Macau Business Daily September 30, 2015

MOP 6.00

Casino shares fall as junket firm sounds alarm on VIP gamers

Closing editor: Joanne Kuai

Page 7

China’s industry gauge poll shows economy still sluggish Page 8

Ferragamo CEO sticks to core profit guidance despite China slowdown Page 4

Publisher: Paulo A. Azevedo Number 889 Wednesday September 30, 2015 Year IV

India cut interest rate to 6.75 per cent yesterday Page 11

Gov’t Continues Admin Consolidation Process Streamlining through consolidation. Now it’s IPIM’s turn. To co-ordinate all tasks related to the promotion of the local MICE industry. Macao Trade and Investment Promotion Institute (IPIM) will soon assume tasks hitherto executed by the Economic Services and Tourist Office. Including managing funds for subsidy schemes supporting MICE organisers, buyers and exhibitors. The IPIM team will be bolstered, with no reduction in funding Page

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Patane protesters fined Structural building problems. Now seven homeowners are paying the price.

The Sin Fong Garden protesters have been fined for aggravated disobedience.

The Court of First Instance imposed a penalty of MOP9,000 or 60 days in jail if payment is not made. The protesters are to confer with their lawyers. The building remains in lockdown

HSI - Movers September 29

Name

%Day

China Resources Enter

+0.14

CLP Holdings Ltd

-0.53

CITIC Ltd

-1.13

China Merchants Hold

-1.73

Power Assets Holding

-1.85

PetroChina Co Ltd

-6.49

Galaxy Entertainment

-6.98

China Petroleum & Che

-7.25

CNOOC Ltd

-7.69

Sands China Ltd

-9.35

Source: Bloomberg

I SSN 2226-8294

Page 4

Foot-dragging denounced All hands to the pump. That’s Beijing’s message regarding turning the economy around. Announcing yesterday that 249 officials have been punished. For not utilising their budget allocations in a timely manner

Page 9

Aug merchandise imports dip August merchandise exports hit MOP864 million. An increase of 19.4 pct y-o-y. While merchandise imports fell 3.8 pct in the period. To MOP6.87 billion. The Merchandise trade deficit amounted to MOP5.98 billion

Page 2

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Gaming

The bigger they are...

At least another two years of hard times. That’s the message from Macquarie Securities. The Australian company’s new report on the gaming sector in Asia reckons Macau will register the region’s greatest decline in Gross Gaming Revenues. Meanwhile, the Philippines, Australia and Malaysia are expected to make hay

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September 30, 2015

Macau Tourist numbers up 15 pct for MidAutumn Festival The city saw visitor arrivals during the Mid-Autumn Festival between September 27 and 28 jump 14.6 per cent year-on-year to 252,213, Public Security Police announced yesterday. During the two days, local police recorded a total of 830,887 border crossings at local border checkpoints, of which 426,421were arrivals while the other 404,466 were departures. Most of the border crossings, 72 per cent or 605,412 of the total, were recorded at the Border Gate, while some 104,124 of the total were registered at the Outer Harbour Ferry Terminal.

62 illegal workers caught in August The Public Police Security Force (PSP) and the Labour Affairs Bureau (DSAL) caught a total of 62 illegal workers in August. According to PSP, it arrested 54 illegal workers during its independent inspections of 218 sites last month, while the Labour Affairs Bureau nabbed eight workers whilst inspecting 14 venues during the same period. Although the two authorities conducted three joint inspections in the month, no illegal labour was found during the actions.

The inspected sites of the authorities included construction sites, private buildings, as well as commercial and industrial units.

José Chui Sai Peng’s company awarded government contract The government has awarded CAA City Planning and Engineering Consultants Ltd., founded by José Chui Sai Peng, two contracts worth MOP28.08 million, according to the Official Gazette.

The contracts involve the inspection of the construction of a Cotai segment (code name: C360) for the Light Rail Transit (LRT) and the construction of the segment of the ‘Taipa border checkpoints’ (C370).

The payment for construction works will be in two instalments, with the first taking place this year in the amount of MOP9.36 million and the second next year in the amount of MOP18.72 million.

The dispatch was signed by Chief Executive Fernando Chui Sai On, who is a cousin of José Chui Sai Peng.

PAL Asiaconsult awarded LRT inspection contract PAL Asiaconsult Ltd. has been awarded a contract to inspect the construction of Segment number C350 of the LRT in the centre of Taipa, according to the Official Gazette.

The company controlled by the engineer Rui Cernadas will be paid for the services in the amount of some MOP23.44 million over three years.

This year, the company will receive MOP5.96 million, another MOP14.30 million in 2016, and MOP3.18 million in 2017.

The dispatch published yesterday in Macau’s Official Gazette was signed by Chief Executive Fernando Chui Sai On. The company has previously worked with the government on such projects as the Macau Dome, in 2002, the New Customs Building, in 2005, and the South Extension of Macau International Airport in 2008 and 2009.

August merchandise exports up 19.4 pct The value of re-exports of motor cars and motorcycles surged 1,659.9 per cent

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otal merchandise exports for August 2015 amounted to MOP894 million, an increase of 19.4 per cent year-on-year, according to the External Merchandise Trade Statistics for August released by the Statistics and Census Service (DSEC) yesterday.

According to the latest data, the value of re-exports grew by 30.9 per cent to MOP783 million, of which the value of clocks and watches increased by 148.2 per cent, while diamond and diamond jewellery soared 218.5 per cent. In particular, the value of reexports of motor cars and motorcycles surged 1,659.9 per cent.

However, values of domestic exports dropped 26.5 per cent to MOP million, of which the domestic export of tobacco decreased 53.9 per cent to MOP22 million. Total merchandise imports fell 3.8 per cent year-on-year to MOP6.87 billion.

Merchandise trade deficit amounted to MOP5.98 billion.

Trade deficit widened

In the first eight months of 2015, the total value of merchandise exports grew 11.8 per cent year-on-year to MOP7.29 billion, with the value of re-exports (MOP6.09 billion) increasing 17.1 per cent, while that of domestic exports (MOP1.20 billion) declined 8.9 per cent. The total value of merchandise imports fell 0.6 per cent to MOP56.65 billion. The merchandise trade deficit widened to MOP49.36 billion for the first eight months of 2015.

Analysed by destination, merchandise exports to Hong Kong (MOP4.47 billion) and Mainland China (MOP1.17 billion) in the first eight months of 2015 increased 15.5 per cent and 21.2 per cent year-on-year, while exports to the

Compiled by DSEC; Sources of data: Macao Customs Service, Macau EDI Van S.A.

EU (MOP160 million) and the USA (MOP136 million) decreased 22.5 per cent and 35.6 per cent, respectively.

Exports of Non-textiles increased by 12.4 per cent year-on-year to MOP6.75 billion, of which the value of Clocks & watches (MOP955 million) and Electronic components (MOP580 million) rose 47.2 per cent and 32.4 per cent, respectively, while that of Machines, apparatus & parts (MOP813 million) dropped 30.2 per cent. Exports of Textiles & garments totalled MOP545 million, up 5.6 per cent.

Big origin

By country of origin, merchandise imports from Mainland China (MOP20.98 billion) in the first eight months of 2015 increased 13.2 per cent year-on-year, while imports from the EU (MOP12.68 billion) fell 12.4 per cent. Imports of Consumer goods dropped 7.4 per cent to MOP33.75 billion, with imports of Gold jewellery (MOP4.78 billion) decreasing 25.4 per cent, while Food & beverages (MOP7.76 billion) increased 2.7 per cent. Moreover, the import of Mobile phones (MOP5.16 billion) expanded 37.6 per cent, while the import of Fuels & lubricants (MOP4.72 billion) declined 10.9 per cent.

External merchandise trade reached MOP63.94 billion in the first eight months of 2015, up 0.6 per cent compared to MOP63.54 billion a year earlier.

Business Daily | 3

September 30, 2015

Macau

IPIM to co-ordinate MICE from November Tasks with regards to promoting the MICE industry in Macau that currently fall under the Economic Services and Tourist Office will be handed to IPIM Joanne Kuai

joannekuai@macaubusinessdaily.com

M

acao Trade and Investment Promotion Institute (IPIM) will co-ordinate all tasks related to the promotion of local Meetings, Incentives, Conferencing, and Exhibitions of the MICE industry starting from November this year. The task used to fall under the auspices of Macau Economic Services (DSE).

This move is a bid to integrate MICE resources, improve services and enhance work efficiency, announced the government yesterday. In addition, starting from January next year, IPIM will take over the work of subsidising MICE industry schemes, which used to fall under the scope of Macau Government Tourist Office (MGTO) and DSE. IPIM vows to study market needs and revise the clauses of the subsidising plans in order to improve the process of dispensing subsidies to qualified buyers, as well as loosening restrictions on service providers that are supported by the programmes.

Irene Lau Kuan Va, Deputy President of the Administrative Committee of IPIM, said that in

Report: MSAR best Asian trade fair market performer in 2014

the future works related to MICE promotion, including applications for subsidies disbursed by the industry would be handled by IPIM. In order to cope with the added workload, IPIM intends to add six more staff.

Ms. Lau stressed that the government has not reduced its support or financial aid for MICE industry development. The funds managed by DSE and MGTO will be transferred to IPIM to continuously support the local MICE industry.

The Global Association of the Exhibition Industry (UFI) says the city was the best performer in the Asian exhibition market last year although it is one of the smallest and youngest in the continent.

According to Macao Trade and Investment Promotion Institute (IPIM), the international association said in its 2014 review on the Asian trade fair industry that the total exhibition area in the city had jumped by 38 per cent year-on-year to 197,500 square metres from 143,000 square metres in 2013, representing a growth of 108 per cent from 2010’s 94,750 square metres.

The Association estimates that the 26 business-to-business trade shows held in the city last year received income of nearly US$50 million (MOP400 million), suggesting each of the shows generated some US$1.9 million, a very close amount

to the regional average of US$2.2 million.

On the other hand, the Association believes that the opening of the Hong Kong-Zhuhai-Macau Bridge in 2017, as well as the expansion of the local aviation network with other Asian cities, will boost the stable development of the local exhibition industry.

Meanwhile, the UFI data provided by IPIM shows that the local exhibition industry’s major competitor, Hong Kong, saw its exhibition space increase by 3.2 per cent year-on-year to 934,750 square metres in 2014.

Indicating Macau is battling regional competition with Hong Kong, Guangzhou and Shenzhen, UFI reckons the city’s position in the regional market will still benefit its development and sustainability in the mid-term.

K.L.

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September 30, 2015

Macau

Sin Fong homeowners fined Justifiable concerns for aggravated disobedience opinion

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he Court of First Instance (TJB) yesterday convicted seven residents of Sin Fong Garden of aggravated disobedience

during a protest last year, each of whom has been fined MOP9,000 (US$1,125).

The homeowners, five males

José I. Duarte Economist

L

ast week, this column dealt with the issues raised by the possible extension of maternity leave. Various economic and political agents have put forward several types of reservations. Two of them were approached here then: affordability, on the one hand, and the current state of the local economy, on the other. In both cases we argued there were no sufficient grounds to avoid or postpone the decision. Two additional weeks of leave, unpaid, do not amount to a significant cost, no matter how one measures it. And the current status of the economy is still extraordinary by most standards. In sum, the issue is, and has always been, primarily a political and ethical one.

It should be recognised, however, that a third argument, the plight of small and medium enterprises (SME’s), deserves deeper scrutiny. Some are already stressed by a number of other factors. Additional stresses, however minimal, might be felt strongly. There is something in that argument but it needs to be further refined.

First of all, not all SME’s are the same. Quite a number of them are part of larger groups.

Nominally, they are independent units; in practice, they are branches of some kind of conglomerate. These SME’s should face no big difficulty in dealing with any inconveniences brought by the new leave terms, if approved.

Their group would easily absorb any additional costs and operational impact, which would be small in all likelihood.

Really small companies, like small family and neighbourhood shops, or independent young entrepreneurs trying their luck in the world of business, would be prone to feel the pinch.

But then, for those comparatively small cases, it would be easy to assess the impact and design specific support policies, which would hardly make a dent in the region’s finances.

As a matter of fact, for SME’s the maternity leave costs pale in comparison to other costs they already face. Those matters – commercial rents, availability of labour, wage costs, administrative delays – are arguably putting much stronger strains on really independent SME’s and taking them to the edge of survival.

Rents have reached levels that are simply unaffordable by most types of small family or independent businesses. The monotony of the business landscape in some parts of the city is a testimony to that. The vagaries of labour policy and blue-card quotas, in a city with virtual full employment, may easily become a continuous headache for any manager. Besides, most simply cannot afford to compete with casinos and its satellite operations in terms of wages or workers’ benefits. Insufficient staff, both in effectives and skills, will be a predicament for many SME’s, much more worrisome then any new mother’s absence. And what to say about the sluggishness of many bureaucratic procedures, not to mention the quirks of this or that public department?

Those sincerely concerned with the state of SME’s have a long list of topics they can focus on before getting on to the costs and inconveniences of two additional weeks of maternity leave. Unpaid.

and two females, were accused of aggravated disobedience by the Public Prosecutor’s Office earlier this year for occupying the roads in front of the building in Patane on the Peninsula last year during a protest.

Judge Chan Io Chao said in sentencing them that he understood the accused’s feelings about losing their homes. However, he said that the seven accused should have voiced their demands legally, according to local broadcaster TDM Radio.

The seven Sin Fong homeowners were sentenced to pay fines of MOP100 for 90 days. Those who fail to pay the fines will be jailed for 60 days.

The second accused, surnamed Chio, told reporters that the seven of them would discuss with their lawyers whether they would file an appeal against the ruling.

In October 2012, about 140 homes in Sin Fong Garden were evacuated after the building was found to have structural problems that could result in it collapsing. The building is still cordoned off.

K.L.

Ferragamo CEO sticks to core profit guidance despite China slowdown Asia-Pacific is the biggest market for Ferragamo and the only geographic area where sales fell at constant exchange rates in the first half, hurt by weakness in Hong Kong and Macau

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he chief executive of Italian luxury goods maker Salvatore Ferragamo stuck on Sunday to last month's profit guidance despite slowing growth in Asia, its biggest market.

Speaking to analysts in late August, the chief financial officer of Ferragamo said he was confident the Florentine firm could meet a market forecast for the full year of earnings before interest, tax, depreciation and amortisation (EBITDA) of around 320 million euros.

That compares with 2014 EBITDA of 293 million euros.

"We've been giving a very constant and consistent indication regarding this year," Ferragamo CEO Michele Norsa told reporters.

Speaking before Ferragamo presented its women's collection for next spring at the Milan fashion week, featuring stripy ankle-length dresses, Norsa declined to say how sales in August and September had gone.

A sharper-than-expected economic slowdown in China has dampened the

outlook for luxury firms as consumers in the world's second largest economy are seen cutting back on spending.

Asia-Pacific is the biggest market for Ferragamo and the only geographic area where sales fell at constant exchange rates in the first half, hurt by weakness in Hong Kong and Macau.

As items from the new collection start arriving in shops in November, Norsa said Ferragamo would try to adjust prices to offset the impact of tumbling currencies in countries like Brazil and Russia, whose economies are suffering steep recessions.

Reuters

Business Daily | 5

September 30, 2015

Macau

CE: Jurisdiction over local waters requested The city leader anticipates that a reply from the central government will be received by 2016. In addition, he said the University of Macau had been commissioned to study the Canidrome concession Kam Leong

kamleong@macaubusinessdaily.com

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he local government has officially submitted its request for the administrative rights over the city’s customary waters to the central government, Chief Executive (CE) Fernando Chui Sai On (pictured) announced on Monday.

“I’m very pleased to announce that we have officially applied to the central government [for the jurisdiction over customary waters]. And we are optimistic that we can get the approval within this year,” the CE told reporters at the local airport before departing for a two-day visit to Zhejiang Province on Monday.

Last December, Chinese President Xi Jinping gave the city the go-ahead to conduct a study on the jurisdiction of its own waters during his visit in the territory for the 15th anniversary of Macau’s handover.

other factors related to the concession, such as the component of diversified gaming, the continuity of dog racing in Macau, the suitability of the development of the neighbouring area, the location, and the possibility of combining dog racing and horseracing.

Fiscal surplus expected

According to the CE, the government has formed a working group for the issue, saying it has met several times with the related official departments of the Mainland.

UM to study Canidrome concession

Meanwhile, the CE revealed to reporters that the government has commissioned the Institute for the Study of Commercial

Gaming of the University of Macau (UM) to study the concession of the Macau (Yat Yuen) Canidrome.

He hopes the study, which will include an opinion survey, can be completed in one year, indicating that whether the dog-racing venue should be shut down will depend upon the opinions of residents.

But he added that the authorities will also consider

Mr. Chui said he was optimistic that the Special Administrative Region would still post a fiscal surplus despite the local economy undergoing a period of consolidation.

He told reporters that he does not reckon Macau’s current economic situation is really that bad. He claimed that the government would assure the financial surplus to be used in projects outlined in the Policy Address, and to be shared with local residents,

such as the cash handout and other one-off subsidies.

In addition, he said the government would consider offering a salary hike to public servants next year based on the situation after the related consultative council submits its suggestions and opinions to the authorities.

Commenting on the strike staged by The Macau Recyclers Association since Saturday, the CE claimed that the government would remain in close touch with the local recycling industry to learn more about the challenges and difficulties it faces. He added that supportive measures from other nearby areas would be considered to support the local sector.

The CE’s visit to Zhoushan – which ended yesterday was primarily to study the experience of the maritime economy of the Mainland city.

6 | Business Daily

September 30, 2015

Macau 300 players join territory poker tournament A total of 300 regional players participated in the Boyaa Poker Tournament 2015 that took place between Friday and Monday in Macau. Amateur player Mai Jie from Guangzhou was named champion of the tournament. As his reward, he was presented with a cheque for HK$880,678. The tournament was organised

by Boyaa Interactive with the assistance of local company Poker King Club. The event took place at The Venetian, with players Haraldur Sigurdsson and Ronald Yu winners of the two side events. This tournament is part of the strategy of the local Poker King Club to increase the interest of Chinese gamblers in poker.

Macquarie Securities: Desired recovery after 2017 Gaming revenue will decline more in Macau than in any other market in Asia as new properties increase the pressure on margins João Santos Filipe

jsfilipe@macaubusinessdaily.com

of Macau, as its GGR is expected to decline 1 per cent from 2014 until 2017.

Among the causes for this decline is the loss of influence of Mainland VIP Chinese players in terms of the Asian markets. While Mainland players are still the engine of the market, they are losing influence due to the slowdown of the economy and the policies adopted by the People’s Republic of China.

Market share race

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he Macau gaming industry still has to endure two difficult years and will register Asia’s highest decline in terms of Gross Gaming Revenue (GGR), on top of which the new rooms and properties will increase pressure on the returns of the gaming operators. This scenario was published yesterday by the Australian company Macquarie Securities in a report about the gaming sector in Asia.

‘We are negative on Macau as we believe it will experience the highest GGR fall amongst Asian gaming countries coupled with falling returns.

Macau is adding as much as 65 per

cent new hotel room capacity, 75 per cent additional slots and 21 per cent additional tables over the fourth quarter of 2015 to 2019, which we think will put enormous pressure on the margins/returns of the casino operators in Macau’, the report named ‘Asia gaming – Where do you hide?’ reads.

In terms of a recovery, it only forecasts to the period after 2017, when most of the new resorts will already be open.

‘The desired GGR recovery is not happening in the next two years.

Looking into calendar year 2016, we only expect 1per cent GGR growth to

Corporate ‘Calligraphy by Ambrose So: Treasures from the Brush Tip’ opens The exhibition ‘Calligraphy by Ambrose So: Treasures from the Brush Tip’ opened at the University of Macau (‘UM’) Wu Yee Sun Library. The exhibited works include transcriptions of carved stone tablet texts, inscriptions of axioms from the Confucian, Buddhist and Daoist schools, and couplets with excerpts of verse and prose from the Tang and Song dynasties right up to modern times.

University of Macau rector Wei Zhao thanked Dr. So for his continuing support of the University, praising him as a devoted artist of Chinese calligraphy, dedicated to the work of cultural inheritance and innovation.

Ambrose So said that “In ancient China, brushes were considered an important writing tool. Through the written word, our ancient records were preserved and passed on from generation to generation, with the function of inheriting the past and inspiring the future. Hence, I have chosen the title ‘Treasures from the Brush Tip’ for this exhibition.” Ambrose So hopes that through calligraphy he can bring people, in particular students, closer to Chinese culture, to appreciate it more and implement the essence of Chinese culture into everyday life to build a moral and harmonious society.

US$29.2 billion (MOP233.09 billion) with mass market (+10 per cent) outperforming VIP (-5 per cent)’, it is predicted.

Macau the biggest loser

While the dominant position of the territory is not expected to be threatened, gaming revenues will shrink for the period from 2014 to 2017, some 9 per cent in terms of compound annual growth rate.

By contrast, the Philippines, Australia and Malaysia are expected to grow 13 per cent, 10 per cent and 8 per cent, respectively. Only South Korea is expected to follow the trend

In terms of share in the gaming industry in Macau, Macquarie Securities expects all the American operators and Melco Crown to conquer larger share through the years until 2017.

The new properties are expected to increase the share of Sands China, MGM China, Wynn Macau and Melco Crown. The company founded by Sheldon Adelson will also gain from its focus on mass gaming.

Conversely, Galaxy Entertainment Group and SJM Holdings are expected to lose part of their share of the market because of their orientation towards the VIP segment.

However, SJM is also expected to suffer with its ‘aging properties’, while it waits for the Cotai project the Lisboa Palace - to open. The first SJM property in Cotai is expected to ‘offset’ this factor.

For Galaxy Macau resort, expectations only brighten upon the completion of Phases III and IV, which is not expected to happen any time soon.

Business Daily | 7

September 30, 2015

Macau DICJ: Dore case investigation ongoing The Gaming Inspection and Co-ordination Bureau (DICJ) say Judiciary Police (PJ) are pushing ahead with the investigation into the cage capital embezzlement at local junket operator Dore Entrainment Ltd. The regulator said in a press release yesterday that it clearly understands public concerns about the government’s supervision of the local gaming industry. DICJ stressed that it would announce internal guidelines to every gaming operator and junket promoter in the city, as well as reviewing current related laws and regulations in order to increase the transparency and supervision of the industry. Dore said earlier this month that its former cage manager, Mimi Chow, was suspected of having stolen HK$100 million from its cage.

Casino shares fall as junket firm sounds alarm on VIP gamers Junket operator Neptune announced that its annual earning had dropped to a five-year low

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hares in several casino operators in Macau fell to around five-year-lows on Tuesday after Neptune Group, one of the gambling hub’s biggest junkets, said it may have to wind down operations if the number of VIP gamers continues to fall.

The warning by Neptune is the latest in string of bad news affecting Macau’s VIP gambling industry, which has come under increased scrutiny from the authorities due to Chinese President Xi Jinping’s anti-corruption campaign which has targeted the flight of illicit capital from the country.

Shares in Neptune fell 4 per cent to near four-year lows, while shares of casino operators Wynn Macau Ltd, Galaxy Entertainment Group and SJM Holdings Ltd dropped around 6-7 per cent to near five-year lows. Sands China Ltd slid more than 5 per cent to a near three-year low.

Junkets like Neptune, which on Friday said annual earnings had dropped to a five-year low, facilitate loans for VIP gamblers which until early last year accounted for over 70 per cent of monthly gaming revenues.

Now, these VIPs account

for just half of monthly revenues, putting several junkets out of business.

Overall, Macau’s gambling revenues have fallen for the past 15 months, and in July hovered around five-year lows amid Beijing’s crackdown on corruption.

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Grant Govertsen, analyst at Macau-based Union Gaming Securities Asia, said the outlook for the VIP gambling industry was set to worsen.

“While we do not believe Neptune is leaving the Macau scene we do believe

that more junket closures are likely and that liquidity could increasingly become a concern that could drive further downside to the VIP story,” he said.

One of Neptune’s former major shareholders Cheung Chi-tai is facing three charges of laundering HK$1.8 billion through accounts in the financial centre.

Police are also investigating alleged fraud at another major junket operator Dore, which operates three rooms in U.S. mogul Steve Wynn’s Wynn Macau.

Reuters

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Those people and their actions are our inspiration.

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8 | Business Daily

September 30, 2015

Greater China

Official factory PMI seen shrinking Global investors and policymakers have been on edge over the health of China’s economy this year

KEY POINTS China official PMI seen at 49.6 in Sept vs 49.7 in Aug Data due on Oct 1 at 0100 GMT

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hina’s giant factory sector likely shrank for the second month in a row in September, a Reuters poll showed, a development that would add to fears of a sharper slowdown in the world’s secondlargest economy.

The official manufacturing Purchasing Managers’ Index (PMI) is forecast to inch down to 49.6 from August’s 49.7, according to the median forecast of 29 economists in the poll.

A reading above 50 indicates

an expansion in activity while one below that signifies a contraction on a monthly basis.

August saw the deepest contraction in factory activity in three years and if the September number is 49.6, it would be the lowest since August 2012.

The weak PMI reading would strengthen bets that Beijing would roll out more support this year, including further cuts in interest rates, bank reserve requirements and higher infrastructure spending.

“Conditions remain weak in China’s economy but a sharper downturn would be unlikely thanks to government supportive policies,” said Hu Yuexiao, economist at Shanghai Securities in Shanghai.

Last week, a separate, preliminary private survey showed flagging demand dragged China’s factory sector into its sharpest contraction in 6-1/2 years in September, fanning global concerns that the economy may be slowing more sharply than earlier feared.

Global investors and policymakers have been on edge over the health of China’s economy this year, as it looks set to log its weakest performance in at least a quarter of a century.

A plunge in China’s stock market over the summer and a surprise devaluation in the yuan have roiled global markets, and raised doubts inside and outside China over Beijing’s ability to manage its economy.

Despite of a raft of stimulus moves, including slashing interest rates five times since November, recent economic data suggested China’s economy lost further momentum over the summer.

The official PMI factory numbers will be released on Thursday, October 1, alongside the official services PMI. The Caixin/Markit manufacturing PMI (final) and its services PMI will be released on the same day.

Reuters

Building dam, winning African friends The completion of the project tripled Guinea’s electricity generation and gave many residents of the capital stable power for the first time in their lives

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s workers at Western companies fled West Africa during the world’s worst-ever Ebola outbreak, a state-owned Chinese company carried on.

China International Water & Electric Corp. completed the Kaleta dam on budget and a year ahead of schedule in July, ending chronic power shortages in the capital, Conakry. Construction continued even as companies including London-based Rio Tinto Plc and Luxembourgbased ArcelorMittal SA paused projects in the region.

“The Chinese saved us,” Lansana Fofana, 63, said, as he stood on the US$526 million hydroelectric dam that China financed and he oversees.

For Fofana, the 1,545-meter wall is a monument to the positive role China can play in Africa. In other parts of the continent, Chinese companies have been accused of treating workers poorly, building substandard infrastructure and damaging the environment.

Successful projects also help Africa’s leaders.

The completion of Kaleta tripled Guinea’s electricity

generation and gave many residents of the capital stable power for the first time in their lives, a dividend for President Alpha Conde, who faces reelection next month. Conde is so proud of the dam that he built a private residence next to it and promoted Fofana’s predecessor to energy minister.

At Kaleta’s official inauguration, Conde said in a speech to other heads of state that work on another dam just upstream will begin within a few months, putting Guinea on track to become a regional power exporter

and allowing it to build up its industry.

Chinese Foreign Minister Wang Yi’s trip to Africa last month included visits to the three countries hardest hit

by Ebola: Guinea and its two neighbours, Sierra Leone and Liberia, which together lost 11,310 people.

In Guinea, Wang visited Shanghai Construction Group’s Hotel Kaloum, an 18-story tower looming over Conakry’s eponymous business district, by far the tallest building on the mangrove- engulfed peninsula.

“Before, we weren’t so understood,” the deputy construction manager of the project, Allain Long, said as he pointed to other Chinese buildings rising above crumbling low-rises.

Long is one of a growing number of Chinese who speak French, the official language in Guinea and much of the region.

“Now communication is much better,” Long said. “More and more Africans appreciate us.

They can see that our work is helping them.”

Like the workers at Kaleta, Long stayed throughout the 20- month Ebola outbreak.

Workers on projects owned

by Rio and ArcelorMittal in Guinea and Liberia left.

In the north of the country, on a muddy river bank near Boke, a bare-chested Chinese worker operates a giant claw hurling mounds of bauxite, an ore that is refined into alumina and then smelted into aluminium, onto a barge.

Another man heaves rocks into a metal frame to weigh down a foundation for a new jetty. Building the port only took about eight months and allowed China Hongqiao Group Ltd.’s project to start shipping in July.

Huddled under a makeshift shelter at the site’s entrance, a dozen Guinean men looking for jobs watch enviously as Chinese workers drive trucks and work on the road.

“It’s a bit of a shame,” said Suleiman Kande, 24.

“We’re from here and don’t have jobs. The government should be controlling this.”

Still, the men said they have friends employed at the new port who are treated and paid well.

Back at Kaleta, Jiahua Liu, the top Chinese manager at the dam, offered a word of advice: build a relationship with the local community at the beginning of any project.

“We built a mosque and a soccer field first,” Liu said from under a white hard hat.

“We can see our efforts are appreciated here.”

When Ebola struck, Liu said he and his men stayed behind and helped deliver medical supplies and rice to local inhabitants.

“We were scared, but we stayed,” Liu said with a nervous laugh. “We had to do our jobs.”

Bloomberg News

Business Daily | 9

September 30, 2015

Greater China “Lazy” officials punished for unspent funds The government has previously said unspent funds would be invested as soon as possible

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hina has punished 249 officials for laziness, exemplified by failure to spend government funds, delays to projects and sitting on land earmarked for development, as the government wages war on graft, state news agency Xinhua said.

Spooked by China’s biggest-ever crackdown on corruption, many officials have preferred in the past 18 months to dither over approvals for major projects, so as to avoid drawing the scrutiny of anti-graft officials.

That has annoyed Beijing, which has scolded procrastinating local governments for their laziness and repeatedly threatened to punish them by recalling their untouched budgets.

Xinhua said the 249 officials in 24 provinces, regions or cities had been sacked, or given administrative demotions or warnings after an investigation running from the end of May until the middle of June.

As late as May this year, a food recycling project in the northern province of Shanxi had yet to start construction, even though the government had released funds for it in 2012, Xinhua said late on Monday, listing some of the most telling examples.

“The aim of holding these people accountable is to promote work and manage the issue of laziness in government and doing nothing ... and ensure this year’s economic targets are on track,” the report cited an unidentified official as saying.

Unspent funds of 296 billion yuan (US$46.5 billion) seized by the government by the end of August had mostly already been invested in “urgent” development projects and to improve people’s livelihoods, Xinhua added.

It was not immediately clear if this figure was the same as the sum of 300 billion yuan in seized funds announced by the cabinet last week. The government has previously said unspent funds would be invested as soon as possible.

Chinese Premier Li Keqiang has repeatedly criticised officials for being slack and lazy in pushing through Beijing’s policy directives, as they kept their heads down to avoid being targeted in the antigraft campaign.

Reuters

QFII quota rises to US$78.77 bln in Sept

Mutual fund sales to start after rout eases

Chinese Premier Li Keqiang has repeatedly criticised officials for being slack and lazy in pushing through Beijing’s policy directives

value of both Glencore and Anglo American could evaporate.”

Bernard Aw, a strategist at IG Asia Pte in Singapore, said: “Glencore’s fall was significant due to its prominence and size, and the plummet was in part triggered by perceived inadequacy in efforts to reduce its debt amid deteriorating mining prospects.

Glencore, the Switzerland-based former commodities trader, has now lost more than three quarters of its value since listing with much fanfare in London and Hong Kong in May 2011.

China and Hong Kong will likely approve cross-border sales of mutual funds by the end of 2015, according to a joint venture between Industrial and Commercial Bank of China Ltd. and Credit Suisse Group AG, after stock-market turmoil caused months of delays. “China-Hong Kong fund mutual recognition should be introduced in the fourth quarter and we hope to be among the first batch,” Richard Tang, CEO of the Hong Kong unit of ICBC Credit Suisse Asset Management. The firm had 750 billion yuan (US$118 billion) of assets under management as of June 30.

Taiwan markets closed for the day after typhoon

The firm has been particularly badly affected because of its huge US$30 billion debt load

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Microsoft and its Chinese partner in an Xbox game console venture have been fined by China’s commerce ministry for breaching antitrust rules but escaped serious punishment after it deemed they did not hamper free market competition. Microsoft and Shanghai Oriental Pearl Media, known as BesTV, were fined 200,000 yuan (US$31,430) each for failing to report to antitrust regulators that their joint venture exceeded a market share threshold that usually triggers a disclosure requirement.

Microsoft and BesTV formed a venture in 2013 to bring the Xbox to China.

The outstanding amount of China’s dollar-denominated Qualified Foreign Institutional Investor (QFII) programme rose to US$78.77 billion as of September 29, from US$76.7 billion at the end of August, the country’s foreign exchange regulator said yesterday. The QFII scheme was created by China to allow foreigners to invest in Chinese capital markets.

Glencore hammered in Hong Kong as global commodities slump

hares in mining giant Glencore crashed 29.3 percent in Hong Kong yesterday, hammered by weak commodity prices as Chinese demand stumbled while a brokerage warned about the group’s future.

The slump to HK$8.68 followed a near 30 percent dive in its Londonlisted arm Monday and comes as an economic crisis in China convulses global markets, with stocks, commodities and emerging market currencies tumbling.

Most resources-linked firms have taken a hit in recent months as the price of copper, aluminium, iron ore and oil have hit multi-year lows.

But Glencore has been particularly badly affected because of its huge US$30 billion debt load, even after the firm this month raised US$2.5 billion via a shares sale as part of a vast plan to rejig its finances.

Dealers were further spooked on Monday when brokerage Investec said in a research note to clients: “The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve.

“If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity

Microsoft fined over Xbox venture

Two years later it relisted in the two cities after a mega-merger with Swiss mining behemoth Xstrata in a deal that made it the world’s fourth-biggest commodities company in terms of market capitalisation. It then announced with confidence a dividend payment despite reporting a first-half net loss owing to billions in write-downs.

However, the firm’s share price has continued to fall since the listings as China’s slowing growth -- at its weakest in 25 years -- curtailed the country’s voracious demand for commodities, sending prices tumbling.

AFP

A typhoon that killed two people forced Taiwan to close its markets yesterday and left hundreds of thousands of travellers stranded at the height of the Mid-Autumn Festival holiday. Typhoon Dujuan left 700,000 households without power, according to the government.

As many as 1 million people lost water in Taipei, the Central News Agency reported, citing a city water official. The rain had subsided in parts of Taipei after the city extended a school-and-office closure from a half day to a full day.

The stock, bond and currency markets remained closed all day.

Memorandum of understanding with Zambia on RMB China’s central bank yesterday said it had signed a memorandum of understanding (MoU) on renminbi clearing with Bank of Zambia, its Zambian counterpart. Following the MoU, China will soon designate a renminbi clearing bank in Zambia, the People’s Bank of China (PBOC), the country’s central bank, said in a statement. The move will facilitate renminbi-denominated cross-border transactions for companies and financial institutions in the two countries and boost bilateral trade and investment, the PBoC said. Zambia has been active in promoting the use of renminbi in cross-border trade and investment.

10 | Business Daily

September 30, 2015

Greater China

Climate deal with U.S. sets bar low ahead of Paris talks China and the United States have been the main forces preventing a global climate deal in the past decade or two David Stanway

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hina and the United States have outlined an eye-catching “common vision” to secure an ambitious global climate deal later this year, but experts say a centrepiece pledge by Beijing to establish a nationwide carbon market is no game-changer.

In a joint statement made during President Xi Jinping’s visit to the United States, China confirmed it would launch national cap-and-trade scheme in 2017, forcing big emitters to buy credits to meet CO2 reduction targets.

The world’s top two greenhouse gas emitting nations also agreed to stand together during the crucial round of talks on a new global deal beginning in Paris in late November, agreeing that emissions targets should “ramp up over time in the direction of greater ambition”.

There were no specific new measures from either side, however, to build on pledges made last November, when China said it would bring its spiralling emissions to a peak by “around 2030” while the United States promised to cut its own CO2 by 26-28 percent by 2025 compared to the 2005 level.

“I wouldn’t underestimate the importance of this kind of working together,” said Bret Harper, Associate Director of

Research at Australian clean energy consultant RepuTex. “But in terms of pure substance, there weren’t really any new announcements beyond some kind of fuzzy things regarding what China wants to do in the power sector and potential linking of carbon markets in the distant future.”

Global talks

The November 30-December 11 Conference of the Parties (COP) in Paris will be the latest attempt by world leaders to forge a deal intended to avert more heat waves, floods and rising seas following the failure of talks in Copenhagen in 2009.

China and the United States have been the main forces preventing a global climate deal in the past decade or two. With the world’s two biggest economies now in agreement, a global deal in Paris has become much more likely, albeit with less ambitious targets than many, including the European Union, want.

As a developing country committed to the notion that industrialised nations such as the United States should bear most of the burden when it comes to combating global warming, China has been careful not to promise too much.

Emissions trading has already become an established

part of its domestic policy agenda.

“The United States and China will actually stand together in the COP talks, and that has to be better than not standing together on whatever is agreed,” said Philip Andrews-Speed, head of energy security research at National University of Singapore.

“But I don’t think this has changed the world. It is another incremental slight twist of the dial. They chose a goal they are able to meet, not least because the economy is disappearing down the drain.”

Cap-and-trade

Beijing has already launched seven pilot carbon trading exchanges starting in 2013 and covering a range of heavy industrial sectors.

It originally planned to begin nationwide trading in the second half of next year, when the pilot phase expires, but planning officials stated earlier this year that 2017 was more likely.

Experts said the prominence given to the 2017 target during President Xi’s U.S. visit should at least concentrate the minds of policymakers, who have been struggling to figure out the best way to integrate the seven independently operating markets.

But in terms of pure substance, there weren’t really any new announcements beyond some kind of fuzzy things regarding what China wants to do in the power sector and potential linking of carbon markets in the distant future Bret Harper, Associate Director of Research, RepuTex

“Such news (of a 2017 launch) has been around for a year already,” said Richard Mao with the Environomist carbon consultancy in Beijing.

“I still think it is a big deal because it came from the leader this time, plus it raises more expectations for Paris.”

But it is still unclear how ambitious the nationwide scheme will be.

It is expected to focus on large and heavy industrial enterprises in sectors such as power generation, iron and steel, and chemicals, though officials are debating whether to widen its scope.

Beijing has so far been reluctant to increase the financial burden on industrial firms, with nearly all carbon permits in the existing schemes allocated free of charge, meaning that actual carbon trade has been limited.

Market designers estimate that a nationwide scheme would regulate 3-4 billion tonnes of carbon dioxide a year by 2020, which would still amount to less than half of China’s estimated total annual emissions. Experts say it is unlikely to provide a “silver bullet” unless it is backed up by other reforms.

“What the markets will look like is entirely still open to question and that means the effectiveness of the market is also going to be open to question,” said RepuTex’s Harper.

Reuters

Business Daily | 11

September 30, 2015

Asia

India cuts policy interest rate The RBI had previously cut interest rates three times this year, lowering it by 25 basis points each time

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he Reserve Bank of India cut its policy interest rate to a 4-1/2 year low of 6.75 percent yesterday, in a bigger-than-expected move that, with inflation running at record lows, could help an economy in danger of slowing down.

A Reuters poll last week showed only one out of 51 economists had expected a 50 basis points cut in the repo rate, while 45 had expected a 25 bps cut.

The RBI justified the bigger reduction, saying consumer inflation was likely be running at 5.8 percent, below the 6 percent target for January, thanks partly to the government’s efforts to contain food prices.

At the same time the central bank cut its economic growth forecast to only 7.4 percent in the fiscal year ending in March 2016, lower than its previous 7.6 percent projection.

The RBI also drew comfort from U.S. Federal Reserve delaying the first hike in U.S. interest rates in nearly a decade, according to a statement written by Governor Raghuram Rajan.

Once U.S. rates rise, analysts expect some emerging market currencies to come under pressure.

“Monetary policy action has to be accommodative to the extent possible, given its inflation goals, while recognizing that continuing policy implementation, structural reforms and corporate actions leading to higher productivity will be the primary impetus for sustainable growth” the RBI said.

The benchmark 10-year bond fell 9 basis points to 7.64 percent after the news. Share indexes edged higher.

An interest rate cut had been widely expected after India reported consumer inflation had fallen to a record low of 3.66 percent in August, and there have been calls from within government and industry for the RBI to lower borrowing costs.

Still, it is unusual for the RBI to lower interest rates in September, as it has tended to be on the defensive

against food price pressures during the monsoon season running from mid-June through September, after enduring several years of weak rains.

Since adopting the repo rate as its main policy tool in 2004, the central bank had never cut rates during this period.

This is also the biggest single monetary policy move taken by Rajan and it takes the repo to its lowest since March 2011. Since taking the helm of the central bank in September 2013,

Rajan has raised the repo rate three times and lowered it three times, all by a magnitude of 25 bps.

Calls for lower rates first began to grow louder after the release of data showing the economy grew by a slower-than-expected annualised rate of 7 percent in the April-June quarter - faster than China, but well below the government’s target of 8 to 8.5 percent for the year ending in March.

Reuters

KEY POINTS India cbank cuts repo rate by 50 bps to 6.75 pct Cites low inflation, weak economy, Fed rate hike delay 10-year bond yield falls 9 bps

Vietnam's growth gains momentum Exports grew an estimated 10.3 percent in Q3 from the same period last year Mai Nguyen and My Pham

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ietnam's economy grew 6.81 percent in the third quarter from a year earlier, accelerating from 6.47 percent in the previous quarter, the government said yesterday, fuelled by strong exports and manufacturing and record foreign direct investment.

The economy expanded at its fastest pace this year, and growth in the first nine months was its highest since 2010.

Almost half of the JanuarySeptember growth came from industry and construction, up 9.6 percent from the same period last year, the General Statistics Office said in a report.

That was boosted by new infrastructure, a rebound in the property market and continued growth in manufacturing - mostly

electronics and textiles - which has expanded for 24 successive months.

Retail and services grew 9.8 percent in Jan-Sept period, yearon-year.

Growth in the country has been supported by solid foreign direct investment inflows that are also seen at a record high US$9.65 billion in the first nine months.

Vietnam has targeted 2015 growth at 6.2-6.5 percent, which would be the fastest since 2011.

That is in line with a 6.0-6.2 percent projection from the World Bank and 6.5 percent seen by the Asian Development Bank, contrasting with forecasts for bigger Southeast Asian markets that are struggling with weak exports and sluggish retail spending.

Exports grew an estimated 10.3 percent in the third quarter from the same period last year, the report said.

Vietnam "stands out as one of the few countries in the region that has shrugged off the global slowdown in trade," said Daniel Martin, an economist with Capital Economics.

The government wants to lure foreign capital to boost local companies and position Vietnam as a low-cost manufacturing alternative to China for the likes of Samsung.

That investment is being helped by integration into a common Southeast Asian market later this year, a free trade deal with the European Union and its expected accession to a U.S.-led Trans-Pacific Partnership worth 40 percent of global GDP.

But Le Dang Doanh, an economist and former government adviser, said the growth story was lopsidedly foreign and warned that weaknesses of local firms could be exposed once Vietnam tries to integrate into global supply chains.

"It (growth) is mainly coming from the manufacturing sector with foreign investment, not the actual growth of Vietnamese private firms," he said. "Vietnam's preparation for the upcoming integration is insufficient."

Reuters

12 | Business Daily

September 30, 2015

Asia

As haze shrouds Singapore, Indonesia suspects staying silent Indonesia has said it’s investigating Singaporean and Malaysian companies Rieka Rahadiana and Agus Suhana

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week after being named as potentially responsible for forest fires blanketing Southeast Asia with haze pollution, most of the companies involved have stayed silent.

Indonesia is investigating more than 100 companies for blazes found on their land and a week ago named four of those, freezing or revoking their permits, while Singapore on Friday named another four. Out of these, only one has made a public statement, saying it was not responsible.

Indonesia’s enforcement of its laws against plantation owners is key to resolving the region’s haze, Singapore’s environment minister has said. Indonesia has laws banning the burning of forests yet enforcement so far has been limited in a sprawling archipelago with overlapping land rights, widespread corruption and decentralized government.

Not simple

“Singapore has to understand our difficulties to extinguish fires because it isn’t a simple thing,” Teten Masduki, President Joko Widodo’s chief of staff, said on Monday, adding the government was focusing on the legal

Indonesian President, Joko Widodo, inspects the work of emergency services tackling forest fires in the village of Guntung Damar, South Borneo

process against arsonists and revoking business licenses.

The air quality in Singapore deteriorated to a “hazardous” level on Thursday, forcing the city-state to shut its schools on Friday for the first time in 12 years and suspend some outdoor events. The three-hour pollutant index rose to a “very unhealthy” level of 245 as of 1 p.m., covering the island with a layer of haze. In Sumatra, a pollution gauge climbed to a “hazardous” level of 983 in Jambi province, while low visibility affected flights.

The plantation companies with suspended permits are PT Langgam Inti Hibrindo, PT Tempirai Palm Resources and PT Waringin Agro Jaya, and the forestry concession revoked by Indonesia was held by PT Hutani Sola Lestari.

Langgam Inti Hibrindo, majority-owned

by Jakarta-listed PT Provident Agro, issued a statement to say it was not responsible and will cooperate with the authorities. Bloomberg News has been unable to reach the others for comment.

Companies named

Singapore also named PT Rimba Hutani Mas, PT Sebangun Bumi Andalas Wood Industries, PT Bumi Sriwijaya Sentosa and PT Wachyuni Mandira. The companies didn’t respond to phone calls made to their offices by Bloomberg News seeking comment.

Singapore’s environment ministry also said it has served Singapore-based Asia Pulp & Paper with a notice for information on measures taken by its subsidiaries and suppliers to put out fires on Indonesian land. Rimba Hutani Mas and Sebangun Bumi Andalas are both APP suppliers.

APP said it has had a zero burning policy in its supply chain since 1996.

“We cannot work in isolation in the landscape,” APP said in a statement.

“Other actors in the landscape must do the same, and importantly they must not start fires. This has not been the case,” it said, adding the causes of fires included local community rights, illegal activity by small and medium enterprises and complexities over land use and spatial planning.

Under investigation

Indonesia has said it’s investigating Singaporean and Malaysian companies, home to the region’s largest listed planters. Wilmar International Ltd. and Golden Agri-Resources Ltd., both listed in Singapore, said on Friday they have halted palm oil purchases from suppliers under investigation.

“Singapore has enjoyed a supply of oxygen from Indonesia in the past nine months and we also know that there are many plantation and mining companies that keep their export proceeds in Singapore,” Masduki said.

“This is what we are thinking about, disincentives to reduce the motivation to burn forests.”

Bloomberg News

Thai malls to promote regional shopping hub Consumer confidence fell to a 15-month low as a deadly bomb blast in Bangkok dealt a blow to economic recovery

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hai shopping mall developers plan to invest more than 103 billion baht (US$2.83 billion) over the next three years to expand and open new stores as part of a drive to promote Thailand as a regional shopping hub, a private body said yesterday.

Plans to integrate Southeast Asia into a single market by 2015, as set out by the ASEAN Economic Community, will draw more foreign tourists to Thailand, Wallaya Chirathivat, president of Thai Shopping Center Association, told a news conference.

By 2017, the 10-member shopping mall group of developers will have a combined shopping area of more than 14 million square metres, versus 12 million square metres now, said

Wallaya, also senior executive of Central Pattana Pcl, Thailand’s largest shopping mall developer.

The group represents 67 percent of Thailand’s total market, which is expected to have 21 million square metres of shopping area by 2017 from 18 million now, she said.

Other members include MBK Pcl, Siam Future Development Pcl, The Mall Group, Platinum Group and Siam Piwat Group.

The retailers aim to tap foreign tourists especially from China, Vietnam and Russia, and encourage them to spend 10 percent more than a year earlier, Wallaya said.

Last year, tourism generated revenue of 1.6 trillion baht, or 12 percent of the country’s

gross domestic product. The Thai government expects revenue from tourism to reach 2.5 trillion baht in 2017.

Tourism has been the one bright spot for Southeast Asia’s second-largest economy, which has yet to regain momentum after more than a year of military rule.

Wallaya said she expected consumers’ purchasing power to improve in the last quarter, adding there were signs foreign tourist numbers were increasing.

To boost Thailand’s competitiveness against Singapore and Hong Kong, the group plans to propose to the government to reduce import tax on luxury items and promote Thai brand products, she said.

Reuters

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Business Daily | 13

September 30, 2015

Asia Myanmar to amend labour laws Myanmar will amend labour laws and review standard terms in employment contracts aimed at protecting the rights of workers, according to the Ministry of Labour, Employment and Social Securities yesterday. Government representatives had reached agreement with factory owners and workers for the amendment during the National Tripartite Dialogue Forum held in Nay Pyi Taw over the past four days. There are weaknesses in Myanmar’s labour laws such as the Settlement of Labour Dispute Law, the Workers Compensation Act and the 2012 Labour Organization Law, said an official.

Falling exchange rate propping up NZ growth The idea of the well-regarded central bank chief Zeti Akhtar Aziz Zeti being replaced as head of Bank Negara Malaysia at the end of her term in early 2016 is another cause for worry

Malaysia faces another bond litmus test as contagion worries grow

Australian consumer confidence slipping

Foreigners, who own on average 45 percent of outstanding bonds maturing today, are seen likely to pull their cash out rather than re-invest it in Malaysian debt Vidya Ranganathan and John Chalmers

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oreign investors could pull up to another billion dollars out of embattled Malaysia’s bond markets this week, pushing the country a step closer to a currency reserves crisis that would send shudders across the region.

A widening political scandal and tumbling currency have steadily taken their toll on investor sentiment towards the Southeast Asian economy, unnerving its emerging Asian neighbours despite the central bank’s efforts to contain the damage.

About 11 billion ringgit (US$2.5 billion) worth of government bonds are due to mature today and foreigners, who own on average 45 percent of outstanding bonds, are seen likely to pull their cash out rather than re-invest it in Malaysian debt.

“The risk-reward of investing in Malaysia assets is quite unattractive for now,” said Prashant Singh, lead portfolio manager for local currency debt at Neuberger Berman in Singapore, citing the political and currency risks, as well as the high foreign ownership of the bond market.

“Huge outflows are unlikely, that doesn’t mean that the risk is not there that some of this money can go out.

We would not be surprised to see a significant portion of the maturing bond not being reinvested.”

Malaysia’s markets have been ground down since July, primarily by the escalating political fallout from allegations of graft and mismanagement swirling around indebted state fund 1Malaysia Development Bhd (1MDB).

Weak link

The scandal has amplified concerns that the country is emerging as the

weakest link in a region struggling with falling commodity prices, feeble global demand and impending interest rate rises in the United States.

The risk of contagion for countries with similar vulnerability to capital flows, such as Indonesia, South Korea and Thailand, is all too real, as Asia’s experience of sharp bond outflows during the 2013 “taper tantrum” showed.

Malaysia’s ringgit has fallen 26 percent this year against the dollar, plumbing levels not seen since the depths of the Asian financial crisis in the late 1990s, its bonds have fallen and the stock market has declined 8.5 percent.

Indonesia, Southeast Asia’s biggest economy, has seen its stock market fall 21 percent.

“You are seeing it across all emerging markets - Brazil, South Africa, Indonesia, Turkey - they are all victims to the same trend of underperformance of the local fixed income markets, continued foreign investor outflows and overall risk aversion,” said Mirza Baig, head of emerging Asia currency and rates research at BNP Paribas in Singapore.

Policy risk

Anxious about a regional spill over effect, Indonesian authorities are seeking to bolster their currency reserves, which at US$105 billion limit their ability to defend the traditionally volatile rupiah.

“Indonesia’s economy ministers are keenly focused on the contagion risk from the market pressures being experienced by Malaysia,” a senior Indonesian government official told Reuters.

New Zealand’s economic growth is slowing, but was still likely to remain at about 2 percent a year, the country’s main business group said yesterday.

Business New Zealand chief executive Phil O’Reilly said 2 percent growth was better than in many other countries, but risks remained. “Our continued heavy dependence on China and Australia for over a third of our exports, and continuing uncertainty about China’s investment slowdown are among the risks,” O’Reilly said in a statement. The Reserve Bank of New Zealand said that GDP growth for the year to March 2015 was 2.6 percent.

While foreign investors have been selling out of Malaysian debt sporadically this year, they became effective net sellers in July and August, after the 1MDB furore erupted.

If they were to pull all their proceeds out today, it would subtract another billion dollars from Malaysia’s already precarious currency reserves, which have dropped US$10.2 billion since the end of June to US$95.3 billion.

Central bank chief Zeti Akhtar Aziz said last week she expected the ringgit to recover once the 1MDB issues were resolved, and that the public deserved to get answers to what went on there.

The fund, whose advisory board is chaired by Prime Minister Najib Razak, has been dogged by controversy over its US$11 billion debt and alleged financial mismanagement.

Although Najib has denied any wrongdoing, a series of international investigations are under way into 1MDB’s affairs.

In the meantime, weak prices for Malaysia’s liquefied natural gas exports are eating into its trade surplus, there are concerns about its ability to repay its massive short-term foreign debt and the banking system has seen an erosion in ringgit deposits.

Ratings agencies have said they would be concerned if there were signs of broader policymaking being affected by the crisis, with Fitch warning at the beginning of the month of the risk it could downgrade the outlook on its debt.

For some investors, the idea of the well-regarded Zeti being replaced as head of Bank Negara Malaysia (BNM) at the end of her term in early 2016 is another cause for worry.

Reuters

There has been a dampening of confidence in Australian consumers after a brief honeymoon period after the taking office of new Prime Minister Malcolm Turnbull. ANZ-Roy Morgan gauge of consumer confidence released yesterday tumbled 3.4 percent in the past week.

People have been revealed to remain sceptical. There is still uncertainty about the economic outlook and analysis by the IMF forecasts Australia’s growth could be frail for a few years. “While Turnbull’s appointment (after Tony Abbott) was greeted with considerable optimism, the challenges facing Australian households remain front of mind and,” ANZ’s co-head of Australian economics.

Cambodia’s economy to grow 6.9 pct Cambodia’s economy is expected to expand 6.9 percent in 2015, 0.2 percentage point lower than the 7.1 percent growth last year, Chea Serey, director general of the National Bank of Cambodia, said yesterday. However, the Southeast Asian nation’s gross domestic product (GDP) growth was still among the world’s highest growth countries, the central bank chief said. “Our economic growth averaged 8.5 percent over the last 15 years, making Cambodia the world’s sixth highest growth country,” she said at the Second Annual NBC Macroeconomic Conference here.

Bangladesh imports surge Bangladesh’s imports surged about 16 percent to over 3 billion in the first month of the 2015-16 fiscal year (July 2015-June 2016). According to statistics of the Bangladesh Bank (BB), the settlement of letters of credit (LCs), generally known as actual imports, stood at US$3,437.71 million in July this year compared to US$2,964.69 million in the same period a year earlier.

Overall import orders, however, fell by 17.62 percent in the first month of the current fiscal year, showed the BB data.

14 | Business Daily

September 30, 2015

International EU regulators work on reform of car approval system In the wake of the scandal over Volkswagen’s admission to cheating regulators, the European Commission said yesterday it would agree outline plans to reform the European system for approving new models of cars by the end of the year. Volkswagen’s use of software known as a defeat device to fake emissions performance has triggered widespread calls to change Europe’s so-called type approval system, which leaves member states in charge of policing compliance. The proposal would have to be approved by the 28 EU nations and the European Parliament.

Swiss watchdog opens bank probe on metals

The Swiss competition watchdog has launched an investigation into possible collusion in the precious metals market by several major banks, it said on Monday, the latest in a string of probes into gold, silver, platinum and palladium pricing. Global precious metals trading has been under regulatory scrutiny since December 2013, when German banking regulator Bafin demanded documents from Deutsche Bank under an inquiry into suspected manipulation of gold and silver benchmarks by banks.

Even though the market has moved to reform the process of deciding on its price benchmarks, accusations of manipulation have refused to go away.

Volkswagen to refit cars affected by scandal The company signalled yesterday it would recall up to 11 million vehicles as it tries to address the scandal over its admission that it cheated U.S. diesel emissions tests. New Chief Executive Matthias Mueller said the German carmaker had drawn up a “comprehensive” refit plan to be submitted to regulators aimed at ensuring its diesel models complied with emissions standards.

It will ask customers “in the next few days” to have diesel models equipped with manipulated software refitted and brief authorities on technical fixes in October.

Yemen’s Aden oil refinery resumes operations Yemen’s 150,000 barrel-per-day Aden refinery resumed operations yesterday after being shut for more than five months as the conflict in the country worsened, an industry source at the refinery told Reuters. “The refinery is back online and is refining crude it had in storage from before,” the source said, adding the refinery was now operating at half of its processing capacity. The plant, in the southern city of Aden, was shut in April and Aden Refinery Company declared force majeure on its oil imports and exports in the same month.

Wildest market swings since 2008 put regulators on edge According to State Street, there have been 73 “highly volatile” days in FX so far in 2015 Jamie McGeever

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his week’s sharp commoditydriven selloff will set alarm bells ringing once again for global regulators who are growing increasingly nervous that, after 12 months of market shocks, the next one might be too big for them to handle.

With three months to go, 2015 is already the most volatile calendar year for markets since the depths of the global crisis in 2008, according to analysis from State Street Global Advisors.

Last week the Bank of England and European Union both issued financial stability reports echoing concerns from the Bank for International Settlements that historically low interest rates are fuelling market volatility and distortions.

That warning came home to roost as soon as Monday, when data showing a sharp fall in Chinese industrial firms’ profits sparked a slump in global equity markets and commodities, with mining blue chip Glencore shedding 30 percent.

Central banks are in something of a bind: they’ve assumed greater responsibility for ensuring financial stability since 2008, but risk destabilising markets because investors are so skittish about the possibility of rising interest rates.

Meanwhile, new regulations forcing banks to hold more capital, reduce risk-taking and scale back marketmaking activities are squeezing liquidity from fixed income markets, exposing them to greater dislocation.

U.S. Treasuries in October last year, the Swiss franc in January this year and German government bonds in April were the epicentres of market events that rippled across the world but only lasted a day or two.

The turmoil of August 24, again sparked by worries over China and including a 1,000 point plunge in the Dow Jones Industrial Index in just minutes, was also short-lived.

Risk of a longer shock

But what if the next seismic shock lasts longer?

“The key question is not so much whether markets will rise or fall.

The issue is the extent to which the financial system can absorb such

Markets are telling us they’re unsure what the central bank playbook looks like from here Mark Haefele, global chief investment officer, UBS

movements, lick its wounds and resume,” said Robert Jenkins, Senior Fellow at Better Markets and a former member of the Bank of England’s Financial Policy Committee.

“Seven years on from (the collapse of) Lehman (Brothers that triggered the financial crisis) the banking system remains excessively leveraged and central bank policies continue to prompt savers to take risks they are ill-equipped to take.”

State Street Global Advisors’ research into returns of major equity and bond indices shows that in 2015 there have been 42 highly turbulent days, where volatility has been in the top ten percent of readings over the previous five years, versus only 11 last year and 94 in 2008.

The turbulence is even greater in foreign exchange, with unprecedented volatility in some emerging currencies.

For example, Brazil’s real lost a quarter of its value in two months before soaring 6 percent on September 24.

According to State Street, there have been 73 “highly volatile” days in FX so far in 2015, more than double the number in 2014 and on track to reach the 104 registered in 2008.

The BoE said on Thursday the financial system’s resilience was improving but downside risks had risen.

The same day, the EU’s European Systemic Risk Board said low global interest rates and risk premia were “one common driver of the current risk situation.”

Is the Fed part of the problem?

The U.S. Federal Reserve injected another dose of volatility against that

backdrop this month, intentionally or otherwise, by passing on the chance to raise interest rates for the first time since 2006.

“In the face of the volatility, they blinked,” said Michael Metcalfe, head of global macro strategy at State Street Global Advisors in London.

Second-guessing the Fed has become increasingly difficult and many observers say that, because it has delayed moving on rates so much, it is contributing to the problem.

New York Fed President William Dudley said in May last year he was nervous that investors were too complacent about unusually low volatility, potentially sowing the seeds for disruptive market moves.

Higher volatility has certainly ensued, and not just in the obvious places, as Monday’s Glencore-driven 17 percent slide in the value of copper producer Zambia’s kwacha currency showed.

Were a market slide to snowball, the Fed and other major central banks would be less equipped to save the day because interest rates are already at or near zero and balance sheets bloated with trillions of dollars of “quantitative easing” bond purchases.

“Markets are telling us they’re unsure what the central bank playbook looks like from here,” said Mark Haefele, global chief investment officer at UBS’s private bank in Zurich with over US$250 billion of assets in discretionary mandates.

“Investors have to worry about the Fed getting it right, but also: will Japan, China and Europe get policy right?,” he said.

Reuters

Business Daily | 15

September 30, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

The inexorable logic of the sharing economy Michael Spence

Nobel laureate in economics, Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution

JAKARTA GLOBE State energy company Pertamina plans to reduce its foreign exchange spot purchase by half, taking part in the government’s efforts to ease pressure on the rupiah.

President Joko Widodo last week urged Pertamina to reduce its foreign exchange demand that now stands between US$60 million and US$80 million a day.

Pertamina and state utility firm PLN account for around a half of Indonesia’s daily forex transactions, as the companies need to buy fuel and service their overseas debts. Pertamina will instead use forex short-term loan and hedging facilities from local banks to fulfil payment needs.

THE KOREA HERALD President Park Geun-hye called on countries to carry out their contributions in good faith to ensure a new agreement on climate change can successfully take root.

Each country is required to present its national goal to cut greenhouse gas emissions before the U.N. Climate Change Conference in Paris later this year. In June, South Korea offered to cut greenhouse gas emissions by 37 percent by 2030 from 850.6 million tons of carbon dioxide equivalents, an amount Seoul says it would reach if it lets business run as usual.

THE PHNOM PENH POST Ford expects sales of its passenger vehicles in Cambodia to surge 30 per cent this year on rising purchasing power and strong brand appeal, a company representative said yesterday. “Last year, we delivered 705 vehicles to the Cambodian market, and this year we expect 30 per cent growth,” David Loflin, Ford’s sales director for AsiaPacific Emerging Markets said yesterday. Speaking at a luncheon organised by the Amcham Cambodia, Loflin said the US carmaker sees the Asia-Pacific region as having the most growth potential of any of its global markets.

TAIPEI TIMES Apple’s iPhone instalment plan in the could shorten the iPhone replacement cycle and expand its second-hand market, which would benefit its main assembler, Hon Hai Precision Industry, in the long term, as it also runs iPhone trade-in scheme in China, analysts said. The US company on September 9 announced a new iPhone instalment program for iPhone users keen to renew their iPhone every year. The monthly payment plan — the lowest price starting at US$32 per month — allows Apple’s customers to buy a new iPhone without entering a two-year binding contract with US telecom operators.

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hen Amazon was founded in 1994, and eBay the following year, they harnessed the connectivity of the Internet to create new, more efficient markets. In the beginning, that meant new ways of buying and selling books and collectibles; but now e-commerce is everywhere, offering customers new goods and used goods – and becoming a global force in logistics and retail. Likewise, while today’s sharing-economy companies may be just out of their infancy, their services will one day be ubiquitous.

By now, most people have heard of Airbnb, the online apartmentrental service. The company has just 600 employees but a million properties listed for rent, making it larger than the world’s biggest hotel chains.

Of course, what Airbnb offers is different from what hotels provide; but if Airbnb offered options for, say, maid service or food, they could become closer competitors than one might initially imagine.

The insight (obvious in retrospect) underlying Airbnb’s model – and the burgeoning sharing economy in general – is that the world is replete with under-utilized assets and resources. How much time do we spend actually using the things – whether cars, bicycles, apartments, vacation homes, tools, or yachts – that we own?

What value do office buildings or classrooms generate at night?

Answers vary by asset, individual, household, or organization, but the utilization numbers tend to be

astonishingly low. One recent answer for cars was 8%, and even that may seem high to someone not burdened by long commutes.

But those numbers are changing, as the Internet enables creative new business models that increase not only a market’s efficiency but also the utilization of our various assets.

Hundreds of experiments are being conducted. Clearly, not all of them will experience the astonishing growth of Airbnb and Uber. Some, like Rent the Runway for designer clothes and accessories, may find profitable niches; others will simply fail.

The digital platforms that act as the basis of all this e-commerce need to meet two related challenges. The first is to produce a network effect, so that buyers and sellers find one another often enough and rapidly enough to make a business sustainable.

Second, the platform must create trust – in the product or the service – on both sides of the transaction.

Trust is crucial to the network effect; hence the need for twoway evaluation systems that encourage buyers and sellers to be repeat users of the relevant platform. Small players can then act in large markets, because – over time – they become known quantities. The power of these platforms derives from overcoming informational asymmetries, by dramatically increasing the signal density of the market.

Indeed, in order to encourage infrequent e-commerce users,

An intriguing question is how far the financial sector will embrace the sharing economy

innovators and investors are exploring ways to combine the evaluation databases of separate, even rival, platforms.

Whatever the legal and technical issues that must be overcome, down the road we can surely imagine the kind of data consolidation already practiced internally by retail giants like Amazon or Alibaba.

There can, of course, be other incentives to support “good” behaviour, such as fines and

deposits (for bicycles borrowed for too long or not returned, for example). But punitive measures can easily lead to disputes and inefficiency. By contrast, refining evaluation systems holds far more promise.

The urge to exploit underutilized resources should not be confined to material assets.

The McKinsey Global Institute has recently studied internetbased approaches to the labour market and the challenge of matching demand for talent and skills with supply.

Some sharing models – perhaps most – rely on both labour and other assets: for example, a person and his or her car, computer, sewing machine, or kitchen (for home-delivered meals). This throwback to the cottage industries that preceded modern production is possible today because the Internet is lowering the costs of dispersion that once compelled the concentration of work in factories and offices.

Perhaps inevitably, regulatory issues arise, as Uber is now discovering from California to Europe. Taxis and limousines are to some extent protected from competition because they need licenses to operate; they are also regulated for customer safety. But then Uber invades their market with a differentiated product, subject largely to its own regulations for vehicles and drivers. In the process, it threatens to lower the value of licenses just as surely as any official decision to issue new licenses would. No wonder the taxi drivers of Paris and other French cities – hitherto protected from competition – have protested so vehemently (and, on occasion, violently).

An intriguing question is how far the financial sector will embrace the sharing economy. Peer-topeer lending and crowdfunding already represent new ways of matching borrowers with investors. Clearly, issues relating to liability and insurance will have to be addressed in all sharing-economy models, especially financial ones; but these are hardly insurmountable obstacles.

The truth is that the Internet-led process of exploiting underutilized resources – be they physical and financial capital or human capital and talent – is both unstoppable and accelerating. The long-term benefits consist not just in efficiency and productivity gains (large enough to show up in macro data), but also in much-needed new jobs requiring a broad range of skills. Indeed, those who fear the job-destroying and jobshifting power of automation should look upon the sharing economy and breathe a bit of a sigh of relief.

Project Syndicate

16 | Business Daily

September 30, 2015

Closing Shenzhen tops national monthly minimum wage list

Beijing identifies priority sectors for industrial upgrades

Beijing set its minimum wage standard at 18.70 yuan (US$2.9) per hour from September 28, the highest in the country, the Ministry of Human Resources and Social Security (MOHRSS) said yesterday. Heilongjiang Province’s minimum wage of 11 yuan per hour makes it the lowest in the country, the ministry said. Meanwhile, the southern city of Shenzhen set the highest minimum monthly wage at 2,030 yuan, while Heilongjiang had the lowest minimum monthly wage of 1,160 yuan per month. China is expected to achieve its average annual minimum wage growth target of 13 percent for the five-year period ending in 2015.

The consultative committee advising the government on its “Made in China 2025” plan to upgrade the country’s manufacturing identified 10 industries of priority yesterday. With Made in China 2025 aiming to shift the country from low-end manufacturing to more value-added production, the list includes new information technologies, numerically controlled machines and robots, aerospace devices, ocean engineering and shipping, advanced rail equipment, new energy vehicles, electrical equipment, agricultural machines, advanced materials, biological medicine and medical instruments. The committee will update the list every two years.

Indonesia unveils second batch of steps to lure investors The first package of measures streamlined dozens of overlapping trade and industry regulations Gayatri Suroyo and Fransiska Nangoy

After the first package was announced, chief economics minister Darmin Nasution said Indonesia’s “negative list” barring foreigners from investing in some sectors might later be revised. Yesterday, no changes were announced.

Indonesia’s stock index has fallen 21 percent this year, while the rupiah has weakened nearly 16 percent, making it Asia’s second worstperforming currency after Malaysia’s ringgit.

The rupiah hit a 17-year low of 14,730 to the dollar yesterday.

A permit in 3 hours?

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ndonesia yesterday announced a second package of economic stimulus measures in three weeks, increasing efforts to lure investment, prop up the battered rupiah and revive growth in Southeast Asia’s largest economy.

The new measures include cutting the number of permits needed for mining exploration and for establishing a business in an industrial economic zone. The government will also remove value-added taxes for ships, planes and trains.

“This is a signal to the people and to the neighbouring countries that Indonesia is a country that is friendly to investors,” Cabinet Secretary Pramono Anung told reporters at the presidential palace.

Investor sentiment towards the world’s fourth most populous nation has soured, with President Joko Widodo struggling to implement much needed reforms, partly due to rifts in his own party and squabbles among government agencies.

The first instalment of the stimulus package, announced on September 9, had little impact on markets.

Business executives said authorities need to take bolder steps to bolster growth.

“What we need to do now is to turn over negative perception, business pessimism to optimism.

And that requires support from monetary policy,” said Hariyadi Sukamdani,

Li Ka-shing voices support for government leadership

chairman of the Indonesian Employers Association, adding that the central bank should cut its benchmark interest rate despite a weakening rupiah.

The first package of measures streamlined dozens of overlapping trade and industry regulations, simplified the permission process for “strategic projects” and eased rules for foreigners opening bank accounts in foreign currency.

Reuters

Indonesia’s stock index has fallen 21 percent this year, while the rupiah has weakened nearly 16 percent.

Pictured Indonesia Stock Exchange’s index display

Overseas cash withdrawals limited amid capital flight fears

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One part of yesterday’s package says the time needed to get an investment permit for business in an industrial estate will be cut to just three hours, from far longer.

David Sumual, economist at Bank Central Asia, said it’s unclear how effective moves to speed permit approvals will be “since people in the field may not be ready”.

He also said he had hoped for an announcement on a tax amnesty programme or reduced corporate taxes “because that will be more helpful”.

On Monday, Indonesia media quoted a minister saying Indonesia plans to cut corporate income tax to 18 percent from 25 percent next year.

Indonesia had annual growth of 4.67 percent in the second quarter, the slowest pace in six years.

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Mainland power use rises slightly Jan-Aug

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sia’s richest man Li Ka-shing voiced support for Chinese president Xi Jinping yesterday and rejected claims he was divesting assets from China after a barrage of media articles accused him of turning his back on the mainland.

In January this year, Hong Kong-based Li overhauled his business empire to create two listed companies - one focused on property and the other on telecoms. This saw a shift in the incorporated base of his two main firms to the Cayman Islands from Hong Kong, fuelling speculation the tycoon was pulling out of China.

In an emailed press release sent on September 29, Li said he resolutely supported China’s path to reform and opening up.

“Li has great confidence in China and greatly admires Xi’s leadership style,” the statement said.

It cited billions of dollars spent by Li and his family in greater China for education, innovation and medicinal research purposes.

His comments come a week after official Chinese media made pointed commentaries about his business decisions.

Li’s family sold more than US$2 billion worth of assets in China last year, including property in Shanghai, Nanjing and Beijing.

hina will set an annual cap on cash withdrawals overseas using domestic bank cards, state media said yesterday, as fears over capital outflows in the world’s second largest economy grow.

China UnionPay -- which provides almost all the country’s bank cards -- will limit annual withdrawals to 100,000 yuan (US$16,000) each year, China National Radio (CNR) said.

Effective from the start of 2016, the limit comes amid reports that investors are increasingly moving capital abroad in search of higher returns as economic growth slows.

The restrictions are aimed at “further enhancing the work on anti-money laundering and the prevention of financial risks”, CNR cited UnionPay as saying.

The card provider currently caps the amount of cash users can withdraw overseas at the equivalent of 10,000 yuan per day.

State regulators have ordered financial institutions to boost controls on foreign exchange transactions, reports said this month.

Worries about financial outflows from China have deepened since the government last month moved its currency almost five per cent lower in a single week.

hina’s electricity consumption, an important indicator of economic activity, rose slowly in the first eight months this year, suggesting economic headwinds, official data showed yesterday.

Power use rose 1 percent year on year to 3.68 trillion kilowatt hours in the Jan.-Aug. period, the China Electricity Council said.

In the first eight months, electricity use by primary industry climbed 2.3 percent from a year earlier. Power consumption by secondary industry went down 0.7 percent, while tertiary industry saw a 7.5-percent rise amid economic restructuring.

Meanwhile, residential power consumption grew 4.3 percent year on year.

The decline in power usage in secondary industries indicated continued downward pressure on China’s industrial sector, said Shan Baoguo, with the State Grid Energy Research Institute.

He attributed the broader slowdown to sluggish external demand and a slowdown in exports, which dragged down industrial production.

The figures for August, in which power use grew 1.9 percent year on year to 512.4 billion kilowatt hours, provided a more encouraging suggestion of recovery.

Reuters

AFP

Xinhua