MOP 6.00 Vitor Quintã Deputy editor-in-chief
There is no guarantee the ballooning budget for Taipa’s Pac On Terminal ferry port will be capped at 3.28 billion patacas (US$411 million) said a senior government official yesterday. Secretary for Transport and Public Works Lau Si Io was speaking on the sidelines of a Legislative Assembly meeting. He did have some good news. “The terminal will be open for use by the middle of next year,” the official stated. Page 2
Gaming slowdown to drag GDP growth
Thursday July 18, 2013
Editor-in-chief Tiago Azevedo
‘No promises’ on ferry port budget
April 19, 2013
aming revenue will “experience a visible slowdown” in the second half of this year after six months of “better-than-expected growth”, the Monetary Authority of Macau says. It appears to back similar comments last week
by Francis Tam Pak Yuen, the territory’s Secretary for Economy and Finance. Mr Tam said full-year gross gaming revenue growth would be of about 10 percent, despite 15.3 percent expansion year-onyear in the first half of 2013.
The authority added in its latest Monetary and Financial Stability Review that the recent sharp rise in property prices will “significantly” slow in the second half of this year. More on page 3
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Graft buster doubts Lau on La Scala
Threat of TV blackout is receding
Chinese Estates Holdings Ltd chairman Joseph Lau Luen Hung hadn’t asked the government for land plots near Macau International Airport before official bidding began in 2005. The Commission Against Corruption made the claim yesterday contradicting a court assertion by Mr Lau’s lawyers. The graft buster grew “suspicious” of the Hong Kong businessman when his name appeared in the now notorious “friendship notebooks” of Ao Man Long.
Most public a n t e n n a companies are willing to broadcast a mixture of copyrighted and free-toair television channels from Macau Cable TV Co Ltd, in a bid to prevent a TV blackout to 70 percent of the city’s homes. The news came in a statement from the Bureau of Telecommunications Regulation yesterday. Last week Yeung Ka Ke, a spokesman for the public antenna companies, had described the proposal as “childish”.
Hang Seng Index
Queries on SHFL, LT Game legal battle after Bally deal Analysts have welcomed the proposed leveraged buy out for US$1.3 billion (10.39 billion patacas) of casino equipment maker SHFL entertainment Inc by fellow Nevada firm Bally Technologies Inc. Of interest in Macau is what difference if any the deal will make to the ongoing litigation between SHFL and local equipment maker LT Game Ltd. Bally currently gets 84 percent of revenues from North America, and LT Game wants to expand in the United States via patents it says it has registered there or applied for. Page 5
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July 18, 2013
‘No promises’ on budget cap for Pac On terminal: Lau But Taipa ferry facility open by ‘middle of next year’ says public works boss Stephanie Lai
here is no promise that the ballooning budget for Taipa’s Pac On ferry terminal will be capped at 3.28 billion patacas (US$411 million) said a senior government official yesterday. Secretary for Transport and Public Works Lau Si Io was speaking on the sidelines of a meeting at the Legislative Assembly on a proposed new land law. “I cannot assure you that this [3.28 billion patacas] is the final budget cap,” said Mr Lau. He did have some good news. “The terminal will be open for use by the middle of next year,” the official stated. In May the Infrastructure Development Office had said trial operations would start in the third quarter of this year. In an e-mail to Business Daily yesterday, the office said it would “strive to complete the whole construction of Pac On terminal within the fourth quarter this year”. The project has been in the hands of public officials for nearly a decade, yet with no accurate description of the overall budget and no scientific assessment of potential passenger volume, the public spending watchdog the Commission of Audit noted on Monday. The government is currently committed to spending 3.28 billion patacas on the terminal. “But as there’s nothing to change with the project planning now, even [though] the cost will undergo some adjustment under the inflation factor, the final expense should not deviate much from our set budget,” Mr Lau assured the media. The secretary pledged that he would instruct his officials to follow the audit report’s advice for “improving the overall estimation for infrastructure project budget”, as the watchdog put it. Mr Lau also defended the scale of the Pac On terminal. Some form of
Pac On – sailings soon, says Lau Si Io
Taipa ferry port to serve the growing residential district of Taipa and the then unbuilt Cotai gaming zone, was first proposed in 2003, but as a temporary “auxiliary port”. In 2005 the government decided to build a modest but permanent structure costing 583 million patacas. By 2008 the scale of the project had grown, without a firm grip on budget projections. But Mr Lau defended the scale of the infrastructure. “In the past eight years we’ve noticed a great increase in passenger flow and logistics after the Individual Visit Scheme came into effect, and it’s necessary to enhance the scale of Pac On terminal and diversify our local marine transport,” said the secretary.
TV blackout threat recedes Public antenna companies say willing to rebroadcast Macau Cable TV’s signals Stephanie Lai
ost public antenna companies are willing to begin broadcasting a mixture of copyrighted and free-to-air television channels from Macau Cable TV Co Ltd, in a bid to prevent a TV blackout to 70 percent of the city’s homes. The news came in a statement from the Bureau of Telecommunications Regulation yesterday. Last week Yeung Ka Ke, a spokesman for the
public antenna companies, had described the proposal as “childish”. He added it would allow Macau Cable TV to “wholly own the rights to receiving television signals” – apparently overlooking the fact Macau Cable was legally supposed to have a monopoly on cable-delivered TV programming since 1999. The Court of Second Instance ruled last month that the government
“I don’t think the big scale of Pac On will lead to a waste,” he added. The audit commission said there had been no proper assessment of what impact improvements to the Outer Harbour ferry port – and the arrival of the Hong Kong-Zhuhai-Macau Bridge – would have on the numbers using Pac On.
Mr Lau said that other small harbour facilities for fishing boats and small cargo vessels in the north of Macau peninsula were already at capacity. “The space at Inner Harbour and Ilha Verde for running marine activities is already very crowded,” the secretary noted, “That
will mean in future, Pac On terminal may play functions other than running the regular catamarans.” Currently, only Cotai Water Jet, operated by Cotai Ferry Co Ltd; TurboJET of Shun Tak-China Travel Ship Management Ltd and Yuet Tung Shipping are using the Taipa temporary ferry terminal. The Maritime Administration said in an e-mailed statement to Business Daily that those three operators have not applied to expand services at the Taipa terminal. The body added: “The administration has not received any new applications from other ferry operators for running marine transport at the Taipa terminal”.
had to stop within 90 days the public antennas from illegally relaying channels carried by Macau Cable. Telecom regulator Lawrence Tou Veng Keong suggested the public antenna firms rebroadcast Macau Cable TV under the cable firm’s branding using the antenna companies’ existing network. “Most of the public antenna companies had sent their intent of cooperation and proposals to us by the afternoon of July 17, saying they are willing to use TV signals provided by Macau Cable TV and transmit them to the households,” the regulator said in the statement. “The proposals submitted by the public antenna companies mostly involve execution details on our proposal,” the statement noted. “We’ll process them as soon as possible.” “If we do not agree to the
government’s plan, we’ll be considered [an] illegal operation when the court decision comes into practice,” Mr Yeung said yesterday. “We’ll have to consider the rights of the audience,” he added. But the public antenna companies’ spokesman stressed that they were yet to discuss the full details of the cooperation terms with Macau Cable TV.
July April18, 19,2013 2013
Looming gaming slowdown to drag down city’s GDP Monetary authority review says inflation to stay high with unemployment at all-time low Staff Reporter
aming revenue growth will “experience a visible slowdown” in the second half of this year after six months of “better-than-expected growth”, the Monetary Authority of Macau says. “VIP gaming has been losing its market share to mass-market gaming, slowing overall gaming services growth,” the city’s de-facto central bank said in the most recent edition of its Monetary and Financial Stability Review this week. The forecast is in line with comments by Secretary for Economy and Finance Francis Tam Pak Yuen last Friday. Mr Tam said this year’s growth in gross gaming revenue would be about 10 percent. Gaming revenue reached 171.4 billion patacas (US$21.4 billion) in the first half, a 15.3-percent increase compared to the same period last year. VIP gaming revenue growth increased for the third consecutive quarter in the period between April and June. High-roller revenue was up by 11.2 percent in the second quarter compared to the same time last year. Several gaming analysts have forecast strong revenue growth throughout the rest of the year. “We expect third quarter revenue growth of 20 percent year on year, which should continue to drive outperformance for the industry, despite macro concerns relating to the liquidity crunch in China that affects junkets’ ability to source working capital,” Morgan Stanley Asia Ltd wrote in a note last week. The investment bank expects 17-percent growth this year. Wells Fargo Securities senior analyst Cameron McKnight wrote this week that he expected doubledigit growth in VIP revenue to continue in the near term.
He forecasts gaming revenue will grow by 16 percent this year. In its review, published twice a year, the monetary authority says real gross domestic product will grow by less than 10 percent this year. The authority did not provide an exact figure. That meets the forecast offered by Mr Tam last Friday. He said GDP was likely to post “a middle single-digit growth [rate]” this year. GDP expanded by 10.8 percent year-on-year in the first quarter. Data for the second quarter is released on August 30. The authority said tourism-related developments in Cotai and largescale infrastructure projects would underpin investment spending but the rate of growth would decelerate. Last year, gross fixed capital formation, a gauge of investment spending, rose by 19.1 percent in real terms.
Higher prices The authority says the unemployment rate will move in a “narrow range around 2 percent this year”, backed by the “strenuous demand for labour” in the services and construction industries. The unemployment rate for the period between March and May was 1.8 percent, the lowest since the Statistics and Census Service began collecting data in 1992. Full
Property prices to come off the boil The Monetary Authority of Macau says the rise in property prices will slow “significantly” in the second half of this year. In its latest Monetary and Financial Stability Review, the authority said “the recent hike in property prices can be explained by the notable increase in supply of uncompleted property units” prior to last month’s introduction of a law regulating these deals. May saw a new record for the average property cost at 98,187 patacas (US$12,289) a square metre, official data show. That was almost double the cost in May one year earlier. The authority expects “reduced” numbers of transactions in the second half of this year. VIP gaming – slowing casino industry
employment was reached last year. The authority says the number of migrant workers “is expected to trend upwards at a gradual mode” against a fixed supply of resident workers. Macau had 118,600 migrant workers in May, an all-time high, data from the Human Resources Office show. The bad news is that low unemployment is increasing the pressure on prices. The authority says inflation will remain high throughout
KEY POINTS Dominance of VIP gaming set to decline Analysts estimate gaming revenue growth above 15 pct Demand for workers to keep jobless rate low Inflation rate hovers between 5 pct and 6 pct Domestic factors to drive up prices
the remainder of the year. “Macau’s unemployment rate has a significant impact on inflation when it drops to below the estimated threshold of 3.4 percent,” the authority says. “As the unemployment rate is anticipated to hover around 2 percent, Macau’s inflation rate would stabilise at a relatively high level, unlikely to deviate much from the current 5 percent to 6 percent.” The authority says a “largely favourable” outlook for inflation internationally is being outweighed by domestic factors. “The very tight labour market and other production capacity constraints continue to drive labour and rental costs up at a double-digit pace and progressively feed through to consumer prices.” The average inflation rate for the first five months of this year was 5.24 percent. The authority said the nontradable components of the goods and services used in calculating the city’s consumer price index accounted for about four percentage points of the rise in prices, suggesting inflation was largely driven by domestic factors. The review also says interest rates will remain at low levels. Interest rates here are linked to rates in the United States and the authority says the Federal Reserve is unlikely to change its benchmark interest rate in the short term.
July 18, 2013
Graft buster disputes Lau’s La Scala evidence
Melco agrees deal on Russian casino L
Corruption watchdog said Hong Kong tycoon didn’t ask for Macau land plots prior to official bidding, as claimed
awrence Ho Yau Lung’s Melco International Development Ltd has reached an agreement with Russian authorities on development of a US$130-million (1.04 billion patacas) casino-hotel near Vladivostok. “Agreement for the project’s financing was reached Tuesday at a meeting of the Primorye territory governor with representatives of Melco International Development,” a spokesman told Russian news agency RIA Novosti. The parties are scheduled to sign a preliminary agreement in September. Melco International and Summit Ascent Holdings Ltd, 37-percentowned by Mr Ho, bought a 51-percent share of the casino project earlier this month. If a second phase to the scheme – next door to China’s northeastern Heilongjiang province – goes ahead, Mr Ho’s total investment could be US$630 million, said earlier filings from both firms. Melco International is a shareholder in Melco Crown Entertainment Ltd, developer and owner of the City of Dreams casino resort on Cotai. Melco International’s shares rose 1.08 percent yesterday to close at HK$14.98.
hinese Estates Holdings Ltd chairman Joseph Lau Luen Hung had not applied to the government for land plots near Macau International Airport before official bidding began in 2005. The Commission Against Corruption made the claim yesterday contradicting a court assertion by Mr Lau’s legal defence. Lei Tong Leong from the graft buster yesterday told the Court of First Instance the commission grew “suspicious” about the Hong Kong businessman as his name was mentioned in the now notorious “friendship notebooks” of jailed public official Ao Man Long. Phrases including “Cotai” and “airport land” cropped up next to references to Mr Lau, said Mr Lei. Mr Ao – a former government secretary currently serving a 29year prison sentence for corruption – was said in earlier court cases to have recorded in the notebooks bribes received between the years 2000 and 2006. Mr Lau and another Hong Kong businessman Steven Lo Kit Sing are accused of paying HK$20 million (US$2.5 million) to Mr Ao to win the bidding in 2005 for five land plots near Macau airport, where high-end housing project La Scala was to be built. The land and Mr Lau were already mentioned in the notebooks in 2004, months before an official decision in May 2005 to open bids for the five plots said Mr Lei, head of an investigative team at the watchdog. When the commission started investigations it asked Mr Ao’s former department the Land, Public Works and Transport Bureau whether the
The La Scala project was to be built near the airport
government had received any official application for land plots from Mr Lau prior to May 2005, said Mr Lei. The bureau replied ‘no’, said the graft buster. This contradicts what Leong Weng Pun, counsel for Mr Lau, had argued in previous sessions of the current trial. The lawyer had presented a document showing Chinese Estates expressed interest in a Cotai land plot to the cabinet of Macau’s then chief executive Edmund Ho Hau Wah before the airport land bidding in 2005. Mr Lei yesterday also presented documents – immigration records
and restaurant records – to the court indicating Mr Lau and Mr Lo met Mr Ao on June 22, 2005, when the land bid process had already been initiated. Two days later Mr Lo set up Moon Ocean Ltd, a Macau company that in late 2005 was used to buy the airport land via some British Virgin Islands shell companies, said the commission’s Mr Lei. On the same day – June 24, 2005 – Moon Ocean was invited to join bidding for the airport land, said Mr Lei. The trial was adjourned until next Monday, July 22.
Lawyers criticise ‘manipulated’ evidence Legal defence says information extracted from Ao Man Long’s notebooks was not complete
he legal defence of two Hong Kong businessmen said the city’s graft buster had “manipulated” the information taken from the ‘friendship books’ of disgraced secretary Ao Man Long. Lei Tong Leong, from the Commission Against Corruption, presented yesterday in court six excerpts from the notebooks mentioning the name of Joseph Lau Luen Hung and the airport land where the high-end residential project La Scala was to be built. It was said in court before that Mr Ao had recorded his illicit deals in these notebooks. Mr Lau, chairman of Chinese Estates Holdings Ltd, and another Hong Kong businessman, Steven Lo Kit Sing, are accused of paying
bribes to Mr Ao. Jorge Neto Valente and Rui Sousa, the lawyers representing Mr Lo, criticised the graft watchdog saying it had not showed all the information included in the notebooks. When allowed to review one of the notebooks, Mr Neto Valente pointed out that a person’s name, a hotel project and a company name had been censured in the powerpoints shown early in the day. Such names were not related to the web of corruption woven by Mr Ao, he said. “There are many names in the notebooks that are not related to any case [linked to Mr Ao],” the lawyer said. He argued that the notebooks were “merely calendar books” on which Mr Ao recorded his schedule and work related matters.
Mr Lei said the graft buster had concealed some of the content because it was related to other cases. He did not specify whether the watchdog was still probing other cases. Yesterday, the Court of First Instance ruled that supportive documents, like powerpoints, could be used during the trial. The legal defence of most of the accused had opposed the idea. Judge Mário Silvestre said the court would allow the use of powerpoints, but with some restrictions. The documents would only be showed to lawyers, prosecutors and the judges but not to the general public present at the session, composed mostly of journalists. T.L.
U.S. regulators again look at Pansy Ho G
aming regulators from United States spent last week in Macau, investigating the suitability of MGM Resorts International to operate a casino in Maryland, the Washington Post reports. They visited the MGM Macau casino resort run by MGM Resorts’ majority-owned unit MGM China Holdings Ltd. They also reportedly spoke to junket operators as part of a mandatory inquiry into the financial capabilities and integrity of potential casino owners. MGM Resorts hopes to build and operate a US$800-million (6.4 billion patacas) casino-resort in National Harbor, Maryland. MGM Resorts said last year it expected scrutiny of its relationship with Pansy Ho Chiu King, a part owner of MGM China and a daughter of gaming entrepreneur Stanley Ho Hung Sun. In February this year MGM Resorts said it had formally petitioned New Jersey regulators to re-establish its casino licence there. MGM agreed in March 2010 to divest after state officials said Ms Ho was an “unsuitable” business partner for MGM. M.G.
July 18, 2013
Macau Okada ‘concern’ at Filipinos’ attitude Japanese gaming entrepreneur Kazuo Okada’s company Universal Entertainment Corp says it has “concern” the attitude of law enforcement and gaming regulators in the Philippines is being “influenced” by a criminal investigation the firm faces in the United States. Allegations that Universal paid US$40 million (320 million patacas) in bribes in pursuit of a Manila casino project are being investigated by the Philippines Department of Justice. “We cannot help but speculate and express concern if there is any direct influence from our civil litigation against Wynn Resorts or the U.S. Federal Bureau of Investigation [inquiry],” said a Universal statement.
Good fit on Bally’s SHFL buy-out, say analysts But questions over future of SHFL litigation with local casino equipment maker LT Game Michael Grimes
nalysts have welcomed the proposed leveraged buy out for US$1.3 billion (10.39 billion patacas) of casino equipment maker SHFL entertainment Inc by fellow Nevada firm Bally Technologies Inc. SHFL is strong in electronic table games and slots in Asia and Australasia and in card shufflers globally, and Bally is traditionally strong in slots in North America, and casino floor management systems worldwide. “From a strategic standpoint, we like the combination of mostly non-competitive business lines that include unique technologies and patents from both companies,” said David Bain of Sterne Agee & Leach Inc Equity Research, in a note. “Geographically, the combination positions Bally deeper into Asia/ Australia and internationally, in general,” he added. It will take a year – until the second quarter of 2014 – to complete the merger process, said Neil Davidson, Bally’s chief financial officer, during a joint conference call with SHFL shared with analysts. Of concern in Macau, is what difference if any the deal will make to the ongoing litigation between SHFL and local equipment maker LT Game Ltd. LT Game asserts a SHFL product
has breached a Macau patent that LT Game claims on an electronic baccarat product. A lawsuit is currently active at the territory’s Court of First Instance.
Legal wrangles “It’s going to be interesting to see what happens with Bally and LT Game. I wonder if they will continue to pursue the SHFL litigation,” an analyst who asked not to be identified told Business Daily. “I’d say that deeper pockets might prevail and the litigation will continue,” added the person. SHFL’s chief executive Gavin Isaacs has publicly committed his firm to testing the merits of LT Game’s patent claim in the Macau courts, after his firm’s presence at Global Gaming Expo Asia 2012 in Macau was disrupted by an LT injunction. But it is not clear whether Mr Isaacs – who was Bally Technologies’ chief operating officer for five years until March 2011 – will stay on post-merger. Two analysts asked separately on the conference call whether he would, but he declined to be drawn on the issue. A SHFL filing with Nasdaq on Tuesday United States time, confirming the deal to investors,
stated: “At this point, we do not know the future status of our current senior leadership, however our senior management is committed to seeing the transaction through to completion”. One issue possibly for the BallySHFL pre-merger management team to consider when assessing the Macau litigation is that LT Game’s parent Paradise Entertainment Ltd has stated in Hong Kong filings it has “five approved patents and six patents applications pending approval in the U.S. in relation to a betting terminal system”. A Paradise filing on May 8 said it was seeking to promote sales in the U.S. In July 2012 LT Game filed a lawsuit with the U.S. District Court in Las Vegas claiming SHFL – then known as Shuffle Master – had been damaging LT Game’s U.S. business prospects and thus violated Nevada and U.S. laws barring unfair competition. Analysts say Bally currently gets 84 percent of its revenue from North America. SHFL gets 53 percent of its revenue from outside that continent.
Company fit In terms of the Bally-SHFL fit, Bally has nearly twice the market capitalisation (US$2.52 billion)
Tie up – Gavin Isaacs, left, of SHFL entertainment and Ramesh Srinivasan of Bally Technologies
of SHFL (US$1.27 billion) and more than four times the number of employees – 3,400, versus SHFL’s 805. Under the merger, Bally’s international revenue as a percentage of total revenue will increase from around 16 percent to around 24 percent, said a Bally Technologies investor presentation. Bally’s recurring revenues – bolstered by SHFL’s proprietary technology leased or licensed to customers – are expected to increase by US$125 million, the two firms said during the call. Ramesh Srinivasan, Bally’s chief executive, added the deal would deliver “at least US$30 million of annual synergies”. That’s understood to be a polite way of saying cost cuts and possibly job cuts where duplication occurs. “Until the transaction is complete, SHFL and Bally will remain separate companies and it will be business as usual for all of us,” said Mr Isaacs in a letter to his staff, filed with Nasdaq, adding a request that employees avoid “conjecture” as this would be “too distracting to our business and will only hurt employee morale”. Elsewhere in the same 8K filing, SHFL added: “Bally has said that where there are two qualified people for the same role, they intend to select the best fit for the role regardless of their origin. At this juncture, it is too early to predict the extent of the transaction on any particular roles.” In a separate letter addressed to SHFL customers, Mr Isaacs added: “I am confident that this transaction will provide us with the opportunity to reinforce our relationships with you and leverage our strengths to better serve your operational needs.” SHFL’s shares closed up 21.98 percent at US$22.81 on Tuesday in New York. Bally Technologies’ stock rose 6.93 percent to US$65.13 on Nasdaq.
July 18, 2013 April 19, 2013
Fidelidade gunning for market share New strategy will see insurer boost life insurance, pension and retirement fund offerings Tiago Azevedo
Clashing numbers Last week’s results were not without controversy. The auditor’s report said Fidelidade’s non-life arm should have posted a lower profit. If the calculation had been calculated using a different method, the auditor’s report says annual profit would have been reduced “by 1.7 million patacas”. The Portuguese version of the report, published last week in the Official Gazette and earlier reported by Business Daily, had mistakenly said that the net earnings would be reduced “to 1.7 million patacas”. “Even though the value is not that high, the auditors considered that the difference in percentage of the profits was relevant, at 15 percent,” said Mr Barbosa. Auditors Ernst and Young said it had reservations about the results because they indicated a “departure from Macau Financial Reporting Standards”. Fidelidade did not use actuarial methods for a claims development history of three years in assessing estimates of ultimate losses and the outstanding claims provision, the auditors say. The actuarial system applies mathematical and statistical methods to assess future and uncertain risks in the insurance and finance industries. Mr Barbosa said a three-year history to project claims development was not enough time to make an
Photo by Manuel Cardoso
idelidade – Companhia de Seguros SA has expanded rapidly in a short time and aims to continue that trend because it sees room for further growth in the city’s insurance market, in both the life and non-life sectors. “It has been a tremendous growth in the past three years,” said general manager Paulo Barbosa. The insurer’s non-life division posted a profit of 11.1 million patacas (US$1.4 million) last year, a 26.5-percent increase on 2011, according to results published last week. Three years ago, the non-life division returned a profit of 2.9 million patacas and had a market share of 5.9 percent. Mr Barbosa said market share had increased to 8.3 percent last year and was “close to 9 percent” in the first quarter of this year. “The company is now fifth in the market in the non-life sector.” Last year Fidelidade paid out 28.4 million patacas in non-life claims, the equivalent of 20.7 percent of income from premiums, the company says. In 2011, its non-life business had a loss ratio of 18.4 percent. The insurer is a branch of Portugal’s Companhia de Seguros Fidelidade Mundial SA and offers some of its products through Banco Nacional Ultramarino SA. Both the bank and Fidelidade Mundial are owned by one of Portugal’s biggest financial services conglomerates, state-owned Caixa Geral de Depósitos SA. “The bank [BNU] accounts for roughly 20 percent of our portfolio,” said Mr Barbosa. But a substantial amount of Fidelidade’s growth is derived from direct sales to clients or through insurance brokerages, he said.
accurate estimate. “The actuarial methods are based, usually, on periods of five years at least,” he said, adding that the company’s explanation of the auditor’s comments “was accepted without reservation” by the Monetary Authority of Macau. Fidelidade operates in all insurance segments, with fire and personal accident cover the most profitable, although they account for only a fraction of the insurer’s business, said Mr Barbosa. Workplace coverage for construction companies represents Fidelidade’s biggest earner.
Fidelidade has been growing at significantly higher rates but that was easy because we started from a very small base Paulo Barbosa, general manager, Fidelidade
Life long growth The company has benefitted from Macau’s growth but faces increasing competition. To expand their portfolios, insurers are being forced into accepting lower margins, said Mr Barbosa. “Long term, it could hurt the ability of some companies to meet their financial obligations,” he said. At the end of last year, there were 23 licensed insurance companies operating here, of which 11 were licensed to sell insurance and manage private pension funds. Twelve were involved only in non-life insurance, according to the Monetary Authority of Macau. Since 2009, the city’s insurance industry has grown at an average of 20 percent a year. “Fidelidade has been growing at
significantly higher rates but that was easy because we started from a very small base,” said Mr Barbosa. The margin for improvement would be greater if Fidelidade enjoyed a higher credit rating, which would allow it to grab part of the casino business. “The bank syndicates that finance casinos here require that insurers
have a rating from Standard & Poor’s of at least A-minus, which Caixa Geral de Depósitos was clearly above four years ago, with A-plus,” said Mr Barbosa. The ratings agency downgraded Caixa Geral de Depósitos due to Portugal’s perilous political and economic situation. A BB-minus rating was confirmed in July last year and the outlook revised to negative earlier this month ahead of a restructuring and the selloff of the insurance arm. Mr Barbosa said the changes could have a positive impact for the insurer’s operations here if the new owner of the insurance arm enjoyed a higher rating. The short-term ambition is to improve profit at the life insurance division, which posted a profit of 322,000 patacas last year. Life insurers held about 3.7 billion in premium value last year accounting for about 69.4 percent of the value of the insurance market. Revenues grew by about 19.1 percent last year, the regulator said in its yearly review. Fidelidade wants also to boost its pension and retirement fund offerings to consumers. “People are now buying more into these products because they have more disposable income and the social security system is still weak,” said Mr Barbosa. “The market will grow at higher rates in this segment and we want to establish ourselves as market leaders.”
July April18, 19,2013 2013
Macau Zhuhai plans to siphon Macau-bound tourists Officials plan two additional exits to Zhuhai from the Hong Kong-Zhuhai-Macau Bridge Stephanie Lai
wo additional exits to Zhuhai are planned for the northern and northwestern side of the artificial island where the Hong KongZhuhai-Macau Bridge will meet land, according to the Zhuhai Housing, Urban-Rural Planning and Development Bureau. Zhuhai’s government hopes the exits will divert more tourists into Zhuhai. The bridge, which is due to be completed by 2016, was to be linked to Macau and Gongbei in the mainland. The bureau said the current plans for exits will direct traffic to the Guangzhou-Macau Expressway through Gongbei, without encouraging visitors to stay in Zhuhai. The additional exits would boost Zhuhai’s tourism industry, mainland media outlets quoted bureau officials as saying. One exit would link the north-west side of the artificial island to Yuhai East Road in Gongbei. The second exit would link the northern side of the island to Jida, in Zhuhai’s north. The additional exits will have a
Constructing an artificial island at the end of the mega-bridge will cost 2.34 billion patacas (Photo: Manuel Cardoso)
road width of 24 metres but the exact layout and projected construction costs were not included in the bureau’s announcement last week. The artificial island is situated on the eastern side of Macau’s new urban reclaimed zone A, some 160 metres apart. The budget for the reclamation
works for the artificial island is estimated at 1.8 billion yuan (2.34 billion patacas), the bureau’s data show. Macau is to pay about one third of the bill. The artificial island will have an area of about 208 hectares and Zhuhai will manage the 107.3-hectare northern section.
Up to 43 percent of the area will be reserved for bordercrossing facilities. The artificial island for the bridge was initially schedule to be completed last year. The reclamation works, under the coordination of the Zhuhai government, started in December 2009.
July 18, 2013 April 19, 2013
Greater China Alibaba’s profit tripled in Q1
Surge in investment into China
Alibaba Group Holding Ltd, China’s largest e-commerce company, tripled first-quarter profit on surging sales as it prepares for a possible initial public offering. Net income rose to US$669 million in the three months ended March from US$220 million a year earlier, Yahoo! Inc., which owns a stake in the Hangzhou, China-based company, said in a presentation after reporting earnings. Firstquarter sales at Alibaba rose 71 percent to US$1.4 billion. Alibaba’s valuation could reach US$62.5 billion, according to the median of eight estimates by investment banks and research firms compiled by Bloomberg since February. Chief executive Jonathan Lu told China Daily newspaper the proceeds may fund deals. “Their earnings were driven by the online payment system and China’s booming commerce,” said Billy Leung, an analyst at RHB Research Institute Sdn in Hong Kong. “I am still more bullish on the Chinese e-commerce market. It’s still in the early stage and will become more mature and Alibaba will continue to benefit from the growth.” A valuation of US$62.5 billion compares to the US$104 billion Facebook Inc pricetag prior to its listing.
June FDI rises at fastest pace in more than two years
China Resources drops on graft accusations China Resources Power Holdings Co Ltd fell the most in more than four years after a Xinhua News Agency reporter said the power generator and the chairman of its state-owned parent intentionally overpaid for a 2010 acquisition. Shares of the company fell 10 percent yesterday, the most since November 6, 2008, to HK$17.98 (US$2.32) in Hong Kong trading. The drop occurred after the official Xinhua News Agency posted a letter online from one of its reporters, Wang Wenzhi, saying that Song Lin, chairman of parent China Resources (Holdings) Co., overpaid for a 2010 acquisition. China Resources Power paid 7.9 billion yuan (US$1.3 billion) for an 80 percent stake in Shanxi province coal-mine assets that another party valued at half the price, said the letter. “It’s rare for a state-owned news agency or its reporter to take on another state-owned company in such a dramatic way,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “Some investors could just be too scared to continue to hold the stock.” China Resources Power is unaware of the reason for the share price movement, it said in a statement to the Hong Kong Stock Exchange yesterday.
China’s richest man ramps up mall business Zong Qinghou, China’s richest man who is worth an estimated US$11.3 billion, plans to add more malls across Chinese cities as he considers an initial public offering for those operations. There is no specific time frame for the share sale, Mr Zong said at a press conference yesterday. The billionaire controls food and beverage conglomerate Hangzhou Wahaha Group Co., which plans to have about 100 malls in China in the next three to five years, according to a statement from the closely held company. “We will need to make profit on our retail business for three consecutive years if we want to sell shares and we will need to see whether there is still demand for our IPO by that time,” Mr Zong said. Profits from Wahaha’s drinks operations have helped boost the fortunes of the 67-year-old billionaire, who with his family holds more than 80 percent of the company. The company is investing 1.7 billion yuan (US$277 million) in the mall business initially and will spend another 10 billion yuan in future, Mr Zong said at the briefing.
economy up the value chain and its strong domestic consumption,” said Li Wei, China economist at Standard Charted Bank in Shanghai. “We expect stronger FDI in the second half compared to the first as we believe China can achieve a 7.5 percent GDP growth target for 2013 based on recent messages from policymakers,” Mr Li said. Shen Danyang, commerce ministry spokesman, said yesterday that FDI inflows reflect a gradual rebound in the first half of this year even though a single month’s figure would not signal a recovery in foreign investment.
Stable growth Govt keen to boost foreign investment to help drive economic growth
oreign direct investment in China in June jumped 20.12 percent from a year ago, the Commerce Ministry said, the quickest gain since March 2011, showing that investors are still confident about the world’s second-largest economy even as growth slows. China drew US$14.4 billion in foreign direct investment in June, the ministry said yesterday, while in the first half, FDI totalled US$62.0
billion, up 4.9 percent from the same period of 2012. FDI is an important gauge of the health of the external economy, to which China’s vast factory sector is oriented, but it is a small contributor to overall capital flows compared with exports, which were worth about US$2 trillion in 2012. “The June FDI data shows overseas investors are still optimistic on the outlook of China’s economy in the medium and long term thanks to China’s recent efforts to move the
“We believe the FDI inflows will still keep relatively stable in the second half of this year,” Mr Shen told reporters. The Commerce Ministry data also showed FDI from the United States rose 12.3 percent to US$1.8 billion in the first half from a year earlier while investment from Europe rose 14.7 percent. FDI from Japan was up 14.4 percent in the first six months from a year earlier to US$4.7 billion while inflows from 10 Asian nations rose 5.3 percent in the first half from a year earlier to US$53.8 billion, which included US$39.7 billion
Li holds the line on reforming e But shows he won’t let economic expansion stall too much
hina’s Premier Li Keqiang won’t rush into changing his policy of pushing reform as long as growth stays within the official comfort zone, but he has also signalled he is aware the government needs to be vigilant about a sharper slowdown. The government is able to achieve key economic tasks for this year, state television quoted Mr Li as saying late on Tuesday, reinforcing the official view that a 7.5 percent annual economic growth target remains achievable. Mr Li’s remarks, a restatement of his view that reform has to take precedence over growth figures to put the economy on a more sustainable footing and wean it off a reliance on exports and investment, come amid a slowdown in China that has raised questions over government plans. “Neither should we change policy orientation due to temporary economic fluctuations, which may affect the hard-won restructuring opportunity, nor should we lack vigilance and preparations when the economy might slide below the reasonable range,” Mr Li was quoted as saying. China’s annual gross domestic product growth slowed to 7.5 percent in the second quarter from 7.7 percent in the previous quarter, putting pressure on Beijing to quicken reforms rather than slow them to take up the economic slack. Analysts have steadily cut their forecasts this year for China’s grow th a s d a ta co n s i s ten tl y
comes in weaker than expected and government officials have talked of slowing growth. They mostly forecast 2013 growth between 7 and 7.5 percent. “We think [Mr Li’s remarks] mean that the macro-economic policy stance will be kept unchanged near term, but at micro-levels, there will be more pro-growth efforts,” said Li Wei, China economist at Standard Charted Bank in Shanghai. “Indeed we already noticed that, over the past three weeks, the government has geared up its support for urban low-quality housing reconstruction, SME financing, Lushan post-quake rebuilding, energy saving, environmental protection, IT, photovoltaic industries,” he said. The commerce ministry said yesterday that it would soon release measures to support exports and imports, though it did not give specific details. Exports fell in June for the first time in 17 months.
Shift risks Deutsche Bank AG co-chief executive Anshu Jain said Chinese policy makers’ efforts to bolster domestic consumption and reduce dependence on the government’s infrastructure spending pose some risks. “It’s the right strategy for them in the long run,” Mr Jain said in an interview with Bloomberg Television’s Haslinda Amin yesterday in Singapore. Still, “if there is something to watch
closely in China, it would be the implications of that shift from infrastructure spending.” “Clearly they [Chinese leaders] see signs which are concerning them, which is why they are making the adjustments they are,” Mr Jain said. “From our vantage point, we remain optimistic that in the end, this will be engineered into a smooth outcome.” Deutsche Bank, continental Europe’s biggest bank by assets, remains “very constructive” about growth in Asia despite the slowdown in China and India, Mr Jain said. The lender aims to build its wealth management operation and is seeking more clients for commercial banking in the region, he added. “Asia is a region where we see tremendous incremental opportunity,” he said. “Our overall plans in Asia are clearly for expansion.” Reuters/Bloomberg News
July April18, 19,2013 2013
Greater China from Hong Kong. FDI into China’s services sector rose 12.43 percent in the first half from a year earlier to US$30.6 billion. Radio, film and television firms attracted 121 percent more foreign capital from a year ago and investment in cultural and arts rose 154 percent. Manufacturing sector inflows in the first half totalled US$26.4 billion, down 2.14 percent versus a year earlier, the ministry said. The FDI figures follow Monday’s economic growth data which showed annual GDP growth slowed to 7.5 percent in April to June, the ninth quarter in the last 10 that expansion has weakened. Doubts over whether China can still meet its full-year economic growth target have risen. But China’s Premier Li Keqiang said on Tuesday that the 7.5 percent annual economic growth target remains achievable. Reuters
Foreign direct investment in China in the first half
State companies rush to develop sea gas Plan US$5 bln investment for East China Sea
hinese state-run oil companies hope to develop seven new gas fields in the East China Sea, possibly siphoning gas from the seabed beneath waters claimed by Japan, a move that could further inflame tensions with Tokyo over the disputed area. Beijing had slowed exploration in the energy-rich East China Sea, one of Asia’s biggest security risks due to competing territorial claims, but is now rapidly expanding its hunt for gas, a cheaper and cleaner energy to coal and oil imports. State-run Chinese oil and gas firm Cnooc Ltd will soon submit for state approval a plan to develop Huangyan phase II and Pingbei, totalling seven new fields, two industry officials with direct knowledge of the projects told Reuters. The approval would bring the total number of fields in what is called the Huangyan project to nine. China is already working on Huangyan I, which has two fields approved. The Huangyan project is expected to cost more than 30 billion yuan (US$4.9 billion), including 11 production platforms now under construction at Chinese shipyards.
The greater issue is the political risk if Beijing approves the new gas fields. Tensions over the East China Sea have escalated this year, with Beijing and Tokyo scrambling fighter jets and ordering patrol ships to shadow each other, raising the fear that a miscalculation could lead to a broader clash. “It’s a sign of impatience on the side of the Chinese, stemming from a lack of movement on the Japanese side on the gas fields issue,” said Koichi Nakano, associate professor of political science at Sophia University in Tokyo.
Hunt for gas China and Japan in 2008 agreed to jointly develop hydrocarbons in the area, but Tokyo wishes to settle the issue of maritime boundaries before developing the gas fields. “The question is what will be Japan’s response and whether they would be able to talk China out of a unilateral move,” said Mr Nakano. A spokesman for Japanese Prime Minister Shinzo Abe said: “Our understanding is that Japan and China should continue to
Cnooc Ltd seeking state approval to develop seven new fields
have dialogue on the issue of joint exploitation of this area, so any unilateral action should not be accepted”. If approved, the seven new gas fields would not see a big jump in China’s total gas output, supplying only a fraction of last year’s 106 billion cubic metres (bcm) and dwarfed by operations in the disputed South China Sea and Bohai Bay off north China. Chinese geologists said gas deposits in the East China Sea region were much smaller and more scattered. China, the world’s top energy user, is on a fast track to boost the use of natural gas, with demand for gas forecast to grow more than four fold by 2030 from the 147 bcm last year. China is the world’s fourth biggest gas consumer. Reuters
Beijing vows to step up bribery probes Commerce ministry says not targeting only foreign companies
Li Keqiang urges caution about rushing to change policy
hina’s food and drugs regulator pledged to crack down on illegal activities in the nation’s pharmaceutical industry after a GlaxoSmithKline Plc executive described on national television how he used bribes to boost the company’s sales. The Food and Drug Administration is conducting a six-month targeting fake drugs, unauthorised medicine sales and forged receipts, Yan Jiangying, a spokeswoman for the agency, told reporters yesterday. Regulators will also target bribery, she said, without specifically commenting on Glaxo, which Chinese police have accused of funnelling payments to government officials and doctors to boost its drug sales. State media have also used the case involving Glaxo as evidence for the need to rein in corporate misbehaviour. Broadcaster China Central Television aired a prime-time segment on Tuesday detailing how executives at the U.K. drugmaker used a travel agency to funnel bribes to government officials. The CCTV report featured Liang Hong, operations manager for Glaxo China, explaining how executives passed bribes to drug regulators, pricing officials at the National Development and Reform Commission and hospital officials. The Chinese commerce ministry yesterday said the government “stands firmly against any form of commercial
Regulator pledges crackdown amid Glaxo probe
bribery” and would punish any foreign or domestic company found to be violating the law. “Regardless of whether it’s a Chinese company or a foreign company, whoever breaks China’s laws will be punished and will have to bear the corresponding legal responsibility,” the ministry said in its first direct comments on the Glaxo case. Shen Danyang, a ministry spokesman, rejected any suggestion that China was singling out foreign companies. Chinese police detained four of Glaxo’s executives, including Mr Liang, as part of their investigation that began last month.
China’s Communist Party called for greater scrutiny of foreign companies operating in the world’s second-largest economy. A commentary in yesterday’s People’s Daily, the party’s official newspaper, said cracking down on commercial bribery by foreign companies “has great meaning for protecting economic market order and maintaining a fair, competitive environment.” China is investigating at least four multinational drugmakers as it widens its probe of Glaxo, according to Wendy Wysong, the head of anticorruption practice in Asia-Pacific at law firm Clifford Chance. Bloomberg News
July 18, 2013 April 19, 2013
Asia Koreas hold new round of talks North and South Korea held their fourth round of working-level talks in two weeks as they seek to break a deadlock on conditions for restarting the jointlyoperated Kaeseong industrial park. Three previous attempts this month all ended in deadlock. Little progress has been made since then amid squabbles over which side will take responsibility for the suspension, and Pyongyang’s refusal to accept Seoul’s demand for firm safeguards against another unilateral shutdown. “They kept talking past each other. These can hardly be called negotiations but deaf arguments,” Chang Yong-seok, senior researcher at the Institute for Peace and Unification at Seoul National University, told AFP.
India eases foreign investment caps Latest set of measures to help reverse currency slide Abhijit Roy Chowdhury and Jeanette Rodrigues
Diamond Electric fined for price fixing Japan’s Diamond Electric Manufacturing Co Ltd has agreed to plead guilty and pay a US$19 million fine for a conspiracy to fix prices of ignition coils sold to Ford Motor Co and other companies, the U.S. Justice Department said. Diamond is the 10th auto-parts maker to agree to plead guilty in the Justice Department’s longrunning investigation into price-fixing in the industry. The department said the price fixing conspiracy ran from at least July 2003 to at least February 2010. Diamond Electric said in a statement that it apologised, and had created a compliance programme to ensure there would be no repeat of the price-fixing.
BHP posts record iron ore output BHP Billiton Ltd said expansion of its iron ore operations in Australia was running ahead of schedule, as the miner posted a robust 9 percent rise in ore output to a record annual 187 million tonnes. Work to increase BHP’s capacity to 220 million tonnes a year is expected to be finalised in the fourth quarter, earlier than expected, BHP said in its report. BHP and Rio Tinto Plc are among the most efficient iron ore producers in the world. At current prices of around US$130 a tonne, each enjoys a margin of around US$80 per tonne. In copper, where BHP holds the No. 2 ranking behind Chile’s Codelco on a world scale, June quarter output grew 7 percent to 333,200 tonnes from a year ago.
Commerce Minister Anand Sharma announced the measures
ndia’s government proposed to ease foreign-direct investment limits in some industries as part of measures to lure capital inflows, revive economic growth and bolster the rupee that touched a record low this month. Among the decisions taken at a meeting led by Prime Minister Manmohan Singh was a plan to allow overseas investors to own all of a phone carrier, Commerce Minister Anand Sharma told reporters yesterday. The changes would also permit foreign investment in defence production exceeding the current 26 percent cap, if India gains access to modern technology. India is wooing funds needed to finance a record current-account deficit as the rupee plunged 7.3 percent against the dollar this year and the US$1.9 trillion economy expanded at the slowest pace in a decade. The easing of the foreigndirect investment rules is the latest in a slew of measures announced by
policymakers in the nation’s finance ministry and the central bank to help reverse the slide in the local currency. “All hands appeared on deck to stabilise the financial markets and set the reforms machinery in motion,” said Radhika Rao, an economist at DBS Bank Ltd in Singapore. “These non-debt creating and durable inflows are preferable over short-term capital to fund the current-account deficit.” Finance Minister Palaniappan Chidambaram said in March that he had kick-started the review of the FDI caps as gross domestic product rose 5 percent in the 12 months through March, the smallest gain since the year ended March 31, 2003.
RBI action The Reserve Bank of India on Monday tightened money markets to make rupee funds more expensive after the currency touched an unprecedented low of
BoJ board at odds over steps to calm markets Leika Kihara
Seoul plans stricter aviation rules South Korea plans to tighten aviation rules and could consider allowing airlines to hire more foreign pilots as the crash of an Asiana Airlines Inc jet raises concerns about the nation’s safety regulations. The government will draw up the stricter rules in about three months after studying regulations on the training of pilots, cabin crew and maintenance personnel, said Kwon Yong-bok, director general of aviation safety policy at the Ministry of Land, Infrastructure and Transport. A committee comprising aviation industry and government officials will meet next week to review the current rules.
ank of Japan policymakers were at odds over whether to take new steps to calm bond markets in June with some worried that doing so would give investors the impression it was over-reacting to short-term swings, minutes of the June rate review showed. While markets have settled down since, the disagreement underscores a difference in views among the ninemember board on how quickly to respond to volatility, such as the rise in bond yields and a brief setback in share prices that Japan experienced in late May and early June.
At the policy-setting meeting in June, the BoJ discussed, but did not put to a formal vote, the idea of extending the maximum duration of cheap, fixed-rate funds it offers via market operations from the current one year. Some BoJ board members argued that such operations “could be quite effective in restraining excessive interest rate fluctuations”, according to the minutes released yesterday. But others opposed it for fear the measure could be misread by markets as signalling a change in the BoJ’s policy framework, rather
61.2125 a dollar on July 8. A statement released after Mr Sharma’s briefing showed the meeting agreed on plans to allow 49 percent foreign-direct investment through the automatic route in petroleum and natural gas and refining, as well as commodity, power and stock exchanges. In single-brand retailing, up to 49 percent would be allowed through the automatic route, with investment of 49 percent to 100 percent requiring government approval. Prime Minister Singh began a series of policy changes in September to spur expansion in Asia’s thirdlargest economy and avert a creditrating downgrade. The steps have included liberalisation of foreign investment limits in the retail and aviation industries, faster approvals for public works, lower levies on overseas buyers of local bonds and higher taxes on gold imports. Mr Singh’s policy push had foundered as protests over alleged graft in government disrupted parliament, impeding bills seeking to allow overseas companies to invest in the pensions industry for the first time, and hold as much as 49 percent of insurance businesses. Foreign-direct investment slid about 21 percent to US$36.9 billion last fiscal year compared with 2011-12. The current-account deficit widened to US$31.8 billion in the last quarter of 2012, equivalent to 6.7 percent of gross domestic product, before narrowing to US$18.2 billion in the following three months. Bloomberg News
KEY POINTS Govt wooing funds needed to finance record Rupee has plunged 7.3 percent this year Economy expanding at slowest pace in decade FDI dropped 21 pct last fiscal year
than a minor fine-tuning of its market operations. The board concluded that flexible operations under the current framework would be enough to stabilise interest rates. “Most members shared that recognition that, given Japan’s economy was on a steady path toward recovery, Japanese financial markets, which had shown volatile movements recently, were likely to gradually regain stability,” the minutes showed. The idea emerged as a means to stem market volatility when speculation over when the U.S. Federal Reserve would taper its bondbuying programme jolted global markets, pushing up bond yields and hitting stocks. At the June meeting, the BOJ left monetary policy unchanged as widely expected, maintaining its pledge to expand the supply of money at an annual pace of 60 trillion yen (US$604 billion) to 70 trillion yen to achieve 2 percent inflation in two years. Reuters
July April18, 19,2013 2013
Australia’s carbon mess a warning to the world
Non-oil exports down 8.8 pct in June
Reuters market analyst
Singapore exports show A longest slump since 2008 Barclays says Q2 GDP growth may be revised downwards
ingapore’s exports in June extended the longest run of declines since the global financial crisis, suggesting economic growth last quarter may have been less than the government initially estimated. Non-oil domestic exports slid 8.8 percent from a year earlier, falling for a fifth month, the trade promotion agency said in a statement yesterday. The median of 17 estimates in a Bloomberg News survey was for a 5.8 percent drop. While Singapore’s economy grew at the fastest pace in more than two years last quarter as services strengthened and manufacturing rebounded,
improvements haven’t been matched in shipments to the U.S. or Europe. China’s Commerce Ministry said yesterday it will release measures to support trade “soon,” as nations from South Korea to Malaysia reported export weakness, and the Asian Development Bank on Tuesday trimmed forecasts for growth in developing Asia. “External headwinds remain strong,” Irvin Seah, a Singapore-based economist at DBS Group Holdings Ltd, said before the report. “Data from the U.S. have been mixed and Europe is still stuck in recession.” Demand from the U.S., Europe and Japan stands out for its “weakness and that is still a cause for concern,” said Alvin Liew, a senior economist at United Overseas Bank Ltd in Singapore. “The recovery process for exports, especially for electronics, could be delayed.” Singapore’s gross domestic product rose an annualised 15.2 percent in the three months through
June from the previous quarter, when it grew 1.8 percent, the Trade Ministry said last week. The figures were computed largely from data in the first two months of the quarter, and revisions will be released in August. “The weak growth coming from the advanced economies, the weak demand, is having a much bigger effect than we had anticipated,” ADB assistant chief economist Joe Zveglich told Bloomberg. The island’s shipments of electronics dropped 12.4 percent in June from a year earlier, extending the slump to an 11th month. “We’ve been seeing exports of electronics lag behind production since March. There is going to be a pullback in production, probably as early as this month,” Barclays Plc economist Joey Chew told Reuters. “We think the preliminary GDP growth number will be revised down to about 12.5 percent quarter-onquarter,” she added. Bloomberg News/Reuters
ny government thinking of introducing policies to limit carbon emissions should look at Australia for an example of how not to do it. Australia’s efforts to combat climate change have been poison to politicians from all sides of the debate, contributing so far to the demise of two prime ministers and an opposition leader, and there may be more to come. The latest twist has seen Prime Minister Kevin Rudd decide to switch from a straight tax on carbon emissions to a floating emissions trading scheme (ETS) a year earlier than planned. This has nothing to do with improving the workings of the scheme or limiting carbon emissions and everything to do with trying to win back voters angered by rising electricity prices and industries that have seen their international competitiveness eroded by the tax. The theory is that power and other prices will decline as the cost of carbon permits is expected to be around A$6 per tonne – the level at which European permits are currently priced – compared to the tax of A$25.40 (US$23.09) per tonne that had been planned from July 2014. Assuming European carbon permits don’t rise in price, which is a fairly big call given efforts to reduce the supply of permits, Rudd’s changes will save the average Australian household A$4 a week in electricity costs. Whether this is enough to assuage public anger and help Rudd’s Labor Party win re-election will become clear in the coming months as he has to call a federal election by end-November. But Rudd’s efforts to remove the carbon tax as an election issue only serve to underline how badly the whole thing has been handled.
Japan’s central bank debated offering longer-dated funds
When Rudd was first elected prime minister in 2007 he called climate change the “greatest moral, social and economic challenge of our time”, signed Australia up to the Kyoto Protocol and proceeded to design an ETS. This even enjoyed rare bi-partisan support from the then leader of the Liberal opposition Malcolm Turnbull. However, it was Turnbull’s support for the ETS that helped undo his leadership and he was ousted by his colleagues in December 2009, being replaced by the more conservative Tony Abbott, who withdrew his party’s support for Rudd’s plans. Rudd’s own popularity fell as he struggled to gain public support for his carbon scheme and a controversial new mining tax, leading to his ouster in a party coup in June 2010. His replacement as prime minister, Julia Gillard, scrapped the planned ETS, making a promise that any government she led wouldn’t introduce a carbon tax. This commitment came back to haunt her after the August 2010 election, in which she managed to hang on to power by cutting a deal with Australian Greens and two conservative independent lawmakers to form a minority government. Part of her agreement with the Greens was the introduction of a
carbon tax with a fixed price per tonne of emissions up until July 2015, at which point it would change to a floating, traded price. The broken promise was seized upon at every opportunity by the Liberal opposition and conservative media commentators, and in turn contributed to Gillard’s poor performance in opinion polls. When these polls showed her Labor Party heading for a massive defeat in an election she scheduled for September, her colleagues once again ousted a prime minister, bringing back Rudd in a party room vote last month. Rudd’s popularity with the public has seen the Labor Party inch closer to the Liberals in opinion polls, putting pressure on Abbott, who courted ridicule as a climate sceptic earlier this week by describing the ETS as a “so-called market in the non-delivery of an invisible substance”.
Right reasons However, the Liberals are still ahead in opinion polls and if they win the upcoming election, Abbott has promised to scrap the carbon tax and the move to an ETS, replacing it with what he terms “direct action” on climate change. But even if his party does win the election, it may not control both houses of parliament, and the lack of a majority in the upper house Senate may cruel Abbott’s plans, as legislation has to clear both chambers. It’s little wonder that businesses and the public want some kind of resolution to the issue, but the upcoming vote may not deliver this, at least not immediately. Part of the problem with Gillard’s carbon tax is that it was more of a welfare programme than a plan to reduce emissions. The tax raised was used to fund a raft of welfare measures to compensate for the higher prices caused by the tax. The plans of both Rudd and Abbott would see the revenue from the tax fall dramatically or disappear altogether, but the welfare payments would remain, leaving the nation’s budget with the worst possible outcome. Rudd said his plan to move earlier to an ETS would cost the budget some A$4 billion, which would be recouped through spending cuts and tightening rules around company-funded vehicles for employees. Abbott has so far only promised to end a small portion of welfare payments and seek spending cuts across the government. Absent from both plans is much talk about climate change and carbon emissions. Australia is the world’s 15th-largest polluter and the highest per capita in the developed world, largely as a result of 80 percent of power being coal-fired and the prevalence of carbon-intensive industries such as mining and liquefied natural gas plants. What the Australian experience shows is that any government tackling climate change needs as broad a consensus as possible, and that it should be done for the right reasons, not political expediency. Reuters
July 18, 2013 April 19, 2013
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0.9215 1.5118 0.9395 1.3157 99.69 7.99 7.7573 6.135 59.3475 31.08 1.2629 29.891 43.327 10085 91.857 1.23607 0.87023 8.0715 10.5122 131.15 1.03
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1.0625 1.6381 0.9972 1.3711 103.74 8.0111 7.7664 6.3964 61.2125 32 1.286 30.228 44.181 10174 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032
0.8999 1.4814 0.9022 1.2043 77.13 7.9818 7.7498 6.1203 51.3863 28.56 1.2152 28.913 40.54 9441 79.408 1.20066 0.77553 7.7018 9.6245 94.12 1.0289
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July 18, 2013 April 19, 2013
Indonesia’s cautious confidence
Dewi Fortuna Anwar
Deputy Chair for Social Sciences and Humanities at the Indonesian Institute of Sciences and chairman of the Institute for Democracy and Human Rights at the Habibie
n recent years, Indonesia has emerged as a robust democracy with a dynamic economy. Now, as the largest and most influential member of the Association of Southeast Asian Nations (ASEAN), Indonesia must leverage its newly acquired strength to confront the challenges facing it and its regional partners, while avoiding foreign-policy recklessness. Indonesia has reason to be confident. Less than two decades after the 1997-1998 Asian financial crisis ravaged the economy and provoked a social and political upheaval that ended President Suharto’s three-decade-long rule, Indonesia is a member of the G-20 and boasts the world’s 15th highest GDP. Moreover, Indonesia’s mainly Muslim population is predominantly moderate, and the country has been able to overcome most of its internal security problems, including the secessionist movement in Aceh and various largescale communal conflicts. East Timor’s independence in 2002 ended years of violent struggle. But Indonesia still faces domestic challenges. For example, the country’s reputation as a model of Muslim moderation has recently been undermined by intolerance and violence against religious minorities. And, after eight years under President Susilo Bambang Yudhoyono, the country faces elections next year. Nevertheless, Indonesian leaders’ primary concerns – and ambitions – lie in the country’s foreign relations. In particular, China’s territorial claims in the South China Sea have divided ASEAN member countries, forcing Indonesia to perform a difficult balancing act as it seeks to maintain stable relations with China while addressing the rift within the region. Since achieving independence after World War II, Indonesia has pursued a “free and active” foreign policy, preferring to protect its own interests rather than align itself with more powerful countries. Indonesia’s activist approach, whereby it assumes a leadership role both in the
region and globally, has been driven simultaneously by supply (domestic popular sentiment) and demand (the country’s international partners).
ASEAN view Two distinct foreign-policy legacies inform the Indonesian public’s expectations and the government’s choices. Sukarno, Indonesia’s first president after independence, adopted a confrontational stance, making Indonesia a leader of the Non-Aligned Movement. But, while this “lighthouse” foreignpolicy approach increased Indonesia’s international clout, it led to encirclement by hostile Western powers – and to bankruptcy. Sukarno’s successor, Suharto, embraced a more pragmatic and low-profile foreign policy aimed at creating an environment in which Indonesia could develop economically. This included working toward regional stability in Southeast Asia, as well as nurturing relations with the United States, Japan, and key European countries, in order to gain access to external markets, foreign investment, and technical assistance. But, while Suharto’s approach supported economic progress, critics charged that it betrayed the spirit of the 1945 constitution, which calls for Indonesia to play an active role in fostering world peace. Seeking to reconcile often-contradictory demands for idealism and pragmatism, Indonesia has once again adopted a more activist approach to foreign policy. But staying on course has not been easy. Although some analysts argue that Indonesia has outgrown ASEAN and should chart an independent course, the government has remained firm: ASEAN will remain the cornerstone of its foreign policy. That stance is driven less by a sense of insecurity than by confidence in “ASEAN centrality” – that is, its member states’ ability to shape the regional order and realise a common destiny on their own terms, without foreign meddling. Viewing ASEAN as indispensable for managing
relations with major powers, Indonesian policymakers believe that the bloc should be ambitious about spreading its code of conduct, and that it should drive initiatives for creating a regional architecture in East Asia. Given this, Indonesia’s opposition to the idea of an East Asian community – comprising ASEAN, China, Japan, and South Korea – was unsurprising. Instead, it backed the more inclusive East Asia Summit, which brings together leaders from ASEAN and its eight key partners – China, the United
Indonesia should not allow its newfound confidence to become foreignpolicy arrogance
States, Japan, India, Russia, Australia, South Korea, and New Zealand. Indonesia hopes to create a looser and more pluralistic grouping that would not be dominated by one or more powers, thereby allowing ASEAN to continue to play the central role of convener. By contrast, Indonesia’s role in the G-20 remains limited, as does its potential to act as a representative for developing countries. But, unlike the more confrontational BRICS (Brazil, Russia, India, China, and South Africa), Indonesia hopes to foster cooperation among developed and developing countries. It has also sought a leadership role on such strategic global issues as climate change and inter-faith dialogue. Furthermore, Indonesia has worked to promote democracy. For example, since 2008, it has hosted the annual Bali Democracy Forum, at which representatives of established and aspiring democracies share their experiences. Such initiatives underscore the global attention focused on Indonesia, a Muslimmajority democracy, in the wake of the Arab Spring. Indeed, various Arab
countries, notably Egypt and Tunisia, are seeking Indonesian leaders’ advice on balancing Islam and politics. Such efforts have not always been popular with Indonesia’s ASEAN partners, owing to concerns that they breach ASEAN’s rule of non-interference in other countries’ internal affairs. But they have contributed to progress in important areas. For example, Indonesian officials have encouraged reform in Myanmar, helped to bring about an end to the border conflict between Thailand and Cambodia, and pushed for democracy and human rights to be enshrined in an ASEAN political and security community. Ultimately, however, Indonesia’s clout stems from its soft power. So, while Indonesians may court the global spotlight, their chief concerns should be fostering strong and stable economic growth, stemming domestic religious intolerance, and preserving ASEAN unity in the face of China’s increasingly assertive policy in the region. Indonesia should not allow its newfound confidence to become foreign-policy arrogance. © Project Syndicate
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July April18, 19,2013 2013
Frantic rule-writing won’t wires avert new banking crisis Business
Leading reports from Asia’s best business newspapers
Asahi Shimbun The newly integrated Tokyo Stock Exchange became the world’s third largest bourse by number of listed companies on Tuesday, when it started trading equities previously traded on the Osaka Securities Exchange. The 1,100 companies that were listed only on the Osaka Securities Exchange were merged into the TSE on July 16, increasing its size 1.5 times to 3,423 listed companies. “The merger is only the first step. We want to develop further in order to become a market that can survive in global competition,” Akira Kiyota, president and CEO of Tokyo Stock Exchange Inc, said.
Wall Street Journal Myanmar’scash-basedeconomy may soon make another inroad into global financial inclusion, with at least one private local bank hoping to get approval to issue credit cards to local people by year-end.Cooperative Bank Ltd, known as CB Bank, says it wants to introduce these cards for Myanmar citizens, allowing the bank’s customers to carry Visa and Mastercard branded credit cards for both domestic and international transactions. “Our systems are all ready,” said Oo Thein Myint, the bank’s compliance officer and deputy general manager.
Taipei Times Academia Sinica on Tuesday cut its GDP growth forecast for Taiwan this year to 2.35 percent from a previous estimate of 3.05 percent in December, citing lower contributions from government spending and public investment. The institute said raising the ceiling on national debt may be a solution to help revive the economy, which will give the government leeway to use debt-financingtoboostdomestic spending and investment. However, since the tax burden will be heavier after raising the debt ceiling, consensus on the issue must be reached between the government and the public, the institute said.
Korea Herald The nation’s financial watchdog launched a probe into suspected illegal foreign exchange dealings by owners of paper companies established in overseas tax havens,officialssaidonTuesday. TheFinancialSupervisoryService said that the investigation was targeting 184 people who were disclosed by a news organisation as holders of paper companies in tax havens abroad such as Virgin Islands. The investigation is the largest in scale of the financial watchdog’s probe into the alleged foreign exchange law violators.
Bloomberg View columnist
ive years after the great financial meltdown, have the U.S. and other advanced economies done enough to head off the next calamity? The short answer is no. There’s been frantic activity, all right. Heroic feats of legislation and rule-writing will keep regulators, compliance officers and analysts busy for years. But the gain in safety from all this is likely to be small – too small, probably, even to offset the danger created since the crash by greater concentration in the finance industry. Once the residual fear from the last crisis fades and the appetite for risk revives, financial systems might be more at risk than before, not less. The emerging framework of regulation is no great departure from the one that failed in 2008. There’ll be no reinvention of finance – it will be business mostly as before, within slightly tighter (and far more complicated) bounds. Rethinking from first principles? Maybe next time. The best part of the efforts to date is the plan to make banks increase their lossabsorbing capital. By guarding against the risk that relatively small losses might render a bank insolvent, extra capital makes the system safer. It also cuts the implicit subsidy enjoyed by banks deemed too big to fail.
Leverage rule Regulators are giving new weight to a so-called leverage rule. This requires maintaining a minimum amount of equity as a proportion of all assets – rather than as a proportion of “risk-weighted” assets. Good. The failure of the risk-weighting approach contributed to the meltdown. It made banks look safer than they were and led to extensive regulatory arbitrage, as banks arranged their activities in complex ways to avoid the costs of complying. Yet the new capital rules, when phased in, will still fall far short of what’s needed. The international Basel III agreement proposes a capital ratio of 7 percent of risk-weighted assets and a leverage ratio of just 3 percent. The U.S. intends to exceed these minimums – for instance, by making the eight biggest banks observe a leverage ratio of 6 percent. That’s still too low. Bear in mind that, historically, banks judged it necessary to finance as much as 25 percent of their lending with equity. Research suggests that a leverage ratio of 10 percent is the plausible safe minimum. U.S. banks are making big
profits again, and could use them to keep adding to capital. The prospect of a 6 percent leverage ratio hasn’t hurt their value in the market. We should be discussing a doubling of that number – but we aren’t. More capital is one way to increase financial safety. Another is to lean against the size and complexity of modern financial institutions. That was the aim of the so-called Volcker rule, part of the Dodd-Frank reform, which aimed to break the link between proprietary trading (when banks place bets on their own behalf) and publicly insured deposits. Efforts to revive and recast the old GlassSteagall separation between commercial and investment banking have the same idea. It’s fun to argue about which of these approaches – capital adequacy or a new Glass-Steagall – is better, as though one must choose one or the other. There’s no reason in principle not to do both. In practice, putting the Volcker rule into effect is proving difficult. A simple idea
The emerging framework of regulation is no great departure from the one that failed in 2008
has become so complicated that nobody understands it. It’s also true that GlassSteagall or something similar would not have kept Bear Stearns Cos or Lehman Brothers Holdings Inc out of trouble (they were pure investment banks); and it wouldn’t have kept Washington Mutual Inc or Countrywide Financial Corp out of trouble, either (they just made a lot of bad loans). Nonetheless, once the system is severely stressed, such segmentation can make it more robust.
Shock absorber Universal banks such as Citigroup Inc are vulnerable to many kinds of risk. In normal conditions a financial conglomerate – if adequately capitalised – can use its diversification as a shock absorber. Yet the past five years have shown that in a crisis
of confidence, big financial conglomerates amplify rather than absorb risk, worsen contagion and narrow down to nothing the choices available to governments. The benefits of conglomeration for customers (as opposed to the executives in charge) are doubtful at best. If avoiding a repeat of the past five years matters, regulators should be trying to separate different lines of business, in some cases into entirely separate companies. The U.K.’s plan for “ringfencing” moves a little in that direction. In the U.S., regulators aren’t planning anything so bold. There’s a third issue, at least as important as the timidity of the proposals on capital and the failure to push finance back toward smaller, more segmented companies – and it might have passed you by, because it’s much less discussed. The distinctive characteristic of the crash of 2008 was the part played by a new kind of run on financial systems. Depositors didn’t line up to get their money
out of the banks. Banks and other financial institutions faced collapse because nondeposit funding – money borrowed short-term on the capital market – dried up. The breakdown was in wholesale not retail. Daniel Tarullo, a governor of the Federal Reserve, has drawn attention to this. In a recent speech, he noted that “there is not yet a blueprint for addressing the basic vulnerabilities in short-term wholesale funding markets”. Well, it’s only been five years. There’s been no political pressure to address this tough problem. Calls for bolder financial reform have come mostly from people who want to punish Wall Street and put bankers in jail – an understandable sentiment, but also a distraction. Calls for more capital and a new Glass-Steagall fit the evil-banker template, so something, however inadequate, is happening. The challenge of regulating new kinds of wholesale money is a harder fit. Yet that challenge matters at least as much. Bloomberg View
July 18, 2013
Closing Lenders quiz Cyprus on bailout progress Barclays fined for fixing U.S. power prices Cyprus’s international lenders began reviewing how the island is meeting the conditions of it 10 billion euro bailout yesterday, looking to see whether it should get the next tranche of aid. The appraisal is the first since Cyprus secured a deal with the International Monetary Fund, the European Commission and the European Central Bank in March. Finance Ministry officials are keen to see the resolution settled. “Swiftly exiting the resolution status would allow us to take new steps to further ease, and ultimately eliminate capital controls,” Finance Minister Harris Georgiades said.
Barclays Plc and four former traders must pay a combined US$487.9 million in fines and penalties, the U.S. Federal Energy Regulatory Commission said in an order tied to an investigation of alleged manipulation of energy markets. The bank must pay US$435 million within 30 days, while one trader must pay US$15 million and three others US$1 million each. Barclays must also forgo US$34.9 million in profits, which will be distributed to low-income aid programmes in Arizona, California, Oregon and Washington. Barclays said it intended to “vigorously defend this matter”.
U.S. Fed flexible on bond buying Bernanke says monetary policy isn’t on a ‘pre-set course’
ederal Reserve chairman Ben Bernanke said the central bank’s asset purchases “are by no means on a pre-set course” and could be reduced more quickly or expanded as economic conditions warrant. “If the outlook for employment were to become relatively less favourable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions – which have tightened recently – were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer,” the Fed chairman said yesterday in prepared testimony before the House Financial Services Committee. If the economy improved faster than expected, and inflation rose “decisively” back toward the central bank’s 2 percent target, “the pace of asset purchases could be reduced somewhat more quickly,” he said. The committee would also be prepared to increase the pace of purchases “for a time, to promote a return to maximum employment in a context of price
stability,” he added. The Fed chairman’s remarks highlight the Federal Open Market Committee’s desire to assure that the economy and labour markets have sufficient momentum before reducing its US$85 billion in monthly bond p u r c h a s e s . An increase in borrowing costs since the chairman first started discussing tapering purchases threatens to slow the four-year expansion. The yield on the 10-year Treasury rose as high as 2.74 percent this month from 1.93 percent on May 21, the day before Mr Bernanke said the Fed may trim its bond buying in its “next few meetings” if officials see signs of sustained improvement in the labour market.
Balance sheet Mr Bernanke yesterdayalso said that the Fed’s balance sheet would remain elevated after purchases of mortgage bonds and Treasuries end. The Fed “will be holding its stock of Treasury and agency securities off the market and reinvesting the proceeds from maturing securities,” Mr Bernanke said. The strategy “will continue
Recovery remains ‘vulnerable’, says Ben Bernanke
to put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”. Policy makers, including Mr Bernanke, have tried to assure investors that the Fed will hold down the benchmark interest rate after ending bond buying. Mr Bernanke, in an appearance in Cambridge, Massachusetts on July 11,
said “highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” a message he repeated today. Even so, the average 30year fixed rate mortgage has risen to 4.51 percent as of July 11 from 3.51 percent two months ago, according to Freddie Mac. In yesterday’s testimony, the Fed chairman described labour markets as “far from satisfactory, as the
Card transaction fees face European cap Move could hit multibillion revenue stream for banks
anks and payment card providers would face caps on the transaction fees they can demand from retailers under European Union plans to rein in charges that have been attacked by regulators as anticompetitive. The European Commission, the 28-nation EU’s executive arm, will propose that interchange fees paid by retailers on card transactions should be capped at 0.2 percent for debit card payments and 0.3 percent for credit cards, according to draft plans obtained by Bloomberg News. The caps would initially apply to cross-border
transactions, and then be expanded to also cover domestic payments after two years. According to the commission estimates, this will cut total EU debit card fees from around 4.8 billion euros (US$6.3 billion) to 2.5 billion euros, and credit card fees from 5.7 billion euros to 3.5 billion euros, the Financial Times reported. “High [fees] paid by merchants result in higher final prices for goods and services, which are all paid by consumers,” the proposal said. The measure stops short of a full ban on debit card fees, a more far-
reaching intervention envisaged in earlier drafts. Even so, the assault on fees will be a setback for the payments industry, which has warned it will raise banking fees for consumers rather than cut retail prices. “The achievement of an effectively functioning internal market in the area of payment cards has been hindered by the widespread application of certain restrictive business rules and practices,” according to the document. The Commission proposal marks an expansion in the EU’s assault against the fees, by seeking to use legislation to rein them in. The
unemployment rate remains well above its longer-run normal level, and rates of underemployment and longterm unemployment are still much too high”. The slow pace of the recovery means that it remains “vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated”. Bloomberg News
agency has said that it will publish the plans on July 24. They would require approval by governments and the European Parliament before they take effect. EU antitrust regulators have targeted credit- and debit-card fees for a decade, warning that the way the fees are collectively agreed on is anti-competitive. Authorities this year started a probe into New York-based MasterCard’s charges on foreign card payments such as when tourists go shopping in the bloc. Visa Europe, MasterCard and Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services chief, declined to comment on the EU plan. Visa Europe Ltd, operator of the EU’s largest payment-card network, proposed a settlement of a similar case that is being reviewed by the European Commission. T.A./Bloomberg News