Wynn Cotai US$2.5bn loan
Fifth probe for LVS over Jacobs case Page 2
Carpenters top charts on wage hikes
North West sinking fast over unpaid pier rent T
he fast ferry link from Macau to Tuen Mun in Hong Kong’s New Territories looks set to end – for now. The current service provider North West Express Ltd is on the brink of being stripped of its operating licence by the Hong Kong government because of unpaid rent for its Tuen Mun pier berth. North West has paid HK$4 million (US$516,000) in arrears but still owes one month’s fee – amounting to 2.32 million patacas – to the Hong Kong authorities. The operator suspended its services between Macau Outer Harbour Ferry Terminal and Tuen Mun on July 1 due to
unspecified technical problems with its two vessels. North West has already paid a penalty of 70,000 patacas to the Macau Maritime Administration for that. But with no money coming in from passengers, the company was keen to get services back to normal to improve its financial position. If North West shuts down, the big winner is likely to be rival ferry operator TurboJET, run by Shun Tak Holdings Ltd. Since another operator, Macao Dragon Co. Ltd, ceased trading in September last year, the only other firm currently linking the city by sea is gambling operator Sands China Ltd, through its CotaiJet ferry service. More on page 3
I SSN 2226-8294
HANG SENG INDEX 19890
July rev limps to 1.5pct growth
he city recorded 24.6 billion patacas (US$3.1 billion) in gross gaming revenue last month, the official figures released yesterday show. Some analysts had predicted a year-on-year contraction. Nonetheless the 1.5 percent year-on-year expansion was the lowest growth seen since the financial crisis of early 2009. July’s numbers were depressed by the loss of up to 700 million patacas because of Typhoon Vicente.
HSI - Movers Name
Bond market opening welcome
CHINA RES POWER
CHINA COAL ENE-H
SANDS CHINA LTD
CHINA RES ENTERP
PING AN INSURA-H
HANG LUNG PROPER
LI & FUNG LTD
ast year more than 12.8 billion patacas (US$1.6 billion) were invested in mainland Chinese bonds by Macau investors. That figure could jump with more qualified investors, including four banks that operate in Macau, able to buy bonds in the interbank market, the mainland’s biggest debt market. Investors will now have access to higheryielding bonds of small- and medium-sized companies. Page 4
Transmac roars ahead of competitors
us operator Transportes Urbanos de Macau SARL saw its profit drop by 36.7 percent to 9.3 million patacas (US$1.16 million) last year. Despite a sharp fall in its profit, Transmac was the city’s best-performing bus operator last year. The company blames the relatively weak results on the government’s new arrangement for paying bus operators and a rise in costs due to increases in the wages of drivers.
News where it matters
Page 6 www.macaubusinessdaily.com
Year I - Number 89 Thursday August 2, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily August 2, 2012
Small expectations July rev growth of 1.5 percent looks like a victory Associate Editor
t’s a sign of how times have changed that the 1.5 percent year-on-year increase in Macau gaming revenues recorded in July is a vindication for the bullish commentators and not the bearish ones. The city recorded 24.6 billion patacas (US$3.1 billion) in gross gaming revenue last month, show the official figures released yesterday by the Gaming Inspection and Coordination Bureau. Some North America-based analysts had predicted a year-on-year contraction. Nonetheless it was the lowest growth seen since the financial crisis of early 2009. Given that July’s numbers were depressed by the loss of up to 700 million patacas in would-be gamblers’ stake money because of travel disruption caused by a once-in-a-decade storm – Typhoon Vicente – it was still a performance to give some hope for the rest of the second half, said an analyst.
September rebound “We expect the market to also register low-single-digit growth in August, a function of difficult comps [comparisons] in terms of absolute dollar levels recorded last year,” said Union Gaming Research Macau’s Grant Govertsen in a note. “We would then expect September to likely jump back to double-digit growth on an easier comp. All in, we are expecting 3Q12 GGR growth in the mid-single-digits. Looking further out, we expect full-year 2012 GGR growth to reach the teens.” Analysts also pointed out that even taking account of the trend to low double digit or single digit revenue expansion seen since May, on a year-to-date basis Macau still recorded 16.8 percent growth so far in 2012 compared to the same period in 2011. Harry C. Curtis of Nomura Securities said in a note on the eve of the July figures: “…our China economist believes that the likelihood of a hard landing in China is low, and he expects GDP growth to rebound moderately in the second half 2012, helped by modest [monetary] easing in 2012.” The market certainly responded positively to the July numbers, but whether in relief that the worst predictions weren’t realised or
through acknowledgement of stock price value opportunities isn’t clear. After the revenue figures were published at around lunchtime Macau time yesterday, most of the city’s operators recorded gains in Hong Kong. Wynn Macau Ltd shares were up 4.35 percent, closing at HK$17.26. SJM Holdings Ltd put on 3.75 percent to finish at HK$14.40. Sands China Ltd rose 2.18 percent to HK$23.45, while Galaxy Entertainment Group put on 1.82 percent taking it to HK$19.04 per share. MGM China Holdings Ltd was also up slightly, ending the day at HK$10.84, a rise of 0.56 percent. Melco Crown Entertainment Ltd bucked the trend, closing at HK$26.35 on its Hong Kong listing – a drop of 2.41 percent on the day. The firm does however tend to have a low volume of trading there compared to its Nasdaq listing in New York.
A low bar – July’s revenue exceeded most analysts’ expectations
In July SJM again retained top spot as it has since market liberalisation, last month recording a 26 percent share – the same as June. Sands China was up four points to 22
percent; Galaxy was down four points to 19 percent; Wynn was down one to 11 percent; MPEL held steady at 13 percent, as did MGM China with nine percent.
Market share Also factored into investors’ response was the release of Macau market share numbers. They are not a completely accurate reflection of the health of the concessionaires’ business. SJM’s market share for example includes revenue generated by so-called satellite casinos using an SJM gaming licence but where third parties own the casino. In that case SJM has to share the economic value of the revenue. Nonetheless, sustained trends in market share change can give some indication of the quality of service execution by the concessionaires say analysts.
Gaming Gross Revenue MOP million
Market Share Per Operator (2011-2012) Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul SJM
28% 27% 29% 26% 27% 26% 27% 28% 27% 25% 29% 26% 26%
Sands China 15% 14% 14% 14% 16% 17% 19% 18% 17% 18% 17% 18% 22% Galaxy
19% 20% 20% 21% 20% 19% 19% 17% 20% 21% 20% 23% 19%
15% 13% 12% 13% 13% 14% 13% 13% 12% 13% 11% 12% 11%
16% 15% 16% 15% 13% 14% 13% 14% 14% 14% 12% 13% 13%
8% 11% 10% 11% 11% 10% 10% 10% 10% 10% 11% 9% 9%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
* Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total
ynn Resorts (Macau) SA the casino operating unit of Wynn Macau Ltd, has finalised a US$2.3 billion (18.37 billion patacas) loan for its Wynn Cotai project according to a filing yesterday with the Hong Kong Stock Exchange. There’s also an option to borrow a further US$200 million if needed. Wynn said in the document the cost of the Wynn Cotai was “in the range of US$3.5 billion to US$4.0 billion”. It confirmed the project as a 2,000-room fivestar hotel and casino resort with
“convention, retail, entertainment and food and beverage”. The filing didn’t specify how many gaming tables and slots the facility would have. “We continue to work on a final design and schedule for this new project,” added the filing. The Wynn Cotai loan consists of a US$750 million senior secured facility maturing in July 2018, a US$1.55 billion revolver maturing in July 2017, and an option to enlarge the total senior secured loan by up to US$200 million. The lead arranger on the deal is Bank
of China Limited, Macau Branch. The loans will be denominated in Hong Kong dollars and United States dollars. For the first six months Wynn will pay an interest rate of London Interbank Offered Rate (Libor) or Hong Kong Interbank Offered Rate (Hibor) plus 2.50 percent interest. Subsequently the company will pay Libor or Hibor plus between 1.75 percent to 2.50 percent interest dependent on the financial gearing of Wynn Resorts (Macau). A.E.
Photo by Manuel Cardoso
Wynn Cotai secures US$2.5bln debt funding
In place – loans for Wynn Cotai announced yesterday
August 2, 2012 business daily | 3
Unpaid rent for pier casts North West’s future adrift North West’s licence to operate ferries to Hong Kong is on the brink of being rescinded Tony Lai
he Hong Kong government is taking steps to end North West Express Ltd’s access to Tuen Mun pier, putting the ferry operator’s immediate future in doubt. “North West has still not entirely paid back the pier rents it owes and the Hong Kong government still needs a period of time to complete the relevant procedures of reclaiming the pier,” the Macau Maritime Administration said yesterday. A spokesperson for the administration told Business Daily that although North West had paid more than HK$4 million in overdue rent for May and June, it had yet to pay last month’s rent for the use of the pier. The spokesperson said the deadline for payment set by the Hong Kong government had passed. North West officials were unavailable for comment. A Hong Kong court said last month the company had to pay its rent
arrears within 14 days or its lease would be revoked. The lease says North West must pay 2.32 million patacas (US$300,000) to the Hong Kong government every month for use of the pier in Hong Kong’s northwest. The Maritime Administration spokesperson said the Macau government would rescind North West’s licence to operate once the company was no longer able to use the pier. He added that this might not happen for some time because North West had the right to appeal against any move by Hong Kong to revoke of the lease.
failed a safety check last month and requires more remedial work before it can sail again. The operator suspended on July 1 its services between the Outer Harbour Ferry Terminal and Tuen Mun because of unspecified technical problems with its vessels. North West has paid the Maritime
Administration a fine of 70,000 patacas for withdrawing its service. The government rebuked the company for suspending services without approval and without “executing any back-up plan”. The company could be fined up to 100,000 patacas. North West had sold more than 1,300 tickets for the suspended services. Just 60 passengers failed to demand their money back. If North West stops operating, rival ferry operator Shun Tak Holdings Ltd, led by Macau businesswoman Pansy Ho Chiu King, may be the main beneficiary. The government here gave the company permission last year to buy New World First Ferry Services (Macau) Ltd and its seven vessels. Shun Tak paid HK$341 million. The only other company running ferries between Macau and Hong Kong is casino operator Sands China Ltd with its CotaiJet service.
Choppy waters The spokesperson said the Macau government would monitor developments closely and take further action, if required. North West’s late rent is not its only problem. One of the company’s two ferries
North West has yet to pay last month’s rent for the use of Hong Kong’s Tuen Mun pier
LVS confirms data probe over Jacobs case Fifth regulatory inquiry stemming from ex-Sands CEO’s allegations Associate Editor
part of his case. Sands’ parent company Las Vegas Sands Corp. had told the court Macau’s data protection laws made it difficult to provide the hearing with many of the documents originating in Macau that were at the heart of the lawsuit.
Happier times – Sheldon Adelson (left) with his former Sands China CEO Steve Jacobs (right)
ands China Ltd yesterday made a voluntary announcement to the Hong Kong Stock Exchange confirming it is being investigated by Macau’s Office for Personal Data Protection. It said: “…the OPDP has launched an official investigation procedure in relation to the alleged transfer from Macao by VML [Venetian Macao Ltd] to the United States of America of
certain data. The company is unable to comment further at this time.” The term ‘certain data’ is understood to include documents stored on the office computer of Sands China’s former chief executive, Steve Jacobs. He was dismissed in July 2010 and filed suit against the company in the District Court in Clark County, Nevada in October 2010 for ‘wrongful termination’. The documents form
A filing in June by Mr Jacobs’ lawyers to the District Court revealed that documents from his computer relevant to the case were in fact in the U.S. The filing also alleged LVS had adopted a “prostitution strategy” in Macau personally approved by the company’s chairman Sheldon Adelson. Both Mr Adelson and the company strongly deny those allegations. LVS subsequently said the transfer of Mr Jacobs’ documents had been done in error and that the Macau government had approved the export of the documents to the U.S. only in May this year. Macau’s Office for Personal Data Protection said on Monday it had begun an inquiry to find out if the company had broken the personal data protection statute. It says any transfer may only take place with its approval.
The penalty for infringement is a fine of up to 80,000 patacas (US$10,000). LVS’s lawyers are due to face an August 30 hearing in the U.S. where District Court Judge Elizabeth Gonzales will decide whether the company withheld financial documents in relation to the alleged ‘prostitution strategy’. The Macau data probe is the fifth regulatory inquiry sparked by Mr Jacobs’ lawsuit. Last year the U.S. Securities and Exchange Commission, then the U.S. Department of Justice, the Nevada Gaming Control Board and the Securities and Futures Commission in Hong Kong separately launched investigations over Mr Jacobs’ claims LVS had breached the U.S. Foreign Corrupt Practices Act. The statute forbids U.S. firms from bribing foreign officials. The SFC in Hong Kong concluded its investigation in December without any action according to a Sands China filing to the city’s stock market. The Macau data authorities are also investigating another casino operator, Wynn Macau Ltd, after the company publicly disclosed personal information about hotel guests in a report it made on a former director, Kazuo Okada.
business daily August 2, 2012
More open bond market InBrief a boon to Macau investors Academic invests The dean of the Faculty of Health Sciences at the Macau University of Science and Technology, Manson Fok Man Shun, has invested in United States-based Kinex Pharmaceuticals, LLC. “I look forward to assisting Kinex Pharmaceuticals in their Asian business strategy,” said Dr Fok, the president of the Macau Healthcare Management and Promotion Association. The amount invested in the specialist producer of oncology and immune system drugs was not made public.
More qualified investors are able to invest in the mainland’s biggest debt market; Macau-based banks to benefit Vítor Quintã
Photo by Manuel Cardoso
in U.S. drugmaker
Air Macau takes off for Changsha Air Macau Co Ltd will start flying to Hunan’s capital Changsha from September 6. The flag-carrier will operate three round-trip flights a week on Tuesday, Thursday and Saturday. The flights depart Macau at 6pm and take-off on 8.20pm on the return leg. Air Macau announced the new route in Changsha on Tuesday at an event that included representatives from Macau hotels and travel agencies.
Work underway on Zhuhai bridge Roadworks on the highway in the Zhuhai section of the Hong KongZhuhai-Macau Bridge began on Monday. The cost of the 13.4-km section is estimated at 9.15 billion yuan (11.5 billion patacas). Work should be finished by 2016, around the same time when the entire bridge should be ready for use. Reports in the Chinese-language media said work had started on each part of the project in the three jurisdictions.
Call to create fund for responsible gambling A fund using 0.1 percent of the city’s gambling tax revenue should be established to promote responsible gambling, an academic said on Tuesday. Macau Polytechnic Institute’s Samuel Huang Guihai said the fund could also help prevent casinos from employing problem gamblers. The Gaming Teaching and Research Centre academic said a community consensus should be reached before a fund could be established.
HSBC is one of four banks operating here that will benefit from improved access to higher-yielding mainland bonds
nvestment in mainland financial products has seen an dramatic upswing but that trend may accelerate with Beijing allowing more international investors to buy bonds on its biggest debt market and to purchase higher-yielding notes for the first time. Participants in the Qualified Foreign Institutional Investor programme are now allowed to buy bonds on the interbank market, the China Securities Regulatory Commission said on its website last Friday. Previously, QFII participants were restricted to exchange-listed debt, which makes up less than 2 percent of the interbank equivalent. At the end of June, there were 172 financial institutions in the QFII scheme with combined quotas of US$28.5 billion (227.9 billion patacas), including the parent companies of four banks that operate in Macau. Business Daily contacted the Hongkong and Shanghai Banking Corp Ltd, Standard Chartered Bank (HongKong) Ltd, Hang Seng Bank Ltd and Singapore-owned DBS Bank (Hong Kong) Ltd but had not received a reply at press time. “Some QFII financial institutions may formulate investment funds investing in securities in China’s capital markets, which can be subscribed by Macau investors,”
the Monetary Authority of Macau told Business Daily. Last year more than 12.8 billion patacas (US$1.6 billion) was invested in mainland bonds by Macau investors. The amount invested in short-term bonds rose from just 123.6 million patacas in 2010 to more than 6.1 billion patacas last year, with most funds directed towards yuandenominated public bonds. But investment could soar now that a new pool of investors will be able to buy bonds of smalland medium-sized companies through private placements. These securities have typically yielded more than their counterparts listed on mainland stock exchanges.
Significant move The changes to the QFII scheme, which allocates quotas to investors from outside the mainland and was introduced in 2002, come after the government almost tripled allotments from US$30 billion to US$80 billion in April. “This is a very significant step,” Becky Liu, a Hong Kong-based credit strategist at HSBC Holdings Plc told Bloomberg. “The demand is likely to be for the top-tier names as they have the highest yield pickup over offshore peers.” The amount of money invested
through the QFII scheme is still too small to have an impact on the mainland’s bond market and half of the QFII quota has to be allocated into equities, Ms Liu said. The move is incremental in opening the fixed-income market to more global investors. Authorities announced an interbank bond market programme in 2010 that allows foreign central banks, clearing banks for crossborder yuan settlement in Hong Kong and Macau and other international lenders involved in trade settlement. They are traded over-the-counter among commercial lenders and other financial companies. At the end of June, there was 20.8 trillion yuan (26.1 trillion patacas) of the securities outstanding, according to Chinabond. The figure includes debt issued by the central government, banks and companies. There is 379.5 billion yuan of debt instruments on the exchangelisted market. The mainland started sales of private placement bonds by small and medium-sized companies in June. Suzhou Huadong Coating Glass Co Ltd sold 50 million yuan of two-year notes priced to yield 9.5 percent. Two-year government securities yield 2.36 percent. with Bloomberg, Reuters
August 2, 2012 business daily | 5
Carpentry a seller’s market in Q2 The pay of construction workers tumbled again in the second quarter but carpenters saw their wages jump Xi Chen
he average daily wage of carpenters increased by 13.1 percent in the second quarter to 643 patacas (US$80.50), government data show. But the average daily wage of construction workers in general dropped to 552 patacas, 1.9 percent less than in the first quarter, according to data released yesterday by the Statistics and Census Service. It was expatriate construction workers that suffered the most because the average daily wage of resident workers increased by 4.3 percent to 674 patacas. Resident carpenters saw their pay increase the most, by nearly 20 percent. There was growing demand for carpenters among contractors building hotels, facilities and other tourist facilities. Construction work on two projects in Cotai – the second phase of the Galaxy Macau and the new Wynn casino resort – began in the second quarter, while work on the Sands Cotai Central resort is ongoing. All this activity was a boon to structural iron erectors, whose pay rose by 6.4 percent, and to painters, whose pay rose by 2 percent.
each imported worker they hire. The index of prices of construction materials for residential buildings stood at 120.8 points at the end of the second quarter, little changed from three months before, when it stood at 120.7 points, but considerably higher than its level of 113.6 points one year before. The price of concrete jumped by 23 percent in the 12 months ended June. The price of aluminium in the second quarter was 7.8 percent higher than a year before.
The purchasing power of imported construction workers dropped again
Unskilled construction workers, on the other hand, saw their wages fall by 5.5 percent. The real wage index for imported construction workers, which takes into account the effect of inflation on their purchasing power, fell to 87 points in the second quarter from 98.5 points in the first quarter
Shanghai expo ‘below budget’
here was no corruption in the project for the 2010 Shanghai World Expo and the overall spending was “far below the budget,” the former head of the Office for Preparation of Macau’s Participation in the Shanghai World Expo, Christiana Ieong Pou Yee, said. A report released on Monday by the Commission of Audit said the office did not provide a scientific and complete budget projection prior to the project and it also failed to provide a summary of the overall financial expenditures afterwards. “I cannot say I fully agree with the report,” Ms Ieong told Portugueselanguage newspaper Hoje Macau. “My first task was to ensure the opening deadline was met, which was already quite difficult,” she said. The office drafted a budget of 320 million patacas (US$40 million) by comparing the costs of Macau’s participation in the
1998 Lisbon World Expo and taking also into consideration the Hong Kong expo budget. After the project was concluded, the expo office submitted a summary of its activities in Shanghai, which revealed it had used nearly 224.9 million patacas in the construction and operation of the exhibition halls. The audit also discovered that there was a 34.4 million patacas discrepancy between the office’s durable and equipment spending and what it recorded as assets during the 2008-2011 periods. “There was nothing we could use as a reference” to prepare the budget, Ms Ieong said. “In the end, and on average, we were … far below the budget.” The budget did not include the daily expenses of the office, including staff salaries. But the former official said that employees working for the office were being paid by their original departments or services. V.Q.
and 94.5 points a year before. In contrast, the real wage index for resident construction workers rose to 99.5 points from 98.9 points three months before. The government has set a strict quota for imported labour in the construction industry, obliging companies to hire at least one resident for
Rise in the average wage of resident carpenters in the second quarter
business daily August 2, 2012
Transmac endures bumpy ride Despite a sharp fall in its profit, Transmac was the city’s best-performing bus operator last year Tiago Azevedo
Photo by Manuel Cardoso
us operator Transportes Urbanos de Macau SARL (Transmac) saw its profit drop by 36.7 percent to 9.3 million patacas (US$1.16 million) last year. In its annual report, Transmac blamed the poor result on the government’s new arrangement for paying bus operators, introduced last year. “Our revenues dropped 2 percent in 2011 from a year earlier, after the implementation of the new business model,” Transmac said in a report published in yesterday’s Official Gazette. It also blamed a rise in costs due to increases in the wages of drivers caused by “aggressive” recruitment by other bus operators. A shortage of drivers and the advent of the city’s third bus operator, Reolian Public Transport Co Ltd, have led to higher wages for all drivers. “Bus drivers were ‘hunted’ and the wage level far exceeded the average wage level in the market,” Transmac said. The company said that the wages of its drivers had increased by 38 percent since last August. “Salary costs, including wage increases for other employees, went up by 36.8 percent,” it said.
Broken promise All three bus companies say they have been losing money since the government changed the subsidy system. The new arrangement began on August 1 last year. The government sets the bus fares, which the bus operators collect and turn over to the government in exchange for a set amount per kilometre of bus route served. Transmac serves 21 routes. Reolian made a loss of 58.5 million patacas last year. Sociedade de Transportes Colectivos de Macau SARL posted a profit of 660,000 patacas last year, having made a profit of 29 million patacas the year before. Transmac offered an unenthusiastic forecast for this year.
Changes to the subsidies the government pays for operating bus routes led to a smaller profit at Transmac
MOP9.3 million Transmac’s 2011 profit
“We anticipate that the company will face great pressure in 2012 due to the high prices of fuel and the inflationary pressures on
salaries and other operating costs,” Transmac chairman Liu Hei Wan says in the report. “We will undertake efforts to reduce costs, increase our efficiency and achieve a highly efficient management in order to strengthen our competitiveness.” All three bus operators asked the government in April to increase the amount it pays them. The government announced an increase of 23 percent in June that caused widespread public anger. It later suspended the increase, saying it would pay the bus operators more only when they
improved their services. The increase would have cost the government an extra 900 million patacas this year, according to Legislative Assembly member Ng Kuok Cheong. TCM general manager Fang Liqun told reporters on Tuesday that he hoped the bus operators would get their increase by the end of this year. The Macau Post Daily quoted Mr Fang as saying TCM “desperately” needed the increase to keep the company going. Mr Fang said TCM was losing 1 million patacas a month.
Weather Beijing 27/23o C Changchun 22/18o C
Harbin 25/17o C
Xian 32/22o C Shanghai 32/27o C Chengdu 34/20o C Kunming 26/18o C Haikou 32/25o C Sanya 32/27o C
Guangzhou 37/26o C
MACAU (30 July-4 August) Day
Shenzhen 35/27o C
Hong Kong 34/26o C
Macau 35/26o C
August 2, 2012 business daily | 7
SJM throws lifeline to ex-floating casino An SJM executive backs a plan to turn the disused Macau Palace floating casino into a gaming industry museum Tony Lai
Photo by Manuel Cardoso
The Macau Palace casino closed in 2007 and the vessel was moved to Fai Chi Kei
aming company Sociedade de Jogos de Macau SA wants to help the government turn SJM’s former floating casino, now tied up in Fai Chi Kei, into a tourist
attraction for the north of the city. SJM managing director Angela Leong On Kei wants the government to turn the longdisused casino into a museum
City starved of telecom advances
acau needs a “very clear licensing policy to promote investment in future networks and innovative services” says a new report from an Australian research consultancy. The report by Paul Budde Communication says one priority must be introducing new operators to provide broadband Internet services. About 70 percent of the population has Internet access but less than 25 percent use a broadband connection, the report says. Authorities asked for bids from fixedline telecommunications operators to create competition for Companhia de Telecomunicações de Macau
SARL. They are considering the sole proposal from Companhia de Telecomunicações de MTEL, Ltda. Paul Budde Communication said Macau badly needed competition that would provide services that are already available in other markets. The report mentioned Internet Protocol television – or television “broadcast” over the Internet – and television pushed to mobile handsets. The report said the decision to break CTM’s landline monopoly is “a unique opportunity” to provide the city with “a fully open, competitive and innovative telecommunications service and new media sector”. V.Q.
of the development of the city’s gaming industry. Ms Leong said on Tuesday that the vessel was deeply embedded in the city’s history. She said that once restored it could serve to promote the city. The Chinese-language Shimin Daily quoted Ms Leong as saying a plan to restore the vessel was on the drawing board. She did not rule out adding other attractions, such as restaurants. She said it had yet to be decided whether the vessel would be managed by SJM. She said her company had carried out regular maintenance on the two-deck vessel since ceasing to use it as a casino in 2007. After closing the casino, SJM donated the vessel to the government. The restoration of the Macau Palace was one of 10 suggestions for the redevelopment of the Northern District made by the president of the Industry and Commerce Association of Macau Northern District, Wong Kin Chong, during a meeting in May with Chief Executive Fernando Chui Sai On.
Mr Chui said the government would study the proposals and try its best to develop the old district. The association had called in December for the government to establish a night market near the Macau Palace, which would be turned into a gaming industry museum. But the Fai Chi Kei District Welfare and Mutual Help Association rejected the idea and called instead for the Macau Palace to be simply taken away. “It is a very old structure that causes a lot of pollution. Ever since it was moored here it has become infested with rats and mosquitoes. It is causing serious environmental problems,” association representative Shek Veng told TDM News. The Macau Palace was the first and only floating casino in the city. It opened in 1995, when it was moored in the Inner Harbour. It was later moved to the NAPE area near the Outer Harbour Ferry Terminal. The vessel appeared in the James Bond film “The Man with the Golden Gun”.
business daily August 2, 2012
U.S. hoping China will join APEC green trade Deal aims at capping tariffs on environmentally friendly goods
he United States is optimistic it can strike a deal with China and other Asia-Pacific countries to cut tariffs on green technology goods despite frictions with Beijing over the burgeoning trade in renewable energy products, a top U.S. trade official said on Tuesday. “I think we’re on track to do that,” Deputy U.S. Trade Representative Demetrios Marantis said. President Barack Obama and other leaders of the 21-economy Asia Pacific Economic Cooperation agreed in November to a goal of cutting tariffs to 5 percent or less on a range of environmentally friendly goods by the end of 2015. APEC members are now negotiating over which products would be covered by the tariff cap and hope to reach agreement by the next leaders’ meeting in Vladivostok, Russia, in early September. A 2010 U.S. Commerce Department report said the global market for environmental technologies was US$782.4 billion in 2008, with the United States by far the largest single market at US$299.5 billion. Depending on which products are included in a tariff-capping agreement, the pact could be a boon for big U.S. manufacturers such as General Electric and United Technologies and their competitors around the Asia Pacific region. Washington has proposed capping tariffs on solar panels, water and wind turbines, water treatment pumps, waste incinerators, deep discharge batteries and other products to spur trade and reduce the costs of the goods. However, since the November APEC meeting, it has slapped preliminary duties on solar panels and wind turbine towers made in China in response to allegations from U.S. manufacturers that the imports were unfairly priced
Green feud brewing, trade friction growing
and benefited from generous government subsidies. China has strenuously protested against the duties, and stepped up pressure on the United States by launching its own investigation into charges that U.S. and South Korean producers are selling polysilicon, a raw material used in solar panels, in the Chinese market at unfairly low and subsidised prices.
No list from China When APEC trade ministers met in Kazan, Russia, in June, China was one of seven APEC members that did not present a list of green technology goods for the proposed tariff cuts,
raising concerns the group would be unable to reach agreement. Negotiators have made further progress since then, including last week in Mexico City, Mr Marantis said in an interview. “We obviously want to make sure the list is credible and reflective of the priorities of all 21 economies,” he said when asked if he expected any agreement reached in Vladivostok to be significant enough to spur additional trade. He dismissed the idea that U.S.China friction over solar and wind energy products could undermine the APEC environmental goods initiative, calling that “a completely separate issue.”
KEY POINTS APEC aims for agreement on product list by September U.S., China have been arguing over renewable energy trade No date yet for annual high-level U.S.-China trade meeting Mr Marantis, the lead U.S. trade official on China, said the two countries were continuing work on a number of other
Record bank bond sales driven by growth policy Priority to be given to infrastructure projects
hinese banks are selling the most bonds on record this year as policy makers urge them to lend more freely in support of state projects needed to steer the world’s second-largest economy out of a six-quarter slowdown. Lenders issued 1.32 trillion yuan (US$206 billion) of bonds in the first half, of which the three policy banks accounted for 1.11 trillion yuan, according to data compiled by Bloomberg. The total is 36 percent higher than in the preceding six months and 16 percent more than a year earlier. China cut interest rates in June and July, the first reductions since 2008, and is encouraging local governments to boost investment as economists forecast 2012 growth will be the slowest in 13 years. The central city of Changsha has announced an 829 billion yuan spending plan, wooing banks to finance 195 projects, which include airport and subway lines, according to an official China News Service report on July 26.
“Regional governments are getting more outspoken in terms of stimulus as the global backdrop is getting worse,” said Steve Wang, head of fixed-income research in Hong Kong at BOCI Securities Ltd., a unit of Bank of China Ltd, the biggest arranger of debt sales this year. “Issuance is being led by policy banks and consistent
with the government’s support for big infrastructure projects. I see continued growth.” China will prioritise railways, roads, airports and other infrastructure projects for receiving loans, China Securities Journal reported on July 24, citing unidentified people. The government wants financial institutions to guarantee follow-up
Another round of investment to prop up growth
capital to these projects to ensure they are completed, the report said. “The bulk of stimulus this year will come via infrastructure spending because this is the fastest way to boost growth,” said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. “The investment will come mostly in western and central provinces so Changsha will be just one of many.” China’s policy banks are wholly state-owned and don’t take deposits from individuals, instead financing lending by issuing bonds. Their bond sales in the six months through June jumped 44 percent from the second half of 2011 and were 8.7 percent higher than a year earlier. Non-performing loans at China’s banks rose by 10.3 billion yuan in the first quarter to 438.2 billion yuan, accounting for 0.9 percent of total lending, the China Banking Regulatory Commission said in May. Fitch Ratings warned the same month that the size of bad debt was “vastly understated.” Bloomberg
August 2, 2012 business daily | 9
e agreement Residential market shows signs of picking up
trade irritants, despite this year’s U.S. presidential election and a once-ina-decade leadership transition under way in Beijing. Last week, Mr Marantis and Commerce Under Secretary Francisco Sanchez met with Chinese Vice Minister of Commerce Wang Chao to begin to identify priority issues for this year’s annual meeting of the U.S.-China Joint Commission on Commerce and Trade. Mr Marantis said the two sides still have not picked a date for the meeting, which brings together top trade officials from the two sides to address commercial concerns. Last year, the United States touted Chinese commitments to remove import barriers related to electric vehicles, improve enforcement of intellectual property rights and take steps aimed at increasing purchases of non-pirated software by government agencies and stateowned enterprises. Asked how well China was carrying out those commitments, Mr Marantis at first said “it’s too soon to tell,” but then acknowledged progress on Beijing’s part. In particular, actions taken by China to address concerns over its indigenous innovation policy have been “a real big win, generally” for the United States, he said. Washington has complained about the use of product catalogs that mostly excluded foreign manufacturers to guide Chinese government purchases in a bid to spur domestic companies to develop more cutting-edge technologies. “From where we were when we started to where we are now, it’s actually rather remarkable,” Mr Marantis said. The United States is beginning to see progress even at the provincial level in getting rid of the catalogs, he said. Reuters
Biggest price hike for more than a year
Property still a critical indicator on the state of the economy
hina’s new home prices posted the biggest gain in more than a year, signaling a turning point for the nation’s property market, according to SouFun Holdings Ltd, the country’s biggest real estate website owner. Home prices rose 0.3 percent from June to 8,717 yuan (US$1,369) per square metre (10.76 square feet), SouFun said in a statement yesterday, based on its survey of 100 cities. That was the second monthly gain and the biggest rise since June 2011. China’s Premier Wen Jiabao said China will “unswervingly” implement property controls and prevent home prices from rebounding, the official Xinhua News Agency reported on Tuesday, citing a government meeting held on July 26. Home prices had been declining after the government placed restrictions on the number of properties people could buy in
about 40 cities and raised downpayment requirements. “It is very clear that China’s property market is coming back,” said Vincent Mo, chairman of SouFun, told Bloomberg Television yesterday. The back-to-back monthly gain “showed the turning-point of China’s property prices,” he said. China sent eight teams to 16 provinces late last month to check on the implementation of its property curbs, according to a statement on the central government website last week. The nationwide check is aimed at “firmly” restraining property speculation and consolidating result of the curbs, it said. “It’s very difficult to expect the government’s policies to ease while home prices keep rising,” said Jack Gong, a Hong Kong-based property analyst at Jefferies Group Inc. “The policies in general are still tight, but there’s a lot of uncertainty in the
fourth quarter.” The central bank cut interest rates on July 5 for the second time in a month to spur economic growth, which eased for a sixth quarter in the three months to June 30. China’s home sales rose the most this year in June, increasing 41 percent from May to 531.3 billion yuan (US$83 billion), according to the statistics bureau data. Home prices rose in 70 cities last month from June, the most since July last year, according to Soufun’s statement. Among the major cities, Chongqing in the western region led gains with a 1.6 percent increase from June, while Beijing and Shanghai both added 0.03 percent. China’s home prices will be little changed for the rest of the year as the government isn’t likely to tighten or ease its property curbs, according to SouFun’s Mr Mo. Bloomberg
Politburo reaffirms stable growth priority Stocks rise as growth pledge offsets PMI data
hina’s stocks rose, lifting the Shanghai Composite Index from a three-year low, as a government pledge to ensure stable economic growth overshadowed manufacturing data that missed estimates. The Shanghai Composite sank 14 percent from this year’s high on March 2 on concern the economic slowdown is deepening. A meeting of the Communist Party’s Politburo determined that maintaining stable growth is still the top priority, the official Xinhua News Agency reported on Tuesday. A purchasing managers’ index released yesterday showed China’s manufacturing industry grew at the slowest pace in eight months in July. “Investors’ confidence may be boosted by the government’s pledge for more measures,” said Zhang Yanbin, an analyst at Zheshang Securities Co. in Shanghai. “That should support the
market a little. The downward trend hasn’t stopped as economic data is still weak.” The Purchasing Managers’ Index fell to 50.1 in July from 50.2 in June, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported yesterday. That compares with the 50.5 median estimate in a Bloomberg News economist survey. A reading above 50 indicates expansion. A separate PMI released yesterday by HSBC Holdings Plc and Markit Economics rose to 49.3 from 48.2 in June, after a preliminary reading of 49.5 released last week. Premier Wen Jiabao said downward pressure on the economy is “relatively large” and pledged to use different monetary policy tools to ensure stable growth in money supply and bank credit, the official Xinhua News Agency reported on Tuesday, citing a speech on July 26. The government will
Uncertainty still dominates the market
“unswervingly” implement property controls and prevent home prices from rebounding, according to the report. “The ongoing pace of economic growth is within expectations, but the external environment remains grim and poses difficulties and challenges,” Xinhua said, citing a Politburo meeting. The Politburo reiterated that China will pursue a “prudent” monetary policy and “proactive” fiscal policy. Jim O’Neill, chairman of Goldman
Sachs Asset Management, said in an interview with Bloomberg Radio from London that he expects the People’s Bank of China to continue cutting interest rates to shore up the economy. The central bank has lowered borrowing costs twice since early June, reduced banks’ reserve requirements three times since November and sped approvals for investment projects as economic growth weakened. Bloomberg
business daily August 2, 2012
S.Korea exports, inflation dip in July Builds case for back-to-back rate cut next week Japan plans US$6.4b in asset sales Japan’s government plans to raise about 500 billion yen (US$6.4 billion) by selling off real estate and financial assets in a bid to build public support for legislation to double the sales tax. The sales will take place through March 2017, according to a statement distributed to reporters in Tokyo by the prime minister’s office. The assets to be sold include 1,990 lots of unused land and a dormitory for lawmakers, it said. Ruling party lawmakers have said the asset plan is meant to show the government is doing all it can to eliminate waste as the country struggles with a government debt more than twice the size of gross domestic product and ballooning social security costs. Prime Minister Yoshihiko Noda’s sales tax bill will increase the levy to 8 percent in 2014 and then 10 percent in 2015 from the current 5 percent. “We can’t stop here,” Mr Noda told cabinet ministers at his official residence yesterday. “We must press forward with administrative reform.” The Tokyo Metropolitan Government will buy the lawmaker dormitory for 9.8 billion yen in a deal scheduled to be finalised in the financial year ending March 2014, according to the statement. The government will also sell 2,393 housing units used for bureaucrats for 70 billion yen, it said.
Se Young Lee
xports in July suffered the worst showing in nearly three years and manufacturing activity shrank at its sharpest pace this year as South Korean’s exportreliant economy reeled from the effects of the eurozone crisis. Yesterday’s disappointing data underscored how much more quickly Asia’s fourth-largest economy was losing momentum than had been expected, bolstering the case for another interest rate cut as early as next week, analysts said. Exports in July fell 8.8 percent from a year earlier while inflation dived to more than a 12-year low of 1.5 percent as uncertain economic prospects hit demand and investment around the world. The HSBC/Markit purchasing managers’ index (PMI) for South Korea’s manufacturing sector fell to a seasonally adjusted 47.20 in July from 49.38 in June, setting the weakest in seven months and indicating a steepening decline for the sector. Deputy Economy Minister Han Jin-hyun told reporters exports in August would be able to post growth on a year-on-year basis but acknowledged their dependence on how the eurozone crisis and the global slowdown unfold.
Bond futures gained and stock prices fell as traders digested the policy implications from the weak data, while the won gained on speculation a possible further policy easing in the bigger economies could spur capital inflows.
KEY POINTS July exports down 8.8 percent year-on-year July CPI up 1.5 percent yearon-year July HSBC/Markit manufacturing PMI at 7-month low Exports worst in about 3 years Inflation lowest in over 12 years
“Tying up all the data together from yesterday and today, everything has become worse. We see another rate cut next week by 25 basis points,” said Park Sang-hyun, chief economist at HI Investment & Securities, referring to the bleak data published on Tuesday.
Demand in slump The weak export and manufacturing-sector indicators also dashed hopes among policymakers that the local economy would turn to recovery from the current quarter, with domestic demand still in a deep slump.
Australian house prices up in Q2 House prices in Australia’s major cities recorded a surprise increase last quarter, the first in more than a year and perhaps an early sign that recent cuts in interest rates are stabilising demand in what has been a very subdued market. Yesterday’s figures from the government showed prices for established houses in the major cities rose 0.5 percent in the second quarter, beating forecasts of a 0.5 percent fall. The first quarter was also revised to show a slight 0.1 percent dip, compared to an initial 1.1 percent drop. Prices were still down 2.1 percent on the same quarter of 2011, but that was the slowest pace of decline in more than a year. The index of house prices was also just 4.7 percent below the all-time peak hit in 2010, a far smaller drop than suffered in say the United States or Britain. The sector was likely aided by the Reserve Bank of Australia (RBA), which cut its main cash rate by a total 75 basis points over May and June to take it to 3.5 percent, the lowest since December 2009. That brought the total easing since November 2011 to 125 basis points and left mortgage rates around half a point below their long-run average. Australian households are highly sensitive to mortgage rates as 35 percent have home loans, most of which are variable. Mortgage debt totals A$1.2 trillion, or 1.5 times household disposable income, and a cut of 25 basis points in mortgage rates saves an average borrower around A$540 a year. The increase in house prices in the second quarter was led by Darwin, the capital of the sparsely populated Northern Territory, which has been enjoying something of a resource boom. Prices there jumped 5.1 percent in the second quarter alone to be up 12.3 percent for the year.
Singh answers sought after major power outage Two consecutive power-grid collapses may hurt growth
eeping the lights on has emerged as Indian Prime Minister Manmohan Singh’s most immediate challenge. The economy growing at its slowest pace in nearly a decade, the prospect of a drought, and
having his government battered by 18 months of policy reversals and corruption allegations were bad enough. Two power-grid collapses in 36 hours have left 600 million people sweating through a failing monsoon, heaping more pressure
on a prime minister whose legacy as an economic manager is coming under increasing scrutiny. “This looks even worse than it would normally because there’s an impression that India’s economy is falling apart right
August 2, 2012 business daily | 11
Olympus stocks slump on possible fresh wrongdoing Lawsuit by capital tie-up suitor also weighs on stock
Exports expected to rebound in August, ministry says
South Korea’s top mortgage lender published separate data later in the day showing that housing prices across South Korea fell 0.1 percent in July from June, their first monthly fall in two years. Falling home prices cut capital gains for home owners and hurt overall business activity in the property sector, which in turn would further squeeze household spending. Yesterday’s data reinforced the market’s already growing view that policymakers would become more aggressive in trying to stop the local economy from slipping deeper into a slump, including a back-to-back cut in interest rates
again next week. Last month, the Bank of Korea unexpectedly cut its base rate for the first time in more than three years and the following day sharply lowered this year’s economic growth outlook, fuelling speculation that another rate cut was on the agenda for the central bank’s next policy review on August 9. The finance ministry has also flagged increasing downside risks to future economic growth and unveiled plans to increase public spending by more than US$7 billion for the rest of this year to support growth.
now,” said Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund Management. “In any normal time, people may say that accidents happen. Right now everyone is looking at Singh to see what, if anything, he is going to do to fix the problem.” India is in the throes of its worst ever power crisis after two days of blackouts that highlighted poor infrastructure and lack of investment in its generating and transmission sectors. Half of the country’s 1.2 billion people were left without any electricity for more than five hours on Tuesday, halting transport networks and forcing businesses and emergency services to rely on generators. Shrinking export orders and sluggish output dragged Indian manufacturing growth in July down to its weakest pace since last November, a business survey showed yesterday. The HSBC manufacturing Purchasing Managers’ Index (PMI), which gauges business activity at India’s factories but not utilities, fell to 52.9 in July, from 55.0 in June – its biggest onemonth drop since September last year. Still, the index has remained above the 50 mark that divides growth and contraction for more than three years.
an e-mailed statement from Power Grid Corp. of India Ltd. India has missed every annual target to add electricity production capacity since 1951, resulting in a peak demand deficit of nearly 10 percent. Mr Singh is seeking to secure US$400 billion of investment in the power industry in the next five years as he targets an additional 76,000 megawatts in generation by 2017. As engineers worked to reconnect nearly two dozen states to the national grid, the man who began the day as power minister, Sushil Kumar Shinde, ended it in charge of the home ministry, the cabinet’s third-most prominent position, after a reshuffle of Mr Singh’s team of ministers. Mr Singh tacked the power portfolio on to the duties of Minister for Corporate Affairs Veerappa Moily, a move a former regulator said smacked of an inadequate government response to the crisis. “Heads should be rolling, but instead the power minister is going to be made home minister,” said S.L. Rao, former chairman of the Central Electricity Regulatory Commission, who was in charge of overseeing the industry from 1998 to 2001. The government, which has said the outages may have been triggered by states exceeding the amount of power they are allowed to draw from the national grid, announced that it has tasked a committee with investigating events leading up to the shutdown.
Investment plan Power had been fully restored in New Delhi and across India’s northeastern grid as of 5.30am local time yesterday, while 95 percent the northern and eastern grids were operating, according to
lympus Corp.’s shares slid yesterday after the scandalbattered endoscope and camera maker revealed it may have broken a U.S. law that bans corporations from offering bribes to win business in overseas markets. Olympus uncovered “irregularities” at a doctor-training programme in Brazil that may have violated U.S. law and reported them to the Department of Justice, chairman Yasuyuki Kimoto said. The DOJ is also examining the company’s marketing operations in the U.S., he said. “We might agree to some sort of violation of the Foreign Corrupt Practices Act in Brazil,” Mr Kimoto said in his first interview since becoming chairman in April. “We understand DOJ is trying to gather lots of information on us.” At issue in Brazil may be the way the company handled doctors’ expenses for travel, meals or entertainment, Mr Kimoto said. The country accounts for less than 2.5 percent of the company’s sales. The two enquiries come after revelations of a 13-year accounting fraud sparked a sell-off that wiped about US$3.7 billion off its market value last year. “Olympus might have to be investigated further because of this,” said Nanako Imazu, an analyst at CLSA Asia-Pacific Markets in Tokyo. That whiff of fresh trouble for is a concern for jittery Olympus investors, she noted. Tokyo-based Olympus restated earnings last year after admitting it paid inflated fees on takeovers and overpaid for three Japanese companies to conceal past investment losses. That may be why the U.S. Food and Drug Administration and the Justice Department, which oversee compliance in the medical industry, are asking about the company’s marketing operations, Kimoto said. “It’s quite natural if they think how to protect themselves from this kind of situation,” said Mr Kimoto. “It is not surprising if they pay their attention or take more scrutiny against us.”
Strong-arm tactic Olympus plunged 6.8 percent, the most since December 19, to 1,380 yen (US$17.6) at the close in Tokyo trading. The shares have gained 36 percent this year.
The enquiries into Olympus’ U.S. marketing operations may be part of a wider probe, according to Mr Kimoto. “We don’t know yet whether it’s just for us or the medical industry as a whole,” he said. The drop in Olympus’ stock also followed a surprise lawsuit by medical equipment maker Terumo Corp., which is vying with Sony Corp., FujiFilm Holdings Corp. and other companies to inject money into the cash-strapped company in return for a stake. The decision by Terumo to seeks damages for loss of shareholder value from the accounting fraud that rocked Olympus last year might be a tactic by Japan’s leading maker of catheters and artificial hearts to garner more attention for its tie-up proposal, one corporate governance expert said. Olympus said in a statement yesterday it had received a claim for 6.6 billion yen (US$84 million) in damages from Terumo. Terumo, which has proposed investing some US$640 million in Olympus, is suing Olympus under Japan’s Financial Instruments and Exchange Act for failing to disclose its accounting fraud before signing a business and capital tie-up with the medical equipment firm seven years ago. “This sounds to me like a sharp wake-up call to Olympus, to bring them to the negotiating table,” said Nicholas Benes, a corporate governance expert who runs the Board of Director Training Institute of Japan. “Olympus will very much not want a significant shareholder suing it based on the securities laws, as that could provoke other shareholders to sue.” Bloomberg/Reuters
Olympus said it uncovered irregularities at a doctor-training programme in Brazil
business daily August 2, 2012
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Opinion Greek banks follow Euripides to help borrowers: mortgages (Part II) Rob Urban and Sharon Smyth Bloomberg journalists
‘No muscle’ “The problem with laws encouraging foreclosure forbearance is that they can encourage people who can pay not to, leaving the banks with no muscle to force people who take advantage of the law to pay,” said Ivan Zubo, an analyst at BNP Paribas SA in London. Foreclosure “is not a strategic option for us,” said Athanassopoulos. “We want the law changed to give us more discretion and flexibility. I would never foreclose on a person who has lost his job but we need more discretion with people who are taking advantage.” The Greek mortgage market had annual growth of 82 percent in the early 2000s when first-time buyers took advantage of easier financing and interest-rate reductions as the country joined the single European currency. Even now, Greece’s household mortgage debt as a percentage of gross domestic product is among the lowest in developed countries, at 36 percent, and less than half the level in the U.S., Ireland and U.K, according to Deutsche Bank AG analysts Conor O’Toole and Rachit Prasad. “It ranks second lowest only to Italy among the selection of European peripheral states and far lower than the U.K. and the U.S.” they wrote in a May report.
troika will come and the state will pay its arrears and there will be liquidity,” while the bank “recapitalisation will also boost liquidity,” said Petros Christodoulou, National Bank of Greece’s deputy chief executive officer. “Unless you have liquidity nothing can function. Liquidity is like blood, nothing can function without blood. I hope that from September onwards this will happen.”
Greek exit Citigroup Inc. this week updated its forecast for a Greek exit from the euro, saying there is now a 90 percent chance, probably in the next two or three quarters. Previously it said there was a 50 percent to 75 percent likelihood, and said it would most likely happen in the next two to three quarters. Greece, which has struggled to meet targets for narrowing its budget deficit, has more ground to make up after holding elections in May and June that highlighted voter anger over the bailout terms. An inconclusive May 6 vote led to a June 17 rerun in which the New
Democracy party of Prime Minister Antonis Samaras, finished first with almost 30 percent of the vote. Samaras formed a government with the Socialist Pasok party, which came in third, and the sixth-place Democratic
Even now, Greece’s household mortgage debt as a percentage of gross domestic product is among the lowest in developed countries, at 36 percent, and less than half the level in the U.S., Ireland and U.K.
Left with pledges to keep Greece in the euro while fighting for looser aid conditions from the region and the IMF. The Greek public remains divided about the austerity measures, with polls showing a majority favour a renegotiation of bailout terms. Alexis Tsipras, head of Greece’s biggest opposition party Syriza, on July 23 called on the government to refuse talks with the troika. “There are opportunists sitting on the sidelines saying, ‘Let’s leave Europe, let’s not pay a penny, let’s blackmail them,’ but any technocrat knows that is certain death,” said National Bank of Greece’s Christodoulou. “I for one believe in the opportunity of staying in the game, and that is the opportunity we give to homeowners. Taking away the home of a particular family tears apart the social fabric of an already stressed society.”
(For editorial reasons, this article was published in two parts. The first part appeared in yesterday’s edition.) Bloomberg View
Rescue packages The biggest delinquent debtor in the country is the Greek government, which has 6.8 billion euros (US$8.4 billion) in arrears to companies. That’s also a drag on the economy, which contracted more than 6 percent last year. Mortgage lending has ground to a halt as the banks deal with rising delinquencies and potential buyers wait to see whether the country will be able to negotiate an agreement with its international creditors that will allow it to get further bailout funds and stay in the 17-member European currency. Greece’s so-called troika of creditors – the European Central Bank, the European Commission and the International Monetary Fund – are in Athens this week to review the country’s progress on implementing budget cuts. Also dependent on further agreement with the troika is an additional 23 billion euro payment from a recapitalisation fund for Greek banks that is part of a broader delayed second tranche of emergency funding for Greece. So far, 25 billion euros of recapitalisation funds have been paid. Core tier 1 capital at the National Bank of Greece is at 8 percent after receiving 7.4 billion euros in the first round of recapitalisation. Like all other Greek lenders it must rise to 9 percent by the end of September and 10 percent by July 2013. “If the state is given the thumbs up for its progress, the disbursement from the
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August 2, 2012 business daily | 15
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Europe’s zero-sum poison Jean Pisani-Ferry
Director of Bruegel, an international economics think tank, Professor of Economics at Université Paris-Dauphine
Business Line The Competition Commission of India has approved the proposed amalgamation of Maruti Suzuki India Ltd and Suzuki Powertrain India Ltd . In June, Maruti Suzuki had said that it would merge with its engine and transmission maker to meet the growing demand for diesel vehicles. “The commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition in India,” the order said. Suzuki Motor Corporation holds 70 percent stake in Suzuki Powertrain, while the rest is held by Maruti Suzuki.
Jakarta Globe The Industry Ministry wants to turn Indonesia into an Islamic fashion capital by 2020, and is looking to Europe as its main export market. Euis Saedah, the director general for SMEs cited an abundance of orders from foreign buyers following last year’s International Islamic Fashion Fair in Jakarta. She said Indonesia’s modern, middleclass Muslims has fuelled innovations and creativity in Islamic fashion. Europe represents a vast potential market for Muslim wear, with the sales of Islamic outfits in Europe reaching US$1.5 billion per year.
Asahi Shimbun Fujitsu Ltd. has entered negotiations to sell its semiconductor factory in Kuwana, Mie Prefecture, to Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker. Fujitsu invested more than 200 billion yen (US$2.6 billion) since 2004 to build the cutting-edge plant. It has a payroll of 1,400 producing system LSI chips for digital home electronic appliances. According to the company, the operation has become a drain on the company’s finances which has not been able to cover the fixed costs. News of Fujitsu’s negotiations with TSMC is just the latest indication that Japan’s chipmaking industry is in crisis.
henever a society regards its problems solely through the prism of distributional disputes, its chances of solving them diminish greatly, because the “us versus them” mentality distorts analysis and blocks solutions that would unambiguously improve the overall situation. Every policy choice is perceived as a zero-sum game, whereby a gain for one group is necessarily a loss for another group. The very notions of trust and progress vanish. We have seen in the past the extent to which such conflicts – between rich and poor, landlords and industrialists, or capital and labour – can hamper development. We are seeing today in the United States how entrenched antagonisms result in a stalemate on tax and budgetary matters. And there are many examples of failed economic reforms that fundamentally boil down to the same zero-sum logic. But that logic is nowhere as salient today as it is in Europe. Since the euro crisis began, almost three years ago, there has been a continuous struggle between two readings of it.
Two narratives The first interpretation emphasizes the eurozone’s policymaking shortcomings and the reforms needed to remedy them. The second highlights individual eurozone countries’ failings and the costs that they impose on their neighbours. Until now, a rough balance between these two interpretations has prevailed. But the second is increasingly gaining the upper hand. In northern Europe, public opinion is increasingly exasperated by what many view as an attempt by the south to rob it of its savings. A recent letter signed by 160 German economists claiming that the European Union’s plan for a banking union was little more than an attempt to make Germany pay for Spanish mistakes is revealing in this respect.
The economists largely overlook the problem of financial fragility that a banking union is supposed to address, claiming instead that there would be no problem if governments simply stopped intervening in banking crises. And they overstate the risk that a common depositinsurance scheme could turn into a massive north-south transfer channel. In turn, southern Europe is getting angry. Italian Prime Minister Mario Monti recently decried the emergence of a European “creditocracy” – governance by those who pretend to be on the giving side of Europe – and pointed out that, contrary to
American economist Martin Feldstein wrote in 1997 that monetary union would create conflict within Europe. At the time, he was derided and regarded as an entrenched opponent of the European project. Unfortunately, his insight was correct: European countries today are at loggerheads not despite the common currency, but precisely because of it.
History lessons History suggests that international disputes over debt and transfers are a serious danger. In the 1920’s and the 1930’s, representatives
Many societies have proved able to overcome a zero-sum mentality and project their perceptions of national interest into the future. Europe must find in itself the ability to do the same
widespread perception, Italy is not relying on anyone else’s support. (Italy is indeed contributing to support other crisis countries, so, objectively, it is still a creditor). If the mild-mannered Monti speaks in these terms, what can we expect from the new breed of populism that is bound to result from the southern European crisis? Admittedly, Europe’s increasingly divisive zero-sum thinking is not entirely new: the EU is accustomed to distributional disputes, and the lengthy budget discussions (which take place every seven years) are typically acrimonious affairs. But, until now, policymakers could contain controversies to the usual political give-and-take of taxation and cross-country transfers. The problem with the current debate is that distributional disputes now contaminate the entire policy spectrum. One man saw this coming.
of European states devoted countless meetings to resolving them (at the time, mainly German reparations). Despite US goodwill, they were unable to overcome their differences,
and let the reparation problem degenerate into a poisonous financial conflict that contributed to much worse. But conflict is not inevitable. Many societies have proved able to overcome a zerosum mentality and project their perceptions of national interest into the future. Europe must find in itself the ability to do the same. An important lesson from how countries address internal disputes is that the attitude needed does not require overlooking distributional issues. Successful societies do not stop having arguments about who benefits or loses from taxation, redistribution, or regulation. But they do not let distributional issues take over the entire debate. They are able to separate efficiency or stability issues from distributional controversies. That is the lesson that Europe must learn. It must recognise that it is bound to live with distributional disputes, and that it must find ways to address them. But, even more important, it should contain the scope of these disputes, and avoid becoming mesmerised by them. Doing so requires courage, vision, and trust – qualities that are currently in dangerously short supply. © Project Syndicate
business daily August 2, 2012
CLOSING S.Korea, Turkey ink trade agreement
Cross-Strait investment protection deal
South Korea signed a free trade agreement with Turkey yesterday, the latest in a wide-ranging series of trade pacts negotiated by the exportdependent country. Trade ministers from the two countries signed the deal covering merchandise in Ankara earlier in the day, Seoul’s trade ministry said. They will hold more talks this year to reach a similar pact on services and investment. South Korea has already signed free trade deals with the U.S., the EU, India, the ASEAN, Singapore, Peru, Chile and the EFTA. It launched free trade talks in May with China, its biggest export market.
Taiwan and China are set to sign a long-delayed investment protection agreement next week aimed at boosting trade between the two sides. Taiwanese companies have long complained about a lack of a formal mechanism for solving business disputes in mainland China. An investment protection deal has been long in the making as the two sides could not agree on a way to resolve disputes. Taiwan had pressed for international arbitration, a proposal China could not accept because it considers Taiwan its own territory. The agreement will include a mechanism satisfactory to both sides.
ECB could get power to wind up banks Blueprint being prepared likely to be contentious
he European Central Bank’s watchdog for banks could get the power to order the closure of lenders in what would be a radical step to tackle the crisis. The plan remains subject to intense debate between the ECB, the European Commission and member states, but officials and policymakers who spoke to Reuters have outlined a framework of how an ECB-sponsored uber-watchdog could work. The blueprint, which is due to be finalised by the EU’s executive in the coming weeks and announced in September, is central to building a banking union, forging a unified front among eurozone countries in tackling a five-year bank crisis. Handing powers of supervision to the ECB also unlocks the possibility of direct aid to banks from the eurozone’s permanent rescue scheme, the European Stability Mechanism (ESM), although it is not clear if and when countries would benefit. The regulating agency, which will be set up under the wing of the ECB, may also be located away from Frankfurt – a choice that divides opinion among countries and officials. The ECB declined to comment. Such a step could also address some of the ECB’s own anxiety about
The blueprint, due to be announced in September, is central to building a banking union
taking on the new supervisory role, which some officials concerned about the central bank ending up in a position where it takes decisions with an impact on national budgets.
Dividing powers Some central bankers are worried that should the ECB get too much responsibility for supervising banks,
this may prove unmanageable and backfire later, hurting its image if it fails to spot problems and take action. One solution to this would be to separate the resolution authority, responsible for winding up troubled banks, from the supervisor. Some central bankers would like to see any winding down of banks carried out under the umbrella of the ESM. Locating the agency away from the
central bank would also allow for what one official described as an “arms length” relationship between the agency and the ECB. ECB President Mario Draghi has said he will not allow “contamination” of the bank’s primary role by supervision work. “Any new tasks in terms of supervision should be strictly separate from monetary policy tasks,” Mr Draghi said recently. “There should be no contamination between the two areas and we will certainly find ways to make it sure that this is the case.” His comments reflect discomfort among some of the bank’s policymakers about taking on supervision responsibility, concerns that one eurozone central bank source summarised. “What would happen if another bank in Spain went down under the ECB’s watch?” Officials will also attempt to find agreement on giving the new bank supervisor, the power to close failing lenders. This is likely to prove one of the most contentious points with countries, who would directly deal with the fallout including having to pay for at least some of the costs of such closures. Reuters
European PMIs hint at economic contraction Asian economies start to feel the pinch
urozone manufacturing took another turn for the worse last month as output plummeted, hammering home the scale of the region’s economic crisis which also depressed export orders from factories in China and India. Surveys of thousands of factories across the world released yesterday showed activity in the 17-nation eurozone contracted for the eleventh straight month in July as a downturn that began in the periphery sinks deeper roots into the core. The manufacturing slump worsened in Italy, Spain and Greece, but also in the region’s
two biggest economies France and Germany, the purchasing managers indexes (PMIs) showed. Britain’s PMI plummeted to a more than three-year low. In Asia’s biggest economies China and India, which until recently had appeared more resilient to the effects of recession in Europe and disappointing growth in the United States, export orders were weak and output stalled. “The eurozone continues to struggle with the debt crisis, while the world economy is slowing down. This last piece of information should give policymakers food for thought,” said
Peter Vanden Houte at ING Belgium. But there was plenty of doubt over how much major non-Asian central banks meeting this week – the U.S. Federal Reserve, the European Central Bank and the Bank of England – will or can do to turn the tide. Expectations are running high for another round of money printing from the Fed, although it probably will not happen until next month. The ECB may fall short of lofty market hopes at its meeting this week, with insiders telling Reuters bold policy action could be weeks away, while the BoE is already in the middle of a money printing
campaign it just increased to 375 billion pounds (US$586 million). But in the meantime most of Europe’s economies are sinking. Markit’s Eurozone Purchasing Managers’ Index for the manufacturing sector fell to 44.0, well below the 50 level that divides growth from contraction. The reading was the lowest since June 2009, below the flash reading of 44.1 and June’s 45.1. The only bright spot was Ireland. It was the only eurozone country to show signs of emerging from the downturn, with its PMI above 50 for a fifth straight month. Reuters