Macau Business Daily September 23, 2015

MOP 6.00

Sheraton loses legal battle for trademark registration Page 4

Closing editor: Joanne Kuai

Three indicators in China point to better economic performance than official gauges reveal Page 9

New Haitong Bank invests in Portuguese-speaking markets Page 7

Publisher: Paulo A. Azevedo Number 885 Wednesday September 23, 2015 Year IV

Asian Development Bank lowers Asian countries growth forecast Page 11

Junket Regulation Now Government Priority The last straw has been the Dore embezzlement case. Now junkets are very much under the microscope.

The Secretary for Economy and Finance pledges the gov’t will soon implement internal guidelines for the industry.

More stringent monitoring. Enhanced transparency. Greater shareholder disclosure. Key employees and collaborators will also be examined. Lionel Leong Vai Tac said the gov’t would ensure that monitoring would not unduly disrupt VIP operations Page

3

Pataca Playground

Closer integration. Hengqin authorities are to apply for the pataca to be circulated on the island. The general plan is expected to be finished within this year. With the pataca to be circulated for F&B, entertainment and shopping, said Niu Jing, Director of the Administrative Committee of Hengqin New Area

HSI - Movers September 22

Name

%Day

Li & Fung Ltd

+10.41

China Mobile Ltd

+4.14

Kunlun Energy Co Ltd

+2.79

China Overseas Land &

+2.51

New World Developme

+2.40

China Construction B

-1.63

Lenovo Group Ltd

-1.98

Sands China Ltd

-2.34

Cheung Kong Property

-2.72

Galaxy Entertainment

-3.43

Source: Bloomberg

Page 4

Gov’t advisor arrested in US

I SSN 2226-8294

He’s a prominent local real estate developer. And sits on the gov’t advisory body of the Chinese People’s Political Consultative Conference. Ng Lap Seng has been charged in the US with conspiracy to obstruct and making false statements. The criminal complaint was made public on Monday in federal court in Manhattan. According to the complaint, Ng brought more than US$4.5m in US cash into America from China from July 2013 to September 2015

Page 5

www.macaubusinessdaily.com

Telecommunications

Fast mobile, slow fixed Get ready. CTM officially launches 4G mobile communication services on October 20. CTM CEO Vandy Poon said for the same data usage the charges should generally be lower than 3G. Meanwhile, the Telecommunication Regulation Bureau is trying to help the city’s new fixed-line telecommunications service provider MTel Telecommunication Company Ltd. speed up construction of its network

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2 | Business Daily

September 23, 2015

Macau

Air Asia launching Macau-Pattaya flight capital of Bangkok, as well as one daily return flight to its northern city of Chiang Mai. In addition, it offers direct daily flights between Kuala Lumpur in Malaysia and the city.

Jetstar officially launches Macau-Ho Chi Minh route

L

ow-cost carrier Air Asia is to commence direct flights between the city and Thai tourist destination Pattaya from November 27, according to the airline’s official website.

The budget airline, whose two routes currently connect the city to the Southeast Asian country, namely Bangkok and Chiang Mai, is to offer one daily return flight between Macau and Pattaya between

November 27 this year and October 29 next year.

Air Asia has already opened sales for the new route on its website. Promoting the new route, ticket prices start from MOP198 (US$24.75)

Burberry chief Bailey downplays prospects of Chinese rebound

Former Macau Lusa chief to join TDM

Hong Kong and Macau, previously hubs for big spenders, have been hardest hit as wealthy consumers shop in Japan and Europe instead

B

urberry Group Plc Chief Executive Officer Christopher Bailey downplayed the prospect of any imminent rebound in China.

“There’s been a struggle there,” Bailey said Monday of luxury demand in Hong Kong and Macau, speaking after the company’s women’s fashion show in London’s Kensington Gardens. The shares fell 1.2 per cent.

Sales of designer gear have cooled in China following a government clampdown on extravagance. Hong Kong and Macau, previously hubs for big spenders, have been hardest hit as wealthy consumers shop in Japan and Europe instead, with Italian handbag maker Prada SpA saying last week

per single trip, with tax included.

Currently, the low-cost carrier is providing four daily round-trip flights between the Special Administrative Region and Thailand’s

Meanwhile, another budget airline, Jetstar Pacific, officially commenced its Macau-Ho Chi Ming route yesterday, which is the airline’s third route connecting the city to Vietnam.

Jetstar Pacific provides two round-trip flights per week for its newly launched route in addition to its four direct daily round-trip flights to Da Nang and two weekly return flights to Haiphong.

The airline is also planning to launch a new route connecting the city to Okinawa in Japan in December this year.

The director of the Civil Aviation Authority, Chan Weng Hong, said at the launch ceremony of the new route yesterday that the government will continue to encourage local airlines to cooperate with other aviation companies, in the hope of expanding the local aviation network, which currently serves 41 cities in Asia.

that business in the cities “remains quite difficult.” Burberry, which had its weakest revenue growth in two years in the three months through June, reports second-quarter sales next month.

China’s devaluing of the yuan in August and the Federal Reserve’s decision this month to hold off from raising U.S. interest rates have added to concerns about global growth.

“There’s lots of changes going on in the world,” Bailey, who is also chief creative officer, said in an interview with Bloomberg Television. “But at the heart there has to be that thing of moving forward.”

Bloomberg

J

osé Costa Santos, Macau chief correspondent of Portuguese news agency Lusa, starts work with local radio and TV broadcaster Teledifusão de Macau (TDM) next month, Business Daily has learned from reliable sources.

Mr. Costa Santos, 45, arrived in Macau in 1991, having worked on Ponto Final newspaper and contributed to Tribuna de Macau and Macau magazine. In 1994, he joined Lusa. In 1999, he left the territory and went to the Lisbon headquarters of the news agency where he stayed until returning to Macau in 2003 as its chief correspondent.

Some of his tasks in TDM include “supervising the news agenda, managing human resources and sharing responsibilities in the broadcasting connections with other stations from Portuguese-speaking countries”, our sources told us.

Mr. Costa Santos will be replaced at the end of this month by Margarida Pinto. The new delegate has arrived in Macau from the Azores where she was previously stationed.

K.L.

Business Daily | 3

September 23, 2015

Macau

CTM launching 4G service on October 20 The telecommunications operator has announced that the new network will officially go into service next month, claiming charges for the new service will be no more expensive than the current 3G service Kam Leong

kamleong@macaubusinessdaily.com

L

ocal telecommunications operator Companhia de Telecomunicações de Macau SARL (CTM) announced yesterday that it is to officially launch its 4G mobile communication (LTE) service on October 20.

“The reason we chose October 20 is to let our customers try [the service] before the official launch so that we can improve out network. In addition, it is the 34th anniversary of CTM,” CEO Vandy Poon Fuk Hei told reporters on the sidelines of the opening of the company’s new 4G concept store yesterday.

CTM also kicked off the 4G trial service for its customers from yesterday. The CEO claimed that nearly 10,000 of its customers have already registered for the trial service.

In addition, Mr. Poon revealed that the government has already approved CTM’s initial 4G service fee.

Yesterday morning, the director of the Bureau of Telecommunications Regulation (DSRT), Hoi Chi Leong, told reporters on the sidelines of the 12th Asia Pacific Telecommunication and ICT Development Forum that the Bureau has approved the 4G service fees submitted by one operator, and is evaluating those of two other operators, while the other has not yet submitted its proposed service fee.

Besides CTM, the other three operators that were granted the 4G service licences are China Telecom (Macau), Hutchison Telephone Macau, known as 3Macau, and SmarTone.

4G not more expensive

According to the DSRT head yesterday, 4G service fees per data unit will be cheaper

For same data usage, the charges of 4G service should be lower than 3G. In addition, we also have an unlimited data plan for customers… But the prices will vary depending upon the packages customers choose Vandy Poon, CEO of CTM

than the current 3G service fee, with the CTM CEO also telling reporters that “the 4G service for sure will not be more expensive than the 3G service.”

“For the same data usage, the charges of the 4G service should be lower than 3G. In addition, we also have an unlimited data plan for customers… But prices will vary depending upon the packages customers choose,” Mr. Poon claimed.

According to both Bureau director and CTM CEO, the city’s 4G service operators will all provide a capping charge of MOP500 on customers for overuse data.

Hoi: Co-ordinating MTel to build network On the other hand, the government official said his Bureau is trying its best to help the city’s new fixed-line telecommunications service provider MTel Telecommunication Company Ltd. construct its network.

The operator complained last month that it was facing delays in meeting the network coverage set by the government due to the authorities barely approving the company’s applications for network construction that involves road works.

Mr. Hoi claimed yesterday that network building is complicated and co-ordination will take time.

However, he said the government has re-opened parts of MTel’s underground network construction.

Moreover, the director said the government has

co-ordinated MTel for peering with CTM, believing the two fixed-line operators should not have any problem in bilateral peering, which allows the networks of the two companies to interconnect for the purpose of exchanging traffic between the users of each company.

MTel claimed recently that it had encountered difficulties when peering with the CTM network.

CTM CEO Vandy Poon said yesterday that his company had received a letter from MTel regarding the issue, claiming his company will try to look into what difficulties MTel has encountered. “After all, as a new operator there may be some issues that they cannot handle,” he indicated.

K.L.

4 | Business Daily

September 23, 2015

Macau Sheraton loses legal battle for trademark registration

Hengqin authorities: Pataca to circulate on island The Director of the Administrative Committee of Hengqin New Area, Niu Jing, said the plan for the pataca currency to be used in Hengqin New Area will be complete by year-end

O

ne of the goals of the financial innovations of Hengqin New Area under the Free Trade Zone (FTZ) scheme is for the Macau currency – the pataca – to be circulated for food and beverages, entertainment and shopping, said the Director of the Administrative Committee of Hengqin New Area, Niu Jing.

Mr. Niu said they are trying to finish the plan for pataca circulation on the island within this year and will then apply for authorisation to the central bank of China, People’s Bank of China, according to a TDM Chinese radio report. However, no concrete timetable is available.

The Hengqin authorities say that currently work is being done with regards to system

arrangement, policymaking, applying for authorisation, risk management, etc.

Mr. Niu said that in Mainland China the pataca is considered a foreign currency, thus more studies are needed in areas of financial regulation, as well as international settlement and clearance.

AMCM: Confident in Guagndong FTZ financial policies

An introductory session to Macau Enterprises Investment Policy in Hengqin Pilot Free Trade Zone Cross-border Financial Co-operation was held yesterday in Macau.

A member of the Administrative Committee of Macau Monetary Authority (AMCM), Wan Sin Long, said that the establishment of the Guangdong FTZ marks

the financial co-operation of Macau and Guangdong entering a new era.

Mr. Wan said that since the cross-border renminbi loan scheme had come into effect on July 13, some 11 loans had been authorised, totalling 730 million yuan.

The AMCM representative said that Macau banks are expecting more business opportunities to be available in the FTZ, such as interbank lending, crossborder mortgage business promotion, transfer of credit assets in renminbi, as well as the convenient usage of the pataca in Hengqin.

Hengqin New Area head Niu Jing also said that almost 1,500 financial enterprises are registered in Hengqin, managing assets of over 1 trillion yuan.

The American hotel tried to stop Excellent Way from registering a trademark in the SAR on the grounds that it was a ‘reproduction and imitation’ of its own trademark

H

otel company Sheraton tried to block the registration of the trademark of tobacco firm Excellent Way in the SAR but the Collective Court of Macau has ruled against the American company. The decision was announced by the Office of the President of the Last Appeal Court.

The controversy arose from the fact that the trademark that Excellent Way asked the Macau Economic Services (DSE) to register is similar to the one used by Sheraton. In fact, both trademarks comprise the first letter of the name of the company inside a crown of leaves. Also, the name of both companies in the two trademarks is written under the logotype.

After the request to register the trademark was published in the Official Gazette, on April 20, 2011 the Sheraton complained, saying it was ‘a reproduction and imitation’ of its own trademark. On December 9 of the same year, DSE ruled in favour of Sheraton, denying the request. The Chinese company appealed the decision to the Judiciary Council of Macau, but its intention was denied again.

As a result of the second denial, Excellent Way appealed to the Collective Court of the Court of Second

Instance, where the ruling was finally changed and the trademark allowed in the territory.

The Collective Court’s decision was based on the fact that while Sheraton is a very well known trademark to the general public, it is associated with hospitality. However, the Chinese company is registering a brand for products related to tobacco products, an area in which Sheraton is not operating. As such, the court considered that ‘the registration did not harm’ the American company. The judge also considered that the fact that Sheraton is a famous brand does not imply the protection of the brand to areas not related to the services it provides.

The court also deliberated that when comparing the two brands the only ‘common element’ in the trademarks of the companies is the crown of leaves circling the capital letter. However, it ruled that the crown of leaves is only a ‘secondary element’ and that the capital letters S for Sheraton, and E for Excellent Way are the main element. This led the court to rule that the two trademarks can be easily distinguished and that there is no ‘reproduction or imitation’ of Sheraton’s trademark.

J.S.F.

Corporate

Melco Crown donates mooncakes to elderly

MGM China hosts ‘Health Day for the Elderly’

It has become a tradition for Melco Crown Entertainment (MCE) employees to donate their mooncakes given by the company to the Macau community before the Mid-Autumn Festival. In its third year, the activity has gained increasing support and collected a record-high number of over 2,500 boxes of mooncakes in the exquisite packaging that the Company sells to its customers.

For the sixth consecutive year, MGM China has teamed up with the Macau Chinese Medicine Association to roll out the Health Day for the Elderly activity. Over 200 elderly people were invited to join this thoughtful and caring annual health day on September 21 at MGM MACAU’s Grand Ballroom. During the activity, the elderly were provided with one-on-one medical consultations by 23 practitioners from the

These mooncakes were distributed to 21 organisations serving the elderly and less fortunate members of the community by over 200 MCE volunteers.

Besides delivering mooncakes door-todoor to over 200 elderly social housing units in Cheng Chong Building in Ilha Verde, over 40 MCE volunteers rolled up their sleeves to clean up the seniors’ homes.

Macau Chinese Medicine Association, with the assistance of 60 MGM volunteer team members. Healthy herbal soups were prescribed for them after the medical consultations, which are beneficial to lungs and digestive system. In addition, the practitioners demonstrated an acupuncturepoint massage therapy to the elderly for them to practice this simple health exercise on a daily basis.

Business Daily | 5

September 23, 2015

Macau

US arrests local developer Ng Lap Seng, aide for money import scheme Prominent Macau real estate developer Ng Lap Seng has been arrested for engaging in a scheme to import more than US$4.5 mln into the United States under false pretences Stephanie Lai*

sw.lai@macaubusinessdaily.com

U

S authorities have charged Macau real estate developer and government advisor Ng Lap Seng and his principal assistant for engaging in a two-year scheme to import more than US$4.5 million (MOP35.9 million) into the United States under false pretences.

Developer Ng Lap Seng and his assistant Jeff Yin, 29, were accused of engaging in a conspiracy to obstruct and make false statements to US Customs officials. The criminal complaint was made public on Monday in federal court in Manhattan.

Both men were arrested on Saturday, according to a spokesman for Manhattan U.S. Attorney Preet Bharara.

Prosecutors in Bharara’s public corruption unit are handling the case following an investigation by the Federal Bureau of Investigation.

Macau Chief Executive Fernando Chui Sai On, who attended a meeting of the advisory body of the Economic Development Committee yesterday, said the government currently “do not have conditions” to comment on the reported arrest of Ng, who is a member of the Committee.

“According to our records, Mr. Ng has applied for absence from attending the meeting,” Mr. Chui told media, “As to the reported arrest of Mr. Ng, I don’t have any information for the reason of the arrest – but I will seek

to understand the case better with Mr. Leong [Secretary for Economy and Finance Lionel Leong Vai Tac].”

Business Daily tried to approach William Kuan Vai Lam, an executive with Ng’s Macau-based company Sun Kian Yip Group, for comment on the US case but none had been received from Mr. Kuan by the time the story went to press.

Ng’s lawyer, Kevin Tung, said in an email it was up to the prosecution to prove Ng’s guilt. “I don’t have a burden to prove my client is innocent,” Tung said.

Ng, 68, heads a major real estate development company in the MSAR and his interests also embrace casinos and apparel. He sits on the

government advisory body of the Chinese People’s Political Consultative Conference.

According to the complaint, Ng brought more than US$4.5 million in US cash into the United States from China from July 2013 to September 2015 with Yin’s help.

The complaint said Ng and Yin concealed the true purpose of the money, repeatedly and falsely telling US Customs and Border Protection officials that it was for buying art, antiques or real estate, or was to be used for gambling.

The complaint did not specify its real purpose, although it cites a June 2014 meeting with an unidentified business associate in the New York City borough

of Queens to which Ng brought a suitcase with about US$400,000 in cash that he had falsely claimed was meant for gambling and buying paintings.

It says an FBI agent served a federal subpoena on Ng in July 2014 in connection with an unrelated investigation.

The subpoena required Ng to appear personally two months later but he failed to do so or to respond, the complaint said.

Ng previously figured in a Congressional probe into how foreign money was funnelled into the Democratic National Committee before the 1996 presidential elections during the Clinton administration.

He was never charged. *with Reuters

6 | Business Daily

September 23, 2015

Macau

Leong pledges Unjustified concerns junket guidelines soon opinion

The Secretary for Economy and Finance, Lionel Leong Vai Tac, says the government would at the same time ensure that monitoring will not impose a big impact on the VIP operations here José I. Duarte Economist

Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he issues of maternity and paternity leave are popping up again on the public agenda. It appears the government is considering the possibility of changing the current legal provisions.

Maternity leave might be extended by two weeks, unpaid; and paternity leave might rise to five days. There is a discussion brewing about these possible changes.

Namely, some people are asking if that rise in maternity leave is affordable (a perennial and essentially legitimate question); if this is an appropriate moment to do it, given the current economic circumstances; and how much small and medium companies will be strained by such a decision.

The first question has an easy answer, I suppose. The costs of such a decision seem minor by any standard. Even if the two additional weeks were to be fully compensated, regardless of who would bear the cost - companies or the government – the figures involved are small. Let us assume that measure was in force in 2014. Further, let us assume, quite unrealistically, that all women that bore children last year were working, and all would take the unpaid two weeks leave.

The cost of their replacement, taking as a reference the median wages at the end of that year, would reach about 50 million patacas, give or take. That amount is hardly more than 0.01 per cent of last year’s GDP, and less than 0.04 per cent of the tax revenue generated by gambling.

With more realistic assumptions than those taken above, if the government decided to take the responsibility for these costs, less than one hour of tax revenue from gambling would possibly be enough. Even leaving the ethical questions and social benefits aside, it does not seem a high price to pay, if only to depart company from the only other country in the world with equally ungenerous regulations on this matter, Sudan. There is nothing in this comment against the Sudanese, who have had more than their fair share of suffering for many years. But can we keep a straight face about the issue, when we share the tail of the international ranking in maternity leave with a country that has been ravaged by war and all kinds of social disasters? We cannot afford to be more generous than a country that exhibits an income per capita that is less than 2 per cent of ours?

On the other hand, it can be argued that the economy has seen better days. That is a fact. But even at the current level of economic activity and income we are well above any other time in the history of the city, except the last four years or so.

The current predicaments seem a weak obstacle that cannot stand on its own.

The small and medium companies issue is both more complicated and delicate.

Of course, they are the most sensitive to increasing costs or staff changes. Their plight deserves more attention. We will come back to it next week.

S

ecretary for Economy and Finance Lionel Leong Vai Tac said the government will soon implement internal guidelines regarding the more stringent monitoring of the city’s VIP gaming promoters and enhanced transparency in disclosing shareholders’ background. The government will observe the effect before introducing any changes to local gaming laws.

“The Gaming Inspection and Coordination Bureau (DICJ) has already issued a statement to the [VIP gaming promoters] sector to know which acts violate the law, including the aspects of their finance regulation and private loans,” Mr. Leong told media on the sidelines of a meeting with the Economic Development Committee advisory body yesterday.

“At the same time, we will be working on setting up a set of internal guidelines that we hope the sector can abide by, so that the management officers of the VIP gaming promoter firms can be more effectively regulated and that the public can have a more transparent disclosure of the VIP rooms or promoter firms’ shareholder structure,” Mr. Leong said.

The Secretary said the government would soon communicate with the VIP gaming sector regarding the internal guidelines. He also added that the government would observe the effect of how the guidelines work before

introducing changes to the laws regulating the licensing of VIP gaming promoters and other related gaming laws.

“The gaming industry is important here. And we have to ensure that our monitoring does not impose a huge impact on their [VIP gaming promoters’] operations – of course, this should be in the context that they should always abide by the law,” Mr. Leong said.

The Secretary’s remarks followed a statement issued by the casino regulator, the Gaming Inspection and Co-ordination Bureau, on Monday night, stating that it would soon revise the regulations for the issuing of licences to VIP gaming promoters, known as Administrative Regulation No.6/2002.

Legal revision

A direction of the revision is to impose new requirements regarding the capital and shareholding structure of junket operators, as well as to set stricter rules on accounting and auditing for such operators.

The government is also mulling more transparent disclosure of the junket operators’ profiles, such as the name of their administrators, shareholders, key employees and collaborators.

The revision will also include the government’s consideration of defining employees in charge of financial

operations of the junket operators as ‘key employees’, meaning that these employees will have to undergo a suitability check.

Speaking to media yesterday, Mr. Leong said he has already requested suggestions from the Monetary Authority of Macau and Financial Intelligence Office regarding the improved monitoring of local junket operators.

The government has announced its intention to change the gaming promoters’ licensing regulations following reports of an alleged theft of capital that reportedly happened to junket operator Dore Entertainment Co. Ltd. a fortnight ago.

Dore, which runs VIP operations at Wynn Macau casino, said that a former cage manager had allegedly used her power to pool deposit capital offering high interest rates without the company’s knowledge. The company has never collected capital by offering high interest rates because it understood the act was illegal, Dore has stated.

Dore, plus 40 other victims, reported the case to the Judiciary Police, authorities said on Monday.

The alleged capital theft from the junket firm involved at least HK$400 million (US$51.6 million). The police are investigating the matter as fraud and abuse of confidence.

Business Daily | 7

September 23, 2015

Macau

New Haitong Bank invests in Portuguese-speaking markets João Paulo Meneses in Portugal newsdesk@macaubusinessdaily.com

T

he Chinese shareholders of Haitong Bank (formerly Espirito Santo Investment Bank - BESI) have “a firm intention to play a very relevant role in the relations between Portuguesespeaking countries and China”, a source from the new bank told Business Daily.

Earlier this month, Haitong International Holdings Limited, based in Hong Kong, concluded the acquisition of former Banco Espirito Santo (now ‘Banco Novo’ or New Bank) investment arm.

According to the new management, the “acquisition allows us to combine the knowledge, market experience and

multi-regional presence of BESI with Haitong Securities’ leading position in the Asian market”.

It is within this context that the investment in the Portuguese-speaking markets occurs. “By leveraging its privileged relations with companies and investors from Portuguesespeaking countries and Haitong’s leadership position in China, the bank will focus on promoting investment, trade relations and capital movements between China and the Portuguesespeaking world”, an official source told Business Daily.

Since the former BESI was so well placed in Portugal’s investment banking, Haitong’s new team feels

that, “The bank will continue to provide consulting services to Chinese companies in their investment projects in Portugal and will also promote Portuguese companies’ expansion in the Chinese market”.

Besides the investment in Portuguese-speaking markets and supporting Chinese companies in Portugal, the new bank wants to “reinforce its role as a platform to access Europe’s developed markets, as well as the U.S., but also to emerging markets in Latin America, Eastern Europe, Africa and India. This contributes towards its shareholders’ international expansion that now has a presence in large financial markets such as London and New York, thus complementing its leading position in China, which is particularly robust in Shanghai and Hong Kong”.

Haitong’s holding group started the BESI acquisition process last year and was approved in its shareholders’ meeting a total of MOP3.3 billion (US$413.4 million).

One of Haitong Securities’ vicepresidents recently told the Financial Times that their goal is to become a worldwide investment bank.

AIG Insurance generates MOP15.21 mln in profits

T

he Macau branch of AIG Insurance Hong Kong recorded a profit of MOP15.21 million last year, the company announced yesterday. This represents a decrease of 40.5 per cent in terms of the profit for the territory in relation to 2013.

The results of the subsidiary of the multinational American International Group (AIG) were impacted by the reduction of gross premiums to MOP89.81 million from a total of MOP146.48 million in 2013, a 38.7 per cent year-on-year drop.

In the territory, AIG Insurance Hong Kong is involved in non-life insurance, a sector that in 2014 increased 5.4 per cent year-on-year to MOP1.96 billion from MOP1.86 billion.

In terms of market share the Macau branch of AIG took a 4.6 per cent slice of the market, which means that the company performed worse than in 2013, when it managed to grab 7.9 per cent.

8 | Business Daily

September 23, 2015

Greater China

Xi pledges to maintain ‘medium-high growth’ He downplayed the recent drop in China’s foreign reserves

C

hinese President Xi Jinping said the nation’s reforms won’t be derailed by signs of economic weakness, and that the government is stepping up efforts to transform its model for growth.

“China has the capacity and is in the position to maintain a medium-high growth in the years to come,” Xi told the Wall Street Journal, according to written responses to questions published yesterday ahead of his first state-visit to the

U.S. “The Chinese economy is still operating within the proper range.”

Xi said China will stick with its economic opening despite a slowdown, and “place greater emphasis on developing an innovation and consumption-driven

economy.” He added that understanding the Chinese economy means taking the long view, and that foreign investors are still planning to increase or maintain their investment in China.

China remained committed to opening its markets and completing a transition from export-driven growth to consumer driven expansion, Xi said, even as he defended the government’s intervention to try to stem a US$5 trillion slide in stock values.

“An important goal for China’s current economic reform is to enable the market to play the decisive role in resource allocation and make the government better play its role,” he told the Journal.

“That means we need to make good use of both the invisible hand and the visible hand.”

There was no reversing from the economic opening, which he compared to “an arrow shot that cannot be brought back.”

‘Robust dynamism’

“We are stepping up efforts to shift our growth model, make structural adjustment and place greater emphasis on developing an innovation and consumption-driven economy,” Xi said in the interview. “It is our hope that by solving these problems, China’s economy will transform itself and retain its robust dynamism for development.”

As part of the shift, Communist Party leaders

said this month they plan to sell shares of some stateowned enterprises and consolidate others in the country’s largest overhaul of its bloated businesses since the late 1990s.

On the yuan exchange rate, Xi reiterated the official line that there’s no basis for “sustained depreciation” of the Chinese currency. He said the August 11 devaluation was a move to give “greater say to the market in deciding the exchange rate” of the currency, also known as the renminbi or RMB. “Reform of the RMB exchange rate formation regime will continue in the direction of market operation,” Xi said.

Currency defence

Xi also downplayed the recent drop in China’s foreign reserves, which fell by a record US$93.9 billion last month as the PBOC bought yuan and sold dollars to defend against a rapid currency depreciation. Even after that, Xi noted that China’s US$3.56 trillion in reserves “remain abundant and is still very large by international standard.”

China won’t change it’s policy of seeking investment from foreign companies and protecting their rights, Xi said.

Attracting such investment “has played a significant role in promoting China’s economic development” and given it the technologies, skills and vision needed for the country’s modernization.

Bloomberg News

Rate cuts by

The economic slowdown easier, but that might no Umesh Desai

F

Nanjing Road. Commercial heart of Shanghai

or Wu Yinghua, an executive at a mid-sized optical disc company in China, business has never been so bad.

The problem is, conditions for Wu’s company and others like it in the small and medium business sector are only getting worse - despite government efforts to lift the economy.

Small and medium enterprises (SMEs) are already the heart of China’s economy, providing 80 percent of urban employment and 60 percent of GDP. But the country’s financial infrastructure is largely geared to state firms.

So although China has announced a volley of rate cuts to stabilise its battered stock market and reverse a slowdown in growth, SMEs are experiencing little or no benefit, underlining concerns about the world’s second-biggest economy.

“We have been in the optical disc business for more than 20 years and the recent depression is the most serious challenge we have ever faced,” said Wu, an executive at Guangdong Aolin Magnetic Electric Industrial in southern China.

The central bank has cut official lending rates five times since November by a total of 1.4 percentage points to

Business Daily | 9

September 23, 2015

Greater China

Slowdown doesn’t look so bad in Alibaba, Baidu data Data culled from China’s most-used search engine, biggest online outlet and main bank-card network are signalling stabilization in the nation’s economy

T

hree alternative indicators suggest less of a deceleration in the world’s second-largest economy, and reduced risk of a hard landing. That was also the conclusion of a private survey released this week showing little danger of economic collapse after the stock-market plunge and currency devaluation.

Online interest in small- and medium-sized enterprises is seeing a rebound in September after recently falling to the lowest level since 2010, according to a preliminary reading of an index developed by Beijing-based Baidu Inc., which handles more than 6 billion searches a day.

Baidu tracks how often users click links to smaller companies. “Internet users’ search requests can reflect the market demand, and indicate the state of the businesses,” the company said in an e-mailed response to Bloomberg News.

Alibaba shopping carts

Consumer-price inflation has picked up amid gains in food prices while a three-year streak of factory-gate deflation deepens. An index developed

by Alibaba Group Holding Ltd., China’s largest e-commerce company, shows consumer prices quickening

The economy is still stable and we don’t see much volatility in consumption Zhao Meng, Shanghai-based founder of UnionPay Advisors Co.

more than the government’s official reading.

Prices for all goods sold online rose 7.4 percent in August, an index developed by the Hangzhou-based company’s research arm shows.

Among 10 categories of goods Alibaba tracks, prices for a group that includes collectibles and financial

services rose 14.1 percent from a year earlier, while the category for entertainment and education increased 13.7 percent. Food was 13.1 percent more expensive compared to a year earlier.

Still, there were some signs of deflation. Another indicator tracking a fixed basket of about 100,000 products showed prices for consumer staples fell compared with a year earlier, due mostly to cheaper clothing.

Luxury hotels

An index of spending at luxury hotels in China rose to a record last month, indicating that wealthier travellers indulged themselves this summer, according to UnionPay Advisors, a research unit of China UnionPay Co., operator of the network that handles transactions for almost all of the nation’s bank cards.

Real-estate transactions have rebounded from last year’s lows, UnionPay data and official gauges show. UnionPay’s Zhao said he also sees signs of risk with spending at restaurants at about the same level as 2011, representing a sharp decrease from last year, according to his company’s data.

Bloomberg News

Shanghai mulls regulation to protect Taiwan investors The Chinese economic hub of Shanghai is expected to roll out a regulation to better protect the rights of Taiwan investors and boost trade between the two regions. The standing committee of the Shanghai Municipal People’s Congress on Monday reviewed the draft regulation, which stipulates that no institutions are allowed to conduct checks on Taiwan companies in the city unless they are empowered by the law and regulations to do so. Taiwan investors’ companies should not be charged with extra fees compared with their local counterparts, the draft says.

Economy still able to achieve growth target Pockets of strength in China’s economy should help it achieve Beijing’s annual growth target for this year, a research paper issued by the country’s top economic planner said yesterday. Despite increasing pressure on the economy, modest rises in consumer prices and employment are expected during the remainder of 2015, according to the paper posted on the National Development and Reform Commission’s (NDRC) website. Those conditions would allow China’s economy to expand at around 7 percent for the year, it said.

Osborne says Beijing committed to market liberalisation

ypass business heart of economy

is stoking calls for authorities to make funding conditions even ot help many small firms

4.6 percent. But instead of falling, lending rates to SMEs have risen by 2 percentage points as willing lenders become scarce.

The Wenzhou index, which tracks private lending, shows the rate for 1 year or more has risen to 18 percent from around 16 percent in November.

In April, rates were as high as 24 percent.

The state-dominated banking sector has become more selective in issuing loans in general, as nonperforming loans increase in the economic slowdown. China’s bigfour banks all reported a rise in nonperforming loans in the latest quarter.

China’s economy is heading for its weakest growth in 25 years, and a recent run of poor data suggests it is struggling to meet its 7 percent target for 2015.

So only the brave are stepping in to lend to its most vulnerable firms small, medium and micro businesses.

That is reflected in central bank figures showing that while overall lending in China has risen, new loans to small businesses fell in the first half of the calendar year compared with the same period in 2014.

“We have seen a surge in enquiries,” said Barry Lau, co-

founder and managing partner of Adamas Asset Management in Hong Kong, which provides funding for growth enterprises in China and has US$650 million of assets under management.

SMEs can turn to the non-banksector, the so-called shadow banking sector, but even there, lenders are becoming more prudent, said Wilson Pang, a partner at KPMG in Hong Kong.

“Those who were asking for interest rates of 12-15 percent are now asking for 20-22 percent, or even more, because of the slowdown,” Pang said.

Shut out

Oliver Barron, policy research analyst at China-focused investment bank NSBO, said the main beneficiaries of the monetary easing were state-owned enterprises and local government finance vehicles.

“Weak bank lending and tightening of off-balance sheet lending through acceptance bills etc are pointing to lesser access for the SME sector,” Barron said.

Another deterrent for small businesses is that applying for a loan has become more cumbersome.

“The covenants are tighter than before and the vetting process is getting tighter,” said Roy Wang, a restaurant owner in the southern city of Shenzhen.

“The banks need to check records which they did not check before, like history of the company, financial records of the company and the shareholders,” Wang said.

Underlining the strain on smaller companies, Mizuho’s chief economist for Asia ex-Japan, Kevin Lai, said China’s economy needs to grow at 8 percent a year just for large corporations to keep up with interest payments on the country’s mountain of debt. And that’s based on a lending rate of 6.5 percent.

“SMEs are paying more than 16 percent. Which business gives that kind of return? Are they making that kind of money?” he said.

The economic slowdown is stoking calls for authorities to make funding conditions even easier, but that might not help many small firms.

“This is really a tough period,” said Alex Gu, marketing manager at Suzhou Realpower Electric Appliance.

“For the big enterprises who own core technology, they may get over it.

But for some SMEs, they may have to merge.”

Reuters

China’s authorities should be supported as they remain committed to market liberalisation following volatility in the country’s stock markets, Britain’s finance minister George Osborne said in Shanghai yesterday. Speaking at the Shanghai Stock Exchange, Osborne also said that he wanted to see a formal connection between stock markets in China and Britain so that British firms can raise money from Chinese savers and vice versa. The comments come after Britain and China agreed yesterday to a series of initiatives ranging from an expanded currency swap agreement to investment in a British nuclear power.

CPC sacks assistant chairman of stock regulator China’s Communist Party has sacked the assistant chairman of the country’s securities regulator, state media agency Xinhua reported yesterday, days after it was announced he was the subject of a graft probe. Zhang Yujun was under investigation for suspected “serious violation of discipline”, the country’s graft watchdog reported on September 16, using the euphemism it employs for corruption. Zhang is the first China Securities Regulatory Commission (CSRC) official to come under investigation amid stock market turmoil, which started in June.

10 | Business Daily

September 23, 2015

Greater China

Turning towards Islamic finance to expand economic clout Islamic deals could help AIIB differentiate itself from rivals such as the World Bank and Asian Development Bank Bernardo Vizcaino

KEY POINTS Little impetus for China to create domestic Islamic finance industry Overseas plans involve key Islamic finance regions Asian infrastructure bank may be main official tool Big state banks raising profile in Gulf

Kuala Lumpur is one of the most important Islamic financial centres. Pictured some of the Islamic financial entities based in the Malaysian capital.

I

slamic finance is gaining prominence as a channel for China to expand its economic influence abroad as banks strengthen ties with Muslim-majority countries and Chinese companies start to tap offshore pools of Islamic funds.

With a Muslim population of about 20 million, China has little reason to develop Islamic banking at home. But there are powerful reasons for it to get involved in the sector overseas.

China wants to build stronger trade ties with Asian

countries under its “One Belt, One Road” strategy to rebuild Silk Road trade links with Asia and Europe.

The network will include the world’s main centres of Islamic finance, the Middle East and Southeast Asia, where sharia-compliant assets account for as much as a quarter of total banking assets.

“With ‘One Belt, One Road’, (Chinese) stateowned enterprises and private companies are now more willing to explore Islamic finance,” said Hong

Steep learning curve for Chinese institutions

Kong-based Ben Ping Chung Cheung, Asia Pacific head of consultancy Shariah Advisory Group.

The firm is advising conglomerate HNA Group on what could be the first Islamic financing by a mainland firm: a US$150 million deal to buy ships. HNA also plans an offshore issue of sukuk (Islamic bonds), Cheung said.

A railway project in the eastern province of Shandong is also exploring issuing sukuk to raise as much as 30 billion yuan (US$4.7 billion) for a highspeed rail link, said Cheung.

If successful, such a deal would rank among the largest sukuk ever issued.

Hurdles remain, however, as discussions were still preliminary and any financing would face stiff competition from domestic banks, Cheung added.

In July, Singapore-based adviser Silk Routes Financials said it had been mandated by a unit of state-owned Sichuan Development Holding Co to advise on Islamic financing options.

“There is certainly some momentum, a consequence of

the large and growing trade links between China and the Gulf,” said Jonathan Fried, a partner at law firm Linklaters in Dubai.

Such plans are ambitious as Chinese firms face a steep learning curve in Islamic finance, which obeys rules such as a ban on paying interest and uses formats that can be more complex than conventional finance.

For their part, Islamic investors have plenty of money to buy into dollardenominated sukuk, but historically have tended to invest in top-rated issuers.

“The attraction would be if sukuk is cheaper for issuers, and clearly there are a lot of companies in China within the right industries, the right structures for it,” said Kalai Pillay, head of North Asia industrials at Fitch Ratings.

Government level

At a governmental level, Chinese participation in Islamic finance may be mainly via the Asian Infrastructure Investment Bank (AIIB), a new multilateral lender backed by Beijing.

The AIIB has discussed using Islamic finance with the Saudi Arabia-based Islamic Development Bank (IDB), two lenders which have 20 member countries in common.

Islamic deals could help AIIB differentiate itself from rivals such as the World Bank and Asian Development Bank.

China’s state-owned banks are already raising their profile in the Gulf. In the past year, Agricultural Bank of China, Bank of China and Industrial and Commercial Bank of China (ICBC) have issued conventional bonds listed on NASDAQ Dubai.

“The next stage will be sukuk issuance by Chinese entities, facilitated and comanaged by these banks,” said Fried at Linklaters.

Reuters

Government think tank says economy may grow 6.9 pct Beijing has only said that it is targeting growth this year of around 7 percent

C

hina's economic growth will likely slow to 6.9 percent this year amid gloomy short-term macroeconomic trends and the threat of deflation, state media quoted an annual report from a top government think tank as saying.

The Chinese Academy of Social Sciences (CASS) said in its "blue book" report on China's economy that the slowdown was wrought by falling investment by companies and individuals, and growing debt pressures faced by local governments, the Shanghai Securities News reported.

The National Bureau of Statistics earlier this month revised China's 2014 economic growth to 7.3 percent, down from a previous reading of 7.4 percent which was its slowest rate in 24 years. The economy expanded 7 percent in the second-quarter.

Beijing has only said that it is targeting growth this year of around 7 percent. CASS's status as a premier state-backed centre for academic and

policy research means its outlook to a certain extent reflects central government thinking.

The report, published on Monday, said the economy was intimately linked with a demographic window - defined as a period when a country's working-age population reaches its height - that had opened in China in previous years.

It estimated that the country's labour force would contract 0.4 percent over 2016-2020, having grown 0.61 percent over 2008-2015 and 1.58 percent over 1985-2007.

CASS also said that the country's financial markets development and transformation needed more time.

The report urged the reining in of overspending, "lazy" regional governments, diversifying sources of fiscal revenue, implementing tax cuts if local governments were taking too long to spend their budgets, and to make reforms to the fiscal spending structure.

Reuters

Shrinking labour force is directly impacting growth prospects

Business Daily | 11

September 23, 2015

Asia

ADB revises down regional growth Central banks urged to move now on monetary policy to prepare for a US rate hike

W

eaker growth in China this year is expected to cause a slowdown in the rest of Asia, the Asian Development Bank said yesterday as it became the latest major body to revise down its forecasts for the world’s number two economy.

It also warned central banks to prepare for an expected Federal Reserve interest rate rise, with many nations already seeing huge capital outflows as dealers look for better, safer US investments.

The report comes as markets are swiped by extreme volatility driven by fears over the Chinese economy -- and its leaders’ management of it -- after last month’s surprise devaluation of its yuan currency.

“The combination of a moderating prospect in China and India, together with delayed recovery of advanced countries, weighed on our forecast for the region as a whole,” said ADB Chief Economist Shang-Jin Wei, who presented the report at the Foreign Correspondents’ Club in Hong Kong.

In an update to its flagship Asian Development Outlook released in March, the Bank said growth in the region would hit 5.8 percent this year and 6.0 percent in 2016. March’s forecast was for 6.3 percent for both years.

Inflation in the developing Asia region was forecast to ease further, partly due to lower global commodity prices.

Wei said that the overall outlook for the region was “still positive” but had been impacted by capital flow reversals and weakened commodity prices for exporters, partly related to the China slowdown.

However, it tipped China -- the main driver of global economic

growth -- to expand 6.8 percent this year, instead of the 7.2 previously estimated, following a stream of weak indicators including on trade, inflation, investment and consumer spending.

US rate worries

The ADB predicted growth rate would be the slowest since 1990, a year after the Tiananmen Square crackdown that led to global sanctions against Beijing. It is also below China’s official target for the year of “about” seven percent.

It added that Southeast Asia was bearing the brunt of China’s slowdown, with growth in Southeast Asia this year put at 4.4 percent, before bouncing back to 4.9 percent in 2016.

Jurgen Conrad, head of the ADB’s economic unit, told reporters in Beijing that the revision was “mainly due to the delayed recovery in industrial countries reducing export demand”.

Forecasts for India were lowered to 7.4 percent from 7.8 percent, weighed by the slow pace of reform by the new government and weak external demand, the report said.

The ADB urged regional central banks to move now on monetary policy to prepare for a US rate hike, which Fed chief Janet Yellen has said will come before the end of the year.

“To counter the impacts of a US rate rise, monetary policy authorities in developing Asia will need to find a balance between stabilising the financial sector and stimulating domestic demand,” the report warned.

A tightening of US monetary policy would likely flight of muchneeded capital from developing nations as traders move into the

Source: ADB

United States in search of better returns.

This would in turn put pressure on central banks to lift rates themselves in a bid to protect their currencies, at a time when they are struggling to kick-start tepid growth at home.

World markets were rocked after the Fed on Thursday held off announcing a rise, with Yellen citing the threats to the US economy caused

by China’s economy as a key reason for the decision.

AFP

Foreign buyers swoop on Australian M&A targets Australian inbound deals have risen 23 per cent by value so far in 2015 compared to the same period last year

F

oreign suitors are bidding for Australian companies at a frenzied pace this year, spurred by a steady decline in the Aussie against the U.S. dollar which is turning valuations reasonable.

Last week’s US$1.6 billion all-cash approach by U.S. credit agency Equifax Inc for Sydneylisted rival Veda Group is the latest among billion-dollar-plus inbound takeovers of Australian companies, as a slowdown in the country’s top trading partner China weighs on the economy and on its currency which is down 13 percent so far this year.

Australian inbound deals have risen 23 percent by value so far in 2015 compared to the same period last year, Thomson Reuters data showed, as the weak currency added to supportive conditions already created by persistently low interest rates and the prospect of exposure to a mature, growing market.

The average value of Australian inbound deals so far in 2015 is the highest on record at US$127 million, up 31 percent on the year before.

“I don’t know that (the dollar) has been the sole driver but it has certainly acted as a catalyst,” said

Douglas Farrell, head of mergers and acquisitions at Citigroup Pty Ltd, which is advising Canada’s Brookfield Asset Management in an A$8.9 billion (US$6.4 billion) play for freight firm Asciano, the biggest deal of the year.

Dealflow has also been helped by “increased volatility that we’re seeing in markets that from a timing standpoint make shareholders a bit more likely to accept a cash bid where there’s a strong level of certainty”, said Farrell.

A foreign firm was also the acquirer in the second largest M&A deal of the

year, where Japan Post Holdings bought Asciano’s former owner Toll Holdings for A$6.5 billion.

“There is a clear increase in offshore corporates looking to take advantage of the strengthening economic ties between Australia and Asia,” said Scott Couzner, the local head of mergers and acquisitions for HSBC Bank Plc, which helped Hong Kong-listed Biostime International Holdings buy unlisted Australian vitamin company Swisse Wellness for about A$1.4 billion in a deal announced on September 17.

Reuters

12 | Business Daily

September 23, 2015

Asia

‘Beaten up’ Asian cyclicals defy growth woes to draw investors In 2008, returns from cyclical stocks were 8.4 percent less than defensives, Credit Suisse data show Nichola Saminather and Abhishek Vishnoi

A

sian cyclical stocks that move in line with economic trends are showing unusual resilience at a time of sluggish regional growth, in a sign that investors are taking on risk again.

The outperformance of these cyclical stocks against their defensive peers suggest the market’s recent correction on growth concerns will not turn into a bear market.

Cyclicals, typically in industries that do well in strongly growing economies, have risen since an August 24 trough. Materials stocks are up 9.6 percent, and information technology shares and consumer discretionary stocks are up 5.8 percent.

Defensive sectors, by contrast, which hold their own even amid economic weakness, have risen by much less. Consumer staples have gained 1.6 percent since the trough and lost 2.2 percent this month. While healthcare stocks are up 4.1 percent since the trough, they are down 1.9 percent this month.

The outperformance of cyclical stocks is unusual given that Asia’s sluggish growth, earnings downgrades

and weak consumer demand would typically prompt investors to dump them in favour of defensive shares.

That was indeed exactly what they did until late August. Materials stocks plunged 30 percent from an April peak to an August trough, and consumer discretionary shares fell 21 percent, while healthcare companies sank 13.6 percent and consumer staples dropped 8 percent.

However, that aggressive selling has made cyclical stocks so cheap they now appear to be good value, said Josh Crabb, head of Asian equities at Old Mutual Global Investors in Hong Kong.

“Cyclicals have been beaten up and the market is pricing them like they’re never going to turn,”

Crabb said. “That’s why they’re now turning.”

Information technology and healthcare stocks are trading at around three times book value, while cyclicals are at half or less, Thomson Reuters DataStream data shows.

The gap, while narrowing, remains near levels seen during the 2008 global financial crisis, according to Credit Suisse.

That’s a shift from the usual pattern of equities bottoming 1 to 1-1/2 years before an improvement in fundamentals.

In 2008, returns from cyclical stocks were 8.4 percent less than defensives, Credit Suisse data show.

Crabb, who is shifting cash directly into cyclical sectors - skipping the typical move into defensives first - sees selective opportunities in large low-cost mining companies, Korean automakers and some Chinese financials.

Manishi Raychaudhuri, AsiaPacific equity strategist at BNP Paribas, said that an across-the-board recovery was unlikely, however.

For instance, while software and

Australian home prices jump most in 5 years Residential property prices in the country’s eight capital cities rose 4.7 percent on the quarter

H

ome prices in Australia posted their biggest quarterly gain in over five years in April to June, led again by Sydney which logged its biggest rise on record.

But data from the Australian Bureau of Statistics (ABS) yesterday also highlighted the patchy nature of the country’s housing market, with cities in resource-rich states such as Western Australia suffering declines as the mining boom fades.

Residential property prices in the country’s eight capital cities rose 4.7 percent on the quarter, the biggest

increase since the December quarter of 2009.

That helped speed up year-on-year gains to 9.8 percent, from 6.9 percent in the first quarter this year.

Sydney home prices jumped 8.9 percent in the

quarter, taking gains there to 18.9 percent from a year earlier, the fastest since records began in late 2003 and blowing all other states away. See for details.

The mean home price in New South Wales state, of

service providers, particularly in India, appear robust, hardware and component manufacturers are facing increased competition and falling demand. BNP has reduced exposure to the latter, he said.

Aberdeen Asset Management is also selectively buying cyclical stocks.

“In a contrarian sense, it’s a good time to be thinking about these things,” said Managing Director Hugh Young in Singapore.

Companies such as Australian miner Rio Tinto “still make a decent amount of money, even with their key commodity having collapsed,” he said.

Not everyone is seduced by the valuations, however.

Cyclical stocks, such as materials, shipbuilding, mining and metals, “have been plagued by excess investment/capacity,” Peter Sartori, head of Asian equities at Nikko Asset Management in Singapore, said.

“We are not surprised to see these sectors catch a bid,” he said, but added “we don’t feel compelled to invest in these sectors currently.”

which Sydney is the capital, remained the highest across the country at A$777,400 (US$554,600).

“Although a little dated, the latest ABS release on residential property prices index for the June quarter confirm what we already knew: strong price growth in Sydney and to a lesser degree in Melbourne have ensured continued solid growth in Australia’s house prices,” said John Peters, senior economist at Commonwealth Bank.

More timely monthly reports produced by property information and analytics firm CoreLogic RP Data, showed growth in home prices in hot spots such as Sydney

Reuters

and Melbourne started to come off the boil in August.

Recent auction clearance rates also suggested a slowdown as regulatory measures introduced in July to tighten mortgage lending to investors looked to be taking effect.

“A key question will be how effectively the measures introduced by the Australian Prudential Regulation Authority will impact housing activity and thus prices,” Commonwealth Bank’s Peters added.

Last Friday, Reserve Bank of Australia Governor Glenn Stevens said those measures appeared to be working.

Reuters

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Business Daily | 13

September 23, 2015

Asia

Volkswagen emissions-cheating probe spreads to Asia German rivals Daimler and BMW have said the accusations against VW did not apply to them

T

he scandal engulfing Volkswagen AG, which has admitted cheating diesel vehicle emissions tests in the United States, spread east on yesterday as South Korea said it would investigate three of the maker’s diesel models.

Volkswagen shares plunged by 19 percent on Monday after the U.S. Environmental Protection Agency (EPA) said on Friday that the world’s biggest carmaker by sales used software that deceived regulators measuring toxic emissions and could face penalties of up to US$18 billion.

Media reports say the U.S. Department of Justice has started a criminal probe into the allegations, which cover several VW and Audi-branded diesel models including the Audi A3, VW Jetta, Beetle, Golf and Passat.

The ministry will consider recalling those vehicles after conducting the investigation, he said.

“If South Korean authorities find problems in the VW diesel cars, the probe could be expanded to all German diesel cars,” he said.

Volkswagen Korea declined to comment.

The European Commission has said it is in contact with VW and U.S. regulators, but it was too early to say whether VW vehicles in Europe were also affected.

A VW spokesman in Australia said the company had contacted its head office in Germany asking for advice about how to proceed and whether it expected cars sold in Australia to be affected.

Australia’s Department of Infrastructure (DOI), the government ministry responsible for the matter, said it is monitoring developments.

Overnight, VW’s U.S. head Michael Horn, who was attending a lavish event in New York to promote the 2016 VW Passat, admitted the company had “totally screwed up” and vowed to make amends.

Horn’s presentation did not promote the environmental efficiency of the Passat’s “clean diesel” model, focusing instead on the vehicle’s new sensor technology to assist with parking and avoiding accidents.

It is unclear what will be the ultimate cost of the scandal to VW, which also faces a class-action lawsuit from buyers, but sales of affected versions of the relevant models have already been suspended in the United States and Canada.

A member of VW’s supervisory board, Olaf Lies, who is also Economy Minister for the state of Lower Saxony, said there would also be a cost for those found responsible.

KEY POINTS S.Korea to investigate emissions for Volkswagen, Audi cars Probe to cover 4,000-5,000 cars of two VW models, one Audi German car sales surge in S.Korea after free-trade deal VW has admitted cheating on emissions tests in the U.S. German car sales in South Korea have soared since a 2011 free-trade deal eliminated duties on vehicles imported from Europe. Vehicle imports from Germany rose 18.2 percent to US$4.5 billion in the first eight months of 2015, South Korean customs data show, following a 42.5 percent increase for all of 2014.

Volkswagen and Audi accounted for 28.2 percent of all foreign cars sold the in the first eight months, according to the Korea Automobile Importers and Distributors Association.

Reuters

Bank of Indonesia not worried over falling forex reserves

Vietnam lending growth may accelerate Credit growth for Vietnam’s banks could accelerate to 16.5 percent this year, beating a government target and quickening from a rise of 14.16 percent in 2014, a central banker said yesterday.

The new projection comes after banks posted credit growth of 10.23 percent in the first eight months of the year versus the end of 2014, nearly doubling the pace seen a year ago, said Nguyen Tien Dong, a director at the State Bank of Vietnam. The annual target for 2015 was initially set at 13-15 percent, with a view toward expansion to 17 percent if necessary.

Indonesia starts legal action against “haze” companies Indonesia has ordered four companies to suspend operations for causing forest fires which have sent smoke across a swathe of Southeast Asia, an environment ministry official said yesterday.

“These suspensions will be in effect until the criminal proceedings undertaken by the police are finished,” said secretary general at environment ministry Bambang Hendroyono. Three plantation companies have had their permits frozen and one forestry company has had its license revoked, he added. PT Langgam Inti Hibrindo, which is owned

by PT Provident Agro was among the companies affected.

Australia’s major banks pull plug on bitcoin companies Australia’s major banks are closing accounts of bitcoin companies, forcing at least 13 digital currency providers out of business in response to tougher rules on money laundering and terrorism finance, an industry body spokesman said yesterday. The move comes just months after Westpac Banking Corp became the last of Australia’s four major banks to pull out of the remittances business in order to reduce compliance risks.

Banks globally are exiting sectors that present compliance headaches under pressure from regulators to meet tighter anti-money laundering and counter-terrorism financing rules.

To help strengthen forex reserves and cover its budget deficit, a finance official said Indonesia plans to borrow US$4.2 billion Hidayat Setiaji and Gayatri Suroyo

Thailand boosting rural economy

I

ndonesia’s top economic policymakers said yesterday they were not worried about the country’s falling foreign exchange reserves, as long as they can cover at least six months worth of imports.

The central bank often uses its forex reserves to help defend the weakening rupiah, which dropped to a 17-year low of 14,500 to the dollar yesterday and is the worst performing currency in the region this year after Malaysia’s ringgit.

The foreign exchange reserves of Indonesia, Southeast Asia’s largest economy, have fallen to US$103 billion from US$105.35 billion at the end of last month, Bank Indonesia Governor Agus Martowardojo told parliament on Monday.

Yesterday, the governor told reporters he was not worried about the possibility of reserves falling below US$100 billion, a threshold last crossed in December 2013.

Finance Minister Bambang Brodjonegoro said forex reserves

KEY POINTS C.bank gov, finmin indicate reserves sufficient Indonesia to borrow for budget from World Bank, ADB

were adequate “as long as it covered 6-7 months of imports”.

Based on that benchmark, authorities would not be concerned over the level of forex reserves until they dropped below US$89 billion, according to Reuters calculations.

To help strengthen forex reserves and cover its budget deficit, a finance official said Indonesia plans to borrow US$4.2 billion from the

World Bank, Asian Development Bank, France’s Agence Francaise de Developpement and Germany’s KfW Development Bank. That compared with US$1.17 billion initially announced in July.

The loans “are to finance the budget. We’re choosing foreign sources because the market is still volatile and Indonesian growth is slowing,” said Scenaider Siahaan, an official with the Finance Ministry’s debt management office.

“The market is shy,” he said, adding that the loans would also strengthen forex reserves.

Siahaan added that the government would not issue new local currency bonds this year despite the widening budget deficit, which is expected at 2.23 percent of gross domestic product this year.

The finance ministry would issue around 500 trillion rupiah (US$34.51 billion) worth of bonds in 2016, pending parliamentary approval, he said.

Reuters

Boosting rural incomes is an urgent priority for the new economic team of Thailand’s military government and will do more to revive a flagging economy than a rate cut, the deputy prime minister said. Farmers are feeling the pinch a year and a half after the military government took power and ended generous agricultural subsidy schemes.

A drought has exacerbated the sharp fall in rural incomes and hurt consumption. Cutting interest rates would do little to stimulate the overall economy, he said. Thai businesses had the funds but lacked the confidence to invest, he said.

14 | Business Daily

September 23, 2015

International Pugachev files US$12 bln claim against Russia Sergei Pugachev, a tycoon once dubbed “Putin’s banker”, has filed a claim against Russia for US$12 billion after his business empire was carved up when he fell out of favour with President Vladimir Putin, his lawyers said.

“Over the past few years, Russia has pursued a multi-pronged attack against me, my family, and my investments,” Pugachev said in a written statement.

“I refuse to be intimidated by Russia’s tactics.” Pugachev’s notice of arbitration was delivered to Putin and Russia’s ministers of economy, finance, justice and foreign affairs, his lawyers said in a statement.

Merkel urges deal on Europe-U.S. free trade The outline of a free trade accord between Europe and the United States should be ready by the end of 2015, Germany’s chancellor said on Monday, trying to inject fresh impetus into stalled talks on what would be the world’s biggest deal of its kind. “Our aim is to reach the outline of a deal by the end of the year if possible,” Angela Merkel told a gathering organised by her Christian Democratic parliamentary faction.

She welcomed a recent proposal by the European Union’s trade chief for a new European court system to settle trade disputes.

US Federal Reserve Chair Janet Yellen speaks at a press conference after announcing that the Federal Reserve will not raise interest rates, stating that the current target range for the federal funds rate ‘remains appropriate,’ in Washington

Yellen faces questions over Fed message on rate hike Though the Fed says it is data dependent, it is not clear that each member views the same data with the same priority Jonathan Spicer and Howard Schneider

Mexico central bank holds key rate Mexico’s central bank held borrowing costs steady on Monday, flagging tame inflation, but signalled it is prepared to raise rates if a slump in the peso hits consumer prices. The Banco de Mexico left its key rate at a record low of 3.00 percent, as expected by 19 of 21 analysts surveyed by Reuters last week.

Mexico’s central bank said it was ready to act when necessary to ensure its 3 percent inflation target, a warning it introduced in July to suggest it could even hike before the U.S. Federal Reserve.

Santander’s Botin faces investors Faced with a deep recession in Brazil and weak margins in Spain, Santander boss Ana Botin is expected to stress the bank’s focus on cost cutting as she seeks to persuade investors this week that profitability is improving. Botin is holding Santander’s first investor day in four years on September 23 and 24, at a time when challenges are mounting again for the euro zone’s biggest bank.

Despite a 7.5 billion-euro (US$8.4 billion) cash call in January, Santander’s core capital ratios remain in the spotlight and lag the levels reached by many major European peers.

Total sells stake in Alberta oil sands project French oil company Total, which is trimming exposure to Canada’s oil sands amid a slump in crude prices, said on Monday it had sold a tenth of the Fort Hills oil sands project in northern Alberta to Canada’s Suncor Energy. The stake in the planned 180,000 barrel-per-day project was sold to Suncor for around C$310 million (US$233.96 million). The sale, which is subject to regulatory approval and expected to close by the end of the year, will give Suncor a 50.8 percent stake in Fort Hills.

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s the U.S. Federal Reserve’s chief communicator, Chair Janet Yellen is under building pressure among her colleagues and global investors to clarify where the world’s biggest central bank is heading and how it is making its decisions.

The calls have come from both her policy opponents like St. Louis Fed President James Bullard and more centrist sympathizers like Atlanta Fed President Dennis Lockhart, as well as market analysts and investors who say they have been confused about the Fed’s direction.

It is perhaps her biggest test yet as she tries to guide a committee currently divided between those who feel the U.S. economy has healed enough for a rate hike, and those who feel a weak global economy could undermine the country’s growth and recovery.

Aside from last week’s press conference, Yellen has been largely absent from the public stage in recent weeks -- focusing attention on a Thursday speech that could give insight into her place in that debate.

In the interim, analysts and investors insist the Fed has let seeming contradictions take hold -- saying that markets should not influence monetary policy, but then reacting to markets; declaring policy is data dependent and then saying that a 5.1 percent unemployment rate still needs to fall further.

“This will be a test and maybe the largest one she’s faced yet,” after an initial period of relative harmony at the U.S. central bank, said David Stockton, the Fed’s former research director.

The stakes are global. A mistimed move by the Fed could see the U.S. raising rates as the world economy slows, triggering a further global slowdown as investors readjust to the Fed’s move and perhaps pull capital from emerging markets.

This will be a test and maybe the largest one she’s faced yet David Stockton, Fed’s former research director

While careful not to personally criticize Yellen, who in 18 months as chair has put a premium on consensus and soliciting a wide set of views about the economy, there appears broad agreement that the Fed in recent months has added to the market instability that last week prompted a delay to a rate hike.

“I don’t think we are stuck in an adverse loop with markets,” Lockhart said on Monday. But “uncertainty about the (Federal Open Market Committee’s) policy intentions probably added to the overall environment of uncertainty that precipitated the volatility in midAugust...I am in the camp that would like to see the committee continue to refine its communications approach, particularly in this period.”

Some data is more equal than others

Though the Fed says it is data dependent, it is not clear that each member views the same data with the same priority, or puts the same

weight on the Fed’s twin employment and inflation goals. That could be fixed, Lockhart said, if the central bank developed a consensus “reaction function” to outline the conditions or triggers for a rate hike.

Bullard went a step further in an unusual televised appeal Monday asking former U.S. Treasury Secretary Lawrence Summers and others to effectively stop making public arguments against a rate hike, and muddling the Fed’s discourse.

The confusion, coupled with Yellen’s cautious tone at a press conference last week, has left investors discounting a rate hike until next year - despite Fed forecasts that show 13 of the Fed’s 17 policymakers expect to raise rates this year.

Yellen, scheduled to speak on Thursday in Amherst, Massachusetts, may need to reclaim the message.

“I would think she will try to clarify things, one way or the other, because I cannot possibly think they are unaware of the problem that they have,” said Roberto Perli, a former Fed official who is now partner at Cornerstone Macro.

On Thursday, the Fed cited risks from China and elsewhere and downward pressure on U.S. inflation from a strong dollar and weak commodities as reasons to hold off raising rates for the first time in nearly a decade.

While the decision had nearunanimous backing, a handful of hawkish policymakers like Bullard did not have a formal vote on the FOMC, and comments over the weekend suggested a close call.

Underscoring the sometimes fractious structure of the U.S. central bank, seven of the 13 officials who recommend a tightening this year only want one rate hike, while six want two or more hikes, according to the forecasts.

Reuters

Business Daily | 15

September 23, 2015

Opinion Business

wires

Refugees and reform in Europe

Leading reports from Asia’s best business newspapers

Mohamed A. El-Erian

Chairman of US President Barack Obama’s Global Development Council

THE TIMES OF INDIA Indian IT companies are among the 10 worst paymasters in the world, says a survey -a midlevel IT manager draws an average salary of US$41,213 while his Swiss counterpart gets over four times more.

According to recruitment platform MyHiringClub.com’s Worldwide IT Salary 2015 survey, India was ranked 7th on the list of lowest paymasters for information technology (IT) managers, down by one position from last year’s. While Indian IT managers drew an average salary of US$41,213, Bulgaria topped the list with a meagre US$25,680, followed

by Vietnam and Thailand averaging at US$30,938 and US$34,423, respectively.

THE PHNOM PENH POST The European Chamber of Commerce in Cambodia (EuroCham) signed a memorandum of understanding with the Tourism Ministry yesterday aimed at promoting and developing the Kingdom’s tourism sector. Emmanuel Menanteau, chairman of EuroCham, said the partnership would enable the chamber to promote Cambodia as a tourist destination, thereby attracting more European investments here. “European people and companies are already involved with developing tourism in Cambodia, especially in Siem Reap province,” he said. “We will invite more businesses to come and further promote tourism.”

THE KOREA HERALD Major business groups have expanded their employment plan for this year despite economic uncertainties as part of efforts to join the government-led drive to tackle the high youth unemployment, a report showed yesterday.

South Korea’s 13 largest conglomerates by assets plan to hire 103,000 people this year, 10 percent up from an earlier plan, according to the data compiled by the Federation of Korean Industries. Seven groups, including Samsung and SK, decided to increase the number of new employees, while six others stuck with their initial plans, the business lobby group said.

THE STAR 1Malaysia Development has expressed disappointment with Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz who apparently singled out the strategic development company for the ringgit’s weakness. The weakness of the ringgit and other currencies is due to the abrupt fall in oil prices, expectation of rising US interest rates and global economic slowdown in emerging markets, it said in a statement yesterday.

“Historically, never once has one company been linked in such a way to the value of the ringgit,” it said.

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here is a simple truth beneath the growing human tragedy of Europe’s refugee crisis, and the European Union cannot address the massive influx of exhausted, desperate people in a manner compatible with its values unless governments and citizens acknowledge it. Simply put, the historic challenge confronting Europe also offers historic opportunities. The question is whether Europe’s politicians – who have failed to deliver on far less complicated issues over which they had a lot more control – can seize the moment.

The scale of the challenge is immense, with the flow of refugees extremely difficult to monitor and channel, let alone limit. Fleeing war and oppression, tens of thousands of people are risking life and limb to find refuge in Europe – a phenomenon that will continue as long as chaos persists in countries of origin, such as Syria, and countries facilitating transit, such as Iraq and Libya.

In the meantime, Europe’s transport networks are under stress, as are shelters, border crossings, and registration centres. Common asylum policies – including, for example, the basic rule that asylumseekers should be registered at their point of entry into the EU – are not functioning or are being bypassed. And the cherished concept of effortless travel within the border-free Schengen Area is under threat.

These problems are aggravated by coordination failures.

Attitudes toward refugees vary widely across countries, with Germany taking a particularly enlightened approach that contrasts sharply with Hungary’s notably heartless one. Some

countries, such as the Czech Republic, have blocked deals to share the burden fairly among European Union members, including through mandatory quotas.

Add to that the preferences of the refugees – who, after risking everything to get to Europe, have strong feelings about where they would like to settle – and the policy challenges are enormous, particularly in the short run. European politicians have yet to catch up with the reality on the ground, let alone get ahead of it. And their failure is exacerbating the risks to the EU’s political cohesion that emerged over the Greek crisis.

Politicians have a powerful incentive to get Europe’s response to the refugee crisis right. Beyond the need to alleviate the human misery that fills television screens and front pages of newspapers lies the imperative not to miss the significant medium-term opportunities that migration provides.

Although there are pockets of high unemployment in Europe today, the ratio of workers to elderly people will decline considerably in the longer term.

And, already, labour-market flexibility has been undermined by structural inertia, including difficulties in retooling and retraining workers, particularly the long-term unemployed.

As the German government and some corporate leaders, including the CEO of DaimlerBenz, have already recognized, an open-minded approach to refugee absorption and integration can help to mitigate some of Europe’s protracted structural problems. After all, a significant proportion of the incoming refugee population is said to be educated, motivated,

Migrants arrive at the railway station in Hegyeshalom, Hungary, after they were transported here from the Croatian border

and committed to building a better future in their new homes. Capitalizing on this, European decision-makers can turn a severe short-term challenge into a powerful longterm advantage.

An enlightened policy response to the refugee crisis could help Europe in other ways as well.

Already, it is unlocking additional fiscal outlays in countries like Germany – which, despite having the means, did not previously have the will to spend – thereby helping to alleviate an aggregate-demand imbalance that, together with structural

impediments to growth and excessive indebtedness in some countries, has held back the region’s recovery.

The current situation could also provide the catalyst needed to make decisive progress on the EU’s incomplete political, institutional, and financial architecture. And it could compel Europe to overcome the political obstacles blocking solutions to longstanding problems, such as providing the cover needed for certain European creditors to grant deeper debt relief for Greece, whose already-massive fiscal and employment problems are being exacerbated by the influx of refugees. It can even drive Europe to modernize its governance framework, which allows a few small countries to derail decisions supported by the vast majority of EU members.

Pessimists would immediately point out that Europe has struggled to come together even on far less complex and more controllable issues, such as the protracted economic and financial crisis in Greece.

Yet history also suggests that shocks of the scale and scope of the current refugee crisis have the potential to spur remarkable policy responses.

Europe has the opportunity to turn today’s refugee crisis into a catalyst for renewal and progress. Let us hope that its politicians stop bickering and start working together to take advantage of this opening. If they fail, the momentum behind regional integration – which has brought peace, prosperity, and hope to hundreds of millions of people – will weaken considerably, to the detriment of all.

Project Syndicate

16 | Business Daily

September 23, 2015

Closing Xiaomi announces telecom carrier service

Offshore banks to issue bonds in China‘s interbank market

Xiaomi announced yesterday two prepaid wireless plans to mark its debut as a mobile virtual network operator (MVNO) competing against China’s national carriers. MVNOs, which purchase network capacity from large carriers and resell mobile plans under their own branding, have failed to gain traction in China, where three state-owned giants dominate the telecoms industry. But as China’s most popular handset brand, Xiaomi’s foray into the sector could finally kickstart the MVNO industry and provide a boost for Chinese telecom regulators who have sought for years to introduce market competition against the trio of state-owned carriers often criticised for their poor profitability and perceived bloat.

China’s central bank will allow HSBC Holdings plc and Bank of China (HK) to issue yuan-denominated bonds in China’s interbank market, it said in a statement yesterday, the first time offshore commercial banks have been permitted to issue local-currency debt in the domestic market. HSBC will be allowed to issue 1 billion yuan (US$156.86 million) of bonds, while the Hong Kong branch of Bank of China will be permitted to issue 10 billion yuan (US$1.57 billion) of debt, according to the statement. In 2005, the IFC launched a Panda bond issue in the Chinese domestic market worth 1.13 billion yuan (US$177.25 million), becoming the first foreign issuer in the domestic market along with the Asian Development Bank.

Hong Kong housing demand seen countering mainland decline The ratio of new loans to property values is at the lowest in at least a decade, according to data from the HKMA

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hina’s economy is slowing and stocks are crashing. The Federal Reserve is poised to raise rates, and Hong Kong’s de-facto central bank is warning about “uncertainty” in the city’s all-important housing market, where transactions plunged last month.

So what does it all mean for real estate prices in the former British colony?

The answer, according to Michael Spencer, Asian chief economist at Deutsche Bank AG: Not much.

Spencer, and property experts including CBRE Group Inc.’s Yu Kam-Hung and Knight Frank LLP’s David Ji, point to healthy borrower finances and continuing domestic demand for housing as evidence Hong Kong isn’t on the verge of repeating the six-year slump that started in 1997. Barring a major political upheaval in China, the decade-long property bull market is likely to continue, albeit at a slower pace, they say.

“People say property prices will fall because of the

Fed, and that in my view is wrong,” said Spencer, who bases his conclusion on 20 years of data. “If you build a model based on real interest rates and real GDP, neither have mattered.”

Property analysts including JPMorgan Chase & Co.’s Cusson Leung and Morgan Stanley’s Praveen K. Choudhary are calling for Hong Kong property prices to plunge as much as 10 percent next year amid the prospect of higher interest rates and slowing growth in China.

An anaemic pace of home transactions in August - which showed that volumes tumbled by almost a third to the lowest in 17 months -- also stoked concerns, especially in light of increasing supply of private housing, weakening retail sales and data showing that Hong Kong’s private sector economy suffered its sharpest contraction since 2009 last month.

Forfeiting deposits

Anecdotal evidence has begun to surface that buyers are walking away from deals and forfeiting deposits, as

Russell investments sale to Citic said near collapsing

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and it is misleading to focus on just one month of transaction data -- and a month that was marked by unprecedented stock-market volatility and a shock move

by China to devalue the yuan, said CBRE’s Hung.

Volatile market

sentiment has soured. The stock-market volatility in China and Hong Kong and the possible increase in U.S. rates means “the outlook for the property market over the coming few months is uncertain,” Hong Kong Monetary Authority Chief Executive Officer Norman Chan told reporters on Wednesday.

No one expects a repeat of the crash that began in October 1997 with the Asian financial crisis and bottomed as the city was gripped by the severe acute respiratory syndrome, plunging almost 70 percent in a six-year period. They have surged more than 370 percent since the 2003 trough.

Fears surrounding property prices are overblown,

Boeing planning a factory in Zhoushan

Joseph Tsang, managing director of Jones Lang Lasalle Inc., said the situation today differs from previous housing market meltdowns when borrowing costs and household debt levels were high. The ratio of new loans to property values is at the lowest in at least a decade, according to data from the HKMA, and delinquencies stand at 0.03 percent.

Once the Federal Reserve does move on rates, the impact in Hong Kong is likely to be muted. An increase of halfa-percent in mortgage rates for someone with a 25-year loan of HK$2 million (about US$258,000) would be about a HK$500 increase in monthly payments, according to Knight Frank’s Ji. “That’s the price of an evening meal,” he said.

Bloomberg News

China’s state-owned firm says parent to assume responsibility

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ondon Stock Exchange Group Plc’s plan to sell Russell Investments to China’s Citic Securities Co. is faltering and may soon collapse, people with knowledge of the matter said.

The plunge in the Chinese stock market since mid-June, as well as investigations into some Citic Securities executives, have derailed the discussions, the people said, asking not to be identified as the information is private. China’s biggest listed brokerage had been in advanced talks to buy the fund-management business for about US$1.8 billion, a person with knowledge of the matter said in July.

LSE has begun speaking again with other bidders for Russell Investments, according to one of the people.

Citic Securities has become a focal point of a campaign by the Chinese authorities to root out financial wrongdoing and assign blame for the nation’s US$5 trillion stock rout. President Cheng Boming is being investigated by the police, with the state-run Xinhua News Agency reporting that he’s one of seven Citic Securities executives facing probes for offenses including alleged insider trading. A spokeswoman for Citic Securities declined to comment on the Russell talks.

lans for a Boeing factory in China have been submitted to the government in Beijing, state-run media reported yesterday ahead of President Xi Jinping’s US visit, where he will tour one of its plants.

A Boeing factory in China would represent an about-turn in the US giant’s strategy in the crucial market, where European rival Airbus has a final assembly operation for medium-range Airbus 320 aircraft in the northern port of Tianjin and plans to open a new completion and delivery centre for long-haul A-330s.

A plan for the Boeing plant in Zhoushan, in the eastern province of Zhejiang, has been submitted to the State Council, China’s cabinet, the Shanghai Securities News reported.

The newspaper, which is run by the official news agency Xinhua, gave few details -- including who had put the proposal forward -- but said an update could be expected as early as this week.

The factory would be the centrepiece of a new aerospace industrial zone in Zhoushan, it added.

China is expected to add 6,330 new aircraft worth US$950 billion to its commercial fleet by 2034.

heavy machinery firm at risk of becoming China’s second state-owned enterprise (SOE) to publicly default on bonds said yesterday that its parent or its guarantor will repay the debt, showing the continued difficulty of properly pricing risk in a market where many bonds enjoy some form of implicit state guarantee.

China has also said it will reform its inefficient and credit-intensive SOE sector more broadly to become more competitive, but so far reform plans have remained vague.

China National Erzhong Group and subsidiary China Erzhong (Deyang) Heavy Industries, both hailing from struggling industries, said earlier this year that they might be unable to pay interest on a 1 billion yuan (US$156.87 million) medium-term bond issued in 2012, and an 800 million yuan enterprise bond issued in 2008 with 310 billion yuan outstanding.

The two firms yesterday posted separate announcements on the website of one of China’s main bond clearing houses stating that their state-owned parent, China National Machinery Industry Corp, or the debt guarantors would assume responsibility for the two bonds.

Bloomberg News

AFP

Reuters