Misguided money It has been three years since the government laid out an ambition plan for the cultural and creative industries that is still under development. James Chu Cheok Son, a member of the cultural industry committee, says the government seem unsure about the path to follow. While the administration has invested a lot of money in culture, ‘they are not really spending it in a fair way,’ says Mr Chu. The artist, who is also the head of the Art for All Society, says there is a great need for art education and wants more government assistance for artists. Pages 4 & 5
alo Clinic and its medical spa, publicised as the world’s largest, could face bankruptcy as one of its suppliers has taken its plight to court, filing a bankruptcy claim against the clinic. Administrators at Pacific Health Care Ltd, the company registered here that runs the clinic, say the venture is close to breaking even as business has been growing fast. They rejected any financial difficulties but admitted that a heavy initial investment that was estimated around US$70 million (560 million patacas) in 2009, was still weighting down on the clinic. But sources told Business Daily the clinic located at The Venetian Macao-Resort-Hotel has a long list of
creditors, including overdue rents to the host resort. Casino operator Sands China Ltd has reportedly offered to take over the loss-making spa in exchange for part of the overdue rents. Both sides declined to confirm the existence of any overdue rents but did admit that a tenancy contract revision is ongoing. Sources claim Venetian is seeking a monthly rent of 2 million patacas but a clinic administrator said, without directly commenting on the figure, that the company is waiting for a reply from Venetian to a proposal that would set the rent at “a much lower figure’. More on page 3
Photo: Manuel Cardoso
Malo Clinic in deep debt trouble I SSN 2226-8294
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End-August deadline for North West ferries
Fuel hikes stress supply dilemma
Ferry operator North West Express Ltd will have until the end of this month to submit a plan for resuming its services, or facing losing its licence, the Maritime Administration warned yesterday. In addition, the company will have to prove it has a sound financial situation, with the Tuen Mun pier debts solved. The operator will also be forced to get at least one of its two vessels back in sailing shape.
Fuel prices have increased six times since July, with Macau suppliers laying the blame on fluctuations in the international market, due to the political situation in the Middle East. The hikes are likely to reflect on wholesale and retail prices of goods, pushing up inflation. But analysts say there is price fixing aimed at keeping prices high – a charge denied by the industry – and also call for more land, maybe even on Hengqin Island, for fuel storage when international oil prices are low.
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Future Bright for food business www.macaubusinessdaily.com
Fresh beef stock running on empty
China home prices rebound in July Page 6
Year I - Number 101 Monday August 20, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily August 20, 2012
Better food sales boost Future Bright profits Food and beverage drove profits up by 89 percent in the first half; more restaurants to open in second half Vítor Quintã firstname.lastname@example.org
estaurant operator Future Bright Holdings Ltd announced its profit almost doubled in the first half of this year, thanks to higher food sales here. Future Bright told the Hong Kong stock exchange on Friday that its net profit increased 89.1 percent year-on-year to HK$60.7 million patacas (US$7.8 million). The company’s revenue reached HK$315.7 million, up by 29.2 percent, mainly due to sales of food and beverages, which increased 30.2 percent to HK$308.6 million. The board of directors has approved an interim dividend of HK$1.50 a share. The operator says the increase in turnover was mainly attributable to expanded restaurant operations, with four new restaurants opened in the first half, including two Pacific Coffee Company shops. But it was Japanese food that provided the biggest boost to the bottom line, with turnover up 41 percent to HK$167.3 million. The group says it food and labour
costs increased by 23.3 percent to HK$195.9 million but there were better economies of scale and efficiency. “This is the expected result from the group’s cautious expansion strategy in its operations in Macau, for which the management would continue to pursue,” Future Bright said. The company wants to open seven more restaurants by the end of the year, including two Chinese restaurants at the Macau International Airport, as well as a staff canteen and a Pacific Coffee Company shop at the Macau University of Science and Technology. Future Bright has won the bid for the three-year operation of three restaurants and a coffee shop at the new campus of the University of Macau on Hengqin Island, starting next July. Future Bright is “as always, confident in Macau’s economy especially its tourist and gaming industries” but is expecting “increasing costs in food materials, rental and labour”. The group’s small property business
The Edo chain of Japanese restaurants are the most profitable arm of Future Bright’s food services empire.
saw its rental income drop by 2.8 percent to HK$7 million, even though it leased part of its property to the Macau government. Still, Future Bright “firmly believes that high demand for good commercial properties at prime locations would continue, and the commercial property will in the long term enjoy some healthy capital appreciation”.
As such, the management led by “considers that it is beneficial for the group to look for opportunities to expand the property investment business”. Future Bright’s managing director is Chan Chak Mo, the president of the Macau Catering Industry Merchants General Association and a member of the Legislative Assembly.
business as usual
Playing the political card Paulo A. Azevedo email@example.com
uilding thousands of one-bedroom flats as affordable homes could not have been just a colossal error that can be attributed to a lack of knowledge. It was primarily a political manoeuvre that went sour. The government was trying to play nice when it promised 19,000 public housing units by the end of this year. No wonder it decided to build apartments for singles – flying in the face of what the market was dictating and public expectation. It also chose to build on one of Macau’s least advisable locations. Seac Pai Van is right at the end of the Cotai Strip. The Strip was once set aside as the jewel of the city’s entertainment offering and the mix of products on that patch of land illustrates the inexistence of the city’s urban planning strategy. Housing Bureau director Tam Kuong Man recognised, partially, the mistake in building more than 1,500 one-bedroom flats by saying demand had been weak. The government will now try to find a use for the flats. I have a piece of advice to our senior civil servants: blow them up. Blow them up before it is too late and use the costly experience as a valuable lesson so next time you will be able to meet your responsibilities. The buildings and their flats are horrible, hardly better than the monstrous cages for rent in Hong Kong. As some members of the Legislative Assembly have pointed out, there is nothing nearby that will help the thousands of low-income earners improve their lives. No shops, no health centres, no supermarkets. The sole benefit for would-be residents are the views of glamorous buildings and neon, shining back at them from fine hotels, world-renowned shops and grand restaurants that are clearly not meant for them.
August 20, 2012 business daily | 3
Court claim could bankrupt Maló Clinic
It has been open for five years but the Maló Clinic is still trying to break even in the face of mounting debts
Random? Not a chance
Paulo A. Azevedo firstname.lastname@example.org
José I. Duarte
Maló Clinic & Spa opened in Macau in 2009
hey call themselves the world’s biggest medical spa and Maló Clinic seems to be in big trouble. One of the clinic’s suppliers, architectural and engineering company Macau Professional Services is asking for more then 8 million patacas (US$1 million) in fees and interest to pay for more than three years of consultancy services. The company, a member of CESL Asia Group, has submitted a bankruptcy claim against the clinic to the court. The claim is against Pacific Health Care Ltd, the locally registered company that provides Maló Clinic services. According to several sources Business Daily spoke to, Pacific Health Care has a long list of creditors that includes the clinic’s landlord, The Venetian Macao-Resort-Hotel, where the clinic and spa owes rent for the space it leases. There have been attempts made to negotiate the unpaid rent in instalments or through a scheme that would give The Venetian control of the spa in exchange for the rent. A spokesman for The Venetian declined to comment on whether it is interested in taking over the spa. In a response to questions from Business Daily, it said it was reviewing the clinic’s lease. “[We are] currently reviewing contractual arrangements with Maló Clinic. All commercial arrangements, including negotiations, with tenants are treated as confidential, consequently the company is unable to comment”, Sands China Ltd, owner of Venetian, told Business Daily.
The casino operator’s patience is not shared by Macau Professional Services, who filed their claim with the court earlier this month. Pacific Health Care chief executive and administrator José Peres de Sousa says the company is in good financial condition. He confirmed the clinic was negotiating a revision of the tenancy agreement with The Venetian. Mr Sousa would not confirm the current rental cost to his company. Business Daily understands it is 2 million patacas (US$250,000) a month. Mr Sousa said that figure would be “just about unbearable”. The clinic was waiting for a response from The Venetian to its proposal that would set the rent at “a much lower figure,” he said. The clinic’s administrator Sérgio Duarte Franco said the company has experienced “significant and continuous” growth which was currently “around 50 percent”. He did not elaborate. Sources do not share his optimism. “The clinic is doing fine but the spa has been losing money,” one person said. Mr Sousa says the company is close to breaking even but the biggest difficulty remains in the heavy initial investment financed under a credit facility with a consortium of banks. In an interview with Macau Business magazine, published in February 2009, Paulo Maló, president and chief executive of Maló Clinic, revealed that he wanted to recoup the US$70 million (560 million patacas) outlay in seven years. “We are world leaders in oral
Building a history Pacific Health Care Ltd started operations in September 2007 with a capital of 1 million patacas (US$125,000). Paulo Maló de Carvalho, José Peres de Sousa and Carlos Alberto Santos were the initial administrators. The latter would leave the company in February 2008 to be replaced by Manuel António Geraldes. He did not stay long, leaving the position just seven months later. Sérgio Duarte Franco joined the company in December 2008.
A global concern Lisbon-based Maló Clinic was founded in 1995 and says it is now the world’s biggest centre in implants and dental aesthetics. The company says it has 11 Maló clinics in the United States, Portugal, England, Poland, Angola and Australia. Shanghai, Casablanca, Madrid, Milan, Tel Aviv and Bogotá are other projects in the pipeline, according to the company’s website.
rehabilitation, and within two years we expect to be the global market leader in the areas of medical spas, anti-ageing, dermo-cosmetics and oral surgery,” he said at the time. With Vítor Quintã
here are situations where the more something is explained, the less you feel you know. The explanations of the cave-in at the construction site of the tunnel to the University of Macau’s new campus on Hengqin Island fall into this category. After an initial period when it was not clear who exactly was responsible for what, it became obvious that the matter was not really in the hands of the authorities here. The work is not under Macau’s jurisdiction. That much we know. To say that the execution of the project is the mainland’s job but monitoring it and quality control is Macau’s, is less than straightforward. Is this supposed to reassure us? What is known about this cave-in does not make us any less uncertain. The official report on the cave-in only muddies the waters. It says there was “too much excavation”. Several factors, it says, contributed to the accident: the rain, the complex nature of the soil, the constructor’s rush to advance the work and the failure of the installation of safety structures to keep pace with the excavation. Put together like this, these explanations might lead us to think that an unfortunate combination of natural conditions and human decisions conspired to bring about an inevitable accident. In a way, nobody can bear responsibility. Accidents happen, right? Well, heavy rain has been known to fall at this time of the year and the soil did not change in the last fortnight or so. These are permanent conditions which the planning and execution should have taken account of. Putting the accessory factors aside, the only clear conclusion we can draw from this incident is that the appropriate safety procedures were not followed and the structures necessary for protection and consolidation were not put in place. This is the result of human failings, not chance. This message gets almost completely buried in the official report. And it never came out clearly when the report was given to the Legislative Assembly. Amazingly, after the assembly sitting ended, journalists were told that the contractor had been advised to stop work because of safety concerns. So much for monitoring and quality control – not to mention respect for the assembly. Did it really have to take a cave-in to make those responsible think that it might be a good idea to have an alternative crossing and a means of evacuation in case of an accident? The critical questions now are: who bears ultimate responsibility and who can give reliable assurances about the quality and safety of the tunnel? Who is responsible for what? Who has jurisdiction? How reliable is the information provided? If we thought we knew, we had better think again. I said at the beginning that the more a thing is explained the less clear it becomes. Nothing illustrates this better than the most extraordinary of the explanations put forward: that the works were being rushed in anticipation of Typhoon Vicente. So maybe it was a bad decision, but it was a decision made with the best intentions. A sceptic might ask how they had the foresight to anticipate the arrival of Vicente before the storm had gathered. It is a pity they did not use this foresight to anticipate the cave-in. But that is beside the point. The accident raises troubling questions about safety, responsibility and accountability. And nothing about it bodes well for the future of the University of Macau’s new campus.
business daily August 20, 2012
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HOSPITALITY Back on the bus The number of tourists entering the city on package tours in June rose by 8.4 percent from a year before. The lion’s share of package tourists were from the mainland but the rate of growth in their numbers was just 3.8 percent.
It has been three years since the government laid out an ambition for the cultural and creative industries that is still under development. James Chu Cheok Son, a member of the cultural industry committee, says the government has a clearer idea of what it might do to help the sector but is unsure about the path to follow. Mr Chu, who is also the head of the Art for All Society, says there is a great need for art education and wants more government assistance for artists Luciana Leitão email@example.com
Photo by Manuel Cardoso
The increase was almost exclusively the result of a surge of 65.5 percent in the number of package tourists from Guangdong. This increase made up for declines in the numbers coming from other mainland provinces. The number of package tourists coming from Hong Kong increased by 23.4 percent and the number coming from Taiwan increased by 66.2 percent. But since these two markets are much smaller than Guangdong, they do not count for much. In short, tours from Guangdong are propping up growth in the numbers of package tourists. To understand these changes, it is worth considering an often disregarded aspect of package tours: the itineraries. Most tours go only to Macau. But some also take in one or more places in the mainland and some take in one or more places other places in East Asia.
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The graph shows that many package tourists from Taiwan and many from the mainland, in particular those from Guangdong, visited Macau on tours that took them to at least one other place. In the case of package tourists from Guangdong, the number on tours of Macau and at least one other place in East Asia in June almost was almost triple what it was a year before. In contrast, not one package tourist from Hong Kong was touring Macau and at least one other place in East Asia. A year before, just 14 were. The numbers of package tourists from mainland provinces other than Guangdong, from Taiwan and from Hong Kong that were on tours of Macau and at least one place in the mainland all increased. J.I.D.
Analysts and artists say the city’s culture sector is at a very early stage of development. What’s missing? What is lacking is education. The government has done a lot in different fields but people ask why it spends so much money on many different projects. We have exhibitions every day and we have performances every day. How come the situation still doesn’t change and doesn’t grow tremendously? From primary education, our schools haven’t applied enough this art education concept. This is one of the biggest problems. A lot of students are forced to study a lot of things but they don’t enjoy it. They have some classes of craftsmanship, drawing, singing and music but they [the schools] never provide the environment for you to express yourself through these means. What could be done to change the situation? The government has been trying to reform the education system in the primary and secondary levels. They want smaller classes and they want to implement the idea of art education. They want to do it, they have resources for the schools but the instructions are not clear enough. That means the school, at the end, is still the one to decide what kind of courses, what kind of art teacher to provide and how many hours are they going to spend at this. If they can afford it, many parents will put children at The International School or School of the Nations. If you compare the two systems, you know why people would like to choose these to give their children more freedom and a more enjoyable environment to learn. Will that reform be enough to create a different education system? The government always emphasises its willing to have smaller classes and to have more art education throughout the courses. But, at the end of the day, the problem is still the school in charge of it. Even though the government gives a lot of subsidies, the reform is rather slow. The school doesn’t really want to change so much, because most of the schools are still run in a very
traditional way. If you want them to change a lot, then it really takes time, unless the government does surgery, helps them a lot or maybe gives them clear instructions.
Misguided money The government has been spending a lot of money on cultural activities. But do you think it’s investing with a clear direction of what it wants to achieve? Yes, it is a lot of money. Usually we calculate the cultural expenditure per head, dividing the overall annual cultural expenses. For most countries, even for the United States, it is only a few hundred patacas per head, but in Macau it is a few thousands. At the same time, there are still a lot of people that can’t enjoy any of these cultural activities. I have nothing against the government spending a lot of money in culture, as much as possible. However, they are not really spending it in a fair way. Most of the cultural expenditure benefits the middle-class. Those who have money, those who go to the Cultural Centre to see shows, they always go. For poor or people who don’t have this habit, they never do.
Although the government is trying to provide a lot of free performances in the northern area of the city, it’s not enough. It’s just a very narrow way of thinking. They think you put something there free and everyone will come and enjoy but it’s not that simple. How would you propose to do it? They should set up special offices – not another bureau. It’s impossible to
I think the weakest point of the Macau government is policy planning and making, they always say “let’s do this” or “let’s do that”. After two hours discussion they say “let’s do it tomorrow”.
August 20, 2012 business daily | 5
MACAU have so many cultural bureaus. For example, art education is not enough, and right now the government just does a lot of activities to fill in the gap. The schools are too busy to pick up these projects, because of the traditional education system and the government departments have no aim. They just ask the schools to join by activity. There is no focus group, no special group of people using funding to solve the problem. The government spends a lot of money on big cultural events, such as the Macao Arts Festival and the International Music Festival. But are these events enough to promote cultural arts here? Macao Arts Festival and the International Music Festival could be one of the best name cards for culture. In a way, they are doing quite well. At the same time, these festivals always have the same problem: you need to have a strong direction. For instance, the International Music Festival is still using Warren Mok [as artistic director] but I think it can be more dynamic. There are a lot of people that can do it. It’s contract based and they could invite different people [to direct it] every three years. Different directors have different vision and directions. Warren Mok has been there for so long and it seems events are repeating and repeating. Also, the Fringe Festival is a shame. Organised by the Municipal and Civic Affairs Bureau, it used to be the first Fringe in Asia. Everyone would come here to learn how to organise such event and now if you go to Shenzhen their Fringe is better than Macau’s. The government tried to squeeze it and has been just giving them a tight budget. They’re just killing the Fringe Festival. They have such a good project on hands and they don’t know how to do it.
Slow going One thing that has been on the official agenda for the past two or three years is the creative and cultural industries. Has there been any progress in this area? I am [a member] in the Committee for Cultural Industries and we just ended the term. We did a lot of work, but mostly preparation works. The government realised that it needs to have a clearer idea on how to divide these cultural industries and what’s the definition of cultural industries in Macau. The government agreed that we should work towards four big sectors [creative design; art and performance; culture and entertainment; digital and media]
An artistic career One of the founders of Art for All Society, the artist James Chu Cheok Son has had several collective and solo exhibitions over the years. Having started his career as a graphic designer at the former Official Provisional Municipal Council of Macau, he later became the curator of Macau Museum of Art. Now, with more than 20 years of making art is work, he also won many coveted prizes, held numerous solo exhibitions and published a book. He is currently the head of Art for All Society.
think this is only as a whole for about [creating] the long-term t-shirts or development I have nothing m o v i e s . of cultural Anything else industries. against the would not At the same be [part of time, another government spending the] cultural big achievement industry. is the cultural a lot of money in Now, when we industries’ fund, say cultural which they want culture, as much as industry, people to launch by have a clearer the end of this possible. However, concept. year. My focus It really takes group made a they are not really time. But, of full study on its spending it in a fair course, Macau aim, the vision, is rather slow. the terms, the way I think the regulations, weakest point the procedures, of the Macau what should the government is government be policy planning careful of, what should they focus on. We gave a full and making, they always say “let’s report six months ago and they took do this” or “let’s do that”. After two a lot of our suggestions. It’s good hours discussion they say “let’s do it tomorrow”. news. I know everything goes quite slow. After two, three years, it You have said before that the art seems like nothing happened, but business in Macau is tight – maybe the government did enlarge the even inexistent. Does it also have to sponsorship to different people do with the education system? who are working in this field. But, It’s about education but not only. again, the government should have In the very beginning, education an overall plan – a short and long- has to do with the whole society development. Particularly for the term plan. You already set up the fund and art market, the education means you already have these development a lot. Do they appreciate art? Are plans divided into four groups. You they willing to buy these pieces they appreciate? Do should have a long-term plan on t h a t we have a good how you are going to use this plan and healthy to help these industries and what education you want these industries to be. I think this is the only part the government is still not sure. After two, three years, they’re sure we need to have this funding for these industries to grow. The government realised it can’t help the non-profit organisations. This fund is mainly for those profit-making companies. I feel so happy that they finally realised this. Also, all the industries we named are included. The government doesn’t know what it really wants to do. Some people think [to have] gross domestic p r o d u c t [growth] is everything, some people think to have this diversity, to have this opportunity for people to choose to work in different art-industry related business is already a good result. That means they don’t have to only work in casinos or in a bank. They can work in different areas, like cinema, writing or as an artist. This will make the market more diverse. That’s already one big thing. Some say Macau should have a role in the world, to be a trading platform for the cultural industries in the world. I think there are different opinions about the cultural industries development. Considering creative and cultural industries were first mentioned about three years ago, is the government taking too long to come up with that long-term plan? I think it is a normal process. Not only does the government take time to learn but the overall society. Three years ago, people would only
system to educate artists and to give them more support? Macau spends a lot of money in buying things but they just don’t buy Macau’s artists pieces. We should encourage them to do so. I’m not sure how the government could help. There are a lot of things they can do. It could be some policy, like tax reduction for big enterprises. There are so many ways to support local artists in all this public construction, the light railway stations, development projects and all these housing programmes. We approached them so many times. We even presented a research on all the light railway stations of the world. If you don’t put anything there, people will do graffiti. But they are afraid of allowing this, because they don’t want to take any responsibility. For example, for this public housing, imagine each one of the 19,000 public houses with one local artwork. We proposed that and no-one replied. If any of these projects happened, a lot of artists could have the opportunity to improve and maybe become full-time.
The government tried to squeeze [the Fringe Festival] and has been giving them a tight budget. They’re just killing the Fringe Festival. They have such a good project on hands and they don’t know how to do it
business daily August 20, 2012
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Harsher penalties for overcharging taxis The Transport Bureau intends to amend taxi regulation to raise fines for drivers who overcharge passengers, namely during typhoon weather. Fines will go up from 1,000 patacas to at least 5,000 patacas (US$625), deputy director Chiang Ngoc Vai told media on Saturday. He expects the revision to enter into the legislative process by the end of 2012 or early 2013. The public should report such situations to authorities, he said, while pledging to control overcharging taxi drivers.
Effective indicator The pataca is linked indirectly to the US dollar, being formally pegged to the Hong Kong dollar which, in turn, is formally pegged to United States currency. The main thing that determines the pataca’s exchange rate with other currencies is the US dollar’s exchange rates with those currencies. Exchange rates are notoriously volatile and changes may not necessarily reflect the effective “strength” of a currency. Moreover, trade is dynamic, involving many trading partners and currencies which go up or down. One way to track a currency that allows for the volatility of exchange rates and the dynamic nature of trade is to use an indicator called an effective exchange rate index. The effective exchange rate index of an economy’s currency takes into account the volume of the economy’s trade with its main trading partners, and changes in the rates of exchange between its currency and those of its main trading partners. If an effective exchange rate index is retreating, imports are becoming more expensive, on average, and exports less expensive. This is important information needed for policymaking and business planning.
Until recently, the base year of the pataca’s effective exchange rate index was 2004. But changes in trade flows between Macau and the mainland, the United States and Europe made obsolete the trade weightings and basket of currencies used in 2004. So the Monetary Authority of Macau began a new effective exchange rate index series, with 2010 as its base year. The new series uses new weightings which reflect recent changes in trade flows. And it uses a new basket of currencies in which the Malaysian ringgit, the Singapore dollar and the Swiss franc replace the Canadian dollar and the Danish krone. The new basket has 12 currencies that are used in countries or currency zones that together account for 92.8 percent of Macau’s merchandise trade. The Monetary Authority continued publishing both the old and new effective exchange rate index series, ceasing to estimate the old one only at the end of last year. Readers wishing to know more about the changes in the way the effective exchange rate index is calculated should see an article on the subject by Thomas Vong, a member of the staff of the Monetary Authority’s research and statistics department. Mr Vong’s article, entitled “Revision on Effective Exchange Rate Indices for the Pataca”, is published in the Macao Monetary Research Bulletin No 24 of July 2012, on pages 105 to 125. It is available in English at www.amcm.gov.mo/publication/quarterly/July2012/ Effective%20Exchange%20Rates_en.pdf J.I.D.
Fresh cuts of beef vanish from market Mainland cattle supplies have dried up and the knock-on effect is unpalatable price rises for consumers Xi Chen firstname.lastname@example.org
hoppers have not been able to buy fresh beef since last week after cattle shipments from the mainland seized up. Yesterday, beef stalls at the Red Market and Iao Hon Market had no supplies. A hawker at the Iao Hon Market told Business Daily that fresh beef had disappeared from the market’s stall prior to the arrival of typhoon KaiTak last week. Nam Yue Food Stuff and Aquatics Co Ltd is the sole importer of all of the city’s livestock. The company is a subsidiary of state-owned conglomerate Guangdong Nam Yue Group Co Ltd. Nam Yue general manager Chan Wai told the Chinese-language Wa Ou daily that a shipment of cattle was pushed back because merchants decided to scale back imports during the recent hot weather. Two suppliers based in northern China also faced shipping problems. Mr Chan said the company purchased 10 cattle from Guangdong last Wednesday, which would satisfy some demand for beef. The company said it was also working with two other suppliers to arrange a bigger shipment of cattle. The price of beef has been rising as demand increases in the mainland and, combined with the recent limited supply, there have been additional spikes. Mr Chan said Nam Yue had paid subsidies to distributors in an attempt to keep prices as stable as possible. The Wa Ou newspaper reported that consumers had continued to buy beef, despite the steep rises in price. Some said they may switch to frozen beef if they could no longer find fresh beef to buy.
Fresh beef has been hard to find in Macau’s markets since last week.
Weather Beijing 29/20o C Changchun 29/15o C
Harbin 28/13o C
Xian 30/18o C Shanghai 35/27o C Chengdu 31/20o C Kunming 25/17o C Haikou 31/23 o C Sanya 32/27o C
Guangzhou 35/25o C
MACAU (20-25 August) Day
Shenzhen 33/25o C
Hong Kong 35/27o C
Macau 32/27o C
August 20, 2012 business daily | 7
Ferry operator faces ultimatum North West has until end of August to draft a plan to resume suspended services or lose licence, authorities warn Tony Lai email@example.com
Visitor spending growth slowing Even though tourists are spending more money in Macau, the growth in visitors’ spending was slower in the second quarter of this year, showed official data released last Friday. The Statistics and Census Service estimated total spending at 11.4 billion patacas (US$1.4 billion) during the April-June period, up by 13 percent year-on-year. In the first three months visitors’ spending had grown 35 percent. During the last quarter, each visitor spent an average of 1,713 patacas, up by 16 percent from the same period of 2011. Even though same-day visitors still account for more than half of all tourists, their spending totalled just 2 billion patacas. This happens because each person only spends an average of 594 patacas, down by 2 percent year-on-year. Overnight visitors took the biggest slice, with spending rising by 16 percent to 9.3 billion patacas. On average each of these visitors spends 2,895 patacas, a figure that reaches 3,741 patacas for mainland Chinese tourists. On the overall, visitors from mainland China remained the big spenders, with an average of 2,209 patacas, followed at a distance by Singapore tourists, who spend 1,426 patacas per capita. Shopping became an even more dominant part of tourism spending in Macau, rising by 20 percent to an average of 835 patacas per person – almost half of the total. About half of that money goes to local food products (23 percent), jewellery and watches (18 percent) and clothing (18 percent). V.Q.
erry operator North West Express Ltd has a fortnight to submit a plan explaining how it will resume its suspended services or it will lose its operating licence, the Maritime Administration said yesterday. “If North West cannot submit a plan for resuming services before the deadline, or if the submitted information does not prove the company has the credentials and ability to resume services, the Maritime Administration will initiate the legal process for revoking its operator licence,” it said. The company also has to detail its financial condition, including its debts, by the end of the month, the administration said. North West has not settled the outstanding rent that it pays to the Hong Kong government for the use of the Tuen Mun pier in the New Territories. The government said last month that North West had paid rent for last month and June, but this month’s rent of 2.32 million patacas (US$300,000) is outstanding. The Hong Kong government has commenced legal action to have
North West shut down ferry services between Macau and Hong Kong’s Tuen Mun pier last month.
the company kicked-off the Tuen Mun pier. A court in Hong Kong said last month that the company had to settle its debt within 14 days. The deadline has passed. The Maritime Administration said it would cancel North West’s license if the ferry operator no longer has
access to the pier. North West has not completed repairs to its two vessels, the government said. The operator stopped services between the Macau Outer Harbour Ferry Terminal and Tuen Mun pier on July 1 because it had problems with the vessels. It is unclear what the problems are.
business daily August 20, 2012
macau Taipa central park opening delayed
Photo: Manuel Cardoso
The Taipa central park, which was originally slated to open next month, will only be ready to welcome the public by the end of this year, the Land, Public Works and Transport Bureau said on Saturday. Authorities laid the blame squarely on the shoulders of Typhoon Vicente, which hit Macau last month. The typhoon has affected the construction of some park facilities, the bureau said. But most infrastructures are ready, including the library and the swimming pool, it added.
Spotlight falls on prices at gas pump Fuel distributors say recent increases in petrol prices are the result of global influences far beyond their control Tony Lai firstname.lastname@example.org
uel prices have increased six times since July – the most recent rise, on Saturday, taking the pump price of the most expensive grade of petrol to 12.81 patacas (US$1.60) per litre. Since the beginning of last month the price per litre of unleaded petrol has risen by 1.75 patacas, or about 15 percent. Prices of industrial and household fuels have also increased. “The recent hikes are influenced by the fluctuations in the international oil price,” said Johnny Chan Veng Un, vice-president of Public Utilities Concern Association of Macau. “It is inevitable as Macau, a small place without its own oil products, can only rely on imports.” Mr Chan told Business Daily that the fuel price rises would probably put the transport industry under more strain by increasing its operating costs. He said the transport industry would pass on these cost increases, which would be reflected in higher wholesale
and retail prices of other goods. In other words, the fuel price rises will push up the annual rate of inflation, which was 6.19 percent in June. Mr Chan said the higher price of diesel will put pressure on electricity supplier Companhia de Electricidade de Macau SA – CEM to increase its tariff. The price of electricity rose by 3 percent to 1.32 patacas per kilowatt-hour in the second quarter of this year, but CEM said last month that the price would remain the same in the third quarter. Mr Chan said that while the city is subject to changes in the global market, the city’s distributors of diesel had long been criticised for responding to such changes by raising prices quickly but lowering them only slowly.
Sensible arrangement “There is no competition in the industry, which is controlled by certain companies, and suppliers have agreed they would adjust prices together,” Mr Chan said. “So it’s not
easy to see prices go down.” He said the city has only about 10 diesel distributors, including state-owned Nam Kwong (Group) Co Ltd and United Fuel Co Ltd. “The government said they would review the situation two or three years ago, but nothing has been heard since then,” he said. Mr Chan suggests that the government find a way to ensure a “free market with fair competition”. The diesel distributors deny that they fix prices. “We reduced the price in May and June seven times as international fuel prices dropped,” said Lai Weng Wa, president of Macau Fuel
Industry Association. “How can anyone say we deliberately keep oil at a higher price?” Although fuel prices were reduced seven times in May and June, the price of unleaded petrol, for instance, was only 1.6 patacas per litre lower at the end of June than it was in from April, and has risen by 1.75 patacas since July. Mr Lai, who owns Kwong Tai Hong Petroleum Co Ltd, said there is “severe competition” between distributors. “We adjust the price together because it just doesn’t make sense if one company has a lower price than the other suppliers.”
Price per litre of the most expensive grade of petrol in Macau
Mr Lai said fuel prices here were “totally susceptible” to the global market, particularly what happened in the Middle East. Mr Chan proposes that thegovernmentsetaside land for fuel storage. He said that the only places where distributors can store fuel now are Ká Ho
harbour and, temporarily, Ilha Verde. “The space is limited so the industry cannot store much when international oil prices are low,” he said. The Land and Public Works Bureau suggested last month moving the temporary storage facilities in Ilha Verde to one of five newly reclaimed plots of land. But associations in the vicinity of these plots have rejected this proposal because they are worried about safety. Mr Chan said the government could put storage facilities on Hengqin Island, if allowed to, because the island was more sparsely populated than Macau. He said the government should continue promoting alternative fuels such as natural gas. The government has given Nam Kwong a 25-year contract to supply the city with piped natural gas, which should be available everywhere by 2017. “The development of natural gas in Macau is now only at an initial stage and the government should act quickly,” Mr Chan said.
August 20, 2012 business daily | 9
Taiwan cuts growth forecast Economy shrank 0.18 percent in the second quarter
Trade-reliant Taiwan is on course for its slowest growth since 2009
aiwan cut its 2012 economic growth outlook to 1.66 percent on Friday, the eighth time it has lowered the target as demand for its exports continues to slow in Europe, the United States and China. The trade-reliant island is on course for its slowest growth since 2009 as orders slump for its main
exports of consumer electronics and computer components. The previous full-year forecast was for growth of 2.08 percent. The reduction came as government data showed second quarter gross domestic product (GDP) shrank 0.18 percent from a year earlier, compared with an advance estimate of a 0.16
percent contraction. Other major Asian exporters such as Japan and South Korea have all shown deepening signs of economic stress as Europe’s sovereign debt crisis, China’s slowdown and sluggish activity in the United States weigh on global demand. On a quarter-on-quarter, seasonally adjusted basis, Taiwan’s economy grew 0.38 percent, less than half of the preliminary estimate of 0.78 percent. “The contraction in Q2 was more severe than previously announced,” said Raymond Yeung, Hong Kongbased senior economist at Australia and New Zealand Banking Group Ltd. “Lacklustre exports will drag Taiwan’s economy into a difficult situation,” he said. However, despite the clear loss of momentum, Mr Yeung and other analysts expected the central bank would keep interest rates unchanged at 1.875 percent because of the risk of inflation. The government raised its 2012 consumer price index forecast to 1.93 percent from a preliminary 1.90 percent. The central bank’s next quarterly policy meeting is in September. Taiwan today releases export orders for July, which are a leading indicator of demand for Asia’s exports and for high-tech gadgets, and typically lead actual exports by two to three months. That report is expected to show export orders fell for the fifth straight month. Reuters
China eyes African Barrick Gold stake China’s state-owned miner, China National Gold Corp., has held preliminary talks to buy a stake in African Barrick Gold (ABG), one of Africa’s largest gold miners. Demand for gold in China has surged and it is expected to become the world’s biggest market for the metal this year. African Barrack has large reserves but has struggled to meet production targets. Barrick Gold, the parent of ABG, said the talks were at an “early stage”. “There can be no certainty that these discussions will result in the acquisition of all or part of Barrick’s holding in ABG,” Barrick Gold said in a statement. ABG’s production levels have been falling in recent years. Last year, the company produced almost 688,000 ounces of gold. That was down from 701,000 ounces in 2010 and 716,000 ounces the year before. At the same time, its cost of production has gone up. According to the firm, it cost it US$692 to produce an ounce of gold last year, a jump of more than 20 percent from 2010. As a result, its shares have taken a hit, falling almost 30 percent in the past one year. Analysts said that given these issues, the miner was a risky bet for potential suitors. “African Barrick has always looked like it offered good value albeit at a high risk, and if the potential acquirer can get the asset and is comfortable with the risk, you will be able to get a reasonable set of assets for a good price,” said Hunter Hillcoat an analyst with Investec Securities. Agencies
business daily August 20, 2012
China new-home prices rebound
China Gas reinstates senior executives
greater china Anti-Japan protests erupt Protests against Japan broke out in more than a dozen Chinese cities including Beijing yesterday, as authorities allowed thousands of people to vent their anger over an escalating territorial row. The demonstrations – which saw Japanese businesses, restaurants and cars targeted in some cities – erupted after Japanese nationalists landed on an island claimed by both countries. Beijing yesterday lodged a “strong protest” with Tokyo. The latest anti-Japan protests are believed to be the most widespread in China since 2005.
Home prices rise in 49 of 70 cities in July vs 25 in June
China Gas Holdings Ltd, the target of a US$2 billion hostile takeover, reinstated Liu Ming Hui as managing director 20 months after his arrest in Shenzhen on suspicion of embezzlement led to his ouster. The Hong Kong-based distributor of gas in China also announced the return of Huang Yong, detained along with Mr Liu, as executive president, according to a statement to the Hong Kong stock exchange released on Friday night. The arrests in December 2010 sent the company’s share price tumbling and sparked a bid by China Petroleum & Chemical Corp., known as Sinopec, and ENN Energy Holdings Ltd that China Gas said was “opportunistic”. China Gas last month said Mr Liu and Mr Huang wouldn’t face charges over misappropriation. The facts “were unclear, evidence was insufficient and the conditions for prosecution have not been met,” the company said in a July 25 statement to the stock exchange. Less than a week later, it said Mr Liu would rejoin the board as a non-executive director. Mr Liu’s return is a “sign that there is major resistance against the bid,” said Edwin Pang, an oil and gas analyst at Credit Suisse Group AG. “On the operation front, it should not have any impact.” The reappointments cap almost two years of turmoil at China Gas. The company was forced to put in place an ad hoc management committee on December 23, 2010, after Mr Liu and Mr Huang were “escorted away” from its offices in the southern city of Shenzhen a week earlier and it had been unable to contact them, China Gas said at the time.
China’s home prices rose 0.1 percent in July from June, a second month of modest uptick
hina’s July housing data showed prices of new homes rose in the largest number of cities in 14 months, as sentiment improved after interest rate cuts and incentives for first-time buyers. Prices climbed from a month earlier in 49 of the 70 cities tracked by the government, the National Bureau of Statistics said on its website on Saturday. That was the most since May last year and compared with 25 cities in June. Prices fell in nine cities and were unchanged in 12. Buyers, buoyed by two interest-rate cuts since June, have returned to the market even as the government pledges to maintain real-estate curbs to make housing more affordable. An inspection last month ordered by the State Council found recent increases in property prices and easing policies by some local authorities among problems that need “particular attention,” the official Xinhua News Agency reported on Friday. The data “show demand from firsthome buyers is very strong and the interest-rate cuts had a big impact on the market,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong. “The government may issue
Rising property prices are constraining aggressive policy action from the central bank Zhang Zhiwei, Nomura Holdings Inc.
new tightening measures, but they would be mild because it’s facing a big dilemma of balancing economic growth and property curbs.” China’s economy expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years as Europe’s debt crisis crimped exports and the government’s property crackdown cooled domestic demand. The slowdown may extend into a seventh quarter, with Deutsche Bank AG cutting its growth estimate for the three months through September to 7.5 percent from 7.9 percent.
Policy ’fine-tuning’ Saturday’s report adds to evidence the housing market is picking up after the People’s Bank of China cut interest rates for the first time in three years on June 7 and announced a second reduction less than a month later. About 30 Chinese cities have issued “fine-tuning” policies since the second half of 2011, according to Centaline Property Agency Ltd. Yangzhou introduced home subsidies, Beijing allowed some discounts on mortgages for first-home buyers and Shanghai raised the tax threshold on purchases of some homes. Figures released earlier this month from SouFun Holdings Ltd, the nation’s biggest real-estate website owner, showed new-home prices in 100 cities in July posted the biggest month- on-month gain in more than a year. “There’s still quite a bit of pent up demand out there and it’s being artificially pushed down,” Zhang Xin, chief executive of Soho China Ltd, the largest developer in Beijing’s business district, said in an interview. Among major cities, new-home prices in Beijing rose 0.3 percent from June, while the southern business hub of Guangzhou added 0.2 percent, the
statistics bureau data show. Prices in Shanghai and Shenzhen were unchanged. Of the nine cities reporting a decline in monthly prices, the eastern city of Wenzhou had the biggest drop of 0.8 percent, followed by the port city of Ningbo with a slide of 0.6 percent. Prices of existing homes rose in 38 cities last month from June, up from 31 cities the previous month, the report showed. The cost of buying a new home is still declining in most cities on an annual basis, the data showed. Prices dropped in 57 of the 70 cities surveyed in July from a year earlier, unchanged from the number in June. Prices in Wenzhou dropped 15.6 percent and those in Ningbo fell 7.8 percent.
Bo Xilai’s wife due to hear verdict
The risk of a rebound in the property market may be limiting the PBOC’s room to reduce interest rates further or cut banks’ reserve requirement ratios to boost funds in the financial system and support lending after new credit slumped in July. “Rising property prices are constraining aggressive policy action from the central bank,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “The government will introduce more policies to contain a property bubble,” including the extension of a property tax to more cities, he said. Amid signs the government’s crackdown is affecting the finances of some property companies, the banking regulator has told lenders that lack of funding, high leverage and a peak of loans maturing have increased the risk that some developers’ financing chains may collapse, Bloomberg News reported on Friday, citing a person with knowledge of the matter.
Chinese authorities will announce the verdict in the murder trial of the wife of ousted Politburo member Bo Xilai today, a local government official said. The Hefei Intermediate People’s Court, in the capital of China’s Anhui province, will reconvene to issue its decision, Zheng Mingwu, vice director of the provincial government’s information office, said on Friday. The verdict will conclude one chapter in a scandal that has clouded a once-in-a-decade leadership transition and shift attention to how the ruling Communist Party will handle Mr Bo’s case. China’s leaders have sought to cast his downfall as an isolated episode involving an errant senior official ahead of the party congress that will choose the next generation of leaders later this year. Gu Kailai confessed to charges that she poisoned British businessman Neil Heywood in his hotel room during her one-day trial on August 9, the state-run Xinhua News Agency said. The political context of the case and the manner in which court proceedings are conducted in China all point to a predetermined guilty verdict, Donald Clarke, a law professor at George Washington University, said before the trial started. Mr Clarke said he expected Mrs Gu to get a suspended death sentence. The drama began in February when Mr Bo’s former police chief in Chongqing fled to the U.S. consulate in Chengdu with evidence implicating Mrs Gu in Mr Heywood’s murder, according to U.S. officials briefed on the matter. The resulting diplomatic uproar presaged Mr Bo’s ouster as Chongqing party chief in March and his suspension from the Politburo in April.
August 20, 2012 business daily | 11
India auditor warns of multi-billion losses
InBrief Heineken lifts Tiger beer bid
Coal deal lost India US$33 billion, says auditor Satarupa Bhattacharjya
ndia’s state auditor accused the governmentonFridayofallocating coal blocks, power projects and land for Delhi’s flagship airport at a fraction of market prices, potentially costing the exchequer tens of billions of dollars in lost revenues. The main opposition party sought to link Prime Minister Manmohan Singh personally to one report which suggested private companies made windfall gains of about US$33 billion owing to the underpriced sale of coal fields between 2004 and 2009. The opposition demanded Mr Singh’s resignation over the affair, dubbed “coalgate” by the media, since he was in charge of the coal ministry in 2006 when the sale was underway. “We want an explanation from the prime minister who was in charge of the Coal Ministry during the period of sale,” opposition Bharatiya Janata Party leader Rajiv Pratap Rudy told reporters after the report was released. Mr Singh’s government maintains it was simply following established policy, and before the report was released, Mr Singh denied there had been wrongdoing. He is not expected to resign. “There couldn’t have been a more transparent method of allocating coal blocks” at that time, said coal minister Shriprakash Jaiswal.
the auditor said was sold airport land too cheaply, fell sharply. Both GMR and Reliance denied they had been unfairly favoured by the government. India has for years allocated coal blocks directly to companies on the basis of recommendations by state governments. Since 2004 the government has said it will change to more transparent auctions, but had not done so even in February of this year, the report said. “The procedure followed for allocation of coal blocks to captive consumers
opportunities, not tangible losses. They argue consumers would face more expensive services if the government sought to reap windfall gains from resource sales.
Favouring companies The auditor said Reliance Power benefited from a government decision allowing the power producer to use surplus coal from its captive block for another project it was not meant for. The auditor said Reliance, controlled
Heineken NV raised its offer for Fraser and Neave Ltd’s stake in the maker of Tiger beer to US$6.35 billion on Friday, seeking to fend off a Thai rival for control of a leading brand in the fast-growing Southeast Asian market. The Dutch brewer made a revised offer for Asia Pacific Breweries Ltd (APB) of 53 Singapore dollars per share. It had previously bid S$50 per share, while a Thai billionaire’s group made a partial offer of S$55 per APB share. Heineken’s offer for the APB shares owned by drinks and property conglomerate F&N would give it a total 81.6 percent stake and trigger a general offer for the rest of APB.
Indonesia to improve infrastructure
India lost huge sums of money by selling coal fields to private companies without competitive bidding
Indonesia will raise more debt to finance improvements to its creaking infrastructure in a bid to boost strong economic growth and further enhance its sovereign credit rating, a 2013 budget proposal document released on Friday said. The government plans to raise a net 177.3 trillion rupiah (US$18.67 billion) of debt through local and global bonds in 2013. President Susilo Bambang Yudhoyono announced that he would boost capital spending by 15 percent to 193.8 trillion rupiah in 2013 to improve the road network in the archipelago nation and to finance 15 new airports.
Shares tumble In a draft of its report leaked earlier this year, the state auditor estimated private companies’ “windfall” gain from allocations had amounted to a much larger figure, US$211 billion. The same auditor uncovered corrupt practices two years ago in the sale of telecoms licences. The telecoms sale may have cost the government up to US$36 billion. Shares in Reliance Power, India’s second-largest power producer by market value, tumbled almost 6 percent on Friday after they were mentioned by the Comptroller and Auditor General (CAG) in the auditor’s reports which were presented in parliament. In another report to parliament, CAG said airport land was allocated at a tenth of its market value, giving the developers an undue profit of US$4.3 billion. Shares in GMR Infrastructure Ltd, who
lacked transparency as the allotments ... were made merely on the basis of recommendation from state governments and other administrative ministries without ensuring transparency and objectivity,” CAG said in its report. The coal ministry disputed the auditor’s calculations, which were based on average extractable reserves. The ministry said the many of the fields in question had difficult geological conditions and hence higher costs of production. “It is very sad that everything of the past is questioned today ... If it is wrong, please fix it. But I’m only saying, why now?” said Anil Sardana, managing director of Tata Power whose shares fell 4 percent after the company was named a beneficiary in the auditor’s coal report. Other critics of the auditor including market analysts said its calculations are based on the cost of missed
by billionaire Anil Ambani, gained 290 billion rupees (US$5.2 billion) in benefit from the decision. The federal auditor also pulled up the government for what it said was unduly favouring the GMR Infrastructure Ltd led consortium that was awarded the contract for the upgrade of the international airport in New Delhi in 2006. The auditor said the consortium was granted rights for commercial use of 240 acres of land worth 240 billion rupees (US$4.3 billion) against an equity infusion into the project of just about a tenth, 24.5 billion rupees. The consortium expected to generate revenue of 883.37 billion rupees for itself. “Delhi International Airport Private Ltd (DIAL) has not received any undue benefits from the government before, during or after the bidding process,” GMR Infrastructure said in a statement. Reuters
Japan eyes end to decades long deflation Govt expects mild price rises this year and next
apan on Friday offered its strongest indication yet it sees a way out of deflation next year, after being mired in a corrosive mix of falling prices and weak economic growth for much of the past two decades. The government expects real gross domestic product (GDP) to expand 1.7 percent in the fiscal year beginning in April 2013, from an expected increase of 2.2 percent in the current business year after no growth last year. With activity seen picking up, albeit
modestly, the government expects Japan’s overall consumer price index to rise 0.2 percent this fiscal year, which would mark the first increase in four years, and by around 0.5 percent in fiscal 2013/14. The assessment, part of the government’s mid-year economic forecasts, could ease political pressure on the central bank for imminent policy easing to nudge prices higher. But economists still expect the world’s third-largest economy to
struggle in coming quarters if global demand continues to falter. “The government has set a pretty high goal for itself by projecting strong nominal GDP growth,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute Inc. in Tokyo. “Its forecasts look close to that of the Bank of Japan. But once the economy begins to undershoot the forecasts, the central bank will surely come under pressure to ease policy again.” Reuters
Swan: Carbon tax not curbing Investment Australia’s carbon tax and a levy on mining company profits hasn’t stopped a surge in investment in the resources industry, Treasurer Wayne Swan said. “While there have been no end to the irresponsible claims made about the impact of both a price on carbon pollution and the new resource tax arrangements, the investment figures tell the real story,” Mr Swan said in an economic note. Australia has about A$260 billion (US$271 billion) of projects at an advanced stage, and the investment pipeline has increased about A$90 billion in the past year, Mr Swan said.
Singapore exports rise in July Singapore’s non-oil exports jumped in July as robust demand from Asia helped offset a decline in shipments to Western economies. Exports rose 5.8 percent from a year earlier, boosted by rises in shipments to China, Hong Kong, South Korea and Taiwan. However, exports to the United States and eurozone fell amid the ongoing economic issues in those regions. Singapore’s non oil-exports are dominated by the electronics, petrochemicals and pharmaceutical sectors. Electronics shipments rose by 2 percent from a year earlier and petrochemicals exports gained 11.6 percent.
business daily August 20, 2012
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Ethanol in gas tanks makes food on your table cost more James Greiff Mark Whitehouse Bloomberg Editors
ecord-high corn prices should be sending a clear message to policy makers in Washington: requiring people to put corn-based fuel in their gas tanks is a bad idea. Since 2005, the U.S. government has mandated that gasoline contain ethanol, almost all of it derived from corn. The policy, ostensibly aimed at reducing the country’s dependence on foreign oil and at improving the environment, has been a bonanza for farmers. Land planted with corn soared by a fourth after Congress passed the Energy Independence and Security Act of 2007, which required that gasoline producers blend 15 billion gallons (56.8 billion litres) of ethanol into the nation’s gasoline supply by 2015. Now the drought of 2012, the worst in more than 50 years, is making clear the downside of a policy that leads the U.S. to devote 40 percent its corn harvest to fuel production. With this year’s crop expected to be the smallest in 17 years, corn prices have jumped 60 percent since June. The ethanol requirements are aggravating the rise in food costs and spreading it to the price of gasoline, which is up almost 40 cents a gallon since the start of July.
Buying meat The damage is far-reaching. Beef and pork producers are slaughtering their
stocks at a record pace to cut use of corn feed that costs two-thirds more than three months ago. This week, President Barack Obama told a campaign rally in Iowa that the federal government will buy US$170 million of meat to prop up the market. U.S. cattle herds next year are forecast to be the smallest since 1952, a guarantee of more expensive food in years to come. Ethanol production and the drought are hardly the only forces contributing to
The drought lays bare the folly of trying to expand an industry where the economic fundamentals don’t make much sense
higher prices. Exports of corn to China and other countries also play a role, as do ethanol policies in Europe. And it is true that ending the ethanol mandate might cut food prices by no more than 5 percent at best. Still, the drought lays bare the folly of trying to expand an industry where the economic fundamentals don’t make much sense. Based on its energy content, ethanol is roughly 50 percent more expensive than gasoline, and the acreage required to produce it distorts land prices. Farmers this year planted the largest corn crop in 75 years, according to the U.S. Agriculture Department. The price of an acre of prime farmland in Iowa – the nation’s biggest corn producer – has more than doubled in the past five years, a time when other real estate prices tumbled.
Not so green Researchers at Texas A&M University have estimated that diverting corn to make ethanol forces Americans to pay US$40 billion a year in higher food prices. On top of that, it costs taxpayers US$1.78 in subsidies for each gallon of gasoline that corn-based ethanol replaces, according to the Congressional Budget Office. As for the environmental virtues of ethanol, those were debunked long ago. True, gasoline-ethanol blends can lower
greenhouse emissions by 20 percent, and ethanol can replace toxic additives such as benzene that make gasoline more combustible. But growing corn is energy intensive. Tractors that run on diesel fuel must plow fields, plant seed, spread fertilizer and pesticides (that run into local waterways), harvest the crop and haul it to refining plants. Unlike oil, ethanol is highly corrosive and can’t be transported by pipeline. Trucks or trains must carry the finished product to gasoline blenders. By some calculations, ethanol takes more energy to produce than it yields, negating the environmental benefits. More than 150 House members and 25 U.S. senators, as well as the director general of the United Nations Food and Agricultural Organization, have asked Obama to temporarily suspend the ethanol mandate in order to check the rise in food prices. He should listen to them, and Congress should permanently roll back the ethanol requirements. This isn’t to say ethanol doesn’t have a place in the U.S. energy mix. Gasoline needs to be combined with agents that carry oxygen to help cars and trucks run more efficiently. Ethanol fits the bill. But the government should let the demand for ethanol obey the laws of the market, rather than the desires of the agricultural lobby. Bloomberg View
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August 20, 2012 business daily | 15
wires Leading reports from Asia’s best business newspapers
Why are governments paralysed? Michael Spence
Nobel laureate in economics, Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution
Deputy Director and Senior Fellow at the Hoover Institution and Professor of Political Science at Stanford University
Tottering electronics giant Sharp Corp. is set to obtain bridge loans worth tens of billions of yen from its main creditor banks by the end of August. “With the bridge loans in hand, we will be able to concentrate on becoming profitable,” a top company official was quoted as saying. In the face of dismal TV sales, Sharp is expecting a net loss of 250 billion yen (US$3.15 billion) this fiscal year. Sharp had 1.252 trillion yen in interestbearing debt at the end of June, up by 120 billion yen from the end of March.
Jakarta Globe The Indonesian government says it expects a 36 percent increase in energy subsidies next year, more than double the 15 percent gain in infrastructure spending. This also marks the country’s flaw at keeping subsidy costs down so that it can focus on financing much-needed infrastructure aimed at luring more foreign investors. Spending on energy subsidies will most likely rise to Rp 274.7 trillion (US$29 billion) next year, up 36 percent from this year’s target of Rp 202.4 trillion, according to the proposed 2013 state budget. The subsidies account for 18.2 percent of the total budget.
Bangkok Post Populist policies may put Thailand at risk of a Greek-style debt crisis, Kosit Panpiemras, the executive chairman of Bangkok Bank, was quoted as saying. He urged the government to develop a more balanced economic model to deal with the coming ageing society. Mr Kosit, a former finance minister, said populist policies are apt to remain in force in Thailand for a long time as the government encourages domestic consumption by running up unsustainable debt. “Unfortunately, Thailand will become a poor ageing society, unlike Japan and Singapore, which are rich countries,” said Mr Kosit.
Korea Herald Korea’s jobless rate fell from a month earlier in July due to a rise in new jobs offered, especially for young people, according to a government report. Statistics Korea said the jobless rate hit 3.1 percent in July, down from 3.2 percent in June. It also said the growth in the number of employed persons increased by 1.3 percent compared to the previous month. In July, 470,000 new jobs were added in the market, compared with some 365,000 new jobs in the previous month, officials said.
t is no secret that the global economy is struggling. Europe is in the midst of a crisis whose root cause is a structurally flawed monetary and economic union. The United States, emerging slowly from a financial crisis and widespread deleveraging, is experiencing a growth slowdown, a persistent employment problem, an adverse shift in income distribution, and structural challenges, with little effective or decisive policy action. Meanwhile, among the major emerging economies, China’s reform process is on hold, pending a leadership transition this fall that will clarify various internal interests’ goals and power relationships. India, which has lost reform momentum, is experiencing an economic slowdown and a potential loss of investor confidence. The negative effects of these problems are now interacting, feeding back on themselves, and spreading to the rest of the global economy. And yet, despite a palpable sense of concern that something is very wrong, the prognosis for significant change is bleak – and deteriorating. What accounts for the apparent lack of effective policy action across a broad range of countries and regions? One line of thinking blames a “leadership vacuum” – a common diagnosis in Europe. Elsewhere – especially in the U.S. – polarisation and ugly zero-sum politics are thought to discourage potentially capable political leadership. But, absent further analysis, the leadership vacuum becomes a catchall explanation. What we need to know is why new political leadership in democracies like France, Britain, Japan, and the U.S. has produced so little change. A second explanation addresses that question: while bold action is required, the complexity of economic conditions, and disagreement about the right policy responses, implies a risk of serious error. For professional politicians and policymakers in such circumstances, less
may be more. On this view, risk aversion both reflects and reinforces a divergence between individual incentives (the desire to be re-elected, reappointed, or promoted) and collective needs (fixing problems).
Hard times A third answer is that policy instruments are simply ineffective in today’s conditions. There is some merit to this claim. Economic deleveraging takes time. The restoration of sustainable patterns of growth requires years, not months. Expectations may be out of line with the underlying reality. But the absence of a quick solution does not mean that nothing can be done to improve the speed and quality of recovery.
The deeper problem is a breakdown in [social] values and goals – that is, a weakening of social cohesion
Vested interests may also play a role. Technological innovation and global market forces have produced a decisive shift in income toward capital and the upper 20 percent of the income distribution, often at the expense of middle-income groups, the unemployed, and the young. The beneficiaries of these trends may have accumulated enough political influence to maintain the status quo, highlighting distributional issues that have generally received too little attention in understanding policy responses or their absence.
There are structural explanations for policy inaction as well. Governance systems and constitutional structures differ in the extent to which they require broad consensus for official action, or to change policy direction in response to shocks or shifting conditions. Some argue that the more constraining political systems work well in stable times, but perform poorly under volatile conditions like those prevailing today. Others support constrained government on the grounds that it protects everyone from waste, rentseeking, and interference with freedom of choice, and that, when needed, inspired leadership can build the required consensus to address changing circumstances. High hurdles to major shifts in policy direction force officials to make a convincing case. That is an inherently difficult task at a time when rapid change in the global economy has left many still trying to understand what is happening and what it all means for growth, stability, the distribution of income, and employment. In the face of such complexity, it is not surprising that genuine policy disagreements lead to extended debate and relatively little action. Moreover, the technocratic elements of government must often be balanced against democratic accountability. In every society, individuals with special training and expertise are appointed to perform technically complex functions. Their freedom of action is constrained by time limits and reappointment procedures that determine the nature and degree of their accountability to elected officials and the public. There can be too little freedom of action (populism) or too little accountability (autocracy).
Difficult balances The necessary balance may vary according to local
conditions. For example, many China observers believe that accountability there needs to increase at this stage of the country’s economic, social, and political evolution. Others argue that Western democracies have the opposite problem: a surfeit of narrow, politically assertive interests leads to underinvestment and poor trade-offs between present and future opportunities and performance. This brings us to a crucial obstacle: government, business, financial, and academic elites are not trusted. Lack of trust in elites is probably healthy at some level, but numerous polls indicate that it is in rapid decline, which surely increases citizens’ reluctance to delegate authority to navigate an uncertain global economic environment. Loss of trust probably has multiple causes, including analytical failure: central banks, regulators, market participants, rating agencies, and economists almost all failed to detect rising systemic risk in the years preceding the current crisis, much less to take appropriate corrective action. But a more important cause is a suspicion that elites are placing their own interests above shared social values. Claims that our leadership, institutions, analyses, or policy instruments are inadequate to the task at hand surely contain a kernel o f t ru t h . Bu t t h e d e e p e r problem is a breakdown in precisely such values and goals – that is, a weakening of social cohesion. Restoring it will require analysts, policymakers, business leaders, and civil-society groups to clarify causes, share blame for mistakes, pursue flexible solutions in which costs are shared equitably, and, most important, explain that hard problems cannot be solved overnight. © Project Syndicate
business daily August 20, 2012
CLOSING ECB mulls caps on borrowing costs
Greece must remain in Eurozone
The European Central Bank is considering buying the bonds of crisis-wracked eurozone countries to ensure borrowing costs do not rise beyond a pre-determined level, German newsweekly Der Spiegel reported yesterday. The bank will define an upper limit for borrowing costs in countries such as Spain and Italy and intervene in the markets to ensure it is not breached, Spiegel said, without citing its sources. At the end of trade on Friday, Spain was paying 6.39 percent to borrow for 10 years and Italy 5.76 percent.
Greece must remain in the eurozone, Finance Minister Yannis Stournaras said in an interview published yesterday. “We have to stay alive and remain under the umbrella of the euro, because that is the only choice that can protect us from a poverty that we have not experienced,” Mr Stournaras told the Vima tis Kyriakis weekly. The Greek government needs to cut spending by about 11.5 billion euros (US$14.2 billion) in 2013-14 to qualify for the next instalment of its EU-IMF bailout package.
Deutsche Bank probed for Iran links Bank says it was rejecting business with Iran by 2007
eutsche Bank AG is among four European banks being investigated by U.S. authorities for alleged violations involving oil trading and Iran, according to an attorney with knowledge of the matter. Regulators including the U.S. Treasury’s Office of Foreign Assets Control, the Federal Reserve, the Justice Department and the Manhattan district attorney’s office are all involved in the probe of Deutsche Bank and three other European banks, said the attorney, who asked not to be identified because the investigations are confidential. “Deutsche Bank had decided by 2007 to reject any new business with Iran, Syria, Sudan and North Korea and to end existing relationships to the extent it was legally possible,” Deutsche Bank spokeswoman Friederika Borgmann said, declining to comment on the U.S. investigation. The regulators were in advanced stages of an investigation into banking violations at Standard Chartered Plc when the superintendent of New York’s banks, Benjamin Lawsky, moved first in that matter with an August 6 order accusing the Londonbased lender of multiple violations of state banking laws. Once the federal authorities resolve their probe of Standard Chartered, they will proceed against the four European banks they have been investigating, including Frankfurt-
based Deutsche Bank, according to the attorney. Erin Duggan, a spokeswoman in the Manhattan district attorney’s office, didn’t immediately return an e-mail sent outside of regular business hours seeking comment on the probe. Dean Boyd of the Justice Department, John Sullivan, a Treasury spokesman, and Barbara Hagenbaugh, a Federal Reserve spokeswoman, declined to comment.
U-turn transactions Mr Lawsky’s order accused Standard Chartered of helping Iran launder about US$250 billion in violation of federal laws. He accused the bank of a decade of deception, including keeping false records, in handling lucrative wire transfers for Iranian clients. The bank sent them through its New York unit in so-called U-turn transactions with client names omitted to hide their provenance, Mr Lawsky said. On August 14 the bank agreed to pay US$340 million to settle the claims. The New York regulator said that day in a statement that “the parties have agreed that the conduct at issue involved transactions of at least US$250 billion.” The $340 million fine will go to Mr Lawsky’s agency, New York’s Department of Financial Services and the state. As part of the settlement, New York said the bank agreed to install an independent on-site monitor for at
Deutsche Bank is among four European banks being investigated
least two years who will report directly to regulators. Examiners from the DFS will also be placed at the bank. Mr Lawsky’s agency, according to the August 6 order, is investigating wire transfers executed by Standard
Chartered’s New York branch on behalf of other U.S.-sanctioned countries, including Myanmar and Sudan and Libya, before the ouster of Muammar Kaddafi. Bloomberg
British MPs urge bank changes over Libor Blame bank bosses for behaviour that damaged the U.K.’s reputation
Improvements in both the way banks are run and regulated is needed, the MPs say
rgent changes to the way banks are run and regulated are needed to restore public confidence after the Libor raterigging scandal, an MPs’ report says. The scandal emerged in June when U.K. and U.S. authorities fined Barclays 290 million pounds
(US$455 million) for fixing a key inter-bank interest rate. The Treasury Select Committee blames bank bosses for “disgraceful” behaviour that damaged the U.K.’s reputation – the bank says it knows changes are needed. The MPs also criticise the Financial
Services Authority (FSA) and Bank of England’s regulatory supervision. And they accuse ex-Barclays chief executive Bob Diamond of giving them “highly selective” evidence. “The committee has called for action in a number of areas, including: higher fines for firms that fail to co-operate with regulators, the need to examine gaps in the criminal law, and a much stronger governance framework at the Bank of England,” committee chairman Andrew Tyrie said. “Urgent improvements, both to the way banks are run, and the way they are regulated, is needed if public and market confidence is to be restored,” he added. The MPs said that the rate-rigging had done “great damage” to the UK’s reputation. They firmly blamed the bosses of Barclays bank for the way their staff tried to manipulate the Libor ratesetting process at various times between
2005 and 2009, in what the committee’s chairman called a period of “extremely weak internal compliance and board governance at Barclays” and a “failure of regulatory supervision”. “Senior management at Barclays were issuing instructions to manipulate artificially the bank’s submissions. It is unlikely that Barclays was the only bank attempting this,” said Mr Tyrie. Mr Diamond resigned as Barclays chief executive the day before he gave evidence to MPs. Mr Tyrie said his evidence was at times “highly selective” and “fell well short of the standard that Parliament expects, particularly from such an experienced and senior witness”. In their report, the MPs accuse both the Bank of England and the FSA of bungling their eventual attempts to make sure that Mr Diamond took responsibility for the Libor scandal by eventually resigning from his post at Barclays. Agencies