Committee fight awaits politics reform bills Three pan-democrat legislators and civil service representative José Pereira Coutinho yesterday voted against Macau’s controversial political reform bills. They said the measures don’t go far enough; in some particulars defying the city’s post-handover mini constitution, the Basic Law. Although eventually voted through, the laws could face changes at committee stage. Page 6
Take two for Lot 3
Extension on Sands’ Cotai deadline S
ands China has been given a second chance on plans for yet another gaming resort in Cotai. The government has granted it until April 2016 to complete the site, known as ‘Lot 3’ or ‘Cotai 3’. Sands had originally agreed to have the project ready by April next year. In exchange for the extension on the completion deadline, the company will have to pay a financial penalty. That’s likely to be a few million U.S. dollars. But the economic benefit to the company of developing and holding on to the site until
at least 2022 when its current concession officially expires is likely to be measured in hundreds of millions of U.S. dollars. “Long term it’s a huge part of LVS’s Macau story,” an analyst told Business Daily. The new resort will target the massmarket and feature “family-oriented” facilities, Sands said in a separate statement issued later. Sands China shares rose 2.4 percent to HK$23.30 at the close in Hong Kong yesterday. Analysts pointed out however that Lot 3 is a distant dot on the horizon for many
investors. A likely three-year construction period for the scheme – at a time of continuing labour shortages, and when Sands is racing to finish phase two of Sands Cotai Central this autumn – is likely to mean Lot 3 will be in a fresh race even to meet its new deadline. The analysts add Sands doesn’t yet have its building permission from the government for Lot 3. Construction permits have been used recently by the government to slow the pace of Cotai development.
Enforcement ‘key’ to successfully raising casino entry age to 21 Mass market gambling growing faster than VIP – but for how long?
More on pages 2 & 3
Hotel price deflation - happier tourists A drop in hotel prices – with some casinos recently discounting rooms to fill vacancies – meant the city’s tourist price index decreased for the second consecutive quarter. It’s the first time in a decade this has happened. Whether coincidental or related, the latest Macau Tourism Satisfaction Index survey saw visitors improve the city’s rating to 69.5 out of 100, up from 68.8 points in the first quarter.
HANG SENG INDEX 19270
Beijing ‘positive’ on 24-hr crossing
Detailed plans for the city’s proposed new 24-hour border crossing to the mainland – including implementation timetable and budget – will be decided once Beijing has formally approved the project. Chief Executive Fernando Chui Sai On, speaking on a three-day trip to meet top Chinese officials in Beijing, said mainland authorities gave “positive responses” on Macau’s bid for the facility linking the city to Zhuhai.
HSI - Movers
Attacked junket boss issues newspaper denial Amax Holdings’ shareholder Ng Wai issued a newspaper advertisement yesterday denying New Century Hotel in Taipa and Greek Mythology Casino are one business and claiming junket agents awaiting payment need to speak to his ex-girlfriend. It’s the latest in a feud made public after Mr Ng was left hospitalised after being attacked at the hotel last month by six men. “I have heard recently that agents who work for Greek Mythology did not receive their commissions or could not www.macaubusinessdaily.com
withdraw their guaranteed money. The Greek Mythology chairwoman Chan Mei Fun paid the agents’ cheques but with the New Century Hotel’s stamp,” said the advertisement, adding “…According to Commercial Law 177, the hotel is not liable for any debt on behalf of Greek Mythology.” Amax also said in a regulatory filing it received a letter yesterday from Mr Ng requesting Amax remove eight out of its nine existing directors and appoint five individuals proposed by Mr Ng.
SANDS CHINA LTD
WANT WANT CHINA
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Year I - Number 77 Tuesday July 17, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily July 17, 2012
Sands gets Cotai Lot 3 time extension Increasingly short term-focused investors unlikely to be moved Associate Editor
date delayed from 2009 to April this year, causing a knock-on effect for Lot 3.
ands China is likely to pay only “a few million” U.S. dollars by way of penalty for needing to renegotiate with the government a new completion date on its Cotai Lot 3 site, suggests an analyst. The company said in a voluntary statement to the Hong Kong Stock Exchange yesterday morning that Lau Si Io, Macau’s Secretary for Transport and Public works, had granted a deadline extension running until April 17, 2016. The company added: “By the same letter, we were also informed that we will be notified about the penalty amount which shall be payable by us due to the delay of the construction period.” That was a reference to the deadline date of April 2013 originally agreed with the government. The original completion date was rendered effectively obsolete. The global financial crisis of 2008 and local construction labour shortages saw one of LVS’s earlier
KEY POINTS Sands China’s Cotai Lot 3 completion extension to April 17, 2016 Faces ‘penalty’ for missing original 2013 deadline – company filing Lot 3 capitalised costs and land premiums US$96.7 mln to end of March Investors unlikely to be swayed by deadline switch – analysts projects – the US$5 billion Cotai 5 & 6 (now known as Sands Cotai Central) have its phase one opening
But the analyst said: “I think any penalty [for Lot 3’s delay] is likely to be only a matter of a few million U.S. dollars. That would represent only a few hundredths of one percent of the total construction costs. In terms of adding to the project costs, you would hardly notice it.” Had the time extension not been approved, the company would have to write off some or all of its US$96.7 million capitalised construction costs and government land premiums as of March 31, 2012, LVS estimated in a May filing. The analyst told Business Daily the market wasn’t in the mood to give Sands any special credit for the renegotiation – especially as the company has been saying in regulatory filings for more than a year that it would not be able to complete Lot 3 by the original April 2013 deadline originally agreed with the government. “Most investors would expect this outcome,” stated the person. “The company has been straightforward in its filings for quite some time about the situation with Cotai plot 3 and what the company was trying to do. Even though this is good news, the problem is that the investment community doesn’t care much about good news at the moment. “LVS won’t necessarily get ‘paid’ – in the sense of being given good marks – by investors. Long term
it’s a huge part of LVS’s Macau story, but at present investors are so short-term focused that I don’t think they’re going to go mad with excitement at this news,” the analyst said. What investors will be interested in – though not just yet – is what Sands China plans to build there. Product positioning relative to what the company and its rivals are already offering on Cotai is likely to be key to Lot 3’s commercial success. The land is in an interesting neighbourhood in the sense that immediately to the north is Sands China’s uncompromisingly upmarket Four Seasons Macao and its The Plaza casino. To the south will be the majority MPEL-owned Studio City; expected to have a major mass-market component to its gaming and tourism offers.
Themed offer Whatever else it’s likely to
Lot 3 include
Casino minimum age bill progresses The bill to ban those under 21 from casinos passes the committee stage in the Legislative Assembly Tony Lai
he bill to raise the minimum age for entering or working in casinos to 21 from 18 is now on the road to its final reading in the Legislative Assembly. Kwan Tsui Hang, who chairs the assembly’s first standing committee, said on Monday that her committee had completed a 200-page report on the bill and that the assembly would vote on it before its summer break. Ms Kwan told reporters that it had taken over a year to study the bill as there had been “relatively many disputes” over whether it would infringe certain rights of people between 18 and 21 years of age. The bill had its first reading in June last year and passed with the backing of only 17 of the 29 members of the assembly. “After in-depth discussion … we think it serves in good faith to protect young people from the influences of the
gambling development rather than restricting their rights,” Ms Kwan said. She said the committee had acknowledged that the minimum age for entering casinos had changed between
We think it serves in good faith to protect young people from the influences of the gambling development Kwan Tsui Hang, legislator
18 and 21 several times because of the “social environment at the time”. Before 2001 residents under 21 were not allowed in, while the minimum age for tourists was 18. Ms Kwan said the committee had suggested the increase in the minimum age apply to other gambling venues, namely the racecourse, the dog track, and sports betting shops. But she said the government had said it would consider separate legislation to increase the minimum age for entering such places.
Objections If the bill is enacted, the law will come into force one month after it is published in the Official Gazette. It was originally due to come into force on July 2. Those between 18 and 21 years old
already working in casinos will be allowed to stay at work for a while. The bill would allow the government to bar any person from entering a casino upon the request of that person or a relative acting with that person’s permission. “The committee had reservations on this point, as it relies too much on the willingness of the person,” Ms Kwan said. “But we accepted the government’s explanation that we should take the first step and adjust it in the future.” She said the committee had agreed with the thrust of the government’s latest version of the bill, but had objected to some aspects of it on technical grounds and to several discrepancies between the Chinese-language and Portuguese-language versions. But she said the government had refused to make any changes to the version it submitted in April and had ar-
July 17, 2012 business daily | 3
Photo by Manuel Cardoso
MACAU Mass market makes up for VIP slowdown – for now High rollers reining in urge to gamble, ordinary punters seem unstoppable Vítor Quintã
Neither shaken nor stirred – investors expected Lot 3 deadline extension
development trademark – thousands more hotel rooms. In February this year our sister publication Macau Business reported Sands China had submitted plans to the government for a 4,000-room hotel scheme on Lot 3. A source told Macau Business Newsletter the project would be “highly themed” but different from the neighbouring Venetian Macao, with most of the hotel rooms as three- and fourstar units. There would also be a separate tower for VIP gaming rooms and accommodation added Sheldon Adelson, LVS chairman and chief executive, in a conference call to discuss the company’s fourth quarter 2011 earnings. A second analyst yesterday said there were other reasons – aside from advanced knowledge of the situation – that would prevent investors getting excited by the news of the Lot 3 timetable extension. “LVS hasn’t had construction approval for the site yet, and Galaxy Macau Phase 2 and Studio
gued that objections could be debated during the final reading. The bill is controversial. The director of the Institute for the Study of Commercial Gaming at the University of Macau, Davis Fong Ka Chio, agrees with the new minimum age, saying other places such as Las Vegas and Singapore banned people under 21 from casinos. He expects the law to bring “a significant drop in gambling for residents between 18 and 21 years old” and “more opportunities for them to consider their career choices”.
Enforcement Mr Fong said fines for individuals and casino operators could be a deterrent. The bill says any person under 21 that enters, works or gambles in a casino will be liable to a fine of between 1,000 patacas (US$125) and 10,000 patacas, while a casino operator allowing any person under 21 to enter, work or gamble in a casino will be liable to a fine of between 10,000 patacas and 500,000 patacas. “The amount is small, but enough,” said Mr Fong. “But setting up the new law can not solve everything,” he said. “The key is the enforcement.” He hopes the authorities and the casino operators will make more frequent age checks.
City will be opening before it,” said the second person. “Investors as a whole are more concerned about the [Macau] revenue growth slowdown, and the momentum of the VIP segment than in what is going to be happening in three or four years time.” But the person added that the expected cost – up to US$3 billion – wouldn’t be a problem for LVS. “At the most Plot 3 will cost them US$2 billion to US$3 billion. Each year they [LVS] are generating a cash flow of US$2.5 billion to US$2.7 billion. I think they have more than enough money internally to cover the cost. They are currently paying dividends. But it’s possible that as a balance sheet optimisation exercise, they may use some debt to finance the project,” the source stated. The new resort will target the massmarket and feature “family-oriented” facilities, Sands said in a separate statement issued later. Sands China shares rose 2.4 percent to HK$23.30 at the 4 pm close in Hong Kong.
Mr Fong does not think the new minimum age will have much effect on the labour market. “I am not too worried about the human resources in the casinos as the gambling industry in Macau is in a stable stage,” he said. “The need for labour can be planned or predicted for the next 10 years after considering experience from the past.” He believes the city’s casino projects will be completed gradually, without imposing too much strain on the labour market. Mr Fong thinks the new minimum age will have “a small positive impact” on the labour shortage faced by small and medium enterprises as secondary school leavers will be unable to opt to work in casinos.
ass-market gaming revenue is growing four times faster than VIP gaming revenue for the first time since the liberalisation of the market. Data released by the Gaming Inspection and Coordination Bureau yesterday show that in the second quarter this year massmarket revenue was 22.2 billion patacas (US$2.8 billion), 30.1 percent higher than a year before. The main reason for the increase was a jump of 35.1 percent in revenue from mass-market baccarat to 15.6 billion patacas. Revenue from sic bo rose by 16.8 percent to 1.3 billion patacas. And revenue from slot machines rose by 16.2 percent to 3.3 billion patacas as gaming companies installed 933 more machines, taking the total above 17,000 for the first time. However, the annual growth in gaming revenue in the second quarter was the slowest in any quarter since 2009. Mass-market gaming revenue has increased in every quarter for the past three years. Annual growth in quarterly massmarket revenue has remained above 30 percent since the end of 2009, outpacing the growth in VIP for the past three quarters. The opening of the Galaxy Macau casino resort in Cotai in May 2011 was described in some circles as the beginning of Macau’s massmarket era. The operator, Galaxy Entertainment Group Ltd, said it would focus on the burgeoning mainland Chinese middle class and on keeping visitors at the resort longer by offering more non-gaming activities.
recent mass [market revenue] growth has been driven by spend per visitor growth, rather than visitor growth,” he stated. High rollers still accounted for just over 70 percent of gaming revenue in the second quarter according to DICJ. The bureau’s data raise more doubts about the future of horse race betting, which continues to decline. Revenue from horse racing fell by 23.4 percent year-on-year in the quarter, to just 82 million patacas. The Macau Jockey Club, part of Stanley Ho Hung Sun’s empire, has been losing money since 2005 and has accumulated losses of more than 3.7 billion patacas. Revenue from greyhound racing revenue also fell, by 43.2 percent to 46 million patacas. In contrast, sports betting – via the city’s monopoly soccer and basketball betting business Macauslot – improved as the Euro 2012 football tournament got going. Football betting rose by 17.2 percent to 102 million patacas. Basketball betting grew by one-third to 24 million patacas. The opening of Sands Cotai Central on April 11 added 256 more gaming tables, helping to push the city’s total up to 5,498. The government has capped the number of tables at 5,500 until 2013. The latest official table tally as revealed in the quarterly results has led analysts to wonder whether Sands Cotai Central will be able to get the number of tables it needs to open phase two. That opening is due “this fall” according to Ed Tracy, president and chief executive of Sands China.
VIP slowdown In the VIP market, second-quarter revenue from baccarat increased by just 7.5 percent to 52.2 billion patacas. But Cameron McKnight of Wells Fargo in New York suggested in a note to investors last week that Macau mass revenue expansion would not be immune to downturn if China’s general economic slowing continued. “VIP having led the last Macau downturn, mass revenue growth decelerated in June, and
setting up the new law can not solve everything. The key is the enforcement Davis Fong Ka Chio, Institute for the Study of Commercial Gaming
Year-on-year growth in mass-market revenue above 30 pct in every quarter since end of 2009
business daily July 17, 2012
Tourist prices slide further Tourist price inflation is slower than general consumer price inflation for the first time in three years Vítor Quintã
Better events boost tourist satisfaction Visitors are happier with Macau’s events and tour guides but disappointed with its heritage sites
Organisation show that the mainland’s spending on tourism abroad rose by 32 percent to US$73 billion (583.2 billion patacas) in 2011, rising faster than spending on tourism abroad by any other country. Hoteliers the world over have been quick to see the importance of the mainland as a source of tourists. The Expedia Inc website has said the mainland will soon overtake the United States and Germany as the world’s largest source of tourist dollars. The mainland’s Ministry of Public Security says the number of mainland Chinese travelling abroad reached 38.6 million in the first six months of this year, almost 20 percent more than a year before. Macau was the second most popular destination for mainland tourists, behind only Hong Kong, and is set to benefit from the explosion in the number of mainland tourists. The appreciation of the yuan has reinforced the purchasing power of mainland tourists here. And the opening of the Zhuhai section of the Guangzhou Intercity Mass Rapid Transit railway this year is expected to increase the number of visitors even further.
ourists were slightly more satisfied with their experiences in Macau in the second quarter of this year, the results of a survey released yesterday show, but they gave the city’s heritage sites their lowest score ever. The latest Macau Tourism Satisfaction Index survey by the Tourism Research Centre found that visitors gave the territory 69.5 out of 100 points, more than the 68.8 points they gave it in the first quarter. However, the survey report says the index remains “below the above-70 index scores achieved for the most part of 2010”. The centre, part of the Institute for Tourism Studies, says the score was boosted by a jump of 5.3 points in satisfaction with events here, which got 74.9 points. Tour guides and operators also saw their score improve, by 3.4 points to 68.8 points. Tourist satisfaction with hotels and casinos also increased. In contrast, the city’s heritage attractions got just 65.8 points, their lowest score since the centre began collecting data on visitor satisfaction in 2009. The survey report says the heritage attractions “therefore merit closer attention”. Satisfaction with restaurants increased slightly to 65.4 points, but it was the aspect of the city that got the lowest score. The results from the past three years show tourists are least satisfied by the city’s restaurants. “There seems to be a sustained turnaround for the transportation sector, with satisfaction ratings improving from the fourth quarter of 2011 up to the most recent quarter,” the report says. Tourist satisfaction in the first half of this year shows “slight, but not significantly better, results”, the report says. “Efforts need to be maintained and strengthened” to improve the results, it says.
with Daniel do Rosário
The tourist price index dropped 4.6 percent quarter-on-quarter
he prices of goods and services bought by visitors have decreased for two quarters in a row for the first time in a decade, after hotel room rates tumbled in the second quarter. Data released by the Statistics and Census Service yesterday show that the tourist price index was 4.6 percent lower in the second quarter than in the first, after having fallen by 2.9 percent sequentially in the first quarter. The last time that tourist prices decreased for two quarters in a row was in 2002, before the liberalisation of the gaming market. The lower cost of accommodation – the biggest single expense incurred by visitors – was the main reason for the drop. Hotel and guesthouse room rates were one-third lower than three months before, falling to their lowest for two years. The Statistics and Census Service says the fall was due to room rates being reduced after the Lunar New Year. Prices of jewellery decreased by 1.2 percent and prices of watches by 0.2 percent. In contrast, prices of clothing and footwear jumped by almost 16 percent – prices of men’s clothing
leaping by 19.9 percent. Outbound transport was 5.1 percent more expensive. The annual rate of tourist price inflation was 6.57 percent in the second quarter – the rate being slower than general consumer price inflation for the first time since 2009, when the city began feeling the pinch of the global financial crisis. The annual rate of general consumer price inflation was 6.76 percent in May.
Boom looms Mainland China was the source of over 60 percent of all visitors in the first five months of this year. Mainland tourists were the biggest spenders in the first quarter, splashing out an average of 2,435 patacas each. Recent research by the Hotels. com website found the disposable income of mainland Chinese travelling abroad is ballooning, as is their “propensity to purchase high end items”. The research also found mainland tourists are, on average, younger than they used to be and more likely to travel independently. Data from the World Trade
North West ferries linger in dry dock A planned inspection by maritime officials was called off by the ferry operator yesterday Tony Lai
orth West Express Ltd’s ferries remain high and dry after an inspection scheduled for yesterday was pushed back to tomorrow.
The Macau Maritime Administration said the company had asked officials to delay the safety inspection after finding more problems with one of its two vessels.
“There were still some problems with the ferry,” the Maritime Administration said in a written reply to questions from Business Daily. The government said last week that officials from Macau and Hong Kong would carry out an inspection yesterday – a first step towards the operator resuming its Hong KongMacau service.
The company’s second vessel is unlikely to be repaired anytime soon. North West was unavailable for comment yesterday. The company suspended services on July 1 because of unspecified problems with its vessels. It is unclear when the operator will resume its service between Hong Kong’s Tuen Mun pier and Macau.
July 17, 2012 business daily | 5
Beijing’s response to new border crossing ‘positive’
The Chief Executive (left) met officials of the General Administration of Quality Supervision, Inspection and Quarantine
Officials of the central and Macau governments meet in Beijing to discuss present and future border crossings Tony Lai
hief Executive Fernando Chui Sai On has said central government officials gave “positive responses” yesterday to Macau’s bid to build a new border crossing, and that they discussed keeping the present crossings open longer. TDM quoted Mr Chui as saying after meeting central government officials in Beijing that the governments of Macau and the province of Guangdong would cooperate on the next stage of the project. Mr Chui led a Macau government delegation to discuss the new checkpoint with the Ministry of Public Security, the General Administration of Customs, and the General Administration of Quality Supervision, Inspection and Quarantine. He said he hoped the central government would soon approve the project, which could ease the pressure on the Gongbei crossing.
The new crossing, first agreed at the Guangdong-Macau conference held in May, would be in Ilha Verde, where the Nam Yuet Wholesale Market is now. The Macau government expects the crossing to be open around the clock and handle about 250,000 people per day. Mr Chui said the meeting had also discussed extending the opening hours of the Gongbei and Lotus Bridge crossings, but had not decided how much longer they should be open for. The Gongbei crossing is open from 7 am to midnight and the Lotus Bridge crossing from 9 am to 8 pm. The Secretary for Transport and Public Works, Lau Si Io, said after the meeting that the Macau government would make detailed plans for the new crossing, including a schedule and budget, once it had approval from Beijing. Mr Lau said the Macau govern-
The Maritime Administration said yesterday there was no deadline. “Once the ferry’s safety is guaranteed, we will examine the application for the company to restart sailings,” a spokesman said. North West chief operations officer Koji Chan told reporters on July 2 that the company hoped to be
sailing again within 14 days. North West could be fined for suspending its scheduled sailings but the Maritime Administration said there was “no final decision” if the company would face a penalty. The company has submitted a report, which is under consideration. With T.A.
A delayed inspection of a North West ferry has pushed back the company’s return to the Tuen Mun-Macau route
ment needed to speed up the removal of the Nam Yuet market to the Zhuhai-Macau Cross-border Industrial Park.
He hopes customs procedures at the new crossing will be simpler. The Macau delegation will end their three-day visit to Beijing today.
business daily July 17, 2012
Political reform approved but divisions surface A number of legislators want more representation for the social services and education sectors at the assembly Xi Chen
ost legislators gave their initial approval to the political reform plans yesterday. But the committee debate over the two bills could be fierce, with a few members claiming that the social services and education sectors deserve more votes. The ‘two plus two’ bill adds two directly elected and two indirectly elected members to the Legislative Assembly. However legislators debated over the allocation of the new indirectly elected seats. The bill basically stipulates that four legislators will be from the business and finance sector, two from the labour sector, three from the professional sector, two from the culture and sports sector and only one from the social services and education sector. “Social services and education will each only have half a vote. This doesn’t reflect the needs of society,” legislator Au Kam San said. The pan-democrat added that the participation rate in associations is low in Macau, which means the election method will exclude ordinary people unless they are involved in an association. Legislators Ho Sio Kam and Melinda Chan Mei Yi both stressed the importance of social services and education and asked for an explanation to why the two sectors have to share one seat. Ms Ho is also the director of the Chinese Educators Association of Macau. Legislator Kwan Tsui Hang, despite
legislators out of 29 voted against political reform bills
Even though they were approved, the political reform bills could face changes while at a Legislative Assembly committee
approving the law, said she would also like to see more seats represented by the social services, education and the professional sectors. Overall, she said, “the bills might not be an ideal solution, but it always takes a long period of time for political development”. The pan-democrat trio – Mr Au, Ng Kuok Cheong and Paul Chan Wai Chi – plus legislator José Pereira Coutinho went through with their initial stands and voted against the bills. The four legislators all stated that there should be more directly elected representatives in the assembly. “The principle of the Basic Law means that at least more than half of all legislators should be directly elected,” Mr Au said. In response, Secretary for Administration and Justice Florinda Chan said that the ‘two plus two’ proposal was backed by public support and social consensus, but the technical details of the law could be
Social services and education will each only have half a vote, this doesn’t reflect the needs of society Au Kam San, legislator further discussed with the committee. The new bill will increase the total number of legislators to 33, with 14 directly elected, 12 indirectly elected, and seven continuing to be appointed by the Chief Executive. The proportion of directly elected legislators will decrease slightly
after the revision. The chief executive electoral law was also passed even though the pan-democrats said the Basic Law states that a representative from municipal bodies – abolished before the 1999 handover – should also be part of the electoral committee. But most legislators disagreed with that interpretation, claiming that Macau’s mini-constitution only says that the municipal bodies might be given a seat at the committee. The law will expand from 300 to 400 the electoral committee that selects Macau’s chief executive. The revision is expected to come into effect by the end of the year, as according to the new law the territory will elect its next Legislative Assembly in 2013. Legislators will meet again today to vote on a new heritage law and the proposal to extend the Legislative Assembly’s current session until the end of August.
Weather Beijing 34/23o C Changchun 32/21o C
Harbin 33/21o C
Xian 30/22o C Shanghai 30/25o C Chengdu 27/21o C Kunming 23/18o C Haikou 35/27o C Sanya 32/27o C
Guangzhou 34/26o C
MACAU (16 July-21 July) Day
Shenzhen 33/27o C
Hong Kong 34/27o C
Macau 32/28o C
July 17, 2012 business daily | 7
Jaw-jaw back to war-war in electronic game dispute LT Game issues Nevada lawsuit v. Shuffle Master Nevada and U.S. laws barring unfair competition. “Over the past year, defendant has begun an international campaign of disparagement of plaintiff and its products and has directly and indirectly interfered with plaintiff’s business and potential business activities,” said the suit filed by LT Game International Ltd. The filing says LT Game International is based in Ontario, Canada, and is the exclusive licensee of LT Game Ltd’s technology in North America. LT Game and Shuffle Master have offices based only a few hundred metres apart in downtown Macau but currently seem to communicate only via lawyers, lawsuits or – on one side of the equation – calls to law enforcement agencies.
Flashpoint – customs officials talking to Shuffle Master at G2E Asia 2012
long-running legal battle between Macau gaming equipment maker LT Game and U.S.-based Shuffle Master has flared up again in a U.S. lawsuit. This time it’s about allegations of “an international campaign” by the latter to damage LT Game’s business prospects, not about the
validity or otherwise of LT Game patents – three filed in the U.S. in 2005 and two filed in Macau in 2005 and 2006 – for electronic gaming products. The case in the U.S. District Court in Las Vegas claims Shuffle Master has been damaging LT Game’s business prospects and thus violated
Slowdown bites at Oriental Watch China slowdown weighs on sales; company plans to expand to secondand third-tier cities
rofit at Oriental Watch Holdings Ltd fell by 20.3 percent for the year ended March 31 as the economic slowdown in the mainland stifled demand for luxury consumer goods also in Macau and Hong Kong. The company’s annual turnover was unchanged at HK$3.9 billion (US$502.8 million) as demand waned at the company’s 88 mainland stores. In a filing to the Hong Kong Stock Exchange last Friday the company said this year’s focus would be raising the company’s profile in secondtier and third-tier cities. The retailer has three shops in Macau. April’s retail sales in Hong
Kong, the company’s biggest market, grew 11.4 percent year-on-year – the slowest pace since 2009. But it expects Hong Kong to remain a major destination for mainland shoppers. Oriental Watch’s annual report says tighter credit controls and growing uncertainty globally have caused mainland consumers to curb their spending. China’s economic slowdown is rippling through Hong Kong, with the city’s retail sales rising at the slowest pace since 2009. The company also expressed its concern at soaring rents, a significant problem in Macau and Hong Kong. D.R.
G2E flashpoint Litigation in Macau has focused on whether Shuffle Master’s Rapid baccarat game using a live dealer but electronic betting and electronic bet settlement infringes a multigame product patent filed in the territory by LT Game.
Law enforcement has included seizure at the G2E Asia trade show in 2009 by Macau customs officials of Shuffle Master’s Rapid units and the detention for questioning of company officials. At this year’s G2E Asia in May there was another showdown featuring customs, a court injunction and an order to lift an injunction that resulted in Shuffle Master being unable to display its Rapid product for most of the opening day of the show. After the show, Macau customs accused Shuffle Master of disobeying a Macau court order by removing covers from its Rapid product on the first full day of the event without being able to produce evidence of a court order granting that right. Shuffle Master said in a statement – referring to Jay Chun, chairman of LT Game’s parent company Paradise Entertainment Ltd – it would: “…vigorously defend against this matter and in any other venue Mr Chun may wish to try and use the courts rather than the marketplace to compete with Shuffle Master.” A.E.
business daily July 17, 2012
Greater china Urgency for reform China said on Friday that year-on-year growth in the second quarter slowed to 7.6 percent, the weakest quarter since Q1 2009. But the apparent recoil by Beijing from the pursuit of economic rebalancing that eschews shortterm spending on more infrastructure capacity in favour of policies promoting services and consumer-driven growth simply highlights the urgency for more reform. “Because consumption is still only 35 percent of GDP, the reality of that being able to drive the economy when fixed asset investment is falling and industrial production is slowing is unlikely,” Jeremy Stevens, China economist at Standard Bank, told Reuters. “In fact the ability of the government to massage and orchestrate economic momentum is less than it was two years ago because it is now more reliant on the corporate sector and that is struggling,” he added.
State researcher warns of jobs risks Beijing must act to avoid deflation, Chen Dongqi says
hina must set economic policies to avoid the risk of deflation spreading to consumers from producers and creating a spiral of souring business expectations that would lead to job cuts, a senior official at a top government think-tank told Reuters. Chen Dongqi, deputy chief at the Academy of Macroeconomics Research, said downward pressures were so strong that the downdraft on China’s economy may extend beyond the third quarter of the year without firm policy action. “If the government intensifies the strength of prudent and moderately loose monetary policy, China’s economy might hit a bottom in the third quarter,” said Mr Chen. “In particular we should prevent producer deflation from expanding to the consumer area in the second half of 2012,” said Mr Chen, whose think-tank feeds into China’s top economic planning body, the National Development and Reform Commission. “Once deflation happens in
consumer prices, we would pay a big price for policy changes to solve the problem.” Mr Chen called for a 50 basis point cut to borrowing costs and a further 150 basis points to be cut from banks’ required reserve ratios this year – in addition to the 150 bps already cut that has freed an estimated 1.2 trillion yuan (US$190 billion) for lending to support economic growth. China’s Premier Wen Jiabao warned that the nation’s recovery is yet to build up momentum, fuelling speculation that extra economic support measures may be announced after a cabinet meeting this week. “It should be clearly understood that the momentum for a stable rebound in the economy has not yet been established,” Mr Wen said during an inspection tour in southwest Sichuan province, according to a report from the official Xinhua news agency on Sunday. China’s State Council may this week give details of easing measures to support growth,
Nomura Holdings Inc. said in a note yesterday.
Last bout of deflation Data last week showed GDP growth had slowed for a sixth successive quarter in the second quarter to 7.6 percent, its slackest pace in more than three years and only just above the government’s 7.5 percent target for 2012. China last suffered a bout of deflation between February and October of 2009. By the end of 2009, consumer prices had fallen 0.7 percent on the year. During that episode annual GDP growth sank to an 8-year low of 6.6 percent in the first three months of 2009 as deflation began to get a grip, with the economy overall seeing its slowest full year of growth since 2002 – albeit at a 9.2 percent clip. Inflation had been the government’s main preoccupation until recently, with policies set to bring it down from the three-year high of 6.5 percent hit in July 2011 and back
Chinese firms slashed some 20 million jobs in 2008 as global trade flows ground to a halt
below the official annual target of 4 percent. Mr Chen said he expected the annual rate of consumer inflation to fall below 2 percent in every single month in the second half of 2012, pulling the full year
If we do not intensify the strength of prudent and moderately loose monetary policy, companies’ downward expectations on the economy will grow and that will make them cut staff
rate down to 2.5-2.6 percent. A slowing economy pushed down China’s annual consumer price inflation to a 29-month low of 2.2 percent in June. “If we do not intensify the strength of prudent and moderately loose monetary policy, companies’ downward expectations on the economy will grow and that will make them cut staff,” Mr Chen said. He said firms are delaying jobs cuts in a bid to avoid a repeat of their experience in the wake of the 2008/09 global financial crisis, when heavy lay-offs left them woefully short of skilled staff when the economy began a rapid rebound. “There could be large-scale layoffs by companies in the second half if their orders and profits decline as they don’t have an optimistic business outlook. This in turn could affect income expectations and consumption,” Mr Chen said. Reuters/Bloomberg
Lenovo closer to top spot Lenovo Group Ltd is on track to overtake Hewlett-Packard Co as the world’s biggest PC maker by sales as soon as this year, making it the first Chinese company to grab the top spot globally in a technology sector. Lenovo, which became the world’s No. 2 PC vendor in the third quarter of 2011, had a 14.9 percent global market share in the April-June quarter this year, a mere 0.6 percentage point away from HP’s 15.5 percent, according to research firm IDC’s latest data. Figures from industry tracker Gartner show an even narrower gap, with Lenovo just 0.2 percentage point from HP. Investors have rewarded Lenovo for its market share gains, sending its stock up by around 16 percent this year and outpacing rivals HP, third-ranked Dell Inc and No. 4 Acer Inc, whose stocks have dropped over the same period.
July 17, 2012 business daily | 9
ZTE stock falls to three-year low
China commodity demand may not pick up with GDP
FBI, EU investigations damping sentiment
hares of ZTE Corp, the world’s fifth-biggest telecommunications equipment maker, logged the steepest fall in more than three years in Hong Kong as a profit warning and a probe by the U.S. government cast a gloom over the company’s near-term fortunes. Chinese telecoms equipment manufacturers including Huawei Technologies Co Ltd have been hit by sluggish global spending on networking gear, with the Shenzhen-based company saying last week that first-half profit could slide as much as 80 percent. The earnings warning, which triggered a slew of brokerage downgrades, came as a report emerged that the FBI has opened a criminal investigation into ZTE over the sale of banned U.S. computer equipment to Iran and its alleged attempts to cover it up and thwart a Department of Commerce probe.
“The FBI probe would adversely affect ZTE’s ability in bidding for overseas projects, and it’s a major negative,” said Lou Zhen, a fund manager at Shanghai Anode Industrial Investment Co, which doesn’t own ZTE shares. “Investors have reason to be concerned about the company’s growth prospects and there’s still room for the stock to fall.” ZTE could face steep fines and restrictions on its U.S. operations if it is found to have illegally sold U.S. computer products to Iran. An investigation by the European Union Commission on whether Huawei and ZTE have accepted illegal subsidies from the Chinese government has also pressured ZTE’s shares in the past month. “The biggest risk in investing the stock is that it’s nontransparent. It’s related to the nature of the business and coupled with the fact that the management is not really that willing to talk to
the investors,” said Jenny Tian, a managing partner at Hong Kong-based hedge fund Springs Capital. ZTE’s stock slumped 17.4 percent to as low as HK$10.32 (US$1.33) yesterday, posting the biggest fall since October 27, 2008, and the weakest intraday level since March 4, 2009. The stock ended down 16.32 percent at HK$10.46.
Sun Hung Kai drops in Hong Kong Barclays lowers price target after co-chairmen charged Kelvin Wong
un Hung Kai Properties Ltd declined in Hong Kong trading after its billionaire co-chairmen were charged with bribery by the city’s anti-graft agency last week. The shares, which were halted on July 13, fell as much as 1.4 percent and closed down 1 percent at HK$94.50 (US$12.2). Barclays Plc lowered the price target for Hong Kong’s biggest developer by 5 percent to HK$87.50 while maintaining an underweight rating on the shares, analysts, led by Andrew Lawrence, wrote in a report yesterday. Thomas and Raymond Kwok and two other men conspired to provide Rafael Hui, the city’s former No. 2 official, with payments and loans totalling HK$34 million (US$4.4 million) for unspecified favours involving Mr Hui’s role as the government’s then chief secretary, the Independent Commission Against Corruption said in a July 13 statement. Sun Hung Kai promoted two executives to deputy managing directors to assist the co-chairmen, who will retain their current roles at the company, the developer said in a separate statement.
“The company’s two key decision makers will likely have limited time for company business,” wrote the analysts, adding that the charges against the Kwok brothers “allows the court to potentially award compensation to the government for the advantages gained from any proven bribery”. Sun Hung Kai’s stock has fallen 15 percent since the brothers were arrested on March 29. Hong Kong’s highest profile graft case adds to pressure on the city’s Chief Executive Leung Chun Ying, who took office on July 1, to address public concern over the conduct of government officials. His development secretary,
Mak Chai Kwong, resigned last week after the Apple Daily reported he had misused government housing allowances. Magistrate David Dufton last Friday allowed bail for the Kwoks and Mr Hui. Moody’s Investors Service said on the same day it was maintaining a negative outlook on Sun Hung Kai because “the latest development is credit negative” for the developer “as its reputation is now further at risk.” Thomas and Raymond Kwok will continue to discharge their duties with the assistance of new deputy managing directors Mike Wong and Victor Lui, Sun Hung Kai said in the stock exchange filing last Friday. Mr Wong and Mr Lui are both executive directors at present. In addition, Adam Kwok, a son of Thomas, and Edward Kwok, a son of Raymond, were named as alternative directors to their fathers, the developer said. The appointments “fail to sufficiently address the concerns of minority shareholders and misses the opportunity to address corporate governance issues at the board level,” wrote the Barclays analysts. Bloomberg
Reuters market analyst
hile China’s secondquarter economic growth was encouraging insofar as it wasn’t worse than forecast, it actually tells us very little about what commodity demand will be like in the second half. Gross domestic product expanded 7.6 percent year-on-year, the weakest in three years, but weak enough to add to fears that China is having a hard landing. The outcome is still slightly above the government’s target of 7.5 percent for the whole of 2012, which means that growth in the second half will at least have to be steady in order to achieve the goal. Commentary around the GDP numbers has largely centred on the view that the second quarter probably marked the weakest point of the cycle and that government efforts to boost the economy through looser monetary policy and accelerated infrastructure spending will bear fruit from now on. If this consensus is correct, it would seem to follow that commodity demand should also pick up in the second half, to meet the expansion in industrial output and construction. But I’m somewhat wary of making such a prediction, given the way major commodity imports have decoupled from economic indicators such as GDP in recent months. It seems that much of China’s commodity demand recently has been driven by special factors, and working out whether they are still in play would seem to be more important than the expected trajectory of economic growth. This isn’t to say that a rebound in GDP won’t promote commodity imports, as it certainly will, but there are questions whether renewed growth will outweigh the unusual factors that saw commodity imports that were much more robust in the first half of 2012 than warranted by economic fundamentals. For instance, crude oil imports gained 11 percent in the first half of this year compared to the same period in 2011, hardly what you would expect for an economy losing momentum. But apparent oil demand, which is calculated by taking refinery runs and net fuel imports, fell 0.4 percent year-on-year in June to the lowest since October 2010. The oil demand figure sits much more comfortably with China’s growth slowdown, and the difference between robust crude imports and slowing consumption can most plausibly be explained by the building of strategic and commercial stockpiles. June’s oil demand was 8.96 million barrels a day, down from 9.38 million in May, while refinery runs were 8.76 million bpd. However, crude imports in June totalled 5.28 million bpd, and if domestic output was assumed to be steady at around 4.1 million bpd, it means about 625,000 bpd went into storage.
For May, the difference between refinery runs and crude imports and domestic output together was about 1 million bpd, and in the 12 months to May the monthly average was close to 400,000 bpd. This is a significant amount of crude going into storage, and the best way to look at China’s secondhalf crude import demand would be to see if this level of stockpiling is likely to continue. The chances are that it will ease in the second half of 2012, especially if the global oil market remains well supplied despite the loss of Iranian output because of sanctions against Tehran’s nuclear programme. If this is the case, while oil imports may grow in the second half, they may lag a rebound in GDP, having outperformed the slump in GDP in the first half. It’s a similar story for copper, with some of the strength in imports in the first five months of 2012 being put down to the movement of inventories into cheaper warehouses in China from facilities that are part of the London Metals
Major commodity imports have decoupled from economic indicators such as GDP in recent months
Exchange. Copper imports plummeted 17.5 percent in June from May, but May’s figure was inflated by warehouse shifting. This means copper imports probably have the best chance of responding positively to any increase in GDP, with the proviso that stockpiles in China appear to be relatively high. Iron ore imports in the first half also appeared to run well ahead of actual demand, gaining 9.7 percent over the first six months of 2011. Again this argues for several months of slower import growth to bring iron ore back to the level of actual demand, with even a soft second half being enough to meet the 6 percent forecast of analysts in a Reuters poll for full-year import growth. It may be the case that after an unusually robust first half, commodity imports will have a quiet second half, but still end the year showing relatively strong growth overall.
business daily July 17, 2012
Easing prices offer officials scope for rate cuts Analysts expect more monetary or fiscal stimulus Clarissa Batino and Max Estayo
oderating inflation pressure across most of Asia offers central banks scope to cut interest rates further in coming months, with Philippine Governor Amando Tetangco saying there is room for monetary easing. The Asian Development Bank lowered its inflation forecast for the region last week to 4.4 percent this year from a 4.6 percent pace forecast in April. China this month reported the smallest price gains in more than
two years. India yesterday reported inflation unexpectedly eased while remaining above 7 percent, suggesting the central bank may be constrained even as counterparts ease. South Korea and China surprised markets with a reduction in interest rates this month. Emerging-market policy makers “have by far the greatest room to counteract economic weakness,” JPMorgan Chase & Co. analysts led by Jan Loeys, chief market strategist in New York, wrote in a July 13 note. They can “boost spending through monetary stimulus, fiscal
stimulus, or simply by providing more clarity about their future actions,” they said. Emerging-market policy rates remain a percentage point above emerging-market inflation and have plenty of room to come down in nominal terms, the analysts wrote. Price gains are easing across most emerging markets, helped by a decline in food and commodity prices. Inflation in China, Asia’s biggest economy, slowed to 2.2 percent in June from a year earlier and producer prices dropped for a fourth month. The ADB also cut its 2012 growth
forecast for Asian economies excluding Japan to 6.6 percent from 6.9 percent, citing the impact of Europe’s debt crisis and slower expansion in China and India.
Moderating inflation In India, a weaker rupee, government spending and rising food prices are helping maintain inflation risks. The benchmark wholesale-price index rose 7.25 percent from a year earlier, after climbing 7.55 percent in May, the commerce ministry said in a statement yesterday. The rupee, which has slumped 19
Crown sells bonds in Australia Packer’s company able to increase offering to A$275 million Benjamin Purvis
ames Packer’s Crown Ltd, facing a potential bidding war for rival Echo Entertainment Group Ltd, sold its first bonds since the billionaire split his media and gaming assets in 2007 as debt offerings in Australia surge to a four-month high. Crown’s financing unit priced A$275 million (US$279 million) of five-year notes July 12, paying 250 basis points more than the swap rate, according to data compiled by Bloomberg. The company has to pay extra interest to investors if it loses its BBB credit grade, according to an offering document. Spreads on similarly-rated non-financial corporate bonds average 257 basis points in Australia and 230 basis points globally, Bank of America Merrill Lynch indexes show. Borrowers sold A$5.2 billion of bonds in Australia this month amid signs of stronger domestic economic growth and a cooling European fiscal crisis, the busiest start to a month since March. Crown was able to increase its offering from an initial A$150 million as the terms eased concern that the company’s debt would be downgraded if it squares off against Kuala Lumpur-based Genting Bhd. for control of Echo, the manager of Sydney’s only casino.
Sydney would allow either Crown or Genting to benefit from the flow of Chinese gamblers who visit Australia’s largest city.
Bond risk “Crown got a good reception from some investors as the structure was designed to emphasise that they’re not planning to abandon their rating,” said John Sorrell, head of credit at Tyndall Investment Management Ltd in Sydney. “There’s also been a broader pickup in credit and markets feel healthier, with a bit of money sitting around feeling in need of a home.”
Credit-default swaps on Crown’s debt rose to 225 basis points on July 12, up 49.5 basis points since the company said in February that it held a 10 percent interest in Echo, according to data from CMA. Crown and companies linked to Genting have both sought regulatory approval to lift their holdings in Echo beyond 10 percent.
“For debt investors, the potential for corporate action represents a risk to the issuer’s credit quality,” said Vivek Prabhu, an asset manager at Perpetual Ltd in Sydney and bought Crown’s notes. “However, bondholder protections offered investors additional yield compensation and risk mitigation.” The terms of Crown’s 5.75 percent July 2017 note include a coupon increase of 50 basis points, or 0.5 percentage point, if the company’s credit score is cut by one level, with a gain of as much as 250 basis points should that rating fall by four steps or more, according to the offering
Sydney casino Crown’s bond sale was its first since the firm was established in 2007, when Mr Packer, who has built stakes in casinos in Macau, Australia, London and Las Vegas, split his gaming and media assets into separate companies two years after the death of his father Kerry Packer. Mr Packer, the chairman of Crown, has said he’s interested in building a new 350-room casino-hotel at the Barangaroo development site near Sydney’s central business district. To do that, he would need to convince Echo and the New South Wales state government to grant a separate permit, or take over Echo, whose licence guarantees its casino The Star a monopoly in Sydney until 2019. A presence in
Crown Ltd’s chairman, James Packer, has shown interest in building a new casino-hotel near Sydney’s central business district
July 17, 2012 business daily | 11
[Central banks in
policy makers] have
have become more
to the current slump
by far the greatest
dovish over the past
in growth, therefore,
room to counteract
one or two months
lies in comprehensive
and we do expect some fiscal measures, not monetary loosening Sebastien Barbe, Credit Agricole CIB
India’s headline inflation slowed to its lowest level in five months in June
percent against the dollar in the past 12 months, strengthened 0.4 percent to 54.9450 per dollar as of 12:40 pm in Mumbai. Asian stocks climbed, with the MSCI Asia Pacific Index advancing 0.3 percent. The fastest inflation among the biggest emerging markets prompted the Reserve Bank of India to unexpectedly leave interest rates unchanged on June 18 even after the economy expanded at the slowest pace since 2003. “We expect the growth risks eventually to dominate the RBI’s thinking and lead to greater monetary easing in the coming
document. The issue also includes measures to protect bondholders against a change of control, the document states. Crown holds a BBB rating from Standard & Poor’s, the secondlowest investment-grade ranking, and an equivalent Baa2 from Moody’s Investors Service. The bondholder-friendly structure of Crown’s deal, the company’s quality assets and its commitment to maintaining its BBB credit rating provided reassurance to investors, said George Bishay, a portfolio manager at BT Investment Management Ltd. “My biggest concern initially when I heard about the deal was the Echo bid and, if successful, would they gear up the business,” he said. Bloomberg
months,” Barclays Plc economists led by Singapore-based Nigel Chalk wrote last Friday. “However, given the complex domestic politics, the timing of any policy loosening is difficult to predict, especially given the RBI’s recent hawkishness.” Fiscal stimulus may be more appropriate for the region than monetary easing, which risks spurring asset and price pressures, Frederic Neumann, Hong Kongbased co-head of Asian economic research at HSBC Holdings Plc, wrote in a note yesterday. “Exports are about to drop off sharply, at least judging from various lead indicators,” Mr Neumann said. “To avoid sudden weakness feeding on itself, measures are needed to bridge the lull in growth. Asia’s most appropriate answer to the current slump in growth, therefore, lies in
in making money
Jan Loeys, JPMorgan Chase & Co
cheaper still Frederic Neumann, HSBC Holdings Plc
comprehensive fiscal measures, not in making money cheaper still.”
Policy space Bangko Sentral ng Pilipinas Governor Tetangco said more easing may be possible as inflation in the Philippines moderates. “The stance of monetary policy remains appropriate but things can change – a possible easing cannot be ruled out,” he said in an interview last Friday. “While we have sources of resilience, we also have policy space on the monetary and fiscal sides to do more if necessary.” Price pressures have cooled even as the US$225 billion economy expanded 6.4 percent in the first quarter from a year earlier, the fastest pace in Southeast Asia based on a basket of 17 Asia-Pacific economies tracked by Bloomberg. Consumer-
price gains slowed to 2.8 percent last month from a year earlier. “One is never out of danger on inflation, but at this point in time risks are on the downside,” Mr Tetangco said. “The growth of the economy is not at the level that would lead to a breach of the inflation target.” Central banks in emerging markets “have become more dovish over the past one or two months and we do expect some monetary loosening,” Sebastien Barbe, Paris-based head of emerging markets research and strategy at Credit Agricole CIB, wrote last week. “They may refrain from lowering rates quickly in the short term, just in case the global economic momentum re-accelerates at the end of the year, making the global backdrop more prone to generate inflation pressure.” Bloomberg
Singapore home sales slump Sharpest quarterly drop in in two-and-a-half years
ingapore home sales posted their biggest drop in more than two years in the second quarter as prices rebounded to a record, a government report showed. The island state’s private residential property sales declined 17 percent to 5,572 units in the three months ended June 30 from the previous quarter, according to data released by the Urban Redevelopment Authority yesterday. That’s the biggest quarterly decrease since the three months ended December 2009. Home sales have climbed to 12,254 units this year through June 30, according to data from the authority. Singapore has been attempting to rein in prices since 2009, when it barred interest-only loans for some housing projects and stopped allowing developers to absorb
Residential units sold in the three months ended June 30
Singapore has been attempting to rein in home prices since 2009
interest payments for apartments still being built. The government last week said it is prepared to enhance measures aimed at ensuring a “stable and sustainable” housing market, even as gains in home prices slowed this year. “Sales have been unnaturally high from January to May,” said Nicholas Mak, executive director at SLP International Property Consultants, a real estate consulting company. “It’s good news that the sales have come off a little as it might now take some pressure off on additional government measures, now that prices have stabilized and sales are down to more sustainable levels.” More measures were introduced in December. Foreigners and corporate entities have to pay an additional 10 percent stamp duty. The extra levy is 3 percent for permanent
residents purchasing a second home and for citizens buying their third residential property. The government earlier imposed a 1 percent duty on the first S$180,000 (US$142,000) of the property price, 2 percent on the next S$180,000 and 3 percent for the remainder. In January 2011, the government also raised down-payment requirements for second mortgages and extended the period homeowners must hold their properties to avoid a sales transaction tax to fend off speculators. Home sales in June fell 20 percent to 1,371 units from a month ago, according to today’s report. Private housing sales slid to their lowest this year from the 2012 peak of 2,496 units in April, according to the data. Bloomberg
business daily July 17, 2012
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FTSE TAIWAN 50 INDEX NAME ACER INC
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INDEX 4835.06 HIGH
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July 17, 2012 business daily | 13
MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GAlAXy ENtErtAINMENt
MElco crowN ENtErtAINMENt
MGM cHINA HolDINGS 29.0
11.40 No transactions
19.15 Max 19.32
SANDS cHINA ltD
SjM HolDINGS ltD
wyNN MAcAu ltD
23.4 23.3 23.2 23.1 23.0 22.9
22.8 Average 23.166
14.60 Max 14.8
WTI CRUDE FUTURE Aug12
BRENT CRUDE FUTR Aug12
GASOLINE RBOB FUT Aug12
GAS OIL FUT (ICE) Aug12 NATURAL GAS FUTR Aug12 HEATING OIL FUTR Aug12 METALS
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LME ALUMINUM 3MO ($)
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0.9388 1.5235 0.7071 1.2163 75.35 7.9823 7.7526 6.2769 43.855 29.63 1.1992 28.764 41.575 8458 72.057 1.00749 0.78492 7.7719 9.7216 95.6 1.0288
MACAU RELATED STOCKS (L) 52W
AMAX HOLDINGS LT
BOC HONG KONG HO
CHOW TAI FOOK JE
SUGAR #11 (WORLD) Oct12
COTTON NO.2 FUTR Dec12
CHEUK NANG HLDGS
World Stock MarketS - Indices YTD %
1.1081 1.6618 0.9873 1.4549 84.18 8.0449 7.8113 6.4694 57.3275 31.96 1.3199 30.716 44.35 9662 88.637 1.24736 0.88861 9.3616 11.6793 114.18 1.0311
0.0588 -0.0901 -4.7808 -5.9486 -2.6209 0.1314 0.1405 -1.3137 -3.9895 -0.2529 2.4332 0.9401 4.7551 -4.4262 -2.7875 1.3131 6.1616 4.3181 6.3041 3.5106 0.0097
0.3537 -0.3017 -0.132 -0.4817 0.2532 0 -0.0013 0.0078 -0.2262 0.0948 0.1185 -0.0067 0.2509 -0.4321 0.0768 -0.0083 0.6535 -0.2129 0.1294 0.727 0
1.0215 1.5529 0.9852 1.219 78.98 7.9891 7.7565 6.3788 55.27 31.63 1.2658 29.997 41.85 9489 80.681 1.20102 0.78502 7.7975 9.7381 96.28 1.03
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Disney’s Fantasyland meets North Korea’s William Pesek
Bloomberg View Columnist
he Kim Dynasty’s first foray to the place where dreams come true ended in a nightmare. In 2001, the brother of leader Kim Jong Un tried to enter Japan to visit Tokyo Disneyland. His Dominican Republic passport and lack of Spanish skills piqued the interest of customs officers, and was an endless source of embarrassment for their Dear Leader father, Kim Jong Il, who died in December. Eleven years after his brother’s attempted visit to Tokyo, Kim the younger had an epiphany. If the Kims can’t meet Mickey Mouse and Winnie the Pooh on their home turf, bring them to the capital, Pyongyang. On July 6, Kim’s crew of clapping generals watched their favourite Walt Disney characters dance on stage as clips of “Beauty and the Beast” and “Dumbo” played on giant screens. Taking in the television footage, you can’t help but ask: are we actually afraid of this Kim Jong Un guy? On some level, we need to be because of his nuclear arsenal, abysmal human-rights record, the erratic behaviour of the Kims over 60-plus years and the fact an untested 20-something is surrounded by scheming generals bored with this peace stuff. Yet let’s look through the conventional wisdom to the ways he’s proving to be quite different from his father and grandfather – and how it may bode well for change in the world’s most bizarre totalitarian state. Much of the press coverage has
Like Disneyland, North Korea is a fantasyland – just without the magic and happy endings
focused on Disney’s dismay over North Korea’s unauthorised use of its trademarks. That’s silly. Disney’s quarrel isn’t with North Korea; it’s with Pyongyang’s benefactor, China, and its intellectual-property piracy industry. Far more attention should be paid to why today’s Kim is playing to the masses more than those who ruled before him. In all likelihood, it’s because of the worsening economy. As with Iran, it has taken years for the pain of sanctions to work. Slowly but surely, efforts to clamp down on weapons sales, currency counterfeiting and the flow of luxury items such as Mercedes sedans, Rolexes and Cognac that the Kims use to secure loyalty from the elites are inflicting pain. In April, Japan’s Mainichi newspaper published a leaked record of comments Kim made to top aides in late January: “When it comes to the
economy, officials and economists are reluctant to voice their opinions because they are often met with bias and criticism that they are trying to introduce capitalist methods when they suggest some economic measures.” Mainichi also quoted a party official who claimed Kim supports trying “excellent” economic strategies “whether they are from China, Russia or Japan.” If this is even slightly true, it suggests a significant change in guiding philosophies from one Kim generation to another. That’s consistent with claims by Choi Se Woong, a banker who fled North Korea after years of working for the regime, that Kim might relax controls over an economy that has gotten as far as it can by blackmailing the world for food and financial support with threats and provocations. It means that maybe, just maybe, Kim is as interested in learning from China’s success as he is in milking officials in Beijing for handouts. Last week, South Korean media quoted Kim as saying the North must catch up with “global trends” by upgrading its fossilised industries. That’s a shift from the concept of “juche,” or self-reliance, that was his father’s mantra.
Unthinkable transparency It’s interesting, too, that when a missile launch failed in April, North Korea didn’t lie to the world and claim success. It admitted what happened. Even before that, it
was extraordinary that North Korea had bussed in a group of foreign journalists to cover the event. That level of transparency would have been unthinkable under Kim Jong Il. Some will dismiss Kim’s Disney bash as typical North Korean lunacy. Seriously, what is it with North Korea’s Disney fascination, considering Walt Disney’s own unabashed hatred of communism? Perhaps it’s because, like Disneyland, North Korea is a fantasyland – just without the magic and happy endings. It’s entirely possible Kim will pull off a nuclear test in the near future, the third for the Hermit Kingdom. For better or worse, Kim has a bunch of Cold War-era generals itching to remind the world of their might. He still needs to win their devotion. Yet big changes start with small gestures. If Kim saw America as the Great Satan, as his father did, would he be showcasing the most blatant symbol of Americana in front of the cameras? Kim’s father had an enormous DVD library teeming with Hollywood classics, but he never indulged in big, public celebrations of Western culture. Kim might as well have served Big Macs and Starbucks frappuccinos to his distinguished guests. Beyond the schlock and the kitsch, this Swiss-educated, Michael Jordan fan may be telegraphing a not-so-subliminal message. As reformers go, it’s just possible that Kim Jong Un won’t be as Mickey Mouse as people think. Bloomberg View
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July 17, 2012 business daily | 15
India’s American friends wires and Iranian partners Business Leading reports from Asia’s best business newspapers
Professor of Strategic Studies at the New Delhi-based Centre for Policy Research
The US$5 billion buyout of a British media group last week was the latest in a line of huge foreign acquisitions by Japanese firms reminiscent of their heady overseas adventures during the bubble economy. The announcement Thursday by advertising behemoth Dentsu that it would buy Aegis Group came after figures showed Japan Inc. signed a record 262 overseas deals in the first six months of the year. The buying spree, worth 3.49 trillion yen (US$44 billion), topped the previous first-half record of 247 deals worth 1.16 trillion yen in 1990.
the Iranian nuclear program has come to symbolise the larger geopolitical tensions underlying the confrontation between the U.S. and Iran. Indeed, the nuclear issue has served to rationalise the face-off, with Iran’s leaders playing to their domestic audience by whipping up nuclear nationalism and the U.S. playing to the international audience by harping on the proliferation threat.
Korea Times Korea has developed battlefield applications for Samsung Electronics’ Galaxy S and other Android-based smartphones, a senior defence official said on Sunday, adding that nine apps have been completed with more in the pipeline. “We are paying keen attention to utilising smartphones for military operations,” he said, noting that development was initiated last year. “Military units and other organisations that have jointly assessed the suitability of the newly-developed apps have concluded that the mobile software would be assets to the country’s armed forces.”
Business Times (Malaysia) Malaysia’s general insurance industry is expected to grow between 7 percent and 10 percent this year, led by demand for motor, fire and medical insurance products. The General Insurance Association of Malaysia said in the first quarter of this year, the industry recorded a gross written premium of RM4.13 billion (US$1.3 billion), up by 14.47 percent over the same period last year. Net premiums in the general insurance industry grew at a rate of 8.2 percent to reach RM9.7 billion last year.
Business Times (Singapore) M1 is set to be the first operator with nationwide 4G smartphone and dongle coverage. The telecom company will launch 4G, or longterm evolution (LTE), services towards the end of the third quarter. While details of the new plans are currently unavailable, the 4G price plan launch might see the demise of large data bundles for 3G smartphones. M1 had been the first to launch the LTE service in June last year. Then, the service was limited to its enterprise customers in the financial district and offered on dongle modems.
he United States recently took the Iransanctions monkey off India’s back: it granted India an exemption from Iranrelated financial sanctions in exchange for significant cuts in Indian purchases of Iranian oil. Nevertheless, Iran continues to cast a pall over an otherwise brightening U.S.India relationship. From India’s perspective, Iran is an important neighbour with which it can ill afford to rupture its relationship. Indeed, India already seems locked geographically in an arc of failing or dysfunctional states, confronting it with external threats from virtually all directions. If India joined the U.S. containment strategy against Iran, it would have to bear serious strategic costs. For starters, it would lose access to Afghanistan via Iran, which has served as a conduit for the substantial flow of Indian aid to Kabul. Moreover, containment would undermine India’s energy interests. Few countries are as dependent on the Persian Gulf region’s hydrocarbons as is India, which imports almost 80 percent of its consumption. Iran is the world’s thirdlargest net oil exporter (with the world’s second-largest natural-gas reserves as well), and it is a strategically located gateway to other energy suppliers in Central Asia and the Middle East. Iraq and Iran used to be India’s principal oil suppliers. But the first fell prey to a long U.S. occupation, and the second currently faces a U.S.-led oilexport embargo designed to throttle it financially. As a result, America’s efforts to give international effect to its new Iran Sanctions Act constitute a double whammy for India.
India is being forced to walk a policy tightrope, and its desire to chart a neutral course has annoyed both sides First, it threatens to sabotage India’s energy-import diversification strategy by making it overly dependent on the Islamist-bankrolling oil monarchies – including Saudi Arabia, the United Arab Emirates, and Qatar – which have managed to ride out the Arab Spring. Second, further isolation of Iran will make it very difficult for India to play a more active role in Afghanistan at a time when the U.S. is hastening its military disengagement there and seeking to cut a deal with the Taliban.
More pressure India, one of the largest aid donors to Afghanistan, has no contiguous corridor to that country and must rely on Iran for access. Both countries share a common goal in Afghanistan – to ensure that the Pakistan-backed Taliban does not return to power. If the already-unstable situation there deteriorates after the end of U.S.-led combat operations, India and Iran may be compelled to revive their strategic cooperation of the 1990’s. It was the Northern Alliance, backed by India, Iran, and Russia, that overthrew the Taliban regime in Kabul in late
2001 with the help of America’s air war. For the U.S. today, containment of Iran is dictated by several geopolitical considerations. One consideration is the need to neutralise the strategic advantage that Iran gained from the U.S. overthrow of Saddam Hussein in neighbouring Iraq – a development that helped to empower Iraq’s Shia majority. President George W. Bush called Iran part of an “axis of evil,” yet his decision to invade and occupy Iraq benefited Shiadominated Iran above all. Moreover, regional geopolitics pits the powerful “Sunni Crescent,” led by Turkey, Saudi Arabia, Qatar, and the UAE, against the beleaguered “Shia Crescent” states – Iran, Iraq, Syria, and Lebanon. The U.S. has profited from a longstanding alliance with the Sunni bloc. In addition to the strategic advantages, America’s close ties with the oil sheikhdoms – which are among the world’s leading holders of foreignexchange reserves – contribute to propping up the dollar. It is against this background that
India should seek to play the role of honest broker to defuse the threat of military hostilities, which would most likely shut down the world’s most important oil-export route, the Strait of Hormuz (a danger that Iran has said is also implicit in an oil-export embargo against it). But, far from being able to play the role of bridge-builder between the U.S. and Iran, India is being forced to walk a policy tightrope, and its desire to chart a neutral course has annoyed both sides. Every time a senior Indian delegation visits Iran, or vice versa, the U.S. warns India that its cozying up to Iran “raises obstacles” to building a closer strategic partnership. Yet, by voting against Iran at the International Atomic Energy Agency’s governing board meetings in 2005 and 2006, India invited Iranian reprisal in the form of cancellation of a highly favourable 25-year, US$22 billion liquefied-naturalgas deal. The Iran issue, in effect, has turned into a diplomatic litmus test: will India stand up for its strategic and energy interests in the region, or will it be coopted to serve the short-term interests of its friend, the U.S.? The U.S., for its part, must reconcile its Iran-related pressure on India, which is likely to continue, despite the sanctions waiver, with the imperative to build deeper defence ties with India, thereby giving strategic heft to its declared “pivot” to Asia. © Project Syndicate
business daily July 17, 2012
CLOSING Profits at China state firms fall
Citigroup to avoid ‘massive’ job cuts
China’s state-owned firms produced a total profit of 1.02 trillion yuan (US$159.9 billion) in the first six months of 2012, 11.6 percent less than one year earlier, according to the Ministry of Finance. For the first four months of this year, combined profit was only 8.6 percent lower than in the same period of 2011. The ministry attributed the decline in cumulative earnings to input costs rising more quickly than revenue. It said that state firms in transportation, chemicals, non-ferrous metals and building material industries suffered a big drop.
Citigroup Inc. will likely avoid “massive” reductions in staffing amid a market slowdown, chief financial officer John Gerspach said. The company is more likely to cut jobs than add them while adjusting its workforce, Mr Gerspach said yesterday. The New York-based bank employed about 263,000 people at the end of June, compared with 267,000 three months earlier, according to data posted to its website. The company yesterday said net income fell to US$2.9 billion from US$3.34 billion in the same quarter a year earlier.
Global recovery ‘still at risk’ IMF cuts global outlook as eurozone ensnares emerging economies
The IMF urged the European Central Bank to further ease monetary policy
he International Monetary Fund yesterday cut its global growth forecast and warned that the outlook could dim further if policymakers in Europe do not act with enough force and speed to quell their region’s debt crisis. In a mid-year health check of the work economy, the IMF also cautioned the productive capacity in a number of emerging market economies, such as China, India and Brazil, may be lower than previously believed and future growth could disappoint. The IMF shaved its 2013 forecast for global economic growth to 3.9 percent from the 4.1 percent
it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 percent. “Downside risks to this weaker global outlook continue to loom large,” the IMF said in an update of its World Economic Outlook. “The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis.” The global lender said advanced economies would only grow 1.4 percent this year and 1.9 percent in 2013. It chopped its forecast for growth in emerging economies this year
and next, projecting they will expand 5.9 percent in 2013 and 5.6 percent in 2012. Both figures are 0.1 percentage point lower than in April. The IMF cut its growth forecast for the crisis-hit eurozone to 0.7 percent in 2013, while maintaining its projection of a 0.3 percent contraction this year. It said it now believes Spain’s economy will shrink both this year and next. The IMF sharply revised down its growth projections for the United Kingdom to 0.2 percent this year and to 1.4 percent in 2013. In April, the fund said the U.K. economy would expand 0.8
percent in 2012 and 2.0 percent next year.
‘Precarious’ situation The euro area will remain in a “precarious” situation unless leaders take further action to avoid the sovereign debt crisis from escalating and prevent a market meltdown, the report said. The fund praised measures adopted by European leaders at a summit in June as “steps in the right direction” but called for more fiscal and banking integration. It urged the creation of a pan-European deposit insurance guarantee programme and a mechanism to resolve failing banks. “The utmost priority is to resolve the crisis in the eurozone,” the IMF said. The IMF, which trimmed its U.S. forecasts slightly, said concerns were rising over a political battle brewing in Washington over how to avoid painful automatic spending cuts and tax increases at the start of next year. Concerns about weaker growth have now also moved to emerging economies. The IMF said they are facing “extraordinary uncertainty” as global growth slows and investors shun riskier assets. “In emerging economies, policymakers should be ready to cope with trade declines and the high volatility of capital flows,” it said. The IMF cut its 2012 growth forecast for China 8.0 percent, down from 8.2 percent, and said it now expected growth of 8.5 percent next year, down from 8.8 percent. It also sharply revised down its growth projections for India to 6.1 percent this year from 6.9 percent, and chopped its 2013 forecast to 6.5 percent from 7.3 percent. Reuters
Hong Kong to fast-track public housing projects Chief executive announces HK$6 bln spending on elderly benefits
ong Kong will boost spending on elderly benefits by HK$6 billion (US$774 million) a year, Chief Executive Leung Chun Ying said yesterday in his first address to city lawmakers. “Elderly poverty is the most pressing issue,” Mr Leung told the Legislative Council. The chief executive said he would fast-track public housing projects and provide funding for non-profit groups to build 3,000 units for the city’s youth. During his election campaign he promised to tackle poverty and increase housing supply to curb home prices that have surged more than 80 percent since early 2009. Mr Leung has had to deal with the resignation of his development secretary, Mak Chai Kwong, amid a corruption probe, along with accusations by the opposition that the chief executive misled people about illegal structures built at
his home. He also faces slowing economic growth in a city that has the widest wealth gap in Asia. The chief executive told lawmakers that he had learned a lesson from the past two weeks of negative publicity. He said he would shoulder responsibility and listen humbly to criticism. Mr Leung said he was seriously negligent in his handling of the illegal additions to his home. He said he would give a full account to the public. Hong Kong’s economy grew 0.4 percent from a year earlier in the first quarter, the slowest pace since the global financial crisis, as Europe’s sovereign-debt woes undermined export demand and confidence. “We face challenges on two fronts – the intense competition from nearby cities, and the worsening European debt crisis, weak global economy, and the risk of a downturn in Asian economies,” Mr Leung told the lawmakers. The city’s development faced
“deep-rooted conflicts” in the past years, he said, urging the public to give his government a chance to make changes, as protesters outside called for him to resign.
A government-appointed commission would find ways to create jobs and help small businesses to spur economic growth, he added.
Hong Kong’s new chief executive was in the hot seat for the first time in the Legislative Council