Macau Business Daily September 24, 2015

MOP 6.00

Xi Jinping in Seattle

Closing editor: Joanne Kuai

The Chinese President has arrived in the United States. Starting a weeklong visit. Meetings with U.S. business leaders are pencilled in. Plus a black-tie state dinner at the White House hosted

by U.S. President Barack Obama. And an address to the United Nations

Year IV

Number 886 Thursday September 24, 2015

Publisher: Paulo A. Azevedo

Page 8

Golden Week Jitters

August visitor arrivals dropped 1.7 pct y-o-y to 3.03m. But average length of stay increased to 1.1 days. CEM hands back Nevertheless, travel industry reps anticipate a decrease of 10 to 20 pct of Mainland Chinese package two plots worth MOP6.39 million to government tourists for October’s Golden Week. Fierce regional competition from Japan and South Korea, Page 2 exchange rates, and the travel bug are cited as raining on Macau’s parade Page

3

QBE Insurance profit increases MOP2 million

Page 4

Further Consolidation Macau casino shares closed lower in Hong Kong. After analysts said gaming revenues had fallen 19 pct to MOP493 million (US$62 million) a day last week. Tighter rules on junkets are on the way. Which analysts believe will impact VIP volumes. And likely accelerate junket room closures

China’s factory PMI gauge advances weak performance in September

Page 10

Guangdong represents hopes and opportunities of evolving Chinese economy

Pages 8 & 9

Page 6

HSI - Movers

Regional

Deserting Island

Star Trek

A surprising development. Studio City has requested a hotel star downgrade. From 5-star to 4-star. Explained by operator Melco Crown as being ‘aligned with the Macau Gov’t policy of diversifying the hospitality and tourism industry offering’. Rental to the gov’t. however, remains unchanged at MOP9.06m p.a. once the resort is completed

Page 2

Officially 7 metres. Some say 20.

Hong Kong has seen its reclamation of boundary crossing facilities just drift away. This, with regard to the Hong Kong-Zhuhai-Macau Bridge. Hong Kong authorities reiterate that reclamation of the artificial island faces delay. And is unlikely to be completed on schedule by end-2016

www.macaubusinessdaily.com

Page 4

Steering Clear The VW diesel car debacle.

The local GM has downplayed the implications.

The model in question is not in stock. The German vehicle manufacturer has come clean. Admitting it has equipped diesel cars with devices that can cheat official emission tests

Page 4

September 23

Name

%Day

China Resources Enter

+0.44

Hengan International

+0.40

CLP Holdings Ltd

-0.77

Cathay Pacific Airways

-0.94

Tencent Holdings Ltd

-1.13

China Merchants Hold

-4.61

CNOOC Ltd

-4.62

China Overseas Land &

-4.89

Kunlun Energy Co Ltd

-5.42

Galaxy Entertainment

-5.54

Source: Bloomberg

I SSN 2226-8294

2015-9-24

2015-9-25

2015-9-26

26˚ 32˚

26˚ 32˚

26˚ 31˚

2 | Business Daily

September 24, 2015

Macau ‘Thunderbolt 15’ prosecutes 1,331 The Unitary Police Service (SPU) said yesterday that the local police had solved a total of 985 cases and prosecuted 1,331 people during the 3-month-plus joint anti-crime action codenamed ‘Thunderbolt 15’ with Hong Kong and Guangdong police authorities. According to SPU, the crime cases were primarily related to drugs, cross-region prostitution, computer scams and loan sharking. Meanwhile, Guangdong Provincial Public Security Department announced yesterday that the Zhuhai and Macau police authorities had jointly busted two cross-border prostitution rings last week, with 31 people arrested in Macau, including the heads of the rings, while eight were arrested in Zhuhai and Jilin.

Melco Crown downgrades Studio City’s hotel to 4-star The gaming operator has asked for the new hotel to be downgraded to 4-star in the contract signed for the concession of land where the resort is sited

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tudio City’s hotel has been downgraded from 5-star to 4-star in the contract signed

by Melco Crown Entertainment and the government for the rental of the land plot where the resort is sited. The amended contract was published yesterday in a dispatch signed by the Secretary for Transport and Public Works, Raimundo Rosário.

According to the Official Gazette the downgrade process was requested by Melco Crown Entertainment to the Land, Public Work and Transport Bureau [DSSOPT] on 11 May 2015. The reason given by the company is that ‘at this moment this typology [4-star] is the most suitable for the policy of the diversification of accommodation and tourist product and because from a technical point of view the project presented to Macau Government Tourist Office [MGTO] is better framed as this type of [facility]’.

However, Studio City guarantees that ‘the rating has no impact’ on the guest experience and quality of the hotel rooms at the property, which will ‘raise the bar on room design and comfort across Macau’.

“Categorisation of Studio City as a 4-star property is aligned with the Macau Government policy of diversifying the hospitality and tourism industry offering in Macau and therefore contributes to the better positioning of Macau as an international tourism and leisure center,” Director of Corporate Communications at Melco Crown Entertainment Limited, Chimmy Leung, wrote in an email in response to Business Daily’s enquiry regarding the star-rating change.

While the request was accepted by the government, the rental value to be paid by the company to the Executive has not changed and, in spite of the downgrading of the hotel, the gaming promoter will pay MOP9.06 million per year as rental once the resort is completed.

According to information released earlier by the company, Studio City cost US$3.2 billion (MOP25.54 billion) with the Grand Opening slated for 27 October.

The official website of the resort promotes it as a ‘5-start luxury hotel’.

Business Daily asked Melco Crown Entertainment for a clarification on the issue but by the time the story went to press the company had not replied.

J.S.F.

Last of UM departs Taipa campus

CEM returns two plots worth MOP6.39 million to gov’t

U

E

niversity of Macau (UM) said its Town Centre, which is the University’s only property located at its old campus in Taipa, will be returned to the government at the beginning of October.

“We will move to the new campus on 7th October 2015. The University is required to return the University of Macau Town Centre (UMTC) to Macao Special Administrative Region Government,” Centre for Continuing Education of the University, the primary department using the property, it wrote in a notice.

After UM’s move to its new campus in Hengqin, the Tertiary Education Services Office (GAES) announced in

November last year that eight major teaching buildings of the UM old campus would be allocated to the City University of Macau, chaired by businessman and Executive Council member Chan Meng Kam. Asked by Business Daily, GAES said in an email that the relevant departments will “conduct in-depth research to make proper arrangements for the relevant place so that the precious land resources can be used rationally and effectively.”

Meanwhile, regarding the reason for the relocation, the government department suggested that it was the plan of the University to meet its long-term development.

K.L.

lectricity supply company Companhia de Electricidade de Macau (CEM) has handed back two plots of land to the government, located in Coloane near the Ka Ho Dam road.

According to a dispatch signed by the Secretary for Transport and Public Works, Raimundo Rosário, the two plots of land, which combined occupy 6,389 square metres and are worth around MOP6.39 million, will be used to build a new prison.

The land plots now recovered by the government were initially ceded to CEM for the company to expand the Coloane Power Station during the Portuguese Administration

in 1987 and 1988. However, the company told Business Daily that the development of the power station will not be affected by this.

“The return of the land has no impact on the future development of Coloane Power Station. CEM is always very supportive of government initiatives for the development of the MSAR [Macau Special Administrative Region] and has not requested compensation for the return of this land”, the Senior Manager of the Communications and Public Affairs Office, Cecilia Nip, told Business Daily regarding the end of the concession for the plots.

J.S.F.

Business Daily | 3

September 24, 2015

Macau

Agencies anticipate fewer Chinese package tourists for Golden Week Given the intense regional competition, Macau could see a 10 to 20 pct drop in Chinese package tour visitors for the upcoming National Day weeklong holiday, say industry reps Stephanie Lai

sw.lai@macaubusinessdaily.com

M

acau could see a fall in the number of Mainland Chinese visitors travelling here on package tours during the upcoming National Day Golden Week starting October 1, as the city is still struggling to attract these visitors whilst facing mounting competition from the increasingly popular destinations of Japan and South Korea, local industry representatives have remarked.

Andy Wu Keng Kuong, president of Macau Travel Industry Council, anticipates that the number of Mainland Chinese visitors arriving here on package tours in October may decline 10 per cent to 20 per cent year-on-year.

For the first seven months of this year, the proportion of Chinese package tourists accounted for 26.8 per cent of the overall 17 million visitor arrivals, or 40.4 per cent of 11.5 million Chinese visitors that came here during the period.

“Actually, we’ve already seen a slowdown in the growth of Chinese package tourists for the National Day holiday since last year,” Mr. Wu remarked to us. “That has to do with the travel cost of coming here, as well as the fact that destinations like Japan and South Korea have

become more attractive for Chinese visitors.”

Joe Cheong, assistant general manager of the travel department of China Travel Service (Macao) Ltd., shares a similar view with Mr. Wu, saying the relaxed visa rules imposed

by Japan and South Korea as well as the depreciation of their currencies have reduced Chinese package tour visitors’ incentives to sign up for joint Hong KongMacau tours.

“For a weeklong holiday, Southeast Asia, Hong Kong and Macau are no longer the top destinations for Chinese visitors, as they have become wealthier and wish to travel farther,” Mr. Cheong said.

Macau has seen a much more subdued growth in the number of Chinese visitors coming here on package tours so far this year: the city registered just 0.7 per cent year-on-year increase in the number of Chinese package tourists (totalling 4.66 million) for the first seven months of this year vis-a-vis the nearly 11 per cent increase last year.

“China’s tourism law amendment [effective October 2013] has somehow curbed the low-fare groups organised on the Mainland,” Mr. Cheong said. “The amended rules have also

enhanced the travelling cost for these Hong Kong and Macau-bound package tours, which in turn has affected the number of package tourists coming here.”

For the upcoming National Day holiday, Macau Travel Industry Council president Andy Wu said the sector would expect the overall number of Chinese visitors to remain at a similar level as last year, given that the number of these visitors travelling here on the Individual Visit Scheme (IVS) may level or register a slight drop when compared to last year.

Fewer visitors, longer stay

Last month, Macau received some 3.03 million visitors, representing a yearly decline of 1.7 per cent. For the first

eight months of this year, the city’s visitor arrivals amounted to 20.4 million, 3.2 per cent less than a year earlier, data released by the Statistics and Census Service (DSEC) showed yesterday.

The fall has been led by reduced visitors from Mainland China, the most significant visitor source for Macau. At the same time, the number of visitors from Asian countries and other long-haul countries have also dropped for the first eight months of this year.

For the January-August period, the city has received 13.6 million Mainland Chinese visitors, representing a 4.1 per cent year-on-year decline. The number of Chinese visitors travelling on the Individual Visit Scheme (IVS) in the period has increased 2 per cent to

about 6.56 million, official data shows.

As at August, however, the average length of stay of visitors increased by 0.1 days to 1.1 days; while that of overnight visitors rose 0.2 days to 2.1 days.

“The extended stay shows that the room rate cut campaign put forward by the hoteliers here has had some effect,” Andy Wu remarked. “The campaign has stimulated the growth of Hong Kong visitors.”

Macau’s neighbouring city Hong Kong is the second most important visitor source. For the first eight months of this year, the number of Hong Kong visitors has inched up 0.6 per cent year-on-year to 4.38 million, in contrast to a 5.5 per cent decline seen in the same period last year.

Local travel agencies’ gross value added rose 23.5 pct in 2014 The gross value added of the city’s travel agencies, which measures the sector’s contribution to the economy, rose 23.5 per cent year-on-year to MOP1.01 billion, according to the latest data released by the Statistics and Census Service.

The growth was fuelled by higher earnings of the travel agencies here, which saw their receipts increase 13.1 per cent year-on-year

to MOP7.16 billion in 2014, boosted by income surge derived from online reservations of hotel rooms and performance tickets arranged for inbound visitors and local residents. The income from this online business soared 250 per cent year-on-year to MOP91.37 million for last year. As of last year, 237 travel agencies were operating in Macau.

4 | Business Daily

September 24, 2015

Macau

Volkswagen ‘emission-cheating’ diesel cars not sold in Macau The cheating scandal of the German automaker does not involve vehicles imported to the territory Kam Leong

kamleong@macaubusinessdaily.com

G

erman vehicle manufacturer Volkswagen (VW) admitted on Tuesday that it had equipped devices that can cheat official emission tests in 11 million diesel cars worldwide but Business Daily has learnt that the Special Administrative Region does not have or will sell the models involved in the scandal.

“In fact, it only involves the company’s diesel passenger cars. In Macau, we don’t have this kind of model at all,” the general manager of Volkswagen Macau, Jay Chu, told us in a phone interview yesterday.

According to Mr. Chu, although the city also imports the manufacturer’s diesel commercial cars, he claimed that these commercial cars are equipped with turbo diesel engines, which means that it is not the same type of engine that was found to be problematic.

Last week, the U.S. Environmental Protection

Agency first disclosed that the automaker had installed devices that could cheat official

pollution tests in nearly half a million of its sold diesel cars. However, VW indicated on Tuesday that

the number of affected vehicles is nearly 23 times higher than the authority’s estimation.

VW Macau’s general manger said the local office had also received enquiries from local clients. “Rather than being worried, they are more curious about what is happening. After all, the VW vehicles we have here are primarily petrol cars,” Mr. Chu said.

According to the statement by the company on Tuesday, the affected vehicles are equipped with Type EA 189 engines. The U.S. authority said that this type of engine can be switched to a cleaner mode during emission tests whilst emitting 40 times the American legal limit when the cleaner mode is off.

VW claimed that it is now working to eliminate the problem “through technical measures” and would set aside 6.5 billion euros (MOP58.5 billion/US$7.31 billion) for that purpose.

Admitting the ‘cheating’ device was also installed in its other diesel vehicles, VW claimed that for the ‘majority of these engines the software does not have any effect’.

HKZM Bridge’s HK border QBE Insurance profit reclamation drifts 7 metres increases MOP2 million

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ong Kong has seen its reclamation of boundary crossing facilities for the Hong Kong-Zhuhai Macau Bridge drift away from its location by as many as 7 metres. In addition, authorities indicate that the reclamation will hardly be completed by the end of next year, according to Hong Kong media reports.

Hong Kong’s senior media person, Howard Winn, firstly reported in his blog that The Highways Department had admitted that the artificial island built for the Bridge had recorded movements of up to 6 or 7 metres in different parts of the reclamation.

“This kind of movement is normally found among large-scale reclamation projects adopting a non-dredge method in the main reclamation, with the HKBCF [Hong Kong boundary Crossing Facilities] artificial island no exception,” Mr. Winn quoted the department as saying in a written reply.

In the report, the writer also quoted civil engineers who claimed to be familiar with the island as saying that part of the reclamation had once drifted 20 metres.

However, Chinese language newspaper Apple Daily said yesterday that the official department had rejected the notion of the 20-metre movement to the news outlet,

admitting only to movements of up to 7 metres.

Delays

In addition, the Highways Department has indicated that the reclamation of the artificial island will face delay.

“Having regard to challenges such as unstable supply of materials, shortage of labour, restriction in airport height and constraints of env i r o n m en ta l p r o tecti o n requirements, the HKBCF project may not be completed in time by end-2016,” Mr. Winn quoted.

In fact, this is not the first time that the Hong Kong authorities have suggested that the Special Administrative Region may not be able to complete its main infrastructure for the bridge as scheduled.

In August, its Secretary for Transport and Housing, Anthony Cheung Bing-leung, said he did not see that the construction works for the bridge could be completed by the end of 2016 as originally planned.

The Hong Kong Government official said then that the three governments responsible for the bridge were evaluating the progress of construction, claiming a more accurate anticipation of the completion and traffic-opening dates of the bridge will only be available at the end of this year.

T

he Macau branch of QBE Insurance increased its profit

by MOP2 million during 2014 to MOP3.94 million from MOP1.94 billion, the company announced in Macau’s Official Gazette.

In the territory, Australia’s largest insurance group is only involved in life insurance, expanding gross premium to MOP38.23 million from MOP34.27 million, an increase of 11.6 per cent.

“The Macau branch of QBE Insurance had a stable year during 2014 and the increase of activity in the territory is according to our forecasts, reaching an increase of 11.6 per cent year-on-year in terns of gross premium”, a message from Manager Sally Siu Yee Ming reads.

QBE lagged behind because in 2014 the Macau life insurance

segment expanded 39.7 per cent to MOP6.96 billion from MOP4.96 billion. As a result, the market share of the Australian-based company in the territory decreased to 0.55 per cent from 0.69 per cent.

However, the company is still very confident about operations in the territory for 2016, according to the Manager of the Macau branch of QBE Insurance.

“For 2016 we are hoping that with the diversification of the economy of Macau and the policies adopted by the government that this company can continue to develop its activity via a strategy for stable sales and the improvement of our products and service provision”, Sally Siu stressed in a written message.

Business Daily | 5

September 24, 2015

Macau

Billionaire Macau developer Ng Lap Seng denied U.S. bail Macau billionaire Ng Lap Seng’s vast wealth might allow him to easily evade authorities if he’s released on bail, US judge heard Stephanie Lai*

sw.lai@macaubusinessdaily.com

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rominent Macau real estate developer Ng Lap Seng was ordered to be held without bail by a federal judge in New York following his arrest in the U.S. on charges of bringing US$4.5 million into the country and lying about its purpose to authorities.

Ng, whose interests straddle casinos and apparel, sits on government advisory body the Chinese People’s Political Consultative Conference. Mr. Ng heads local real estate developer Sun Kian Yip Group, and he was also one of the major investors and prime movers behind the Nam Van Lakes project in the 1990s.

William Kuan Vai Lam, an executive at Sun Kian Yip, told local Chinese television MASTV on Tuesday that he has been unable to reach Ng since last week, although he believed the arrest of Ng would not impact the property group’s investments here.

Ng and an employee whom the government called his ‘right-hand man’ were accused of falsely claiming that they had brought the money into the U.S. on trips from 2013 to 2015 to spend on art, antiques, real estate and gambling. Ng is charged with failing to disclose to Customs agents that he was carrying more than US$10,000 when he entered the U.S. Ng has vast wealth that might allow him to easily evade authorities if he’s released on bail, Assistant U.S. Attorney Janis Echenberg told a judge on Monday. He has a net worth of about US$1.8 billion, holds at least US$1 billion in Chinese real estate, earns about US$25 million a month and has access to US$30 million-

worth of private planes, she said.

Ng was arrested on September 19. Details about the government’s investigation of him emerged at a hearing that day for Jeff Yin, 29, whom the government described as Ng’s assistant.

Yin talked to investigators and “admitted among other things that he was transmitting money on behalf of Mr. Ng to pay people to do unlawful things,” Assistant U.S. Attorney Daniel Richenthal said, according to a recording of the September 19 hearing.

Prosecutors also have evidence that Ng wired at least US$19 million to U.S. bank accounts and individuals.

Ng and Yin were en route to leave the U.S. from Teterboro Airport in New Jersey on a private plane when they were arrested, Richenthal said.

Ng avoided the U.S. in the past after being linked to a separate investigation tied to the illegal wiring of money to U.S. political parties, Echenberg said. Once he learned that a congressional enquiry was under way, he stayed out of the U.S. for at least four years, according to the prosecutor. Ng also evaded a grand jury subpoena, Echenberg told U.S. Magistrate Judge Sarah Netburn at Monday’s bail hearing.

Arrest stems from ‘misunderstanding’

Defence lawyer Kevin Tung argued that Ng’s arrest stemmed from a misunderstanding “because he comes from a different culture.”

Tung said Ng is an elected official in Macau, likening him to a senator or congressman.

“He’s rich, that’s not an element

of being a criminal,” said Tung, who offered to put up Ng’s US$3.8 million apartment on Manhattan’s Upper East Side as part of his bond. He also said his client doesn’t understand English and may not have understood the significance of a grand jury subpoena.

“There’s a cultural difference that people don’t know that when they come into this country carrying lots of cash, there may be problems,” Tung said.

Netburn ruled that Ng can’t be released on bail.

“The defendant has resources in this case, significant funds, numerous planes, numerous passports and is a

citizen of numerous countries which may not co-operate with the U.S. if he were to flee and take refuge there,” she said. “I don’t believe there are conditions that I can set to satisfy myself that he will remain in the U.S. and face the charges.”

The magistrate said she’d consider releasing Yin on $1 million bond, and gave prosecutors until September 25 to review his bail conditions.

Sabrina Shroff, a lawyer for Yin, called the government’s assertions about her client “absurd” and argued at Yin’s bail hearing that he wasn’t a partner in any conspiracy with Ng. *with Bloomberg

6 | Business Daily

September 24, 2015

Macau

Stricter rules trigger further consolidation Gaming analysts anticipate tighter junket regulations will lead to an inevitable negative initial impact on VIP volumes but optimism surfaces as the Golden Week holidays approach Joanne Kuai*

joannekuai@macaubusinessdaily.com

junket gets funding, background checks on depositors and funding sources, etc.

“This is probably because the regulator is aware that even if it modifies the regulations, investors/ agents can still find other ways to invest in the junket industry, such as personal loans, being a shareholder or other creative means,” wrote the analysts.

“Besides, it is the nature of the junket industry to involve credit extensions, deposits of working capital and players putting money with junkets.”

Further consolidation

M

acau casino shares fell in Hong Kong after Deutsche Bank AG said gaming revenue was hurt last week due to a move by junket operators to reduce credit offered to high-end gamblers.

Gross gaming revenue fell 19 per cent to MOP493 million (US$62 million) a day last week, or 18 per cent below the average so far this quarter, Deutsche Bank AG analyst Karen Tang wrote in a note on Wednesday.

Junket operators reduced lending following the reported theft at a competitor “prompted others to withdraw deposits from various junkets,” Tang wrote.

MGM China Holdings Ltd. fell 7.7 per cent to HK$10.30 by the close of trading in Hong Kong, while Wynn Macau Ltd. fell 5.6 per cent. and Galaxy Entertainment Group Ltd. was down 5 per cent, SJM Holdings Ltd. dropped 5.8 per cent and Sands China Ltd. lost 2.9 per cent.

The Bloomberg Intelligence Macau Gaming Index declined more than 5 per cent to a three-year low.

Dore Entertainment, which operates in a Wynn Macau casino, said last week that an employee is suspected of stealing HK$100 million from it. Police said thirty people have filed complaints that they were cheated out of funds amounting to HK$330 million, excluding the junket’s portion.

Stricter rules

The healthy operation of junkets is crucial to Macau’s gaming sector and it’s “necessary to review and improve the rules,” the city’s Secretary for

Economy and Finance Lionel Leong said on Tuesday.

In response to the Dore incident, the Gaming Inspection and Coordination Bureau (DICJ), the regulator of Macau’s gaming industry, stated its intention to revise the regulations of the junket business.

The revision would focus on increasing transparency of the junket industry, mainly in two ways. Firstly, new requirements for junket operations including capital requirement, shareholding, collateral, audit and submission of financial statements. Secondly, additional disclosure of information on key parties, including directors, shareholders, key management and partners.

In addition, the DICJ reiterated that the current regulations require shareholders of junket operators with stakes exceeding 5 per cent to disclose their interest and personal details to the DICJ.

Still manageable

According to Credit Suisse, several junket operators they have spoken to over the past few days mentioned that they intentionally preserved capital immediately after the Dore incident in case there were any capital withdrawals.

This is because it would be very damaging if an agent could not get its money back and the news spread through the agent community. So far, the junkets note limited outflows of money, mainly from small depositors, according

Going forward, we believe the new regulation will trigger further industry consolidation with bigger junkets which have stronger balance sheets, better systems and disclosures, and which are able to source more funding and at a lower cost of capital Kenneth Fong & Isis Wong, Research Analysts at Credit Suisse

to research analysts Kenneth Fong and Isis Wong.

In addition, the Credit Suisse analysts pointed out that the DICJ statement following the Dore case mentioned nothing about limiting how a

Right after the Dore incident, Credit Suisse analysts gathered information indicating that the rolling volume of the industry had fallen by 25 to 30 per cent starting last Thursday as a result of junkets preserving capital and capital withdrawals.

But volume has since been gradually normalising. During the weekend, the analysts estimate that the rolling volume was only around10 to 15 per cent lower than normal weekend volume and that they expect the situation to normalise by month’s end.

“Going forward, we believe the new regulation will trigger further industry consolidation with bigger junkets which have stronger balance sheets, better systems and disclosures, and which are able to source more funding and at a lower cost of capital,” said the Credit Suisse analysts in their Tuesday note.

In addition, DS Kim, an analyst at JP Morgan Chase & Co., said in a note on Tuesday “if tighter junket regulations are adopted, we think the negative initial impact on VIP volumes would be inevitable, driven by the likely acceleration of junket room closures.”

Further downside in Macau stocks should be “fairly limited”, however, as the VIP segment is no longer a profit driver for the city’s casinos, he added.

Hopeful October

While based on channel checks through the weekend, Wells Fargo Securities estimates September Macau gaming revenues will decline by around 30 per cent. Checks suggest average daily revenue was around MOP550 million to MOP600 million last week, in comparison to MOP607 million in the prior week and August’s average daily revenue of MOP601 million, according to Wells Fargo Securities. The sequential decline was primarily due to the tightening of liquidity driven by the Dore junket theft, and low VIP win rate.

“We remain on the sidelines on the Macau gaming names as estimates and valuations adjust to a ‘new normal’ of tighter government oversight, a recovery that is likely to be flatter than prior rebounds and a weak Chinese economy” wrote senior analyst Cameron McKnight, “all of which are contributing to more muted revenue growth in Macau.”

However, with China’s Golden Week holiday less than two weeks away, the Wells Fargo Securities analyst says junket operators “seem incrementally more optimistic heading into October”. *with Bloomberg

Business Daily | 7

September 24, 2015

Macau

Genting Hong Kong profits jump nine-fold The cruise company increased revenue from the sales of passenger tickets but could not avoid the decline of onboard revenue in the first half of the year

Iao Kun to pay $0.014 dividend on October 7

João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he net profit of Genting Hong Kong increased to US$2.17 billion (MOP$17.28 billion) from US$216.91 million (MOP1.73 billion), which means it increased almost nine times during the first half of the year. The information was released in a filing with the Hong Kong Stock Exchange by the company that operates cruises and resort businesses.

The results of the company were mainly boosted by the disposal of shares from Norwegian Cruise Line Holdings (NCLH) as in March Genting Hong Kong sold 6.25 million shares for US$212.5 million, and another 10 million shares for US$1,954.5 million in May. However, the sale of shares from the cruise company had started in the first half of last year, but at that time

Genting Hong Kong only generated US$152.6 million in March with the sale of around 7.5 million shares.

The good news for the company was the increase in revenue from passenger tickets, which reached US$99.46 million for the first six months of the year, while for the same period in 2014 it generated US$71.50 million. Onboard revenue, however, decreased 13 per cent to US$165.64 million from US$187.26 million in the first half of the year.

In terms of the prospects the company is now waiting for two new cruise ships to be added to Star Cruises, which are scheduled to be delivered in the fourth quarters of next year and 2017. In addition, the company signed a letter of intent to buy three more luxury cruises for the Crystal Cruises subsidiary. The first of these cruises is expected to be delivered during the fourth quarter of 2018.

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aming promoter Iao Kun Group is going to pay the sixmonths dividend for 2015 on October 19, the company announced in a filing with the NASDAQ stock exchange. It will be available to shareholders whose names appear on the records of the company as of October 7.

The six month dividend payable for 2015 would be approximately US$0.014 per share.

Iao Kun’s rolling chip turnover for the first six months of the year amounted to US$3.9 billion (MOP31.13 billion), 58 per cent yearon-year down from US9.4 billion (MOP75.04 billion).

The company is operating in Macau, where it has five VIP gaming rooms in Galaxy, StarWorld, Sands Cotai Central, City of Dreams and Le Royal Arc, and is also currently going through ‘trial operations’ in Perth, Australia.

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8 | Business Daily

September 24, 2015

Greater China

Guangdong reinvents to chase new growth m Along with its economic might, the province is also a political proving ground

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Guangdong has been at the centre of China’s recent stock boom and bust, with the Shenzhen Stock Exchange soaring almost 120 percent this year

or centuries, the southern province of Guangdong has been at the forefront of China’s economic evolution.

Emperor Qianlong in the 18th century made the provincial capital Guangzhou -- then known as Canton -- the only port to allow foreign trade.

When the Communist Party took power in the middle of the last century, the Canton Fair remained a window to Red China. And when Deng Xiaoping needed a testing ground for marketbased reforms in the early 1980s, he chose the Pearl River Delta.

Investment and cheap workers flowed in from across China and cheap exports poured out. The resulting “Guangdong miracle” brought average annual double-digit growth rates for 35 years. Today, as the manufacturingbased model reaches its use-by date, the province is seeking a new future for its US$1 trillion economy and the nation’s.

The plan centres on innovation, services and a “new normal” of slower, more sustainable expansion.

“As a leading province in China’s opening-up and reform, Guangdong’s economy has entered the ‘new normal’ at an earlier stage,” provincial Governor Zhu Xiaodan told Bloomberg in a rare, 31-page written interview. “Since we entered the new stage earlier, we should adapt to it earlier, so that we can play

a leading role. That’s the meaning of being a vanguard.”

Huawei, Tencent

The province -- with an economy bigger than Indonesia’s and more people than Germany -- has already made inroads, spawning companies such as Huawei Technologies Co., the nation’s largest maker of telecommunications equipment, and Tencent Holdings Ltd., which operates the WeChat instantmessaging service and online banks and plans to make movies.

“You can use Guangdong as the window to peer into China’s economic future,” said Zhao Yang, the chief China economist at Nomura Holdings Inc. in Hong Kong.

The province has shut swathes of heavy industrial capacity, built up the services sector and raised researchand-development investment in its second-largest city of Shenzhen to a level approaching that of South Korea’s. HSBC Holdings Plc became the latest to endorse Guangdong’s strategy this week in planning to add 4,000 jobs in the region.

The challenges facing Zhu in Guangdong resemble those confronting President Xi Jinping as he tries to shift the world’s second-biggest economy away from cheap labour and debtfuelled capital spending. The governor

President Xi starts U.S. visit For Boeing, the visit could bring a formal announcement of plans for an aircraft finishing plant in China

agreements and improving relations with the world’s second-largest economy, while sending strong messages about allegations of Chinese cyber spying and intellectual property violations as well as Internet censorship and China’s disputed territorial claims to islands in the South China Sea.

Boeing tour

A handout picture made available by the California Highway Patrol shows California Governor Edmund G. Brown Jr. (R) greeting Chinese President Xi Jinping (L) on Tuesday

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hinese President Xi Jinping landed in Seattle to kick off a week-long U.S. visit that will include meetings with U.S. business leaders, a blacktie state dinner at the White House hosted by President Barack Obama and an

address at the United Nations.

Xi and his wife touched down in an Air China 747 at Paine Field, adjacent to the massive plant where Boeing Co makes its largest jets, some 40 km north of Seattle.

They were welcomed by Washington state Governor

Jay Inslee.

Xi is due to make a policy speech at a banquet at the hotel in the evening in the company of Microsoft Corp co-founder Bill Gates, the chief executives of Boeing Co and Starbucks Corp and other local luminaries.

The Chinese leader’s visit to Seattle, which he called “America’s gateway to Asia” in prepared remarks upon his arrival, comes at a delicate time in U.S.-China relations.

U.S. government and business leaders aim to strike a balance between forging

The Chinese president is due to tour Boeing’s widebody plant and the nearby Microsoft campus on Wednesday, and will later meet Warren Buffett, Apple Inc Chief Executive Tim Cook and Amazon.com head Jeff Bezos, among 30 U.S. and Chinese business leaders at a roundtable discussion.

U.S. tech companies are seeking to expand access to the Chinese consumer market. Even if no formal agreements are reached, the presidential blessing “sends an important message to Chinese leadership” to help them, said Ed Lazowska, Bill and Melinda Gates chair of computer science at the University of Washington.

For Boeing, the visit could bring a formal announcement of plans for an aircraft finishing plant in China. The plant would help Boeing’s Chinese sales, analysts say, and help counter a threat from Commercial Aircraft Corp of China Ltd, which is developing a singleaisle aircraft to challenge the top-selling Boeing 737 and Airbus A320 planes.

Reuters

Business Daily | 9

September 24, 2015

Greater China

itself miracle said Xi wants Guangdong -- accounting for about one-tenth of the national economy, one- eighth of fiscal revenues and a quarter of foreign trade -- to set an example for the nation.

Guangdong has promised Premier Li Keqiang local economic growth exceeding the national average and fiscal revenue that’s “significantly” higher, said Zhu, 62, who’s worked his whole career in the province, including a stint in a musical instrument factory during the Cultural Revolution. Underscoring his vision for the province’s leading role, Zhu used the word “vanguard” 10 times in his response.

Guangdong’s old growth model was to “lend the place to other people to play” by luring migrant workers from inland provinces and money from Taiwan, said Andy Xie, an independent economist who previously worked as Morgan Stanley’s chief Asia-Pacific economist. As China’s labour pool shrinks and the younger generation eschews work on the factory floor, Guangdong will be in for a bumpy ride, Xie said.

Zhu, who was acting governor in 2011 before taking the role in 2012, has overseen a deceleration in growth.

The provincial economy expanded by 7.8 percent in 2014 and 7.7 percent in the first half of 2015, down from 12.2 percent in 2010. He acknowledged

that Guangdong faces the prospect of a “shrinking labour supply and an aging population.”

Migrant workers

The province is opening doors to let some migrant workers become permanent residents, giving them more access to local education, pension and health coverage. Some 640,000 migrant workers have obtained permanent residency so far, he said. Still, that’s a small share of the province’s 107 million people, which includes more than 30 million migrants.

Xi’s father, Xi Zhongxun, was a key Communist Party official in Guangdong from 1978 to 1980 and helped Deng establish the nation’s first special economic zone in Shenzhen.

Hu Chunhua, who, as provincial party chief, is Zhu’s boss, is the secondyoungest member of the ruling Politburo and considered a frontrunner for a top post.

Political base

Guangdong has been at the centre of China’s recent stock boom and bust, with the Shenzhen Stock Exchange soaring almost 120 percent this year, only to give back most of those gains.

Zhu said stock market swings haven’t generated a “noticeable impact” on consumption because stock funds account for only a small portion of local household wealth.

The governor said Guangdong wanted to lead the overhaul of China’s state-owned enterprises. A restructuring-and-development fund set up in April will use some of its initial 1.5 billion yuan (US$235 million) to recapitalize 23 local state companies by year’s end.

Regional links

Guangdong will promote cooperation with other nations as part of the

“One Road One Belt” strategy, the governor said. Guangdong, which is closer to Bangkok and Manila than to Beijing, would improve connections to other countries by air, land and sea, he said.

The province is also rolling out a free-trade zone. Instead of offering tax breaks or cheap land, it’s trying to develop a freer investment and trade rules-based system and a “serviceoriented” government -- a model that can be duplicated in other parts of China, Zhu said.

The province is taking steps to open the capital account in Qianhai, allowing companies based there to borrow cheaply from lenders in neighbouring Hong Kong, he said.

To create a clean and efficient government, Zhu said the province would develop a rule-based anticorruption system to enhance checks and balances. Guangdong has been one of the provinces hardest hit by Xi’s anti-graft campaign, with Zhu Mingguo, a former deputy party secretary of the province, and Wan Qingliang, a former Guangzhou party chief, being investigated for corruption.

‘Initial results’

The province has “achieved initial results” in re-shaping its industrial landscape and has relocated 3,000 factories to the less-developed mountainous area from the Pearl River Delta, Zhu said. Last year, it shut down steel mills with capacity of 2.5 million tons and cement factories with capacity of 4.4 million tons, he said.

Guangdong’s research-anddevelopment spending last year equalled 2.4 percent of GDP, up from 1.3 percent in 2007, the governor said.

Bloomberg News

Prosecutor to intensify financial markets crackdown Despite the fact that the country’s securities watchdog has also been swept up in the crackdown

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hina’s state prosecutor will intensify its crackdown on criminal activities in its stock and futures markets, following a series of high-profile cases involving one of the country’s market regulators and securities firms.

The prosecutor told a news conference in Beijing it would strengthen coordination with market regulators as part of efforts to halt activities such as insider trading and spreading of false information, state radio said on its website yesterday.

The authorities have stepped up investigations on market participants since June, when wild gyrations sent the equity market down as much as 40 percent. Amid the crackdown, investors, fund managers and watchdog officials have all been the subject of investigations.

The China Securities Regulatory Commission (CSRC) said on September 18 it has recently started investigating 19 cases of suspected illegal share sales and speculative activities.

Meanwhile, executives at the country’s largest broker CITIC Securities Co Ltd, including its general manager, are being investigated by authorities for alleged offences including insider trading and leaking information.

The country’s securities watchdog has also been swept up in the crackdown.

China’s Communist Party sacked CSRC Assistant Chairman Zhang Yujun, state media reported on September 22, days after it was announced he was the subject of a graft probe.

The campaign to identify and punish those deemed responsible for

the market sell-off started shortly after June’s turmoil. However, most analysts attribute the summer crash to the bursting of a typical stock market bubble which was earlier spurred by official media and fuelled in large part by borrowed money.

Reuters

Beijing to open QDII funds investment options China is considering letting its Qualified Domestic Institutional Investors (QDIIs) launch funds to invest in securities both at home and abroad in a new financial innovation, a stock regulator was quoted saying yesterday. The China Securities Regulatory Commission (CSRC) is working on new QDII regulations among a range of measures to boost the mutual fund industry, Li Haichao, a CSRC official in charge of the fund sector, was quoted by the official China Securities Journal yesterday as saying. Authorities have granted a total of US$150 billion to the QDII investors.

Beefing up Food Safety Law China is preparing a tougher Food Safety Law to come into effect on October 1, said a senior official with China Food and Drug Administration (CFDA). Guo Wenqi made the remark at a seminar on food safety and rule of law in Guangzhou, capital city of south China’s Guangdong Province. In April, the Standing Committee of China’s National People’s Congress (NPC), the country’s top legislature, adopted an amendment to the 2009 Food Safety Law with the heaviest civil, administrative and criminal penalties yet for offenders and their supervisors.

Regulation on CPC’s united front work published China published the full text of a regulation on the united front work of the Communist Party of China (CPC) which took effect on May 18. The regulation, which was passed at a meeting held by the Political Bureau of the CPC Central Committee, is the Party’s first rule on the matter. The new rule says it is essential for the CPC to unite all forces in society as China transforms itself, with reforms in almost every area.

It also stipulates that united front work should be carried out in line with the “Four Comprehensives” national strategic plan: to build a moderately prosperous society, deepen reform, implement the rule of law and strengthen CPC discipline.

Commercial Aircraft Corp of China, Boeing sign agreement Commercial Aircraft Corporation of China signed a cooperative document with Boeing Co to build a 737 aircraft completion centre in China, state media agency Xinhua reported yesterday. Earlier, China’s ICBC Financial Leasing Co said it signed an agreement with Boeing to buy 30 737800 jets, part of a 300-aircraft order that Chinese airlines and leasing companies will sign with the U.S. aircraft manufacturer.

Industrial zone delegation sets up office in Bratislava Hi-Tec Industrial Zone representatives from the province of Hebei in China set up an office in Bratislava on Tuesday.

According to the officials, the representation should facilitate mutual cooperation in these areas and the search for new investors. Setting up the official representation was made possible thanks to close cooperation between Slovak company United Industries and the Association’s successor, which began ten years ago. The cooperation has led to the establishment of several joint businesses focused on wine-making and tourism.

10 | Business Daily

September 24, 2015

Greater China

Factory gauge unexpectedly falls in September Output sank to its lowest since the global financial crisis, and soft orders suggested more weakness ahead Meng Meng and Kevin Yao

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ctivity in China’s factory sector unexpectedly shrank to a 6-1/2 year low in September, a private survey showed, raising fears of a sharper slowdown in the world’s second-largest economy that could spell more turmoil for financial markets.

Global investors and policymakers are on edge over China after the U.S. central bank last week held off from raising interest rates, saying it was unsure if international problems, and China’s slowdown in particular, will hurt the U.S. recovery.

The preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) fell to 47.0 in September, the worst since March 2009 and below market expectations of 47.5 and August’s final 47.3. Levels below 50 signify a contraction.

China’s factory activity has now shrunk for seven months in a row, and the latest survey showed conditions in September deteriorated from August by almost every measure, with companies cutting output, prices and jobs at a faster pace as orders fell.

“The weaker-than-expected PMI suggested domestic and external demand remained sluggish. It’s almost certain China’s economic growth will slide below 7 percent in the second half of this year,” economists at Minsheng Securities said.

“To achieve the growth target, we expect the authorities to keep its loosening monetary policy stance with more measures on the fiscal front in coming months.”

Economists had expected the latest PMI to remain anaemic but edge up slightly, as a slew of stimulus measures since last year slowly take effect and as many factories which had closed in August and early September began to reopen.

Most Asian stock markets extended early losses after the report while U.S. stock futures fell 1 percent. The Australian dollar also eased on worries that demand in the country’s biggest trading partner would fall.

The flash PMI is one of the first measures to be released about China each month and is closely followed by investors.

Gradual slowdown

It’s no secret that China’s economy has been gradually slowing in recent years from a breakneck double-digit pace in past decades, as Beijing tries to transform its growth model from a reliance on heavy manufacturing and exports to one with a more vibrant services sector and stronger domestic demand.

But persistently weak factory activity and cooling investment could spark fears that the downdraft is now too intense for services alone to offset, putting the economy at risk of a more profound cyclical and structural slowdown that could jeopardise the fragile global recovery.

New orders - a proxy for both domestic and overseas demand - fell to a near four-year low of 46.0 from 46.6 in August. Export orders contracted at the fastest clip since mid-2013, highlighting weak demand globally.

The China president of U.S. crane and mining equipment maker Terex Co told Reuters on Monday that he expects half of the country’s machinery makers to close amid a four-year market downturn, though he remained optimistic for the longer-term.

“Everyone thinks it’s a market that is declining, but it’s still growing.

It’s declining growth,” Ken Lousberg said.

More stimuli expected

The dismal PMI reading raises the chance that third-quarter economic growth could dip below 7 percent for the first time since the global crisis.

Some economists believe current growth is already much weaker than official data suggest.

“The PMI’s new leg down is consistent with a further deceleration in Chinese growth through year-end 2015,” said economist Bill Adams at PNC Financial Services.

“PNC forecasts roughly 6.5 percent growth in the third and fourth quarters of 2015 (in year-ago terms) and 6.2 percent in all of 2016.”

The weak PMI will reinforce views that Beijing will roll out more support soon, including further cuts in interest rates and bank reserve requirements and higher infrastructure spending.

“Patience may be needed for policies designed to promote stabilisation to demonstrate their effectiveness,” said He Fan, chief economist at Caixin Insight Group.

“Fiscal expenditures surged in August, pointing to stronger government efforts.”

While the factory sector looks set to remain weak for some time, there are mixed signals over other parts of the economy.

The latest survey by China Beige Book International showed continued robust growth in the service sector in the third quarter, though some small companies elsewhere have told Reuters business has never been so bad.

Home sales and prices are slowly recovering, but new construction starts are down nearly 17 percent from a year ago.

China’s surprise yuan devaluation last month and a plunge in its stock markets since June have fuelled worries about more shocks to the economy, although Premier Li Keqiang has brushed off concerns it is facing a hard landing.

Chinese President Xi Jinping added his voice on Tuesday to officials trying to reassure the world that the government was still committed to reforms following its massive intervention to rescue the stock markets and boost growth.

Steady financial markets will be critical for the president this week during his visit to the United States, where he is likely to be grilled on China’s policies.

Reuters

KEY POINTS Sept flash PMI falls to 47.0, lowest since 2009, vs f’cast 47.5 Factory activity contracts for 7th month Domestic and export orders weaken further Factories step up layoffs Economy likely slowing further, could fuel hard landing fears More government support measures seen

Chinese President Xi Jinping added his voice to officials trying to reassure the world that the government was still committed to reforms

Business Daily | 11

September 24, 2015

Asia

Asian business sentiment crumbles on China shock Companies in Singapore were the most pessimistic with the country’s index falling to 14 from 59

Sentiment index 60 in Q3 2015 vs 71 in Q2 Businesses say chief risk is Chinese economic slowdown Philippine firms most positive, Singapore most pessimistic

Stanley White

The index for property fell to a record low of 50 in a sign some developers are worried that Chinese investors will buy less property in Asia and Australia

S

KEY POINTS

entiment at Asia’s biggest firms tumbled in the third quarter at record pace due to growing worries about the economic slowdown in China and the risks it poses to the global outlook, a Thomson Reuters/ INSEAD survey showed.

The Thomson Reuters/INSEAD Asian Business Sentiment Index, representing the six-month outlook at 79 firms, was 60 in the September quarter from 71 in June and 66 a year prior. A reading over 50 indicates a positive view.

The 11-point quarterly decline was the steepest since the survey began in 2009, dragging the index to its lowest in almost four years, and showing the extent of damage that a

slump in Chinese shares during the quarter had on regional corporate sentiment.

The survey, featuring responses from Japan’s Canon Inc., South Korea’s Kia Motors Corp and India’s NTPC Ltd among others, also showed concern about a decline in emergingmarket currencies, which is a threat to economic activity as firms could scale back expansion plans.

“Global uncertainty hasn’t gone away,” said Antonio Fatas, economics professor at INSEAD in Singapore.

“In fact, it is getting bigger because of China. Asia does not have another engine to replace China. The region has to adapt to that.”

Companies in Singapore were the

most pessimistic with the country’s index falling to 14 from 59, as its financial sector and its port - the world’s busiest container hub after Shanghai - feel the chill from China’s slowdown.

Only five companies from China replied to the survey, none of which was downbeat. Only one was concerned about the domestic economy, while two were more worried about emerging currencies.

The survey’s biggest gainer was the Philippines which jumped to 100 from 78 in the previous quarter, as the country’s economy defies a regional slowdown due to robust government spending.

Thomson Reuters and global business school INSEAD conducted the poll from September 7-19. Of 79 respondents, 20 percent had a negative outlook - the most in six years. The survey showed 30 percent of companies were neutral, while 41 percent were optimistic about business conditions for the next six months.

Financials flounder

The index measuring the financial sector fell to a record low of 40 as the prospect of a prolonged slowdown in China could further roil financial markets and curb demand for new loans.

Asia’s lenders, such as India’s HDFC Bank Ltd and PT Bank Rakyat Indonesia (Persero) Tbk, cited concerns about the currency market, stocks and oil prices.

Companies outside the financial sector also expressed concern about the recent sell-off in emerging-market currencies because it hurts their ability to diversify away from home.

“We are worried about Brazil’s real because of the amount of business we have in that country,” said Nobuhiko Hori, deputy director of corporate communications at Japanese beer and beverage maker Kirin Holdings Co Ltd. “We are also concerned about our exposure to Southeast Asian currencies. This is all coming at a time when we’re dealing with declining demand for beer in our domestic market.”

In shipping - with responses from Singapore’s Neptune Orient Lines Ltd and Korea’s Hyundai Heavy Industries Co Ltd - the index fell to the survey’s lowest of 25. That is likely a warning that global trade is slowing as demand in some economies starts to cool, analysts said.

On the positive side, the technology sector was the most optimistic with an index of 81 as semiconductor and mobile phone makers expect sales to remain strong.

Reuters

Modi aide calls for more flexibility in Indian monetary policy Reserve Bank of India Governor Raghuram Rajan rebuffed calls from the Finance Ministry last month to cut one of Asia’s highest borrowing costs Vrishti Beniwal and Unni Krishnan

I

ndia’s central bank should be flexible and consider the fall in wholesale prices while reviewing interest rates as inflation pressures subside, the Finance Ministry’s top economic adviser said.

“Inflationary pressures are significantly down,” Arvind Subramanian (pictured) said in an interview yesterday when asked if there was room for monetary easing.

Subramanian called the divergence between wholesale price inflation and consumerprice inflation -- the central bank’s benchmark -- a “puzzle” that should factor into monetary policy. Prime Minister Narendra Modi’s administration and the central bank agreed to target consumer-price inflation earlier this year.

“When you have flexible inflation targeting, that flexibility is exactly what you need to exploit in conducting monetary policy,” Subramanian said. “Under this existing thing there is enough flexibility to take these unusual circumstances

in account, but whether to formalize it in some way is something we have to think about.”

Reserve Bank of India Governor Raghuram Rajan rebuffed calls from the Finance Ministry last month to cut one of Asia’s highest borrowing costs. Twentysix of 32 economists in a Bloomberg survey expect him to cut the benchmark rate to 7 percent on September 29, with five expecting a hold and one predicting a 50 basispoint reduction.

‘Excessively low’

Wholesale price inflation has been contracting since November last year.

Consumer-price growth eased to 3.66 percent in August,

below the central bank’s target of 6 percent by January for 12 straight months.

Even so, Rajan said that CPI figure was “excessively low” due to base effects. He’s looking to bring consumerprice inflation down to an average of 4 percent in the coming years.

In an interview on Monday, Finance Minister Arun Jaitley reiterated the need for lower interest rates and said sectors including real estate, manufacturing and infrastructure were anxiously waiting for the central bank to ease monetary policy.

Modi’s government has moved India in the right direction even though expectations of big bang economic reforms were

misplaced, Subramanian said. India’s US$2.1 trillion economy is on course to expand between 8 and 8.5 percent in the year through March even though there are some downside risks, he said.

That would make India the world’s fastest growing major economy with China slowing down.

Modi has seen opposition lawmakers block key proposals like a goodsand-services tax, raising concerns among investors.

The benchmark S&P BSE Sensex index has lost 6.7 percent this year after a 30 percent gain in 2014. The rupee has lost more than 4 percent against the dollar this year.

Bloomberg News

12 | Business Daily

September 24, 2015

Asia

Singapore core inflation slows in August That has raised the risk of an economic contraction in the third quarter Masayuki Kitano

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ingapore’s annual core inflation unexpectedly slowed in August, bolstering prospects of further monetary easing at next month’s central bank meeting amid growing risks the city state’s economy could slip into a technical recession in the third quarter.

The Monetary Authority of Singapore’s (MAS) core inflation gauge rose 0.2 percent in August from a year earlier, below market forecasts for the rate to match July’s 0.4 percent rise.

“My base case is still for MAS to remain on hold in October, but the risk for them to ease is quite high and rising in my view,” said Michael Wan, an economist for Credit Suisse.

A cooling in China’s giant economy has knocked demand across exportreliant economies in the region, including Singapore where last week data showed exports slumped an unexpected 4.6 percent on-month.

That has raised the risk of an economic contraction in the third quarter, tipping the city state into a technical recession.

Core inflation, the focus of monetary policy, excludes private road transport costs and accommodation, which can be influenced more by administrative policies.

“One thing that strikes me about

the statement is that the reference to the tight labour market has been taken out... This sounds a touch more dovish,” Wan added.

Policy dilemma

The all-items consumer price index fell from a year earlier for the 10th straight month, down 0.8 percent in August - the fastest drop since late 2009, weighed down by lower private road transport costs.

One dilemma the MAS faces is that an easing of its exchange-rate based monetary policy could weaken the Singapore dollar and drive up domestic interest rates, as investors seek higher yields as compensation for holding a weakening currency, analysts say.

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

ANZ economist Weiwen Ng said the central bank faces a conundrum, adding that “an easing in the S$NEER would exacerbate the extent of (interest) rate rises, resulting in higher debt-servicing costs for households.”

The three-month Singapore interbank offered rate (Sibor), which is used to set mortgage rates, rose to 1.13958 percent on September. 17, its highest since 2008.

Philippines’ Central Bank headquarters

Philippines seen holding rates on benign inflation Policymakers will probably repeat they expect inflation to move closer to its 2-4 percent target this year

T

he Philippine central bank is expected to leave its benchmark interest rate on hold for

an eighth straight meeting on Thursday, likely taking heart from a rebound in economic growth in the

second quarter and on subdued inflation.

All 14 economists in a Reuters poll predicted

KEY POINTS Core CPI +0.2 pct y/y vs +0.4 pct y/y forecast All-items CPI -0.8 pct y/y vs -0.5 pct forecast Biggest year-on-year allitems CPI fall since late 2009 MAS statement on outlook sounds more dovish – analyst

Reuters

the central bank’s policymaking Monetary Board will vote to keep the overnight borrowing rate at 4.0 percent, where it has been since September 2014.

Growth in the Philippines rebounded in the second quarter, defying a slowdown in the region that has put pressure on policy makers to offer fresh stimulus to counter headwinds from China’s cooling economy.

Inflation in the consumption-led economy has also remained muted, helped by adequate food supply and lower fuel prices.

“Growth has held up and looks likely to stay robust in the coming quarters despite poor external sentiment,” said HSBC economist Joseph Incalcaterra in a research note.

Economic Planning Chief Arsenio Balisacan has said the economy will likely end the year with growth of between 6-6.5 percent, but that will also depend on the pace of government spending in the second half.

“The rebound in government spending since the first quarter is expected to spur economic growth through the rest of this year and into 2016,” said the Asian Development Bank which has trimmed its growth forecast for the Philippines to 6 percent this year, from its July estimate of 6.4 percent.

At its August 13 meeting, the central bank cut its inflation forecast for this year to 1.8 percent from 2.1 percent previously, while the 2016 estimate was maintained at 2.5 percent.

Policymakers will probably repeat they expect inflation to move closer to its 2-4 percent target this year due to possible increases in food prices from the intensifying El Nino. Food accounts for 39 percent of the consumer price basket.

Eight of the 14 economists who have longterm forecasts for monetary policy said interest rates will likely be on hold for the rest of 2015.

Reuters

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Business Daily | 13

September 24, 2015

Asia Aussie official tried to burn documents before probe Australian union officials attempted to burn dozens of boxes of official paperwork when the organization was asked to hand over documents for a royal commission looking into corruption claims in the building industry. An official from the Construction, Forestry, Mining and Energy Union (CFMEU) official told the royal commission in Brisbane yesterday how he helped transport about 80 boxes of documents to the property of senior CFMEU official David Hanna.

Union Training Cordinator Bob Williams said he and another official used timber to make a bonfire and burned about ten boxes before they gave up.

US Secretary of State John Kerry (2-R), along with Indian Minister of State for Commerce and Industry Nirmala Sitharaman (L), Indian Minister of External Affairs Sushma Swaraj (2-L), and Secretary of Commerce Penny Pritzker (R)

India and US renew ever-closer strategic partnership Asian officials had said that their priority for the talks was reinforcing commercial ties and securing access to US inward investment and technology Dave Clark

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he world’s largest democracies, India and the United States, agreed measures to deepen their security and economic cooperation on Tuesday, part of an ambitious drive to boost trade between them five-fold.

After the talks, US Commerce Secretary Penny Pritzker admitted that the idea of increasing exchanges from US$100 billion to US$500 billion a year was “a big audacious goal,” but said the meeting had left her very optimistic.

The “US-Indian Strategic and Commercial Dialog,” was launched in January by President Barack Obama and Prime Minister Narendra Modi, and on Tuesday US and Indian economic and diplomatic officials came together in Washington.

“The president and the prime minister set out a goal for us ... and I think there’s a lot of opportunity,” Pritzker told AFP. “What feels new is the amount of energy that the Indian government is putting in to trying to remove the impediments that have been faced by foreign companies trying to do business in India.”

Asked how long it would take to increase trade five fold, Pritzker said no deadline had been set but added: “When you set big audacious goals, it helps move bureaucracies, and that’s what’s happening.”

“We’ve got to change the way we do business,” she said.

The talks came as President Xi Jinping of India’s Asian rival China arrived in the United States, two days before Modi was due, but US officials insisted there was no plan to build up India as a counterweight to Beijing.

Instead, they celebrated what Obama has dubbed the “defining relationship of the 21st Century” with agreements to fight terrorism

and climate change and to bolster cooperation in energy, hi-tech and defence.

US Secretary of State John Kerry said: “The US-India relationship is a bright spot on the international landscape and is one of the most important bilateral relationships in the world.”

“Our talks today have given us a platform for further progress ... There are so many areas of cooperation.

There is so much going on between us.”

Apache gunships

Indian officials had said that their priority for the talks was reinforcing commercial ties and securing access to US inward investment and technology, but also hailed a joint determination to fight terrorism.

“A main take away from our discussions includes our shared view that we need to keep the big picture, the strategic framework of the relationship in mind,” Indian Foreign Minister Sushma Swaraj told reporters.

On Tuesday, India cleared a $2.5 billion dollar deal to buy 22 Apache helicopter gunships and 15 heavylift Chinooks from US planemaker Boeing.

The talks set up a meeting in New York next week on the sidelines of the United Nations General Assembly between Obama and Modi, whose four-day visit begins September 24.

“And then we have a very robust discussion regarding counterterrorism, the Indian Ocean, maritime security, the South China Sea, the South Asian challenges of the moment,” Kerry said.

Kerry, Swaraj and Pritzker were joined by India’s minister of state for commerce and industry Nirmala Sitharaman and US Energy Secretary Ernies Moniz for the talks.

Aside from China, which is expanding its deep-water naval presence in the broader Asian region and staking a claim to disputed areas of the South China Sea, the other looming issue is that of climate change.

As India’s economic rise drags more of its huge population of 1.3 billion people into the middle class and the industrialized world, its historically low emissions levels are set to rise -- just as the world is seeking cuts.

Indian officials made it clear before the talks that they will resist any pressure ahead of the Paris climate summit to act quickly, but came to Washington keen to work with US firms on renewable energy technology.

Hi-tech innovation

India has not followed the typical development path of its Asian competitors, which typically focused on labour intensive but low cost manufacturing, and has instead leap-frogged towards a service economy.

This leaves Delhi and Washington in competition in some areas, as was shown in the “off shoring” of US call centre jobs, but also in a situation whereby their firms can work together in high-tech innovation.

Modi will seek to build on this part of the relationship next week when he visits Silicon Valley and the San Francisco area of California to meet executives from Facebook, Google, Tesla, Cisco and Qualcomm.

He will also host a huge stadium event in San Jose for around 20,000 of the three million American residents of Indian origin, seen as a dynamic community with a huge role in the tech sector.

AFP

Singapore collects US$30.8 bln tax revenue Singapore has collected a total of 43.4 billion Singapore dollars (US$30.8 billion) in tax revenue in financial year (FY) 201415, the Inland Revenue Authority of Singapore (IRAS) said in its annual report yesterday. The amount is 4.4 percent higher than that in the previous year, IRAS said, adding that it represents 71.3 percent of the government operating revenue. Income Tax collection was at 23.4 billion Singapore dollars (US$16.6 billion), which accounted for 54 percent of the total share. The contributing to the increase was improved corporate profits, which raised corporate income tax collection by 5.4 percent.

N. Zealand seeking opportunities for SMEs at APEC meeting

New Zealand will be looking to grow opportunities in the Asia-Pacific region at an international meeting on small and medium enterprises (SMEs) in the Philippines this week, Small Business Minster Craig Foss said yesterday. Foss is to attend the Asia-Pacific Economic Cooperation (APEC) Ministers Meeting on Mainstreaming Small and Medium Businesses in the Global Economy.

“In New Zealand SMEs account for 97 percent of our companies and they generate 27 percent of gross domestic product and thousands of jobs annually,” Foss said in a statement.

Turnbull urges opposition to rethink China-Australia FTA Australian Prime Minister Malcolm Turnbull has urged the opposition to rethink its position on the China-Australia Free Trade Agreement (ChAFTA).

The Labour Party has been vocal in its opposition to the deal, saying Australian jobs, conditions and pay will all be negatively affected, despite government assurances this wouldn’t be the case.

Yesterday, Turnbull turned up the heat on Opposition Leader Bill Shorten in an interview with Sky News, accusing the opposition of “singling China out” and challenging Shorten to put forward a compromise proposal for the ChAFTA.

14 | Business Daily

September 24, 2015

International EU lawmakers speed tougher car emissions regime European politicians on Wednesday voted to speed up rules to tighten compliance with pollution limits on cars, adding to pressure for reform after U.S. regulators caught Volkswagen AG rigging the performance of vehicles in tests. The European Union executive, working for years to close loopholes in testing procedures for new vehicles, has proposed a law to introduce “real world testing” and narrow the gap between low energy use and low emissions performance, in the laboratory and what happens on the road.

Brazil predicts 2.4-pct contraction The Brazilian government forecast on Tuesday a 2.4-percent contraction of gross domestic product (GDP) in 2015, revising up an earlier projection of 1.5-percent contraction. According to the official estimate, released by the Planning and Budget Ministry, the South American country will see the worst economic performance since 1990, when a contraction of 4.3 percent was registered. Being more pessimistic, the weekly survey Focus polling economists from Brazil’s financial institutions foresaw a GDP contraction of 2.7 percent this year, and 0.8 percent in 2016.

Eurozone resume tax offensive Finance ministers of euro zone’s major economies renewed on Tuesday their commitment to curb multinational corporations’ tax avoidance and called for more consistent rules to reduce “harmful” tax competition. Multinational companies have long been in the sights of European Union authorities because of the way they can legally reduce their bills by basing themselves in low-tax centres.

Ministers from Germany, France, Italy and Spain agreed that more coordination at EU level are needed to prevent corporations from shifting profits to countries where they pay lower taxes.

Venezuela pledges to solve difference with Colombia Venezuelan President Nicolas Maduro said Tuesday night that Venezuela and Colombia will sort out differences through diplomacy in the wake of rows that caused a partial shutdown of their border and a recall of their ambassadors. In a weekly television program, Maduro described his meeting on Monday in Ecuador with his Colombian counterpart Juan Manuel Santos as “tense, frank and with positive results” which yielded an agreement on peaceful coexistence, the future opening of the border and an immediate redeployment of their ambassadors.

Nestle pushes further into medicine Food group Nestle has taken a further step into the medicine business by signing a research collaboration agreement with a Swiss biotech company to develop an Alzheimer’s disease diagnostic test. Nestle’s second medical deal in a week underscores the commitment by the world’s largest packaged food company to the faster-growing, more profitable medical field as sales of processed foods slow in many markets.

Swiss biotech firm AC Immune said yesterday it would develop a minimally invasive diagnostic assay for Tau with the Nestle Institute of Health Sciences.

Business growth slower in euro countries A manufacturing PMI fell to 52.0, matching expectations but down from 52.3, as export orders growth slowed

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uro zone business growth slowed this month as Asian demand weakened, leading to fewer new jobs and forcing factories to reduce output, even though companies raised prices for the first time in over four years, a survey showed yesterday.

The slowdown came amid debate on whether the European Central Bank should expand its stimulus programme to have more impact on inflation and growth.

Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and considered a good guide to growth, came in at 53.9 in September, down from 54.3 last month. A Reuters poll had predicted a dip to 54.1.

The headline index has been above the 50 level that separates growth from contraction since mid-2013.

“Exports are under pressure from Asia and that has lowered overall demand. Even in the U.S., there is a fair amount of import substitution,”

KEY POINTS Euro zone September flash composite PMI 53.9 PMIs point to third-quarter growth of 0.4 pct - Markit Lower demand from Asia drags businesses Service firms raise prices for first time in four years

said Chris Williamson, chief economist at survey compiler Markit.

Fears of China’s economy cooling rapidly, coupled with authorities there devaluing the currency, spooked financial markets last month. Stocks and commodities both fell.

Williamson said the PMI pointed to third-quarter euro zone GDP growth of 0.4 percent, similar to the consensus from a Reuters poll of economists earlier this month.

“This isn’t runaway growth by any means and suggests the ECB is going to be a little disappointed with the results it’s getting from its quantitative easing programme,” Williamson said.

The employment sub-index came in at an eight-month low.

There are signs business growth could pick up speed, Williamson added. Backlogs of work rose to the

highest since mid-2011.

A manufacturing PMI fell to 52.0, matching expectations but down from 52.3, as export orders growth slowed. The sub-index measuring factory output, which feeds into the composite PMI, fell to a four-month low as a result.

The euro zone’s dominant service industry PMI dipped to 54.0 from 54.4 last month. Economists had predicted 54.2.

Service companies were able charge higher prices for the first time in over four years, suggesting disinflationary pressures may be ebbing in the euro zone.

That will be welcome news to ECB policymakers struggling to get inflation close to its target of just below 2 percent. It was 0.1 percent in August.

Reuters

IMF’s Lagarde says weaker global growth complicates development goals She said implementing the goals, which will replace the Millennium Development Goals, would be a challenge

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ownside risks to global growth have increased and the weak economic outlook will make achieving world development goals more difficult than in the past, the head of the International Monetary Fund said.

IMF Managing Director Christine Lagarde said she hoped world leaders would adopt a United Nations agenda for sustainable development over the next 15 years at a summit in New York from September 25-27.

The new Sustainable Development Goals will aim to eradicate hunger and extreme poverty, reduce inequality within and between states, achieve gender equality, improve water and energy management, and take urgent action to combat climate change.

Lagarde said implementing the goals, which will replace the Millennium Development Goals that helped focus attention on the needs

of poor nations for the past 15 years, would be a challenge.

“It would be a lot easier if the world was cruising at 5.5 (percent), 6 percent global growth than it is at the moment,” she said at a Brookings Institution event. The IMF, which is due to release updated economic forecasts in October, in July forecast global growth of 3.3 percent this year and 3.8 percent in 2016.

Downside risks to the global economic outlook have increased, including from lower commodity prices, a realignment of monetary policy and slower growth in China, Lagarde said.

“The slowdown of Chinese growth was predictable, predicted, but has consequences and probably more spill-over effects in the region in particular than was anticipated,” she said.

In a discussion note, IMF staff said building solid public finances,

investing in education, cutting energy subsidies and deepening financial markets are among policies countries should follow to support sustainable development.

Structural reforms would help make best use of resources, including policies to increase agricultural productivity, boost infrastructure spending and invest more in education, especially for girls.

Developing countries could create space for spending more on development and social goals by increasing tax revenues and cutting wasteful spending.

Finally, cutting energy subsidies and properly calibrating energy prices would help the environment and also create more fiscal space, the paper said, noting that raising energy prices would yield average per country revenues worth 4 percent of gross domestic product.

Reuters

Business Daily | 15

September 24, 2015

Opinion Business

wires

Why the Fed buried monetarism

Leading reports from Asia’s best business newspapers

TAIPEI TIMES The nation’s unemployment rate climbed to 3.9 percent last month, from 3.82 percent in July, as new graduates continued to increase the jobl e s s p o p u l a t i on, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.

The latest jobless reading suggested a stable labour market — which lags behind major economic indicators by three to six months — DGBAS deputy section chief Chang Yun-yun said. That means companies tend to maintain their hiring policy for some time when faced with business volatility, the DGBAS said. “Reports of business closures and downsizing have yet to affect the job market,” Chang said.

THE STAR Malaysia’s international reserves position improved for a second time as at midSeptember, gaining US$600mil or RM2.6bil amid volatility in the currency markets stemming from speculation over a US rate hike and fears of a more serious slowdown in Chinese growth. Prior to the mid-September improvement, the reserves position had improved as at Aug 28 by US$200mil compared with the previous two weeks when the currency fell to the lowest levels against the US dollar since the 1997/1998 Asian financial crisis, data from Bank Negara showed.

PHILSTAR The Philippines has one of the biggest social safety net program in the world in terms of the number of receivers and is still expanding at a rapid pace no one has even seen, the World Bank said on Wednesday. The country’s Pantawid Pamilyang Pilipino, which now covers 20 million poor families, is the “fastest expanding conditional cash transfer” program in the world, the bank’s lead economist Ruslan Yemtsov said in a briefing. “It reached this level at a very fast pace no other countries have ever achieved,” he told reporters.

THE TIMES OF INDIA The Prime Minister’s Office has stepped in to get at least nine road and power projects moving as part of an exercise to revive stalled projects, which are putting a strain on developers as well as banks.

Today, Nripendra Misra, the principal secretary to PM Narendra Modi, will spend half a day with lenders and officials, who are trying to clear the roadblocks holding up these projects, sources said.

On the agenda is to get at least five highway projects moving, including GurgaonJaipur, Panvel-Indapur, SrinagarBanihal, QazigundBanihal and Chennai-Nashri.

Anatole Kaletsky

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

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he US Federal Reserve’s decision to delay an increase in interest rates should have come as no surprise to anyone who has been paying attention to Fed Chair Janet Yellen’s comments. The Fed’s decision merely confirmed that it is not indifferent to international financial stress, and that its risk-management approach remains strongly biased in favour of “lower for longer.” So why did the markets and media behave as if the Fed’s action (or, more precisely, inaction) was unexpected?

What really shocked the markets was not the Fed’s decision to maintain zero interest rates for a few more months, but the statement that accompanied it. The Fed revealed that it was entirely unconcerned about the risks of higher inflation and was eager to push unemployment below what most economists regard as its “natural” rate of around 5%.

It is this relationship – between inflation and unemployment – that lies at the heart of all controversies about monetary policy and central banking. And almost all modern economic models, including those used by the Fed, are based on the monetarist theory of interest rates pioneered by Milton Friedman in his 1967 presidential address to the American Economic Association.

Friedman’s theory asserted that inflation would automatically accelerate without limit once unemployment fell below a minimum safe level, which he described as the “natural” unemployment rate. In Friedman’s original work, the natural unemployment rate was a purely theoretical conjecture, founded on an assumption described as “rational expectations,” even though it ran counter to any normal definition of rational behaviour.

The theory’s publication at a time of worldwide alarm about double-digit inflation offered central bankers exactly the pretext they needed for desperately unpopular actions.

By dramatically increasing interest rates to fight inflation, policymakers broke the power of organized labour, while avoiding blame for the mass unemployment that monetary austerity was bound to produce.

A few years later, Friedman’s “natural” rate was replaced with the less value-laden and more erudite-sounding “nonaccelerating inflation rate of unemployment” (NAIRU). But the basic idea was always the same. If monetary policy is used to try to push unemployment below some pre-determined level, inflation will accelerate without limit and destroy jobs.

A monetary policy aiming for sub-NAIRU unemployment must therefore be avoided at all costs.

A more extreme version of the theory asserts that there

is no lasting trade-off between inflation and unemployment. All efforts to stimulate job creation or economic growth with easy money will merely boost price growth, offsetting any effect on unemployment. Monetary policy must therefore focus solely on hitting inflation targets, and central bankers should be exonerated of any blame for unemployment.

The monetarist theory that justified narrowing central banks’ responsibilities to inflation targeting had very little empirical backing when Friedman proposed it. Since then, it has been refuted both by political experience and statistical testing. Monetary policy, far from being dissipated in rising prices, as the theory predicted, turned out to have a much greater impact on unemployment than on inflation, especially in the past 20 years.

But, despite empirical refutation, the ideological attractiveness of monetarism, supported by the supposed authority of “rational” expectations, proved overwhelming. As a result, the purely inflation-oriented approach to monetary policy gained total dominance in both central banking and academic economics.

That brings us back to recent financial events. The inflationtargeting models used by the Fed (and other central banks and official institutions like the International Monetary Fund) all assume the existence of some pre-determined limit to noninflationary unemployment. The Fed’s latest model estimates this NAIRU to be 4.9-5.2%.

And that is why so many economists and market participants were shocked by Yellen’s apparent complacency.

With US unemployment now at 5.1%, standard monetary theory dictates that interest rates must be raised urgently. Otherwise, either a disastrous inflationary

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’

blowout will inevitably follow, or the body of economic theory that has dominated a generation of policy and academic thinking since Friedman’s paper on “rational” expectations and “natural” unemployment will turn out to be completely wrong.

What, then, should we conclude from the Fed’s decision not to raise interest rates? One possible conclusion is banal.

Because the NAIRU is a purely theoretical construct, the Fed’s economists can simply change their estimates of this magic number. In fact, the Fed has already cut its NAIRU estimate three times in the past two years.

But there may be a deeper reason for the Fed’s forbearance.

To judge by Yellen’s recent speeches, the Fed may no longer believe in any version of the “natural” unemployment

rate. Friedman’s assumptions of ever-accelerating inflation and irrationally “rational” expectations that lead to single-minded targeting of price stability remain embedded in official economic models like some Biblical creation myth.

But the Fed, along with almost all other central banks, appears to have lost faith in that story.

Instead, central bankers now seem to be implicitly (and perhaps even unconsciously) returning to pre-monetarist views: trade-offs between inflation and unemployment are real and can last for many years. Monetary policy should gradually recalibrate the balance between these two economic indicators as the business cycle proceeds. When inflation is low, the top priority should be to reduce unemployment to the lowest possible level; and there is no compelling reason for monetary policy to restrain job creation or GDP growth until excessive inflation becomes an imminent danger.

This does not imply permanent near-zero US interest rates. The Fed will almost certainly start raising rates in December, but monetary tightening will be much slower than in previous economic cycles, and it will be motivated by concerns about financial stability, not inflation.

As a result, fears – bordering on panic in some emerging markets – about the impact of Fed tightening on global economic conditions will probably prove unjustified.

The bad news is that the vast majority of market analysts, still clinging to the old monetarist framework, will accuse the Fed of “falling behind the curve” by letting US unemployment decline too far and failing to anticipate the threat of rising inflation. The Fed should simply ignore such atavistic protests, as it rightly did last week.

Project Syndicate

16 | Business Daily

September 24, 2015

Closing Outbound mergers and acquisitions surging in mainland

Top economic planner refutes doubts on data authenticity

Accumulated outbound mergers and acquisitions (M&A) involving Chinese companies exceeded US$400 billion by the end of 2014, a report released by global consulting firm Bain & Company showed yesterday.

There were 2,690 outbound M&As with a transaction volume of US$420 billion between 2000 and the end of last year. In 2014 alone, there were 405 outbound M&As with a transaction volume of US$79 billion, according to the report. Momentum has been gaining in China for these big deals since 2005, but the trend is still in its infancy. Only 13 percent of all M&A deals involving Chinese companies between 2000 and 2014 were outbound compared with the 50-percent global average, it said.

Top economic planner defended the country’s data authenticity yesterday in response to assumptions that the government may have distorted growth data to make them look good, saying the claims were either “logically wrong” or “unreliable”. Official data showed China’s economy expanded 7 percent in the first half of the year, in line with the annual target, but some China pessimists have claimed that real growth was much lower during the period. The National Development and Reform Commission said in an online statement that doubts about China’s data accuracy have been non-stop since the country’s reform and opening-up, but those voices have mostly proved ill-founded.

Investors harbour doubts over Malaysia’s stock market rescue plan Analysts and investors have raised questions of propriety over the idea of a state-directed fund picking stocks

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nvestors have voiced doubts over potential conflicts of interest posed by Malaysia’s plan for an equity fund to buy “undervalued” shares, reflecting their growing unease as a scandal over an indebted state fund engulfs Prime Minister Najib Razak.

Last week, Najib announced a series of measures to support the economy. Chief amongst them was a plan to infuse 20 billion ringgit (US$4.6 billion) into defunct equity fund called ValueCap so that it can buy underperforming shares.

“Why is the government intervening into the private sector?” said Tricia Yeoh, chief operating office of Malaysian think-tank IDEAS. Malaysians are still awaiting answers to questions thrown up by multiple investigations into allegations of financial mismanagement and graft at state fund 1Malaysia Development Bhd (1MDB), whose advisory board is chaired by Najib.

On Tuesday, the government’s newly formed special economic committee

sought to dispel some of the scepticism over ValueCap. “ValueCap has a board of directors and investment committee that are separate to monitor its investment operations,” it said in a statement reported by state run news agency Bernama.

“This fund is not prepared by the government. It will be invested in stages based on current shares value and the right time,” it said.

The 20 billion ringgit will not be provided by the government and ValueCap was given the mandate to raise the amount from its shareholders and through other funds, Bernama reported.

The statement said ValueCap will pick its stocks after “an organised and objective evaluation, not sentiment and speculation”.

The other big concern for investors is the impact this spending will have on an economy that already has one of Asia’s highest budget deficits at 3.5 percent of the economy, and in particular on the column for contingent liabilities such as 1MDB’s 42 billion ringgit debt.

Malaysia stock market

Opposition politicians have seized on the risks.

“The deficit will increase; it will have to be funded by increased borrowing; this in turn will lead to the selfimposed debt ceiling of about 55 percent being breached,” said Lim Kit Siang, leader of the Democratic Action Party (DAP).

Set up in 2002 to revive a flagging stock market, ValueCap’s shareholders include state investment fund Permodalan Nasional Berhad, the state-owned Employees

Pension Fund and Malaysia’s sovereign wealth fund Khazanah Nasional Berhad.

Ang Kok Heng, chief investment officer of Phillip Capital in Kuala Lumpur, said these state-owned firms would need to issue bonds to fund ValueCap’s investments.

“If they borrow, they would have to find a way to pay back too. This just means that ValueCap would have to invest prudently instead of listening to the government on where it should put its money,” Heng said.

The stock market hit three year lows last month and is down 8.4 percent this year, while the ringgit currency is near its weakest levels in 18 years, reflecting concerns over a deterioration in Malaysia’s trade position due to weak prices for its liquefied natural gas exports and nervousness over the scandals raging round Najib.

Rating agencies are for now going with the assumption that the government will not be using its budgeted funds to revive the stock market.

Reuters

877 investigated for corruption in financial sector

Tencent M&A chief said to leave to start an investment fund

VW chief under pressure as cheating scandal snowballs

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T

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hinese prosecutors investigated 877 people in the financial sector for bribery or abuse of power between January 2014 and June 2015, the Supreme People’s Procuratorate (SPP) revealed yesterday.

Nearly 75 percent of them worked in banks, spokesperson Xiao Wei said during a press briefing.

The rest were mainly from insurance companies and securities agencies.

More than half of the 877 were suspected of taking or giving bribes, according to Xiao.

Thirty people were investigated in cases each involving at least 30 million yuan (US$4.7 million), and the aggregated value amounted to 2 billion yuan.

The SPP also promised to strengthen management of stock brokerages and crack down on insider trading and manipulation of securities and futures markets.

The commission also handed a fine of 553 million yuan to Qingdao Donghai Ever-Trusting Fund, one of five companies and individuals confirmed to have rigged the markets.

Xinhua

encent Holdings Ltd.’s mergers and acquisitions chief Richard Peng Zhijian is leaving China’s largest Internet company to start his own investment fund, according to two people with direct knowledge of the matter.

The former Google Inc. executive helped drive the Shenzhen-based company’s participation in about US$19 billion worth of deals during his seven-year tenure, helping transform Tencent into a business spanning social media, gaming and online commerce. The people asked not to be identified because Tencent hasn’t announced Peng’s departure.

Tencent became the most acquisitive Chinese company under Peng’s stewardship by participating in at least 90 deals, according to data compiled

by Bloomberg. That surpassed the number of investments by the most active venture-capital firms in the country, including Sequoia Capital and Qiming Venture Partners, during the same period, the data showed.

Peng was one of Google’s earliest employees in China before joining Tencent in 2008.

Bloomberg News

he job of Volkswagen’s chief executive appeared to be on the line yesterday over a pollution cheating scandal that has sparked a US criminal investigation and worldwide legal action with unfathomable financial consequences for the auto giant.

The world’s largest auto manufacturer by sales in the first half of this year still faces a growing tangle of legal threats after it admitted that as many as 11 million of its diesel cars worldwide are equipped with software capable of fooling official pollution tests.

Chief executive Martin Winterkorn’s job is now believed to be hanging in the balance, as senior supervisory board members were reportedly meeting to discuss his dismissal.

The US Department of Justice has launched a criminal investigation led by its environment and natural resources division, a source told AFP. With the so-called “defeat device” deactivated, the car can spew pollutant gases into the air, including nitrogen oxide in amounts as much as 40 times higher than emissions standards, said the US Environmental Protection Agency.

AFP