Macau business daily, 2015 Aug 3

MOP 6.00

City’s average home price down 8 pct in H1, 2015

Closing editor: Luís Gonçalves

Page 4

Alexis Tam denies U-turn on banning smoking in casinos

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‘Blue card’ for non-resident domestic workers automatically renewed

OCBC quarterly profit beats estimates Page 4

Year IV

Number 848 Monday August 3, 2015

Publisher: Paulo A. Azevedo

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Studio City to start with 150 gaming tables

It’s the number most bandied about. And Deutsche Bank subscribes to it, too. That is, 150 gaming tables for Studio City. The bank also figures Melco Crown’s Hollywood-themed property will open in October. Co-Founder and CEO of Melco Crown, Lawrence Ho, recently said he expected more gaming tables than Galaxy, which received 150 tables. Deutsche Bank, however, says that’s enough to manage the property smoothly Page

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Thin end of the wedge Local junket AG Group is shutting down its VIP room in Wynn Casino. And Entretenimento Sai Tai Wu Limitada is also suspending its business. According to internal notices to employees published by local gaming union Forefront of Macau. Union director Ieong Man Teng predicts more of the same

HSI - Movers July 31

Name

%Day

Galaxy Entertainment

+5.62

Sands China Ltd

+4.26

Power Assets Holding

+3.11

China Unicom Hong Ko

+2.43

CK Hutchison Holdings

+2.40

Belle International Ho

-1.59

China Mengniu Dairy C

-1.82

Cathay Pacific Airways

-1.93

Li & Fung Ltd

-2.60

Lenovo Group Ltd

-2.66

Source: Bloomberg

I SSN 2226-8294

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On a knife edge We’ve been here before. China’s manufacturing activity has retreated slightly. Barely avoiding contraction. The manufacturing purchasing managers’ index (PMI), a key measure of factory activity in China, posted 50.0 in July, down from 50.2 in June.

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Justice Served

It’s taken several twists and turns. But legislators have completed the final reading of a pivotal draft. For the Labour Creditor’s Rights Guarantee system, expected to pass into law on January 1. There’s an initial MOP160 million fund. And employers will have to put aside another five pct a year from the non-resident workers hiring fee to finance the fund

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www.macaubusinessdaily.com

Interview

Mind Games The casino crisis is psychologically affecting investors.

So say the top management of Jones Lang LaSalle Macau. With a knock-on effect on local property.

Four senior executives talk to Business Daily about the correlations between the gaming slump and real estate. Plus the possible peaking of Hengqin’s heady rush to fame

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2015-8-3

2015-8-4

2015-8-5

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2 | Business Daily

August 3, 2015

Macau Kuan Sio Peng new Executive Director of Macao Water Effective August 1, Ms. Kuan Sio Peng replaced Mr. Fan Xiao Jun as Executive Director of the city’s sole water distributor Macao Water Supply Co. Ltd., the company announced on Friday. Prior to taking up the position, Ms. Kuan was Macao Water’s Chief Financial Officer, joining the company in 1994. Mr. Fan, meanwhile, has become a director of the company.

Labour creditor’s rights to be guaranteed, credit ceiling lifted Legislators have finished the final reading of the bill proposing the establishment of a credit guarantee fund for protection of wages. The law is expected to come into effect on January 1 Joanne Kuai

joannekuai@macaubusinessdaily.com

fee that the government has been charging the employers for hiring non-resident workers will be injected into the creditor’s guarantee fund.

“According to the numbers the government provides, the amount will be around MOP10 million. It doesn’t matter whether it’s more of less, it shows a change,” said Cheang Chi Keong.

In addition, the draft mandates that an employee must submit the application to the fund within 45 days of the termination of the labour contract. If in a financial critical situation, the fund can advance as much as 50 per cent of the owed pay or other claims the employee cannot get from the employer once the Labour Affairs Bureau has affirmed the liabilities involved.

Upon payback by the employer of owed pay or other claims, the employee will have to return the government’s advance payment to the fund, the bill stated. However, if the court affirms the liabilities, the fund will press the employees for the advance money.

Patch

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n addition to the initial fund of MOP160 million (US$20 million), another yearly five per cent from the fee that employers pay to hire non-resident workers will be put aside as the source of the fund to guarantee creditor’s rights for the protection of wages, said Cheang Chi Keong, President of the Third Standing committee of the Legislative Assembly, after meeting with the government on Friday afternoon.

Despite several twists and turns, such as the change of cabinet in the government, legislators have finally finished the final reading of the draft for the Labour Creditor’s Rights Guarantee system.

The bill is expected to be handed to the plenary session of the Legislative Assembly to be approved article by article. Once passed, the bill will pass into law on January 1, 2016.

Innovation

The biggest breakthrough of the new draft is the cancellation of the ceiling of the credit amount. The initial proposal suggests a ceiling of the creditor’s rights to be ruled by the Chief Executive.

Legislators of the Third Standing Committee have argued that it would damage the employees’ rights and demanded the lifting of the ceiling.

The new government finally concurred.

However, there is still a timeframe of a retroactive six months of the

rights, which means an employee can only ask for six months of salary that are behind payment.

The government explained that it’s not diminishing the employees’ rights, rather its urging them to use their rights and protect themselves as soon as a problem emerges. In addition, the government argued that from the statistics provided by the Labour Affairs Bureau that the majority of labour creditors’ disputes only focus on credits dating back six months from the date the labour contract is terminated.

Non-resident workers covered

The new bill also seeks to protect the rights of non-resident workers.

Thus, an annual five per cent of the

The draft seeks to solve the loopholes left by the new Social Security Law that came into effect in 2011. The Social Security Fund is used to advance money for employees when their salaries are behind payment.

The new bill proposes employees be taken care of through the fund to be established with assistance from the Labour Affairs Bureau. The bill was first generally approved by the plenary session of the Legislative Assembly last June.

The new bill proposes that the Labour Creditor’s Rights Guarantee Fund has its own administrative, financial and autonomy of assets.

Technical and further administrative support will be provided by the Labour Affairs Bureau. The organisation, management and operation of the fund will be mandated by supplementary administrative regulations.

Business Daily | 3

August 3, 2015

Macau

Deutsche Bank says Studio City will receive 150 gaming tables According to information collected in the territory by the investment bank Melco Crown will be authorised to add 150 gaming tables to the new project João Santos Filipe

jsfilipe@macaubusinessdaily.com

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tudio City is likely to receive 150 gaming tables to start operating, according to the latest report of Deutsche Bank about the new Melco Crown property.

Also, the investment bank says that the property will likely open in October.

“Like Galaxy Phase II, checks suggest Studio City may receive roughly 150 tables. While not necessarily a big surprise, we do believe the prevailing view was that 150 would be the minimum for the new ‘free standing’ openings post the 150 table allocation to Galaxy at its Phase II opening”, the report by analysts Carlo Santarelli and Danny Valoy reads.

Given the case this number proves accurate, then the decision may be a setback for co-Founder and CEO of Melco Crown Lawrence Ho. During the presentation of the first quarter results of the company, Mr. Ho said that he was expecting to receive authorisation to install more gaming tables than Galaxy, which received 150 tables. His expectations were based on the opinion that Galaxy Phase II is “an expansion with additional hotel rooms”, while “Studio City is the first integratedresort to open in the city in the last three years”.

However, in the view of the Deutsche Bank analysts the fact that the property will receive 150 gaming tables will be enough to manage the property smoothly.

Studio City announcement of opening date delayed to Wednesday

“If 150 tables proves accurate, for those who believe table capacity is an issue in the market, a group whom we are not amongst, the result could be disappointing. Furthermore, if accurate, we believe 150 will now serve as the baseline for expectations for future Cotai openings”, they explained.

According to the same report, from the moment the casino operator has 150 tables guaranteed, it may consider dismissing junkets from the

‘Blue card’ for non‑resident domestic workers automatically renewed

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he work permit, known as a blue card, for non-resident domestic workers will be automatically renewed from August on, the Human Resources Office of the Government announced on Saturday.

This means that from the moment permission is granted to hire a nonresident domestic worker the renewal process will be automatic, thus the resident who required the licence to hire a non-resident domestic worker need no longer go to the

Human Resources Office to handle the renewal process.

However, the non-resident employee still needs to go to the Immigration Services of the Public Security Police Force to complete the process.

These changes were implemented ‘with the goal of simplifying administrative processes, as well as cutting the time spent handling all the formalities required in the different Public Services’, the Human Resources Office explained.

property and have direct VIP tables rather than VIP junket tables.

“Assuming 150 tables is correct, our checks suggest Melco Crown may use 110 for mass play and 40 for premium mass and direct VIP. As the maths suggest, no tables would be earmarked for junket VIP play”, the analysts explained.

Studio City will be the second project of Melco Crown to be developed in Cotai, following City of Dreams. The

The announcement of the opening date for Studio City has been delayed to Wednesday. Initially, the plan was to announce the opening date of the project and host a media tour today.

However, because of agenda-related issues Mr. Lawrence is busy and as such the announcement has been delayed to Wednesday, the company explained.

The company previously hinted that the property would open in the late third quarter of the year. However, the latest report from Deutsche Bank says that an opening in late October is more likely.

“Based on recent checks, it is believed that the next opening on Cotai, Macau Studio City, will take place in the final week of October”, the report reads.

new property will have an investment of US$3.2 billion (MOP25.6 billion) and a total of 1,600 rooms. Previously, Lawrence Ho said it would have the capacity to accommodate around 500 gaming tables.

4 | Business Daily

August 3, 2015

Macau Travel alert to South Korea lifted Over the weekend, the Tourism Crisis Management Office withdrew the previously issued advice to Macau residents regarding avoiding travelling to South Korea. This comes after the Health Bureau has decided to lower the response level for the Middle East Respiratory Syndrome (MERS) from high alert to closely monitoring level.

Measures such as the health declaration form and the temperature check for passengers from South Korea has been cancelled. The Tourism Crisis Management Office still reminds Macau residents who plan to go to South Korea to be aware of personal hygiene and remain vigilant concerning recommendations issued by the health authorities.

City's average home price down 8 pct in H1, 2015

from the Statistics and Census Service shows.

Completed Flats

The fall has been led by about a one-fifth decline in the average price of unfinished flats in the first half of this year, latest official data reveals Stephanie Lai

sw.lai@macaubusinessdaily.com

C

ity homes have declined in terms of both average price and transaction year-on-year for the first half of 2015, as the price of off-plan sales

has posted a faster pace of decrease when compared with finished flats, the latest data from the Financial Services Bureau (DSF) shows.

For the overall home

market in Macau, the average price of a flat was MOP93,275 (US$11,943) per square metre for the first half of this year, down 8 per cent compared to a year ago.

At the same time, the number of home transactions has dropped 32 per cent year-onyear to a total of 2,907 cases for the first six months of this year, official data indicates.

The average saleable area of homes was 67 square metres for the first half of this year, almost the same as a year ago.

For the first half of this year, the average price of an unfinished flat has declined by about one-fifth year-on-year to MOP127,156 per square metre, while the number of off-plan sales has shrunk by

23 per cent to only 647 cases in the period.

The city has also seen the average price of a completed flat reach MOP81,559 for the first half of this year, down 3.6 per cent when compared to a year ago. Meanwhile, the transactions of completed flats have dropped by nearly 34 per cent to 2,260 cases.

The drop seen in the average home price as indicated by this latest official data expresses a reverse trend of the property boom here as seen in the years following the opening of the gaming concessions: the average transaction price of homes in the territory hit a peak of MOP99,795 per square metre for 2014, about 12 times the value of 2004, a separate set of available data

As the latest information from the Financial Services Bureau reveals, the average price of a flat here was MOP92,497 per square metre in June, up 2.6 per cent compared to May but 5 per cent lower compared to a year ago. In June, a total of 602 home transactions were recorded – of which 473 were completed flats.

In the month, the average price of a completed flat was MOP84,620, down 7.2 per cent when compared to MOP91,193 a year ago. The number of transactions of completed homes is also 49 less when compared to June last year.

Most of the completed flats transacted in June were located on the Macau Peninsula, with the priciest in the reclaimed zone of Areia Preta (MOP90,286 per square metre), Lam Mau district (MOP93,352 per square metre), and Outer Harbour and Nam Van area (MOP119,654 per square metre).

As of June, the average price of an unfinished flat dropped 8.3 per cent yearon-year to MOP118,636 per square metre, during a month when some 129 transactions were registered.

OCBC quarterly profit beats estimates The Sinagporean banking corporation has achieved profit that beat estimates on the back of higher interest income and contributions by Greater China and Indonesia

O

versea-Chinese Banking Corp., Southeast Asia’s second-largest bank, posted second-quarter profits that beat analysts’ estimates on higher interest income and contributions by Greater China and Indonesia.

OCBC’s net income for the three months ended June 30 rose 14 per cent to S$1.05 billion (US$764 million or roughly HK$6 billion) from a year earlier, the Singaporean bank said in a statement on Friday. That beat the average forecast of S$969 million in a Bloomberg survey of eight analysts.

OCBC has over 630 branches and representative offices in 18 countries and territories, where the bank's key markets are Singapore, Malaysia, Indonesia and Greater China. These include the more than 330 branches and offices in Indonesia operated by subsidiary Bank OCBC NISP, and 94 branches and offices in Hong Kong, China and Macau under OCBC Wing Hang.

OCBC Wing Hang's second-quarter net profit reached HK$540 million, up 10 per cent when compared to the previous quarter. The first-half profit of OCBC Wing Hang was HK$1.03 billion.

The banking group is benefiting from domestic interest rates close to the highest levels since 2008, which have allowed them to increase charges to borrowers. The banks still face the prospect of weaker loan growth this year as the city’s economy contracts amid an Asia-wide slowdown led

by China.

OCBC’s net interest margin increased to 1.67 per cent from 1.62 per cent in the first quarter.

The bank's largest competitor - DBS

Group Holdings Ltd. - reported a margin on Monday of 1.75 per cent, the highest in 13 quarters.

Interbank rate

The banks’ interest margins benefited this year from higher domestic borrowing costs. The three-month Singapore interbank rate more than doubled in the first quarter to exceed 1 per cent for the first time since 2008. It was at 0.87858 per cent on Thursday.

Smaller competitor United Overseas Bank Ltd.’s Chief Executive Officer Wee Ee Cheong told reporters following his bank’s results that he expects interest margins to stay at current levels, while OCBC CEO Samuel Tsien said at a separate briefing that the improvement was “sustainable.”

Excluding currency effects, OCBC’s loans rose 16 per cent from a year earlier as Greater China’s lending more than doubled. The bank spent US$5 billion buying Hong Kong’s Wing Hang bank in October. OCBC said its loans rose 3 per cent excluding Wing Hang.

Tsien forecast 2015 loan growth in the “mid-single digit” percentage range, while UOB’s Wee said he’s targeting an expansion of 5 per cent. Gross customer loans expanded 4.8 per cent in the second quarter from a year earlier, UOB reported.

“Looking ahead, we expect a bumpy ride for the next few months,” Wee said, citing uncertainties from Europe, especially Greece, and a slowing Chinese economy.

S.L. with Bloomberg

Business Daily | 5

August 3, 2015

Macau Alexis Tam denies U-turn on banning smoking in casinos

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Two more junkets shutting down VIP rooms

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ocal junket AG Group is shutting down its VIP room in Wynn Casino, and Entretenimento Sai Tai Wu Limitada is also suspending its business, according to internal notices to employees published by local gaming union Forefront of Macau Gaming on its social media page.

AG Group currently operates in Wynn, L’Arc and Galaxy and has five VIP rooms in each of the aforementioned casinos. In the notice, dated July 28, the group says that given the development of Macau’s economy and the discussion by its management, the decision has been made that the business of its VIP rooms in

Wynn Casino will be suspended effective September 1.

In a separate notice issued on July 31, Entretenimento Sai Tai Wu Limitada told its employees that it is suspending its external operation starting August 1. All employees except managers will then be on non-paid leave.

The company currently operates VIP rooms in Altira and Starworld Casino. It says further announcements will be made following the reconstruction of the company’s internal structure during August.

Director of the local gaming union Forefront of Macau Gaming, Ieong Man Teng, told Business Daily that the union expects the trend of gaming

revenues slump to continue, which will inevitably hurt junket operators and their VIP business.

However, the director said that they believe the gaming industry slump has nothing to do with the local government’s tightened policies such as the harsher smoking ban, but rather the anti-corruption campaign on Mainland China.

Mr. Ieong urges the government to introduce better policies to help employees that are out of a job or will be laid off, such as helping them find a new job in other areas, as he believes even though the companies claim that they are suspending their businesses, it’s very likely they won’t recover in the short term.

he Secretary for Social Affairs and Culture has denied a U-turn on his stance on banning smoking in casinos. The position of Alexis Tam was clarified to the Portuguese-language newspaper Jornal Tribuna de Macau after Steve Wynn, founder and CEO of Wynn Macau, said that Mr. Tam was feeling ‘okay’ about allowing smoking lounges in casinos.

“The position of the government is clear and is demonstrated in the new law that was already approved in its first reading by the Legislative Assembly”, the office of the Secretary for Social Affairs and Culture told JTM. Yet according to the newspaper, the office also stressed that the law, which was approved in the first reading, does not include an exemption for casinos.

However, the changes proposed by the government to the existing law on smoking have yet to go through the second reading and during this process it may be changed.

Last week, after presenting the financial results of Wynn Resorts for the second quarter of the year, Mr. Wynn said he was confident that the policy on smoking would change and allow smoking rooms in casinos.

“I was glad to see that they allowed the smoking rooms. There was no reason not to and Secretary Tam, who is very concerned about public health, finally felt as if it was okay to allow the smoking rooms to continue. And that is a good thing”, Mr. Wynn said.

Corporate

CEM presents awards to recognise contractors & suppliers

‘The House of Dancing Water’ dances to 5th Year Anniversary

Companhia de Electricidade de Macau (CEM) established the ‘Health, Safety, Environment and Quality Excellence Awards’ in 2008 to recognise outstanding contractors and suppliers. Entering the fifth year, the programme has received mass support and participation from various industries. Up to now, 40 institutions have been recognised with awards. This year, the Award Presentation Ceremony will be held today at Macau Tower Convention & Entertainment Centre.

CEM endeavours to provide regular

Melco Crown Entertainment’s water-based extravaganza, ‘The House of Dancing Water’ premiered in 2010. The first and only permanent world-class production exclusively tailor-made for Macau, it has thrilled more than 3.2 million spectators from all over the world over the course of more than 2,000 shows. This coming September, the award-winning spectacular will celebrate its glorious 5th anniversary.

‘The House of Dancing Water’ - a lasting legacy of Mr. Lawrence Ho, Co-Chairman & Chief Executive Officer of Melco Crown Entertainment - was built for Macau locals

occupational safety and health training for its employees, contractors and suppliers. More than 200 employees of the contractors participated in the training courses with the support of the Labour Affairs Bureau in 2014 and 2015. Leong said Macau will embrace more infrastructure projects and large constructions in the future, hence the occupational safety and health work remains challenging. In addition, he advised employers to strive for the best in risk management and employees to take full safety precautions.

and tourists. In only five years, ‘The House of Dancing Water’ has become an iconic attraction and a must-see performance for Macau visitors. It has put Macau on the world map of entertainment, and is recognised as ‘the Pride of Macau’. The show is also a testament to Mr. Ho’s passion and vision for developing Macau’s non-gaming entertainment offerings. ‘The House of Dancing Water’ has catalysed Macau’s transformation into a multifaceted tourist destination and plays a key role in bringing Macau into a new era for Asia’s leisure and entertainment industry.

6 | Business Daily

August 3, 2015

Macau

“The public should discuss the fulfilment of housing demands by private or public units” Four associate directors of Jones Lang LaSalle Macau explained the correlation between the gaming slump and property market in an interview with Business Daily, in addition to analysing the ‘Hengqin effect’ on Macau’s property market.

Jeff Wong, Head of Residential of JLL Macau, Alvin Mak, Associate Director of Strategic Consulting, Alison Yip, Associate Director of Capital Markets and Oliver Tong, Associate Director of Retail, shared their take on developments Kam Leong kamleong@macaubusinessdaily.com

(Left to right) Alvin Mak, Jeff Wong, Alison Yip, and Oliver Tong

How is the ongoing slump in the city’s gaming revenues affecting the local property market?

Jeff Wong: The gaming slump has

affected the housing wealth effect.

In the past decade, along with the rapid growth of the gaming sector, many people working for the industry accumulated a certain amount of wealth. Hence, the drop in gaming revenues affects these people the most.

Secondly, the consecutive drops in gaming revenue have also affected the confidence of investors.

Although we don’t see obvious influences on the investment market, [the gaming slump] is affecting investors psychologically.

Thirdly, the drop, resulting from the adjustment of the industry, is also shrinking the housing rental market, causing an indirect impact upon the property market as the rental segment’s adjustments in prices or return rate leads to changes in the asset values of the market as well.

On the other hand, the

government’s policies suppressing housing prices are also shrinking the property market, in addition to the gaming slump, resulting in the housing market being more quiet and dragging down transactions even further.

What’s your prediction for residential unit transactions for the second half of the year?

JW: We see that the number of

housing transactions during the second half of the year will remain at a low level as we don’t see there will be any big residential projects opening for sales during the second half, only those small-scale projects providing some 20 to 30 units, or even fewer.

For the second-hand market, due to the special stamp duty (SSD) [that financially penalises property owners selling their units two years or less after purchase] many residential units are not available.

As such, we don’t see there will be a very significant growth in the second-hand sales market, either.

Do you think the government should loosen the current policies that suppress the property market, such as SSD? JW: In fact, many of these polices,

such as regulating [purchasers to] pay full-amount stamp duty, have been in force since 2011. I think at that time these policies aimed to help residents buy their houses.

In the past few years, many investors in the market have been affected by internal and external factors, like the quantitative easing policy at that time. Thus, many residents have failed to fulfil their dream of buying a house.

However, the environment has changed quite a lot already. As to whether the government should alter these policies, I think it will need the consensus of society.

Nevertheless, I think it’s now very good timing for the public to discuss the issue, given the heated discussions on the roles of public and private housing in the market.

In fact, the government should also consider whether it needs to

set a long-term housing strategy based on our population and its growth; for example, setting the proportion of public to private projects in the residential market.

In reviewing the housing policies, I think the most debatable part is whether the public wants to resolve the city’s housing demands by the private sector, or the public sector.

If the public tends to support the private sector, we will need to consider how we can make the market run efficiently. Currently, it is very obvious that the tax policy has affected the number of saleable units in the market.

Although I believe these policies were carried out for a special time back then, when most residents agreed that the government could not increase the housing supply in a short period of time. But now, from the latest data, we can see that the number of projects still under construction have increased from some 6,000 in 2011 to 13,400

Business Daily | 7

August 3, 2015

Macau units, while the completed units that were issued uptake permits amounted to some 4,000. Hence, the supply from the market is still sufficient. It will really need public discussion to see whether we should review polices that were set up for the past.

After all, supply and demand in the sector is quite balanced.

Hengqin The Hengqin property market has attracted quite a lot of capital from Macau residents. Do housing prices there still have room to surge?

AM: The housing prices in

You mentioned the housing rental market has been affected by the gaming slump. Where are the most affected districts?

JW: Such as the high-end

residential buildings near MGM Macau, and Wynn Macau in Nape.

Can the pressure on the rental market be relaxed?

JW: We see that the impact will

actually be relaxed a bit. With more new gaming projects slated to open, we predict the number of foreign workers will increase, boosting housing rental demands.

Hence, we anticipate that rents will stabilise during the second half of the year.

In all, do you think residents still have the purchasing ability to acquire new housing supplies?

Alvin Mak: Looking at [total]

residents’ deposits in banks, they still recorded a growth of some 5.6 per cent last year, so I think the city’s purchase ability is still there.

Not like Hong Kong The gaming slump has also affected the retail industry.

Have any retailers, especially luxury-goods retailers, broken their leases following declining sales?

Oliver Tong: For top street shops,

we can see that [their prices] have posted a very sharp decline.

In fact, many of our clients who retail gold say their rental has been decreased. Nevertheless, many of them signed their leasing contracts two or three years ago; as such, they can still afford the rent even though their business is worse than before.

This is different from the situation in Hong Kong. We can see that many retailers retailing luxury goods like gold and watches exited [amid the retail downturn]. But in Macau, we did not see such a situation happening during the first half of the year.

The city’s purchase ability is still there Alvin Mak, Associate Director of Strategic Consulting

The gaming slump is affecting the investors psychologically Jeff Wong, Head of Residential of JLL Macau

Hence, we don’t see many gold stores have closed even though their sales have dropped for sure.

Meanwhile, for other retailers, like those selling cosmetics or fast fashion, the rent is still affordable for them.

How much has the rental of top street shops declined?

OT: Compared to the third

Hengqin have posted strong growth in the past two years, due to its geographic location very near Macau, and most importantly - the policy of allowing vehicles with Macau plate numbers to enter Hengqin introduces the concept to local residents that they can live directly in Hengqin in the future.

This is the reason why the housing prices in Hengqin were catching up with those in Macau before the gaming slump, when the housing prices in Macau were very expensive.

Yet, following the housing prices in Macau slowing a bit, it’s hard for Hengqin property prices to go higher, especially after some 3,000 units have already been consumed, meaning it has attracted capital of some tens of billions. We can say that the local demands on the Hengqin property market are kind of fulfilled for the current stage.

Hence, I don’t think Hengqin’s housing prices can increase.

Are local residents buying houses there for themselves or for investment?

AM: I think most of the buyers are there for investment. But some of the purchasers may buy the property for their next generation, like a long-term investment. After all, Hengqin doesn’t provide the conditions to

Oliver Tong, Associate Director of Retail

quarter and the fourth quarter of 2014 when landlords were asking high prices, we can see that some deals for leasing have dropped more than 30 per cent.

What about the sales segment for the shops?

OT: [Prices] depend upon retail

sales. The reason why is that we need to see whether tenants can afford the rent that the owners ask, as sales prices for street shops need the support of return rates, especially for investors who plan to purchase at the moment. With many impacts pressuring Macau at the present, the commercial property sector is more sensitive to whether tenants can make business. So we see that many of the investors are very careful.

However, some of the owners of street shops are people from the gaming industry. Some of them are in need of capital following the gaming downturn, thus they may not mind selling their properties at cheaper prices. In general, we predict that there won’t be a very significant adjustment in the commercial segment during the second half of the year.

Other property agents say the office segment is also under pressure with the government announcing its intention to build office buildings in reclamation Zone B… Alison Yip: Well, I think this

intention is still at a very initial stage and it will need a long time to complete. In fact, the city’s supply of office has been very limited for many years while the vacancy rate is very low, at some 6 per cent. Hence, for the second half of 2015, we predict that the office segment, for both rental and sales, prices will grow stably.

For top street shops, we can see that [their prices] have posted a very sharp decline. In fact, many of our clients who retail gold say their rental has been decreased. Nevertheless, many of them signed their leasing contracts two or three years ago; as such, they can still afford the rent even though their business is worse than before

allow Macau residents to live there currently as all the facilities are still under construction. People are eyeing Hengqin’s development in five and ten years after, when everything there is constructed and they may bring their children to live there.

Hengqin also features many new office buildings; how will this affect the Macau market?

AY: The statistics we collected

Although we don’t eliminate the possibility that Hengqin will attract part of Macau’s demand for offices, some of our clients, like gaming operators, insurers and financial companies, say they don’t want to bring the sensitive information of their clients to Mainland China Alison Yip, Associate Director of Capital Markets

show that the supply of office in Hengqin is really high . . .

AM: . . . like offering a total of 700,000 square metres of office will be available in the coming three years. Compared to Macau, the amount of supply is much higher. However, Macau clients will only consume part of the supply, as Hengqin does not only target Macau companies, but also the Pearl Delta Region and even the whole of Greater China. In addition, there’s another question: will Macau companies be willing to move to Hengqin? That will be another question.

AY: Yes, because the policies in the two regions, like taxation, and the supervision of sensitive information, are very different.

Although we don’t eliminate the possibility that Hengqin will attract part of Macau’s demand for offices, some of our clients, like gaming operators, insurers and financial companies, say they don’t want to bring the sensitive information of their clients to Mainland China. As such, new offices in Hengqin may have an effect on the local sector but it won’t be a very serious one.

8 | Business Daily

August 3, 2015

Greater China

Watchdog extends pursuit of short sellers to HK and Singapore Sources said the watchdog was focusing on trading positions taken through both the Shanghai-Hong Kong Stock Connect trading link Michelle Price and Pete Sweeney

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hina is pressing foreign and Chinese-owned brokerages in Hong Kong and Singapore to hand over stock trading records, sources said, extending its pursuit of “malicious” short sellers of Chinese stocks to overseas jurisdictions.

China’s main share markets, both among the world’s five biggest, have slumped around 30 percent since mid-June and authorities have been flailing in efforts to prevent a further sell-off that could spill over into the wider economy.

The markets regulator, the China Securities Regulatory Commission (CSRC), wants the trading records to try to identify those with net short positions who would profit in case of further falls in China-listed shares, three sources at Chinese brokerages and two at foreign financial institutions said.

At its regular press conference on Friday, the CSRC said it had not directly contacted top executives at Hong Kong brokerages. It also noted that it was normal, in the course of an investigation, to reach out to “relevant parties”.

It denied other unnamed media reports that regulators had required

Hong Kong trading floor

Chinese brokerage heads to attend meetings in Beijing or Guangzhou.

The regulator has declared war on “malicious short sellers” or those it deems are trying to profit from a fall in share prices, rather than

adopt a short position as a financial hedge.

“The implied threat by the CSRC is that anything that is not a hedge is a no-no,” said a source in Hong Kong with knowledge of

the requests. This person added that foreign brokers were likely to comply as best they could with the requests.

“When the CSRC makes an offer, you cannot refuse it.”

July factory growth unexpectedly stalls China’s Politburo has promised to step up “targeted” adjustments to economic policy to foster stable growth Brenda Goh and Winni Zhou

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rowth at China’s big manufacturing c o m p a n i e s unexpectedly stalled in July as demand at home and abroad weakened, an official survey showed on Saturday, reinforcing views that the economy needs more stimulus as it faces fresh risks from a stock market slump.

The official Purchasing Managers’ Index (PMI) stood at 50.0 in July, compared to the previous month’s 50.2.

The 50-point mark separates growth from contraction on a monthly basis.

Analysts polled by Reuters had predicted another tepid reading of 50.2, pointing to expansion, albeit a sluggish one.

However, both export and domestic orders shrank for the large firms covered by the survey, and in response they continued to cut jobs.

It did not mention any impact from a savage 30 percent drop in stock markets since mid-June, though

analysts said wild price swings could hit consumer and business confidence and investment decisions, adding pressure on the already cooling economy.

“It warrants more concrete policy measures to stabilise the real economy. Perhaps the funds used to prop up the share market could be used to support the real economy,” ANZ economists Li-Gang Liu and Louis Lam said in a research note.

ANZ maintained its forecast that the central bank will cut interest rates by another 25 basis points

(bps) this quarter and reduce banks’ reserve requirements by 50 bps by year-end.

The government has rolled out a flurry of steps since last year to try to put a floor beneath sputtering economic growth, including accelerating infrastructure spending and repeated reductions in interest rates and banks’ reserve ratio. But growth is still expected to moderate this year to around 7 percent, the slowest in a quarter of a century.

The statistics bureau said the weaker reading was partly due to the weather, as hot

temperatures and heavy rain led some firms to reduce production and carry out maintenance.

“The recent fall in prices of oil and other commodity products also affected related industries,” it added.

China’s slowdown has already become a sharp reality check for many foreign companies doing business there and for its exportreliant Asian neighbours.

Far from crisis?

The stock market plunge has stoked fears among global investors about further damage to the Chinese economy, while Beijing’s unprecedented but so far unconvincing efforts to hold up share prices have led to doubts about its ability to ensure financial stability.

Market watchers fear that some companies may be facing heavy losses after speculating in stocks, although the overall amount of leverage is hard to quantify.

Still, economists at Nomura said this week that China was “far from being in a crisis scenario”, and believe the share sell-off “should only have a limited negative impact on the real economy.”

A similar activity survey on Saturday suggested strength in the services sector continued to offset some of the persistent weakness at factories, but there were worrying signs on that front, too.

The official nonmanufacturing Purchasing Managers’ Index (PMI) edged up to 53.9 in July, compared with the previous month’s reading of 53.8 and pointing to solid expansion.

But services companies also reported softer orders, with the new orders sub-index falling to 50.1 in July from 51.3 in June, and firms cut jobs at a slightly faster pace.

The services sector has accounted for the bigger part of China’s economic output for at least two years, with its share rising to 48.2 percent last year, compared with the 42.6 percent contribution from manufacturing and construction.

In a rare acknowledgement of the challenges ahead, state radio quoted the decision-making body of the Communist Party as saying that China had yet to find new drivers to power its economy at a time when old engines are flagging.

Reuters

Business Daily | 9

August 3, 2015

Greater China The sources all have direct knowledge of the matter, but declined to be identified because of the sensitivity of the matter.

Highly unusual

It is common for regulators to request information from their overseas counterparts that may aid investigations at home. But it is highly unusual for the CSRC to seek information from offshore and international brokers directly, one source in Hong Kong said.

The CSRC did not answer calls requesting comment and both the Monetary Authority of Singapore (MAS) and Hong Kong’s Securities and Futures Commission (SFC) declined to comment.

KEY POINTS CSRC presses brokers for offshore trading records - sources Seeks records from mainland, foreign institutions - sources Aiming to identify those net short in Chinese listed shares Beijing stepping up fight against “malicious” short-selling CSRC has no jurisdiction in HK, Singapore, but does cooperate

The sources said the CSRC was focusing on trading positions taken through both the Shanghai-Hong Kong Stock Connect trading link and via offshore-listed products that track mainland stocks, including index futures and exchange traded funds (ETFs).

“There have been a number of questions over the past two weeks.

They are going after any type of trading activity that has a reference to China,” said an executive at an international brokerage based in Hong Kong.

One source at a mainland brokerage in Hong Kong said they had received enquiries over the phone directly from the CSRC seeking evidence of “naked shorting” - when an investor tries to profit from falling prices of a given stock without actually owning the shares necessary to complete the transaction, a practice that is restricted in most markets.

“We immediately said we have no clients doing ‘naked shorting,’ but they didn’t believe us. They asked for our records on trades through the Shanghai-Hong Kong Stock Connect and records of short-selling index futures via QFII and RQFII.” The Qualified Foreign Institutional Investor (QFII) programme and its yuan-denominated variant (RQFII), allow foreign institutions to buy Chinese shares and trade index futures with some restrictions, including how much can be invested.

Sources at mainland brokerages with Hong Kong operations said their firms had already turned over the records.

Misguided campaign

The CSRC’s campaign is the latest measure to try to stem the market rout. The ruling Communist Party has enlisted the central bank, the state

margin-lender, commercial banks, brokers, fund managers, insurers and pension funds to buy up shares, or help fund their purchase, to keep the Shanghai and Shenzhen markets afloat.

The CSRC has no regulatory power in Hong Kong or other jurisdictions, such as Singapore and the United States, where investment products tracking mainland shares are listed, and can be legally shorted.

But market sources worry that Chinese regulators are intent on suppressing any attempt to profit from China’s sliding markets, including trying to suppress even legal investment behaviour by referring to it as “malicious” or otherwise irregular.

At the same time, the government is trying to rally retail investors who dominate trading in China to put money back into the market, a task made more difficult if investors offshore are making bets on falling prices.

Foreign investors are technically allowed to take a short position in a select group of A-shares - yuandenominated shares listed in China - through the Shanghai-Hong Kong connect scheme, a trading link set up last year to open up Shanghai’s market to overseas investors. But exchange data shows there has been no investor take-up of the shorting opportunity.

Investors can take bets that prices in mainland shares will fall through offshore listed products, such as the popular iShares FTSE A50, the Singapore-listed FTSE China A50 index futures, and over-the-counter derivatives.

Trading in Singapore FTSE A50 futures surged 79 percent to a record in April-June.

Reuters

Beijing to set up state-owned credit guarantee fund Separately, a trading platform will be created by the end of June 2017 to allow for the trading of public assets

China Railway Signal & Communication Corp (CRSCC), the world’s largest builder of rail traffic control systems, raised US$1.4 billion after pricing its Hong Kong initial public offering at the bottom of expectations. The company priced the 1.75 billion new shares, or about 20 percent of the enlarged share capital, at HK$6.30 each, after marketing the deal in an indicative range of HK$6.30 to HK$8.00, Thomson Reuters publication IFR said on Saturday, citing people familiar with the plans. The deal will be Hong Kong’s second-largest IPO this year after the US$2 billion listing of Lenovo.

Bohai bids for aircraft leasing firm Avolon China’s Bohai Leasing Co Ltd has offered to buy Irish rival Avolon for US$2.55 billion, a 55 percent premium over its December initial public offering, the Irish firm said on Friday. Avolon said it was considering Bohai’s US$31 per share offer and a rival US$30 per share bid from an unidentified bidder and was in contact with both parties. Shares in U.S.-listed Avolon opened up 20 percent on Friday at US$29.8, before falling back to US$28, compared to a price of US$20 when it listed in December.

Tencent, Alibaba payment services under pressure China proposed new regulations on Friday that could force Internet companies such as Alibaba Group Holding Ltd, Tencent Holdings Ltd and Baidu Inc to offer their rivals’ online payment services as well as their own. China has the world’s largest Internet population and Beijing is trying to better regulate the country’s rapidly-changing Internet sector, drawing up rules for everything from censorship to cybersecurity and e-commerce. Companies which own payment systems can reap huge profits by charging transaction fees. The move could shift the balance of power for China’s online payment industry.

Securities accounts to be opened by app

C

hina plans to set up a statebacked credit guarantee firm to offset some of the risks faced by banks and spur lending where it is needed in a cooling economy, the cabinet said on Friday.

In its second meeting in the week, the State Council said it wants to quicken growth of the credit guarantee sector to ease funding for small companies and agricultural firms.

Credit guarantee firms help borrowers obtain bank loans by guaranteeing a part. As in other countries, small businesses in China have a hard time getting loans from banks as they are deemed to be riskier borrowers than their bigger peers.

The difficulties faced by small companies, which account for three quarters of the jobs in China, have become more pressing as a stuttering Chinese economy subjects the labour market to increased stress.

A state-backed credit guarantee firm will be created and similar companies that are supported by local governments will be prodded into providing basic comprehensive coverage, the cabinet said in a statement on the government website.

Government credit guarantee firms will be offered more tax

China Railway signals IPO price at bottom

Tenpay, the payment subsidiary of Tencent, will allow China’s retail investors to open securities accounts and trade stocks on its mobile application, the company announced. The arrangement will mean Chinese securities brokerages that agree to sign up on Tencent’s securities platform can open trading accounts for individuals by using facial recognition technology, thus saving investors the trouble of the face-to-face meetings usually required to open accounts. China Merchants Securities has committed to the scheme, and Tencent said it expects to register up to four domestic brokerages when the service is officially launched.

As in other countries, small businesses in China have a hard time getting loans from banks

breaks and no longer be required to be profitable to allow them to back riskier loans taken out by small firms and agricultural businesses, the cabinet said.

Separately, a trading platform will be created by the end of June 2017 to allow for the trading of public assets such as mineral rights and state-owned property rights.

China’s cabinet usually meets once a week, on Wednesdays, and no explanation was given for the second meeting this week.

Reuters

44 billion yuan to become tradable Lock-up shares worth about 43.7 billion yuan (US$7.1 billion) will become eligible for trade on China’s stock market this week, which will test the market’s resilience amid thin trading and continuing losses for most shares. The amount was less than half of the worth of shares unlocked in the past week, which surpassed 90 billion yuan. Around 2.3 billion shares from 26 companies will become tradable on the Shanghai and Shenzhen bourses between Aug. 3 and 7, according to Southwest Securities.

10 | Business Daily

August 3, 2015

Greater China

HK retail sales fall for fourth month In June sales of jewellery and watches fell 10.4 percent by value

KEY POINTS Jewellery sales down 10.4 pct in June, cosmetic falls 4.2 pct Top brands in talks with landlord to lower rent in Hong Kong Tourist arrivals fall in June - HK Tourism Board

H

ong Kong retail sales fell for the fourth straight month in June as a drop in tourist arrivals continued to hit sales of big-ticket items such as jewellery and watches.

Retail sale slipped 0.4 percent from a year earlier in value terms to HK$37 billion (US$4.8 billion) in June. That followed a revised 0.1 percent decline in May, 2.1 percent drop in April and 2.9 percent slide in March.

In volume terms, sales rose 4.4 percent in June, against

revised growth of 4.7 percent in May. The city's retailers have been hammered by slowing mainland tourist arrivals and high operating costs in rent and labour.

"The near-term performance of retail sales is still subject to uncertainties, depending on inbound tourism growth and any spill over to consumption sentiment from the recent stock market volatility," the government said in a statement.

For the first six months, the value of retail sales fell 1.6 percent from a year earlier, while volume was up 1.7 percent.

China's slowing economy and volatile stock markets have hit retail spending and tourism.

The Hong Kong Retail Management Association said the majority of its members forecast that the declining trend in retail sales will continue in the third quarter with no particularly favourable factors in sight.

Visitor numbers to Hong Kong fell 2.9 percent in June on the year, compared with year-earlier growth of 6.9 percent, Hong Kong Tourism Board data showed. Mainland tourist numbers in June slid 1.8 percent, against 7.8 percent growth a year earlier.

In June, sales of jewellery and watches fell 10.4 percent by value, compared to a 14.9 percent fall in May. Medicines and cosmetics declined 4.2 percent, against 1.9 percent fall in May. Last week, luxury retailer

ArcelorMittal sees Chinese steel demand shrinking Mainland consumption this year is expected to be around 730 million tonnes against its output of around 840 million tonnes Robert-Jan Bartunek and Pratima Desai

C

hina’s steel demand will shrink this year and lead to a flood of exports, ArcelorMittal said on Friday, highlighting the growth problems facing the world’s top consumer and producer of the construction material.

The company sees China’s steel demand including inventory changes sliding by up to 1 percent compared with a previous forecast of growth between half a percentage point and 1 percent.

In dollar terms, ArcelorMittal only

sells 1 percent of its steel to China compared to 46 percent to Europe, including Russia and Turkey. But Chinese exports will add to the glut of steel on the global market, where consumption is expected to total 1.6 billion tonnes and production 1.66 billion tonnes.

China’s consumption this year is expected at around 730 million against its output at around 840 million tonnes.

“In 2014 (Chinese exports) averaged about 90 million tones

and our expectation is they will average about 100 million this year,” ArcelorMittal’s Chief Executive Aditya Mittal said on a conference call.

Mittal added that the pace of exports from China in January was roughly 120 million tones on an annualised basis.

Only this week, China’s steel association said 43 percent of its members lost money in the first half of this year.

Chinese steel prices are at their lowest in more than 20 years.

Emperor Watch warned of turning in a loss for the first half as foot traffic dropped due to a strong Hong Kong dollar and unfavourable tourism environment after protracted political unrest last year.

The world's biggest jewellery retailer Chow Tai Fook Jewellery saw its retail sales fall in the April-to-June quarter, while cosmetic chain Sa Sa saw a dip in its turnover for the quarter ended June. .

Like rivals Burberry and Gucci's parent Kering, the world's No.1 luxury goods group LVMH said it was in talks with mall owners in Hong Kong to renegotiate prices amid falling sales.

Reuters

A composite price index of eight steel products compiled by the China Iron & Steel Association (CISA) showed prices are now nearly 35 percent lower than they were 21 years ago.

“The Chinese steel industry is really getting squeezed at this point in time,” Mittal said.

This could mean they cut production.

“That will be good for the global steel industry,” Mittal said, warning ArcelorMittal would fight any attempts by Chinese producers to dump subsidised steel on Europe.

“We are working actively with other peers to make sure there’s a fair trade environment in the markets in which we operate.”

European steel association Eurofer said Chinese exports to the EU rose 49 percent year-on-year over the first five months of 2015 due to massive and increasing overcapacity.

The European Commission opened an investigation into alleged dumping of cold-rolled flat steel by China and Russia in May and has imposed a series of tariffs to counter surging imports of various grades of steel, including stainless.

Reuters

Business Daily | 11

August 3, 2015

Asia

Pacific Rim free trade talks fall short of deal U.S. Trade Representative Michael Froman said resolved issues included protection for regional food specialties Ami Miyazaki and Krista Hughes

P

acific Rim trade ministers failed to clinch a deal on Friday to free up trade between a dozen nations after a dispute flared up over auto trade between Japan and North America, New Zealand dug in over dairy trade and no agreement was reached on monopoly periods for nextgeneration drugs.

Trade ministers from the 12 nations negotiating the Trans-Pacific Partnership, which would stretch from Japan to Chile and cover 40 percent of the world economy, fell just short of a deal at talks on the Hawaiian island of Maui but were confident an agreement was within reach.

Australian Trade Minister Andrew Robb said the problem lay with the "big four" economies of the United States, Canada, Japan and Mexico. "The sad thing is, 98 percent is concluded," he said.

Failure to seal the agreement is a setback for U.S. President Barack Obama, given the trade pact's stance as the economic arm of the administration's pivot to Asia and an opportunity to balance out China's influence in the region.

The talks, which drew about 650 negotiators, 150 journalists and hundreds of stakeholders, had been billed as the last chance to get a deal in time to pass the U.S. Congress this year, before 2016 presidential elections muddy the waters.

The TPP seeks to meld bilateral questions of market access for exports with one-size-fits-all standards on issues ranging from workers' rights to environmental protection and dispute settlement between governments and foreign investors.

Japan's Economy Minister Akira Amari said that TPP member nations could reach a deal if they meet one

For us it’s vital to have an agreement that balances public policy goals for intellectual property in medicines Andres Rebolledo, Chile’s vice minister for trade

Japan’s Economy Minister Akira Amari said that TPP member nations could reach a deal if they meet one more time

more time, and his understanding was that the ministers aim to get together again by the end of August.

Sticking points unchanged

Despite the progress made, issues pegged as sticking points going into the talks were still blocking a deal after four days of discussions.

New Zealand has said it will not back a deal that does not significantly open dairy markets, with an eye to the United States, Japan and Canada, as well as Mexico.

John Wilson, chairman of the world's largest dairy exporter, New Zealand dairy cooperative Fonterra, arrived to attend the

talks late on Thursday to press home the case.

Ministers also remained apart on how long to protect data used to develop biologic drugs.

U.S. drug makers want 12 years protection, but Australia has only five and Chile has none at all.

Japan and the United States had largely agreed on the rules of origin for cars, which determine when a product is designated as coming from within the free trade zone and therefore not subject to duties. But they ran into problems trying to get buy-in from Canada and Mexico, which are closely tied in to the U.S. auto industry.

Mexican Economy Minister Ildefonso Guajardo said Mexico was the world's fourth-biggest auto exporter and he made no apologies for standing up for his country.

Japanese automakers source many car parts from Thailand, which is not a member of the TPP, and strict rules would upset existing supply chains.

Reuters

India's Larsen criticises "unhurried" reform pace Prime minister unveiled a big splurge on public infrastructure, hoping it would soon be leveraged by private funds to fire up the economy Tommy Wilkes and Aman Shah

I

ndian industrial giant Larsen & Toubro Ltd criticised on Friday the “unhurried pace” of government reforms for weakening investment in its home market, as it reported a 37 percent slide in first-quarter profit.

Larsen, which makes everything from metro train lines to gas pipelines to parts for submarines, has been hoping for a rebound in India after several years of sluggish demand for its goods.

The Mumbai-based company, which is viewed as

a bellwether for the Indian economy, said in a statement that an improved fiscal deficit and lower interest rates should eventually support business, but that the investment climate remained subdued because of “global uncertainties and unhurried pace of reforms in India.”

“The speed and scale of the reforms that is required to push this trajectory into an investment-rich momentum is of a much higher order than what is currently on display,” chief financial officer, R. Shankar Raman,

told reporters.

Indian companies have looked to the government of Prime Minister Narendra Modi, who was elected last year, to kick-start the economy by clearing stalled projects and bureaucratic delays that had slowed the investment cycle.

Modi this year unveiled a big splurge on public infrastructure, hoping it would soon be leveraged by private funds to fire up the economy. But Larsen said private investment continued to be constrained by weak demand, low commodity prices

and spare capacity.

“The private sector today is in a very difficult situation ... It has soft demand, capacity underutilised, it has stretched balance sheets and generally, the supply chain is liquidity constrained,” said Shankar Raman.

He said orders from public sector companies had increased during the quarter as their balance sheets strengthened.

The company reported a net profit of 6 billion rupees (US$93.6 million) for the three months ended in June, lower than last year’s 9.67 billion

rupees, although those numbers were supported by gains from a series of divestments.

The company said revenue grew 7 percent year-on-year, led by its infrastructure and power businesses. Larsen maintained its guidance for growth in revenue and order inflow for the full-year at 15 percent.

Larsen also said on Friday that it was proposing to sell up to 15 percent of the shares it holds in Larsen & Toubro Infotech Ltd., its information technology services unit.

Reuters

12 | Business Daily

August 3, 2015

Asia

South Korea July exports fall Asian export economies are suffering from China’s slowdown Christine Kim and Choonsik Yoo

KEY POINTS Exports fall for 7th month July exports -3.3 pct y/y (Reuters poll: -5.0 pct) July imports -15.3 pct y/y (Reuters poll: -15.0 pct) Slowing China, fresh commodities selloff darken outlook

S

outh Korean exports extended their losing streak to a seventh straight month in July, pointing to little respite in sight for Asia’s trade-reliant economies as Chinese demand cools and global commodity prices take a fresh tumble.

Exports fell 3.3 percent on-year to US$46.61 billion in July while imports slumped 15.3 percent to US$38.85 billion, generating a trade surplus of US$7.76 billion in July, trade ministry data showed on Saturday.

It was slightly better than a median 5.0 percent drop forecast in a Reuters survey but still worse than a 2.4 percent fall in June. Shipments to China and the European Union fell and growth tailed off in exports to the United States.

The trade ministry said in a statement that exports in volume terms rose sharply in July for a second straight month over a year earlier in a rare bright sign, but analysts said the global environment was still getting worse.

“China is going through a turbulent period both on the financial markets and in economic growth, and the recent fall in commodities prices will cut demand from commodities-rich countries,” said Park Sang-hyun, chief economist at HI Investment & Securities.

China is South Korea’s biggest export market, taking around onequarter of its shipments abroad.

South Korean exports to China fell 6.4 percent in July from a year

earlier, the sharpest decline in five months.

The Thomson Reuters/CRB commodity index fell 10.8 percent in July on concerns about the outlook for the Chinese and global economies, marking the worst monthly drop since September 2011.

The average export value per working day was US$1.86 billion in July, less than a revised US$1.94 billion in June, Reuters calculations showed.

Asia’s fourth-largest economy expanded just 0.3 percent in the second quarter, data showed in late July. The government aims for over 1 percent growth in the following quarters this year, but analysts say it will be tough for growth to pick up at a rapid pace.

Data on Friday showed Taiwan’s economic growth slowed more sharply than expected to a threeyear low in the second quarter, hurt by a slump in demand for its hi-tech products.

Top Japanese banks beat profit estimates Japanese banks are typically conservative in their forecasts, holding off upward revisions until well into the year Taiga Uranaka

J

apan’s top banks posted on Friday higher firstquarter profits that exceeded expectations as strong domestic equity markets boosted their brokerage businesses and drove gains from stock holdings.

Their overseas lending businesses also contributed to profit growth. But signs are emerging of a slowdown in loan demand in Asia as the region has started to feel the pain of China’s slowing economy.

Mitsubishi UFJ Financial Group Inc (MUFG), Japan’s largest lender by assets, said net profit rose 16 percent to

277.8 billion yen (US$2.24 billion) for the April-June period. Two analysts had an average profit estimate of 270.3 billion yen for the quarter, according to Thomson Reuters data.

MUFG also said on Friday it could sell off shareholdings held as investments in domestic companies if their returns don’t meet a newly drawn up yardstick.

Japanese lenders saw a jump in profits from their stock brokerage businesses during April-June, as domestic stocks rallied during the quarter, with the benchmark Nikkei index rising to its highest level

since 1996 in June.

The lenders also booked bigger gains from their own stock holdings as they were able to sell stocks at a profit.

The domestic lending business, though, remained tepid. Recent data suggests a pickup in Japan’s corporate spending. But the Bank of Japan’s massive stimulus measures are pumping cheap money into the economy, squeezing the interest margins of the banks.

The top banks saw overseas loans grow during the quarter. Mizuho Financial Group Inc., Japan’s secondlargest lender, said the pace

Reuters

of growth in its overseas loans was faster than the year earlier period. The bank’s overseas loans grew to US$182.1 billion during April-June, up by US$20.6 billion from the year earlier.

But China’s weakening economy could cast a shadow on the lending business in Asia.

Sumitomo Mitsui Financial Group Inc., the third-biggest lender, and the only major bank to give a regional breakdown of loans, said its outstanding loans in Asia outside of Japan fell by US$3 billion from a year earlier to US$73 billion in the latest quarter, while overall overseas loans edged up.

“In Asia, competition among banks is intensifying and interest margins are getting smaller. We try not to hurt our margins by being selective about loans,” a senior SMFG official told Reuters last week.

All the three banks kept their full-year net profit forecasts issued in May, which are below analysts’ estimates.

Reuters

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Business Daily | 13

August 3, 2015

Asia Thai June consumption index rises

Indonesia’s inflation sees year-on-year rise

Finance Ministry said exports could fall as much as 4.0 percent this year although it expected a weaker baht to boost shipments in the final months

Indonesia’s central bank, Bank Indonesia, projects the country’s inflation to accelerate by 7.13 percent in July on year from 7.12 percent in June. That allows the lender to keep avoiding loosening policy at its upcoming meeting in the beginning of August. The central bank has kept its benchmark interest rate at 7.5 percent since February, in part due to accelerating consumer price index as the bank expects the inflation to end by 4 percent to 5 percent at the year end.

The government’s policy to cut subsidized fuel last year has triggered hike of transport costs and prices of products.

Orathai Sriring and Kitiphong Thaichareon

T

hailand, which reported poor June economic data early this week, had rises in private consumption and investment during the month and will report growth for April-June from the previous quarter, the central bank said on Friday.

Data from the Bank of Thailand (BOT) indicated that Southeast Asia’s second-largest economy is still struggling to raise growth, though there were some positive indicators.

The BOT’s private consumption index for June rose 0.9 percent from May, the biggest monthly increase since before May 2014, when the army seized power in a bid to end political unrest.

Some private economists have suggested there could be a contraction from the first three months of the year, but the BOT said there was growth during the quarter.

However, the central bank acknowledged that exports - a key growth engine - could contract more in 2015 than the 1.5 percent it has projected.

Any reduction in the export forecast “may affect GDP a little”, BOT senior director Roong Mallikamas told reporters. The central bank in June

cut its full-year GDP growth forecast to 3.0 percent from 3.8 percent.

Low commodity prices

Domestic demand has been soft amid record-high household debt, while low commodity prices have hurt farmers’ earnings. The junta’s anti-corruption campaign has slowed government spending, which economists say needs to be higher to lift growth.

Charnon Boonnuch, economist at Tisco Securities, said private consumption will improve slightly, but it will not be significant enough for the slowing economy as purchasing power remains weak while household debt shows no clear signs of abating.

The central bank’s monetary policy committee left the policy rate unchanged at 1.50 percent in June after surprisingly cutting at two meetings to try to spur growth. It next reviews policy on Aug. 5.

Recent poor economic data has raised speculation of more interest rate cuts. But Finance Minister Sommai Phasee said this week that easing monetary policy now wouldn’t help the economy given weak private investment and demand.

This month, credit rating agency Fitch said the capital needs of state-run banks were likely to increase substantially each year until 2018/19 Manoj Kumar

P

C.bank June consumption index +0.9 pct m/m, investment +0.2 pct

More firms established in Vietnam

There will be q/q growth in the second quarter - c.bank Thailand had a current account surplus of $890 mln in June Q2 GDP data to be reported Aug 17

to inject an extra US$1.9 billion if parliament approves. Later, it will seek an additional 50 billion rupees for capital infusion into banks.

The country’s top six banks State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI will get US$1.6 billion, the ministry said.

That represents 40 percent of the total US$4 billion that the government plans to spend this fiscal year, it added.

All banks will get financial support from the government, 20 percent of the fund allocation will be tied to performance.

Capital needs

Indian state lenders account for more than 70 percent of all outstanding bank loans, and they need support to meet Basel III regulatory requirements.

The finance ministry estimates that banks will have to raise about US$17 billion from the market over

Vietnam saw the establishment of 52,004 enterprises with total registered capital of 321.3 trillion Vietnamese dong (US$14.28 billion) in the first seven months of this year, gaining respective year-on- year rises of 22.7 percent and 22.4 percent, the country’s General Statistics Office said Saturday. The newly-established enterprises are expected to create 743,400 jobs, increasing 18.2 percent against the same period last year. Between January and July, 12,749 operational enterprises raised their registered capital by a total of 365,200 billion Vietnamese dong (US$16.23 billion).

E&Y Japan to probe audit of Toshiba

Reuters

India plans to give US$11 bln lifeline to ailing state banks

lanning to inject US$11 billion of capital into debt-laden state banks over the next four years, India’s Finance Minister Arun Jaitley on Friday sought parliament’s approval to boost budget spending

by US$4 billion in the current fiscal year.

High levels of non-performing assets in state-run banks have made it hard for the government of Prime Minister Narendra Modi to revive investment or accelerate growth in Asia’s third largest economy.

After initial hesitation, Jaitley agreed with a plea by the Reserve Bank of India to provide more capital to banks.

Jaitley plans to provide 250 billion rupees (US$3.90 billion) each in the current and next fiscal year, while 200 billion rupees would be provided during 2017/18 and 2018/19, the finance ministry said in a statement.

Having allocated US$1.24 billion for the state banks in its February budget, the finance ministry aims

KEY POINTS

four years to meet total funding requirements of about US$28 billion beyond projected profits.

Junior finance minister Jayant Sinha told reporters the additional capital infusion for the banks would help meet regulatory requirements as well as growth needs. The government could provide more capital to the banks, if needed.

“We have a robust recapitalisation plan in place,” he said.

State-run banks have amassed bad loans at a faster pace than their privately owned peers, raising concerns about their ability to meet tougher global regulatory capital requirements.

While there will be relief at the moves to recapitalise India’s banks, U.R. Bhatt, managing director at investment firm Dalton Capital in Mumbai, said there would be some disappointment that the capital infusion was not bigger.

“Most of these public sector banks are not even able to grow their balance sheet because of lack of capital... to grow their way out of trouble they need capital,” Bhatt said.

Last month Morgan Stanley said the government would need to inject US$15 billion across all state banks “urgently” to achieve a common equity Tier-1 ratio of around 10 percent.

It was not immediately clear where the extra money would come from.

Sinha said higher tax collections and savings from the fall in international crude oil prices put the government in a “comfortable position” to meet its fiscal deficit target.

The government has a budgeted fiscal deficit target of 3.9 percent of gross domestic product this fiscal year.

Its original spending target was 17.77 trillion rupees (US$277 billion).

Reuters

The Japanese affiliate of Ernst & Young LLC has launched an in-house investigation into its audit of Toshiba Corp in the wake of the electronics maker’s US$1.2 billion accounting scandal, a person with knowledge of the matter said. Ernst & Young ShinNihon LLC has established a team of about 20 executives to investigate whether there were any problems with how it conducted its audits of Toshiba, the person said. Last month an external panel of lawyers and accountants hired to probe Toshiba’s accounts found the company had inflated profits by 152 billion yen.

Extra time for overnight FX auction in Indonesia Indonesia’s central bank extended the window of its auction for overnight deposits in foreign currency to optimise banks’ foreign exchange liquidity management, Bank Indonesia said on Friday. The duration was stretched to 2-4 p.m. from 2-3 p.m. every working day, according to a statement by the central bank. “(The extension) is to add more alternatives to banks’ forex liquidity deposit after daily transactions so that banks can optimise their forex liquidity management,” the statement added. Indonesia’s rupiah is one of emerging Asia’s worst-performing currency.

ICICI Bank sees slower rate of new troubled loans India’s ICICI Bank Ltd said on Friday it saw the rate of new troubled loans slowing as the nation’s biggest private sector lender by assets reported a better-than-expected quarterly profit. A drop in the bad-loan ratio for the three months to June from a quarter earlier helped send the bank’s stock as much as 6.2 percent higher. Indian banks have seen their bad loans almost double in the past three years as a weak economy limited companies’ ability to service debt. While the dominant state-run lenders account for the majority of the bad loans.

14 | Business Daily

August 3, 2015

International Greece may seek up to 24 billion euros The country may seek such amount in a first tranche of bailout aid from international lenders in August to prop up its banks and repay debts falling due at the ECB, a pro-government Greek newspaper said in its early editions. Athens is now in talks with the European Commission and the International Monetary Fund to secure up to 86 billion euros (US$94.48 billion) in bailout aid. It will be its third bailout since 2010. Avgi newspaper, which is close to the leftist Syriza government, said Greek authorities expected to conclude talks with lenders by mid-August.

Kenya faces ‘worse than ever’ corruption Paying bribes to police and bureaucrats remains routine for ordinary Kenyans

Brazil says it has leniency deal with builder Antitrust regulator CADE and federal prosecutors signed a leniency deal on Friday with engineering company Camargo Correa aimed at obtaining evidence of alleged price-fixing of contracts to build a nuclear power plant. Camargo Correa was the first of Brazil’s construction firms to have its top executives convicted of corruption and money laundering in the massive kickback scandal involving over-priced contracts with state oil firm Petroleo Brasileiro SA. The bribery investigation dubbed “Operation Car Wash” spread beyond Petrobras to the electricity sector on Tuesday with the arrest of top executives at Eletronuclear firm.

Goldman tentatively agrees to settle lawsuit Goldman Sachs Group Inc. has tentatively agreed to pay about US$270 million to settle a lawsuit by investors, according to a source familiar with the matter. Pension funds led by NECA-IBEW Health & Welfare Fund of Illinois accused the bank of misleading investors about the risks associated with mortgage securities offerings.

NECA-IBEW, an electrical workers’ pension fund, owned some mortgage-backed certificates underwritten by Goldman.

Goldman and its rivals have faced many lawsuits by investors seeking to recoup losses on mortgage securities.

Ukraine says new IMF credit will stimulate growth Ukraine on Friday hailed the issue of US$1.7 billion of new aid from the International Monetary Fund, saying it would encourage growth in the economy and reassure financial markets abroad and at home. In a statement, Kiev’s Finance Ministry said the disbursement of the second tranche of aid under a four-year Extended Fund Facility (EFF) program would be used to replenish Ukraine’s National Bank reserves. The IMF approved the release of the new credit after apparently endorsing the passage through Ukraine’s parliament of crucial laws reforming the gas sector, strengthening the banking system and fighting corruption.

Georgia’s economy slows Economic growth slowed to 2.6 percent in the first half of this year compared with 6 percent in the same period last year, the National Statistics service said on Friday.

Gross domestic product grew 4.7 percent last year, missing the government’s initial forecast of 6 percent. The former Soviet republic’s economy is suffering the side-effects of a plunge in the Russian rouble.

Georgia, which is traversed by pipelines carrying Caspian oil and gas from Azerbaijan to Europe, has also suffered a decline in exports and remittances and the government deficit is rising.

The comments of the activist came after US President Barack Obama’s visit to Kenya when he spoke of “the cancer of corruption”.

At the picture. Obama gestures as he delivers a speech at Moi International Sports Complex in Nairobi

C

orruption in Kenya is sliding out of control, veteran anticorruption activist and whistleblower John Githongo has warned in an interview following a scathing audit of government finances.

The publication of an official audit found just one percent of Kenya government spending and a quarter of the entire US$16 billion budget was properly accounted for.

“This is the most rapacious administration that we have ever had,” said Githongo. “Corruption in Kenya has deepened and widened,” since President Uhuru Kenyatta came to power in 2013, he claimed.

Apart from the Auditor-General’s report, a series of scandals have emerged in the media concerning government procurement and land

grabbing, perhaps the oldest trick in Kenya’s corruption playbook.

The country is slipping down Transparency International’s annual corruption index and is now 145th out of 174 nations, down from 136 in 2013.

With media and civil society also under pressure the 50-year-old corruption fighter warned of “the speed with which democratic space is shrinking”.

The government insists it is battling graft and Kenyatta has spoken out clearly and often against corruption, including during Obama’s visit. Earlier this year a handful of ministers and other officials were suspended, but Githongo said this was “lip service”.

Paying bribes to police and bureaucrats remains routine for ordinary Kenyans, but Githongo said the current level of corruption outstrips

anything he has seen in a more than 20-year career battling graft.

In 2002 Githongo was appointed ‘anti-corruption czar’ by then president Mwai Kibaki, but three years later he fled for his life after uncovering a US$770m security procurement scam known as Anglo Leasing.

Recently, parliament has questioned the tendering behind the new US$13.5 billion Mombasa-Nairobi railway line, a huge infrastructure project seen as essential to Kenya’s economic growth.

Githongo said there are suspicions the railway was “from the very beginning... engineered as a corrupt project”, while the Auditor-General had exposed “an environment of unprecedented permissiveness” for corruption.

AFP

Egypt says over half of summit promises turned into projects Planning Minister Ashraf al-Arabi predicted less than 3 percent growth in the fourth quarter of the 2014-15 financial year which ended in June, and 4.2 percent growth for the entire year Ehab Farouk

E

gypt has turned more than half of initial agreements signed at a March investor conference into investment projects, the planning minister said, as Cairo tries to regenerate an economy battered by years of turmoil.

The government said it had signed deals worth US$36 billion at an international investment conference in Sharm El Sheikh, and that the total worth of deals and memorandums of understanding (MoU) signed was US$60 billion, in addition to US$12.5 billion pledged by Gulf Arab allies.

“Over 50 percent of the MoUs we signed in the Sharm El Sheikh summit have turned into deals and work has started on them,” Planning Minister Ashraf al-Arabi said in a Reuters interview on Saturday.

Egypt has signed exploration deals worth around US$21 billion with global oil companies such as BP, BG and Italy’s Eni since the conference.

It also signed a deal with Germany’s Siemens worth US$9 billion to supply gas and wind power plants to boost Egypt’s electricity generation by 50 percent.

The conference was an important test of Egypt’s reform agenda under President Abdel Fattah al-Sisi, a former army chief who wants to remove investment barriers to help turn around the ailing economy of the Arab world’s most populous country.

Sisi’s crackdown on Islamists and secular opponents has drawn fire from human rights groups. But he has won praise from foreign investors by cutting fuel subsidies that imposed a heavy burden on the state and by implementing other reforms.

He is also focused on state-driven mega projects, such as Egypt’s New Suez Canal, a project he sees as a symbol of national pride and a major chance to stimulate an economy suffering double-digit unemployment.

Egypt sees unemployment falling to below 12 percent in the financial year 2015-16, and less than 10 percent by 2019, Arabi said on Saturday. It stood at 13.3 percent in the financial year 2014-15 before falling to 12.8 percent in March.

The new canal is set to be inaugurated at a lavish ceremony on August 6.

The first cargo ships passed through in a test-run last week.

The army led work 12 months ago on the US$8-billion canal, flanking the existing, 145-year-old waterway and part of a larger undertaking to expand trade along the fastest shipping route between Europe and Asia.

The existing Suez Canal is a vital source of hard currency for Egypt, particularly since the 2011 uprising that scared off tourists and foreign investment. It is projected to bring in US$5.4 billion in the financial year 2014-15 and US$5.5 billion in 2015-16, Arabi said.

The New Suez Canal, which will allow two-way traffic of larger ships, is supposed to increase revenues by 2023 to US$15 billion.

The planning minister also said he did not expect more grants from Gulf Arab allies in the current financial year, adding that he instead expected fuel aid.

Business Daily | 15

August 3, 2015

Opinion Business

wires

Can the Euro be repaired?

Leading reports from Asia’s best business newspapers

Jean Pisani-Ferry

Professor at the Hertie School of Governance in Berlin, and currently serves as Commissioner-General for Policy Planning for the French government

THE KOREA HERALD South Korea’s top 10 business groups’ exports fell 4.6 percent on-year in 2014, data showed yesterday, with only three experiencing an increase in overseas sales. The combined revenue from exports for the conglomerates came to 546.4 trillion won (US$466 billion) last year, compared to 573.1 trillion won posted in 2013, the data compiled by industry tracker Chaebul. com showed. The overseas market was responsible for 51.1 percent of the groups’ combined revenue in 2014, down 2.2 percentage points from 53.3 percent posted a year earlier.

PHILSTAR The Philippine economy is expected to perform better in 2016 than this year as government continues to address bottlenecks in public spending, according to an official of the National Economic and Development Authority (NEDA).

The slower-than-programmed pace of public spending, particularly the decline in public construction, is the most immediate and biggest challenge of the Philippine economy, NEDA deputy director-general Emmanuel Esguerra told The STAR. The issue in public spending resulted in slower growth of 5.2 percent in the first quarter of 2015 from 5.6 percent in the same period last year.

THE NEW ZEALAND HERALD Trade Minister Tim Groser insists the government will win the political “war” on the Trans-Pacific Partnership deal once the facts and figures can be laid out on the table. Talks in Hawaii have ended without a finalised agreement, and Mr Groser said the nations involved were down to three final issues, and will meet again soon to iron those out.

Mr Groser said he believed reasonable people were being “whipped up into a frenzy” over issues like pharmaceutical costs and investor-state dispute settlement, by people who oppose the deal for ideological reasons

THE TIMES OF INDIA Country’s largest carmaker Maruti Suzuki India (MSI) on Saturday reported 20.1 per cent rise in total sales in July.

The company said its domestic sales increased 22.5 per cent last month to 110,405 units, as against 90,093 units in July last year. Sales of mini segment cars, including Alto and WagonR, increased 31.3 per cent to 37,752 units compared with 28,759 units in the year-ago period, MSI said in a statement.

Sales of the compact segment comprising Swift, Estilo, Ritz, Dzire rose 13.9 per cent to 48,381 units in July.

W

hen Wolfgang S c h ä u b l e , Germany’s finance minister, recently tabled the option of a Greek exit from the euro, he wanted to signal that no member could abstain from the monetary union’s strict disciplines. In fact, his initiative triggered a much broader discussion of the principles underpinning the euro, its governance, and the very rationale for its existence.

Only a fortnight before Schäuble’s proposal, Europe’s leaders had barely paid attention to a report on the euro’s future prepared by European Commission President JeanClaude Juncker and his colleagues from the other European Union institutions.

But the new dispute over Greece has convinced many policymakers of the necessity to return to the drawing board.

Meanwhile, citizens wonder why they share this currency, whether it makes sense, and if agreement can be reached on its future.

For currencies, as for countries, founding myths matter. The conventional wisdom is that the euro was the political price Germany paid for French acquiescence to its reunification. In fact, German reunification only provided the final impetus for a project conceived in the 1980s to resolve a longstanding dilemma.

European governments were both strongly averse to floating exchange rates, which they assumed would be incompatible with a single market, and unwilling to perpetuate a Bundesbankdominated monetary regime.

A truly European currency built on German principles appeared to be the best way forward.

In retrospect, German reunification was more a curse than a blessing. When exchange rates were locked in 1999, Germany’s was overvalued, and its economy was struggling; France’s was undervalued, and its economy was booming.

During the ensuing decade, imbalances slowly grew between a resurgent Germany and countries where low interest rates had triggered credit booms. And when the global financial crisis erupted in 2008, conditions were ripe for a perfect storm.

No one can say how Europe would have evolved without the euro. Would the fixedexchange-rate system have endured or collapsed? Would the Deutschemark have been overvalued? Would states have reintroduced trade barriers, ending the single market?

Would a real-estate bubble have developed in Spain? Would governments have reformed more or less?

Establishing a counterfactual baseline against which the euro’s impact could be assessed is impossible. But that is no excuse for complacency. Over the last 15 years, the eurozone’s economic performance has been disappointing, and its policy system must answer for this.

What really matters is whether a common European currency still makes sense for the future.

This question is often evaded, because the cost of exiting is deemed too high to consider it (and could be higher still if the break-up takes place in a crisis and sharpens reciprocal acrimony among participating countries). Moreover, pulling the plug on the euro could unleash the dark forces of nationalism and protectionism.

But, as Oxford’s Kevin O’Rourke recently argued, this is hardly a sufficient argument. It is the logical equivalent of advising a couple to remain married because divorce is too expensive.

So does the euro still make sense? It was expected to deliver three economic benefits. Monetary union, it was assumed, would foster economic integration, bolstering Europe’s long-term growth.

Instead, intra-eurozone trade and investment have increased

What really matters is whether a common European currency still makes sense for the future

only modestly, and growth potential has actually weakened.

This is partly because national governments, rather than building on currency unification to turn the eurozone into an economic powerhouse, tried to hang onto their remaining power. This was perhaps logical politically, but it made no economic sense: Europe’s huge domestic market is one of its main assets, and opportunities to strengthen it should not be squandered.

Second, it was hoped that the euro would become a major international currency (particularly given how few countries are equipped with the necessary legal, market, and policy institutions). And, according to recent ECB statistics, this hope has

been largely fulfilled. With international use of the euro behind only the US dollar, this achievement can help Europe to continue shaping the global economic order, rather than sliding into irrelevance.

Third, it was (somewhat naively) believed that the institutions underpinning the euro would improve the overall quality of economic policy, as though Europe-wide policies would automatically be better than national ones. The acid test came in the aftermath of the 2008 global financial crisis: because it overestimated the fiscal dimension of the crisis and underestimated its financial dimension, the eurozone performed worse than the United States and the United Kingdom.

If the euro is to create prosperity, further reforms of the policy system are therefore needed.

But an agenda can be designed and implemented only if there is a broad consensus on the nature of the problem. And, as the on-going dispute over Greece illustrates, agreement remains elusive: Participating countries have developed contradictory analyses of the causes of the debt crisis, from which they derive contradictory prescriptions.

Richard Cooper of Harvard University once observed that in the early days of international public health cooperation, the fight against global diseases was hampered by countries’ adherence to different models of contagion. They all favoured joint action, but they could not agree on a plan, because they disagreed on how epidemics crossed borders.

That is the problem the eurozone faces today. Fortunately, it is not unsolvable, as significant reforms like the creation of the European Stability Mechanism and the launch of banking union show. Disagreements also did not prevent the ECB from acting boldly, which illustrates that the governance of institutions does matter. But the fact that reforms and actions were undertaken only lately, and under the pressure of acute crisis, is a sobering reminder of the difficulty of reaching consensus.

Europe cannot afford to procrastinate and pretend.

Either the eurozone’s members find agreement on an agenda of governance and political reforms that will turn the currency union into an engine of prosperity, or they will stumble repeatedly from dispute to crisis, until citizens lose patience or markets lose trust.

Clarity is a prerequisite of serious discussion and ambitious reform. Each of the major participants now has an obligation to define what it regards as indispensable, what it considers unacceptable, and what it is ready to give in exchange for what it wants.

Project Syndicate

16 | Business Daily

August 3, 2015

Closing Beijing restricts drone, high-performance computer exports

Iran sees oil output up 1 mln bpd after curbs end

Chinese tech companies will have to get official approval before exporting powerful drones or computers from August 15, as the government fears they could compromise national security.

Under the new rule announced by the Ministry of Commerce (MOC) and the General Administration of Customs, companies making certain drones and computers specified on the MOC website will have to register with commerce authorities and get a license before exporting them. The items including drones with a flight duration longer than one hour. The companies will need to provide copies of export contracts, technical specifications and who will use them.

Iran expects to raise oil output by 500,000 barrels per day (bpd) as soon as sanctions are lifted and by a million bpd within months, Oil Minister Bijan Zanganeh said in remarks broadcast yesterday. “We are already doing marketing, and within a day after the lifting of sanctions we will raise (production) by 500,000 barrels per day,” Zanganeh said. He said Iran’s crude production had fallen about one million bpd from about four million bpd under the sanctions, state television reported. “Within the next few months, we will return to the level of 3.8-3.9 million barrels,” Zanganeh added.

Former teenage soldier hatches millions from Chinese egg futures Just like China’s stock markets, the country’s futures exchanges are dominated by retail investors, who are more flighty and likely to borrow from shadow lenders that demand high levels of interest

A

decade ago Zhang Xiongjie was a teenage infantryman patrolling China’s bleak border with North Korea.

Now he stays in swanky hotels and drives a Mercedes Benz CLS - a remarkable ragsto-riches journey achieved in part by dominating one of the most obscure corners of China’s unruly financial markets: egg futures.

The story of how he earned so much money, so fast - 600 million yuan (US$96.63 million), he says, in 2014 - highlights the casino-like nature of China’s nascent futures markets, and the vulnerability of such markets to a destabilizing rout.

Zhang trades on his own account and Reuters was not able to independently verify his earnings.

The opportunity Zhang saw was very specific: to borrow a lot of money quickly to produce high profits in a poorly understood market.

“The leverage is high in futures,” Zhang said, who is spoken of as a celebrity by

other Chinese traders.

But the high concentration of leveraged retail investors chasing overnight fortunes is a growing concern for China’s regulators after recent turmoil in the country’s stock market.

The speed of a stocks slide that began in mid-June was exacerbated by the snowball effect of investors who had used borrowed funds to buy shares being forced to sell to meet margin calls.

Zhang, whose trading now ranges well beyond egg futures, himself has already experienced massive busts, saying he lost as much as 400

Australia’s Prime Minister ally Bishop resigns

P

million yuan in two days on bad calls last year.

Back to the futures

Beijing has flitted back and forth between allowing futures - a financial instrument obliging the purchase of an asset at a certain date - the space to grow, and reining in excesses.

In 1998, China closed 14 futures exchanges, citing “illegal engagement in overseas futures,” “market manipulation” and “poor regulation,” as reasons, according to an official government website.

Us poor people, when we are born, we’re impoverished and uncultured.

If we have such opportunity, why would we not take it?

Zhang Xiongjie, Investor

But in a bid to open up its markets, China plans to allow trading in more asset classes, aiming to launch crude oil futures around September.

It was Beijing’s decision to launch the egg futures market in November 2013 that allowed Zhang, from a poor family in

the south-eastern port city of Ningbo, to earn his reputation as the trader who dominated the exchange last year.

“If I let it fall, it fell, if I wanted it to rise, it rose,” said Zhang, who at the time worked in a specialist consultancy in Wuhan, which collected daily information from across the country on eggs.

Many agricultural commodities trade on futures markets, which developed to allow farmers to hedge against fluctuating prices, although China is currently the only country that trades egg futures, according to the Dalian Commodity Exchange.

Last year, the volume of egg futures traded increased 1,703.3 percent from 2013, making it the 9th largest futures market in the world by volume, according to figures from the Futures Industry Association.

At its peak last year, 1.5 million metric tones of eggs were traded in one day according to the Dalian Commodities Exchange.

ASEAN, China discuss ‘hotline’ for sea dispute

Serious illness insurance to be extended in China

B

T

rime Minister Tony Abbott suffered a political blow when key ally Bronwyn Bishop resigned as speaker of Australia’s lower house of parliament amid a scandal over her travel expenses.

“I have today written to the Governor-General and tendered my resignation as speaker of the House of Representatives effective immediately,” Bishop, 72, said in a statement yesterday. “I have not taken this decision lightly, however it is because of my love and respect for the institution of the parliament and the Australian people that I have resigned.”

Bishop has been under pressure after the Department of Finance began probing her use of public funds for a A$5,000 (US$3,654) helicopter ride to attend a Liberal Party fundraiser. Bishop said last month she would repay the money and has apologized for using the funds for the flight. Abbott announced yesterday a review of entitlements for all members of parliament.

The resignation of Bishop will be seen as a political scalp for the opposition Labor Party, which criticized her for being partisan in her role as enforcer of rules and procedures in parliament.

oth parts are discussing setting up a “hotline” in case of an emergency regarding the territorial dispute over the South China Sea, a Philippine official said yesterday.

The proposed hotline was discussed during a meeting of senior diplomats from China and ASEAN, the Association of Southeast Asian Nations, in Tianjin last week, said foreign department spokesman Charles Jose.

Jose, whose country is one of the most vocal in the simmering dispute over the flashpoint waters, said the matter had been referred back to a joint working group and was still far from fruition.

“Although this was agreed in principle as an early harvest measure, it needs thorough discussion,” he said in a statement to AFP. He stressed the hotline would not be unveiled at an upcoming meeting of ASEAN foreign ministers.

The Philippines and fellow ASEAN members Brunei, Malaysia and Vietnam have competing claims over the South China Sea along with China and Taiwan. The dispute has grown increasingly tense in recent years with the Philippines at the forefront of accusing China of “bullying”.

Bloomberg News

AFP

Reuters

he Chinese government has proposed extending serious illness insurance to cover more of the population.

The proposal by the State Council, China’s cabinet, yesterday said the insurance should benefit all urban and rural residents covered in the nation’s basic health insurance by the end of 2015.

Serious illness insurance, so far used only on a trial basis, reimburses patients when their medical bills far exceed basic medical insurance.

It is intended to help prevent people being dragged into poverty by medical costs.

According to official statistics, the number of Chinese covered by the scheme has surpassed 700 million.

The system should be integrated with the entire healthcare infrastructure by 2017, connecting with other programs like medical assistance system, which was established in 2008 to allocate money to help disadvantaged people purchase medical insurance and to subsidize healthcare not included in insurance programs.

As of April, serious illness insurance pilot programs have been set up in 31 provinces, municipalities and autonomous regions, 16 of which have all their residents covered by the insurance.

Xinhua