Tourism doubles economic surplus With tourists flowing in and shelling out on gambling tables, Macau saw its balanceof-payments surplus almost double last year. A huge services account surplus was able to offset the chronic merchandise trade deficit, slowing investment and falling non-resident workers’ remittances. Page 5
Govt shows hand on table counting A
new way of accounting for poker and mahjong tables under the general table cap of 5,500 is seen as positive for Macau casino operators. Casinos operating up to 20 poker or mahjong tables in a single room are “allowed to count them as only one table,” a government source told Business Daily yesterday, confirming an earlier report from Union Gaming Research Macau. The move gives gaming operators much needed room to breathe. “In practical terms, this equates to a nearly 2 percent increase in table supply market-wide, as we believe there are about 110 poker tables in operation,” Union Gaming’s Grant Govertsen wrote in a note to investors on Wednesday.
A total of 5,498 live gaming tables were in operation in the second quarter of this year, government data show. The move is seen as a sign that the administration is willing to help with capacity issues prior to the table-cap expiration in 2013. Sands China Ltd will open the second phase of the Sands Cotai Central development on September 20 and the operator admitted it will have to “take tables from elsewhere” to get up to 200 tables. Sands China is likely to benefit most from this new table math, with perhaps nearly 50 “found” tables, followed by SJM Holdings Ltd and Galaxy Entertainment Group Ltd in the teens, Union Gaming said. More on page 3
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New duty-free life for cross-border park
Affordable pledge holds no water
Starting August 28 the Zhuhai-Macau Cross-Border Industrial Park will finally get a new direction, after it failed to prevent the decline of Macau’s textile manufacturing. A trial duty-free commercial street will focus on high-end consumer goods, trading and wholesale to mainland China merchants as well as cross-border e-commerce. If the idea works, the whole are can be transformed in three to five years’ time, Zhuhai authorities announced yesterday.
The average price per square foot of construction area at the latest affordable housing complex to be made available is almost 1,650 patacas, much higher than the 1,100-pataca figure promised by secretary Lau Si Io last year, the New Macau Association stressed yesterday. The pan-democrats called on the government to explain how prices are set and who exactly in charge of doing it. The activists are also worried a loophole could allow affordable flat buyers to rent them out.
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Debt-stricken MGM gets loan backing
Slowing casinos still hiring Page 2
Borrowed time for sorry Reolian Page 5
Year I - Number 105 Friday August 24, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily August 24, 2012
MGM closes in on Cotai finance A US$1.5-billion loan could be finalised within a fortnight and the board has its sights on Taiwan and Cotai Vítor Quintã email@example.com
asino operator MGM China Holdings Ltd is close to securing a US$1.5 billion (11.9 billion pataca) loan to pay down debt and expand into Cotai. Bloomberg news reported that MGM China currently had commitments from 12 banks for just over US$1.4 billion. The Macau casino operator controlled by United States-based MGM Resorts International, plans to close syndication of the loan in about two weeks, Bloomberg reported. MGM China, which operates MGM Grand Macau, is offering to pay 0.25 percent above the London interest rate benchmark, currently set at 1.05 percent. MGM China would ensure its assets were at least four times as valuable as its debts. The actual margin of the five-year loan will fluctuate depending on changes in MGM China’s leverage ratio. Bloomberg’s report says the loan will be used to repay debt, as MGM China currently owes about HK$4.1 billion on existing projects, chiefly the US$1.25 billion MGM Macau. But earlier this month MGM China chief executive Grant Bowie told Business Daily the loan would also be used to kick-start MGM’s US$2.5-
MGM China is waiting for approval for a US$2.5 billion resort in Cotai to complement the MGM Grand Macau
billion Cotai resort. Mr Bowie is on record as saying the board has an objective to expand throughout Greater China and the company is also looking at opportunities for a gaming resort in Taiwan. “The key for us is we want to create
cash resources that don’t just limit us to Cotai,” added the CEO. “We’ve got a lot more flexibility to look at other places as well.” The Taiwan project would be independent of the Matsu islands scheme recently put forward by former Las Vegas Sands Corp. president Bill Weidner. “We are looking positively at Taiwan, and at other opportunities in Macau. While that’s a challenge [Macau expansion], it’s not impossible, so we are looking at how we can add other income streams,” Mr Bowie said.
US$1.4 billion Loan commitments secured by MGM China
Junket operator aims for HK listing in 2013 NASDAQ-listed Asia Entertainment is preparing to float its shares in Hong Kong Vítor Quintã firstname.lastname@example.org
unket operator Asia Entertainment & Resources Ltd intends to list in Hong Kong in the first half of next year. If successful, the company will be listed in Hong Kong and on the NASDAQ. Asia Entertainment announced on Wednesday that the investment bank it engaged to assist with the process has asked the Hong Kong Stock Exchange about an initial public offering there. It said it expects to receive a reply within 60 days that will identify any difficulties with a dual listing. Asia Entertainment hopes to formally apply for a Hong Kong listing in the fourth quarter of this year and to float its shares there in the first half of next year. The company said it would engage one of the top four auditing firms in Hong Kong to ensure it complied with listing requirements. It first mooted the idea of listing in Hong Kong on May 29.
Asia Entertainment has three VIP rooms in Macau – in StarWorld, the Galaxy Macau and The Venetian Macao – and has stuck a preliminary deal to buy a five-table room in the City of Dreams. Earlier this week, the company announced it would switch from a fixed commission arrangement with casinos to a revenue-sharing deal from next month. Analysts said the new arrangement could be more profitable but was also riskier. The company also plans to institute a new arrangement with middlemen that require no credit to bring in VIP gamblers, in an effort to “mitigate the volatility” and “reignite growth in rolling chip turnover”. Asia Entertainment’s chip turnover in the second quarter was 40 percent lower than a year before because it lost a single player who had bet US$200 million (1.6 billion patacas) a year before.
August 24, 2012 business daily | 3
Fuzzy logic creates room for more gaming tables The government says inspectors will count 20 poker or mahjong tables as one, leaving leeway for casinos to add more live table games Tiago Azevedo email@example.com
he government has changed the way it calculates the number of live poker and mahjong tables on gaming floors to create leeway for casinos to add more tables, while maintaining the official cap of 5,500 on the total number. “Casinos operating up to 20 poker or mahjong tables in a single area are now allowed to count them as only one table,” a government source told Business Daily yesterday. Union Gaming Research Macau said in a note to investors on Wednesday that the government’s new maths was seen as a big win for casino operators. Union Gaming analyst Grant Govertsen said that counting poker tables only, the change would allow the number of live tables on the city’s gaming floors to increase by 2 percent. The government imposed the cap of 5,500 on the number of live gaming
20 poker tables in one room now count as one tables in 2010, and it is due to remain until next year at least. Casinos will then be allowed to increase the number of tables by a maximum of 3 percent a year until 2023. A total of 5,498 live gaming tables were in operation in the second quarter of this year, Gaming Inspection and Coordination Bureau data show. The government source said the compromise was “a make-orbreak deal”.
Breathing space Casinos have lobbied the gaming regulator intensely, officially requesting an easing of the limit and demanding more flexibility. “A balance was needed to introduce some flexibility, since we are very close to the limit of 5,500 tables,” the source said. “The only restriction is that all the tables have to be in the same room.” However, Mr Govertsen said the casinos “are being allowed to count
Casinos had 5,498 tables in operation in the second quarter of 2012.
all of them as only one table, provided that there is one master table (e.g. for all buy-ins) and the remaining games are operated as satellites”. Even so, casino operators have gained some breathing space. “In practical terms, this equates to a nearly 2 percent increase in table supply market-wide, as we believe there are about 110 poker tables in operation, which would now could be classified as only 10 tables,” Mr Govertsen said. But he added that the new rule would apply only to player-banked poker games, and not casino-banked games such as Three Card Poker. Casinos consider the change a
realistic compromise. “We think this move is indicative that the government will be willing to work with casino operators to help ease capacity constraints prior to the expiration of the table cap next year,” Union Gaming Research said.
Quick, Sands The government would have struggled to maintain the cap. Las Vegas Sands Corp, the parent company of Sands China Ltd, said in an earnings call last month that its newest casino resort, Sands Cotai Central, “would need to take tables from elsewhere” to provide 200 tables
New revenue record on the way The days may be numbered for the record for gross gaming revenue, as casinos are performing strongly this month. Gaming tables are bringing in daily revenue of about 849 million patacas (US$106 million) on average, a source in the industry told Business Daily. “Revenue from gaming tables may reach about 26.3 billion patacas by the end of this month,” the source said. Add the revenue from slot machines, and this month’s gross gaming revenue “may pass the 27 billion pataca mark”, the source said. That would mean this month’s revenue would be about 8 percent higher than the 24.7 billion patacas the industry raked in at the same time last year. The monthly gross gaming record was 26.85 billion patacas, set last October. Bank of America Merrill Lynch expects revenue this month to be between 26 billion patacas and 27 billion patacas. But in a note to clients yesterday by analysts Billy Ng and Mandy Chan, the bank cut its forecast for annual growth to 11 percent from 14.5 percent. If the forecast pans out, average monthly gross gaming revenue for the remainder of the year will be 24.8 billion patacas, about 3.7 percent higher than the average for the corresponding months last year. Bank of America Merrill Lynch said it had reduced its forecast because of a slowdown in growth in high-stakes gambling and the slowing of growth in the mainland.
KEY POINTS New rule for calculating the number of poker, mahjong tables More room created under government-imposed table cap Sands China stands to benefit most, says analyst for the opening of its second phase on September 20. Union Gaming Research said Sands China was likely to benefit most from the new rule. “Based on our proprietary survey of table games in Macau, we believe that the largest beneficiary of this new poker math, unsurprisingly, is Sands China, with perhaps nearly 50 ‘found’ tables, followed by SJM and Galaxy in the teens,” Mr Govertsen said. The new rule, and repossession of tables from the operator of a satellite casino, mean SJM Holdings Ltd may be able to add more than 50 tables in its own casinos. SJM will reallocate some of its gaming tables in September to optimise revenue, and repossess 40 tables from its crisis-hit satellite operation, the Greek Mythology Casino. The Greek Mythology Casino has an SJM gaming licence but is operated by another company. “The business has been affected, so they will now give us back 40 tables, as well as 200 employees,” SJM chief executive Ambrose So Shu Fai said this month.
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business daily August 24, 2012
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HOSPITALITY Tourism slowdown Last month’s tourist arrival figures seem to confirm a trend that has been developing over the course of the past couple of years. Arrivals in July fell by 4.2 percent compared to the same month last year. Monthly oscillations are, however, normal. This analysis here focuses on the growth in the cumulative number of arrivals for the first seven months of this year. Overall, there has been a small increase in arrivals of about 1.4 percent. But that is a significant slowdown in growth, which reached 14.8 percent in 2010 and 12.2 percent last year.
Duty-free jump-start for cross-border park The Zhuhai government aims to give the Zhuhai-Macau Cross-border Industrial Park the jolt it needs Xi Chen email@example.com
The cross-border industrial park could get a new lease of life this month, when a new duty-free shopping area opens
If we break down the results according to the mode of arrival – either by land, sea or air – the slowdown is most pronounced for tourists entering Macau by land and sea. By land, arrivals growth drops from 14.3 percent in 2010 to 16.9 percent last year, to virtually nil – just 0.1 percent – for the first seven months of this year. In practical, there is no change in the number of visitors from one year to the other. Arrivals by land represent about 55 percent of all arrivals and they are an important part of the city’s tourism landscape. For arrivals by sea, the slowdown is just as noticeable and began even earlier. Growth fell from almost 18 percent, two years ago, to 7.6 percent last year and a comparatively respectable 3.3 percent this year. Growth rates for air arrivals have evolved differently but they represent just about 6 percent of all arrivals and do not have a great influence on overall growth rates. J.I.D.
he Zhuhai government intends to reinvigorate the struggling Zhuhai-Macau Cross-border Industrial Park by opening a duty-free shopping area for imported products. More than 5,000 square metres of duty-free retailing space is scheduled to open in the park on Tuesday. Hundreds of kinds of goods will be sold there, ranging from milk powder to cosmetics. The director of the park’s administrative committee, Yan Hong, said yesterday that at least four Macau companies and one French company were setting up shop in the area. UshopIN Import Commodity Centre, a Macau company, will be the first. The park was established in December 2003, becoming the first cross-border industrial zone in Greater China. The central government authorised the
park with the aim of helping Macau’s textile industry but it had failed to live up to its potential. Mr Yan said 70 percent of the businesses in the park were small and medium enterprises. Mr Yan said that if the new area was a success, duty-free shopping area might be allowed everywhere in the park. He said the whole park could be a duty-free zone in three to five years from now. “With the assistance of Macau’s business associations and the media, we hope to attract businesses here to use the Zhuhai platform to further expand into mainland China,” he said. Although the park was open to all comers, Mr Yan said priority would be given to companies registered in Macau. Businesses could stand to profit from an untapped mainland market and
strict customs inspections that would ensure buyers had access to the highest quality goods. The park would offer incentives to keep operating costs low. The tax regime, for example, is the same as on Hengqin Island. The Zhuhai government will offer subsidies to rent or renovate shops. Trading among companies on Hengqin will be exempt from value-added tax and consumption tax. Some companies will be eligible for a reduction of 15 percent in profits tax. Mr Yan said the amount of subsidies given would decline gradually over the years as the park developed. Management wanted the park’s focus to remain on trading, exhibiting and selling high-end consumer goods, wholesaling to mainland merchants and cross-border e-commerce.
August 24, 2012 business daily | 5
MACAU The outflow of income from loans and investments increased, the deficit in factor income rising by 43.5 percent to 33 billion patacas, mainly because of an increase in the income earned by foreign direct investors here.
BoP surplus doubles as tourists shell out Merchandise imports jump but all that money the gamblers bring in keeps balance of payments in surplus Vítor Quintã firstname.lastname@example.org
he balance-of-payments surplus almost doubled to 81.6 billion patacas (US$10.2 billion) last year from 41.3 billion patacas in 2010, mostly because of strong growth in tourism and gaming. The balance of payments, comprising the current account and the capital and financial account, is the sum of
MOP81.6 bln Last year’s balance-ofpayments surplus
the city’s economic transactions with the rest of the world. The Monetary Authority of Macau said that among the components of the current account, services trade had a surplus of 235.8 billion patacas last year, 39 percent more than in 2010, due to “strong exports of travel services”. Service imports grew by more than one-third to 80.9 billion patacas but this was more than offset by a rise of 37.9 percent in services exports to 316.7 billion patacas. The service trade surplus was enough to offset deficits in merchandise trade, factor income and transfer payments. The merchandise trade deficit increased for the second consecutive year, by 41.7 percent to 62.5 billion patacas. Merchandise exports showed what the Monetary Authority called “a relatively mild increase” of 6.3 percent to almost 9 billion patacas, after four consecutive years of contraction.
Casino job openings sink to two-year low
he number of job vacancies in the city’s casinos has fallen to its lowest level in two years, tracking the slowdown in gaming revenue growth. The Statistics and Census Service yesterday released its latest labour survey of the gaming industry. It confirmed the gambling sector with a record-high 52,789 staff, an 11.6 percent increase over the same time last year. More than 4,278 new employees started work in the gaming industry in the first half, a significant decrease from the 5,182 new recruits that started in the second half of last year. There were 1,821 job vacancies at the end of the second quarter, 321 jobs fewer than in were available at the same time last year. This is the lowest figure since mid-2010 and a far cry from the 3,761 employees the gambling industry was searching for at the end of that year. Most of the openings (787) at the end of June were for dealers, which also account for the biggest group of employees (23,144). With the casino sector still hiring, average wages for full-time staff continued setting new records, this time at 17,740 patacas (US$2,220), up by 6.1 percent from December. However, the salary hikes only reached resident workers. On the contrary, the monthly earnings of imported labour dropped 2.5 percent from the end of last year to 17,010 patacas. The survey does not include employees working for VIP gambling promoters, more commonly known as junkets, and their associates, which employ a further 22,000 people. V.Q.
However, merchandise imports increased much faster, by 36 percent to 71.4 billion patacas, “reflecting buoyant local consumption and increased visitor spending”.
In contrast, the deficit in transfer payments, which are for the most part remittances sent home by people working abroad, fell by 27.1 percent to 4.3 billion patacas. The capital and financial account deficit rose by 42.3 percent to of 72.9 billion patacas. One reason was a slowdown in inward direct investment, which dropped to 16.5 billion patacas from 30.4 billion patacas the year before. The balance-of-payments surplus meant the Monetary Authority had to buy almost twice the amount of foreign currency it bought in 2010. At the end of May the authority held almost 98.4 billion patacas worth of foreign currency. The foreign exchange reserves are part of the fiscal reserve, set up in February. The fiscal reserve amounted to 99.2 billion patacas at the end of May. Secretary of the Economy and Finance Francis Tam Pak Yuen told the Legislative Assembly this month that half of the fiscal reserve has been invested in sovereign bonds, but none of it in European bonds. Of the amount invested in sovereign debt, 5 billion yuan is held in mainland bonds. Mr Tam said the rest was in cash deposits, 50 per cent of it in US dollars, 39 per cent in Hong Kong dollars and 8.6 per cent in euros.
business daily August 24, 2012
Affordable flats’ lack transparency
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A tale of two trades The exchange rate of a currency can be objectively verified but the effective exchange rate (EER) of a currency is a statistical construct. Its purpose is to provide a figure that takes into account the structure of external trade of a country or territory and provides an indication about the changes in the international purchasing power of a currency. It is expected to be a better gauge of those changes than volatile market rates. As a rule, the calculation of EER is based on total trade, both exports and imports. But external flows may have dissimilar structures. Imports and exports may involve significantly different partners and currencies with markedly different performances. In fact, three indicators are often used: one for all external trade, the most commonly used, and one each for exports and imports. They latter two may exhibit very clear differences. To facilitate the comparison, in the graphs below, the actual series was re-based to 2010.
Pan-democrats want more transparency from the government when it sets prices for affordable flats Tony Lai email@example.com
105.0 102.5 100.0 97.5 95.0 92.5
The difference between the old and new series for imports is never great. The tight connection between both indicators reflects that the structure of imports has not changed significantly. With the exception of the middle of 2010, their difference is less than one unit. On average, in the period represented, the old series under-valued the import index by about half a point. In those two years, after an initial appreciation, the import value of the pataca decreased by about 3 percent, making imports slightly more expensive at the end of the period.
The structure of exports changed noticeably and that is reflected in the sharp differences between the indexes. Leaving aside the changes in the currency basket, the new series is built on the basis of a very different structure for Macau’s exports. In also shows, after a sharp revaluation in early 2010, a trend of devaluation has emerged, which makes the city’s exports comparatively cheaper. The new bout of appreciation, at the end of the period, is much less pronounced in the new series. J.I.D.
The price of Cheng Chong public flats is much higher than the government has promised, according to the New Macau Association
ubsidised housing is too expensive and the government must offer clarity in how it arrives at its price, the New Macau Association said yesterday. The average price in the latest Cheng Chong complex in Ilha Verde is 1,351 patacas per square foot of construction area. But at a press conference yesterday, the association said that if the calculation was altered to account only for a flat’s usable area, the cost is 1,647 patacas a square foot. “Such a figure is much more than the price of 1,100 [patacas] per square foot that Secretary for Transport and Public Works Lau Si Io promised when the law on affordable housing was discussed last year,” said Jason Chao Teng Hei, the association’s president. The government says there are four affordable housing projects on sale, including Seac Pai Van in Coloane, with average prices between 927 patacas per square foot and 1,256 patacas per square foot.
Mr Chao said the prices were based on construction area and prices for usable area exceed the levels set by the government. “The government should tell the public clearly the formula they use for calculating the price and the members of the committee that sets the price.” The law states the asking prices of affordable homes are calculated through a formula that takes into account the buyer’s purchasing power, the location and age of the building, and the size of the flats. Earlier this week, another member of the Legislative Assembly, Kwan Tsui Hang, said she disagreed with the formula the government uses to calculate prices.
Service fees Mr Chao was critical of the government for forcing applicants to choose homes that were not in an area they preferred. The law states that buyers can choose other areas when the houses in the
area they applied for are not sufficient but Mr Chao said “it is not a must”. He recommended applicants appeal to the court. The New Macau Association also worries some subsidised homebuyers may lease their homes using the “service fees” loophole used by the Chinese-language newspaper Macao Daily News. “The terms in both the affordable housing law and the land concession to Macao Daily [News] state the space is only for self-usage,” he said. “But if Macao Daily [News] can give part of its office space to some associations through service fees, some buyers may take advantage of this and lease their houses.” The government told the Legislative Assembly earlier this month they did not see any wrongdoing in the Macao Daily News providing offices to the Macau Civility Development and Research Centre by receiving 29,000 patacas in service charges.
Weather Beijing 29/20o C Changchun 28/16o C
Harbin 27/17o C
Xian 25/17o C Shanghai 29/25o C Chengdu 30/20o C Kunming 26/17o C Haikou 31/23 o C Sanya 32/27o C
Guangzhou 35/26o C
MACAU (20-25 August) Day
Shenzhen 34/26o C
Hong Kong 32/26o C
Macau 34/26o C
August 24, 2012 business daily | 7
Reolian asks for time to improve After yet another accident, the city’s newest bus operator asks the public to be patient while it improves safety Tony Lai firstname.lastname@example.org
eolian Public Transport Co Ltd has asked for more time to improve the patchy safety record of its bus services. A Reolian employee was crushed between two buses at the Border Gate bus terminus on Tuesday, and was in a critical condition in hospital yesterday. Reolian general manager Cédric Rigaud and deputy general manager Larry Lam visited the terminus yesterday and told reporters that the company was investigating the cause of the accident. Mr Rigaud blamed the company’s poor safety record on a general “lack of communication between drivers and the management board” and said the company’s drivers “lack safety awareness”. He said the number of serious
accidents had increased this year but defended the company’s safety record, saying Reolian’s accident rate was comparable to the accident rates of the city’s other bus operators. “The workforce is not fully united,” he said. “But the management is putting [in] all the energy, all the effort, to resolve [the problem].” Mr Rigaud said a management team would talk with the drivers to try to understand their difficulties and to improve their attitude towards the public and their compliance with safety regulations. He said “a culture difference” was hampering communication, as Reolian had begun operating here only last year. The company is a joint venture between France’s Veolia
Transport RATP and Macau’s H. Nolasco Group. Mr Lam said there was room for management to improve but did not comment on whether there would be changes in the board of directors. “I, personally, don’t mind to step down … but this should be decided by the company,” he said.
Mr Lam said Reolian’s efforts should instead be concentrated on solving the problems at hand. “The public and the media should give us more time to improve our service,” he said. Mr Rigaud said the government’s suspension of its undertaking to increase the amount it pays the bus operators to run the buses “has impact on our business, as we are losing money every month”. The government said this year it would give the three bus companies an increase of 23 percent. But it went back on its undertaking in the face of public anger and told the operators to raise their standards first. Reolian made a loss of 58.5 million patacas (US$7.31 million) last year due to higher salaries and fuel prices. But Mr Rigaud said his company would focus first on service quality.
Traditional Chinese medicine to become future pillar industry for Macau economy, visiting experts say Xi Chen email@example.com
of Macau’s priorities in the “National 12th Five-Year Development Plan” by the central government. The territory has since seen a few new developments in this area. The State Key Laboratory of Quality Research in Chinese Medicine, jointly operated by Macau University of Science and Technology and University of Macau, was formally established in January last year. The construction of the Guangdong-Macau Chinese Traditional Medicine Park in Hengqin Island also commenced last year with a total investment of 1.2 billion yuan (1.5 billion patacas). “All these policies and
out for every accident,” Mr Rigaud said. “Disciplinary actions will be taken.” He said four Reolian drivers had been permanently suspended from driving since last year. Reolian is having a whip-round to raise money to support the victim of Tuesday’s accident and his family.
Macau hosts global Chinese medicine forum
acau is well positioned to develop into a major worldwide centre for traditional Chinese medicine, it was said during a threeday meeting that attracted scholars, governmental officials and industry professionals. The 11th Meeting of Consortium for Globalisation of Chinese Medicine concluded in Macau yesterday. This was the first time the event was hosted in the territory since it was established at the University of Hong Kong in 2003. The development of traditional Chinese medicine has been identified as part
“We need to be responsive and by September 1 we will prove to the public that we have improved the service,” Mr Rigaud said. Reolian will install more equipment on its buses this year. This will include a warning system to prevent passengers being caught in the doors. An investigation will be carried
measures provided a solid foundation for the development of Macau as a major centre for Chinese medicine locally and abroad,” the vice rector of Macau University of Science and Technology, Liu Liang, wrote. “And hence the meeting held in Macau is not just particularly appropriate but also has a special significance and value.” The event had 14 forum sessions with over 100 panel members covering different research areas in traditional Chinese medicine. A further 17 exhibition booths from universities, hospitals and industry players also participated in the event.
Filipino workers can help bring the best out of Macau
Zen Udani Assistant Professor of Management, University of Macau
acau serves as the second home to about 15,000 Filipinos. They are among the more than 10 million Filipino emigrants in more than 200 countries. Filipinos working abroad on a temporary, contractual arrangement are known by the moniker OFW or Overseas Filipino Worker. In 2011, the top 10 destinations of 1.3 million expatriates were Saudi Arabia, United Arab Emirates, Hong Kong, Qatar, Singapore, Kuwait, Taiwan, Italy, Bahrain and Malaysia. They work abroad principally to support their families and to create a brighter future for themselves. Due to their sacrifice, these workers are regarded as modern day heroes. Their talent and professional contribution have also been duly recognised in various parts of the world. Their cash remittances have contributed to steadily boosting the Philippines’ foreign currency reserves and reducing poverty among the workers’ families. Last year’s remittances were US$20.1 billion (160.6 billion patacas), an increase of more than 7 percent from the previous year. There are economic benefits to be gained from working abroad, but there are social costs too. Separating parents from their children can result in family life suffering. Children need their parents.
A worker eventual return to the Philippines can create significant benefits, including good work experience, high-level skills and a broader view on work life. Filipino workers yearn for personal growth and development. While employers may be satisfied with entry-level skills and competencies, their employees need learning and development opportunities to enhance their talents. In Macau, Filipinos in the hospitality and gaming industries benefit from the quality training and corporate culture their employers provide. They commit to their employers, contribute to the organisation’s mission and offer a willingness to be trained. Treating employees properly and nurturing their talent will empower them to add greater value to the business and the organisation’s service culture. Any worker will be highly motivated if they work for a good boss, who leads as a servant leader; a workplace with a healthy organisational culture; and a rewarding compensation package. And to continually bring out the best in them, effective learning and development opportunities must be made available to lead to a clear career path.
Brain drain The way the Philippines is developing its workforce tends to indicate that overseas employment is not just a stop-gap measure to address domestic labour problems, but a relatively long-term strategy to battle unemployment, increase income and generate more foreign currency reserves. But expatriate workers also represent a brain drain, since they are people that would have been useful in the Philippines. Working abroad is their response to a dearth of suitable jobs and better pay.
Expatriate workers also represent a brain drain, since they are people that would have been useful in the Philippines
business daily August 24, 2012
greater china Egypt’s president to visit China Egypt’s new President Mohamed Morsi will make his first official visit to Beijing next week, China’s foreign ministry said. Mr Morsi, Egypt’s first freely elected civilian and Islamist head of state, took over on June 30 after popular revolts last year toppled longtime leader Hosni Mubarak. “This will be President Morsi’s first visit to China since taking office, and China attaches great importance to it,” foreign ministry spokesman Hong Lei said in a statement late on Wednesday. China and Egypt will sign cooperation agreements and discuss regional and international issues of mutual interest, he said, without giving details.
Factory sector shrinks most in 9 months Growth slowdown lasting longer than expected Lucy Hornby and Gabriel Wildau
hina’s manufacturing sector contracted at its sharpest pace in nine months in August, according to a survey yesterday showing falling export orders and rising inventories, a signal that more policy stimulus may be needed to engineer a second half pick-up in growth. As calls grew louder from analysts and investors for further measures from Beijing to support the economy, China’s central bank yesterday completed its largest weekly injection of funds into the financial system in seven months – a move traders saw as a substitute for a cut in banks’ required reserve ratio. The HSBC Flash China manufacturing purchasing managers index (PMI) – a preliminary read-out that provides an early peek at data for August – fell to 47.8 this month, its lowest level since November and well down from July’s final figure of 49.3. “Inventory numbers are the highest on record. Orders to inventory are the lowest since December 2008. Foreign orders to inventory are the lowest since January 2009. It’s very hard to put a positive spin on anything within the data,” said Robert Rennie, chief currency strategist at Westpac Bank In Sydney. “Bottom line – a very poor update with some very poor China data to come.” Falling demand from debt-ridden Europe, China’s single biggest export market, has put the Chinese economy under pressure, with the ripples now being felt throughout east Asia. Japan said on Wednesday that exports slumped the most in six months in July as shipments to Europe and China tumbled. Exports from Taiwan, a key
part of the global technology supply chain, fell for a fifth straight month in July and South Korea, home to major carmakers, computer chip and flat-screen producers, recorded its sharpest export fall in July in nearly three years. Sixth consecutive quarters of slowing Chinese growth have also taken a toll on commodities markets, with falling prices and an uncertain outlook prompting miner BHP Billiton to shelve a US$20 billion expansion project in Australia.
2008. Instead, it has chosen to open more sectors to private capital to help fund new investment projects. “To achieve the stated policy goal of stabilising growth and the jobs market, Beijing must step up policy easing to lift infrastructure investment in the coming months,” Qu Hongbin, chief China economist at HSBC in Hong Kong said in a statement accompanying the index. China has been “fine tuning” policies to keep growth on track without releasing curbs on the property sector.
Easing expected The HSBC PMI has been below the 50 mark that divides expansion from contraction for 10 straight months, and the index is now at levels rarely seen since the 2008-2009 global financial crisis. But China is loath to unleash a massive stimulus package as it did in
KEY POINTS Shows growth slowdown lasting longer than expected Prompts calls for fresh growth measures to boost economy Central bank completes biggest weekly cash injection in 7 months Cash injections seen as substitute for bank reserve cuts
The HSBC PMI has indicated a contraction in activity, a reading of below 50, for 10 straight month
Henderson Land profit grows As rental income rises to HK$2.19 billion in the first half Kelvin Wong
enderson Land Development Co., the Hong Kong builder controlled by billionaire Lee Shau Kee, reported first-half profit that beat estimates as higher rental income and earnings from its energy businesses offset lower property sales. Underlying profit, which excludes revaluation gains, advanced to HK$3.59 billion (US$463 million) in the six months ended June 30, from HK$3.43 billion a year earlier, the company said in a stock exchange statement yesterday. The shares rose as much as 5.1 percent to close at HK$49.25 in
Beijing has fast-tracked fiscal spending on key projects, cut the amount of cash banks must keep as reserves (RRR) to free an estimated 1.2 trillion yuan for lending (US$190 billion) and, in the space of four weeks in June and July, twice lowered benchmark lending rates. Traders and analysts had widely expected that another cut was imminent, and many analysts still believe a cut is needed to give banks the liquidity they need to boost lending.
Hong Kong trading. “This was above our estimate,” Morgan Stanley analysts, led by Praveen Choudhary, said in a note to clients yesterday. “The stock remains attractively valued, especially given the prospect of much better market share – or pre-sale – over the next six to nine months.” Henderson Land and developers including billionaire Li Ka Shing’s Cheung Kong (Holdings) Ltd are reporting lower apartment sales in the first half as the city’s government pledged to increase housing supply to curb prices that have gained more
than 80 percent since early 2009. Hong Kong developers sold 5,530 homes in the first half, the thirdlowest for a six-month period since the start of 2006. Henderson Land’s revenue from property sales was HK$4.28 billion in the first half, almost half the HK$8 billion a year ago. The company said more than 4,000 homes will be available for sale in the second half of 2012.
Home sales “The deepening debt crisis in Europe and slowdown in the global
economy had affected the Hong Kong economy,” the company said. Still, “pay rises, thriving inbound tourism, low interest rates and a rising inflationary environment are expected to lend support to housing demand.” The company said rental income rose to HK$2.19 billion in the first half, from HK$1.87 billion a year ago. Property rental operating profit jumped 22 percent to HK$1.5 billion from a year ago, boosted by higher occupancy at Henderson Metropolitan in Shanghai and World Financial Centre in Beijing. Profit was also helped by contributions from units. Henderson’s share of underlying profit from associates in the six months rose 26 percent to HK$1.67 billion from HK$1.33 billion a year earlier. Henderson Land will pay an interim dividend of HK$0.32, compared with 30 cents a year earlier. Bloomberg
August 24, 2012 business daily | 9
greater china Chinese stocks close up Shanghai shares ended higher in choppy trade yesterday after resources stocks were buoyed by media reports of support for high energy consuming industries. The Shanghai Composite Index closed up 0.3 percent at 2,113.1, moving in the same 30-point range for a third-straight session. Hong Kong shares produced their best showing in almost three weeks, with the Hang Seng Index closing up 1.2 percent at 20,132.2. Taiwan stocks also closed up 0.11 percent, reversing earlier losses and lifted by defensive shares such as construction and tourism counters. The main TAIEX index rose 8.59 points to 7,505.17, after opening down 0.13 percent.
“I would cut RRR tomorrow,” Ting Lu, economist at Bank of AmericaMerrill Lynch, told Reuters. Instead, the People’s Bank of China (PBOC) appears to be using an alternative policy tool, injecting a net 278 billion yuan (US$43.77 billion) into the interbank money market this week, the largest net injection since early January.
Slowing growth The PBOC’s decision to inject the funds through open market operations, rather than through a cut in bank reserves, indicates its concern about stoking inflation. House prices have now risen for two straight months on a monthly basis, following eight consecutive monthly declines resulting from Beijing’s campaign to bring prices down. Employing open market operations
To achieve the stated policy goal of stabilising growth
Hengdeli rises on higher income
Beijing must step
Swatch partner sees profit jump 26 percent in the first half
up policy easing to
and the jobs market,
lift infrastructure investment in the coming months Qu Hongbin, chief China economist at HSBC
offered the central bank more flexibility and precision, said Ma Yun, an economist at CEBM, a Chinese macro-economic consultancy, because the effect was temporary and could be targeted at specific banks in need of liquidity. By contrast, an RRR cut affects all banks and is effectively permanent unless the central bank moves actively to reverse it, so can have an inflationary affect. Evidence has been mounting in recent weeks that China’s economy is struggling to overcome strong global headwinds, with economists’ expectations of a second half pick-up being pushed steadily further back. Chinese government data last month showed July exports rose just 1 percent from a year earlier and that new loans were at a 10-month low. Factory output rose at its lowest pace in three years and pricing power faded. That raised the spectre of a seventh straight quarter of slowing growth in July-September, after the secondquarter expanded 7.6 percent from a year earlier, only just above Beijing’s official 7.5 percent target. Reuters
Hengdeli works with major watch groups in Asia including Swatch, LVMH and Bulgari
engdeli Holdings Ltd rose sell mid-priced watches and have the most in seven months higher profitability, Mr Zhang said. in Hong Kong trading after The company recorded a net income the Chinese partner of Swatch Group margin of 9.79 percent in the six-month AG posted a bigger-than-estimated period, the widest since the 10.24 percent first-half profit gain and said sales for the second half of 2007, according growth will improve next year. to data compiled by Bloomberg. The Chinese seller of Omega, The largest market for Swiss watches Cartier and Rolex watches is among is Hong Kong, where rich Chinese consumer-goods retailers in emerging shop to avoid the mainland’s taxes markets reporting higher earnings as on luxury goods. governments take steps including Swiss watch exports to the city rose interest-rate cuts to spur spending 26 percent to 2.18 billion Swiss francs and bolster growth. (US$2.2 billion) in the first half, double Hong Kong-based Hengdeli’s net income the size of the second-placed U.S. market, increased 26 percent to 563 million according to data from the Federation yuan (US$89 million) in the six months of the Swiss Watch Industry. Combined ended June, while exports to Hong sales climbed 6.3 Kong and China, percent to 5.75 the third-largest billion yuan. market, make “We shall see the up 30 percent of uptick in luxury Swiss watches sales next year,” distributed chairman Zhang worldwide, the Yuping said in data show. an interview Hengdeli predicts in Hong Kong sales growth yesterday after will accelerate the company in 2013, after Hengdeli’s first r e p o r t e d a single-digit half profit earnings. “Rapid increase expected urbanisation is for this full year, fuelling the rise Mr Zhang said. of the Chinese middle class, boosting “We’re a lot more upbeat about next their income levels.” year, as we believe the industry will Profit exceeded the 448.8 million- benefit from a mix of stimulus measures yuan average of four analyst estimates from the government, and there will compiled by Bloomberg. First-half be some preserved purchasing power earnings at Hengdeli, with 428 shops and pent-up demand,” he said. “The in China, Hong Kong, Taiwan and Chinese government may also adjust Macau, benefited from investment in taxes to boost domestic consumption.” Bloomberg stores in smaller Chinese cities that
Henderson Land’s revenue from property sales halved to HK$4.28 billion in the six months ended June
business daily August 24, 2012
ASIA Sharp leads corporate bonds to loss Sharp Corp. is leading Japan’s corporate bonds to their first monthly decline in nine months after the company’s forecast for a US$3.2 billion annual loss triggered a sell-off of its debt. Sharp’s notes slumped 25 percent this month, contributing to a 0.19 percent drop in the Bank of America Merrill Lynch index tracking Japanese company debt. The gauge is on course for its worst monthly performance since the 0.3 percent plunge in November 2011. Government debt lost 0.23 percent in the period, while global corporate bonds slid 0.04 percent, the data show.
Japan PM likely to call Nov. poll Politicians bet on election before end of year
mbattled Japanese Prime Minister Yoshihiko Noda is likely to call a snap election for November, ruling and opposition party members said yesterday, despite the likelihood that his party will suffer a drubbing. Mr Noda, who took office last September as Japan’s sixth premier in five years, scored a rare policy win this month when parliament enacted a law to double the sales tax to curb public debt. But he had to pledge to call an election “soon” to gain opposition backing to pass the bill in a divided parliament. Members of Mr Noda’s Democratic Party of Japan (DPJ) want to put off an election given their sagging support but opposition parties, which control parliament’s upper house, can force his hand by blocking a bill to allow fresh bond issues to fund the budget this fiscal year. “I expect the lower house will be dissolved in October and elections will be called in November,” Keiichi Ishii, policy chief of the New Komeito opposition party, told Reuters in an interview. The New Komeito is an ally of the biggest opposition Liberal Democratic Party (LDP). The parties backed Mr Noda’s tax increase legislation. “The scenario is that parliament will hold an extraordinary session early in October and may pass the deficit bond bill and an extra budget before the prime minister dissolves the [lower] chamber,” Mr Ishii said. “But to secure passage of the bond bill, Noda must promise to hold elections during the extra parliament session.” LDP President Sadakazu Tanigaki, speaking at a news conference,
PM Yoshihiko Noda may dissolve the parliament’s lower house in October, opposition party members say
declined to confirm whether he would accept a November poll, saying only that his party wanted a vote as soon as possible. Democratic Party lawmaker Sumio Mabuchi, however, agreed a November vote was on the cards. “Of course, no one [in the DPJ] wants an election now but the tide is shaping up already as the prime minister promised to call elections
Qantas reports US$256m annual loss Australian airline reported its first annual loss since it was privatised in 1995 Jane Wardell
ustralia’s struggling flagship carrier Qantas Airways cancelled orders for 35 Boeing Dreamliner jets to further cut costs after posting a fullyear net loss for the first time in 17 years due to its bleeding international division. Qantas shares jumped to their highest in more than two months as investors welcomed moves by the airline to slash costs following a year troubled by a record fuel bill, rising competition and a labour union that has opposed the carrier’s spending cuts. Shares rose as much as 6
percent, before closing 2.5 percent higher at A$1.20. The airline, which had earlier flagged a net loss, reported a shortfall of A$244 million (US$254.80 million) in the 12 months ended June 30. ChiefexecutiveAlanJoycedeclinedtogive any guidance for earnings in the current year, citing ongoing volatility, but said the airline remained committed to reaching break-even in its international business in financial 2015. “Given lower growth requirements in
soon to enact the sales tax bill on August 10. It’s natural to think elections are drawing near.” Finance Minister Jun Azumi has said that unless the funding bill passes, the government could run out of money by the end of October. Lower house members’ terms run to August next year but most of them are betting on polls before the end of this year. Kyodo news agency, citing senior
LDP members, said earlier that Mr Noda had indicated in a meeting with the LDP leader that he would call an election before compiling a budget for the next fiscal year, suggesting he had November 4 or November 11 in mind. Kyodo added, however, that the LDP had rejected the offer and that Mr Noda had also floated an October 7 election date.
this uncertain global context,” Qantas is cancelling orders to buy 35 Boeing 7879s, Mr Joyce said. The cancellation would result in an unspecified “reduction in our forward capital expenditure commitments,” the CEO said, noting that the aircraft are worthatotalofUS$8.5billionatlistprices. “There is not a lot of flexibility left in the Qantas balance sheet and with their operating performance they have not many options left to conserve capital other than by delaying or cancelling orders and staying with a older fleet,” said David Liu, head of research at fund manager ATI Asset Management, which exited all its Qantas holdings over the past two months. “Most of the cancelled aircraft were meant for the overseas routes and with the trading environment for their international operations, it is not surprising,” Mr Liu said. Qantas has a current fleet size of 308 aircraft. Options and purchase rights for another 50 Boeing 787-9 aircraft would be brought forward by two years to 2016, Mr Joyce said. The
moves mean a two-year delay in the delivery of the carrier’s first 787-9s. The payments from Chicago-based Boeing will include more than US$300 million of compensation for 787 delivery delays, said chief financial officer Gareth Evans. The cancellation is a major blow for Boeing, which said in a statement that it stood by Qantas as a “long-standing and valued Boeing customer”. Qantas will still take delivery of 15 Boeing 787-8s, the smaller variant of the wide-body, twin-engine jet, for its Jetstar subsidiary towards the second half of 2013, Mr Joyce said. Qantas yesterday posted a secondhalf underlying loss before tax of A$107 million, compared with a A$135 million profit a year earlier. The carrier, which has embarked on a five-year turnaround strategy announced last year, is separating its loss-making international business from its profitable domestic unit, eliminating loss-making routes, axing 2,800 jobs and slashing capital spending over two years by A$700 million.
August 24, 2012 business daily | 11
asia Singapore inflation slows in July Singapore’s inflation slowed to a 20-month low in July, giving the central bank room to ease monetary policy as the faltering global economy threatens growth. The consumer price index rose 4 percent from a year earlier, the Department of Statistics said in a statement yesterday. Singapore trimmed its prediction for 2012 expansion this month and said the island’s growth outlook “remains cautious”. The island has allowed the currency to strengthen to counter inflation and forecasts consumer-price gains will average 4 percent to 4.5 percent this year.
Vietnam stocks fall most as Kien arrest roils financials Economists worried about the fragility of the banking system
ietnam’s stocks slumped the most in Asia on speculation the detention of a banking tycoon this week will lead to further arrests in the financial industry. The benchmark money-market rate climbed to a four-month high. The VN Index closed 4.2 percent lower at 392.82 in Ho Chi Minh City, the lowest level since February 1. The gauge has fallen 19.5 percent from its high this year on May 8. Bao Viet Holdings, the nation’s biggest publicly traded insurer, dropped by the Ho Chi Minh City bourse’s 5 percent daily limit. Hanoi-listed Asia Commercial Bank plunged 6.7 percent. The VN Index slumped 10 percent the past three days. Nguyen Duc Kien, who helped found Asia Commercial, was arrested on Monday after he allegedly “conducted business illegally,” according to a central bank statement. The Supreme People’s Procuracy of Vietnam approved an arrest warrant for Ly Xuan Hai, Asia Commercial’s chief executive officer, online newswire Petrotimes reported on Wednesday.
“Markets don’t like uncertainty,” said Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management. “Until such time we get clarity or hear exactly what’s going on and why these arrests are being made, there’s a good chance the markets
would continue to be weak.” The company has not received any official information on the matter, deputy CEO Nguyen Thanh Toai said by phone yesterday. More than half the VN Index’s 303 companies fell by at least 4 percent. Vietnam’s State Securities
Vietnamese are withdrawing money from Asia Commercial after tycoon’s arrest
Commission urged investors to be calm after Mr Kien’s arrest, the Thoi Bao Kinh Te Vietnam newspaper reported yesterday, citing Nguyen Son, head of the regulator’s market development department. Panicky Vietnamese are withdrawing money from Asia Commercial, prompting the central bank to make a rare public assurance that their funds are safe. The official Tuoi Tre newspaper said depositors began withdrawing money on Tuesday when the arrest was made public. A Ho Chi Minh City resident told Reuters that depositors were standing in large crowds at ACB branches waiting to withdraw money. The VN Index’s tumble this week dragged valuations to 9.5 times estimated profit, the lowest level since May 25, according to data compiled by Bloomberg. That’s 8.7 percent lower than the MSCI Emerging Markets Index’s 10.4 multiple. “The Vietnam issue is more about confidence than market valuations,” said Gavin Parry, managing director of Hong Kong- based Parry International Trading Ltd. “The high probability of more high-profile banking arrests is creating uncertainty for the banking system. The central bank has stepped in to assure it will cover its liabilities.” The nation’s benchmark moneymarket rate has more than trebled in the past week on concern banks will hoard cash to meet customer withdrawals. Bloomberg/Reuters
Fairfax slashes value of newspaper titles Company posted a steep fall in profit; says no early turnaround Miranda Maxwell
ustralian publisher Fairfax Media Ltd slashed the value of its newspaper titles by almost US$3 billion yesterday, as it posted a steep fall in profit and said it saw no early turnaround in the worst advertising conditions in more than 30 years. Shares in Fairfax fell 9 percent to approach their all-time low as the publisher of the Sydney Morning Herald, Australia’s oldest newspaper, as well as the Australian Financial Review and The Age, warned sales in the new year were running 10 percent below a year ago. The group joined newspapers around the world in writing down the value of its mastheads to reflect a massive shift online by readers. Fairfax is already shedding almost a fifth of its staff as classified ad revenues collapse in the face of online competition for real estate, job and car advertisements. “I have been in this industry since the late 1970s and I have never seen an advertising environment of the type we are currently experiencing,” Fairfax chief executive Greg Hywood told a conference call.
“We are managing Fairfax Media with no expectation of an early recovery,” he said. “Difficult trading conditions are likely to continue.”
Gloomy outlook The publisher said its outlook worsened considerably since January. The number of people reading a newspaper once a week had dropped to 64 percent from 80 percent since 2007, Mr Hywood said, while revenue at The Age, the Sydney Morning Herald and the classified ads business fell 17 percent in the year. “It’s no longer the traditional newspaper and media companies who have a monopoly,” said University of Melbourne media analyst Andrea Carson. “Fairfax is doing what it can ... but the long terms trends do not bode well for it,” she said. Fairfax wrote down the value of its newspaper titles and goodwill by A$2.8 billion (US$2.9 billion), just weeks after local newspaper rival, Rupert Murdoch’s News Corp., took a US$2.85 billion noncash restructuring and impairment charge, related mainly to the value
The number of people reading a newspaper once a week dropped to 64 percent from 80 percent since 2007
of its Australian newspapers. Shares in Fairfax, which have tumbled nearly 90 percent over the past five years, were last trading down 9.7 percent at A$0.51. The group posted a 36 percent fall
in underlying net profit to A$69.7 million in the six months to June 24, according to calculations by Reuters, in line with forecasts but down from A$108.4 million a year earlier. Reuters
business daily August 24, 2012
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MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GalaXy enteRtaInMent
Melco cRown enteRtaInMent
MGM cHIna HolDInGS 31.1
SanDS cHIna ltD
SJM HolDInGS ltD
wynn Macau ltD 16.1
27.9 average 28.277
15.8 Max 16.04
WTI CRUDE FUTURE Oct12
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AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
0.9388 1.5235 0.7712 1.2043 75.35 7.9823 7.7526 6.2769 45.7725 29.87 1.2021 28.911 41.57 8507 72.057 1.1002 0.77553 7.7018 9.6245 94.12 1.0288
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COFFEE 'C' FUTURE Dec12
SUGAR #11 (WORLD) Oct12
COTTON NO.2 FUTR Dec12
World Stock MarketS - Indices YTD %
1.0857 1.6513 0.9972 1.4549 84.18 8.0413 7.8077 6.406 57.3275 32 1.3199 30.716 44.35 9662 88.637 1.24736 0.88845 9.2841 11.6793 111.94 1.0311
2.7721 2.1296 -1.8929 -3.0939 -2.1626 0.1352 0.147 -0.9176 -3.8939 1.1542 4.1362 1.1424 4.2197 -4.4765 -4.8986 1.3139 5.3258 2.0769 3.1682 0.942 0.0097
0.5173 0.5447 0.8471 0.8592 0.8269 0.0088 0.0129 -0.0236 0.5004 0.6412 0.498 0.137 0.4992 0.1159 0.3128 -0.0067 -0.3109 -0.5773 -0.8551 -0.0304 0
1.0492 1.5874 0.9562 1.256 78.61 7.9888 7.756 6.3533 55.215 31.19 1.2451 29.937 42.065 9494 82.472 1.20101 0.79125 7.9687 10.0341 98.73 1.03
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A flock of black swans Jeffrey Frankel
Professor of Capital Formation and Growth at Harvard University
hroughout history, major political and economic shocks have often occurred in August, when leaders have gone on vacation believing that world affairs are quiet. Consider World War I’s outbreak in 1914, the Nazi-Soviet pact in 1939, the Sputnik launch in 1957, the Berlin Wall in 1961, and the failed coup in Moscow of 1991. Then there was the Nixon shock of 1971 (when the American president took the dollar off the gold standard and imposed wage, price, and trade controls), the 1982 international debt crisis in Mexico, the 1992 crisis in the European Exchange Rate Mechanism, and the 2007 subprime mortgage crisis in the United States. Many of these shocks constituted events that had previously been considered unthinkable. They were not even on the radar screen. Such developments have been called “black swans” – events of inconceivably tiny probability. But, in my view, “black swan” should refer to something else: an event that is considered virtually impossible by those whose frame of reference is limited in time and geographical area, but not by those who consider other countries and other decades or centuries. The origin of the black swan metaphor was the belief that all swans are white, a conclusion that a nineteenth-century Englishman might have reached based on a lifetime of personal observation and David Hume’s principle of induction. But ornithologists already knew that black swans existed in Australia, having discovered them in 1697. They should not have been viewed as “unthinkable”.
and many other financial prices. One reason for this historic mispricing of risk is that traders’ models went back only a few years, or at most a few decades (the period of the late “Great Moderation”). Traders should have gone back much further – or better yet, formed judgments based on a more comprehensive assessment of what risks might confront the world economy. Starting in August 2007, supposedly singular black swans begin to multiply quickly. “Big banks don’t fail?” No comment. “Governments of advanced countries don’t default?” Enough said. Debt troubles in Greece, especially, should not have surprised anyone, least of all northern Europeans. But, even when the Greek crisis erupted, leaders in Brussels and Frankfurt failed to recognise it as a close cousin of
Default in some euro countries or political dysfunction in the U.S. is a much more likely trigger
the Argentine crisis of 2001-2002, the Mexican crisis of 1994, and many others in history, including among European countries. Nowadays, a eurozone breakup has become one of the most widely discussed possible shocks. Considered unthinkable just a short time ago, the probability that one or more euro members will drop out is now well above 50 percent. A hard landing in China and other emerging markets is another possibility.
Many triggers An oil crisis in the Mideast is the classic black-swan event. Each one catches U.S. by surprise: 1956, 1973, 1979, 1990. Oil prices can rise for many other reasons, as they have in recent years. But the most likely crisis scenarios currently stem from either military conflict with Iran or instability in some Arab country. The threat of a supply shock typically fuels a sharp increase in demand for oil inventories – and thus in prices. The most worrisome financial threat is that currently over-priced bond markets will crash. In theory, inflation (particularly commodity-induced inflation, as in 1973 or 1979) could precipitate a collapse. But this seems unlikely. Default in some euro countries or political dysfunction in the U.S. is a much more likely trigger. Evidence of extreme dysfunction in U.S. politics is already plain to see, reaching a low in 2011 during the debtceiling showdown (also in August),
which cost America its AAA sovereign rating from Standard & Poor’s. In theory, as the “fiscal cliff” set for January 1, 2013, approaches, fearful investors should start dumping bonds now. But investors still believe that politicians, aware of the dire consequences of going over the cliff, will again find a last-minute way to avoid it. Perhaps observers believe that a clear result in November’s elections, one way or the other, would help to settle things. A true black swan – low probability, but high enough to think about – would be a repeat of the disputed 2000 presidential election. There has been no reform since then to ensure that people’s votes will be counted or that a disputed outcome will not be resolved by political appointees. Scariest on the black-swan list is a terrorist attack with weapons of mass destruction. There is a long-standing gap between terrorism experts’ perception of the probability of a nuclear event and the probability as perceived by the public. (Admittedly, the risk is lower now that Osama bin Laden is dead.) Last on the list is an unprecedented climate disaster. Environmentalists sometimes underestimate the benefits of technological and economic progress when they reason that a finite supply of resources must imply their eventual exhaustion. But it is equally mistaken to believe that a true climate disaster cannot happen simply because one has not already occurred. Have a nice vacation. © Project Syndicate
Misperceptions Before September 11, 2001, some experts warned that foreign terrorists might try to blow up American office buildings. Those in power did not take these warnings seriously. After all, “it had never happened before.” Many Americans did not know the history of terrorist events in other countries and other decades. Likewise, until 2006, most Americans based their economic behaviour on the assumption that nominal housing prices, even if they slowed, would not fall, because they had not done so before – within living memory in the U.S. They may not have been aware that housing prices had often fallen in other countries, and in the U.S. before the 1940’s. Needless to say, many indebted homeowners and leveraged bank executives would have made very different decisions had they thought that there was a non-negligible chance of an outright decline in prices. From 2004 to 2006, financial markets perceived market risk as very low. This was most apparent in the implicit volatilities in options prices such as the VIX. But it was also manifest in junk-bond spreads, sovereign spreads,
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August 24, 2012 business daily | 15
Maine lobster tastes best wires with dash of supply side Business
Leading reports from Asia’s best business newspapers
Bloomberg View columnist and the director of the Four Percent Growth Project at the Bush Institute
Thai Financial Post A ceremony has been held for the signing of a memorandum of understanding on copyright protection between the Department of Intellectual Property and the Software Industry Promotion Agency. The aim is to prevent IP right infringements and help Thailand’s software industry to expand further in the future. Each year, the software industry makes than 300 billion baht (US$9.6 billion) in revenue for Thailand. The market has increased by an average of 13.9 percent every year between 2006 and 2011.
Korea JoongAng Daily A total of 277 contracts worth US$73 million were signed by Korean game companies and European buyers at Gamescom 2012, which wrapped up in the German city of Cologne on Sunday, the Korea Creative Content Agency (Kocca) announced. It was Korea’s best performance yet in terms of business deals at a major international game show and marked an improvement of 55 percent from last year, when deals worth US$47 million were inked at Europe’s premier trade show for games and entertainment.
Jakarta Globe The Indonesian government is set to provide tax incentives to textile machinery industries next year as part of a move to boost the ailing textile sector, Industry Minister announced. The minister said the textile industry needed at least 500 pieces of new equipment next year to revive the sector. He added that such machines should be produced in Indonesia, and that a tax holiday was planned to reduce imports. The minister was not specific on the nature of the planned tax incentives.
Business Standard BNP Paribas, Societe Generale and Standard Chartered are among the seven foreign banks which have been given approval to open new branches in India this year, the government said yesterday. The other four which were also given approval are Morgan Stanley Bank International, Westpac Banking Corporation, Bank of Bahrain and Kuwait and State Bank of Mauritius. In 2011, as many as 10 foreign banks were given permission to open branches in India, while the number stood at six in the year before that.
istory repeats itself, first as tragedy, then as lobster. Or so you might think from reading this summer’s news in Maine, which speaks volumes, or crates, about the farcical nature of North American trade policy. First, to the dark side of the story, which involves, if not a tragedy, a tragically long dispute over the lumber trade. For decades, the U.S. has been alleging that Canada unfairly holds down the price of timber for its producers, squeezing out the noble U.S. lumberman, hurting his industry and therefore harming the American economy. In the latest spat, the U.S. accused Canada of intentionally misclassifying good timber as salvage quality, or Grade 4, to sell it at the lower price permitted for such wood under the 2006 Softwood Lumber Agreement. Humiliatingly, an international arbitration court found no conclusive evidence for such cheating. That didn’t deter U.S. authorities. “The Obama Administration is committed to continue vigorously enforcing” the softwood agreement, said Nkenge Harmon, the deputy assistant U.S. trade representative, in a statement. Not content with just lumber, President Barack Obama has also established an Interagency Trade Enforcement Unit to police other trade agreements and bring to justice any nation it deems a shirker. “We are looking at problems in at least a half-dozen countries and that number is going to grow,” said Tim Reif, general counsel in the office of the U.S. trade representative, in a speech.
Fishing expedition Theunderlyingpresumptionofthis fishingexpeditionisthateconomic growth would be stronger if only other nations could be policed and forced to price fairly. The absurdity of this position is clear
When governments turn into overly meddlesome enforcers of trade law, rather than promoters of trade freedom, they are no longer helping growth
when you consider the Canadian point of view in a newer dispute over lobsters. This year’s lobster crop has been enormous, probably because of warmer water temperatures this past winter and spring. For New England lobstermen, supply is now outstripping demand. As a result, lobster processors, most of which are in Canada, are paying very low prices to fishermen – US$2.50 or US$3 a pound, compared with the US$4 a pound the lobstermen want. That’s hitting Canadian lobstermen hard. Because of regulations that aim to sustain lobster supply – which seem pretty unnecessary now – the Canadians are permitted to harvest lobsters for only part of the summer, unlike their U.S. counterparts. They thus need to earn more per pound. Embarrassed American lobstermen keep reminding anyone and everyone that, heck, there are so few processing plants in Maine they had to come to Canada, and it’s not fair to punish them for trying to sell their catch.
Still, like the lumbermen of the Great Northwest, the Canadian lobstermen are furious. They’re picketing the processing plants that buy from the New England tricksters (or they were, until a court order stopped them). They tossed lobster traps into the office of the Canadian fisheries minister. Last month, they formed blockades to halt delivery of those heinous Maine lobsters. This time the “unfair trade advantage” is allegedly on the U.S. side. But U.S. authorities aren’t exactly riding to the rescue of Canadian lobstermen. They’re siding with the dumpers, and ostentatiously. “Snowe Welcomes Canadian Court Injunction in Lobster Dispute,” Maine Senator Olympia Snowe posted on her website after Canada’s courts stopped the lobster protesters. Snowe also wrote to Secretary of State Hillary Clinton to call attention to the crisis.
Government’s role It’s doubtful that Clinton or any other American official could do much to solve such problems in the long term. After all, it wasn’t government policy but some mystery of the Atlantic
environment that led to the market glut. And, of course, the Maine lobster wouldn’t be so cheap for Canadian processors if the Canadian dollar wasn’t so strong. Federal authorities typically concern themselves with making sure the lobster catch is sustainable and that domestic processing plants are sanitary – not with whether the creatures are priced properly. If this lumber-lobster parable has a hero, it’s a young entrepreneur named Kyle Murdock, who is starting a new processing plant in Maine, called Sea Hag Seafood, and even hiring inmates from a nearby prison. That’s the kind of supply-side thinking that leads to creative business solutions. The main point is that in every industry, including lumber and lobster, economic challenges are as numerous as lobster legs. Sorting them out is beyond any man or woman, and, certainly, beyond a trade diplomat in Washington. When governments turn into overly meddlesome enforcers of trade law, rather than promoters of trade freedom, they are no longer helping growth; they are laying antigrowth traps. Bloomberg View
business daily August 24, 2012
CLOSING Islets tension rising
BOC profit up by 5.1 pct
S. Korea said it will return without response a letter to President Lee Myung Bak from Japanese PM Yoshihiko Noda, heightening tension between the two countries over islets claimed by both. The letter in its protest of Mr Lee’s August 10 visit to the islets referred to them by the Japanese name of Takeshima. “Such an island doesn’t exist,” a foreign ministry spokesman said. The rocks are known as Dokdo in Korean. Mr Noda’s letter also proposed taking the dispute to the UN International Court of Justice, which Seoul has rejected.
Bank of China Ltd, the country’s No.4 lender, reported a 5.1 percent rise in second-quarter net profit yesterday, its slowest quarterly profit growth in over three years. The bank said it made a net profit of 71.6 billion yuan (US$11.3 billion) in JanuaryJune, up 7.7 percent from the 66.51 billion yuan during the same period a year earlier. April-June net profit was 34.84 billion yuan, according to Reuters calculations from company figures. Non-performing loans fell to 0.94 percent from 0.97 percent at the end of March, the bank added.
reported missile defence plan. “The Chinese would probably think about how they would have to counter these counters, and that would probably mean acquiring more systems or perhaps targeting those radar sites.”
U.S. planning new missile defence system in Asia Move seen as countering N. Korea, China defence plans Non-stop military build-up in Asia
he Obama administration is planning an expansion of missile defences in Asia to address threats from North Korea that could also serve to counter China’s military build-up, the Wall Street Journal reported. The Pentagon is discussing with Japan a new radar installation on a southern Japanese island, the newspaper said, citing unidentified U.S. defence officials. Another facility is also being evaluated
for Southeast Asia, linked to land and sea missile-defence systems, the Journal said. Pentagon spokeswoman Wendy Snyder in Washington said she couldn’t immediately comment, and Japan’s top spokesman also declined to comment. President Barack Obama is escalating foreign-policy focus on Asia as China increases defence spending and contests jurisdiction over maritime territories with countries including Japan, Vietnam and the Philippines.
Meantime, North Korea’s leader Kim Jong Un has shown no willingness since assuming power in December to abandon his regime’s nuclear weapons program, and oversaw an attempted launch of a long-range rocket in April. “If they are moving down to Southeast Asia, they are probably making an effort to counter Chinese missile systems,” Richard Bitzinger, a senior fellow at Nanyang Technological University in Singapore, said of the
his country’s bailout agreement. The French and German leaders met yesterday to fine-tune their joint message to Samaras, who is on a charm offensive seeking more time for Athens to meet its bailout commitments. As part of a rescue package with its international creditors, Greece has committed to slashing some 11.5 billion euros (US$14.2 billion) from spending over two years from 2013. A team of auditors from the so-called Troika – the European Commission, International Monetary Fund and European Central Bank – is due to report next month on whether Greece has done enough to unlock a further tranche of aid to stave off bankruptcy. AFP/Reuters
PM Samaras had asked ‘breathing space’ for reforms, cuts
Wednesday, Greek Prime Minister Antonis Samaras called for more time to make spending cuts and reforms to unlock funds to keep the debtwracked country afloat. “All that we want is a little ‘breathing space’ to revive the economy quickly and raise state income. More time does not automatically mean more money,” Mr Samaras told the German daily Bild ahead of talks with Chancellor Angela Merkel in Berlin today. Mr Samaras reportedly wants to discuss extending that period to four years in his talks in Berlin and with French President Francois Hollande in Paris tomorrow. But they are expected to tell Mr Samaras that they can give him little leeway on easing the terms of
X-Band radar The X-Band radar is used for tracking hostile ballistic missiles. It can be positioned at sea aboard Navy ships to support tests of U.S. missile-defence systems and to provide coverage against possible threats. Placing the radar in Southeast Asia means “the U.S. would actually have to step up patrols in the South China Sea and place these large destroyers in that region on basically regular patrols,” Mr Bitzinger added. “That could be obviously taken by the Chinese as provocative.” China called for the U.S. to stop gathering intelligence in waters off its shores after a 2009 incident in which its vessels harassed an American naval vessel 75 miles south of Hainan Island. The U.S. views the South China Sea as international waters and has repeatedly called for littoral states to respect freedom of navigation. Defence Secretary Leon Panetta in June became the highest-ranking American official to visit Vietnam’s Cam Ranh Bay since the Vietnam War, reflecting the U.S.’s expanding ties with a former enemy as China’s rise realigns relationships in the region. In November, Mr Obama and Australian Prime Minister Julia Gillard announced a defence accord to deploy American Marines on Australian bases in 2012.
German minister says no more time for Greece iving Greece more time to implement necessary structural reforms and austerity measures would not solve its severe problems, German Finance Minister Wolfgang Schaeuble told public radio yesterday. “More time is not a solution to the problems,” Mr Schaeuble told SWR radio. “More time would, in case of doubt, mean more money” and the eurozone had already gone to its very limits in hammering out the deal with Athens last year, the minister argued. It was not an issue “of being more generous or less generous” but about finding a way for the eurozone as a whole to regain the confidence of the financial markets, Mr Schaeuble argued. In a newspaper interview
Japan and the U.S. have decided not to put the new radar facility on Okinawa, given tensions over the American military presence there, the Journal said. The Philippines is a possible site in Southeast Asia for the X-Band early-warning radar manufactured by Raytheon Co., it said. Japanese Chief Cabinet Secretary Osamu Fujimura, speaking to reporters in Tokyo, declined to comment on the article. North Korea is building a new launch pad for firing larger long-range rockets at its Musudan-ri site in the northeast, the U.S.-Korea Institute at Johns Hopkins University in Washington said on its website in May. Japan is beefing up its anti- ballistic missile defence system in concert with the U.S. and “most of that is geared against North Korea,” Mr Bitzinger said. China last year continued “sustained investments” in advanced cruise and anti-ship missile technologies that “appear designed” to blunt U.S. military access to the region, the Pentagon said in a May report. The missiles are designed for launch to a general location, where the guidance systems take over and spot carriers for attack, with warheads intended to destroy aircraft on deck, airplanelaunching gear and control towers.