Macau Business Daily September 3, 2015

MOP 6.00

Saved by the Handset

Closing editor: Joanne Kuai

Back in the black. SmarTone’s operations in Macau have reported an operating profit of HK$1 million for the year ended June. With revenue increasing nearly 14 pct. Higher handset profits are the reason.

Group-wide, the company’s net profit surged 74.2 per cent to HK$935 million

Year IV

Number 872 Thursday September 3, 2015

Publisher: Paulo A. Azevedo

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Resolute in Recession

Here for a while. Chief Executive Chui Sai On has no intention of relaxing newly introduced austerity DSSOPT reshuffles, measures. Even if gross gaming revenue exceeds MOP20 billion this month, he said. In addition, urban planning office head position vacant Secretary for Economy and Finance Lionel Leong said a second round of austerity measures is likely Page 2 if further economic ‘adjustment’ is considered necessary Page

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Big Victory

Page 4

AIIB loans not conditioned to borrowers’ changing policies

Wynn Resorts has something to celebrate. Receiving a vital permit for its US$1.7 bln Boston-area casino. The project, however, remains mired in controversy

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Chinese oil market reform will lead to new benchmark

Pages 8 & 9

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Chinese Whispers

Sure Bet

Experts agree. The Chinese central bank can support the national currency until the end of 2015 only. China needs to keep at least US$2.7 trillion in hand to avoid potential shortfalls

Despite losing a packet. The Macau Jockey Club concession is to be renewed for another two years. Macau Horse Racing Co. Ltd. is to pay the gov’t MOP30 million for the privilege

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Gaming www.macaubusinessdaily.com

Fosun Int’l mulling purchase of Novo Banco Ásia’s parent bank

Thumbs Down

HSI - Movers September 2

Name

%Day

Belle International Ho

+1.45

CK Hutchison Holdings

+1.38

Want Want China Hol

+1.28

China Life Insurance C

+0.78

China Overseas Land &

+0.68

CITIC Ltd

-3.73

CNOOC Ltd

-4.12

Galaxy Entertainment

-4.18

Kunlun Energy Co Ltd

-4.28

Bank of Communicatio

-5.66

Source: Bloomberg

I SSN 2226-8294

Unrealistic expectations. Deutsche Bank analysts say that gaming revenue growth predictions for 2016 are way off. Continuing turbulence in the VIP market and junket illiquidity point in only one direction, says the German bank

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2 | Business Daily

September 3, 2015

Macau SmarTone's Macau operations back in the black Stronger handset sales boost SmarTone's Macau results

H Jockey Club horseracing contract extended another two years The Macau Jockey Club will continue to run its horse‑betting business until 2017, paying MOP30 million to the government during this period João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he government and the Macau Horse Racing Co. Ltd., which operates the Macau Jockey Club, have reached an agreement to extend the current contract for its horse-betting business until 2017 although the contact has yet to be signed, Business Daily has learned from sources.

The new contract will be published next week in Macau’s Official Gazette, with the signature only pending the schedule of the Secretary for Economy and Finance, Lionel Leong Vai Tac. Yesterday, Lionel Leong was in Beijing attending the Central Government’s official ceremony celebrating the 70th anniversary of the Chinese People’s Anti-Japanese War and the World Anti-Fascist War Victory Commemoration Day.

The new contract is similar to the previous one and involves a payment of MOP15 million per year from the Macau Horse Racing Co. to the government for the exclusive right to run the horseracing betting business in the territory. This amount has remained stable since 2005. At the time, the company managed to guarantee a decrease of 50 per cent of the concession fee as the contract signed in 1999 defined that Macau Horse Racing Co. would have paid MOP30 million per year.

Business Daily contacted Macau Horse Racing about the renewal of the contract but the company had not replied by the time the story went to press.

Macau Horse Racing Co. Ltd. has held the monopoly for horseracing

betting since 1978 and the last contract, renewed by the Government about 10 years ago, expired on Monday August 31.

The losses of Macau Jockey Club have been increasing; last year, the company lost MOP51.25 million compared to a loss of MOP41.4 million in 2013, according to information published in Macau’s Official Gazette. The Club has failed to make an annual profit since 2005.

The city’s gross revenue from horseracing betting has declined 52.6 per cent year-on-year to MOP100 million during the first half of this year from MOP190 million in the first six months of last year. In 2014, revenue from horseracing betting had already declined 16.2 per cent year-on-year to MOP306 million from MOP365 million in 2013.

Revenue from horseracing betting amounted to less than 0.1 per cent of Macau’s overall gross gaming revenue of MOP352.71 billion.

ong Kong-listed mobile network operator SmarTone Telecommunications Holdings Ltd. said its operations in Macau have reported an operating profit of HK$1 million (US$129,003) for the year ended June, a turnaround from the loss of HK$17 million registered in the previous financial year.

SmarTone's results in Macau return to the black amid higher handset profits, the company told the Hong Kong Stock Exchange in its annual results filed on Tuesday.

The mobile network operator's revenue generated here has gone up by nearly 14 per cent to HK$858.15 million for the year ended June, according to the filing.

SmarTone, a subsidiary of Hong Kong-listed conglomerate Sun Hung Kai Properties, does not operate a fixed-line network business in Hong Kong or Macau. In late June, SmarTone was approved by the Macau telecommunications regulator to provide 4G services to the city under a licence valid for eight years.

Group-wide, the company's net profit surged 74.2 per cent to HK$935 million for the full year on the back of strong growth in sales and profit of handsets.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) of SmarTone rose by 14 per cent to HK$2.9 billion.

SmarTone's handset and accessory sales surged 67 per cent year-on-year to HK$13 billion with both sales volume and average unit selling price increasing in the period.

The mobile network operator’s service revenue, on the other hand, rose by a much more modest 3 per cent to HK$5.56 billion. Despite the higher local mobile service revenue achieved, part of it has been offset by lower roaming service revenue.

Total subscriber numbers grew to 1.96 million in the period, while the postpaid monthly average revenue stood at HK$294.

SmarTone's group-wide revenue rose 41 per cent year-on-year to HK$18.66 billion for the whole year.

The company raised the dividend payout ratio to 75 per cent of net profit, an increase from 60 per cent from a year earlier. The rise was backed by a healthy balance sheet, strong operating cash flow and the conclusion of Hong Kong's 3G spectrum renewal auction in December.

S.L.

Leading urban development and planning officials vacate posts

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ince August 16, Mr. Chan Weng Hei has ceased to be the head of the urban development department at the Land, Public Works and Transport Bureau (DSSOPT); likewise, Mr. Lao Iong no longer heads up the urban planning department of the Bureau, a government dispatch has announced.

The dispatch, only gazetted

yesterday, was signed by Bureau Director Li Can Feng on August 27. Chan and Lao’s departure from the posts follows as their renewed appointment term has ended, the announcement briefly stated.

The two veteran urban development and planning department heads are now working as senior consultant technicians at the Bureau.

Business Daily | 3

September 3, 2015

Macau

CE: No reprieve on austerity measures The Secretary for Economy and Finance confirmed that a second round of austerity measures is likely if further economic ‘adjustments’ are deemed necessary in the future Stephanie Lai

sw.lai@macaubusinessdaily.com

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SAR Chief Executive Fernando Chui Sai On says the austerity measures now in practice will not be cancelled even if gross gaming revenue for this month exceeds MOP20 billion (US$2.5 billion).

Mr. Chui briefed reporters yesterday before departing for Beijing to attend the commemorative events for the 70th Anniversary of the Chinese People’s Anti-Japanese War and World Anti-Fascist War Victory Commemoration Day. “Our principle is that we are not reducing the spending on policies related to the livelihood and social welfare of the public. But for all other costs that we consider non-essential or not urgent the government is going to take the lead in being cautious in granting such costs,” Mr. Chui told reporters.

The Chief Executive also noted that he was optimistic that the “popular” wealth sharing plan could continue next year if a surplus is registered for this fiscal year – although he stressed that he could not make a definite pledge on the plan now before the collation of more economic statistical data.

Secretary for Economy and Finance Lionel Leong Vai Tac, who also went to Beijing yesterday, told reporters that the announced austerity measures could save the government MOP1.4 billion from September to December.

Mr. Leong added that a second round of austerity measures is likely if further economic “adjustments” are considered necessary in future, stressing, however, that these measures would again leave the city’s social welfare expenses unaffected.

The Secretary also expressed confidence in achieving a surplus for this fiscal year.

The government’s fiscal surplus was MOP27.2 billion for the first seven months of this year, down 59.1 per cent from a year earlier as its revenue was massively hit by the drop in direct taxes on gaming.

The Macau Government levies an effective tax rate of 39 per cent on casino revenue: 35 per cent in direct government tax plus 4 per cent on a range of community efforts.

Reining in

On Tuesday, the local government announced the immediate implementation of a set of cuts in public spending on the heels of official data showing the continuous decline in casino revenue for the

15th consecutive month in August: the city’s gross gaming revenue was down 35.5 per cent year-on-year to MOP18.62 billion in the month, while its cumulative gaming revenue for the first eight months this year amounted to MOP158.88 billion, a level that translates into a tally that fell below the government target of MOP20 billion a month for the full fiscal year of 2015.

The cost-cutting measures include the “freezing” of 5 per cent of budgeted consumption spending - mainly on office supplies and other consumables - for government departments and autonomous bodies such as the Social Security Fund and Macao Foundation.

The measures also include the freezing of 10 per cent of budgeted investment spending (on items such as furniture purchase or minor construction) for these departments and bodies.

Talking to reporters on the sidelines of a separate event yesterday, the Secretary for Administration and Justice, Sonia Chan Hoi Fan, said that their upcoming adjustment of civil servants’ pay will take into account the city’s economic condition; but she did not detail whether the austerity measures would impact the salary adjustments of civil servants for next year.

She added that the government is now studying proposals submitted by the Civil Servants Salary Adjustment Assessment Committee.

The departments working under the Administration and Justice portfolio would also not increase their budget for financial assistance in compliance with the MSAR Government’s austerity drive, Ms. Chan noted.

Stamps marking 70th anniversary of V-Day issued

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acau will issue commemorative stamps marking the 70th anniversary of victory of the Chinese people’s resistance against Japanese aggression today, Macau Post said at a press briefing on Tuesday.

A set of stamps comprises two stamps with a face value of MOP2 and MOP5.5, which vividly showcase the heroic bearing of how Chinese people resisted the Japanese invaders.

One stamp - titled ‘July 7th Incident’ - depicts a

Chinese soldier aiming his rifle, with the famous Marco Polo Bridge in the background.

The other - titled ‘Nationwide War of Resistance’ – takes the Great Wall as its backdrop, and depicts Chinese people fighting the enemy.

About 4,000 copies of first-day covers and 3,000 copies of information leaflets will be published along with 500,000 sets of stamps from Thursday, the head of Macau Post told the press.

Xinhua

4 | Business Daily

September 3, 2015

Macau

Fosun International mulling purchase of Novo Banco Ásia’s parent bank The Chinese group is negotiating the acquisition of the Portuguese Novo Banco, after a deal for the sale of the bank to Chinese insurance company Anbang collapsed João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he Portuguese Central Bank is negotiating the sale of Novo Banco, the parent company of Novo Banco Ásia, with the Chinese group Fosun, according to the Portuguese press.

The news emerged before the Portuguese Central Bank issued a press release announcing that the exclusive negotiations with the Chinese group Anbang for the sale of the rescued bank had collapsed.

According to local press, the acquisition of the parent bank of Novo Banco Ásia by Anbang failed because the Chinese group was not willing to assume the responsibility of future capital increases that may be necessary. At this moment the bank is going through stress tests and the results may require this capital increase.

In a statement, the Central Bank also clarified that the negotiations for the sale of the rescued bank would begin with the second best offer of the public tender, which is said by local press to be by Fosun International. This news

comes as a surprise as it had always been reported that the second best offer was from American group Apollo Global Management.

The goal of the Portuguese Government is to complete the

negotiations with Fosun International within ten days. However, for negotiations to succeed Fosun would have to meet the initial bid from Anbang, which was around 3 billion euros (MOP27 billion).

The Chinese group now invited to start negotiating is already operating in Portugal as it controls insurance company Fidelidade (which has a branch in Macau) and the private hospital group Luz Saúde.

Should negotiations with the Shanghai-based group fail, the Portuguese bank can still negotiate with Apollo Global Management as its final option for the sale.

Following an initial public tender for the sale of Novo Banco, Fosun International, Anbang and Apollo Global Management were the selected contenders to buy the Portuguese bank.

Novo Banco was created in August 2014 from the healthy assets of Banco Espírito Santo (BES), which was split into ‘good’ and ‘bad’ banks after being rescued by the resolution fund of the Portuguese Central Bank. The so-called good bank, which includes Novo Banco Ásia, is wholly owned by the resolution fund and is not listed on the stock market.

Customs bust jewellery group selling counterfeit Chanel

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acau Customs has busted a chain jewellery group suspected of selling counterfeit products. A total of MOP2.17 million was involved, with six men and three women, aged between 24 and 58, taken in for questioning.

Customs say they received a tipoff from the rights holder of Chanel that several shops of a locally renowned jewellery chain group in Central and the Northern District of Macau were selling counterfeit products that infringed upon their copyright.

Following an investigation, a raid on the shops was launched on Tuesday. Some 108 items of jewellery worth more than MOP2 million were confiscated from 8 shops, five of them using the title of ‘Certified Shop’.

The case has been handed to the Public Prosecutor’s Office.

Meanwhile, the Consumer Council says it has frozen the entitlement of five shops involved to the ‘Certified Shop’ logo and will decide whether to suspend the shops’ entitlement once investigations are completed and a verdict announced.

GDI receives 17 bids for Island Hospital building foundations

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he Infrastructure Development Office (GDI) has announced that it has received 17 bids for the pillar foundations of the comprehensive services and administrative building of the Islands District Medical Complex.

The building will be constructed on the south side of the site and

occupy around 4,900 square metres.

It will have 12 floors above the ground and three more underground.

GDI said that following the public open bid, one tender was not accepted. The price quoted ranged from MOP125 million to MOP212.181 million. Construction is expected to be started by the end of this year and will create 60 jobs.

Business Daily | 5

September 3, 2015

Macau

Deutsche Bank: Growth expectations for next year “unrealistic” The market consensus expects gaming revenue to increase between 8 and 15 per cent next year but Deutsche Bank forecasts a decrease of 7 per cent João Santos Filipe

jsfilipe@macaubusinessdaily.com

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nvestors should not expect 2016 to bring the long-awaited recovery to the gaming market, even if the opening of Studio City on October 27 results in an increase in demand.

This is the view shared by the two latest research notes published by Deutsche Bank, after it was known that gaming revenue had declined 35.5 per cent year-on-year during August to MOP18.62 billion (US$2.33 billion) from MOP28.88 billion.

“Assuming limited aggregate incremental demand from the Studio City opening in late October and barring an unforeseen turnaround in the market we believe the first quarter of 2016 is poised to start the year with, at minimum, a high teens year-on-year decline”, the report written by analysts Carlo Santarelli and Danny Valoy notes. “Hence we continue to find expectations for growth in 2016 to be unrealistic”, it adds.

Glass half empty

“We think the Street needs to massively cut 2016 consensus GGR

[Gross Gaming Revenue] (+8-15 per cent) towards our forecast level (GGR -7 per cent)”, analyst Karen Tang wrote in another report by the German bank.

The report written by Karen Tang also explains that the VIP market is worsening and that the relaxation of the visa rules for Mainland Chinese in transit in Macau has not brought back VIP players. At the same time, the liquidity of gaming promoters is tightening.

“Junket liquidity has become tight as the Chinese government recently launched a campaign to catch illegal cross-border transactions, probably to curb capital outflows after renminbi depreciation”, the report reads.

“For the premium mass market, marketing hosts told us that the relaxation of the transit visa did bring back some low-tier premium mass guests but the high-end ones are still missing as they lost money in the China stock market”, Karen Tang explained in her report.

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6 | Business Daily

September 3, 2015

Macau CFO resigns from Jimei International The Chief Financial Officer and Executive Director of Jimei International Entertainment, Wah Teik Hwai, resigned from the positions with effect from September 1, the company has announced in a filing with the Hong Kong Stock Exchange. The junket operator said that Mr. Wah had resigned from his posts because of ‘his other business engagements which require more of his attention and dedication’. In addition to the aforementioned positions, Wah was a member of the Anti-Money Laundering Committee and Credit Committee of the company.

In the filing, the board of the gaming promoter that operates in Macau expressed its ‘great appreciation and sincere gratitude to Mr. Wah’ for his contributions to the company.

China stock carnage spells more trouble for battered local casinos China’s recent stock market rout is piling up the angst for Macau’s hard-luck casinos

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s the city’s casino downturn entered a 15th month in August, Chinese stocks losing US$5 trillion of their value hasn’t helped. For Macau junket operator Iao Kun Group Holding Co., that market turmoil is one of the key reasons why gamblers are holding back.

Nasdaq-listed Iao Kun’s VIP rooms reserved for high-rollers lost 20 per cent of their clients in the three months to August as “some don’t have the capital to come and play,” its financial controller Derrick Wong said. “They now need to catch their breathe and recuperate.”

Chinese high-stakes bettors “will wait until the economy gets better and then they will have spare money,” Wong said in a telephone interview. “This is luxury, it’s about spare money.”

China’s slowing economy and its relentless crackdown on graft have hurt the shares of casino operators such as Sands China Ltd. and Galaxy Entertainment Group Ltd. Last month’s surprise devaluation of the yuan spread panic to global markets, deepening concerns over the state of China’s economy and further damping sentiment for Macau’s casino industry.

The Bloomberg Intelligence Macau Gaming Index has plummeted 67 per cent from its peak on January

20, 2014. Casino stocks extended Tuesday’s decline to close lower, with Galaxy, Wynn Macau Ltd., SJM Holdings Ltd. and MGM China Holdings Ltd. falling more than 4 per cent while Sands China lost 3.2 per cent by the end of trading yesterday in Hong Kong. The Hang Seng Index fell 1.2 per cent.

Yuan devaluation

“The yuan devaluation affects sentiment because of the lowered purchasing power among the Chinese,” Wong said, adding a slowing economy is another major factor deterring high-end players.

Iao Kun runs five exclusive casino gambling venues at Macau casinos, including Galaxy and Sands China.

Tourist traffic from the mainland, which accounts for two- thirds of the total, has fallen for five straight months since March.

The weakening currency will have an 8 to 10 per cent downward impact on mass gross gaming revenue in 2016, as converting yuan to the greenback-pegged Hong Kong dollars, the main currency for gambling, will cost patrons more, Daiwa Securities Co. analysts led by Jamie Soo wrote in a note last month.

Adding more negative news to the mix, Macau police arrested 17 people

in a raid on five shops thought to be using China UnionPay point-of-sale terminals to illegally take cash out of China. The arrests may herald further restrictions on the use of UnionPay, making it harder for bettors to skirt currency controls.

There has been some positive signs.

The Macau government has relaxed visa rules to allow visitors transiting through the city to stay longer and travel more frequently, while it may ease a proposed smoking ban.

September woes

But the overall sense remains negative.

Galaxy’s new casinos that opened in May and the summer holiday season failed to rouse a return of mainland Chinese visitors to the former Portuguese colony, with August’s gaming revenue slump widening to 36 per cent after easing since February.

September doesn’t look too promising for Macau either, according to Grant Govertsen, an analyst at Union Gaming Group. While China has scheduled a three-day holiday to commemorate the 70th anniversary of Japan’s defeat in World War Two, gamblers may stay away given the gravity of the occasion as “there appears to be an elevation in the call for patriotic sentiment,” he wrote in a note Tuesday.

The yuan devaluation affects sentiment because of the lowered purchasing power among the Chinese Derrick Wong, Financial Controller at Iao Kun Group Holding Co

The negativity could spread to other new casinos due to open in Macau this year and also next year, said Aaron Fischer, a Hong Kongbased analyst at CLSA Ltd. “If you ask me what I’m most worried about: the Galaxy expansion hasn’t grown the market to the extent that we expected,” he said.

“We have been disappointed by the gross gaming revenue in the last few months.”

Bloomberg

Business Daily | 7

September 3, 2015

Gaming

Wynn gets vital environmental permit for Everett casino site Plan to address traffic and environmental impact “adequately and properly complies”, environment chief says

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ynn Resorts won a key state approval for its Boston-area casino late Friday, bringing the US$1.7 billion project billed as and moving the Las Vegas company closer to getting a shovel into the ground, U.S. media report.

Matthew Beaton, Governor Charlie Baker’s energy and environmental affairs secretary, wrote in a 27-page memo that Wynn’s plan to address traffic and environmental impacts “adequately and properly complies” with the state Environmental Policy Act, which calls for development projects to take all reasonable measures to avoid, minimize and mitigate environmental damage.

The finding, he said, sets in motion more detailed permitting, review and approval processes at the local, state and federal levels for the project, which is proposed for over 30 acres of former industrial land across from Boston on the Everett waterfront.

Everett Mayor Carlo DeMaria said in a statement that the announcement is “validation of the planning, hard work and perseverance of everyone involved.”

Wynn Resorts CEO Steve Wynn, who has at times taken a combative tone in his push to open a casino here, called the over two-year long application process, which involved Wynn submitting over 10,000 pages of plans, “open and fair.”

“The process has been meticulous and hard fought and undoubtedly will continue to be so,” he said in a statement. “At moments like this, there is certainly a feeling of gratification and forward movement. It lifts our spirits and energizes us.”

Opposition

Wynn still faces intense opposition from the City of Boston, which has pursued an aggressive legal strategy in its lawsuit against the state Gaming Commission to halt the casino planned as part of a 24-story curved glass tower overlooking the Mystic River. The cities of Somerville and Revere also have pending lawsuits against the commission over its approval of Wynn’s 3 millionsquare-foot project.

Boston officials assert that the Gaming Commission awarded the coveted Greater Boston casino license to Wynn over a rival proposal as a

result of what they called a “corrupt” process. They want a judge to overturn the award of the license.

A court hearing on Boston’s lawsuit is scheduled for Sept. 22, when lawyers for the Gaming Commission are expected to ask a judge to dismiss the city’s claims.

The casino developer also needs a sign-off from Boston’s public improvement commission before the company can make upgrades to Sullivan Square to relieve traffic congestion that the casino is expected to generate.

In a statement released after the decision, Boston Mayor Martin J. Walsh said, “We will continue to fight for the best interests and public safety of the people of Charlestown — where the effects of the proposed casino would be enormous.”

Sticking point

The intrigue over Wynn’s bid for the relatively obscure state certificate had ramped up in recent weeks as Friday’s decision deadline approached.

Mayor Walsh, state Attorney General Maura Healey and city leaders in nearby Revere and Somerville had called on Beaton to deny the certificate until a long-

The process has been meticulous and hard fought and undoubtedly will continue to be so ... At moments like this, there is certainly a feeling of gratification and forward movement. It lifts our spirits and energizes us Steve Wynn, CEO of Wynn Resorts

term plan to address traffic in the heavily travelled Sullivan Square near the proposed casino was in place.

Boston, Revere and Somerville are suing the state Gaming Commission over its 2014 decision to award Wynn the license, saying the process was severely compromised.

Healey is opposed to casinos and lives in Charlestown.

But Wynn and state Transportation Secretary Stephanie Pollack argued the casino company should not be held responsible for traffic problems that stretch back decades.

Beaton on Friday sided with Wynn and Pollack in that respect.

He required that the complex, longer-term traffic issues around Sullivan Square be addressed through a regional working group led

by Pollack’s agency and involving Wynn, Boston and other area cities and other stakeholders.

Beaton also expressed concerns about the impact the casino would have on the Orange Line. As a result, Wynn agreed to contribute nearly US$7.5 million over 15 years to subway Orange Line subsidies, to increase the frequency of the trains.

8 | Business Daily

September 3, 2015

Greater China

National oil for new crud

Oil traders said Chinese c Jacob Gronholt-Pedersen

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hina may launch a global crude oil futures contract as early as October to compete with the existing London Brent and the U.S. WTI benchmarks, three sources said, as it pushes ahead with reforms to open up its oil markets.

The long-awaited crude contract would better reflect China’s growing importance in setting crude prices, as well as boost the use of the yuan in which it will be traded, although volatile global trading conditions and China’s recent interference in stock markets have raised some concerns.

The Shanghai International Energy Exchange, also known as INE, circulated a draft of the futures contract to market participants last month, saying the launch could happen as early as October, the sources who saw the draft, told Reuters.

China, the world’s second-biggest oil consumer, has already begun to loosen its grip on the physical oil sector this year by granting quotas for imported crude to privately-owned refiners for the first time, surprising market participants with the speed of reform.

“The development of a futures market is closely linked to the physical market,” INE said in a statement

AIIB to offer loans with fewer strings attached The bank is likely to avoid criticism levelled against its rivals Koh Gui Qing

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hina’s new international development bank will offer loans with fewer strings attached than the World Bank, sources said, as Beijing seeks to change the unwritten rules of global development finance.

The Asian Infrastructure Investment Bank (AIIB) will require projects to be legally transparent and protect social and environmental interests, but will not ask borrowers to privatise or deregulate businesses for loans, four sources with knowledge of the matter said.

By not insisting on some free market economic policies recommended by the World Bank, the AIIB is likely to avoid criticism levelled against its rivals, who some say impose unreasonable demands on borrowers.

It could also help Beijing stamp its mark on a bank regarded by some in the government as a political as much as an economic project, and reflects scepticism in China about the virtues of free market policies advocated in the West.

“Privatisation will not become a conditionality for loans,” said a source familiar with internal AIIB discussions, but who declined to be named because he is not authorised to speak publicly on the matter.

“Deregulation is also not likely to be a condition,” he added. “The AIIB will follow the local conditions of each

country. It will not force others to do this and do that from the outside.”

The AIIB was not available to comment for this article.

A reduced focus on the free market could give the AIIB greater freedom to run projects, said a banker at a development bank who declined to be named.

For example, development banks that finance a water treatment plant may require the price of treated water to be raised to recoup costs, even if local conditions are not conducive to higher prices.

The AIIB, on the other hand, could avoid hiking prices and rely instead on other sources of financing, such as government subsidies, to defray costs, he said.

The bank, to which some 50 countries have signed up to join, also aims to have a simpler internal review and risk assessment system for projects compared with its peers to hold down costs and cut red tape, sources said.

For one, the AIIB is not expected to delay some project approvals by months to allow all parties to do due diligence, a practice in place at other development banks, said a source familiar with the matter.

The bank will also minimise expenditure by having only a handful of field offices and a staff strength of between 500 and 600, about a sixth

of the size of the Asian Development Bank (ADB) and 5 percent of the World Bank, he said.

At least break even

A successful AIIB that sets itself apart from the World Bank would be a diplomatic triumph for China, which opposes a global financial order it says is dominated by the United States and under-represented by developing nations.

Criticism of international development lending is not new, said Susan Engel, a professor at Australia’s University of Wollongong who has studied the impact on the World Bank of free market ideas often referred to as the Washington Consensus.

“It’s a religion - this commitment to the involvement of the private sector even in sectors where, in fact, their involvement is shown to do harm,” Engel said of the U.S.-based lender.

In its infancy, two sources said the AIIB, with authorised capital of US$100 billion, would concentrate on securing its credit rating, implying a more cautious approach.

This means it will run like an investment bank, funding only commercially sound projects, working on public-private partnerships where feasible, and charging market interest rates that are likely to be higher than those charged by its peers.

“Jin has pitched it as a bank that needs to at least break even,” a source familiar with internal AIIB discussions said in reference to Jin Liqun, a former Chinese deputy finance minister and AIIB’s first president.

But down the road, the AIIB could offer concessionary loans and go beyond building ports and funding water, energy and transportation deals to financing policy projects such as health and education, three sources said.

It may also expand its remit to fund projects in Africa, where countries have lobbied the lender to work in their region, a source said.

To meet its year-end deadline of starting operations, the AIIB has hired a team of former ADB and World Bank bankers, and is drafting its operations manual by revising the ADB and World Bank versions, three sources say.

Although the ADB and the World Bank downplay any rivalry between them and the AIIB, bankers say the AIIB’s advent has prompted the two banks to review how they work, to the benefit of borrowers.

“The World Bank and the other development banks have become more risk-averse over time,” said David Dollar, a former director of World Bank China who has advised Beijing on the AIIB. “That tends to be make them slow and bureaucratic.”

Reuters

Business Daily | 9

September 3, 2015

Greater China

l market reform paves way de benchmark

PetroChina to seek approval for part of new refinery

crude futures would eventually compete against Brent

issued to Reuters in response to questions about the new contract.

“The more physical players participate, the better the liquidity of the futures market will be.”

The launch of Shanghai crude futures won state approval last year and would be the first Chinese contract that allows direct participation by international investors.

A Shanghai-based contract will compete in the crude futures market, which is worth of trillions of dollars and is dominated by two contracts, London’s Brent, seen as the global benchmark, and WTI, the key U.S. price.

Oil traders said Chinese crude futures would eventually compete against Brent, which is priced off small and declining oil fields in the British North Sea, and can be affected by factors with no relationship to Asia.

INE said that it aimed to have overseas investors, oil companies, and financial institutions participating in its crude futures trading.

“If China’s crude futures don’t immediately attract enough liquidity and markets are still as volatile as now, then traders could get really burned and would quickly stop

trading Chinese crude futures,” said one oil trader, who would likely start dealing Chinese crude futures.

Recent market interference was also a concern, although he noted China’s iron ore and coal futures markets were running smoothly despite similar price routs to oil.

Physicals first

For futures to work, traders need a widely traded physical market from which prices for futures contracts can be derived.

Granting independent refiners access to oil imports will put pressure on China’s three state-owned oil majors, PetroChina, Sinopec and China National Offshore Oil Corp (CNOOC), which already face headwinds from collapsing oil prices, a stock market rout and corruption charges.

“These changes are coming much faster than we anticipated,” said an official with one of the big three stateowned energy companies. “Reforming and opening up the oil market is the new fashion in Beijing.”

The government has so far granted a total of seven independent refiners quotas for 715,800 bpd of imported

crude, roughly 11 percent of the total crude imports, and more are likely to follow.

“The liberalization of the Chinese oil market will provide more favourable market conditions for the launch of crude oil futures,” INE said.

Given the reforms and increased competition, HSBC advised its clients to be “cautious towards the share price potential of China’s oil majors.”

Citi Group expects crude demand from the seven independent refineries to more than double to 815,000 barrels per day (bpd) by the end of 2015.

At least eight more refiners have already applied for quotas, and another 15 are expected to apply, the bank said.

The reforms would advance competition by putting pressure on China’s national oil firms, said Philip Andrew-Speed, head of energy security research at National University of Singapore.

“The private sector has grown in China not so much by privatisation, but by squeezing the state sectors so they become either better performing or irrelevant,” he said.

Reuters

MSCI says volatility won’t impact decision about China A decision to include domestic Chinese stocks in the MSCI Emerging Markets Index would have injected US$400 billion of funds from asset managers Jessica Toonkel

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.S. index provider MSCI said recent violent market gyrations in China, and a barrage of interventions by the authorities to stop the rout, will not be a factor in deciding whether to include China-listed shares in its emerging markets index.

The recent stock slump has been accompanied by a raft of actions by policymakers and regulators that included rate cuts, a surprise devaluation of the yuan and attempts to rein in short selling and margin lending.

In June, just before the sell-off began, MSCI announced it would hold off adding China-listed ‘A shares’ to its closely-tracked MSCI Emerging Markets Index, but said it expected those shares to be incorporated once outstanding issues relating to the accessibility of Chinese markets were resolved.

That remains the case, Sebastien Lieblich, executive director of MSCI Index Management Research, told Reuters in an interview on Tuesday.

“The volatility we have witnessed in the market and the recent events have absolutely no bearing on our decision,” Lieblich said.

“The (Chinese) market is just going through a correction, structurally speaking nothing has changed.”

Lieblich said the only thing that could change MSCI’s plans was if regulators in China passed measures to make the market less accessible to foreign investors, a move that he did not expect.

MSCI has been in discussions with regulators in China and they

understood MSCI’s position, Lieblich added.

A decision to include domestic Chinese stocks in the MSCI Emerging Markets Index would have injected US$400 billion of funds from asset managers, pension funds and insurers into mainland China’s equity markets over time, MSCI has estimated.

Lieblich said MSCI’s clients, mostly giant passive funds from the likes of Blackrock Inc., were in favour of the addition of China listed-shares if the market accessibility issues outlined

by MSCI were addressed.

“In our discussions with clients about the current situation in China, clients make this difference between what is structural and what is happening at this precise moment,” Lieblich said.

MSCI has said it would comment on the timing of the addition of Chinese shares to its MSCI Emerging Markets Index next June, at which point the current turmoil could all be “a bad dream”, Lieblich said.

Reuters

PetroChina will obey a ruling from the country’s environmental watchdog ordering the state energy giant to halt construction of part of a new large refinery in south-western China, a company official said yesterday. PetroChina has been fined for violating environmental assessment rules at a 200,000 barrels-per-day refinery project in the province of Yunnan. The Ministry of Environmental Protection (MEP) approved the environmental impact assessment (EIA) document for the refinery in July 2012, but discovered that the firm had changed the design without making a new assessment, according to an MEP statement on its website.

Beijing to boost state-owned asset management reforms China will speed up reforms on how state-owned assets are managed, the country’s finance ministry said in a statement published on its website yesterday. Areas in which the ministry said it would focus include streamlining management processes and improving control of government department budgets. The statement was dated August 28 and posted on the ministry’s website yesterday.

Deadline for cleanup of grey market margin financing set China’s securities regulators have urged brokerages to clean up “grey market” margin lending by the end of September, the China Business News reported yesterday, as Beijing relentlessly pursues steps to back-stop the country’s tumbling stock markets. The crackdown targets both new and existing businesses, but for some brokerages whose clients have borrowed massively in the grey market, the deadline can be pushed back to the end of October, the newspaper said, citing unnamed sources.

While unregulated margin business is seen as a risk to the financial system, the clampdown could choke off a source of liquidity to markets.

Venezuela gets US$5 bln loan to boost oil output Venezuela and China have signed a deal for a US$5 billion loan designed to increase the OPEC country’s oil production, Venezuelan President Nicolas Maduro said. Maduro, speaking from China in a show broadcast on Venezuelan state television on Tuesday night, said the loan was destined “to increase oil production in a gradual way in coming months,” without providing further details. Venezuela has borrowed US$50 billion from China through an oil-for-loans agreement created by late socialist leader Hugo Chavez in 2007, which has helped Chinese companies expand into Venezuelan markets.

10 | Business Daily

September 3, 2015

Greater China

Foreign carmakers still driven to invest in China This year the forecast is gloomy with analysts predicting a sales increase of around 3.0 percent Tangi Quemener and AFP

F

oreign carmakers that raced into China to profit from what has become the world’s biggest automobile market by volume have no intention of backing out despite slowing sales as the Chinese economy shifts down.

While maintaining their upbeat view of the market’s potential in the medium-term, auto manufacturers have had to make some adjustments.

They have lowered their forecasts for sales growth in 2015 and some have expressed concern about a looming price war, and the shares of the industry’s giants have been getting hammered on world markets.

Car sales, a traditional barometer of the economic climate, advanced in China by nearly 14 percent in 2013 and 6.9 percent in 2014.

This year the forecast is gloomy with analysts predicting a sales increase of around 3.0 percent as China’s economic growth has slowed from 7.4 percent last year.

Economists put China’s first-half growth rate at around 6.3 percent, lower than the official 7.0 percent, according to a recent survey by Bloomberg News.

“I don’t think we will see again the growth rates that we saw in the past,” said Yann Lacroix, an expert on the automobile sector at insurer Euler Hermes.

The world’s top carmakers all profited in the Chinese boom years.

In 2014 Volkswagen sold 36 percent of its global production in China, General Motors 35 percent, PSA Peugeot Citroen 25 percent, BMW 20 percent and Mercedes-maker Daimler 16 percent.

But the current slowdown “does not affect the outlook for the Chinese market on the 2020 horizon, which remains excellent”, said Flavien Neuvy, auto market analyst for Cetelem.

He pointed to the sustained expansion of the middle class in a country where many households are not yet car owners.

Very soon we are going to be confronted with a new price war. To protect our margins and our shares of the market in the context of a price war, we need to anticipate cost reductions Carlos Tavares, PSA Peugeot Citroen

‘Achilles heel’

The world’s number one carmaker Toyota, which has seen around 11 percent of its global sales in China, says at this stage it has not experienced any jolts from the country’s stalling economy.

The US giant says it continues “to expect strong results in China for the rest of the year”, while German auto kings Volkswagen and BMW have revised lower their sales growth estimates for 2015.

“Over the years, the German automobile manufacturers pulled out ahead of the competition, but now conditions are changing for them too,”

said Ernst & Young expert Peter Fuss. “(Their) strong dependence on the Chinese market could turn out to be an Achilles heel,” he added.

Another aspect of the Chinese market is the spectre of a price war and the need to adapt to new market conditions, according to PSA boss Carlos Tavares.

“Very soon we are going to be confronted with a new price war. To protect our margins and our shares of the market in the context of a

price war, we need to anticipate cost reductions,” he said back in July.

Since the start of the year in the domestic market, the cheaper allChinese made cars have surpassed the vehicles made by joint ventures.

China requires all foreign automakers to form joint ventures with local firms.

“If you want to attract new clients in China, you have to veer more towards ‘low-cost’ vehicles,” said Lacroix.

Power firms return to profit as coal miners lose out Coal accounts for around two thirds of the costs of thermal power producers

S

oaring first-half profits for China’s thermal power producers on the back of state-set tariffs and a collapse in coal prices that left miners with huge losses have led to fresh calls for power sector reform.

Officials from China’s struggling coal sector complain that they have been left at the mercy of the market, at a time when the bloated and inefficient power industry continues to benefit from state support.

Huaneng Power, the listed unit of the Huaneng Group, the country’s biggest power generator, boosted its first-half net profit by 31.5 percent after adopting what it described as a “price competitive approach” to buying coal.

Smaller Guangxi Guiguan Power and Zhangze Power saw profits soar 181 percent and 120 percent respectively.

By contrast, more than 70 percent of Chinese miners made losses in the first half of this year, according to National Development and

Reform Commission (NDRC) estimates, and miners have urged the state to provide support.

“The situation in the power sector is complicated and market reforms are now being discussed, but the current situation shows they are really essential,” said Zhang Lizi, researcher at the North China Electric Power University.

Coal accounts for around two thirds of the costs of thermal power producers, who have benefited from steep falls in prices, while electricity tariffs are controlled by the NDRC. Thermal coal at Qinhuangdao port averaged 468 yuan (US$73.54) a tonne over the first six months of 2015, compared with 555 yuan a tonne for the same

period a year ago, and has since fallen to around 410 yuan a tonne.

Coal complaints

Some experts say the current situation simply reflects market fluctuations.

“In 2011, when coal prices surged, many power firms suffered losses, so complaints from the coal companies are unreasonable,” said Zhu

Limin, power analyst with Shanghai Securities. “It is just a reversal of fortune.”

Coal officials say the state stepped in to subsidise power generators in 2011, but it has so far ignored calls to set a minimum coal price as it tries to encourage cleaner energy and trim overcapacity in the sector.

Fixed tariffs, meanwhile, shield power generators from overcapacity and inefficiency, experts say, with thermal power plants working at about 20 percent below normal levels while overcapacity stands at about 200 gigawatts.

China cut electricity tariffs in April to reflect falling coal costs, but Qinhuangdao prices have fallen another 12.6 percent since the adjustment.

The government aims to reform the price system, but further tariff adjustments were unlikely in the short term, analysts said.

“The NDRC has said it will adjust just once a year and to change them again would send out a wrong signal,” said Zhu. Reuters

Business Daily | 11

September 3, 2015

Greater China Import-export fees to be slashed China is planning to cut more import-export fees in a bid to buoy its sinking foreign trade. The government will lower costs for enterprises by cutting fees at ports, customhouses and quarantine agencies, and cancelling those with no legal basis before the end of this year, the National Development and Reform Commission said yesterday. The country began to trim foreign trade fees last year, helping firms save more than 30 billion yuan (US$4.7 billion) so far. A notice jointly issued by seven government departments warned that trade authorities have been lax in implementing some of the measures.

FX requirements to cover all derivatives China’s central bank said that its planned foreign exchange purchase reserves to be implemented in October will include all derivative products, according to a document seen by Reuters yesterday. Reserve ratios would be set at 20 percent of the nominal value of forwards and swap contracts and 50 percent of the nominal value of principal for options, the document by the People’s Bank of China dated yesterday said. China’s central bank plans to tighten rules on trading of currency forwards from October, sources with direct knowledge of the matter told Reuters yesterday.

After years of euphoria over booming China, the abrupt slowing in the market threatens to lead to overcapacity in the factories, an unknown situation up to now, analysts say.

“The level of growth will be less and that is going to redefine investment policies” in industrial infrastructure, said Meissa Tall, analyst at Kurt Salmon consultancy, while also noting “we’re talking about slowing growth, not a recession.”

Joint-venture factories turned out cars at 94.3 percent of capacity in the first quarter of this year compared with more than 107 percent in the same period a year earlier, according to a study by research firm Sanford C. Bernstein recently cited by the Wall Street Journal. Plants can surpass capacity by adding extra work shifts.

That has not discouraged carmakers who still want a stake in this huge market.

Renault, which has been somewhat absent from China up to now, is building a factory in the central city of Wuhan set to open next year. Its CEO Carlos Ghosn recently said that he was aiming for 3.5 percent of the market “as a first step”.

The turbulence in the Chinese economy won’t change that, said a source close to Renault, which remains “calm and confident” about the future of its models on China’s roads.

AFP

ADB head says China’s yuan falls reflect market value He says that while Chinese stock prices have fallen significantly, they remained above levels seen last summer Leika Kihara

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he yuan’s recent depreciation moves it closer towards its real market value, the head of the Asian Development Bank said, dismissing fears that China may export deflation to its Asian neighbours by flooding goods made cheaper by a weak currency.

ADB President Takehiko Nakao (pictured)also said that while China’s economy may no longer expand at

a 10-percent pace seen in the past, it will continue to grow steadily as it shifts to a consumption-driven economy with a deeper service sector.

“China used to intervene to prevent excessive yuan strengthening, causing some friction with the United States,” Nakao, Japan’s former top currency diplomat, told a seminar in Yokohama, eastern Japan, on yesterday.

“What’s been happening recently is that the yuan has become overvalued ... Depreciation of the yuan is in line with its real market value.”

The People’s Bank of China (PBOC) has repeatedly intervened to stabilise the yuan since the August 11 devaluation - billed as free-market reform - sent shockwaves through global markets and depressed emerging currencies.

Nakao acknowledged that the recent market turmoil partly reflected investors’ concern on whether Chinese authorities can guide their economy towards a soft-landing.

But he was sanguine on the outlook, saying that while Chinese stock prices have fallen significantly, they remained above levels seen last summer.

“Chinese consumption remains very strong and the country’s service sector has great potential to grow,” Nakao said. “I’m not too worried about the outlook.”

Worries about a sharp slowdown in China’s economy have jolted global financial markets and heightened concern among Asian policymakers on the outlook for the region’s economies.

Nakao said the slowdown in China may weigh on countries that rely heavily on commodity exports to the world’s second-biggest economy such as Indonesia.

“But Asian countries have the ability to keep expanding on their own,” he said. “I don’t think (China’s slowdown) will deal a severe blow to Asia’s economic development.”

Reuters

“Summer Davos” to eye economic growth The upcoming “Summer Davos” meeting in northeast China’s Dalian will feature discussions on China and global economic growth, and technological innovation.

About 1,700 participants from more than 90 countries will attend the three-day meeting, which is slated for September 9, said Liang Linchong, deputy head of the Department of International Cooperation of the National Development and Reform Commission yesterday. The meeting is expected to cover China’s reform and innovation drive, as well as economic growth potentials that have global impact, Liang said.

Russia to design wide-body jet with China Russia plans to work with China on a wide- body aircraft that would compete with jetliners from Boeing Co. and Airbus Group SE and aims to sign an accord by the end of this year. The government is ready to fund the initial stage of the project, which will focus on the design of a new twin-aisle plane, Deputy Industry Minister Andrey Boginsky said in an interview near Moscow. The collaboration may later be expanded to include the development of an engine, he said.

Working for longterm stable relations with Vietnam China and Vietnam have pledged to properly handle their differences and work for the long-term stable and sound development of their relations. “China is willing to work with Vietnam to consolidate our traditional friendship, promote our strategic mutual trust and properly handle our differences so as to push forward the long-term stable and sound development of our bilateral relations,” said China’s top legislator Zhang Dejiang. Zhang made the remarks while meeting with Vietnamese National Assembly Chairman Nguyen Sinh Hung on the side-lines of the Fourth World Conference of Speakers of Parliament.

12 | Business Daily

September 3, 2015

Asia

Australia’s economy impacted by mild activity in China Net exports detracted from GDP growth by 0.6 percentage points for the three months Glenda Kwek

A

ustralia’s economy expanded at its slowest quarterly pace for more than two years as mining and construction activity fell and exports declined, data showed Wednesday, hit by weakening growth in its biggest trading partner China.

Resources-driven economies such as Australia, Brazil and Canada have been hurt by softening Chinese demand for commodities, which has triggered a dive in prices for metals and oil, sending their currencies tumbling and hitting revenue.

Canada, the world’s fifth-largest oil producer, said Monday it had fallen into recession for the second time in seven years, while Brazil’s GDP contracted for the first two quarters of this year.

Economic growth in Australia -- of which iron ore and coal are its largest exports -- expanded at a slower-than-expected 0.2 percent in April to June, taking the annual rate of expansion to 2.0 percent, the Australian Bureau of Statistics said.

The latest figures -- which followed strong 0.9 percent growth in the first quarter -- were softer than analysts’ expectations of June quarter growth of 0.4 percent for year-on-year growth of 2.2 percent.

The risks may now be to the downside, with the chances of a recession looking larger than at any time in the last 24 years Daniel Martin, senior Asia economist, Capital Economics’ Construction workers assemble at a work site in Sydney. Australia’s economy grew by 0.2 percent in the June quarter, but the result was much weaker than expected

The Australian dollar, a risk proxy for China, was already reeling from fears about the health of the world’s second-largest economy and briefly slipped below 70 US cents to 69.95 US cents before recovering.

Australian Treasurer Joe Hockey sought to allay fears about the economic outlook and said while his country had been hit by its biggest

fall in the terms of trade for more than half a century, the economy had avoided a recession for 24 years.

“At a time when other commoditybased economies like Canada and Brazil are in recession, the Australian economy is continuing to grow at a rate that meets and sometimes beats our most recent budget forecast,” he told reporters.

“The diversity and flexibility of

the modern Australian economy is continuing to get us through the recent massive falls in commodity prices.”

Recession risk?

The last time the economy expanded at this pace was in the March quarter 2013, and before that, the weakest reading was a 0.4 percent contraction in the three months to March 2011.

MERS effect sinks South Korea’s accounts Trade surplus for goods reached US$10.86 billion, staying above the 10 billion-dollar level

S

outh Korea’s travel account deficit posted the largest in about seven years due to the effect from the Middle East Respiratory Syndrome (MERS) outbreak, central bank data showed yesterday.

The travel account balanced logged a deficit of US$1.45 billion in July, the largest since July 2008 when it registered a US$1.65 billion deficit, according to the Bank of Korea (BOK).

The travel account deficit continued to increase from US$0.41 billion in May to US$1.04 billion in June as the deadly viral disease discouraged foreign tourists from visiting the country.

According to the government data, more than 130,000 foreign tourists cancelled their travel plan

to Seoul in June alone when the viral disease peaked.

The number of foreign travellers visiting South Korea nearly halved in July compared with the same month of last year, contributing to the expansion in travel account deficit, the bank said.

Current account balance, the widest measure of crossborder capital flow, posted a surplus of US$10.11 billion in July, staying in the black for 41 straight months since March 2012.

It marked the longest surplus trend, topping the previous high of 38 months since June 1986. The July figure was down from the prior month, but was up 28.3 percent from a year earlier.

The longest monthly surplus, however, came from faster fall in imports

than exports, indicating the country could have fallen into the so-called “recession-type” surplus.

Exports, which account for around half of the exportdriven economy, declined 10.4 percent from a year earlier to US$48.2 billion in July. Imports tumbled 20.6 percent to US$37.35 billion.

Primary income account surplus, which includes monthly salaries and investment income, narrowed to US$1.28 billion in July from US$1.68 billion a month earlier due to a decrease in income on the equity account.

Net outflow in direct investment tumbled from US$4.99 billion in June to US$0.12 billion in July due to the shift to a net inflow of foreign direct investment into the country.

Service account deficit, which measures the flow of travel, transport costs and royalties, fell from US$2.5 billion in June to US$1.92 billion in July

Portfolio investment, which includes stock and bond transactions, registered a net outflow of US$7.15 billion in July, larger than US$6.5 billion the previous month. It was attributed to local residents reducing the purchase of foreign stocks and bonds along with foreign investors selling domestic securities to repatriate money home.

Other investment account, including trade credit and foreign debt, turned into a net outflow of US$3.38 billion in July from a net inflow of US$2.24 billion in June due to a growth in overseas deposits by domestic financial institutions and the repayment of their borrowings.

Xinhua

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Business Daily | 13

September 3, 2015

Asia Mining production “fell significantly” by 3.0 percent for the quarter, although growth through the year was 2.1 percent, the statistics bureau said, adding that the weaker data came as exports also fell.

Net exports detracted from GDP growth by 0.6 percentage points for the three months.

In positive news, household spending rose 0.5 percent for the period while government expenditure jumped 2.2 percent.

National Australia Bank senior economist David de Garis told AFP there was “some economic progress, but in a still-difficult environment”, adding that the 2.0 percent GDP reading was forecast by the Reserve Bank of Australia (RBA).

Australia has struggled to transition away from mining-driven growth as an unprecedented boom in resources investment ends, with non-mining industries failing to fill the gap.

But despite other commodity economies such as Canada slipping into recession, Australia’s more than two-decade-long period of growth was likely to remain intact unless there was an unexpected shock, RBC Capital Markets’ fixed income strategist Michael Turner told AFP. “We think you’d need an exogenous shock to get us into some kind of contraction, be that from China or elsewhere. Growth is not great, but it’s not terrible in the same breath.

“There are parts of the economy that are going OK,” he added, pointing to residential construction, household consumption and net exports.

TD Securities’ chief Asia-Pacific strategist Annette Beacher said it was not yet “our turn for the ‘r’ (recession) word” and the new data would not trigger a change in the RBA’s outlook.

AFP

Economists cut growth for Singapore in 2015

Myanmar commission vows free election

A central bank survey shows that economists see the all-items consumer inflation rate at -0.2 percent for this year

E

conomists have lowered their forecasts for Singapore’s 2015 growth and consumer prices compared with three months ago, a central bank survey showed yesterday.

The median forecast of 23 economists surveyed by the Monetary Authority of Singapore (MAS) was for gross domestic product (GDP) to expand 2.2 percent this year, down from 2.7 percent expected in a survey published in June.

That would be the weakest expansion since 2009, when Singapore’s full-year GDP contracted by 0.6 percent during the global financial crisis.

The MAS survey showed that economists expect GDP growth in the third quarter to come in at 2.1 percent year-on-year, down from their previous forecast of 2.9 percent.

The central bank survey shows that economists see the all-items consumer inflation rate at -0.2 percent for this year, compared with 0.0 percent previously.

Core inflation was expected to come in at 0.5 percent in 2015, down from 1.0 percent in the previous survey.

Economists expect inflation to rise next year, with headline consumer inflation seen at 1.1 percent in 2016 and core inflation expected at 1.3 percent,

KEY POINTS Economists cut 2015 GDP growth f’cast to 2.2 pct vs 2.7 pct

Indonesian leader promises “massive deregulation”

All-items CPI in 2015 seen at -0.2 pct y/y vs 0.0 pct Full-year core CPI seen at +0.5 pct y/y vs +1.0 pct the survey showed. GDP growth was expected to reach 2.8 percent.

The MAS survey comes in the wake of data last week showing that Singapore’s industrial production shrank more than expected from a year earlier, an outcome that was seen as increasing the chances for a technical recession and more monetary easing.

The MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).

It next reviews policy in October.

Reuters

Millions strike in India over ‘anti-labour’ reforms India’s economy grew by a slower than expected 7.0 percent in the first quarter of the financial year

Indonesia’s president promised quick “massive deregulation” yesterday to improve investor sentiment in Southeast Asia’s largest economy. “We need to carry out massive deregulation and introduce new regulations that will really create a good climate for the economy as soon as possible. We are racing against time,” President Joko Widodo said in a cabinet meeting. Widodo said there were 110 regulations already identified as being negative for investors. “I hope this week...we can completely review these, which ones we can cut, which ones need to be processed and which ones need further study.”

GIC investing in joint venture Singapore wealth fund GIC will invest about 19.9 billion rupees (US$300 million) in a new joint venture with Indian real estate developer DLF that will build two projects in the Indian capital New Delhi, the two firms said in a joint statement.

The deal is one of several by GIC in India this year, after its investments in Bandhan Financial Services, which is setting up one of the country’s two newest banks, and online taxi-hailing company Ola. The statement did not say how much stake GIC will take in the joint venture with DLF.

Tesco picks MBK as preferred bidder for S.Korean unit

M

illions of workers across India held a 24-hour strike yesterday in protest at rightwing Prime Minister Narendra Modi’s economic policies, which they say will put jobs at risk and hurt ordinary people.

Ten major unions went ahead with the day-long strike over the government’s pro-business initiatives after talks with Finance Minister Arun Jaitley broke down.

Unions are demanding the government dump plans to sell off stakes in state-run companies to boost the public purse and to shut down unproductive factories.

Some 150 million workers, including those in the banking, manufacturing, construction and coal mining sectors, were summoned to walk off the job.

The strike also affected transport.

Long lines of commuters and school children could be seen at bus stops early yesterday, while passengers were stranded at airports as taxis and rickshaws stayed off the streets.

Financial services were hit by the strike, with many banks shutting their doors for the day.

Hawkers, domestic workers and daily wage labourers were also expected to join the strike to demand an increase in the minimum wage.

Union Election Commission (UEC) yesterday stressed holding of the upcoming general election scheduled for November 8 in a free and fair manner. At a press conference, Chairman of the UEC U Tin Aye called on civil organizations, political parties and media persons to cooperate in holding the election. He disclosed that an election monitoring committee will be formed to ensure the successful holding of the election. In addition, he said the commission will invite international observers to monitor the election, revealing that so far four international groups have been invited.

British retailer Tesco PLC picked private equity firm MBK Partners as preferred bidder to buy its South Korean unit, two people with direct knowledge of the matter said yesterday. Tesco had received three separate binding bids for the South Korean unit in August, called Homeplus, valued at around US$6 billion. The bidders were Affinity Equity Partners together with KKR & Co, Carlyle Group LP, and MBK Partners.

Spokesmen for Tesco’s South Korean unit and MBK declined to comment.

Ten major unions went ahead with the day-long strike after talks with Finance Minister Arun Jaitley (pictured) broke down

Television footage showed the strike’s impact in the eastern state of West Bengal, where unions enjoy significant clout, with the capital city of Kolkata mostly deserted with bank branches, shops and other businesses closed early yesterday.

Modi won a landslide election victory last May, promising a string of business-friendly reforms to attract foreign investment and revive Asia’s third-largest economy.

But the opposition has blocked

flagship tax and land reforms, aggravating investor concerns, while the unions are increasingly angry over the reforms.

India’s economy grew by a slower than expected 7.0 percent in the first quarter of the financial year and experts say reforms are needed to create jobs for millions of young people.

Previous strikes have shut down cities and cost the Indian economy millions of dollars in lost production.

AFP

Tourism closes on dairy as New Zealand’s biggest export earner Tourism helped buoy up New Zealand’s export earnings as dairy prices plunged in the year to the end of June, the government statistics agency announced yesterday. In the year to June, total exports of goods and services were NZ$67.5 billion (US$42.93 billion), while total imports were NZ$65.1 billion (US$41.41 billion), according to Statistics New Zealand.

Meanwhile, spending by international visitors to New Zealand classed as travel exports were up NZ$2.4 billion (US$1.53 billion) to NZ$11.7 billion (US$7.44 billion).

14 | Business Daily

September 3, 2015

International UK construction growth inches up in August A pick-up in house building helped growth in Britain’s construction sector speed up slightly last month, but the expansion remained weaker than last year’s robust rebound, an industry survey showed yesterday. The CIPS/Markit construction Purchasing Managers’ Index (PMI) rose to 57.3 in August from 57.1 in July, indicating solid growth but below the 57.5 forecast in a Reuters poll and the levels of more than 60 regularly reached in 2014.

The fastest-growing construction sector was house-building, and commercial work also rose strongly, while civil engineering projects remained in the doldrums.

Canada’s economy falls into recession Prime Minister was quick to downplay what some supporters and economists have dismissed as a “technical” recession Leah Schnurr

Global House Price Index rises Global house prices rose only 0.1 percent in the 12 months leading up to June 2015, as lingering concerns over the eurozone and some emerging market economies weighed on the market, said a report authored by the London-based property agent Knight Frank. The report showed that in annual terms, the Global House Price Index rose by only 0.1 percent in the 12-month period to June, recording its weakest rate of growth since the final quarter of 2011. Twenty-seven percent of the 56 housing markets tracked recorded an annual decline in prices.

South Africa may increase nuclear power South Africa’s future energy mix could include an even higher share for nuclear power than the 9,600 megawatts (MW) already planned, the Business Day newspaper reported on Tuesday, citing an interview with a government official. It said a new version of South Africa’s integrated resources plan, which projects its electricity requirements and suggests the energy generation mix needed, will be released in March. Africa’s most advanced economy is gripped by an electricity shortage and regular power cuts are hurting economic growth and tarnishing investor confidence.

Argentina orders HSBC’s unit to name new president Central bank on Tuesday ordered HSBC Argentina to name a new president and vice president within 24 hours, accusing the bank of failing to establish necessary controls to prevent tax evasion and money laundering. Argentine authorities locked horns with HSBC in November when they charged the bank with helping more than 4,000 clients evade taxes by stashing their money in secret Swiss bank accounts.

HSBC rejected the charge, but Argentina said in March it wanted HSBC to repatriate US$3.5 billion that Argentine tax authorities said the bank had moved offshore.

T

he Canadian economy shrank again in the second quarter, putting the country in recession for the first time since the financial crisis, with a plunge in oil prices spurring companies to chop business investment.

The confirmation of a modest recession will figure heavily into the election campaign as Canadians head to the polls October 19 and poses a challenge to Conservative Prime Minister Stephen Harper (pictured), who is seeking a rare fourth consecutive term.

Still, there was a silver lining as growth picked up for the first time in six months in June, underscoring expectations the recession will be short-lived.

Harper was quick to downplay what some supporters and economists have dismissed as a “technical” recession, pointing to the upbeat June figures during a campaign stop. “The Canadian economy is back on track,” he said.

But politicians from the opposition New Democrats and Liberals said

the numbers were evidence Harper’s economic policies were failing.

Economists mostly agreed the 0.5 percent pickup in June put Canada on good footing for a better third quarter.

The Canadian dollar initially rallied to a session high against the greenback following the data before giving up ground later in the day as oil prices fell.

The last time Canada was in recession was in 2008-09, when the U.S. housing market meltdown triggered a global credit crisis.

This time around, Canada has been primarily hit by the slump in crude prices, with weakness concentrated in energy-related sectors. Oilexporting provinces like Alberta and Saskatchewan have been particularly hard-hit.

Gross domestic product contracted at an annualized 0.5 percent rate in the second quarter, Statistics Canada said. That was better than forecast, though revisions showed the first quarter’s contraction was steeper than first reported.

Puerto Rico reach framework agreement with bondholders

European insurers’ assets Sides will attempt to memorialize under management the deal in the form of a formal hit US$11 tln restructuring plan within a few weeks European insurers’ assets under management jumped 9.4 percent to 9.9 trillion euros (US$11.15 trillion) in 2014 from a year earlier, trade body Insurance Europe said on Tuesday, mainly driven by increased investment by life insurers.

European gross written premiums rose by 3.7 percent to 1.2 trillion euros, Insurance Europe said in a statement, with life insurance premiums showing the largest rise. Low interest rates in the developed world have made it harder for European insurers to make the investment returns needed to match their pension liabilities.

P

uerto Rico’s public utility PREPA and a key bondholder group have reached the framework of a debt restructuring deal that would include a repayment reduction, or a so-called haircut, of up to 15 percent for bondholders, three people close to the talks said.

The deal, under which PREPA would issue new, securitized debt, likely with a higher credit rating, had not been officially signed and could still

fall apart. But parties were verbally committed to it on Tuesday night, ahead of a midnight deadline to try to forge a restructuring pact, according to the people, who declined to be named because talks remain private.

PREPA, buckling under US$9 billion in total debt, has been trying to negotiate a restructuring with a socalled ad hoc group of its bondholders for about a year. A consensual deal at PREPA, seen as a microcosm of

Two consecutive quarters of contraction are typically considered the textbook definition of a recession.

But some economists have argued that such a definition is too narrow.

They note unemployment has remained relatively subdued at 6.8 percent, and housing markets outside of Alberta and retail sales have been reasonably strong.

“The weakness in the first half of the year does appear to be fairly narrowly based, with weakness in the energy sector weighing on investment activity,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

The Bank of Canada has cut interest rates twice this year in an effort to revive the economy, though most analysts expect it to hold rates at 0.5 percent when it meets next week.

While the price of oil and other natural resources have weakened since June, many expect non-commodity Canadian exports to benefit from a strengthening U.S. economy, which grew at a 3.7 percent clip in the second quarter.

Canadian exports of goods and services rose modestly in the second quarter, though business investment slumped and inventory accumulation slowed.

Activity in the goods-producing industries declined 2 percent on a quarterly basis, with a 4.5 percent drop in the mining, quarrying and oil and gas extraction component.

But a rebound in that same sector helped the economy perk up in June.

Separate data showed the manufacturing sector turned down again in August, with the RBC Canadian Manufacturing Purchasing Managers’ index falling to a seasonally adjusted 49.4.

Reuters

Puerto Rico’s broader fiscal troubles, could generate momentum to help the island sort out its US$72 billion debt load.

Under a forbearance agreement with creditors, PREPA was safe from lawsuits as sides negotiated.

Creditors could terminate the deal if a restructuring pact was not reached by midnight on Tuesday, September 1.

A source told Reuters sides were still apart on key issues, and litigation could ensue. But PREPA and the ad hoc group bridged gaps with hours to spare, and sides will attempt to memorialize the deal in the form of a formal restructuring plan within a few weeks, said one of the people close to the matter.

A spokeswoman for PREPA did not respond to a request for comment on Tuesday.

The ad hoc group represents 40 percent of PREPA’s bondholders, and is composed of investors such as Franklin Advisers and hedge funds including BlueMountain Capital.

Roughly US$8 billion of PREPA’s total US$9 billion in debt is held by bondholders.

Reuters

Business Daily | 15

September 3, 2015

Opinion Business

wires

Cheap oil and global growth

Leading reports from Asia’s best business newspapers Anatole Kaletsky

Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy

THE TIMES OF INDIA Home-backed loans extended

by South Korean banks gained at the fastest clip in five years in August, industry data showed yesterday, due to increased home transactions and a rise in apartment prices.

Outstanding mortgage loans by the country’s six major commercial banks, including Kookmin and KEB Hana, reached 327.9 trillion won (US$278 billion) as of endAugust, up 6.4 trillion won from the previous month, according to the data. The monthly gain marks the sharpest rise for the month of August since relevant data was compiled in 2010.

JAKARTA GLOBE Consumption of subsidized fuel products is unlikely to exceed the quota for the year amid slowing economic growth, ministry officials have predicted. “By the end of this year, consumption of subsidized fuel [products] is projected to reach only 16 million kilolitres, still lower than 17 million kilolitres set in the revised budget,” I Gusti Nyoman Wiratmaja, director general for oil and gas at the ministry of energy and mineral resources, said in a hearing with the energy and mineral resources Commission at the House of Representatives.

Premium, a low octane gasoline, diesel and kerosene are subsidized in Indonesia.

THE NEW ZEALAND HERALD Fonterra’s moves to reduce the amount of product on offer on the GlolbalDairyTrade platform appears to be having the desired effect, with prices rising by 10.9 per cent at yesterday morning’s auction, but the market has a long way to go yet before the co-op’s milk price forecast can be realised, economists said.

Whole milk powder prices, which are key to determining Fonterra’s farm gate milk price, rose by 12.1 per cent to an average US$2,078 a tonne.

Most product groups posted gains at the auction.

VIETNAM NEWS National Assembly Chairman Nguyen Sinh Hung held bilateral meetings with top legislators from China and Belarus, the President of the UN General Assembly and the IPU President in New York on the side-lines of the 4th World Conference of Speakers of Parliament.

During the meeting with his Chinese counterpart Zhang Dejiang, Chairman Hung said the Vietnamese NA is keen to increase delegation exchanges with the Chinese National People’s Congress, share professional experience and enhance coordination and mutual support at regional and international interparliamentary forums.

V

iolent swings in oil prices are destabilizing economies and financial markets worldwide. When the oil price halved last year, from US$110 to US$55 a barrel, the cause was obvious: Saudi Arabia’s decision to increase its share of the global oil market by expanding production. But what accounts for the further plunge in oil prices in the last few weeks – to lows last seen in the immediate aftermath of the 2008 global financial crisis – and how will it affect the world economy?

The standard explanation is weak Chinese demand, with the oil-price collapse widely regarded as a portent of recession, either in China or for the entire global economy.

But this is almost certainly wrong, even though it seems to be confirmed by the tight correlation between oil and equity markets, which have fallen to their lowest levels since 2009 not only in China, but also in Europe and most emerging economies.

The predictive significance of oil prices is indeed impressive, but only as a contrary indicator: Falling oil prices have never correctly predicted an economic downturn. On all recent occasions when the price of oil was halved – 1982-1983, 1985-1986, 1992-1993, 19971998, and 2001-2002 – faster global growth followed.

Conversely, every global recession in the past 50 years has been preceded by a sharp increase in oil prices.

Most recently, the price of oil almost tripled, from US$50 to US$140, in the year leading up to the 2008 crash; it then plunged to US$40 in the six months immediately before the economic recovery that started in April 2009.

An important corollary

for commodity-producing developing countries is that industrial metal prices, which really are leading indicators of economic activity, may well increase after an oilprice collapse. In 1986-87, for example, metal prices doubled a year after oil prices fell by half.

A powerful economic mechanism underlies the inverse correlation between oil prices and global growth.

Because the world burns 34 billion barrels of oil every year, a US$10 fall in the price of oil shifts US$340 billion from oil producers to consumers. Thus, the US$60 price decline since last August will redistribute more than US$2 trillion annually to oil consumers, providing a bigger income boost than the combined US and Chinese fiscal stimulus in 2009.

Because oil consumers generally spend extra income fairly quickly, while governments (which collect the bulk of global oil revenues) usually maintain public spending by borrowing or running down reserves, the net effect of lower oil prices has always been positive for global growth. According to the International Monetary Fund, the fall in oil prices this year should boost 2016 GDP by 0.5-1% globally, including growth of 0.3-0.4% in Europe, 1-1.2% in the US, and 1-2% in China.

But if growth is likely to accelerate next year in oilconsuming economies such as China, what explains plunging oil prices? The answer lies not in China’s economy and oil demand, but in Middle East geopolitics and oil supply.

While Saudi production policies were clearly behind last year’s halving of the oil price, the latest plunge began on July 6, within days of the deal to lift international sanctions

With so many of the world’s most productive oil regions gripped by political chaos, any sign of stabilization can quickly boost supplies

against Iran. The Iran nuclear deal refuted the widespread but naive assumption that geopolitics can drive oil prices in only one direction.

Traders suddenly recalled that geopolitical events can increase oil supplies, not just reduce them – and that further geopolitics-driven supply boosts are likely in the years ahead.

Conditions in Libya, Russia, Venezuela, and Nigeria are already so bad that further damage to their oil output is hard to imagine. On the contrary, with so many of the world’s most productive oil regions gripped by political chaos, any sign of stabilization can quickly boost supplies. That is what happened in Iraq last

year, and Iran is now taking this process to a higher level.

Once sanctions are lifted, Iran promises to double oil exports almost immediately to two million barrels daily, and then to double exports again by the end of the decade. To do this, Iran would have to boost its total output (including domestic consumption) to six million barrels per day, roughly equal to its peak production in the 1970s.

Given the enormous advances in oil-extraction technology since the 1970s and the immense size of Iran’s reserves (the fourthlargest in the world, after Saudi Arabia, Russia, and Venezuela), restoring output to the levels of 40 years ago seems a modest objective.

To find buyers for all this extra oil, roughly equal to the extra output produced by the US shale revolution, Iran will have to compete fiercely not only with Saudi Arabia, but also with Iraq, Kazakhstan, Russia, and other low-cost producers.

All of these countries are also determined to restore their output to previous peak levels and should be able to pump more oil than they did in the 1970s and 1980s by exploiting new production technologies pioneered in the US. In this newly competitive environment, oil will trade like any normal commodity, with the Saudi monopoly broken and North American production costs setting a long-term price ceiling of around US$50 a barrel, for reasons I set out in January.

So, if you want to understand falling oil prices, forget about Chinese consumption and focus on Middle East production. And if you want to understand the world economy, forget about stock markets and focus on the fact that cheap oil always boosts global growth.

Project Syndicate

16 | Business Daily

September 3, 2015

Closing China eases rules on multinationals’ foreign debt management IMF’s Lagarde hopes China’s economic transition will be orderly Foreign exchange regulator issued new rules yesterday relaxing restrictions on multinational companies’ management of their foreign currency-denominated debt in China, allowing them to pool debt from all their subsidiaries for central management. The rules, which take effect immediately on a trial basis, permit these companies to use the local currency yuan liquidity derived from their sales of foreign currency debt to pay back yuan loans and conduct equity investment, the State Administration of Foreign Exchange said in a statement on its website. Analysts see the moves as relieving downward pressure on the yuan by encouraging companies to sell off their foreign currency.

The International Monetary Fund said yesterday it was speaking with Chinese authorities about the country’s “very significant” economic transition, which it hoped would be managed in an “orderly fashion”. IMF Managing Director Christine Lagarde told reporters, “We are certainly talking to the Chinese authorities about their transition to a more market-determined economy, to an internationalization of their currency. “It’s a very significant transition, one that hopefully can be managed in an orderly fashion,” added Lagarde, speaking at the end of a two-day visit to the Indonesian capital.

PBOC seen quitting yuan support by end-2015

transactions was US$51.1 billion in July, compared with US$698 billion in the spot market.

‘More expensive’

Chinese financial markets will be closed today through Sunday for holiday celebrating victory in World War II

C

hina’s central bank will have to step back from supporting the yuan by early December and allow the currency to decline given the current strain on foreign-exchange reserves, according to Rabobank Group.

The nation has to keep at least US$2.7 trillion in hand to avoid any potential shortfalls, considering it needs US$1 trillion to pay for six months of goods imports and US$1.7 trillion to service external debt, Michael Every, head of financial markets research at Rabobank in Hong Kong, wrote in a note Tuesday. The stockpile will shrink by US$40 billion a month for the rest of 2015, partly due to efforts to prop up the yuan, according to a Bloomberg survey conducted in August.

“The pile may already have dropped by as much as US$200 billion in the last few weeks of August,” Every said, adding that he expects the yuan to decline to 7 against the greenback by the end of this year, from about 6.4 now. “In 2016, if China’s

This is a new signal the PBOC has sent, on top of stronger fixings, that it prefers a stable yuan and the currency’s one-off devaluation is over Banny Lam, co-head of research, Agricultural Bank of China International Securities, Hong Kong

economic fundamentals do not improve and the U.S. continues to tighten monetary policy, then a further slide to as far as 7.50 and beyond is not out of the question.”

The People’s Bank of China has set stronger daily reference rates for the yuan

and intervened in the spot and swap markets to prop up the currency since August 11 devaluation. It has also imposed a 20 percent reserve requirement on financial institutions trading in foreign-exchange forwards for clients, effective October

15, according to people familiar with the matter.

The measure will also include the purchase and sale of currency options as well as some swap contracts, two people familiar with the matter said on Wednesday.

The value of yuan forwards

“The new rule makes speculating on the yuan’s decline more expensive in the foreign-exchange forwards market,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities in Hong Kong. “This is a new signal the PBOC has sent, on top of stronger fixings, that it prefers a stable yuan and the currency’s one-off devaluation is over.”

The onshore yuan, which can trade a maximum 2 percent on either side of the PBOC’s fixing, rose 0.14 percent to close at 6.3559 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. It rose 0.9 percent in the six days through Wednesday after plunging 3 percent in the three days following the devaluation.

The PBOC yesterday raised its daily fixing by 0.21 percent to 6.3619 a dollar, the strongest level since August 12. That brings its four-day increase to 0.7 percent.

China’s foreign-exchange reserves, the world’s biggest stockpile, have slumped US$315 billion in the year through July to US$3.65 trillion. Bloomberg Intelligence estimates that every 1 percent drop in the yuan triggers about US$40 billion of outflows.

Bloomberg News

Goldman sees snap back in Chinese stocks

Shanghai, Hong Kong stocks slip amid weak sentiment

Japan lawmakers urge authorities to be tough on Toshiba

G

S

J

oldman Sachs Group Inc. is sticking with its bullish view on Chinese stocks in Hong Kong, saying valuations are inexpensive and improving economic data will spur a rebound.

“The snapback in China could be fairly meaningful,” Timothy Moe, chief Asia Pacific equity strategist at Goldman, said in an interview yesterday.

“The risk versus reward in terms of what’s priced in the market gives us a sense that if we see a stabilization in macro data, say from here to the end of the year for example, then we could see a decent recovery.”

The MSCI China Index has slumped more than 30 percent from its April peak as a mainland equity rout rippled across the Hong Kong border and data pointed to a deepening economic slowdown.

The equity measure trades at 8.6 times profits, according to data compiled by Bloomberg. At market troughs in 2008 and 2011, it bottomed out at 7 times and 7.8 times, respectively.

“These are quite low valuation levels and the ones that are not too far off where the market has found a floor during previous times of stress,” Moe said.

Bloomberg News

hanghai and Hong Kong stocks closed down after volatile trading yesterday gripped by on-going concerns over China’s economic crisis that has rattled world markets.

The benchmark Shanghai Composite Index edged down 0.20 percent, or 6.45 points, narrowing early sharp losses to close at 3,160.17 on turnover of 423.3 billion yuan (US$66.5 billion). The bourse slumped as much as 4.66 percent but also sat 0.88 percent higher during the day.

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, lost 1.98 percent, or 33.83 points, to 1,673.95 on turnover of 325.5 billion yuan.

Hong Kong’s benchmark Hang Seng Index fell 1.18 percent, or 250.49 points, to close at 20,934.94 on turnover of HK$96.05 billion (US$12.39 billion) after swinging in and out of positive territory through the day.

Analysts said sentiment was hit by worries over China’s slowing economy, falls in global markets and questions over the level of state support for stocks.

AFP

apanese lawmakers yesterday called for a tough regulatory response to Toshiba Corp’s second postponement of its annual results over accounting woes, saying the scandal could erode foreign investor confidence.

Regulators are likely to penalise the laptop-tonuclear power conglomerate with a fine after an independent probe found that the company had overstated past results by US$1.2 billion over several years, sources familiar with matter have said.

Japan’s regulators are, however, often perceived as softer than Western counterparts when punishing corporate misdeeds.

“The scandal is a severe problem that could lead to a loss of credibility from foreign investors”, Masahiko Shibayama, head of the Liberal Democratic Party’s treasury and finance division, told reporters after a meeting of lawmakers and regulators.

The Tokyo Stock Exchange would consider putting Toshiba’s shares on a watch list for possible delisting if there were further delays in reporting results, Shibayama quoted a bourse official as saying in the meeting.

Reuters