Beware of Hainan’s ‘cashless casino’
Year I Number 251 MOP 6.00 Monday April 1, 2013 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: Vitor Quintã
Ben Lee, managing partner at IGamiX Management & Consulting Ltd, believes Macau shouldn’t be too complacent about its current role as mainland China’s only destination for legal casino gaming. In an interview with Business Daily, Mr Lee says the central government is sending clear signals that Macau needs to diversify its industry. He believes Hainan’s so-called ‘cashless casino’ will probably resume operations under a different name.
Pages 6 & 7
Air Macau spending MOP1 bln on new planes A
ir Macau is introducing more aircraft and more routes to try and seize a bigger share of the growing regional air travel market. The carrier would consider flying to Zhengzhou, capital of Henan province, and Vietnam in the coming months said Zheng Yan, its chairman, at the inauguration of an additional Airbus 321 aircraft. Just 16 months ago the airline was actually ‘wet leasing’ its own aircraft and crews to the national carrier Air China. But the competence of Air Macau flight crews came under scrutiny after a leased service between Beijing and Hong Kong flew for more than an hour with its ground communications system switched off. Two months later the Civil Aviation Authority of Macau ordered Air Macau to suspend its system for promoting pilots to captain. More on page 5
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Home price high turns buyers to Zhuhai
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Home prices in NAPE reached a new peak in February. The average price of a home in that area of the Macau peninsula was 110,741 patacas (US$13,850) per square metre – the highest since the Financial Services Bureau started compiling monthly figures. The real estate industry thinks the continued trend of record prices in many areas will help push more residents to live on the mainland.
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UN calls for Macao Water profit dive: govt ‘considers’ action on universal fee rise The Maritime Administration is still reviewing Macao Water’s request for a 26.2-percent hike in service fees. The utility made the request last May. It anticipated there would be a shortfall between the cost of producing and supplying drinkable water and the price it would get from the administration. But a rise would probably be a political hot potato.
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The United Nations’ Human Rights Committee says it “regrets” Macau has not yet pledged to institute one-personone vote in “genuine” elections. The remarks are in response to the city’s human rights report delivered by Macau government representatives in midMarch. The UN committee asked Macau to outline an action plan for “an electoral system based on universal and equal suffrage”. Page 8
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business daily April 1, 2013
macau Thirty-one flats in the NAPE district were sold for a record price in February
Home prices in NAPE hit new record high
Investors paid in average 12.9 million patacas to buy an apartment in NAPE, even as citywide prices dropped in February Tiago Azevedo
ome prices in the NAPE area reached a new peak in February even though citywide prices for residential units fell from the previous month. The average price of the residential units sold citywide in February fell by 5.6 percent from the month before to 70,385 patacas (US$ 8,803) per square metre (6,541 patacas per square foot). A total of 816 homes were sold in February. But prices remained well ahead of 2012 levels, increasing by 70.8 percent year-on-year, according to data released by the Financial Services Bureau on March 28. The annual increase was fuelled by home sales in the NAPE area. The average price of a home in that area of the Macau peninsula was 110,741 patacas per square metre, the highest since the Financial Services Bureau started compiling monthly figures in January 2010. A total of 31 transactions were recorded in NAPE in February, with the units averaging 117 square metres in size. That puts the average price tag of each apartment at roughly 12.9 million patacas. “NAPE is a typical prime location, close to the business district and the heart of the gambling area on the peninsula,” said Ronald Cheung Yat Fai, Midland Realty (Macau) Ltd managing director. “In that district you have several prominent [housing] developments, such as One Central, L’Arc and now Paragon, which can easily push prices up with only a few transactions,” he
told Business Daily. The Paragon is a high-end housing project being built close to MGM Macau. The project will be ready by December 2014, according to the website of Centaline (Macau) Property Agency Ltd. “As far as I know, second-hand homes at One Central are being sold for more than HK$10,000 per square foot,” said Mr Cheung. The developer of the Paragon might be rushing to sell some units before new regulation on sales of unfinished housing is introduced, he said, adding that that might have pushed prices in NAPE to a new record peak. “It does not mean that prices for the whole [NAPE] area went up. But that is the effect of just a few transactions,” said Mr Cheung.
supply of unfinished flats. While it would be usual for developers to set a lower price to sell their unfinished flats, Mr Cheung says that is not the case here. “They don’t have to lower their prices because there is not enough supply. There is no second-hand stock and homebuyers are forced to buy these new properties,” he said. In the fourth quarter of last year 85 private housing developments, together meant to contain some 7,200 homes, were under construction or awaiting government permits, official data show. The sale of new and luxury residential units in the Pearl Horizon development, in the Areia Preta district, is also keeping the average
Ahead of the curve The government has introduced new curbs on the property market, sending buyers rushing to buy before the measures meant to deter speculation came into force. Estate agents say the market has been more active in recent months, mainly on sales of unfinished flats. Some developers are keen on pre-selling their projects before the enactment of a bill on sales of unfinished housing, which is now going through the Legislative Assembly. They fear that stricter rules may slow the process of obtaining permits for new housing, so constricting the
MOP 110,741 Average price per square metre of residential units sold in NAPE in February
price of the square metre above the 70,000-pataca mark. Some of the units in the high-end housing project will only be ready in 2015. A total of 239 flats were sold in that district in February, for an average price of 91,533 patacas per square metre, official data show. Some of the Pearl Horizon units are being sold for as much as HK$10,000 per square foot, according to estate agents. The Secretary for Transport and Public Works Lau Si Io said last month that the government might consider drawing up new measures to cool down real estate speculation if necessary. Mr Cheung believes the government might be under pressure to introduce further curbs, following the steps of Hong Kong and Guangdong province. The neighbouring city has doubled the tax on sales of property costing more than HK$2 million and tightened restrictions on mortgage lending for commercial property and parking spaces. But it can’t be one-size-fits-all markets, warned Mr Cheung. “The measures introduced here in recent times, like the special stamp duty, had an impact on the volume of transactions, but not prices,” he said. “I believe in due course they [the government] will launch new measures, but they have to be finetuned to the market here.” But it would be much more important to increase home supply than to further curb transactions, Mr Cheung said.
April 1, 2013 business daily | 3
Investors can’t resist lure of cheaper mainland flats Restrictions have done little to curb investment in property on Hengqin Island
Read their lips Michael Grimes
he soaring cost of housing here will drive more Macau residents to buy homes in mainland and they will move there in the long term, according to people in the real estate industry. “Nowadays you need at least 5 million patacas [US$625,000] to 6 million patacas to buy a new flat here, but you can buy a much bigger one in the mainland on the same budget,” the chairman of the Macau International Property Association, Zhang Jinhua, told Business Daily at the weekend. “There is a big gap between flat prices in the two places. A flat in Macau is at least three or four times more than a flat in the mainland.” Mr Zhang was speaking on the sidelines of the Macau International Real Estate Fair. The fair brought together 19 property developers for a three-day promotional event that ended yesterday. Most of the developments on show were in Guangdong, either in central or western Zhuhai or in Zhongshan, further north. M r Zhang said Z huhai and Zhongshan were both popular with Macau people. The average price of housing in Macau was 70,385 patacas a square metre in February, 71 percent more than a year earlier. In contrast, space in one of the housing developments marketed at the fair, Zhongshan’s Grand View, cost about 7,239 patacas a square metre. “We will even provide free interior decoration and electrical appliances worth over 10,000 yuan,” a Grand View sales representative said. “This project is quite popular
among Macau residents, mostly for investment purposes or vacation homes, accounting for 50 percent of total sales.”
Unlimited demand Sales representatives that Business Daily spoke to said many investors were impressed by the comfort and natural environment of property developments in the mainland. “In the past Macau people usually bought a flat in Zhuhai to get a cross-border car plate,” said the sales supervisor for mainland developer Comwell Group, Lin Hui. The provincial government revoked last year a measure allowing Macau buyers of flats in Guangdong valued at more than 1 million yuan to have vehicle registration plates valid on both sides of the border. “But there are still many purchasing homes now despite the cancellation of this measure,” Ms Lin said. She said the mainland’s attempts to cool its housing market had done little to reduce the eagerness of Macau buyers. “The curbs limiting sales to outsiders were targeted at Xiangzhou, not a p o p u l a r s p o t fo r Ma ca u investors, whereas the latest measures are more targeted at second-hand flats,” she said. In November 2011, the Guangdong government banned people from outside the mainland, including Macau residents, from owning more than one home in Xiangzhou, in the centre of Zhuhai. The provincial government also capped the prices for housing at 11,285 yuan a square metre.
The Macau International Real Estate Fair was held at the weekend
Mr Zhang said buyers of homes in the mainland were still plentiful. “The effect is limited, as they are still a worthy investment vehicle, even though the costs have increased,” he said. Beijing took further measures in February to rein in the mainland housing market, imposing capital gains tax of 20 percent on the proceeds of the sale of second homes within five years of their being purchased.
Retirement homes Mr Zhang sees “a very obvious trend” for more Macau people buying flats in the mainland to live there. “The offered price is attractive, the transport is more convenient and there will be more policies facilitating integration, like on Hengqin,” he said. The director of the communication and cooperation bureau of the Hengqin New Area, Liu Yang, said officials would strive for better conditions for Macau residents investing and living on the island. At the fair’s opening ceremony, he promised that the HengqinMacau border would be open around the clock, and that Macauregistered vehicles would be allowed onto the island. Sea of Dreams is being marketed as the first high-end housing development on Hengqin. It will be about 500 metres from the border crossing, and the project is popular among investors from Macau, according to state-run developer Huarong Real Estate Co Ltd. Lao Ngai Leong, a Macau deputy in the National’s People Congress who, helped to present the project at the fair, said almost 1,000 Macau residents had expressed interest. Sales of the 12,000 square metres of space in the development, divided into more than 1,800 flats, have yet to begin. Prices and the completion date have not been set. “The Sea of Dreams project definitely caught my attention,” said Sandy Kuok, a Macau resident at the fair. “But living there? I will consider it when I am retired and very old.”
ere Macau a country, then shooting the messenger would be something akin to a national sport. Simply rubbishing the bearer of less than optimal news used to be enough to invalidate the message. Now there are so many voices with so much to say about Macau that it’s impossible to stop bad news from leaking out. “So far it [speculation on a further junket crackdown] has only been arising from amongst the media,” Pansy Ho Chiu King told reporters at the ground breaking ceremony for MGM Cotai in late February. “There has never been really any real concrete and clear indication that there were to be a direction from the government [on that],” she added. That could be an echoing of the default position of the local elite, i.e., ‘The problem is with the messenger, not the message.’ Or it could be a question of whistling to keep one’s spirits up. For the co-chairperson of a listed casino firm to admit there might be a junket crackdown would be to risk sending stocks into a tailspin. But even if we take the sound bite at face value, exactly what “concrete and clear indication” would the city’s gaming industry leaders like that something fundamental is changing in the city? What about a message spelled out in giant whitewashed stones on the side of Taipa Hill? Or how about a light aircraft trailing coloured smoke (in red naturally) as it zigzags across the sky? In order to reinforce their political position at home, China’s new leaders have to be seen to be doing something about officials’ corruption and social inequality across the country. The local casino sector – as regional representative of what is the ultimate service industry to economic bubbles everywhere – will probably have to shoulder its share of that. Being seen to do something however is not quite the same as actually doing it. Even if China’s hornets’ nest of luxury watch-wearing public officials, Cohibachomping managers of state enterprises and Ferrari-driving princelings and real estate entrepreneurs is too dangerous to tackle en masse and head on, it’s likely examples will be made of a few. That’s business as usual. But something else seems to be happening, and it could have a profound impact on Macau. The central government seems to be taking a more active and direct involvement not only in Macau’s casino industry, but also the city’s macroeconomic development. That doesn’t mean a backstairs coup. Governance in China generally works in signals and code sent from the centre to the regions. The messages keep coming. They include: that the previous pace of inward capital flows to Macau – especially from mainland high roller gamblers – was too fast (cited as evidence, the closer relationship the central government now seems to be forming with the casino junkets and the greater scrutiny of them); that ‘economic diversification’ doesn’t just mean a nicer shopping mall for the tourists and slower growth in gaming table numbers – it means a broader base to economic activity here in case tourism takes a downturn for any reason (evidence, the remarks by vice premier Zhang Dejiang – tipped as the next head of the Hong Kong and Macao Affairs Office – to Macau delegates at the National People’s Congress last month, and the comments of Xi Jinping at his first presidential meeting with Macau’s Chief Executive); and last but not least, that Macau cannot assume it will be – indefinitely – the only game in town for China as far as legal casino-style gambling is concerned (cited as evidence the strange case of the on- and then off-again ‘cashless casino’ in Hainan). It’s possible all the above ‘evidence’ is a gross misreading of the situation. But if there’s one thing at which local politicians and businesspeople are experts, it’s the hedging of bets. Why wouldn’t they be sitting up and taking notice, however many bullets they may wish in coming months to fire in public at the media’s messengers?
business daily April 1, 2013
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HOSPITALITY Highly concentrated Measuring tourist numbers at the start of the year is tricky as it includes the Lunar New Year holidays, a peak season for holidaymakers, whose occurrence changes each year. Combining the data for January and February allows a better base for comparison against the preceding year’s figures. The data for the first two months of this year show the number of tourists is increasing, albeit at a slower rate than last year. The number of tourist arrivals in the first two months of this year was 2.1 percent higher than a year earlier, an increase of 96,500 people. In the first two months of last year, tourist arrivals increased by 8.3 percent over the previous year, an increase of 350,000 people.
Govt says profit key to water price rise The Maritime Administration is weighing up Macao Water’s request for a 26.2-percent increase in its water supply fee Tony Lai
Maritime Administration director Susana Wong says more time is needed to consider Macao Water’s request for a price increase
Last year and 2011 were similar. Tourist numbers were seasonal, August being the busiest month. There were two smaller but distinct peaks, in December and April. The troughs were in June, September and at the beginning of each year: in January if the Lunar New Year holidays fell in February, or in February if the holidays fell in January. The proportion of tourists from the mainland increased by more than 6 percentage points last year and in 2011. That increase more than offset decreases in the numbers of tourists from Hong Kong and Taiwan. These three main source markets combined sent Macau 90.7 percent of all tourists. J.I.D.
Proportion of tourists in January and February from Greater China
he Maritime Administration of Macau has said it will take into account the declining profitability of Macao Water Supply Co Ltd when considering the utility’s request to increase its service fee. “We’ve never said we would not approve Macao Water’s request but we just need a little bit more data and time to look at its performance from different aspects,” the director of the Maritime Administration, Susana Wong Soi Man, told a press conference on Friday. Macao Water asked last May for an increase of 26.2 percent in what the government pays it to supply the city with water. In March, Ms Wong said an increase of a 26.2 percent was too much. In February, Macao Water executive director Felix Fan Xiao Jun said the government was dragging its feet. “This is no way to solve any problem,” Mr Fan told reporters. Macao Water said last week that rises in the costs of raw materials, electricity and labour had made it less profitable. The company’s after-tax profit fell
by 12.6 percent last year to 49.43 million patacas (US$6.2 million). Ms Wong said on Friday that the fall in company’s profit last year would be a “major consideration” for the government. The Maritime Administration was also considering other factors, including the results of an independent survey last year of customer satisfaction with Macao Water’s service, she said. She declined to say when the government would decide on any increase, or to speculate on how big any increase might be.
Social responsibilities Ms Wong rejected any comparisons between the Maritime Administration’s handling of Macao Water’s request and its handling of requests to increase fares from ferry operators Turbojet and Cotai Water Jet. “They are two different industries and we have different ways to handle different situations,” Ms Wong said. “The ferry operators face huge operational pressures and they had nearly no profits, as their financial
results show,” she said, referring to their results for last year. The ferry operators had to wait seven months for a decision on their requests, and even then they were disappointed. Both complained that the fare increases averaging 6 percent approved by the Maritime Administration were far below the 13-percent average increase they had wanted. Ms Wong said the Maritime Administration had not received their complaints but had noted their expressions of dissatisfaction. “As public service companies, they have to shoulder their social responsibilities, such as considering the affordability of their services,” she said. Shipping and property conglomerate Shun Tak Holdings Ltd, Turbojet’s parent company said its transport division’s operating profit increased sevenfold last year. “The transportation division collectively posted HK$65 million in operating profit, which represents a 743 percent year-on-year improvement,” Shun Tak told the Hong Kong Stock Exchange last week.
April 1, 2013 business daily | 5
MACAU Air Macau has begun flying to two more mainland destinations this year, with a new route due to start tomorrow
Air Macau seizes mainland chances Higher capacity on routes to the mainland helps lift the airline’s first-quarter revenue by 15 percent Tony Lai
ir Macau Co Ltd hopes to begin flights on at least one more route to the mainland this year, its chairman, Zheng Yan, has said. Mr Zheng was speaking to journalists during a ceremony on Friday to mark the entry into service of a new aircraft. He said Air Macau would consider introducing services to Zhengzhou, the provincial capital of Henan, and to Vietnam this year. The airline has already commenced flights to Shenyang and Wenzhou this year and tomorrow begins flying to Jinjiang in Fujian. “As you can see, our development still relies mainly on the mainland,” Mr Zheng said.
“Currently, the mainland market is very good due to relatively high economic growth and more visitors coming to Macau.” “We hope to mark out our network of destinations in the mainland first, as there are limited routes there. If you don’t seize the opportunities first, you may not get the chance again.” Mr Zheng said the airline had performed better in the first quarter of this year than a year earlier, helped by new services and aircraft. “Our capacity has increased by at least 15 percent so there is also a corresponding rise of over 15 percent in revenue so far this year,” he said. Air Macau put one new Airbus A321 into service in February and another on Friday. It has leased both for 12 years. “These better suit market needs,” Mr Zheng said. The new planes have 24 seats in business class. The airline’s older A321s have 16 seats in business class.
KEY POINTS Air Macau considering new routes to Zhengzhou, Vietnam Adds two leased planes to its fleet Plans to buy two more aircraft in 2014 and 2015 Profit jumps by 8 percent to MOP286 million
Air Macau plans to buy two more aircraft, each costing between US$56 million (448 million patacas) and US$60 million. It will buy one next year and the other in 2015. The airline now has 14 aircraft. It uses them on 22 routes, 16 to places in the mainland. “We have evolved from a period of fighting for survival to a development period,” Mr Zheng said. “In the survival period, profit was our uppermost consideration, but in the development period … we will invest more in building foundations.” The airline will invest in better
technology and safety systems, and in increasing and improving its workforce. Air Macau’s profit rose by 8 percent last year to 229 million yuan (286 million patacas), a record, according to the annual report of its major shareholder, Air China Ltd. Air Macau has now made a profit three years in a row, having been in the red from 2005 to 2009. “The economy remains good, so overall it provides a healthy environment for Air Macau,” said Mr Zheng. He said more services had helped drive up passenger revenue. The number of passengers Air Macau carried surged by 15.9 percent last year to more than 1.6 million people, increasing its passenger load factor by 1.2 percentage points to 66.9 percent.
Authority of Macau, Simon Chan Weng Hong, said the airport here would be developed to attract more international airlines to use it. The authority is finalising a master plan for the development of the airport. Mr Chan said the plan would soon be ready for the Executive Council to consider, after which it could be released to the public. A preliminary plan released in 2011 envisaged an expansion of the airport so it could handle 5.6 million passengers a year by 2015, followed by gradual expansion so it could handle 15 million passengers a year by 2030.
Easy does it But Mr Zheng said the airline’s cargo business had slumped since it stopped leasing two freighters. The amount of cargo carried by the airline fell by 31.5 percent last year to about 12,430 tonnes, decreasing its load factor by 5.8 percentage points to 32.5 percent. Mr Zheng said air freight had generated roughly the amount of revenue the airline had budgeted for. “But its development was hindered by the overall market,” he said. He said the company would put its development plan into action “gradually” as Macau’s aviation market “does not particularly have very great potential”. The president of the Civil Aviation
Currently, the mainland market is very good, due to relatively high economic growth and more visitors coming to Macau Zheng Yan, chairman, Air Macau
business daily April 1, 2013
Beware of Hainan’s ‘cashless casino’
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Tale of two sexes The unemployment statistics typically show distinct trends for men and women. Unemployment tends to be lower among women. One reason is that women are more sensitive to changes in the labour market – in particular, changes in pay. As a result women have lower participation rates and shorter and more irregular links with the labour market. Although Macau’s economy has some unusual characteristics, its labour market displays some of these patterns of behaviour. Within the general patterns, there are some unique trends fuelled by the specific conditions of the economy at any given moment.
Between 2008 and the beginning of 2010, changes in the size of the employed work force were more extreme than between 2010 and the end of last year. The size of quarterly changes in unemployment decreased as the uncertainties generated by the global financial crisis of 2008 wore off and the market stabilised. Quarterly decreases in unemployment became more common than increases, and the cumulative number of people returning to work outweighed the occasional increase in unemployment. These trends were possibly also reinforced by an increasing smaller pool of available labour, which made changes harder to achieve and more costly. There were fewer people remained unemployed for long. This was true for both men and women. But the trend toward more stable employment had more ups and downs among women than for men. Where unemployment bucked the trend, it did so more drastically among women than among men. And unemployment among women and men bucked the trend at different times. The statistics suggest unemployment among men and unemployment among women retains consistently distinct characteristics. J.I.D. The content of this column is the work of Business Daily’s journalists.
2,400 people Fall in number of unemployed in Q4 2009
Ben Lee, managing partner at IGamiX Management & Consulting Ltd, believes Macau shouldn’t be too complacent about its current role as China’s only destination for legal casino gaming. In an interview with Business Daily, Mr Lee says the central government is sending clear signals that Macau needs to diversify its industry. The central government could be considering some relaxation of its policy of protecting the city from competition. He believes Hainan’s socalled ‘cashless casino’ will probably resume operations under a different name, and will possibly divert some mass gaming revenues from the territory. Luciana Leitão
Photo by Manuel Cardoso
What are your expectations for the gaming industry in Macau? My expectations this year are for cautious growth, in that I think we have seen very strong directions from China, via the Macau government, about controlling the growth of the gaming industry. We’ve seen attempts in the past, i.e., the freezing of new casino permits, the table cap and a couple of other measures. But we’ve seen the gaming industry has, in more ways than one, grown beyond the ability of Macau government to control it. The signals coming out from China – if you read the newspapers or the media channels closely every day – are of constant talk about diversification, diversification and more diversification. It takes a blind and deaf man not to realise that China wants Macau to wind away from gaming. Whether that can be
done is another question. That will have repercussions firstly for overall growth that we are likely to see here in Macau in terms of gaming revenue; and number two in terms of the growth of the VIP segment. Even though you and other analysts talk about controlled growth, Macau continues to achieve monthly records. Why is this still happening? My theory on that is, in terms of month-to-month, you’ll get volatility, as is normal in gaming. You cannot measure gaming in terms of days or weeks or even months or quarters. The casino mass is such that you will see stability over a long period of time, we’re talking about years. So point one, in terms of month-tomonth, there is a certain amount of volatility. You have the ‘lumpiness’ factor, i.e. high [casino] hold
rates, or sometimes low hold rates. Specifically in this month [March] the casinos are believed to have had a very high win rate. On top of that, there is talk that the VIPs are starting to come back. The second point to me is a little bit of concern. It is good for Macau shares in the short run, but in the long run it’s actually not good if monthly volatility in VIP turnover – the total amount the big players roll – continues. The VIPs might be coming back, but should we be, instead, focusing on the mass market? That is the traditional take that has been adopted by everybody else, that the mass market should be greater. That is the politically correct line to take. And I won’t dispute that. That is the ideal direction and target for Macau. The reality is that if you’re going to
April 1, 2013 business daily | 7
MACAU look at the gaming industry in Macau, there are certain inherent structural factors that will always work in combination to result in a different scenario than that of the ideal. For starters, a small handful of big players will always drive the market and move the direction, the needle, in favour of the VIP. That is lesson number one. Number two is that we are right next door to China and we are the only destination for the Chinese high-rollers to go to where the procedures and channels have been established for a long time, and are very easy for them to be able to gamble in Macau. I’m talking about factors such as connections, the ability of the junkets to move big numbers of high rollers, and to be able to help those gamblers facilitate their funds transfer to Macau. And number three business conditions in Macau offer the ability to offer players credit and have the ability to collect on that credit at a later point in time. Look at any other gaming jurisdiction around the world. The number of jurisdictions where we have all those three factors – especially if we are talking about players from China, I would say it’s close to zero. So, the VIP market in Macau is a natural for China and will always be a natural for VIPs in China, until such time as other jurisdictions which border China come into play, and I’m talking about the possibility of Taiwan, maybe [South] Korea, but then you have got other complications there as well. Why is the best scenario to have the mass market outgrowing the VIP? It’s a combination of factors. The VIP sector, unfortunately, has attracted a lot of negative sentiment and exposure, particularly from the international media. You cannot pick up a newspaper without reading about certain American operators and their troubles, and their dealings with junkets, about the U.S. State Department and all other international bodies talking about money laundering. It is something that China does not need right now and does not want to see right now. They also see large quantities of cash [moving] from China into Macau, whether it is via gaming or via underground money transfer channels, which by the way is not only restricted to Macau as it is also going to Hong Kong. Previously the political inclination was to support Macau and Hong Kong, after the SARS [severe acute respiratory syndrome] epidemic, via dual means. Hong Kong was going to be tourism and Macau was going to be gaming. I don’t believe at that early point in time they [the Chinese government] foresaw such a huge volume of money would start moving into Macau [from the mainland]. We’re starting to see indications and signals from China that they want Macau to move away from gaming. Now, Macau hasn’t been able to do that. I think the pressure has intensified and there is a possibility that China may be saying ‘we may want to develop some of our own other provinces and allow them to perhaps have gaming in 10 or 20 years time’. So, we have seen the rise of the casino concept in Hainan, and also, the cashless poker club in Beijing. You may take that as a very early indication that the mainland Chinese government is reviewing its stance in terms of what kind of support is willing to give to Macau in order to stand on its own two feet.
If China withdraws its support, what will be the impact of that? I don’t think China will withdraw its support [for Macau]. I don’t think that’s politically acceptable to either side. But China may reduce its support. We will no longer see the 40 percent year-on-year growth that we’ve seen in previous years. We may see a small and sustained natural growth, which is why I say Macau will see a cautious growth. In terms of more specific impact, let’s just imagine – hypothetically – that the cashless casino in Hainan resurfaces, perhaps in six months time. If it does, they [the Hainan authorities and the investors] won’t call it a ‘casino’ any more. I think the word ‘casino’ will be removed’ I think we may it see under another title like ‘amusement lounge’. Under that scenario, Hainan will probably attract more of the mass market. By doing that, it may actually undermine Macau’s direction. So, the cashless casino will impact Macau? Correct. The potential impact is it will hinder Macau from trying to diversify into the mass market. But the term ‘mass market’ brings up other issues. There are at least two interpretations of what’s meant by ‘mass market’ or indeed ‘diversification’. Diversification ideally – from the central government’s viewpoint – should be into non-gaming, into other [economic] areas. We’ve also seen diversification has been interpreted by certain Macau government officials to mean more mass gaming revenues, as opposed to VIP revenues. If you take that second definition, I would say there’s a chance Macau could suffer if gaming grows in Hainan. Mass gaming revenue could be diverted to Hainan, because they [players] no longer have to come to Macau if they want to play. Hainan has got a lot to offer as well, in terms of non-gaming facilities. They have a lot of hotel rooms and a lot of other amenities that we just don’t have here in Macau, because of the infrastructure, the lack of labour, the relative underdevelopment of a service culture. My prognosis is if Hainan were to happen, we would definitely get less mass market to Macau and we may actually have more VIP – not more in terms of absolute numbers, but more in relation [proportion] to the mass market. VIPs will not want to go to Hainan, they will still want to keep coming to Macau, so the slowly narrowing gap between VIP and mass [revenues] in Macau may actually widen. In Hainan, they opened the cashless casino and then the government closed it. If you say it is their intention to have it, why was it closed? You’ve got to bear in mind it was opened in September and it was going along smoothly until it made too much news. It made the spotlight. That’s something the mainland China government didn’t want, so they shut it down quietly. However, the communication I’ve been getting is it will probably resume at a certain point in time, maybe six months from now, without the word ‘casino’ in it. After all, there are no winnings, you play for points. It is a pure entertainment concept. Now that in itself it is not a first, there are similar such concepts in Japan you’ve got the pachinko, which is not gaming but everybody knows that you can take the gifts you win and switch them for cash and they’ve also had a couple of cashless
casinos in Tokyo as well, whereby you play to win chips but you can exchange them for cash. If China is sending a signal that Macau should push for diversification, why, up to now, have we failed to achieve it? Gaming is the lowest hanging fruit. And it’s not just the government [at fault]. It’s at all levels, down to the man in the street. Why bother trying to create something else, when the return is very negligible? You’re not rewarded in immediate returns in the way you are with the gaming industry or serving the gaming industry. We need strong leadership and vision from the Macau government, and the ability to basically send a message out clearly and loudly saying ‘Look, we’ve got to change, all of us have to change, we have to start thinking beyond gaming, beyond the quick buck’. Macau, contrary to Singapore, has a very liberal policy toward the junkets. Is it possible for the territory to try, at least, to control the junkets that come to Macau? It is always possible. It is the degree to which the government is willing to exercise that control. It’s not impossible at all. It’s just a matter of tighter regulations and more enforcement. I think the key is the word ‘enforcement’. Having said that, given 70 percent of our gaming revenues is driven by the VIP segment, do we really want to do that? If we do, it will have a significant impact on the gaming industry here; and there may be
potential consequential fallout from that. In the past few years, we’ve seen a growth in the VIP, probably a bit stronger than perhaps China would like. I think China is probably trying a new strategy now. That is to establish direct communication lines with the junkets. Previously, they’ve relied on official channels – the Macau government and the DICJ [regulator] –, to try and monitor this particular industry. I believe there was a dinner last year at Sands Cotai Central attended by all the junket operators, without the casino operators present. That is clearly an indicator that China is moving to establish direct communication lines with the junkets, so that at any point in time they can send a signal through the junkets ‘this is what you can do’. A couple of top junkets have since fallen from grace. One of the junkets that used to be the number one has fallen to four or five, in terms of growing [betting] volume. The current number one has been highlighted as possibly linked to the Bo Xilai case [a former party boss in Chongqing]. At the same time, the current number two junket [boss] has been nominated to the CPCC [Chinese People’s Consultative Committee]. This month’s [revenue] record may be a short-term blip. Let’s see what happens in the next two months. If it continues as strong then I would probably say it is not a good thing. If it dips down, as I expect, then cautious growth I think will prove to be a good thing for Macau in the long run.
Is not about disabilities. It’s about celebrating abilities
April 22nd-27th 2013
business daily April 1, 2013
macau Macau presented a report on its human rights situation last month
Four HR matters in mind Zen Udani
Assistant Professor of Management, University of Macau
UN calls for action on universal suffrage Human rights body also concerned over lack of protection for non-resident workers Stephanie Lai
he United Nations’ Human Rights Committee “regrets” that Macau has not yet pledged to institute universal suffrage to ensure the public’s right to vote in “genuine” elections. The remarks are in response to the city’s human rights report delivered by Macau government representatives in mid-March. The UN committee asked Macau to “outline a clear and comprehensive plan of action and set timelines for the transition to an electoral system based on universal and equal suffrage”. The committee also called for the territory to consider full – rather than qualified as at present – acceptance of the International Covenant on Civil and Political Rights. The covenant article in question says every citizen should have the right to vote by universal and equal suffrage. In response to the UN, the cabinet of Secretary of
Administration and Justice Florinda Chan stressed Macau’s right to maintain the reservation. “The current electoral system is in line with the MSAR’s actual conditions and it does not contradict the application of the covenant here,” said the secretary’s office in a statement. In the concluding observations, the Human Rights Committee said it “regrets the lack of concrete information on the effective functioning of the ombudsman mandate” of the Commission Against Corruption (CCAC). “The commissioner is appointed b y the ch i ef ex ecu ti v e, wh i ch might affect the independence of the institution from the executive power,” said the committee. In the observations released on March 28 the body suggested Macau establish a new and independent statutory human rights institution. Ms Chan’s cabinet replied Macau has “no need” to establish
an independent human rights supervisory body. “Bodies like CCAC, the Office for Personal Data Protection and the judicial aid system in effect starting April 1 offer sufficient protection on human rights already,” said the Macau official. The independence of the graft watchdog “is not affected” by the chief executive’s appointment of the commissioner, the secretary’s cabinet spokesman added. The United Nations committee also expressed concern over the power granted to the National People’s Congress standing committee to interpret the territory’s Basic Law. Ms Chan’s cabinet maintained its ground, saying this provision “does not affect the MSAR’s judiciary independence, rule of law or high degree of autonomy”. The UN committee criticised Macau over the absence of formal contracts for some non-resident workers, the excessive fees charged some non-resident workers by some recruitment agencies and the low wages many receive. Imported workers lack effective legal recourse against unfair dismissal and unpaid wages, the UN statement adds. It also calls for measures to tackle a gender-related gap in wages. Macau has been asked to provide information on how it can adopt these recommendations within one year. The People’s Republic of China is a signatory to the covenant. Macau – as a Special Administrative Region of China – is subject to mandatory periodic reporting to the UN Human Rights Committee. The city’s next report is due by 2018.
Melco Crown JV partner sees profits up 300 pct
elco International Development Ltd – a 33.7 percent shareholder in the Macau casino developer and operator Melco Crown Entertainment Ltd – reported a threefold increase in profit during 2012. Profit attributable to Melco International’s owners in the 12 months to December 31 amounted to HK$1.12 billion (US$144.3 million) compared to HK$280.10 million a year earlier, it said in Hong Kong filing. The pre-tax profit contribution
from MCE to Melco International was HK$1.18 billion due to “the continuing growth in [the] Macau gaming market,” added the filing. Melco International’s basic earnings per share for 2012 rose 273 percent to 85.07 Hong Kong cents, compared to 22.79 HK cents in 2011. Net asset value per
share attributable to owners of the company increased by five percent year-on-year to HK$6.12 from HK$5.83 the year before. The firm said its gearing ratio (equity or capital to borrowed funds) improved to five percent as of December 31, 2012 from 17 percent in 2011. M.G
here are four human resources (HR) matters that should be of utmost concern for companies in Macau. These are having the right people they need at the right time, attracting valuable talent, retaining excellent employees and enhancing employee engagement. Despite the rigorous HR planning companies may do, selecting the right candidate is conditioned by the quality and quantity of local human resources, labour law restrictions and compensation package offered by companies. Judicious HR planning and recruitment should lead companies to search for talent among the best graduating students in the higher education institutions of Macau. Job fairs are not enough. Spotting the best students through companysponsored leadership programmes would be a good strategy. Attracting the best applicants would depend on the value proposition of companies for potential employees. Sensible employees look for long-term careers and not just high-paying jobs. Valuable employees seek to be useful in their jobs and happy at the same time. Thus, it is time for companies do something more concrete and positive about the issue of work-life balance. An effective work-life balance programme could be a company’s direct contribution to wholesome societal development, besides retaining talent.
For the long haul Retaining employees is definitely a serious matter among enterprises in Macau. Big and small companies alike face the problem of losing valuable talent. Salary increases, promotion and training are the usual means of keeping employees from leaving. But employees leave anyway when their expectations can no longer be met. Company leaders and managers should seriously engage in nurturing a happy, healthy and caring organisational culture that would settle the doubts of employees and help them stay for the long haul. A caring and cheerful culture could begin with a simple and sincere smile. Ken Blanchard suggests: “Today’s leaders must relearn the value of a smile or they will be unable to fire up the ability of their people to find real enjoyment in their work. So start thinking smiles until you become a smile millionaire. People will be glad to see you coming.” Lastly, getting employees truly engaged in the company helps retain them and transform them into servant leaders. Engaged employees – according to Janice Caplan in her book “The Value of Talent” – feel valued because they are respected and listened to. They are aware of their contributions to the organisation and are proud of their achievements. And they are supported in pursuing their future in the company. Managers in Macau have to work hard to enhance employee engagement. But they also have to examine themselves, to see whether they are truly engaged in what they do for others. Engaged employees will need the example of otherscentred managers.
An effective work-life balance programme could be a company’s direct contribution to wholesome societal development
April 1, 2013 business daily | 9
Xi Jinping wraps up first foreign trip New president boosts business ties in Africa, signs energy deals in Russia
Mr Xi was travelling with his wife Peng Liyuan – a first for a Chinese leader
hina’s new president Xi Jinping on Saturday wrapped up his first foreign trip that has seen him sign energy deals with Russia and scores of accords with countries in resourcerich Africa. Mr Xi ended his tour with the firstever visit by a Chinese president to the Congo, a small and impoverished country in central Africa, which has significant oil resources and other untapped mineral wealth. On his second and last day in Brazzaville he met members of the Chinese community and attended the inauguration of a Chinese-built hospital and the capital’s largest university library. Mr Xi, who was travelling with his wife Peng Liyuan – another first for a Chinese leader – on Friday inked 11 communications, banking and
infrastructure deals worth millions of dollars in the Congo. Bilateral ties already include two accords worth several billion dollars already underway, one of which will finance the building of more than 500 km of highway between Brazzaville and the economic capital on the Atlantic Coast, Pointe-Noire. These agreements add to dozens of energy deals signed between Russia and China, the world’s biggest energy consumer, at the start of the trip. Seeking to shore up ties with Africa where trade soared to US$200 billion last year, Mr Xi visited Tanzania, South Africa and now Congo, praising the “continuous progress” on the continent. In Tanzania, where he signed 16 trade, cultural and development accords, Mr Xi hailed Africa as a “continent of hope and promise” and
urged countries to respect its “dignity and independence”.
‘Sincere friendship’ Mr Xi said China would “intensify not weaken” its relationship and noted commitment to provide a US$20 billion credit-line to African nations over the next two years. Addressing leaders in Tanzania’s economic capital, Mr Xi highlighted Beijing’s “sincere friendship” with Africa. China’s relationship with Africa has caused many in the west to question the Asian nation’s motives, accusing it of neo-colonialism and overlooking abuses as it seeks oil and other natural resources to fuel its economic drive. China is already Congo’s largest trading partner, with bilateral trade ballooning to US$5 billion in 2012
from US$290 million in 2002. China’s business boom has seen financial and trade ties rocket in recent years as it sources many of its raw materials from Africa. But ahead of Mr Xi’s visit to Congo, many expressed doubt that he will bring job opportunities with him, as Chinese companies that set up shop in Africa often bring their workers with them. Xinhua said however that more than 85 percent of the staff of some 2,000 Chinese companies operating in 50 African countries are Africans. In South Africa, Xi attended the summit of the BRICS group of emerging economic powers – Brazil, Russia, China, India and South Africa – at which they agreed to launch a new development bank while failing to set up an infrastructure fund. AFP/Xinhua
Big cities to enforce new property curbs Single Beijing residents banned from buying second homes
eijing, Shanghai and Chongqing will implement strict property cooling measures as part of a central government crackdown on the overheated property market. The move comes as the central government faces renewed pressure to stabilize skyrocketing home prices in several major cities. Under the new measures, single Beijing residents will be prohibited from buying second homes. Current rules allow each household with a Beijing residence permit to buy a second home, opening the way for couples to divorce on paper to double their ability to invest. Beijing also increased the minimum down-payment for all buyers of second homes. The central government said earlier this month that in areas where property prices are rising too
quickly, local governments must strictly enforce a 20 percent capital gains tax and higher down payments for second-home buyers. Beijing’s municipal government said the tax could be waived if the family only owns one home and has lived in it for more than five years. Shanghai municipal government said in addition to enforcing the capital gains tax, it would apply greater scrutiny to borrowers who come from other cities, are foreign or divorced. The city government also issued a notice saying the city will increase interest rates for second-home mortgages, while prohibiting banks from providing credit to third-home buyers. The new rules took into effect yesterday. The municipality of Chongqing also said late on Saturday it would implement the new property cooling measures and ensure all districts are
Year-on-year prices for new homes in China rose in February
responsible for stable housing prices. In 2013, Chongqing will also ensure that the supply of land for housing will not be lower than the average actual supply of the past five years. Guangdong province said on Tuesday it would work to implement the same directive, singling out four cities, including Guangzhou and Shenzhen, which have also seen home prices rise rapidly compared with other urban centres.
On a population-weighted basis derived by Reuters from official data, Beijing home prices jumped 21.8 percent in February compared with a year earlier. Shanghai home prices were not far behind, gaining 14.6 percent during the same period. Year-on-year prices for new homes in China rose in February for a second consecutive month. Reuters/Xinhua/Bloomberg
business daily April 1, 2013
Police detain distributor in milk powder probe New incidents as China strengthens scrutiny on foreign companies
Infant formula had altered expiration dates and was adulterated with expired milk
hinese police detained a milk distributor suspected of repackaging and selling milk powder made by Swiss dairy company Hero Group that wasn’t licensed for sale domestically. The suspect was in charge of a Suzhou, eastern China-based company distributing Herobranded products. Of the 17 batches of milk powder
confiscated from the distributor, only three were qualified for sale in China. Shanghai had asked 15 supermarkets and 28 stores selling Hero’s Nutradefense formula to remove the products after the state television broadcaster reported food quality problems, the city’s food safety commission said in a statement Thursday. Lenzburg, Switzerland-based
Hero said in a statement on its website yesterday it hasn’t detected any quality or safety problems with its products. Hero’s experience mirrors incidents that affected other overseas brands as China strengthens scrutiny on foreign companies ranging from iPhone maker Apple Inc. to Volkswagen AG. New leadership took over last month in a once-in-a-decade change and premier Li Keqiang pledged on March 17 to improve consumer safety by regulating food quality and environmental protection with an “iron fist.” The Shanghai Food and Drug Administration is conducting a “through investigation” into Hero’s milk powder, the agency said in the statement on its website Thursday. Any offenders would be “severely dealt with,” it said. Hero said its infant formula sold in China is produced exclusively in the Netherlands and it hasn’t detected quality or safety violations. CCTV in a Friday report said samples of Hero’s Nutradefense branded formula had altered expiration dates and were adulterated with expired milk. The Swiss dairy company said in the statement a recent investigation by the Suzhou Institute of Supervision & Inspection on Product Quality alleged that one of Hero’s sub- distributors in China had been involved in the illegal repackaging of Nutradefense. This has been investigated by Suzhou authorities and dealt with appropriately, it said. Bloomberg/Xinhua
Taiwan is set to ease rules to allow Chinese banks to buy bigger stakes in local banks and permit more Chinese firms to invest in its financial industry, a move marking a major advance in cross-strait ties, the financial regulator said on Friday. Jennifer Wang, a vice-chairwoman of the Financial Supervisory Commission (FSC), said the proposed change would top the agenda at a meeting today with Shang Fulin, chairman of the China Banking Regulatory Commission. “The current limit is 5 percent. What we are planning to do is to raise that,” Ms Wang said.
Gillard may seek yuan deal: reports Prime minister Julia Gillard may seek a deal enabling direct conversion of Australian dollars into Chinese currency when she visits China next week, the Australian newspaper reported. Ms Gillard will attend the Boao Forum, which runs from April 6 to 8, and visit cities including Shanghai and Beijing, the newspaper said. China remained Australia’s top trading partner in January. Australia’s business sector has been seeking a deal for some time and a pact will help reduce costs, said Arthur Sinodinos, shadow parliamentary secretary to the leader of the opposition.
Quarter of US firms in China face data theft
messaging app may no longer be free U
sers of Tencent Holdings’ hugely popular mobile chatting application may have to pay fees in future to satisfy China’s three mobile telecom operators, Chinese media quoted a government official as saying yesterday. Tencent’s Weixin, or WeChat, chatting application is currently free and has more than 300 million users. The application is positioned as the next bright revenue spot for Tencent. However, media reported that Chinese telecom operators such as China Mobile Ltd, China Unicom and China Telecom Corp, are looking to charge users for the application because of its large data bandwidth use. China’s Ministry of Industry and Information Technology, the regulatory body that governs the Internet and telecommunications
Taiwan to ease rule on China firms’ deals
Over a quarter of the members of a United States business lobby in China have experienced data theft, the group said on Friday, after the two powers engaged in a war of words over state-sponsored hacking attacks. An American Chamber of Commerce in China survey of its members found 26 percent of respondents said “proprietary data or trade secrets have been breached or stolen from their China operations”. The report also singles out rising labor costs as the biggest risk to doing business in the country for the first time.
HK drops law on access to directors’ details
sectors, is looking at the possibility of users having to pay a small fee to the telecommunication operators to use the application, said Miao Wei, head of the ministry, according to Caixin Media. Experts say charging a fee could affect its popularity. Tencent, China’s largest online gaming and social networking
company, said recently it plans to invest heavily in Weixin to attract more overseas users. Chinese media also reported this month that China Mobile is in the process of developing its mobile instant-messaging application, Fetion, to compete with Tencent better. Reuters
Hong Kong’s government dropped legislation that would restrict public access to the personal details of company directors, following opposition from unions, small businesses and journalists. The Financial Services and Treasury Bureau removed such provisions from an overhaul of the city’s companies ordinance. Opponents said it would protect bosses from scrutiny and erode the city’s reputation by making it easier to launder money and cheat on taxes. Trade unions have used the database to track down runaway employers who owed wages, and small businesses use the information to conduct background checks on trading partners.
April 1, 2013 business daily | 11
ASIA Sri Lanka auctions airwaves for 4G mobile network Sri Lanka auctioned a block of airwaves to become the first country in South Asia to roll out a full nationwide mobile fourth-generation (4G) network, a top official said Friday. Anusha Palpita, the director general of the Telecommunications Regulatory Commission, said he allocated the airwaves to Sri Lanka’s largest cellular operator Dialog Axiata for US$26.25 million. He said Dialog would roll out a 4G mobile network that will allow users to download content from the Internet at speeds four to five times faster than the currently available 3G.
Japan factory dip surprises, prices keep grinding down Central bank likely to ease policy, overhaul framework this week Leika Kihara and Kaori Kaneko
New central bank governor Haruhiko Kuroda eyes 2 percent inflation in two years
apan’s factory output unexpectedly dipped in February and a fourth consecutive drop in core consumer prices underscored the challenges the central bank faces in engineering economic recovery and achieving its 2 percent inflation target. Industrial output eased 0.1 percent last month, defying expectations for a rise, while core consumer prices fell 0.3 percent from a year earlier, strengthening the case for further Bank of Japan monetary stimulus at its policy review next week. The central bank is likely to start open-ended asset purchases immediately rather than in 2014 and consider setting a new target to buy longer-dated bonds, sources say, in a show of its resolve to beat nearly
two decades of deflation. New central bank governor Haruhiko Kuroda has set an ambitious target of achieving the central bank’s 2 percent inflation target in two years, but has said it will not be easy even as the economy heads for a recovery. “It will take about six months for a weaker yen to be felt in exports, while overseas economies including China have not yet gained momentum in their recovery,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. The drop in output compared with a median market forecast of a 2.6 percent increase, the data from the Ministry of Economy, Trade and Industry showed on Friday.
But in a sign that it was likely to be a blip in Japan’s gradual recovery from last year’s shallow recession, manufacturers surveyed by the ministry expect output to rise 1.0 percent in March and 0.6 percent in April, as carmakers increase production due to a recovery in overseas demand. In another encouraging sign, the Markit/JMMA Japan Manufacturing Purchasing Managers survey showed overall manufacturing activity growing in March for the first time in 10 months. Separate data from the Internal Affairs ministry showed core consumer prices, which exclude fresh food but include energy costs, fell 0.3 percent in February from a year earlier, a fourth straight month of declines.
That was a slightly smaller fall than a median market forecast of a 0.4 percent drop. March data for the Tokyo area, available a month earlier than nationwide data, showed the trend extending with core prices slipping 0.5 percent. However, declines in consumer prices are likely to slow in coming months as a weak yen pushes up the cost of energy imports and as fiscal spending narrows the output gap, economists say. Japan has been mired in mild deflation for almost two decades, and prime minister Shinzo Abe has made economic revival and escape from deflation top priorities. Reuters
Sydney flyover launches Qantas-Emirates tie-up Analysts say link is sign of aviation hub moving from Asia to Middle East
wo Airbus A380s made a dramatic tandem flight over the Sydney Harbour Bridge yesterday to launch the new QantasEmirates partnership, hailed by the Australian carrier as a “seismic shift” in aviation. The tie-up, approved last week by Australia’s competition watchdog, allows the two airlines to combine operations for an initial period of five years, including coordinating ticket prices and schedules. It will also see Qantas switch its hub for European flights from Singapore to Emirates’ Dubai base as it attempts to turn around its struggling international business. “Dubai is the best hub for Qantas
in the 21st century,” the company’s chief executive Alan Joyce said after watching the flyover by superjumbos from both airlines at 1,500 feet (450 metres) over Sydney’s famous landmark. “It is eight hours’ flying time from 75 percent of the world’s population.” Mr Joyce said the deal was one of the most important strategic initiatives Qantas would ever make, offering benefits to customers in terms of network and frequent flyer benefits and cutting flight times to top European destinations. At a press conference, president of Emirates Tim Clark said the stitching together of the airlines’ services
The fly-over was the first time where two commercial airline A380’s have flown in formation
had created a “game-changing partnership” providing “one of the most formidable aviation networks in the world”. The alliance is seen as vital to the sustainability of Qantas, which last year posted its first annual deficit since privatisation in 1995 due to tougher competition and high fuel costs for its international arm. For Emirates customers, it opens up Qantas’s Australian domestic network of more than 50 destinations. Australia’s Transport minister Anthony Albanese said he believed the
arrangement would benefit Qantas and Emirates, but also Australian businesses and holidaymakers travelling to Europe and northern Africa, as well as Australian tourism. Aviation analyst Geoffrey Thomas said the partnership was a sign of the times. “It recognises that the hub of aviation is moving from Asia to the Middle East,” he told Sky News, adding that while Asia would remain dominant, the Middle East made more sense for European journeys. AFP
business daily April 1, 2013
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business daily April 1, 2013
Cyprus’s plan B is still a disaster Clive Crook
Bloomberg View columnist
he first attempt to bail out Cyprus was such a shambles that the second looks smart by comparison. It’s getting generally favourable press, too – the best available option under the circumstances, and so on. Yes, it’s an improvement. It’s hard to think of anything that wouldn’t be. That doesn’t make it a good plan. The new deal has removed the craziest part of the agreement reached on March 16 – the plan to default on deposit insurance. Let’s not dwell any further on that insanity. But the new plan still has features that, seen in any other context, would surely arouse surprise. For instance, the socalled troika of the European Commission, the European Central Bank and the International Monetary Fund wanted to be sure that the new debt Cyprus is about to take on will be sustainable – meaning, presumably, that Cyprus will be able to repay it. Yet, by writing down highvalue deposits, the revised plan will also cause a sudden contraction of the Cypriot banking system, and thus of the whole Cypriot economy, which depends on banking to an unusual degree.
under the circumstances”. Let’s understand, however, that this self-imposed constraint ruled out every sensible option. Europe’s leaders should have grasped that fact and explained it to their voters. Their failure to do so shouldn’t be accepted as the sadly inevitable consequence of exhausted electorates. It should be recognised as an inexcusable deficit of leadership, and as a mortal threat to the whole euro project. I’m certainly not defending the Cypriots’ distended banking system. That needed to be reformed. Bailing in creditors (including uninsured depositors) of failing banks is desirable – so long as it doesn’t cause systemic instability. But somebody in authority should have been asking two questions. First, is the instant destruction of the Cypriot banking system the best way to reform it? Second, what will be the wider implications of this action for the rest of the EU? One such implication is immediately apparent: the introduction of capital controls, which Cyprus will have to keep in place for who
knows how long. Note in passing that, as a result, the euro area is no longer the monetary union it purports to be: A euro in a bank in Cyprus is now worth less than a euro in a bank in France. This violates at least the spirit (and arguably the letter) of the treaty that created the single currency in the first place. I thought the ECB and its
The euro area is no longer the monetary union it purports to be: a euro in a bank in Cyprus is now worth less than a euro in a bank in France
president, Mario Draghi, were going to do whatever it takes to preserve the integrity of the euro system.
Shareholder costs Because Cyprus is so small, the cost of a more measured restructuring of its banks would have been modest. Gather the bad assets in a bridge bank capitalised by the European Stability Mechanism with liquidity provided by the ECB until the entity can be wound down. Wipe out shareholders. Haircuts for junior and senior creditors, by all means. Make the help contingent on tax reform, fiscal consolidation and the gradual shrinking of the overseas bankdeposit business. Much of the burden of adjustment would have fallen on Cypriots. But not all – that approach would have exposed EU taxpayers to a short-term cost. This was deemed unthinkable. Yet there’s a good chance that the bill for the present plan will ultimately be far higher. Possible and even likely outcomes include a future Cypriot sovereign default, and the heightened fragility this would induce in other still-struggling EU economies.
Suppose confidence ebbs again in Spain and Italy, bond yields rise and their banks look fragile. Is bailing in uninsured depositors on the menu? It will be interesting to see how small the EU can make its banking sector. Bailout fatigue says: “The Cypriots got themselves into this mess, and they should get themselves out. We’ll lend them a bit more, but only if we’re sure they’ll pay us back”. Cyprus didn’t get itself into this mess. It joined the euro system in 2008 with low public debt and a clean bill of health from EU governments (back then, not a word was said about shady Russians). Its banks are in trouble not because they accepted too many overseas deposits but because they bought too many Greek bonds – an investment sanctified by international banking rules (which called such investments riskless) that was destroyed by the EU’s ham-fisted resolution of Greece’s threatened default. Europe’s sense of “we’re all in this together” seems to have evaporated entirely. Now one has to ask not merely what the euro is for, but what the EU itself is for. Bloomberg View
IMF projections Those debt projections of which the IMF is so fond? The arithmetic that invested 5.8 billion euros (US$7.4 billion) of deposit taxes (to curb the need for new borrowing) with such awesome significance? Forget them. The denominator in the debt ratio is gross domestic product, and Cypriot GDP has just been programmed for precipitous decline. While the IMF was fiddling with its now-irrelevant spreadsheets, European Union finance ministers were actually concerned not with the sustainability of the new debt – that is, with Cyprus’s capacity to repay – but with the short-term political imperative arising from “bailout fatigue”. The need to shelter EU taxpayers from the consequences of Cyprus – or the need at least to give the appearance of sheltering them – is the crucial circumstance in “the best available option
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April 1, 2013 business daily | 15
wires Leading reports from Asia’s best business newspapers
The BRICS expose the West’s hypocrisy
Wall Street Journal China Eastern Airlines Corp., which has the biggest share of the China-Japan market among rivals, is eyeing European transit passengers to help fill up some empty seats. The airline president, Ma Xulun, said the airline’s passenger load factor on China-Japan services has dropped by more than six percentage points since September because of the territorial dispute. “We are creating new demand for the Japanese market by marketing our flights to European travellers flying to [Japan] via Shanghai,” Mr Ma told the newspaper. The airline’s passenger-traffic decline between the two countries was slower than the industry’s 25 percent overall decline.
Jakarta Globe Indonesiashouldslapanationwide ban on the use of subsidised fuel by the country’s 11 million private cars, which would save the government US$8.6 billion this year, a presidential adviser said. President Susilo Bambang Yudhoyono is struggling to find a way to deal with runaway fuel subsidy costs that now account for more than 30 percent of state spending. “We recommended halting the subsidy for rich people by taking out the subsidy from private vehicles,” said Chairul Tanjung, chairman of Mr Yudhoyono’s main economic advisory group.
Korea Herald South Korea’s industrial output shrank for the second straight month in February, intensifying worries that industrial activities might be slowing due to toughened economic conditions, a government report showed last Friday. According to the report by Statistics Korea, production in the mining, manufacturing, gas and electricity industries dropped 0.8 percent in February from a month earlier. It is the second straight on-month contraction following a revised 1.2 percent fall in January. The output also shrank 9.3 percent from a year earlier, a sharp turnaround from January’s 7.6 percent expansion.
Asahi Shimbun Mitsubishi Motors Corp. said it hassuspendedthemanufacturing and shipment of electric vehicles that use a lithium-ion battery made by a subsidiary of GS Yuasa Corp. after two recently caught fire. The move escalates problems facing the beleaguered Kyoto-based company, which manufactured the lithium-ion battery that led to the grounding of Boeing 787 Dreamliner passenger aircraft. The latest problems concerned lithium-ion batteries for the Mitsubishi i-MiEV electric vehicle and the plug-in hybrid model of the Outlander sports utility vehicle.
Bloomberg View columnist
ho do they think they are, these upstart economies, Brazil, Russia, India, China and South Africa? That might sum up the feeling in the U.S., Europe and Japan as the BRICS nations consider a new development bank that might challenge the World Bank and International Monetary Fund. The move brings to mind Alice Amsden, the Massachusetts Institute of Technology economist who died last year, and her 2001 book, “The Rise of ‘the Rest’”. The richest nations can stew about this turn of events, as those on the periphery of the world economic system start seeing themselves as the core. Or developed countries can look in the mirror and consider how their actions have helped accelerate the shift. Take Japan’s success in weakening the yen 17 percent in the past six months to help stimulate exports. It has prompted talk in China and elsewhere about a return to the currency wars. Concern about exchangerate volatility that undermines trade and growth is a big reason the BRICS, the vanguard of “the rest,” want to use their combined US$4.4 trillion of foreign-currency reserves to protect their economies and raise their international clout. The yen’s plunge coincides with the contortions of the IMF as it twists every which way, and then some, to preserve the euro. Never mind that the euro zone may be too messy and incompatible to save. Forget that Cyprus never should have been included in the enterprise, or that Spain’s 50 percent youth-unemployment rate makes the euro area’s fourth-biggest economy a potential time bomb. The IMF, run by former French Finance Minister Christine Lagarde, is determined to make the unsustainable in Europe sustainable.
Perception problem That has created a bigger perception problem than the IMF and World Bank realise. If you are a world leader, such as Dilma Rousseff of Brazil, Vladimir Putin of Russia, Manmohan Singh of India, Xi Jinping of China or Jacob Zuma of South Africa, do you want to support such a euro-centric arrangement? Is our Bretton Woodsderived system, one forged in the middle of the last century, really in the best interest of five still-developing nations with 43 percent of the world’s population? Will the IMF have anything left if, say, India experiences a crisis? It hasn’t escaped notice that
Europe is being treated very differently from Asia in 1997. Back then, the IMF browbeat Asia into harsh reforms that deepened its crisis. It demanded higher interest rates, stronger currencies and fiscal tightening while forcing Thailand, Indonesia and South Korea to let weak banks fail. When Malaysia imposed capital controls, it was demonised. Europe has gotten a pass on all of the above. The same happened when Wall Street crashed a decade later. The U.S. Treasury Department stood by as regulators, banks and corporate leaders eschewed virtually every prescription it made to policy makers in Asia, Latin America and eastern Europe. That includes crony capitalism, as top bankers shift into senior roles in the federal government only to rotate back to Wall Street a few years later. As a remedy, Richard Fisher, the president of the Federal Reserve Bank of Dallas, has long recommended breaking up too-big-to-fail banks. Why isn’t the IMF demanding as much from the Obama administration? Why is the IMF always backing bailouts of a Greek economy that has learned nothing from its failings? How come Cyprus, with an economy about the size of Vermont’s, has Lagarde’s undivided attention in a world awash in financial and political risks? Shouldn’t Group of Seven nations chastise Japan’s yen policies or Europe’s denial about the magnitude of its troubles? You can see why the BRICS want their own IMF, an institution that supports economies without the hypocrisy.
China first True, Brazil, Russia, India, China and South Africa are a long way from the viable economic bloc its members
advertise. When investors talk about the BRICS, they often mean China’s cash and voracious appetite for the commodities of the others. Their political systems and economic philosophies are as wildly divergent as their immediate needs as nations. That hasn’t stopped members from taking an acronym coined by Goldman Sachs Group Inc. economist
You can see why the BRICS want their own IMF, an institution that supports economies without the hypocrisy
Jim O’Neill so seriously that they are on their fifth summit meeting. Nor did it stop them from adding a fifth member. Oddly, it was South Africa, not, say, Indonesia or South Korea, both of which have much bigger economies. Yet as these key emerging economies strike out on their own, rich nations bear some of the blame. Officials in the U.S., Europe and Japan talk a great game of rebalancing the global economy; of increasing the developing world’s say in decision making; of letting markets decide exchange rates; of lowering barriers to trade and capital; and of greater transparency. And then, at least since 2007, they more often than not played by other rules. Trust is earned, even when your economy is among those that powered global growth for much of the last century. If G-7 members want today’s upstarts to join them in the spirit of future prosperity, they must radiate sincerity. The BRICS must believe that the world’s economic mechanisms work for them. If not, those among “the rest” will create their own space. Bloomberg View
business daily April 1, 2013
CLOSING Toys ‘R’ Us withdraws plan for IPO
U.S. business, labour reach immigration deal
Toys “R” Us Inc., the toy retailer owned by Bain Capital LLC, withdrew its plan for an initial public offering after first filing with the U.S. Securities and Exchange Commission almost three years ago. The 1,500-store toy chain, owned by the private-equity firm founded by Mitt Romney and partners KKR & Co. and Vornado Realty Trust, cited “unfavorable market conditions and the company’s recently announced executive leadership transition.” The withdrawal yesterday came after the retailer’s chief executive officer Gerald Storch announced last month he would step down amid competition from online toy sellers.
Prospects for a U.S. law to create a pathway to citizenship for 11 million illegal immigrants brightened on Saturday after major business and labour groups reached an agreement on a guest-worker program, a source said. Labour unions have argued against the program, worrying that a flood of low-wage immigrants would take away jobs from Americans. The agreement covers the pay levels for low-skilled workers and provides labour protections for American workers. A new “W Visa” would be created for employers to petition for foreign workers in lesser skilled, non-seasonal non-agricultural occupations.
Great losses ahead for Cyprus bank customers Central bank takes over country’s second-largest lender, which will be split
yprus may imposes losses of as much as 60 percent on Bank of Cyprus Plc accounts exceeding 100,000 euros (US$128,000) as part of an aid deal to stop the country from going bankrupt. Customers will have 37.5 percent of their deposits above this amount converted into shares with full voting rights and access to any future Bank of Cyprus dividend, the Nicosia-based central bank said in an e-mailed statement. A further 22.5 percent will be temporarily withheld to ensure the lender meets the terms of its recapitalisation, as agreed under Cyprus’s loan agreement with international creditors, the central bank said. President Nicos Anastasiades agreed March 25 to impose losses on Bank of Cyprus’s larger depositors in exchange for a 10 billion-euro bailout after failing to get financial aid from Russia, one of the nation’s biggest investors. The agreement also shuttered Cyprus Popular Bank Pcl, the
Banks across Cyprus returned to normal opening hours after an almost two-week shutdown
country’s second-largest lender. The deposit-loss plan “will make things worse as small and medium-sized companies will run out of liquidity,” Marios Mavrides, a lawmaker for the ruling Disy party, said in a phone interview from Nicosia. The move “does not help to gain
back people’s trust, deposits should be free in order to gain that trust,” he said.
Deal rejected An earlier deal with the European Union, International Monetary Fund and European Central Bank
that would have forced losses on all depositors was rejected by the Cypriot parliament amid concern it would irreparably damage trust in the nation’s banking industry. Cyprus Popular Bank will be divided into “good” and “bad” banks, according to the statement. Deposits of less than 100,000 euros will be absorbed by Bank of Cyprus and those above that level will be placed in the bad bank. Cyprus Popular Bank will operate normally starting tomorrow with all staff and branches passing to the control of Bank of Cyprus, according to the statement. Cypriot President Nicos Anastasiades vowed Saturday to keep his country in the euro as citizens adapted to restrictions on their use of the common currency to prevent a financial collapse. Throngs of foreign camera crews converged on Cyprus banks as they allowed customers to lay their hands on their own money again – albeit with restrictions – through a live teller rather than at ATMs, after a 12-day closure. A police helicopter hovered over Nicosia, armed police and security guards were posted outside branches, but in the end Cypriots calmly waited in line despite their anger over the devastating costs of the country’s European Union-led bailout. “I would like to thank the Cypriot people for their maturity... in their interactions” with the banks, president Nicos Anastasiades said in English on his official Twitter account. Bloomberg/AFP
Argentina files conditions for debt repayment Govt vows to pay about one sixth of the money restructured bonds were worth Mariano Andrade
rgentina has offered to repay under new conditions its debt to two New York hedge funds demanding a US$1.33 billion payment for defaulted bonds. In a filing, Argentina offered to pay creditors who did not participate in earlier restructuring moves with either bonds equivalent to the value of the debt during the 2002 default, or discounted bonds. Argentine president Cristina Kirchner had already said she was willing to re-extend the restructuring terms of 2005 and 2010 to hedge funds NML Capital and Aurelius Capital Management, which she has branded “vultures.” That offer would repay
bondholders about one-sixth of what a U.S. judge has said they’re entitled to receive. Those terms were already accepted by holders of 92 percent of the bonds but was rejected by the holdouts, prolonging the longrunning litigation stemming from Argentina’s US$100 billion sovereign debt default in 2002. The latest offer falls under the same terms as those offered to bondholders three years ago. “This does not involve any negotiations on the principles of previous swaps,” Argentine vice president Amado Boudou told reporters. “Argentina will continue to
comply [with debt payments] regardless of the outcome of this filing. It is able and willing to do so.” Mr Boudou also rejected any possibility that Argentina would fall into “technical default,” as economists fear could take place. If the creditors reject the new plan, the government would be forced to repay the hedge funds in full now, as a US judge ordered late last year in a landmark ruling. But because of equal treatment clauses in the restructured bond contracts, Buenos Aires could be forced to pay back all others at the same time, possibly forcing it to default on all its debt. AFP
Argentine president Cristina Kirchner has branded hedge funds as ‘vultures’