money had gone missing in complex overseas transactions that have never been fully explained.

Najib appeared to allude to

Muhyiddin’s criticisms in announcing his replacement.

Muhyiddin was replaced by current Home Minister Zahid Hamidi, Najib said.

Najib has come under mounting pressure over the past year amid a drip-feed of allegations related to 1MDB, which he launched in 2009.

He still chairs its advisory board.

The Wall Street Journal reported this month that Malaysian government

Vietnam’s tycoons explore agribusiness ventures Mai Nguyen

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steelmaker turning to pigs and animal feed, a property developer raising cows, a stockbroker milling rice and a real-estate-to-retail billionaire growing fruit and vegetables.

Three decades after Vietnam started moving away from a socialist-led farm economy towards manufacturing of bigbrand textiles and electronics, some of its top firms are carving out opportunities in its US$37 billion agriculture and seafood sector and looking to expand overseas, helped by free trade pacts.

“We’ll have global food shortages by 2050. If we invest fundamentally and correctly,

this market is infinite,” said Nguyen Duy Hung, chairman of Vietnam’s top brokerage, Saigon Securities Incorp, who has a side business he’s expanding into rice, seafood and supermarket produce.

Vietnam is among the world’s top exporters of rice, coffee, cashew nuts, seafood, pepper and rubber and it shipped US$24.5 billion of farm and fisheries produce last year.

But the World Bank says the value of its agribusiness is just 1.2 times that of its primary agriculture, compared with 2.7 times in South Korea. And the country still relies on billions of dollars of foodstuff imports.

Hence the unlikely interest in food from industrial firms such as steelmaker Hoa Phat Group, which has converted its minerals unit to livestock and animal feed.

It has built a new feed plant with annual capacity of 300,000 tonnes, aiming for 1 million tonnes, and wants to be raising a million pigs a year by 2020.

Vietnam’s only billionaire, Pham Nhat Vuong of Vingroup, is piling into private schools, hospitals and shopping malls. But his latest move is a little off-piste - a US$91 million investment in growing fruit and vegetables.

And on the home page of

investigators had discovered that nearly US$700 million had moved through government agencies, banks and companies linked to 1MDB before ending up in Najib’s personal accounts.

The premier has denied the report as “political sabotage”, while 1MDB has said it did not transfer any funds to the premier.

1MDB is reeling under 11 billion dollars in debt, blamed largely on a much-questioned drive to acquire power-industry assets.

Fears that it may collapse or need a massive bailout have contributed to a recent slide in the ringgit currency to 17-year lows.

A government statement cited by Bernama said Gani’s appointment had been “terminated effective July 27 due to health reasons”.

But the announcements touched off speculation that Najib was moving to contain the damage from the scandal.

Last week the home ministry suspended for three months the publishing permits of The Edge Media Group, which is known for its aggressive reporting on 1MDB. The overseas Sarawak Report, an activist website that had also published a series of exposes, has also been blocked.

real estate firm Hoang Anh Gia Lai (HAGL), it’s grazing cows rather than condominiums that meet the eye: it has just listed a cattle and rubber unit with a market value of US$1.1 billion, bigger than the parent.

HAGL predicts nearly half the group’s revenue this year will come from cows. It wants to tap milk demand that has grown 36 times over in the past quarter-century, satisfied in part by imports worth US$1 billion a year.

It is also investing in cattle to meet growing demand for beef: imports from Australia have surged 52 times in the past two years to 181,000 cows in 2014.

That means potential in animal feed, too, currently supplied 42 percent by imports. It’s a business sector worth US$7 billion but dominated by foreign players such as Thai giant CP Group, whose Vietnamese unit has about a fifth of the market.

Agreements were reached recently with South Korea and the Russian-led Eurasian Economic Union and deals are edging closer with the European Union and the Trans-Pacific Partnership, which will

AFP

cover 12 countries with a combined GDP of US$28 trillion, among them Australia, Japan and the United States, Vietnam’s top export destinations.

The government “hopes to accompany businesses during the industrialisation and modernisation of agriculture and the rural sector of our country”, Deputy Prime Minister Hoang Trung Hai told a recent conference on private investment in agriculture.

It is also considering tax incentives for foreign operators in the sector if they develop human resources, infrastructure and larger fields to improve productivity, quality and technology.

Just 1 percent of Vietnam’s registered firms are in the agricultural sector and nine-tenths of those are small and medium-sized enterprises.

“There are new opportunities for consolidating smallholder production, adding value and reaching new markets that smallholder farmers cannot realise individually,” said Chris Jackson, a rural development specialist with the World Bank in Vietnam.

Reuters

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Business Daily | 13

July 29, 2015

Asia Singapore’s ruling party contends with new voting majority

Small S. Korean firms show low confidence

Young Singaporeans are generally happy with the PAP-led government, but are less satisfied than older Singaporeans with public transport, population management and civil liberties Rujun Shen

W

hen Singapore celebrates its 50th year of independence on August 9 and its older citizens eulogise the country’s economic feats, its ruling party founded by the late Lee Kuan Yew faces an unprecedented wave of young voters who may not be as nostalgic.

For the first time, citizens born after the country’s independence in 1965 will likely account for the majority of voters in a general election due to take place by January 2017.

As of 2014, almost 54 percent of citizens above 20 were born in 1965 and later, compared with 46 percent born after independence in 2010.

Singapore’s voting age is 21.

Voters born after 1965 grew up in an era of economic ascendancy as Singapore’s pioneer leaders turned the former British colony into a First World business hub. While they acknowledge the economic miracle engineered by the People’s Action Party (PAP), they are unhappy about the rising cost of living and an influx of foreign workers, particularly from China. Those issues

took centre stage in the last poll in 2011. The PAP won its smallest ever share of votes since 1959, when it became the ruling party of a semiindependent Singapore. (Britain still had sway over external matters.)

Young Singaporeans are generally happy with the PAP-led government, but are less satisfied than older Singaporeans with public transport, population management and civil liberties, according to a survey in June by Singapore-based Blackbox Research. “To be fair, since the last GE (general election), the PAP has

done very well,” said 38-year-old Chung, who declined to disclose his full name. Nonetheless, he would not vote for the PAP and would like to see a greater presence in parliament of opposition lawmakers, who currently have just 10 percent of seats.

Local political commentator Catherine Lim told Reuters that younger people do not have the same sense of gratitude towards the government, which is a very powerful force with older people. That sentiment will be tested in an election without PAP founder and Singapore’s first prime minister Lee, who died in March.

Philip Teo, a 35-year-old entrepreneur, said he will most likely vote for the PAP, but is concerned about the prospect of the government bowing to short-term populist demands. “Now that Mr Lee Kuan Yew is gone, I’m especially worried about the current government losing the political will to do what is the right thing to do for the long term, and give in to people’s short-term gratification,” Teo said.

Reuters

Pacific Rim ministers cautiously optimistic on trade deal Mexico is under pressure to give Australia and New Zealand more access to its markets, while Canada is also so far resisting demands to open up its protected local industry Krista Hughes and Ami Miyazaki

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inisters from Pacific Rim nations hoping to finalize an ambitious free trade deal this week warned that hurdles remained including intellectual property and dairy.

The United States and Japan, the two biggest economies in the talks, are both keen for strong intellectual property protections, such as long copyright periods and data protection for next-generation drugs.

Japanese Economy Minister Akira Amari, arriving in Hawaii with his counterparts from the 12-nation Trans-Pacific Partnership (TPP) countries, told reporters that the aim was to produce a win-win outcome for all countries.

Mexico’s Economy Minister Ildefonso Guajardo declined to say if he backed the U.S. call for 12 years data protection for biologic drugs but he was confident a deal could be reached.

“We are expecting to close off this agreement,” he told reporters.

Another major sticking point is dairy. “We are looking for what we

call commercially meaningful access,” New Zealand Trade Minister Tim Groser told local TV 3 news. Dairy is one of New Zealand’s main export earners.

“I’m not going to be dogmatic about how to define that, but there’s nothing on the table yet that allows me to recommend to the cabinet that we should sign this deal at this point. That’s for the next few days.

It’s going to be hard yakka (work).”

Chambers of commerce from many of the TPP countries, which include Singapore, Peru, Chile and Brunei, kept up pressure for an ambitious and comprehensive agreement.

A joint statement from organizations from the United States, Australia, Canada, Peru, Japan, Singapore, and Vietnam said that the TPP had the potential to “create substantial new opportunities for workers and farmers - as well as businesses of all sizes and sectors across the region”.

The U.S. National Association of Manufacturers said priorities for

There are a lot of difficulties to overcome with intellectual property Akira Amari, Japanese Economy Minister

the deal included strong dispute settlement provisions, the free flow of data across borders and a level playing field with state-owned enterprises.

“Manufacturers will not simply provide rubber-stamp approval for a TPP deal,” NAM President Jay Timmons said.

Reuters

Confidence among South Korean small businesses remained dismal on concerns that the outbreak of Middle East Respiratory Syndrome would continue to dent domestic demand for the time being, a business lobby group data showed yesterday. The Small Business Health Index (SBHI) for August, which reflects small firms’ outlook for business conditions the next month, declined 2.1 points from a month earlier to 79.4, the lowest in seven months, according to the Korea Federation of Small and Medium Business. The result was based on a survey of 3,150 manufacturers and non- manufacturers from July 15 to 21.

Maruti Suzuki 1Q profit jumps 56 pct Maruti Suzuki India Ltd, India’s biggest carmaker by sales, said yesterday first-quarter net profit rose 56 percent helped by lower costs, favourable foreign exchange rates and higher sales, but still missed bullish analyst estimates. Maruti, controlled by Japan’s Suzuki Motor Corp, said profit for the April-June quarter was 11.9 billion rupees (US$185.94 million), up from 7.6 billion rupees in the same period a year earlier. Analysts had expected a profit of 12.35 billion rupees, according to Thomson Reuters I/B/E/S. Net sales rose about 18 percent to 130.8 billion rupees, the company said.

Suntory not considering IPO now Suntory Holdings Ltd said yesterday that it is not considering listing its shares now, following a Nikkei newspaper report that the beverages conglomerate is mulling an IPO as early as 2018 to pay down debt and raise growth capital. The Nikkei said the Japanese company would decide as soon as this year whether to launch an initial public offering, which would likely value it around 3 trillion yen (US$25 billion), and that it would consider listing in New York or Tokyo. Suntory has ambitions of becoming a global leader in the beverage industry.

Cambodian FM to attend ASEAN meeting in Malaysia Cambodian Deputy Prime Minister and Foreign Minister Hor Namhong will lead a delegation to attend a series of ASEAN and related meetings, to be held from August 3 to August 6, in Kuala Lumpur, Malaysia, according to a news statement from the foreign ministry yesterday. The meetings will include the 48th ASEAN Foreign Ministers’ Meeting, Post Ministerial Conferences with 10 ASEAN Dialogue Partners, 16th ASEAN+3 Foreign Ministers’ Meeting, 5th East Asia Summit Foreign Ministers’ Meeting, and 22nd ASEAN Regional Forum as well as Southeast Asia Nuclear Weapons-Free Zone Commission meeting.

India reaches iron deal with Iran An Indian state company has agreed to sell high-quality iron ore pellets to Iran, its chairman told Reuters, in what could be a US$200 million annual deal that signifies expanding business ties between the countries as sanctions against Tehran ease.

India had remained one of Iran’s top oil buyers despite trade curbs over Iran’s nuclear programme and the two countries are now exploring partnerships worth billions of dollars in ports, steel, aluminium and power. Iran and India started talks on the pellet deal even before the sanctions lift.

14 | Business Daily

July 29, 2015

International Russian economic slide slows in June Russia’s gross domestic product shrank by 4.2 percent in June from a year earlier but the contraction was shallower than May’s revised 4.8 percent fall, adding to signs the economy may have started to stabilise. The Economy Ministry said yesterday that GDP fell 0.1 percent in June compared to the previous month in seasonally-adjusted terms, less than a decline of 0.4 percent in May and 0.5 percent in April. Economic data released earlier this month showed falls in many indicators remained little changed in June from a month earlier.

U.K. growth accelerates Bank of England Governor Mark Carney has said the time of record-low interest rates may soon end Scott Hamilton

grew 2.6 percent. Output is now 5.2 percent above its pre-recession peak.

Services boost

Orange confirms annual targets France’s largest telecom operator Orange inched closer in the second quarter to a long-awaited recovery as customers shifted to premium high-speed mobile and broadband services, allowing it to confirm annual profit, debt and dividend targets. Analysts welcomed what they said was a slight beat on revenue and core profit as strong commercial momentum in France and emerging markets offset weakness in Spain. Quarterly sales stood at 9.89 billion euros (US$10.94 billion), down 0.2 percent on a comparable basis but up 0.4 percent when the impact of regulatory changes is stripped out, marking the first increase since 2011.

BP profits slump after spill charge BP’s second-quarter profit slumped by nearly two thirds from a year ago as it grappled with lower crude prices and took a huge US$10.8 billion charge related to the 2010 Gulf of Mexico oil spill. In a sign it was hunkering down for an extended period of lower oil prices, the British oil and gas company also cut its planned full-year capital spending again to “below US$20 billion”, after cutting it 13 percent to US$20 billion earlier this year. BP reached an US$18.7 billion settlement.

Heineken, Diageo end joint ventures Dutch brewer Heineken and spirits maker Diageo have agreed to end their 11-year cooperation in South Africa and Namibia in a series of deals to disentangle joint ventures. Diageo said in a statement it would receive net cash of 2.5 billion rand (US$198.4 million) from the transactions that were expected to be completed by the end of the year. Heineken said the overall cost to it would be 1.9 billion rand.

Diageo, whose brands include Johnnie Walker, Smirnoff and Guinness, said it had become market leader in spirits in South Africa with a 40 percent share.

British PM visits Indonesia Prime Minister David Cameron sought to forge closer business ties with Indonesia yesterday, saying British investment could easily double if deals can be clinched on infrastructure projects. Indonesia is Cameron’s first stop on a four-day trade mission to Southeast Asia to spur lucrative business deals and encourage new political alliances to counter Islamist militancy. Britain, Indonesia’s fifth largest foreign investor, is particularly interested in investing in Indonesia’s infrastructure, insurance and Internet services industries. Cameron also lobbied officials to allow British companies to help build infrastructure for Indonesia to host the Asian Games in 2018.

U

.K. economic growth accelerated in the second quarter as business services and finance strengthened and North Sea output surged.

The 0.7 percent increase in gross domestic product marked a 10th straight expansion and followed a 0.4 percent advance in the previous three months. It was in line with the median forecast in a Bloomberg survey.

The report suggests the recovery remains lopsided and led by the dominant services industry, where growth accelerated to 0.7 percent.

While oil and gas helped industrial output rise 1 percent on the quarter, the most since the end of 2010, manufacturing declined 0.3 percent.

Construction was unchanged.

“After a slowdown in the first quarter of 2015, overall GDP growth has returned to that typical of the

previous two years,” Joe Grice, chief economist at the Office for National Statistics, said in a statement issued with the data in London yesterday.

The rebound takes GDP per head “back to broadly level with its preeconomic downturn peak” in the first quarter of 2008, he said.

With the U.K. economy in its longest period of continuous growth since before falling into recession in 2008 and unemployment falling, Bank of England Governor Mark Carney (pictured) has said the time of record-low interest rates may soon end. He’s also said any tightening will be gradual, citing headwinds from the government’s fiscal program and weak euro-area demand.

The ONS data is a first estimate and may be revised. It’s based on about 44 percent of the information that will ultimately be available.

Compared with a year earlier, GDP

Services, the largest part of the economy, accounted for 0.5 percentage point of the increase in GDP in the second quarter. It was driven by business services and finance, which had contributed nothing in the first three months of the year.

On an annualized basis, the economy grew 2.8 percent. The U.S. economy probably grew an annualized 2.5 percent in the March-June period, according to a Bloomberg survey of economists before data later this week.

The strength of the pound continues to drag on exports, with even the BOE warning of this could have an “adverse impact on the balance of growth in the economy.”

North Sea output is a volatile component of GDP and the ONS said tax incentives announced by Chancellor of the Exchequer George Osborne earlier this year may have boosted output in the second quarter.

Mining and quarrying, of which North Sea output accounts for the majority, jumped 7.8 percent, the most since 1989.

The Confederation of British Industry said on Monday that its index of manufacturing orders dropped to a two-year low in July and that export growth remains “sluggish.”

Bloomberg News

UBS’s legal reserves dip; Puerto Rico probe widened The bank said it was responding to inquiries from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority Katharina Bart

U

.S. authorities have widened a probe into bond funds sold

by UBS’s Puerto Rico arm, the Swiss bank announced yesterday, alongside figures showing it has used up some of the money it set aside to cover legal costs and regulatory fines.

Zurich-based UBS’s legal reserves were disclosed in a ten-page section on pending litigation in its secondquarter report, a day after financial results.

They stood at 2.37 billion Swiss francs (US$2.46 billion) at the end of June, down from 2.73 billion francs the previous quarter.

The reserves fell after UBS in May became one of four major banks to plead guilty to trying to manipulate foreign exchange rates in the US$5trillion-a-day currency market, paying US$545 million in combined fines.

Other risks remain, however, including claims the bank

misrepresented mortgage-backed bonds during the U.S. housing bubble, a French investigation into tax dealings and wealthy clients, and back taxes due to Brazil relating to when the Swiss lender owned an investment bank in the country.

UBS said it had bolstered provisions for the mortgage probe -- seen by analysts as one of the larger litigation risks facing the bank -- by 42 million francs to 772 million francs.

“The future outflow of resources in respect of this matter cannot be determined with certainty based on currently available information, and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized,” it said in its legal disclosure.

Funds linked to Puerto Rico bonds are another headache, after the bank earlier this month told clients they can no longer use the securities as

collateral for certain loans after the island’s financial troubles resulted in downgrades by major credit rating agencies.

The bank said it was responding to inquiries from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) over the practice by some of its customers -- and one bank adviser -- of using loans to invest in closed-end funds in Puerto Rico.

“We also understand that the Department of Justice is conducting a criminal inquiry into the practice of certain customers and a UBS financial advisor of using non-purpose loans to invest in closed end fund securities in violation of their loan agreements and UBS policies,” the bank said, disclosing this investigation for the first time.

It said it was cooperating with the investigations.

Reuters

Business Daily | 15

July 29, 2015

Opinion Business

wires

Market manipulation goes global

Leading reports from Asia’s best business newspapers

Stephen S. Roach

Faculty member at Yale University and former Chairman of Morgan Stanley Asia

TAIPEI TIMES The nation’s economy deteriorated last month, with the government’s business monitoring system slipping into the “blue” zone for the second time this year, as firms turned conservative about capital investment, the National Development Council (NDC) said in a report. The signal indicated that the pace of the slowdown has accelerated from a “yellow-blue” in May, as major economic bellwethers displayed negative cyclical movements, the report said. The overall score for the monitoring system lost 2 points to 16 last month, mainly due to lower imports of machinery and electrical equipment from a year earlier.

THE STRAITS TIMES Oversea-Chinese Banking Corp., Singapore’s second-biggest lender, expects the country’s property market to improve amid the biggest economic contraction since 2012. “The long-term prospect for the Singapore property market, both on the residential and commercial side, I think continues to be attractive,” chief executive officer Samuel Tsien said in an interview at the Singapore Regional Business Forum. Office rents here posted the first decrease in more than two years and residential prices have fallen for seven quarters in the longest run of declines since 2002.

THE KOREA HERALD The government will extend a temporary measure to ease mortgage regulations for another year in a bid to prop up the local economy that is showing budding signs of recovery, the financial watchdog said yesterday. In August last year, newly minted Finance Minister Choi Kyung-hwan announced the eased rules in order to give home buyers greater access to mortgages and thus help boost the sluggish local housing market as well as the overall economy. The loan-to-value ratio was adjusted to 70 percent at large, up from a range of 50 to 85 percent.

VIETNAM NEWS Quang Ngai Province’s Military Command announced they had destroyed 60 illegal gold mines within 6 days.

Government agencies have coordinated with Engineer Corps to carry a ton of explosives to the sites that are located in the mountainous district of Tay Tra that could not be assessed by vehicles, the Command said. They seized many equipment that illegal gold miners buried near the site before felling to avoid being seized. Local police have been mobilized to maintain security after hundreds of illegal gold miners opposed the force and damaged their tents, news website VnExpress reported.

M

arket manipulation has become standard operating procedure in policy circles around the world. All eyes are now on China’s attempts to cope with the collapse of a major equity bubble. But the efforts of Chinese authorities are hardly unique. The leading economies of the West are doing pretty much the same thing – just dressing up their manipulation in different clothes.

Take quantitative easing, first used in Japan in the early 2000s, then in the United States after 2008, then in Japan again beginning in 2013, and now in Europe. In all of these cases, QE essentially has been an aggressive effort to manipulate asset prices. It works primarily through direct central-bank purchases of long-dated sovereign securities, thereby reducing long-term interest rates, which, in turn, makes equities more attractive.

Whether the QE strain of market manipulation has accomplished its objective – to provide stimulus to crisis-torn, asset-dependent economies – is debatable: Current recoveries in the developed world, after all, have been unusually anaemic. But that has not stopped the authorities from trying.

In their defence, central banks make the unsubstantiated claim that things would have been much worse had they not pursued QE. But, with nowfrothy manipulated asset markets posing new risks of financial instability, the jury is out on that point as well.

China’s efforts at market manipulation are no less blatant.

In response to a 31% plunge in the CSI 300 (a composite index of shares on the Shanghai and Shenzhen exchanges) from its June 12 peak, following a 145% surge in the preceding 12 months, Chinese regulators have moved aggressively to contain the damage.

Official actions run the gamut, including a US$480 billion government-supported equity-

market backstop under the auspices of the China Securities Finance Corporation, a US$19 billion pool from major domestic brokerages, and an open-ended promise by the People’s Bank of China (PBOC) to use its balance sheet to shore up equity prices. Moreover, trading was suspended for about 50% of listed securities (more than 1,400 of 2,800 stocks).

Unlike the West’s QE-enabled market manipulation, which works circuitously through central-bank liquidity injections, the Chinese version is targeted more directly at the market in distress – in this case, equities.

Significantly, QE is very much a reactive approach – aimed at sparking revival in distressed markets and economies after they have collapsed. The more proactive Chinese approach is the policy equivalent of attempting to catch a falling knife – arresting a market in free-fall.

There are several other noteworthy distinctions between China’s market manipulation and that seen in the West. First, Chinese authorities appear less focused on systemic risks to the real economy. That makes sense, given that wealth effects are significantly smaller in China, where private consumption accounts for just 36% of GDP – only about half the share in more wealth-dependent economies like the US. Moreover, much of the sharp appreciation in Chinese equity values was very short-lived.

Nearly 90% of the 12-month surge in the CSI 300 was concentrated in the seven months following the start of cross-border investment flows via the so-called Shanghai-Hong Kong Connect in November 2014. As a result, speculators had little time to let the capital gains sink in and have a lasting impact on lifestyle expectations.

Second, in the West, post-crisis reforms typically have been tactical, aimed at repairing flaws in established markets, rather than promoting new markets. In China, by contrast, post-bubble

Unlike the West’s QE-enabled market manipulation, which works circuitously through central-bank liquidity injections, the Chinese version is targeted more directly at the market in distress

reforms have a more strategic focus, given that the equitymarket distress has important implications for the government’s capital-market reforms, which are viewed as crucial to its strategy of structural rebalancing. Long saddled with a bank-centric system of credit intermediation, the development of secure and stable equity and bond markets is a high priority in China’s effort to promote a more diversified business-funding platform. The collapse of the equity bubble calls that effort into serious question.

Finally, by emphasizing a regulatory fix, and thereby keeping its benchmark policy rate well above the dreaded zero bound, the PBOC is actually better positioned than other central banks to maintain control over monetary policy and not become ensnared in the openended provision of liquidity that is so addictive for frothy markets.

And, unlike in the West, China’s targeted equity-specific actions minimize the risk of financial contagion caused by liquidity spill overs into other asset markets.

With a large portion of China’s

domestic equity market still closed, it is hard to know when the correction’s animal spirits have been exhausted. While the government has assembled considerable firepower to limit the unwinding of a spectacular bubble, the overhang of highly leveraged speculative demand is disconcerting. Indeed, in the 12 months ending in June, margin financing of stock purchases nearly tripled as a share of tradable domestic-equity-market capitalization.

While Chinese equities initially bounced 14% off their July 8 low, the 8.5% plunge on July 27 suggests that that may have been a temporary respite. The likelihood of forced deleveraging of margin calls underscores the potential for a further slide once full trading resumes.

More broadly, just as in Japan, the US, and Europe, there can be no mistaking what prompted China’s manipulation: the perils of outsize asset bubbles. Time and again, regulators and policymakers – to say nothing of political leaders – have been asleep at the switch in condoning market excesses. In a globalized world where labour income is under constant pressure, the siren song of asset markets as a growth elixir is far too tempting for the body politic to resist.

Speculative bubbles are the visible manifestation of that temptation. As the bubbles burst – and they always do – false prosperity is exposed and the defensive tactics of market manipulation become both urgent and seemingly logical.

Therein lies the great irony of manipulation: The more we depend on markets, the less we trust them. Needless to say, that is a far cry from the “invisible hand” on which the efficacy of markets rests. We claim, as Adam Smith did, that impersonal markets ensure the most efficient allocation of scarce capital; but what we really want are markets that operate only on our terms.

Project Syndicate

16 | Business Daily

July 29, 2015

Closing Fastest-charging electric bus put into operation

ADB prepares new strategy with Tajikistan

The world’s fastest charging electric busses, with a battery that takes just 10 seconds to be fully charged, were put into operation for the first time in Ningbo yesterday. The bus operates a 11-km route with 24 stops in Ningbo, Zhejiang province, local transport authorities said. In the next three years, a total of 1,200 such buses will be used for public transport in the city, where the electric bus plant is located. The bus recharges while stationary or while passengers get on or off, and each charge enables the bus to run for least five kilometres.

The Asian Development Bank (ADB) is developing a new country partnership strategy (CPS) with Tajikistan for 2016-2020, which is scheduled for consideration at the second consultative workshop held in Dushanbe yesterday. The interim CPS will position Tajikistan to deliver higher, inclusive, and sustainable economic growth by addressing binding constraints to development. ADB will help improve energy and transport infrastructure, expand access to clean water and social services, facilitate reforms and invest in human development to support private sector development.

Global borrowers gorging on cheap euro bonds transform market Berkshire Hathaway Inc. and Oreo-cookie maker Mondelez International Inc. were among firms that raised a record 52 billion euros from bonds due during or after 2025 Sally Bakewell

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ever have so many international companies borrowed so much for so long in Europe and the continent’s bond market may never be the same.

The region, which up until now had catered primarily to domestic borrowers, became a prime target for foreign firms looking to raise funds this year, witnessing a record 157 billion euros (US$174 billion) of bonds. Banks and investors are now devoting more resources to meet the demand.

Europe now lures globally recognized firms such as Time Warner Inc. as well as others scarcely known in the region, and from as far as China and Brazil. They’re attracted by borrowing costs suppressed

by European Central Bank president Mario Draghi’s unprecedented 1.1 trillioneuro stimulus program.

“The euro market has developed a depth and maturity,” said Peter

Schikaneder, head of origination for international corporates at Commerzbank AG in London. “Certain things are achievable in the market that we didn’t expect were before.”

U.S. issuers have led the international charge, selling 78 billion euros, already eclipsing the 69 billion euros sold by American firms in all of 2014. They’ve also been key in extending maturities, ensuring the globalization of the market for years after the ECB’s measures which are due to end next year.

We’re seeing that for U.S. or global companies, the domicile matters less and less Jason Brady, portfolio manager, Thornburg Investment Management

Extended maturities

Berkshire Hathaway Inc. and Oreo-cookie maker Mondelez International Inc. were among firms that raised a record 52 billion euros from bonds due during or after 2025, according to data compiled

by Bloomberg.

“There has never been so much cross-currency funding,”

Marc Tempelman, co-head of debt capital markets and corporate banking at Bank of America Merrill Lynch said.

“Companies are diversifying their sources of financing to far-reaching markets and that is a theme that we will continue to see.”

To help cater for the deluge, Bank of America has boosted its corporate banking and debt capital markets teams since May. Commerzbank transferred an employee from Hong Kong to New York the same month and hired a syndicate banker in New York last year, Schikaneder said.

Wells Fargo & Co. in March was seeking to set up a team in London to arrange and trade speculative-grade securities, according to people familiar with the matter. Banco Santander SA, Spain’s biggest bank, created a Madrid-based team to help manage junk bond sales.

New hires

Investors are also adapting to market changes. Union Investment expanded its corporate bond team with two hires and TwentyFour Asset Management is planning to create two new positions, according to Chris Bowie,

a portfolio manager at the London-based company.

Companies that borrow frequently in the U.S., such as Coca-Cola Co. and Eli Lilly & Co., were lured to Europe by borrowing costs that fell to a record 0.85 percent in March and remain within half a percentage point of the low, Bank of America Merrill Lynch indexes show. The relative advantage of borrowing in euros will probably increase, the lender said in a July 23 report.

That may further broaden the market after smaller borrowers Mohawk Industries Inc., a flooring-maker from Georgia, joined companies from as far afield as China, such as Beijing Enterprises Holdings Ltd. in holding debut euro sales. Australia’s BHP Billiton Ltd. and Brazil’s Votorantim Cimentos SA were among international borrowers who returned to the market.

Bloomberg News

Mainland developers slow down LME Clear to accept offshore yuan as cash collateral offshore bond issuance

Toyota falls behind VW in world’s biggest automaker race

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T

ffshore bond issuance by Chinese property developers has slowed significantly this year because of the relatively small volume of maturing bonds and the slowdown in land acquisitions by developers, said rating agency Moody’s.

“A number of rated developers took advantage of rising share prices in Q2 and opted for share placements, while the opening up of the domestic markets for medium-term notes and corporate bonds provided developers incorporated in China with alternative sources of low cost funding,” said Stephanie Lau, Moody’s Assistant Vice President.

“The unfolding and eventual default of Kaisa Group Holdings Ltd also weighed on investor confidence in the early part of 2015, resulting in a number of developers putting their planned bond issuance on hold,” added Lau. In the first half of 2015, 12 developers rated

by Moody’s issued offshore bonds totalling around US$6.7 billion, compared with US$15.5 billion raised by 29 rated developers in the first half of 2014.

Xinhua

T

he London Metal Exchange’s clearing house will accept the offshore yuan as cash collateral, a step that will further Chinese ambitions to see its currency more widely used in international trade.

The move follows regulatory approval by the Bank Of England, the exchange said in a release.

The LME is owned by Hong Kong Exchanges & Clearing Ltd. “The renminbi (yuan) is on its way to becoming one of the world’s most widely used currencies, and we are pleased to be able to help our members take advantage of the opportunities arising from the renminbi’s internationalisation,” said Trevor Spanner, Chief Executive of LME Clear.

LME Clear already accepts the dollar, sterling, euro, yen as cash collateral.

Members of the clearing house have been calling for the exchange to extend the list of accepted cash collateral to include offshore yuan, which unlike the onshore yuan is freely tradable.

Chinese-owned BOCI Global Commodities will be the first LME Clear Member to submit CNH collateral. The LME currently has six Chinese members.

Reuters

oyota has fallen behind Volkswagen in the race for the world’s biggest automaker title, figures showed yesterday, as the German giant outsold its Japanese rival in the first half of the year.

Toyota said it sold 5.02 million vehicles worldwide between January and June, falling below earlier figures from Volkswagen of 5.04 million units shifted in the same period.

US-based General Motors was sitting in third spot with 4.86 million in sales.

Toyota broke GM’s decades-long reign as the world’s top automaker in 2008 but lost the crown three years later as Japan’s 2011 earthquaketsunami disaster hammered Japan’s production and disrupted the supply chains.

In 2012, Toyota again overtook its Detroit rival, which sells the Chevrolet and luxury Cadillac brands, to grab the top spot globally.

But the Japanese automaker is expecting sales this year to slip to 10.15 million from a record 10.23 million vehicles in 2014, owing to a shaky outlook for Japan and as it beefs up its focus on quality after a string of safety scandals. Volkswagen is now in pole position as the German automaker rides momentum in emerging economies.

AFP