Macau Business Daily August 13, 2015

MOP 6.00

THS Honolulu to redevelop land next to Chong Sai Pharmacy

Closing editor: Joanne Kuai

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Melco prepares contingency plan for Studio City Page 6

Pandora assumes distribution for Macau and Singapore Page 7

Year IV

Number 856 Thursday August 13, 2015

Publisher: Paulo A. Azevedo

Luxury retail sales plunge, Hong Kong landlords adopting softer tone Page 7

Mid-term Gaming Review Imminent The much awaited ‘mid-term gaming review’. The gov’t is expected to have its first draft ready by end-September, says CE Chui Sai On. Renewal of the current gaming concessions will revolve around 8 key aspects. Affecting the community, SMEs, and the fulfilment of contractual and social responsibilities. “By the end of the year we expect to run a public consultation”, he said. Predicting future gaming revenues will run to some MOP200 billion per year Page

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Yuan Devaluation Chinese currency continues its downward trajectory. Reaching almost 4 pct devaluation.

Mismatching economic results support the theory that Beijing’s action is necessary. And that depreciation might be prolonged

Behind the facade

The public are behind him, he says. Alexis Tam claims most of the community polled agree to rebuilding Hotel Estroil. Controversy has erupted since the revamp project was suggested. With its cultural heritage being debated.

Public opinion will be invited for a further month

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Chain reaction Yuan devaluation. One effect will be on the local yuan-denominated deposit business. In the short term, clients are expected to convert their yuan into other currencies. Especially if their fixed deposits are maturing soon

www.macaubusinessdaily.com

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HSI - Movers

Land plots

August 12

Name

%Day

Li & Fung Ltd

+2.79

CLP Holdings Ltd

+1.30

Power Assets Holding

+0.62

Hong Kong & China Ga

+0.25

Link REIT/The

+0.23

Galaxy Entertainment

-4.77

Sands China Ltd

-5.21

Gaming

BOC Hong Kong Holdin

-7.78

Palace Revolution

China Resources Land

-8.00

China Overseas Land &

-8.32

Chief Executive Chui Sai On was adamant. No new urban reclaimed areas will be swapped to pay off the gov’t land debt. He promised the Legislative Assembly increased transparency in dealing with the issue. Citing the decision to put the Iec Long Firecracker factory land case in the hands of the CCAC

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Source: Bloomberg

Gaming revenue down 40.3 pct Y-o-Y to HK$26 bln in H1. Casino operator SJM CEO Ambrose So speaks of ‘controlling costs to the extent possible’. The company remains confident that Lisboa Palace is on target for completion in 2017. With an inferred uplift in fortunes

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August 13, 2015

Macau António José Félix Pontes retires from AMCM António José Félix Pontes is retiring from the positions of Executive Director and Insurance Commissioner of the Monetary Authority of Macau (AMCM) this Sunday, he has announced in a letter to Business Daily. Mr. Pontes, however, will advise the Board of Directors of AMCM on certain matters from 17 August on and will continue to act on behalf of the Authority as Chairman of the Board of the Macau Institute of Finance Services. He has been working for the former Issuing Institute of Macau since1980 and then at AMCM since 1989.

AMCM board of directors welcomes three new members Secretary for Economy and Finance Lionel Leong Vai Tac has appointed three new members for the Board of Directors of the Monetary Authority of Macau (AMCM), namely Chan Sau San, Lei Ho Ian and Maria Luisa Man, the Official Gazette has announced. The three new members are all incumbent directors of the Authority’s Research and Statistics department, Finance and Human Resources department, and Insurance Supervision department, respectively.

The terms of the three officials will all start this Sunday, and last for one year.

Gov’t appoints Cheong Ion Man as new DSSOPT vice head Secretary for Transport and Public Works Raimundo do Rosário has appointed Cheong Ion Man as the new deputy director of the Land, Public Works and Transport Bureau (DSSOPT), the Official Gazette announced yesterday. According to the dispatch, Mr. Chan’s term will last for one year and is effective from the beginning of this month. In fact, Mr. Chan has been serving the Bureau since 1993, serving as acting deputy head of DSSOPT before the promotion to former Bureau vice head Chan Pou Ha, who stepped down in February this year.

Chan Peng Fai appointed vice head of Cultural Affairs Bureau The acting deputy head of the Cultural Affairs Bureau, Chan Peng Fai, has been made the official deputy director of the cultural department by the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng. According to the Official Gazette released yesterday, Mr. Chan’s term, starting September 1, will last for two years. The new leader of the Bureau entered the government as a researcher in Macau Museum of Art under the Civic and Municipal Affairs Bureau in 2002.

He then shifted to the cultural bureau in 2010, and has been the acting vice head of the department since September 2014.

Café chain boss may build next to Chong Sai Pharmacy Kam Leong

kamleong@macaubusinessdaily.com

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HS Café Companhia Ltd., a company controlled by local café chain THS Honolulu (Tan Heong San) boss Jack Ung Chi Fong, has been given the green light by the government to redevelop a land plot next to the historic Chong Sai Pharmacy into a 5-storey commercial building, the Official Gazette announced yesterday.

According to the dispatch, the land plot, located at number 78 Rua Das Estalagens on the Macau Peninsula, occupies 114 square

metres, while the government has allowed the company to build a commercial floor area of 97 square metres, or gross building area of 460 square metres, for a land premium of MOP4.63 million (US$578,750).

The government also regulates in the contract that the company must keep the façade of the current building on the land plot for the new project, in order to be consonant with the appearance of Pharmacy Chong Sai and to emphasise the historic and cultural value of the

building group in the same street.

The announcement indicates that THS originally requested for the permit to build a seven-storey building for both commercial and residential use.

In 2011, the local government acquired a 120-year old building at number 80 Estalagens Street at a cost of MOP36 million, which is believed to be the heritage site of Chong Sai Pharmacy established by the Founding Father of the Republic of China, Sun Yat-sen.

Alexis Tam: Majority agree to rebuild Hotel Estoril

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ecretary for Social Affairs and Culture Alexis Tam Chon Weng claims that the mainstream opinion in the city agrees that the government rebuild Hotel Estoril.

Speaking to reporters yesterday after attending TDM radio show Macau Forum, the Secretary questioned whether it is appropriate for the government to pause the renovation as the majority agree.

Local association Root Planning initiated a social network petition on Saturday, urging the government to halt its current renovation plan

for the old hotel to start assessment evaluating whether the property should be protected as cultural heritage.

The Secretary queried why the perception of Hotel Estoril as cultural heritage has only arisen since the government has suggested revamping the building. He claimed that most of the opinions that the government had received agree to rebuilding the hotel for the use of the Macau Conservatory, local teenagers and residents.

During the radio show, the

Secretary also stressed that the government has not yet made a decision on retaining the façade of the hotel. He indicated that the Portuguese architect Siza Vieira will come to Macau in October to analyse the value of the façade.

Claiming any decision he will make on the plan will be fair, the Secretary also announced prolonging the public consultation period for the remodelling for one more month.

The consulting session was originally slated to end on August 20.

K.L.

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August 13, 2015

Macau public interest and involved plans such as infrastructure building or public housing.

Chui Sai On added that previously the government had announced information regarding the land swaps in the Official Gazette and that he is in discussion with the Secretary for Transport and Public Works, Raimundo Rosario, to once again release the information about all land debts that the government must repay.

CCAC involvement

New urban reclaimed territories won’t pay land swaps debt Chief Executive vows transparency in the process of land swaps and how the government clears the debts

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ue to the “public interest” the 350 hectares of new urban reclaimed zones are not expected to be used to clear off debts related to land swap deals, Chief Executive Chui Sai On said yesterday at the Legislative Assembly plenary session in response to questions by legislators.

In total the government has 12 land swap cases pending and will have to compensate the former owners.

“Because of the public interest I do not believe that reclaimed land will be granted to clear the debts of the land swaps. These debts will

have to be cleared but the process has to be transparent”, Chui Sai On said.

The Chief Executive stressed that the land swaps which happened before between the government and private landowners were fair and open, since they were due to the

The leader of the government also explained the decision to hand the land swap case involving the Iec Long Firecracker Factory to the graft watchdog Commission Against Corruption (CCAC) for investigation.

“It is normal to have queries about some processes and when there are doubts about the legality of such processes, they have to be handed to the CCAC. There were questions in this case so I asked the Secretary [for Transport and Public Works] Raimundo Rosario to hand it to the CCAC”, he said.

For his part, the Commissioner Against Corruption, André Cheong Weng Chon, explained to journalists that this case will be a priority because of the impact it has had on society.

“We’re now doing a preliminary analysis of the case. We only received it two days ago and there seem to be reasons to investigate it. But it is too early to comment on it”, Cheong said. “It’s difficult to tell when the investigation will be concluded. But we understand that there’s a lot of public attention and it will be a priority”.

J.S.F

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August 13, 2015

Macau Brands

Trends

A garden of opals Raquel Dias newsdesk@macaubusinessdaily.com

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o-one knows exactly why but the world of high jewellery is caught up in a very special trend. It seems, more and more, that brands like Cartier and Chopard are discovering the beauty and uniqueness of semi-precious stones. Although diamonds, sapphires, rubies and emeralds are ever-present, a new design of jewellery is emerging. One that includes opals, tourmalines, mother-of-pearl, agathas, and malachites amongst others.

One of the most stunning examples I’ve seen so far has to be Chopard’s new Garden Collection. The brand had already surprised us with the bold ‘Animal World’ but this time they managed to go up a notch.

Chopard has unveiled a beautiful and magic collection of six rings made with stunning opals.

These opal flowers have ‘blossomed’ and managed to do so together with materials as different as titanium or zirconium, sapphires, amethysts, tsavorites, rubies, spinels and black diamonds.

The result is unique pieces with a design, which is testimony to the genius of goldsmithing exercised at its highest level The vibrant colours of the different precious stones, together with the unique beauty of the opals, make for a truly special piece.

It also means that after decades of being forgotten the opal finally reappears as a true gemstone, ready for the delight of a few very lucky ladies.

For those who are fans, do not forget that one of Hong Kong’s major attractions in the 90’s was precisely the city’s ‘opal mine’, which is well worth a visit.

Yuan weakness to undermine deposit business The move by China's central bank to devalue the yuan will discourage the yuan deposit business here, but may mean only a limited impact on tourism, economists and bankers say Stephanie Lai*

sw.lai@macaubusinessdaily.com

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ollowing the People's Bank of China's (PBOC) sudden cut of the yuan fix to the US dollar on Tuesday, pressure on the yuan currency to depreciate further is expected and the popular yuandenominated deposit business here is bound to be affected, at least in the short term, local economists and bankers foresee.

China's yuan extended losses for a second day yesterday, closing down 1 per cent against the dollar after the PBOC significantly weakened the midpoint again.

The PBOC set the midpoint rate at 6.3306 per dollar prior to the market opening, 1.6 per cent weaker than the previous fix of 6.2298.

“Although PBOC mentioned that this is a one-time adjustment, the market may expect that the pressure on the yuan to further depreciate may increase in the coming year,” associate professor in business economics at University of Macau (UM) Ricardo Siu Chi Sen remarked to us, referring to China's sudden devaluation of the yuan on Tuesday.

In a statement on Wednesday before the market opened the PBOC appeared to attempt to reassure anxious investors that this did not mark the beginning of a freefall.

‘Looking at the international and domestic economic situation,

currently there is no basis for a sustained depreciation trend for the yuan,’ the central bank said.

But assistant professor of macroeconomics from UM Henry Lei Chun Kwok did not entirely agree, saying, “The RMB may remain weak in the coming month after this oneshot devaluation as RMB holders will face a risk on both the exchange rate and interest rate which may discourage them from holding/buying more RMB”.

The senior vice president and head of the general management division at China Construction Bank Macau Branch, Mary Chen, told us that she expected that in the short term clients whose fixed deposits in yuan are maturing soon would choose to convert the yuan into other currencies.

“Overall, there won’t be a big impact imposed upon the fixed deposits [yuan] business – although in the short term this is definitely affected; especially clients whose fixed deposits are maturing soon will want to convert yuan into Hong Kong dollars, patacas or other currencies,” Ms. Chen said.

Impact on local tourism

Following the sharp decline of the yuan, some banks have already revised down their forecasts for yuan performance this year, with Societe

Generale expecting it to fall to 6.5 per dollar in the third quarter and to 6.6 by the end of the year.

“PBOC’s decision to depreciate the RMB may lead to a flow of the international funds to USD assets, which may slow down the expected pace of the rise in the USD interest rate. As RMB depreciates, the relative costs of tourism in Macau for Mainland visitors are increasing, hence this may have an unfavourable effect on related industries; for example, hotels and retail,” Mr. Siu said.

But fellow economics professor Henry Lei suggested the impact that the late yuan fix has on the tourism business here is limited.

“For the tourism industry, it may not affect very much the status of Macau given that the price gap between Macau and China is very much bigger than this 2%, with or without the devaluation, tourists from China will still find the price level in Macau to be expensive,” Mr Lei said.

“In general, this 2 per cent devaluation of RMB may not bring about a significant impact upon the Macau economy and may not be strong enough to correct the inflation faced by the territory, although costs of imports from China can be slightly lowered,” he added. *with Reuters

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August 13, 2015

Macau

Draft on gaming licence mid-term review study to be completed next month The Chief Executive of Macau announced yesterday in the Legislative Assembly that following the draft in September, a round of public consultations will be conducted Joao Santos Filipe

jsfilipe@macaubusinessdaily.com

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he government plans to have the first draft of the study on the mid-term review of gaming licences completed by the end of September. The timeframe was announced yesterday in the Legislative Assembly (AL) by the Chief Executive of the Government, Fernando Chui Sai On (pictured), in a session addressing the questions of legislators.

“We expect to have the first draft of the study on the mid-term review of the gaming licensing by the end of September. Then, by the end of the year we expect to run a public consultation”, he said.

“The review will focus on eight aspects including the impact of gaming on the Macau economy, small and medium enterprises, society and the relationship between gaming and the development of non-gaming activities.

The review will also study if the current contracts with operators [have been] fulfilled and if they are assuming their social responsibilities”, he clarified.

Revenues cannot grow every month

The head of the government explained that the territory

is ready to face the ‘new normal’, in which annual gaming revenues will be around MOP200 billion per year, and that the funds generated from gaming will be used to promote nongaming sectors.

“We’ve been growing for ten years but now the pace has slowed down.

After adjusting to a MOP20 billion per month level in terms of gaming revenues we will be able to generate around MOP200 billion per year [sic]. If you look at our budget it means our financial position is very stable and considering our financial reserves we will be able to support the development of non-gaming aspects”, he explained.

Chui Sai On added in order to continue supporting the MICE industry, the government will not have a problem using the money from the fiscal reserves to subsidise this sector.

One Road, One Belt: Destination Macau

In October 2013, the President of the Central Government announced the ‘One Road, One Belt’ policy, designed to recreate the Silk Road and at the same time allow

China to assume a bigger role in global affairs through economic co-operation with other countries in Eurasia.

Yesterday, when asked about the role of Macau, Fernando Chui promised that in one month he will present more information on the subject.

“This strategy by the Central Government

requires Macau to develop its own characteristics to participate. This strategy will help to transform Macau into an international tourism destination but first we need to consolidate the Mainland tourism market. Then we can attract international visitors”, he explained. “In co-operation with the provinces of Fujian

and Guangdong we hope to promote the territory as the last stop of this economic route”.

The Chief Executive spoke of the strategy to attract more international tourists, whilst recognising that there is a limit to the capacity of the city and that 32 million visitors a year is too many.

SJM gaming revenues slump 40.3 pct in 1H The casino operator nevertheless stresses confidence in the future of the Macau market and says the Lisboa Palace Cotai project is on target for completion in 2017

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n the first half of this year, Sociedade de Jogos de Macau, S.A. (‘SJM’) group’s gaming revenue decreased 40.3 per cent to HK$26.319 billion (US$3.39 billion) compared to the same period last year, which notched up HK$44.112 billion.

For the six months ended 30 June, SJM’s adjusted EBITDA and profit attributable to owners of the company decreased by 49.1 per cent and 54.1 per cent, respectively, from the yearearlier period.

The company realised its 2015 interim results yesterday, in which it also disclosed that the group’s

Adjusted EBITDA Margin (Hong Kong GAAP basis) decreased to 8.5 per cent from 10.0 per cent.

Ambrose So, Chief Executive Officer of SJM Holdings Limited, commented that the Macau market has remained challenging throughout the first half of the year. However, the company has focused on enhancing customer service and controlling costs to the extent possible.

‘We remain optimistic about the future of the Macau market, and we are proceeding with the construction of the Lisboa Palace integrated resort on Cotai, on which substantial

progress has been made and we are on target for completion in 2017,’ the statement reads.

Breakdown

SJM says the mass market table gaming revenue of the group decreased 26.8 per cent, while VIP gaming revenue plummeted 48.7 per cent during the first half of 2015, compared to the same period last year. During the same period, slot machine operation revenues decreased 12.3 per cent year-on-year.

According to its interim results, SJM had a 22.3 per cent share of Macau’s gaming revenue, including

25.5 per cent of mass market table gaming revenue and 21.2 per cent of VIP gaming revenue.

Despite the growing number of visitors the city has welcomed, SJM says that the occupancy rate of Hotel Grand Lisboa decreased some 15.2 per cent from the year-earlier period to 80.1 per cent. However, the average daily room rate increased during the period by 2.3 per cent to HK$2,399 (US$309).

An interim dividend of HK10 cents per ordinary share has been declared.

J.K.

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August 13, 2015

Macau

Melco prepares contingency plan for Studio City In the event that its minimum 400 gaming tables request is rebuffed Studio City Project Facility ‘may constitute an event of default’

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tudio City International Holdings Limited, a joint venture in which Melco Crown Entertainment Limited owns a 60 per cent interest, issued a press release earlier this week saying it is preparing for any gaming

table allocation decision.

‘Because of the possibility that the table allocation for Studio City’s gaming area may be lower than anticipated, Studio City International Holdings Limited has engaged

Kirkland & Ellis LLP as its counsel and Moelis & Company LLC as its investment banker to assist it with contingency planning ahead of any table allocation decision for Studio City,’ the statement reads.

Co-chairman and CEO of Melco Crown Entertainment, Lawrence Ho, has voiced on several recent occasions his concern about table allocation declaring he is hoping to be rewarded by the Macau Government for being ‘a model citizen’.

According to its 2014 annual results filed with Nasdaq in April, Melco Crown Entertainment Ltd. could technically default on the approximately HK$10.86 billion (US$1.4 billion) Studio City project in Cotai if the casino-resort is unable to secure a minimum of 400 gaming tables available for operation by October 2016.

‘In the event that we are unable to meet these conditions, it may constitute an event of default under the Studio City Project Facility,’ the annual report reads. According to the Tuesday statement, Studio City International Holdings Limited announced that the cinematicinspired entertainment resort Studio City remains on track to open as scheduled on October 27, 2015.

J.K.

Echo posts 59 pct rise in full-year net profit

SkyCity eyes Adelaide casino expansion to lure more high rollers

The Australian gaming and entertainment group beats estimates as high-rollers seek shelter from Macau

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ustralian gaming firm Echo Entertainment Group on Wednesday reported a 59 per cent rise in full year net profit after improved marketing and loyalty programs drove strong domestic revenue growth.

Echo and Hong Kong partners Chow Tai Fook Enterprises and Far East Consortium last month won a licence to build a casino in the centre of Brisbane, edging out rival Crown Resorts for a development positioned to benefit from an influx of Chinese high rollers.

Net profit for the year to June 30 came in at A$169.3 million (US$123.7 million).

Normalised net profit, which removes significant items and the volatility of Echo’s international VIP rebate business, which refers to high roller customers who receive perks like luxury accommodation in return for gambling, rose 52 per cent to A$219 million.

Revenue rose 18.5 percent to A$2.14 billion

Chief Executive Matt Bekier said Echo had made a “reasonable start” to the current year, but warned that gross revenue exluding the VIP rebate business had

shown only moderate growth in July while revamp works at its Star casino in Sydney and Jupiters on the Gold Coast would impact revenues.

Shares in Echo opened 3 per cent lower at A$4.93. The stock has risen about 30 per cent so far this year.

Echo is banking on its Brisbane development bringing Chinese high-rollers to Brisbane as an alternative to the Asian gaming hubs of Macau and Singapore. It already gets about 30 per cent of its Sydney revenue from Chinese high-rollers, and has said it expects Brisbane would receive about the same.

The involvement of Chow Tai Fook, a quarter stakeholder in the project, gives Brisbane-based Echo a chance to close on Melbourne-based Crown in the battle for high-spending Chinese visitors, the world’s biggest and biggest-spending outbound tourism market.

Gaming revenues in Macau, the world’s biggest gambling hub, have fallen for the past 14 months as a broader government crackdown on corruption has discouraged wealthy Chinese punters.

Reuters

kyCity Entertainment Group Ltd. needs to complete development of the Adelaide casino site to attract a bigger share of the Asian high-roller market, Chief Executive Officer Nigel Morrison said.

SkyCity increased turnover from international business by 43 per cent to NZ$9.3 billion (US$6 billion) in the year ended June 30, it said Wednesday. Spending by high rollers at its flagship New Zealand casino in Auckland rose 39 per cent to NZ$6 billion, while Adelaide, in South Australia, attracted a quarter of that.

“In Adelaide, we don’t have a hotel, we’ve only just got a couple of good restaurants there now,” Morrison said in an interview.

“We definitely need a hotel and a more integrated facility in Adelaide to make that a more successful international business destination.”

SkyCity has a A$350 million (US$250 million) project on the drawing board to expand its Adelaide site, including VIP gaming rooms, luxury hotel and fine-dining restaurants that well-heeled gamblers demand. It has made those investments at Auckland and its other sites, and increased efforts to compete for the high- roller business which can choose from Macau, Singapore, Sydney and many other cities.

“We have taken on more people in Southeast Asia marketing that business, promoting our properties and bringing those players to Auckland and Darwin and Queenstown,” said Morrison.

“The pie is getting bigger.

There’s still good upside in that business.”

Full-Year Net

Full-year net income rose 31 per cent to NZ$128.7 million, SkyCity said today. Operating

earnings in Auckland jumped 14 per cent, but fell 19 per cent in Adelaide.

The cost structure in Adelaide “has increased significantly and we’re working on addressing that,” Morrison said. “We’re confident that in the longer term Adelaide will be a great city for us to be in.”

SkyCity reiterated it is committed to the Adelaide development although the timing of any commencement is uncertain. Morrison said the company has spent A$50 million on the existing property, and wanted to reassure investors who haven’t seen any boost in performance that the board wasn’t giving up on the project.

‘We’re very keen to get on with it,’’ he said. “It’s a complicated site in terms of the different parties that have interests around where we are.

We’re trying to move as fast as we can.”

Bloomberg

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August 13, 2015

Macau H&M unveiling flagship store in Galaxy Macau tomorrow Swedish clothing retailer Hennes & Mauritz, a.k.a. H&M, opens its full-concept flagship store on The Promenade of Galaxy Macau at 10:00am tomorrow. This is the retailer’s second store in the territory following its first store opening of The Venetian Macau in June this year. According to H&M, the flagship store in Galaxy will be its biggest. Besides offering men’s and women’s clothing, the new store will provide children’s clothing.

Pandora buys own brand stores in territory for MOP170 mln The Danish jewellery group has opted to buy the retail network in Macau and Singapore as the distribution rights in the territories that belong to Norbreeze group come to an end

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he jewellery group Pandora will pay MOP170 million (US$21.48 million) to buy their own brand store networks in Macau and Singapore. The distribution rights of the brand for these two markets belong to the Singaporean Norbreeze Group until the end of the year, when the current contract expires; the Danish group decided from January on to exploit its own brand in the territories.

“The Far East holds a significant opportunity for Pandora, and with this agreement we have strengthened our footprint in the region”, the CEO of the brand, Anders Colding Friis, said in the press release of the brand announcing the agreement. “The acquisition

Gucci spars with Hong Kong landlords as Chinese demand slumps Luxury retail sales have plunged. Real estate service firm predicts high-street rents to drop 15 to 20 per cent this year

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andlords on Hong Kong’s Russell Street a year ago could boast the highest retail rents in the world. Now they are adjusting to a new reality.

Burberry Group Plc, Kering SA and jewelry retailer Chow Tai Fook Jewellery Group Ltd. are pushing landlords to lower rents on existing properties as luxury brands are scaling back amid plummeting sales.

TAG Heuer closed its Russell Street store last week, citing high rents and declining traffic.

Luxury retail sales have plunged amid China’s economic slowdown and President Xi Jinping’s austerity and anti- corruption campaigns, causing Hong Kong to relinquish the top spot to New York’s Fifth Avenue in November and spurring the biggest drop in retail rents this year since 2009. Also contributing to slack demand are a weaker yen and euro, prompting Chinese tourists to favor Japan and France over Hong Kong, said Helen Mak, senior director of research at Colliers International.

“Unavoidably rents will trend down,” says Marcos Chan, head of research for Hong Kong, Macau and Taiwan at CBRE Group Inc. “We don’t see any reason why retail will quickly see a rebound any time soon.”

Jewelry, watches, clocks and valuable gifts sales fell 15.9 per cent in the year ending June, according to Hong Kong Retail Management Association statistics.

In a July research report, Jones Lange LaSalle Inc. predicted highstreet rents will drop 15 per cent to 20 per cent this year. That’s a far more bearish scenario than the 5 per cent drop the company was forecasting at the end of last year.

Ground zero

Ground zero of the downturn is Russell Street, a mere block and a half long in the heart of the Causeway Bay retail district, lined with shops selling Montblanc pens, Omega watches and Swarovsky jewelry. Average monthly rents in the area fell 10.4 per cent in the

first half, according to Colliers.

Kering, the owner of the Gucci brand, has warned that it may close some of its shops in Hong Kong if rental costs don’t come down.

“Many landlords have not necessarily understood that the markets have changed,” Kering Chief Financial Officer Jean-Marc Duplaix said on a conference call with analysts in July.

Russell Street’s two largest landlords are Emperor International Holdings Ltd. and Soundwill Holdings Ltd.. A spokeswoman for Soundwill, whose tenants include Burberry and a Rado shop which is moving into the spot vacated by TAG Heuer, declined to provide rental figures.

Kowloon landlords

While luxury retailers are slowing down their pace of expansion, some mid-market shops are looking to expand and may be able to find more affordable options, CBRE’s Chan said in a Bloomberg Television interview on Tuesday.

follows similar agreements with our local distributors in countries like Brazil, Turkey and the UAE, and is in line with our strategy to expand geographically and increase the control over our brand”.

In Macau, Pandora has three stores - one outlet in Central Macau, and two others in Galaxy Casino and The Venetian. The Macau operations of the brand will be controlled by the Danish group’s Hong Kong office.

The agreement announced yesterday also includes the reacquisition by Norbreeze group of the distribution rights in the Philippines.

According to Pandora, the three markets together accounted for retail revenue in 2014 of MOP403 million (US$50.4 million).

In terms of the group’s financial results, Pandora announced that net income increased 37 per cent to MOP1.08 billion (US$135.1 million). Also, it reviewed the full-year revenue projection to MOP18.98 billion (US$2.38 billion), while in the past it was expecting to cash in MOP17.79 billion (US$2.23 billion). This change was explained with better than expected results in Europe, primarily in the United Kingdom.

J.S.F.

“We see landlords are willing to negotiate with the retailers, a trend which did not happen in the past few years,” he said.

Street-level landlords in Central on Hong Kong Island, and across the harbor in Kowloon neighborhoods that cater heavily to mainland shoppers, are also feeling the pinch.

Average rents fell 15 per cent in Tsim Sha Tsui in the first half, Colliers said.

Chow Tai Fook renewed its monthly lease at its Bank Center location on Nathan Road for HK$800,000 (US$103,203), an almost 39 per cent reduction, the Ming Pao newspaper reported.

A Chow Tai Fook spokesperson declined to comment on the specific deal, saying “tenancy rental reduction varies in different districts and locations.”

Jewelry and watch chain Chow Sang Sang has closed two of its stores in the past nine months and has obtained rental reductions on a couple more of its 54 outlets.

Mall owners have weathered the downturn better, thanks to a more diversified tenant mix including restaurants, health and beauty centers and cosmetics shops as well as luxury brands.

“Our rental conversion is very much positive,” said Ronnie Chan, chairman of Hang Lung Group Ltd. which owns Fashion Walk in Causeway Bay. “But we have to keep refreshing our properties and keep changing tenants.”

Bloomberg

8 | Business Daily

August 13, 2015

Greater China Police search Uber offices in Hong Kong Police raided the Hong Kong offices of taxi-hailing service Uber Inc on Tuesday and arrested five drivers for the “illegal use of vehicles for hire”, police said.

A Hong Kong police senior inspector, Bruce Hung, said undercover police officers had used a mobile phone app to hail five cars and arrested the drivers after being driven to their destinations. He said the drivers lacked the required hire car permits or third party insurance. The police officers’ fares had been settled using a credit card, Hung said.

IMF welcomes new yuan midpoint mechanism The move by China’s central bank on Tuesday to change the mechanism for setting the daily reference rate for the yuan “appears a welcome step” as it should allow market forces to have a greater role in determining the exchange rate, the International Monetary Fund said yesterday. “Regarding the on-going review of the IMF’s SDR basket, the announced change has no direct implications for the criteria used in determining the composition of the basket. Nevertheless, a more market-determined exchange rate would facilitate SDR operations in case the Renminbi were included in the currency basket going forward.”

ZTE refuses to bring exec to U.S. A U.S. criminal investigation into allegations that China’s ZTE Corp for sold banned U.S. computer products to Iran has spilled into a civil dispute with a New York-based patent licensing firm, as ZTE has refused to make one of its top executives available for questioning over fears he will be arrested. On Tuesday, U.S. District Judge Lewis Kaplan in Manhattan rejected ZTE’s request that he show “mercy” and reconsider his order compelling the company’s general counsel, Guo Xiaoming, to appear in New York for a deposition in a breach of contract lawsuit with Vringo, Inc.

Tsinghua to invest in mobile chips Tsinghua Holdings plans to invest at least 30 billion yuan (US$4.74 billion) in developing mobile chip technology to challenge industry leader Qualcomm Inc’s market dominance, the China Daily newspaper reported yesterday. “To catch up with Qualcomm as soon as possible, we will pour 30 billion yuan, and probably even more, into the research and development of mobile chips in the next few years,” Chairman Xu Jinghong was quoted as saying in an interview. A Tsinghua Holdings spokeswoman confirmed Xu’s comments to the newspaper.

Beijing tries to calm currency war fears as yuan slips further The yuan has lost 3.5 percent in China in the last two days, and around 4.8 percent in global markets Pete Sweeney and Lu Jianxin

Y

uan hit a four-year low yesterday, falling for a second day after authorities devalued it in a move that sparked fears of a global currency war and accusations that Beijing was giving an unfair advantage to its struggling exporters.

Spot yuan fell to 6.43 per dollar, its weakest since August 2011, after the central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday’s devaluation. The currency fared worse in offshore trade, touching 6.57.

The central bank, which had described the devaluation as a oneoff step to make the yuan more responsive to market forces, sought to reassure financial markets yesterday that it was not embarking on a steady depreciation.

“Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the People’s Bank of China said in a statement.

Nevertheless, a senior trader at a European bank in Shanghai said the unexpected devaluation had caused “some panic” in the markets.

“Although the central bank made

KEY POINTS China changed way it sets daily guidance rate on Tuesday Yuan fell again yesterday to weakest since Aug 2011 Decision followed surprise tumble in July exports explanations again today, stressing the yuan would not show sustained depreciation, the market is very jittery,” he said yesterday.

The yuan has now lost 3.5 percent in China in the last two days, and around 4.8 percent in global markets.

A trader at a Chinese commercial bank said he expected the yuan devaluation would be over once it nears the official midpoint.

“Judging from past two days ... the one-time devaluation engineered by the central bank could be between 4-5 percent before the currency returns to fresh stability,” he said.

Fiscal spending jumps to three-month high Corporate taxes paid by industrial companies fell 7.8 percent in July

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overnment spending in China jumped by nearly a quarter in July to a three-month high as authorities accelerated spending on state projects and hiked wages of civil servants as planned, data showed yesterday.

Beijing hopes faster government spending and further monetary policy

loosening in coming months will give a much-needed boost to flagging economic growth.

Fiscal expenditure jumped 24.1 percent last month compared with a year earlier, the Ministry of Finance said, as spending by the central government leapt 49 percent on the year to 236 billion yuan (US$36.7 billion).

Former senior tourism official expelled from CPC Huo Ke, former deputy director of the China National Tourism Administration, has been expelled from the Party and public office for graft and leaking Party and state secrets, the anti-graft authority said yesterday. The Central Commission for Discipline Inspection (CCDI) of the Communist Party of China (CPC) found that Huo seriously violated party disciplines by accepting gifts. Huo bribed others to secure his own promotion, leaked state and Party secrets, and impeded the investigation by authorities, the CCDI said in a statement.

Data showed state spending on social security and benefits for workers rose the fastest in the first seven months of the year

China’s Ministry of Commerce acknowledged yesterday that the depreciation would have a stimulative effect on exports.

While a weaker yuan will not cure all the ills of China’s exporters, which suffer from rising labour costs, it will help relieve deflationary pressure, a far bigger concern in the view of some economists.

Falling commodity prices have been blamed for producer price deflation, putting China at risk of repeating the deflationary cycle that blighted Japan for decades.

Reuters

That was the biggest annual rise in fiscal expenditure since April, when outlays leapt 33 percent.

The ministry did not give a breakdown of July’s spending, saying only that it had jumped as governments pushed through projects already budgeted for and hiked government salaries.

But the data showed state spending on social security and employment benefits rose the fastest in the first seven months of the year, climbing 21.4 percent from a year-earlier period to 1.17 trillion yuan.

Spending on infrastructure was by comparison more modest, rising 17.8 percent on a yearly basis to 631 billion yuan.

Reflecting cooling growth, government revenues grew at a more muted pace as struggling businesses paid less income taxes. Corporate taxes paid by industrial companies fell 7.8 percent in July, the data showed.

Taxes paid by property firms in July grew 12.7 percent on a yearly basis, however, in part a reflection of a pick-up in the subdued housing market.

Yet in a sign the real estate market was not on a verge of a strong recovery, income earned by governments from selling state land plunged 38.2 percent in the first seven months as a gloomy outlook dampened developers’ appetites for land.

Hurt by falling land sale revenues, fiscal income rose 12.5 percent in July from a year earlier, slightly under June’s annual growth of 13.9 percent.

In the first seven months of the year, revenues rose 7.5 percent from a year-ago period, up slightly from 6.6 percent in the first six months.

Reuters

Business Daily | 9

August 13, 2015

Greater China

U.S. lawmakers condemn RMB’s devaluation China’s central bank said the devaluation resulted from reforms meant to make its exchange rate more market-oriented John Whitesides

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enior U.S. lawmakers from both political parties on Tuesday condemned China’s surprise currency devaluation as a grab for an unfair export advantage and urged inclusion of currency manipulation curbs in a new Pacific Rim trade deal.

Several members of Congress said the devaluation of the yuan by China’s central bank on Tuesday raised serious concerns. Some suggested it was further proof China cannot be trusted on currency policy.

China’s 2.0 percent yuan devaluation came weeks ahead of the first state visit to the United States

by Chinese President Xi Jinping amid other tensions over trade, cybersecurity and international development.

“It’s time for the administration to focus more intensively on China’s cheating and label the country a currency manipulator,” Democratic Senator Bob Casey, a member of the Senate Finance Committee, said in a statement.

Today’s provocative act by the Chinese government to lower the value of the yuan is just the latest in a long history of cheating Lindsey Graham, U.S. Senator

China’s central bank said the devaluation resulted from reforms meant to make its exchange rate more marketoriented.

A cheaper yuan will help Chinese exports by making them less expensive for importing countries. Some lawmakers said the move displayed China’s intent to

China’s 2.0 percent yuan devaluation came weeks ahead of the first state visit to the United States by Chinese President Xi Jinping, returning Obama’s visit to Beijing last year (pictured)

manipulate its currency to gain a trade advantage.

“China has manipulated its currency for a long time. This is just the latest example, and it’s past the time to do something about it,” said Republican Senator Chuck Grassley.

Grassley and Representative Sander Levin, the top Democrat on the House of Representatives tax committee, suggested tough anti-manipulation measures should be part of the TransPacific Partnership trade deal under negotiation.

Grassley and Levin said Congress should explore including a provision in a customs bill being negotiated in Congress to allow for penalties

on currency manipulators.

Levin said there was “reason to be sceptical” that the Chinese action was designed merely to move to a market-based exchange rate and said it raised “serious concerns.”

Chuck Schumer of New York, the No. 3 Senate Democrat, said the Chinese currency should be barred from consideration as a global reserve currency until China stops devaluing it.

At least two of the Republican contenders in the 2016 presidential race also weighed in.

Real estate mogul Donald Trump, who has frequently

promised to be tough with Beijing, told CNN: “They keep devaluing their currency until they get it right. They’re doing a big cut in the yuan, and that’s going to be devastating for us.”

However, many economists noted the Chinese currency has been linked to the U.S. dollar for several years, and so has risen against other major currencies as the U.S. dollar has risen 20 percent in the past year, making Chinese exports less competitively priced than they were, contributing in turn to the recent slowdown in Chinese economic growth.

“I don’t see this affecting the Fed decision (to raise interest rates) unless it develops into something that roils markets substantially,” said Peter Hooper, chief economist at Deutsche Bank Securities and a former Fed economist.

“It adds a little more drag to the economy via net exports and puts a slight damper on consumer prices, but not enough to alter the course of the U.S. economy or labour market significantly,” he said.

Reuters

LME Q2 profit doubles as trading fee hike pays out Revenue from trading fees and tariffs in its commodities division rose by HK$253 mln

T

he London Metal Exchange (LME), the world’s biggest base metals bourse, roughly doubled its core profit in the second quarter despite a slight fall in volumes, as a January hike in trading fees flowed through to the bottom line.

The result reflects efforts by LME parent Hong Kong Exchanges and Clearing Ltd (HKEx) to boost returns from its metals business since it bought the 138-year-old exchange for US$2.2 billion in 2012.

HKEx reported its earnings yesterday, more than doubling its second quarter net profit to US$325 million.

Earnings before interest, tax, deprecation and amortisation (EBITDA) from its commodities division - almost exclusively its LME

The exchange has no plans to hike trading fees in 2016 by as much as it did this year

business - came in at HK$310 million (US$40.0 million) in April-June from HK$156 million a year earlier, according to Reuters calculations.

The strong growth reflects the commercialisation of the LME’s trading fees from January 2015 that caused an outcry from its members, forcing it to trim the size of initially planned fee increase.

Revenue from trading fees and tariffs in its commodities division rose

by HK$253 million or 54 per cent for the first half compared to the first half of 2014, the HKEx results showed.

The exchange has no plans to hike

trading fees in 2016 by as much as it did this year when it sought to bring fees into line with other global exchanges, an executive told Reuters in May. Before the LME’s sale in December 2012, it was owned by the banks and brokers that used it and trading fees were kept very low for members.

Operating expenses in the commodities division fell by US$74 million for the first half, due mostly to a reduction in legal fees for litigation in the wake of a string of class actions in 2013 over long delivery backlogs in its warehouses.

Average daily traded volumes slipped by 3 percent due to weaker industrial metals demand, with traded aluminium volumes down 9 percent and zinc volumes falling 4 percent for the half against a year earlier.

Lead volumes were flat, copper volumes rose 4 pct and nickel trade was up by 2 percent.

The results for HKEx’s commodity division also include its London Mini Futures, which are five tonne monthly contracts traded in renminbi on the Hong Kong bourse.

Reuters

10 | Business Daily

August 13, 2015

Greater China Oil demand falls Implied oil demand fell in July from the previous month amid a continuing drop in the nation’s vehicle sales that could mute growth further in the second half of 2015. China consumed roughly 10.12 million barrels per day (bpd) of oil in July, down more than 4 percent from June, although the implied use was up from 9.72 million bpd a year ago, according to calculations based on preliminary government data. The month-on-month fall came as Chinese auto sales dropped 7.1 percent in July from a year earlier.

Power output down 2 pct in July China’s electricity output fell two percent year on year to 509 billion kilowatt-hours in July, according to the National Bureau of Statistics (NBS) yesterday. The total electricity output in Jan.-July reached more than 3.2 trillion kilowatt-hours, up 0.4 percent year on year, according to the NBS. Thermal power output in Jan.-July reached 2.5 trillion kilowatt-hours, down three percent year on year, while hydropower output grew 9.6 percent in the past seven months to reach 534 billion kilowatt-hours.

Hushen 300 index futures close lower China’s Hushen 300 index futures ended lower yesterday, with the contract for August, the most actively traded, down 1.21 percent to close at 3,966.8 points.

The September contract lost 1.4 percent to close at 3,922.4 points. The December contract dropped 1.64 percent to close at 3,843.2 points. The March 2016 contract edged down by 2.16 percent to 3,834 points. The stock-index contracts, agreements to buy or sell the Hushen 300 Index at a pre-set value on an agreed date, are designed to allow investors to bet on and profit from either gains or declines in the market.

5 bln yuan for earthquake zones China plans to spend an additional 5 billion yuan (US$790 million) to renovate substandard rural housing in earthquake-prone areas, the Ministry of Finance said yesterday. The pledged funds came after a 31.5-billion-yuan budget was dedicated to renovate dilapidated houses in rural areas, bringing the total subsidies to 36.5 billion, up from 23 billion last year. The additional funds echoed the State Council’s call to accelerate the renovation of run-down areas and dilapidated rural houses, especially those prone to earthquake damage. The total spending will benefit 4.32 million rural families, including 1.26 million living in earthquake-prone areas.

Coal output dips on low prices China’s coal output fell 3.1 percent in July from a year earlier to 307 million tonnes, as miners scaled back their operations in a bid to minimise losses due to low prices. More than 70 percent of China’s coal mining firms suffered losses in the first half of 2015 and many have cut back output, according to state planning body, the National Development and Reform Commission.

Over the first seven months of 2015, total coal production fell 5.3 percent from the same period a year ago to 2.1 billion tonnes.

Further data confirms economic growth falters in July Retail sales rose 10.5 percent in July from the same time last year, slightly below forecasts for 10.6 percent growth

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rowth in China’s factory output, investment and retail sales were all weaker than expected in July, adding pressure on Beijing to roll out more measures to prevent a deeper slowdown, days after it shocked markets by devaluing its currency.

Nearly all data released for July was weaker than economists had forecast, pointing to further deterioration in the world’s second-largest economy.

Data for June had fuelled some hopes that activity was stabilising after policymakers unleashed the biggest burst of stimulus since the global financial crisis.

“This kind of data will only accentuate the negative outlook that everyone has about the economy,” said Louis Kuijs, China economist at Royal Bank of Scotland in Hong Kong.

“Many people were expecting an improvement and there is no improvement. Things are getting worse rather than getting better.

This kind of data makes it really challenging to achieve the official 7 percent growth (target) this year.”

Factory output rose 6.0 percent in July from a year earlier, slowing from June’s 6.8 percent rise and hitting a three-month low. Economists had expected a 6.6 percent rise.

Fixed-asset investment, a crucial driver of the world’s second-largest

Factory evolution in the clouds

economy, also disappointed, rising 11.2 percent in the first seven months compared with the year-ago period, the weakest pace in nearly 15 years, the National Bureau of Statistics showed yesterday.

Markets had expected an 11.5 percent rise, which would have been a slight improvement from June and put the outlook for the second-half of the year on somewhat more solid footing.

Strengthening hold over oil market as price maker For China, the cost of importing roughly 200 million barrels of crude a month has fallen to US$10 billion from US$23 billion last summer Florence Tan and Henning Gloystein

C

hina’s growing ability to buy and sell millions of barrels of crude oil on the Asian physical market in a matter of minutes through its main trading firms has given China so much clout that other traders are often forced to follow its agreed prices.

Leading Chinese oil traders have cornered the market on several occasions since October last year. Early this month, Chinaoil, the trading arm of PetroChina, bought 5 million barrels of crude in just 30 minutes through Asia’s main pricefinding mechanism organised by Platts, part of McGraw Hill Financial Inc. Market power is shifting towards big consumers, with oil output at record highs and global demand slowing.

China’s main oil traders Unipec and Chinaoil have been able to cherry-pick the best offers and take advantage of cheap oil to build strategic reserves.

This year, China is challenging the United States as the world’s No.1 crude buyer, with weaker oil prices lowering

the cost of building China’s strategic petroleum reserves. China bought nearly 11 percent more crude in the first seven months of 2015 from a year earlier.

For China, the cost of importing roughly 200 million barrels of crude

KEY POINTS Two Chinese oil firms increasingly dominate physical market China takes advantage of cheap oil to build strategic reserves China’s crude import costs more than halved to US$10 billion/month

Property investment growth cooled to 4.3 percent, the weakest since March 2009, despite a pick-up in housing sales.

The investment figure is being closely watched as the government tries to quicken infrastructure spending to shore up growth.

Retail sales rose 10.5 percent in July from the same time last year, slightly below forecasts for 10.6 percent growth, which would have been even with June’s reading.

Auto sales fell 7.1 percent even as carmakers slashed prices and offered sweeter incentives.

The sluggish activity figures followed disappointing trade and inflation readings earlier this month that showed persistent weakness in the economy despite repeated stimulus measures.

The central bank has repeatedly cut interest rates and banks’ reserve requirement to boost credit and lower borrowing costs, and further policy easing is widely expected to avert a sharper slowdown.

“The July data is overall dovish (for policy) ... but in itself surely did not warrant such an extended fall in the yuan as the numbers are still highly respectable,” said Chester Liaw, an economist at Forecast Pte Ltd in Singapore.

Reuters

a month has fallen to US$10 billion at current prices around US$50 a barrel, from US$23 billion when prices were at US$115 a barrel last summer.

Nowhere has China’s move from price taker to maker been more obvious than in daily physical crude oil trading.

Unipec, the trading unit of Sinopec Corp, and Chinaoil often dominate daily trading, surpassing volumes dealt by Western majors.

Riding on China’s growth of the past decade, which has not only seen it become a top crude importer but also a large exporter of refined products, Sinopec and PetroChina have evolved from being passive oil importers to sophisticated traders of crude oil and refined fuels.

Since the second half of 2014, both firms saw oil traders ascend to top management, replacing executives of either planning or refinery manager background, company sources said.

Sinopec and PetroChina do not comment on trade-related matters.

The huge volumes exchanged by China’s two major traders are straining Asia’s benchmark price-finding mechanism in the physical oil market, the Dubai Market-on-Close (MoC) by Platts.

In a process called “the window” by many traders, the soaring activity of these traders has often led little space for other participants to trade in the oil price-making process.

Additionally, the government is slowly deregulating its import market, granting more licenses to independent refiners to buy overseas crude, further boosting demand not just for physical crude from the Middle East, but also for the main international crude futures benchmarks Brent and West Texas Intermediate (WTI).

Reuters

Business Daily | 11

August 13, 2015

Greater China

World’s largest steel industry shrinks Demand for steel in Asia’s largest economy is falling for the first time in a generation

S

teelmakers in China reduced output last month, adding to signs of waning demand in the world’s largest producer as companies grappled with overcapacity, sinking prices and slowing economic growth.

Crude-steel output fell 4.6 percent to 65.84 million metric tons from June, data from the National Bureau of Statistics showed yesterday.

Production in the first seven months was 476 million tons, 1.8 percent less than a year earlier.

Demand for steel in Asia’s largest economy is falling for the first time in a generation, spurring mills to ship record amounts of the alloy overseas as prices slump. The yuan sank yesterday for a second day after China devalued, and the move may help Chinese steelmakers sell even more of their output abroad. Lower steel production will hurt demand for iron ore, which tumbled to the lowest since at least 2009 last month.

“Many mills went through their maintenance programs during summer,” Ma Kai, an analyst at China International Capital Corp., said from Shanghai. The drop also

Some of the output cuts might become permanent as the government and market works in tandem to squeeze out the least- efficient and loss-making capacity Li Yaozhong, head of commodities, Beijing Low Risk Asset Management Co.

Baoshan Iron & Steel Co., are the linchpin of the global industry, accounting for about half of supply. The country’s production probably peaked in 2014, according to a forecast from the China Iron & Steel Association.

showed “that downstream infrastructure and property had no recovery, therefore demand for steel remained weak.”

Mills in China, including Hebei Iron & Steel Co. and

Product output

Output of steel products fell 6.2 percent to 92.3 million tons in July from a month earlier, according to the bureau. In terms of daily production, product output

averaged 2.977 million tons last month from 3.281 million tons a month ago, it said Steel reinforcement bar, used in construction, dropped to 2,102 yuan (US$327) a ton last month, the lowest price since at least 2003, according to Beijing Antaike Information. It was at 2,322 yuan on Tuesday, 16 percent lower this year.

Mills around Beijing including in Hebei, the largest producing region, may face government-ordered curbs later this month and in

September as policy makers seek to clean up the air for a parade and sports event. The moves will hurt steel output, Australia & New Zealand Banking Group Ltd. said on Tuesday.

Iron ore with 62 percent content in Qingdao fell 0.3 percent to US$56.22 a dry ton on Tuesday, according to Metal Bulletin Ltd. Prices, which bottomed at US$44.59 on July 8, are 21 percent lower this year.

Bloomberg

12 | Business Daily

August 13, 2015

Asia

Indonesia’s president reorganizes economic team A source familiar with Widodo’s reshuffle plan said he was keen to dispel impressions of weak leadership and policy muddle Gayatri Suroyo and Kanupriya Kapoor

KEY POINTS Just one political figure among those appointed Chief economics minister has run central bank and tax office New Indonesian cabinet members (L-R) Trade Minister Thomas Lembong; Coordinating Minister for Political, Legal and Security Affairs Luhut Pandjaitan; Coordinating Minister for Economic Affairs Darmin Nasution; Coordinating Minister for Maritime Affairs Rizal Ramli; Cabinet Secretary Pramono Anung, and Minister for National Development Planning Sofyan Djalil speak to journalists shortly before the inauguration ceremony

I

ndonesian President Joko Widodo put two experienced technocrats into key economic management posts yesterday in a cabinet reshuffle designed to reassure investors worried about a policy drift that has allowed growth to slip to a six-year low.

Widodo’s choice of ministers defied expectations that his own party would compel him to make political appointments, a move that may surprise critics who say he has

not been the robust leader they had hoped for when he took office last year.

Darmin Nasution, who was central bank governor from 2010 to 2013 and received his doctorate from the Sorbonne in Paris, was chosen to replace Sofyan Djalil as chief economic minister.

Nasution, 66, is widely respected in the business community and the financial markets, which may help

shore up confidence as the rupiah languishes at its lowest levels against the U.S. dollar in more than 17 years.

Another unexpected choice was the appointment of Harvardeducated financial executive Thomas T. Lembong as trade minister. Chief executive of Quvat Management, a Singapore-based private equity firm that invests in Indonesia, Lembong previously worked at Deutsche Bank and Morgan Stanley.

Trade minister a private equity and investment bank executive Lembong was a senior vice president at the Indonesian Bank Restructuring Agency that was set up revive the country’s banking system after the Asian financial crisis in 1998.

By appointing ministers with international experience and an external focus he may address concerns that his government too readily resorts to protectionism and is not wholly committed to nurturing foreign investment, the source said.

Malaysia’s Q2 growth quite tepid Some economists expect a trade recovery for Malaysia in the second half

A

tepid trade performance and weak domestic consumption likely pulled down Malaysia’s economic growth in the second quarter to its slowest pace in more than two years.

The median in a Reuters poll was annual growth of 4.5 percent, which would be the lowest since January-March 2013.

In this year’s first quarter, Malaysia had growth of 5.6 percent, stronger than most of its counterparts in Southeast Asia, as domestic demand was buoyant.

But in April, Malaysia implemented a 6 percent goods and services tax (GST).

That, together with plunging commodity prices and a sliding currency, hurt consumption.

“The economy slowed in 2Q15 on the back of the implementation of GST,

which led to softer sales and production in the domesticoriented manufacturing sector,” said Ambank in its research note.

The second quarter included half of the Muslim fasting month of Ramadan, which normally brings high consumption. But retailers

said GST contributed to sales plunging as much as 20 percent from a year earlier.

Tumbling currency

Analysts say there remains downside risks to growth, including political uncertainty.

Prime Minister Najib Razak is battling allegations of graft, which he denies, and of mismanagement involving state fund 1Malaysia Development Berhad (1MDB), which has debts of over US$11 billion. He is chairman of 1MDB’s advisory board.

“Tail risks around 1MDB and politics remain, which may continue to weigh on business sentiment,” said Bank of America Merrill Lynch in a research note.

Amid weakened global demand for Malaysia’s exports, the ringgit has been the worst performing emerging Asian

currency this year. It has lost more than 12 percent against the greenback and reached 17year lows.

Some economists expect a trade recovery for Malaysia in the second half in spite of China’s devaluation of the yuan, which will make Chinese exports more competitive.

Malaysia’s non-commodity export sector “looks set to benefit from the sharp depreciation of the ringgit,” Capital Economics said in a note prior to China’s devaluation.

Krystal Tan of Capital Economics said yesterday that if China’s move is a oneoff adjustment, then there might not be a big impact on Malaysia’s exports.

“In terms of competitive gains, Malaysia is still better off than most economies in Asia,” she said.

Reuters

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Business Daily | 13

August 13, 2015

Asia Supporters said the former governor of the capital, Jakarta, would root out corruption, promote people based on merit rather than connections and create an environment where a stalling economy could reignite and investment flourish.

Instead, he has been widely seen as sometimes out of his depth and struggling to get around entrenched vested interests.

Political patrons

Wellian Wiranto, an economist at OCBC bank, said new chief economics minister Darmin should have a strong understanding of both monetary and fiscal policy as former governor of the central bank and head of the tax office.

“There is thus a better chance of policy coordination,” he Wiranto said.

“At the end of the day, however, it will depend on whether he has the political air cover from his boss to do what he needs to do on the ground.”

Four other cabinet appointments were announced yesterday.

In a sign of Widodo’s growing independence from his political patrons, he accommodated only one additional political appointee from his own party, Pramono Anung as cabinet secretary, while the five others appointed were technocrats.

Widodo has faced severe public criticism over his perceived failure to stand up to vested interests and the demands of his party’s chief, former President Megawati Sukarnoputri, who backed him in last year’s election.

Luhut Pandjaitan, a former chief of special forces and close aide to Widodo, retained his role as chief of staff in the president’s office and was also appointed as coordinating minister for security and political affairs.

Reuters

Vietnam doubles currency trading band to counter yuan fall Dollar/dong transactions can now move in a band of plus or minus 2 pct around a mid-point, which the central bank sets daily Ho Binh Minh

V

ietnam doubled its trading band for interbank dollar/dong transactions yesterday, aiming to protect its exports by countering the adverse affects of a strengthening dollar and yuan devaluation, the central bank said.

The new band was introduced a day after China, Vietnam’s top trading partner, devalued its currency by nearly 2 percent.

The mid-point has been held at 21,673 dong per dollar since May 7, when the State Bank of Vietnam (SBV) devalued the dong by 1 percent for the second time this year, aiming to spur exports and curb demand for imports that has left it with a hefty trade deficit.

The May move met the government’s promise to let the dong fall 2 percent this year.

“Widening the dollar/dong trading band helps the government adjust exchange rates according to the global economic situation,” said Retail Research Manager Nguyen The Minh in Viet Capital Securities.

The wider band came as global

crude oil prices hit new lows, while the dollar has strengthened and the Chinese yuan was devalued strongly on Tuesday, the SBV said in a statement.

The new band would “create initiative and flexibility for the exchange rate” given adverse moves in the international market, and would help ensure the competitiveness of Vietnamese goods, it said.

Vietnam’s January-July exports rose 9.5 percent from a year ago to US$92.27 billion, below a 10 percent growth target set for 2015 and below growth of 14.1 percent in the same period a year ago.

Under the new band, the dong can move between 21,240 dong and 22,106 dong per dollar on the interbank market, the SBV said.

“The adjustment is understandable and should be seen as a positive sign as it will lure more foreign investment to the stock market thanks to a cheap Vietnamese dong,” said Minh from Viet Capital Securities.

Reuters

Australia’s CBA posts record profit CBA lifted its full-year cash profit by 5 percent Swati Pandey

C

ommonwealth Bank of Australia unveiled a A$5 billion (US$3.65 billion) rights issue and another record profit yesterday, completing a round of fundraising

by Australia’s “Big Four” lenders designed to strengthen their finances.

CBA, the country’s No. 2 lender by assets, announced a fully underwritten 1-for-23 rights issue at A$71.50 a share, a 12.9 percent discount to Tuesday’s close. This brings the total funds raised by Australia’s major banks since May to A$17 billion.

CEO Ian Narev said tighter regulatory capital requirements would not affect the bank’s dividend payments, which are among the highest in the Asia-Pacific region.

He flagged there were no further fund raisings in store for now, responding to fears that the search for cash could eat into shareholder returns.

“We are not changing our dividend policy,” he said at an earnings conference.

“With this additional capital, we will have more capital than all but two of the globally systemically important banks. So clearly, an extremely strong capital position going forward.”

Investors have sold off bank stocks this year after regulators demanded the major lenders set aside bigger cash buffers against their mortgage books, a key source of revenue, amid fears of a house price bubble.

CBA will issue about 71 million new shares, following which its Tier1 ratio will jump to 14.3 per cent, the highest among its domestic peers.

That compares with 14.4 percent at UBS, 12.3 percent at Royal Bank of Scotland and 13.5 percent at Lloyds.

Earlier this month, ANZ Banking Group tapped investors with a A$3 billion share placement while Westpac Banking Corp raised A$1.25 billion through a hybrid issue. National Australia Bank did a A$5.5 billion rights issue in May.

Record profits

CBA lifted its full-year cash profit by 5 percent to $A9.14 billion, a sixth consecutive record, compared with A$8.68 billion a year ago and a A$9.15

billion estimate from six analysts polled

by Reuters. The total annual dividend rose 5 percent to A$4.20.

Net interest margin, a core measure of profitability, fell 5 basis points to 2.09 percent while expenses grew 5 percent. Bad debt charges climbed 4 percent.

NAB posted 9 percent growth in third-quarter unaudited cash profit while ANZ flagged a spike in bad debts in its brief update last week.

CBA shares will remain on trading halt this week. They are down about 4 percent so far this year while the broader S&P/ASX200 index has gained 1 percent, reflecting investors’ worries about the impact of higher capital requirements.

Reuters

Bank of Japan officials fret over China’s slowdown Japanese exports may be hurt if China’s economic growth slows further, some Bank of Japan policymakers warned in their rate review last month, when China’s economic woes were among key topics of debate. The BOJ’s nine board members shared the view that overseas economies would continue to recover and keep Japan on track for a moderate economic recovery, minutes of the July meeting showed yesterday.

But they also said emerging economies would continue to lack momentum for the time being due largely to slowing Chinese demand, the minutes showed.

India seeks US$99 mln damages from Nestle India is seeking 6.4 billion rupees (US$99 million) in punitive damages from the local unit of Nestle SA, saying the maker of Maggi instant noodles engaged in “unfair trade practices.” The Department of Consumer Affairs has filed a class-action suit on behalf of a “large number of consumers” for the sale of “defective goods” and a product without the regulator’s approval, the government said in a statement. Nestle India Ltd., in a stock exchange filing earlier yesterday, said it could comment only after receiving a notice.

Philippines to miss rice production target The Philippines is set to miss its 2015 target for rice output after dry weather hurt the first-half harvest, raising the prospect of increased imports to boost stocks ahead worse weather. No-milled rice output this year is forecast to hit 18.86 million tonnes, the country’s statistics agency said yesterday, below both last year’s record harvest of 18.97 million tonnes and a government target of 20.08 million tonnes. The Philippines is already one of the world’s biggest rice importers and its state grains procurement agency has been given permission to import extra rice.

Freeport halts copper exports Freeport-McMoRan has stopped exporting since last month from one of the world’s largest copper mines that it runs in Indonesia, a spokesman said yesterday, as the U.S. miner awaits approval from the trade ministry. Riza Pratama, a spokesman for the company’s Indonesia unit, confirmed in a text message to Reuters that exports had stopped since “the last permit expired July 25”. Freeport, which runs the Grasberg mine in Papua, halted shipments after failing to obtain an exemption from a new rule requiring mining exports to use letters of credit, the Jakarta Globe newspaper reported yesterday.

Australian consumer confidence surges A measure of Australian consumer sentiment surged in August as people became more optimistic about the economic outlook and their own finances, a surprisingly upbeat result that repaired two months of disappointment. The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed its index of consumer sentiment jumped a seasonally adjusted 7.8 percent in August, from July when it fell 3.2 percent. The index reading of 99.5 was 1 percent higher than in August last year and showed optimists almost matched pessimists.

14 | Business Daily

August 13, 2015

International S.Africa’s coal sector wages offer rejected South Africa’s National Union of Mineworkers (NUM) rejected salary increases between of 5 percent to 6.5 percent yesterday from the employers’ body, the Chamber of Mines, and said the offer was “insulting.” Workers want pay increases of up to 15 percent, while the chamber - which represents firms such as Glencore, Anglo American Coal and Exxaro - had offered a revised wage hike from its initial offer of between 4 to 6.5 percent. The Chamber of Mines tabled its revised offer on Tuesday and is meeting with unions again on Wednesday and could possibly offer a further increase.

International Energy Agency forecasts oil glut through 2016 Non-OPEC supplies will shrink by 200,000 barrels a day in 2016 to 57.9 million a day, with the U.S. the “hardest hit” among those producers

about 850,000 barrels a day in 2016, the IEA estimated. The production surplus in the second quarter was 3 million barrels a day, the highest in 17 years, it said.

S&P may cut Buffett’s Berkshire Standard & Poor’s said it may downgrade Warren Buffett’s Berkshire Hathaway Inc because the company plans to spend a large amount of its cash to finance its roughly US$32.3 billion purchase of aerospace parts maker Precision Castparts Corp. Berkshire has a “AA” credit rating from S&P, the third highest grade. S&P analyst Laline Carvalho wrote that the agency may lower the rating by one or two notches within 90 days because of “uncertainty around the funding of the acquisition,” and its impact on cash resources and leverage at the parent company.

Economic zone around Egypt’s Suez Canal President Abdel Fattah el-Sisi issued a decree establishing an economic zone for Egypt’s Suez Canal, the country’s state news agency said. Egypt inaugurated a major extension of the Suez Canal last week which President Sisi hopes will power an economic turnaround in the Arab world’s most populous country. The decree establishes a 460-square-kilometer economic zone around the canal the government says will be used to develop an international industrial and logistics hub that will attract foreign investment. Egypt expects the economic zone to eventually make up about a third of the country’s economy, the investment minister said.

Maduro promotes OPEC meeting Venezuelan President Nicolas Maduro said that his government is “making all the necessary contacts” to call for an extraordinary meeting of the Organization of Petroleum Exporting Countries (OPEC) to “defend” the international oil price, which has plummeted over the last year. “We are making all the necessary conversations with the OPEC government to call for an extraordinary meeting and also in coordination with Russian President Vladimir Putin,” Maduro said in his weekly TV program.

Russia to expand food embargo Russia will ban food imports from seven countries that have decided to support the European Union’s (EU) sanctions against Moscow, the country’s Deputy Prime Minister Arkady Dvorkovich said.

“Our principle is that everybody who imposes sanctions on us will face retaliatory action,” Dvorkovich told reporters.

The Russian government will introduce the ban in the near future, after discussing the details, Dvorkovich said without identifying the countries. Montenegro, Albania, Iceland, Norway, Liechtenstein, Ukraine and Georgia have earlier confirmed to the EU their decisions to extend sanctions on Russia for a year.

Breakneck pace

OPEC headquarters

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he global oil glut will last through next year as surging demand and faltering supply growth fail to clear the surplus, according to the International Energy Agency.

Record inventories will expand further even as consumption climbs by the most in five years in 2015 and supplies outside OPEC contract next year for the first time since 2008, the IEA predicted. Stockpiles won’t be diminished until the fourth quarter of next year, or even later if sanctions on Iranian crude are lifted, the agency said.

Oil slumped to a six-year low near US$40 a barrel in New York as OPEC members boost output to defend market share, U.S. production withstands falling prices and concerns grow that China’s economy is becoming less stable. Supply could expand further after Iran reached an agreement with world powers on July 14 that will remove restrictions on its oil sales in return for curbing nuclear development.

The global oversupply will average 1.4 million barrels a day in the second half of this year, straining available storage capacity, before easing to

Moody’s cuts Brazil rating but says investment grade is safe Government revenue has plunged since the beginning of the year Walter Brandimarte

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oody’s Investors Service cut Brazil’s credit rating to near-junk status but said the country’s coveted investment grade status is safe for now, proving some relief to investors and the government of President Dilma Rousseff.

Moody’s decision comes two weeks after competing ratings firm Standard & Poor’s warned Brazil could lose its investment grade in the coming year if fallout from a number of corruption investigations further weigh on economic growth.

In contrast, Moody’s said it believes Latin America’s largest economy has the ability to achieve a turn-around in growth and fiscal performance in the second half of Rousseff’s fouryear term, which started January 1.

“Even though Moody’s expects the economic environment to remain poor and political dynamics to remain relatively unstable in 2015 and 2016, the rating agency does not currently expect so severe a deterioration in debt metrics as to threaten Brazil’s investment-grade rating,” the agency said in a statement.

Moody’s cut Brazil’s rating to Baa3, its lowest investment grade level, from Baa2. It also assigned a stable outlook to the new rating, which means it is not likely to change over the next 12-18 months.

Brazil needs economic growth of 2 percent coupled with a primary budget surplus of 2 percent of GDP to stabilize its debt ratios, Moody’s analyst Mauro Leos said in a phone interview.

“Global supply continues to grow at a breakneck pace,” the IEA said. The Organization of Petroleum Exporting Countries kept output near a threeyear high at 31.79 million barrels a day in July as record Iraqi production helped offset a pullback by Saudi Arabia, according to the report.

The IEA boosted estimates for the amount of crude needed from OPEC in 2016 by 600,000 barrels a day to 30.8 million a day. That’s still about 1 million a day lower than current output. Iran could lift production to 3.6 million barrels a day from about 2.9 million currently “within months” of international trade restraints being lifted, the IEA said.

Global demand in 2015 will grow at more than twice the pace last year as low prices spur consumption in the U.S. and economies recover, the agency said. World oil use will expand by 1.6 million barrels a day this year to average 94.2 million barrels a day.

The IEA raised its estimate for consumption in 2016, projecting growth of 1.4 million barrels a day to total 95.6 million a day. That’s an increase of 400,000 a day from last month’s report.

Bloomberg News

Government revenue has plunged since the beginning of the year, however, as Brazil sinks into a deep recession expected to last through 2016.

Further clouding the economic outlook is a growing political crisis that has raised questions about Rousseff’s ability to serve out her term.

“Less worse than expected”

The possibility of a downgrade has spooked politicians as well as investors as it would increase borrowing costs to the government and Brazilian companies alike.

Finance Minister Joaquim Levy said the Moody’s statement “shows the priorities that we need to have with regard to maintaining the quality of our public debt.”

Planning Minister Nelson Barbosa said he thought Brazil would not lose the investment grade rating, calling the country’s fiscal trajectory “sustainable.”

Levy has been pursuing a series of spending cuts and tax hikes aimed at curbing budget deficits that had spiralled during Rousseff’s first term in office.

“The news was less worse than expected since investors were beginning to believe that Moody’s would try to catch up with S&P and leave Brazil closer to losing investment grade,” said Alexandre Póvoa of Canepa Asset Management in Rio de Janeiro.

Reuters

Business Daily | 15

August 13, 2015

Opinion

The promise and peril wires of macroprudential policy Business

Leading reports from Asia’s best business newspapers

Barry Eichengreen

THE KOREA HERALD

Professor at the University of California, Berkeley, and the University of Cambridge

The government will put the top priority of its fiscal policy on revitalizing the slackening economy and make every effort to achieve an economic growth rate of 3 percent this year, the finance minister said yesterday. Chairing the fiscal policy strategy meeting in Seoul, Choi Kyung-hwan said that what is important at present is growth, making clear this goal takes precedence over the need to maintain a fiscal balance and calls to raise tax rates. While the MERS scare has receded somewhat, slumping exports and uncertainties in the Chinese financial market are fuelling downside risks, he said.

BANGKOK POST The Energy Ministry says liquefied natural gas (LNG) imports will double to 40 million tonnes a year by 2036 from the current forecast if the country fails to diversify its power mix and relies too much on gas. According to the country’s 2015 power development plan, Thailand is scheduled to import 20 million tonnes of LNG in 2036, up from an estimated 3 million tonnes this year. But LNG imports are set to spiral in the absence of a broader power mix. In response, Thailand will diversify in power generation.

THE PHNOM PENH POST Chinese company Ratelong Inc has plans to build a rice research facility and set up an eco-tourism business in Mondulkiri (Cambodia), after the proposal was welcomed by the minister of commerce earlier this week. The company, which according to the Ministry of Commerce’s website has a wide portfolio of businesses – from exports to advertising and construction – will now submit a proposal to the Council for Development of Cambodia, according to ministry spokesman Ken Ratha.

“However, Minister Chanthol expressed his welcome and support to interest expressed by the company in investing in Cambodia,” Ratha added.

TAIPEI TIMES Asustek yesterday said it expects its notebook computer shipments to grow mildly this quarter from last quarter, and predicted better smartphone business in the second half of this year. The PC maker made the comments after releasing its second-quarter financial results, which beat analysts’ forecasts, at a time when the company is working to improve its profit margins against market headwinds.

“This quarter’s notebook shipments will grow from last quarter, mainly due to the lower shipment base in the last quarter, but not because of market demand,” Asustek CEO Jerry Shen told a media briefing after an investors’ conference in Taipei.

Sweden’s central bank action led to deflation, from which they are still struggling to recover

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entral bankers continue to fret about frothy asset markets – as well they should, given the financial crisis of 2008-2009. Having been burned once, they are now doubly shy. And China’s recent stock-market plunge has certainly not eased their fears.

Securities prices are extraordinarily high, considering the backdrop of flaccid economic growth. Bond prices have soared on the back of quantitative easing by the Bank of Japan, the Federal Reserve, and the European Central Bank.

Property prices from London to San Francisco have risen to nosebleed-inducing levels.

What, if anything, should be done to minimize the risks of a rapid and sharp asset-price reversal?

For many years, this question was framed according to the “lean versus clean” debate: Should central banks “lean” against bubbles, damping down asset prices that create risks to financial stability, or just clean up the mess after bubbles burst? Proponents of the latter approach, such as former Fed Chair Alan Greenspan, express doubt that policymakers can reliably identify bubbles, and are generally uneasy about managing asset prices.

To be sure, central bankers cannot know for sure when asset prices have reached unsustainable heights. But they cannot know for sure when inflation is about to take off, either. Monetary policy is an art, not a science; it is the art of taking one’s best guess.

And, as the 2008-2009 crisis demonstrated, merely cleaning up after the bubbles burst is very costly and inefficient.

So what should central bankers do instead? Ideally, they would

develop a set of specially tailored financial tools. For example, raising banks’ capital requirements when credit is booming could restrain lending and strengthen banks’ cushion against losses, while setting ceilings on loan-to-value ratios could rein in exuberant property markets, thereby heading off excessive risks for borrowers and lenders.

Unlike such tools, interest-rate policy is a blunt instrument for dealing with financial imbalances. And using interest rates to address such concerns may interfere with the central bank’s primary objective of keeping inflation near target.

Unfortunately, the development and use of macroprudential tools faces considerable economic and political obstacles. The Bank of Spain’s attempt to implement adjustable capital requirements for banks, through its system of “dynamic provisioning,” did little to deter aggressive lending during the country’s property boom. Once a mania gets underway, the temptation to join is simply too strong.

Macroprudential policy may also fail when the regulatory perimeter is too narrow. In 1929, the Fed attempted to restrain Wall Street with a policy of “direct pressure,” coercing member banks not to lend to security brokers and dealers. In 2006, it encouraged its members not to lend to commercial property developers. In both cases, other lenders stepped in to meet the demand for credit, neutralizing the authorities’ macroprudential initiative.

And, while countries like the United Kingdom and New Zealand have experimented with giving central banks the power to place ceilings on loan-

Monetary policy is an art, not a science; it is the art of taking one’s best guess. And, as the 2008-2009 crisis demonstrated, merely cleaning up after the bubble’s burst is very costly and inefficient

to-value ratios, this remains a bridge too far in the United States. In a country where homeownership is virtually an entitlement, measures making it more difficult would whip up a political firestorm.

Any attempt by the Fed to impose caps on loan-tovalue ratios would also excite Americans’ fears of concentrated financial power – fears that have intensified since the crisis. By seeming to favour one segment of society, such an initiative would merely provide more fodder to those who argue for greater political oversight of the Fed.

Policymakers should respond to these challenges by working hard not only to develop effective macroprudential tools, but also to demonstrate that they can be deployed even-handedly. But even with their best efforts, the process will take time.

In the meantime, situations may arise in which the interest rate is the only instrument available for limiting financial excesses. And, as the recent crisis demonstrated, there are circumstances when central bankers should use it. Sometimes, the costs of inaction – of permitting financial risks to develop – are simply too high.

There are two key conditions for using policy interest rates as a macroprudential tool.

The first – and most obvious – is that risks to financial stability must be substantial.

But the second condition is equally important: adjusting the interest rate should not jeopardize the central bank’s other key objective, namely achieving its inflation target.

The Swedish Riksbank provides a cautionary case in point. In 2010, when it began raising its policy rate to contain financial excesses, it put price stability at risk.

Before long, Sweden had succumbed to deflation, from which it is still struggling to recover.

Similarly, after its policy of direct pressure failed in 1929, the Fed raised interest rates to rein in the stock market. Its attempt to prevent a bubble came at the cost of inducing a depression. The point of seeking more effective macroprudential policies is to avoid such tragic bargains.

Project Syndicate

16 | Business Daily

August 13, 2015

Closing HKEx books record Q2 but mainland turmoil clouds outlook Hong Kong Exchanges & Clearing Ltd (HKEx) said a stock trading link with its Shanghai counterpart helped it to record quarterly profit, but that market turmoil in China could turn investors off mainland shares and delay a link with Shenzhen.

Net profit more than doubled to HK$2.52 billion (US$324.95 million) in April-June as trading volume received a boost from HKEx’s exclusive Stock Connect with Shanghai - allowing foreign investors to buy Chinese shares via Hong Kong - while excitement over booming China stocks pushed up Hong Kong-listed securities.

Alibaba quarterly revenue misses estimates Alibaba Group Holding Ltd’s revenue for the three months ended June rose 28 percent, missing analysts’ estimates, with growth slowing to its lowest rate in more than three years. China’s biggest e-commerce company posted quarterly revenues of US$3.27 billion, below an expected US$3.39 billion, according to a Thomson Reuters SmartEstimate poll of 28 analysts.

The drop in revenue growth came as gross merchandise volume (GMV) -- the total value of goods transacted across Alibaba’s platforms -- rose 34 percent, also rising at its slowest pace in more than three years.

Pressure building to weaken yuan further A source says there is pressure for an overall devaluation of almost 10 per cent

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hina’s move to devalue its currency reflects a growing clamour within government circles for a weaker yuan to help struggling exporters, ensuring the central bank remains under pressure to drag it down further in the months ahead, sources said.

The yuan has fallen almost 4 percent in two days since the central bank announced the devaluation on Tuesday, but sources involved in the policy-making process said powerful voices inside the government were pushing for it to go still lower.

Their comments, which offer a rare insight into the argument going on behind the scenes in Beijing, suggest there is pressure for an overall devaluation of almost 10 percent.

“There have been internal calls for the exchange rate to be more flexible, or depreciated appropriately, to help stabilise external demand and growth,” said a senior economist at a government think-tank that advises policy-makers in Beijing.

“I think yuan deprecation within 10 percent will be manageable. There should be enough depreciation, otherwise it won’t be able to stimulate exports.”

The Commerce Ministry, which yesterday publicly welcomed the devaluation

KEY POINTS Clamour in govt circles for weaker yuan to help exporters The yuan has fallen almost 4 percent in two days Sources suggest pressure for devaluation of almost 10 pct Commerce Ministry led push to abandon strong-yuan policy

as an export stimulus, had led the push for Beijing to abandon its previous strongyuan policy.

Reuters could not verify how much influence Commerce Ministry officials had wielded in the decision to drive the yuan lower, but the sources said its officials were claiming victory after a long lobbying campaign against what some of them regarded as over-zealous reform led by the central bank.

The People’s bank of China (PBOC) had been keeping the yuan strong to support the ruling Communist Party’s goal of shifting the economy’s

main engine from exports to domestic demand.

A stronger yuan boosts domestic buying power, helps Chinese firms to borrow and invest abroad, and encourages foreign firms and governments to increase their use of the currency.

Until the devaluation, the currency had appreciated overall by 14 percent over the past 12 months on a tradeweighted basis, according to data from the Bank for International Settlements.

Change of course

Premier Li Keqiang had repeatedly ruled out devaluation, but increased

risks to economic growth, exacerbated by recent stock market turmoil, increased pressure to reverse course, the sources said.

“Exporters face very big pressure, and China’s economy also faces very big downward pressure,” said a researcher at the commerce ministry’s own think-tank, which recommended earlier this year that the government should unshackle the yuan.

He said he believed the yuan could fall to 6.7 by year-end, which would represent a near 9 percent decline since the eve of the devaluation.

The PBOC described its

Cambodian unions warn of strikes Taiwan steps up easing

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arment factories have indicated they will reject demands for an increase in the minimum wage next year, angering unions and risking upheaval in a crucial economic sector for years dogged by unrest.

A survey distributed among members of the Garment Manufacturers Association in Cambodia (GMAC), which represents the country’s more than 500 factories, showed 63 percent of members want no raise and 26 percent support only marginal increases of US$1-US$5.

It comes ahead of talks next month between the government, factories and unions to address demands for a sharp increase from the current monthly US$128 minimum to US$177 in 2016.

A final decision will be made in October.

Any flare-up would be a poorly timed blow to Cambodia, for which garments and footwear orders for brands like Gap, Nike, Adidas and H&M provide crucial jobs and are a key driver of the fledgling economy. Sustaining the US$5 billion sector is a tricky balancing act for Cambodia.

Reuters

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devaluation as a one-off move designed to make the currency more responsive to market forces.

The central bank guides the market daily by setting a reference rate for the yuan, from which trade may vary only 2 percent. On Tuesday, it said it was setting the midpoint based on market forces, which have been willing the yuan lower.

Beijing prefers a gradual devaluation because a single, big move could spark capital flight and undermine its goal of fostering global use of the yuan in trade and finance, sources said.

Reuters

Receiving machines to adapt to new 100 yuan note

aiwan is quietly easing monetary conditions to spur growth and prevent capital flight as its currency plunges after China’s surprise yuan devaluation.

The Central Bank of the Republic of China (Taiwan), known as CBC, lowered the rate on overnight certificates to 0.384 percent yesterday, after reducing it to 0.386 percent a day earlier in its first such cut since 2012, according to people familiar with the matter.

The one-day debt is sold daily to adjust cash supply and the rates and volumes aren’t released publicly.

The CBC will sell 14-day certificates at 0.47 percent this week, compared with 0.5 percent when it last sold debt of that maturity in July, the authority said in a statement yesterday.

When asked about the central bank’s latest measures, E-Dawn Chen, director-general at CBC’s banking department, said by phone yesterday it will “flexibly adjust” open-market operations according to market changes. He declined to give further details.

The local dollar lost 1.2 percent to close at NT$32.465 versus the greenback, the weakest since June 2010, according to Taipei Forex Inc. It fell 1 percent on Tuesday.

hina’s central bank announced yesterday that it will ask manufacturers of cash receiving equipment to upgrade their products for the new 100-yuan bank note.

The People’s Bank of China (PBOC) said on Sunday it will issue a new 100-yuan bank note starting November 12. Although the existing machines will not necessarily be replaced after the new bank notes are issued, they should be upgraded, industry insiders said.

Producers of counterfeit currency detectors, vending machines and ATMs should sign up to test their equipment to see if it requires upgrading starting yesterday in order to ensure effective currency recognition and protect the legitimate rights and interests of cash holders, the PBOC said.

The new bank note will have enhanced security features compared to the 2005 series, making it harder to counterfeit and easier for machines to read, the PBOC said.

The 100-yuan note is the largest denomination of the Chinese currency. The old version of the 100-yuan note will stay in circulation.

Bloomberg News

Xinhua

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