Macao Water latest utility seeking hand-out Macau’s policy of subsidising almost every aspect of community life from gaming taxes – including its own residents – looks set to continue with Macao Water. The utility could receive an extra 81 million patacas (US$10.1 million) in public money if the government accepts the concessionaire’s request for a 26.2 percent hike to the water service charge. Page 7
World class city more China-focused than ever T
he city is more dependent than ever on tourists from mainland China, the latest data from the government show. A total of 59.7 percent of the 13.6 million visitors welcomed to Macau in the first half were from the People’s Republic – the highest percentage since the records began distinguishing tourists from nonresidents in 2008. But the reliance on Guangdong for the city’s mainland visitors has lessened. Arrivals from the neighbouring province fell by 4.7 percent to fewer than 590,000, the smallest number of such visitors since 2010. Arrivals from Hong Kong were also down nearly 10 percent year-on-year. Against that background, the city has started casting
further afield for its market growth. Macau Government Tourist Office staff will travel to India next month with Macau International Airport representatives. The airport is offering financial incentives for airlines to begin direct flights to India. Any broadening of the city’s marketing effort will need to be applied clearly and consistently to have a chance for success. During the 2008 financial crisis, the MGTO invited countries in Southeast Asia to send more tourists, only for the government to impose tighter inward visa controls on some countries a few months later under the pretext of reducing illegal workers.
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Electronic answers to casino labour question
HANG SENG INDEX 19255
Chronic labour shortages and rising casino overheads could make electronic table games the next big thing in Macau’s gaming market. About 2,000 more electronic table game seats could be added to the city’s casino market in the next five years – an increase of nearly 60 percent on current seat numbers of around 3,500 says a report from Union Gaming Research Macau.
All singing, all dancing all painting: Hengqin
Hengqin Special Area has been touted as university campus, international financial district, theme park site and technology zone. Now add to the list a plan for an artists’ colony. The government is considering building a cultural and art zone on Hengqin Island to promote the city’s creative types. They should note however the success record of governments generally for this type of project is patchy.
HSI - Movers Name CHINA OVERSEAS
POWER ASSETS HOL
CHINA RES POWER
More talks needed over right to speak
CLP HLDGS LTD
CHINA COAL ENE-H
PING AN INSURA-H
CHINA LIFE INS-H
Plans to increase the number of proposers needed in order to get an issue debated in the Legislative Assembly haven’t themselves been fully debated, says a legislator. The aim of the measure is said to be to balance the public interest in getting issues aired in the chamber with the needs of scrutinising and passing an increasingly full timetable of new statutes and regulations.
HSBC HLDGS PLC
Year I - Number 82 Tuesday July 24, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily July 24, 2012
Tourism reliant more than ever on mainland Mainland visitors constitute the biggest slice of tourist arrivals but the government wants to make inroads in India Vítor Quintã
Photo by Manuel Cardoso
espite the government’s efforts to tap new markets, the mainland was the dominant source of tourists in the first half of this year. But the city attracted more visitors from provinces other than Guangdong. More than 8.1 million mainlanders visited in the first half, 8.5 percent more than a year before, data released yesterday by the Statistics and Census Service show. They made up 59.7 percent of the 13.6 million tourists welcomed to Macau in the first half – the highest percentage since the records began distinguishing tourists from non-residents in 2008. The number of visitors from all sources last month was 2.1 million, 3.4 percent fewer than a year before and the fewest since January last year. This was due mainly to fewer arrivals from Hong Kong, the second-biggest source of visitors, and Taiwan, the third-biggest. Arrivals from Hong Kong decreased by 9.9 percent, to fewer than 558,900, and the number from Taiwan decreased by 22.1 percent to 87,000. In contrast, the number of mainland visitors increased by 1.8 percent to 1.2 million. But the dependence on Guangdong has lessened. Arrivals fell by 4.7 percent to fewer than 590,000, the smallest number of visitors since 2010. Other places in the mainland picked up the slack: the province of Zhejiang sent 47,700 visitors, 5.8 percent more; the province of Hunan sent 43,400, 7.7 percent more; and Shanghai sent 38,500, 6.3 percent more. The number of mainland visitors arriving as individual tourists rather than as members of package tour groups rose by 11.3 percent to almost 518,000.
The number of visitors from Guangdong fell last month but visitors from elsewhere in the mainland increased
business as usual
Simple lack of know-how
Target India The number of Japanese visitors rose by 28 percent to more than 34,600. Japanese seem to be recovering their taste for travel after the earthquake and tsunami in Japan in March last year, which caused Air Macau Co Ltd to reduce the frequency of its flights there. The number of visitors spending less than a day in Macau last month was about 1 million, accounting for fewer than half of all tourists for the first time since December 2009. The number that stayed overnight increased by 2.5 percent, although the average time they spent remained unchanged at 1.8 days,
59.7 pct Of all arrivals in the first half of 2012 were from the mainland
far less than the time visitors spend in Singapore or Las Vegas. The Macau Government Tourist Office has committed itself to tapping new markets, notably India. Representatives of the tourist office will travel there next month with representatives of Macau International Airport, which is offering financial incentives for airlines to begin direct flights to India. Casino operator Sands China Ltd’s president, Edward Tracy, has said India’s Kingfisher Airlines Ltd will eventually fly to Macau. But Kingfisher has made a loss for 10 consecutive quarters and has about 64.2 billion rupees (US$1.1 billion) of debt, which prompted it to cut the number of flights it offers to 120 a day in March from about 340 a day last year. However, last week the Civil Aviation Authority of Macau said it had received a request for information from Indian low-cost carrier SpiceJet Ltd. with T.L.
Paulo A. Azevedo email@example.com
ecretary for Transport and Public Works Lau Si Io admitted that the government’s decision to increase the subsidies paid to the bus companies by at least 900 million patacas this year was a bad idea and lacked transparency. It might have appeared he was brave in making the admission but he had no other choice. The quality of the option to increase subsidies by 23 percent, like so many other decisions from the departments in his portfolio, could not have been more obvious. Apparently Macau has no other alternatives. We are condemned to public servants of this calibre. The Transport Bureau does not have a clue in how to minimise traffic problems or how to improve services provided by the public bus companies. Mr Lau reacted as any clueless servant would, by giving more money to the bus companies so they could find a solution to enhance service quality. Only when the dirt hits the fan, and there is a public outcry, is there any reaction. The department decided to end the process, a strategy that buys time and relieves the heat. It was a ridiculous decision and a shame. The public is waiting to find out why Sociedade de Transportes Colectivos de Macau SARL still has a licence, after the government initially decided not to accept their bid. What we saw were officials reversing their decision and giving the company its licence. More recently, the company was sold to Nam Kwong (Group) Co Ltd. Nobody else finds the sale a little peculiar in a city where the government bears the burden of transport, since the companies are subsidised per kilometre in a complete subversion of the market and an open economy? There are too many questions, too many doubts and too little curiosity from people with political responsibility who should be investigating. If this situation is allowed to continue, the result will be further damage to Macau’s image.
July 24, 2012 business daily | 3
Hengqin arts enclave in the offing Creative and cultural industries are waiting for the government’s plan to spur the sector’s development Xi Chen
he government is considering setting up an art and culture zone on Hengqin Island to nurture the city’s creative and cultural industries – something artists have long wanted. But leaders in the creative and cultural industries say the government should act fast to secure land for the zone because their industries need a boost before they can get off the ground. The government set up a creative industry committee two years ago but has yet to come up with a policy. Creative and cultural industries’ representatives have told recent meetings that the government should use Hengqin as a base to expand their industries. They said a Hengqin art and culture zone could have the potential to mirror the success of Beijing’s 798 Art Zone, a cluster of galleries, art studios, culture companies and fashion shops. But James Chu, an artist and director of the Art for All Society, says the success of Beijing’s art enclave may be difficult to replicate on Hengqin because the development has a strongly commercial nature.
Many artists still have to do part-time jobs to make a living and rents are also high, which make it difficult for them to focus on creating good works James Chu, director of the Art for All Society
He says the Hengqin zone should instead bring together a wide variety of industries, ranging from movie production to animation to design and fashion, as well as art.
Arty party James Wong Cheng Pou, a renowned printmaker and former teacher of printmaking at the Slade School of Fine Art in London, says the government needs first to define precisely who will be involved, because just about anything can be described as a creative or cultural industry. “It is like there is this general idea that there will a big party but noone knows who will be invited to the party,” Mr Wong says. Mr Chu and Mr Wong believe it will be difficult to develop a market here for resident artists. “There are no experts or dealers in the territory in this industry,” Mr Wong says. He says there is an urgent need for good designers, art dealers and antique dealers. The economic environment must to improve to make creative and cultural industries commercially viable, because they are subject to market forces like any kind of industry. Mr Chu and Mr Wong say there is limited space for artists to create here and that the government can use some of its resources to help budding artists. “Many artists still have to do parttime jobs to make a living and rents are also high, which make it difficult for them to focus on creating good works,” Mr Chu says.
It is like there is this general idea that there will a big party but no-one knows who will be invited to the party James Wong Cheng Pou, printmaker
but that the market must improve its supply good works of art. A lack of good art courses is something that should also be corrected. It makes it more difficult for prospective artists to answer their vocation. Mr Wong says the city must take a strategic view of creative and cultural industries to make them high-value-added industries. He says the government should come up with a clearly defined policy rather than prolonging the consultation process, which he says may be just “empty talk”. “The industry is small. A lot can be realised in a short time. Sometimes less consultation is better as the government can always change the policy afterwards if it doesn’t work,” Mr Wong says.
Policy first approach He says the government could consider providing artists with premises for nothing or at subsidised rents, as is common in many other countries. Creative and cultural industries need wealthy patrons – individuals or enterprises – and the government could consider tax breaks for enterprises that patronise artists. Mr Chu says the demand is there
Hengqin island could have its own art and culture zone to help bolster the Macau arts scene
business daily July 24, 2012
Our friends electric – electronic table games have high start up costs but much lower overheads than traditional live tables
Electrifying future for electronic table games market Near 60 percent growth in game seats in next five years: Union Gaming Associate Editor
round 2,000 more electronic table game seats could be added to the city’s casino market in the next five years – an increase of nearly 60 percent on current seat numbers of around 3,500 says a report from Union Gaming Research Macau. The note refers to ‘seats’ rather than games because electronic table games come in many formats and seat arrangements. Some have fullyautomated dealing, betting and bet settlement and the same number of seats as a traditional live table. Others have one or two live dealers and automated betting serving as many as 200 seats. All this matters because electronic table games – also known as EGTs – are widely seen as a way for the industry to continue offering modest minimum bets to mass-market players in the face of rising overheads and pressure on table inventory because of Macau’s table cap.
Lower overheads EGTs are also a way for casino operators to maintain or even improve their margins. They are capital intensive at the beginning, costing around US$20,000 to US$25,000 per seat for a fullyautomated product, with discounts applying for bulk seat purchases for stadium-style installations. By contrast a mass-market live baccarat table with typically eight to ten seats for players costs the casinos only 150,000 patacas (US$18,780) annually in government premium. But other costs such as dealer wages (typically three eight-hour shifts per day on those tables kept open 24 hours) must also be factored
in. And dealer monthly salaries rose eight per cent year-on-year in the fourth quarter of 2011 according to government data. ETGs therefore can quickly pay for themselves with the volume of betting seen in Macau. Unlike at the casino resorts in Singapore – in Macau only local residents are able to work as casino dealers. Macau’s unemployment rate has been at just two percent for two consecutive months. Some casino managers say as
KEY POINTS Average dealer monthly wage 14,700 patacas in Q4 2011 Govt premium 150,000 patacas annually for massmarket live table versus 1,000 patacas for one slot game 2,000 more electronic table game seats added to the city’s casino market in the next five years – Union Gaming Fully automated electronic tables count as one slot game per seat under current DICJ rules 50-60 seats at live dealer ‘stadium’ electronic games equal to one live table game for table cap purposes
a result when a new property opens in Macau, it can struggle to find enough dealers and may ‘cannibalise’ the labour market by poaching staff from other operators. That contributes to an upward inflationary pressure on dealer wages, they say. At the end of the fourth quarter 2011 – the most recent available figures – Macau’s Statistics and Census Service said average monthly earnings of dealers increased by eight percent year-onyear to 14,700 patacas. Those of count clerks, cage cashiers, pit bosses and other gaming floor workers rose by 7.4 percent to 20,770 patacas.
Slots v. tables Union Gaming says in Macau a fully automated electronic table is counted as part of the slot inventory. And a single slot game only attracts an annual government premium of 1,000 patacas. Union says in the case of fully automated games, “…each ETG seat [is] counting as one electronic gaming [slot] position. However, if an ETG in Macau requires human involvement (e.g. live dealer), as is the case with most of the stadium-style installations, these games are classified as table games and therefore are part of the total table allocation for each operator and subject to the market-wide table cap.” But Union adds that even in the latter case, the government isn’t counting each ‘stadium’ terminal as one table. Instead it offers an allowance of as many as 60 stadium seats to count as one live table. “These live dealer ETGs are
classified at a very favourable ratio relative to a traditional baccarat table that has nine seats (a 9:1 seat-to-table ratio) as the DICJ [regulator] applies a ratio of 50:1 or 60:1 for these ETGs,” states Union Gaming. It adds that as a result, casinos can accommodate up to seven times as many players per dealer with ETGs as they can at a traditional live baccarat table.
Maximising efficiency Although mass-market live tables have higher profit margins than VIP tables, Union says the high betting volumes and thus per table yield associated with high roller tables creates pressure for casinos to use their precious inventory for VIP play. The secretary for economy and finance, Francis Tam Pak Yuen, reiterated in October last year that the 5,500-table cap on the number of live gaming tables would continue until 2013. He said thereafter the increase in table supply would be limited to three percent per year for at least ten years. “In Macau, and in the context of the market-wide table cap, we have noticed most operators embarking on efficiency exercises that ultimately pull live-dealt traditional table games from the lower-end mass market and reallocate them to VIP or higheryielding mass market segments,” states Union Gaming. “In turn, and in order to accommodate lower end massmarket play, these customers are being pushed towards ETGs as the best option to play at low stakes (e.g. HK$200 or under, per hand on baccarat),” adds the research house.
July 24, 2012 business daily | 5
Legislators in no rush to alter rules on hearings Members of the Legislative Assembly want more time to discuss whether to make it more difficult to call for a public hearing Tony Lai
he Legislative Assembly’s committee on rules and statues wants further debate on a proposal to make it more difficult to submit a motion calling for the assembly to hold a public hearing. The committee heard last week a proposal to change the rules to require at least five members to support a motion for a hearing, instead of two, as at present. Member Ho Ion Sang said on the sidelines of meeting of the committee yesterday that changes in the rules were necessary but should be made only after they had been discussed fully. He said there was no need to rush through changes, if they generated heated debate. Another member, Lee Chong Cheng, said the time given over to discussing changes would depend on how many changes were proposed. He said there was no urgent need to make changes in the current session,
and that if there was insufficient time in this session, so be it. The assembly aims to finish amending its rules before its summer recess begins on September 1. Legislators belonging to the New Macau Association, the pan-democrats, strongly oppose raising the bar to calling for public hearings. “Rationally speaking, it is completely unnecessary because the government still completely controls the assembly,” pandemocrat member Ng Kuok Cheong told reporters. Pan-democrats have submitted motions for public hearings nine times but all failed to win the support of at least half of the assembly, which is needed if a hearing is to be held. Mr Ng said the government was sending a message that it would tolerate no challenges to its authority. “It is a problem of Macau,” he said. Another pan-democrat member, Au Kam San, said last week that
the rule change would weaken the power of the assembly to oversee the government. But legislator Mak Soi Kun countered yesterday that the power of the assembly to oversee the government did not depend only on its right to hold public hearings.
Mr Lee said that he cared less about the procedure for submitting motions calling for public hearings than about improving dialogue between the government and the assembly. Mr Au said the committee would continue discussing rule changes today.
business daily July 24, 2012
Smooth passage InBrief of reform bills likely Legislators return with same questions for the government covered in first reading Elderly subsidy rises to MOP6,000 The annual elderly subsidy will be raised to 6,000 patacas (US$750) from 5,000 patacas, according to a chief executive dispatch published in the Official Gazette yesterday. The subsidy is the allowance the government gives to permanent residents older than 64 years. According to the latest official data, there were over 40,000 people who were eligible to apply for the subsidy last year. Last month Chief Executive Fernando Chui Sai On had promised to ponder boosting financial assistance to elderly.
David Chow to lead Benin resort Macau businessman David Chow Kam Fai, the owner of theme park Fisherman’s Wharf, is leading an ecotourism project called ‘Fishing Road’ for an area of around 1,000 square kilometres for the beaches of African country Benin, according to media reports. The president of Benin, Thomas Boni Yayi, visited Macau on Saturday after joining the Fifth Ministerial Conference of the Forum on China-Africa Cooperation in Beijing and met with Chief Executive Fernando Chui Sai On.
Junket ‘instability’: ex-HK police chief Even though there is no obvious link between three murders who took place in Macau in the past two weeks, the former head of Hong Kong’s Criminal Intelligence Bureau, Steve Vickers, believes the cases are linked to the beating of junket Ng Wai at New Century hotel. “Macau is going through a period of instability,” Mr Vickers told Reuters. “There seems to be a disturbance ... amongst the lower end of the junket community,” he said.
ebate over the two bills on political reform before the Legislative Assembly was “quite smooth” barring issues that need the government’s clarification. Speaking yesterday, the president of the second standing committee, Chan Chak Mo, did not say when he expected debate would end and the bills be prepared for a vote. Both bills are meant to be ready before the assembly’s recess in late August. When the bills become law, as is expected, the number of members of
the committee that elects the chief executive will increase to 400 from 300, and the minimum number of members required to nominate a candidate for chief executive will increase to 66 from 50. The bills would also add two more directly elected seats and two more indirectly elected seats to the Legislative Assembly, bringing the total number of seats to 29. Speaking to reporters after a closeddoor meeting, Mr Chan said the assembly’s legal advisers want the laws improved further.
Committee members repeated concerns from the first reading last week including how to define the professional sector, why the education sector would have only half a seat and the one-personone-vote system for indirectlyelected legislators. Mr Chan said the committee would today review the assembly election report from 2009 when it meets government officials to an effort to ensure previous shortfalls have been rectified. T.L.
Tunnel best bet for new Taipa crossing
he fourth crossing between the peninsula and Taipa will probably be a tunnel, the planners of the new land reclamations have said. The planners said public consultations had revealed support for an all-weather crossing for trains and motor vehicles. The government had subsequently studied the technical feasibility of both a bridge and a tunnel. A bridge would have to have screens to protect traffic from the
wind, yet be low enough not to interfere with aircraft taking off or landing at the airport. These considerations would not apply if the crossing were to be a tunnel. The government said that at a meeting held last weekend to discuss the plans for the new urban zones to be built on land now being reclaimed, most of those taking part had preferred a tunnel to a bridge. The government said it would do more research on the safety, environmental and legislative aspects of building
a tunnel. The team that studied the technical feasibility of each kind of crossing said either would require consideration of the effect of the traffic that would be generated, and of the effect on ferry operations. The tunnel would connect an artificial island off the southeast of the peninsula to one of Taipa’s new urban zones. Five new urban zones will occupy 3.6 square km of land now being reclaimed from the sea. X.C.
Weather Beijing 30/24o C Changchun 29/18o C
Harbin 31/19o C
Xian 31/23o C Shanghai 34/27o C Chengdu 30/23o C Kunming 24/18o C Haikou 28/24o C Sanya 31/25o C
Guangzhou 29/25o C
MACAU (23 July-28 July) Day
Shenzhen 32/26o C
Hong Kong 30/27o C
Macau 30/26o C
July 24, 2012 business daily | 7
Macao Water wants 81m pataca boost
Try investing in people
If consumption remains unchanged, Macao Water could get paid 390.6 million patacas a year to supply city’s water Vítor Quintã
Assistant Professor of Management, University of Macau
Macao Water is preparing to become first utility to allow customers to pay bills with Macau Pass
acao Water Supply Co Ltd could receive an extra 81 million patacas (US$10.1 million) a year if the government accepts its request for an increase of 26.2 percent for supplying the city’s water. Macao Water deputy general manager Oscar Chu Wai Man told a press conference on Sunday the company had asked at end of May for more than the 4.39 patacas per cubic metre of water it gets now. The company supplied 70.5 million cubic metres of water last year and was paid about 309.5 million patacas. If the government were to agree to the increase and annual water consumption were to remain unchanged, it would stand to receive 390.6 million patacas a year. Mr Chu told Business Daily he was confident that the government would accept what he called a “reasonable” request. He said the 4.39 pataca rate had remained unchanged since 2000. He said inflation had been high in the past five years and that the company was planning to invest in expanding its services in the next five years. Last year Macao Water’s annual net profit dropped by 5.4 percent to 56 million patacas.
The company said the decrease was due mainly to “price rises in raw materials and electricity, adjustment to the cost of human resources and water conservation in households”. Mr Chu said there was no deadline for the government to decide on his company’s request for an increase, and the regulator, the Macau Maritime Administration, corroborated this. Maritime Administration director Susana Wong Soi Man said any increase would have no effect on what the public paid for their water. The government buys water from Guangdong and sets the water rates. Macao Water collects the money and turns it over to the government in exchange for a set amount per cubic metre it supplies. Ms Wong said in May that the water tariff might increase but only in 2014. The Maritime Administration said it would take into consideration the status of the company’s operations, the quality of it service and inflation before considering an increase. “Although the increase in service charge does not af-
fect citizens’ daily water expenses, it involves public money,” the administration said. It declined to comment on whether its handling of Macao Water’s request would be influenced by the controversy that led to the government suspending a 23-percent increase of the subsidies it pays bus operators. Mr Chu said the circumstances were different. “It’s not fair to compare them because it is not an apples-to-apples comparison.” He said Macao Water had no “major supply disruptions”. Mr Chu said the company was preparing to become first utility to allow customers to pay their bills with a Macau Pass. The change could take place in the next one or two months.
Amount the government paid Macao Water last year
he rapid growth of this region and the limitations of its workforce underscore the urgent need for human resource development as a strategy. Human resource development here is in its growth stage, driven by demand for skilled manpower and leadership talent. The highly restrictive labour migration policy has adversely affected the growth of small and medium enterprises and big businesses. The policy has also hampered the quality of services. It is time to adopt a less restrictive labour policy and a more longterm human resource development strategy to develop home-grown talent and harness the strengths of labour from abroad. The trajectory of human resource development has been both encouraged and hampered by an economy that is over-dependent on the gaming industry. The presence of many multinational companies has given a big boost to human resource development in the private sector. These companies are also in a good position to provide definite career paths for their employees and not just jobs for long-term employment. The next five years should see more human resource development programmes for SMEs and for companies outside the gaming sector. These programmes will need the support and judicious guidance from the government, as well as expertise from the bigger companies in the private sector.
implementation match the expectations of potential employers. Moreover, greater attention should be given to empowering the unskilled segment of the employed population. While providing more jobs to residents is a meritorious goal, it cannot be achieved without equipping residents with the requisite knowledge, skills and attitudes in order to work productively. The best human resource development practices among the multinational companies here should be shared with Macau companies. This might be done by tapping human resource development professionals from these foreign companies as resource persons for public or in-house training programmes. Moreover, setting up an association of human resource development professionals here could facilitate the exchange of experience and foster professional development among human resource development practitioners. A human resource development academy for public servants might also prove strategically useful in upgrading and enhancing civil service expertise. Serious attempts to diversify into the meetings, incentives, conventions and exhibitions (MICE) sector have opened more possibilities for the human resource development profession. Tie-ups between companies and academia have enabled
The highly restrictive labour migration policy has adversely affected the growth of small and medium enterprises and big businesses
Moreover, lessons should be drawn from the experience of other regions. The government needs to adopt an integrated human resource development policy and a strategy for effectively addressing the human resource development needs of the people. This policy must identify and promote effective human resource development interventions, and provide better training and job opportunities for residents.
MICE effort The quality of governmentsponsored or governmentinitiated training programmes should be enhanced by ensuring that programme design and
training and development of MICE professionals, which is highly commendable. MICE professionals here definitely need continuing professional development to nurture their professions and careers. Better coordination and synergy must also be formed among the centres of continuing education. Identifying centres of excellence for public training programmes and for more government funding could further enhance the growth and effectiveness of human resource development here. Lastly, companies, especially SMEs, should be encouraged to invest more in their people by giving them appropriate government incentives to do so.
business daily July 24, 2012
Job market defying economic slow Supply constraints a boon for Chinese workers
orkers living through the slowest run of global economic growth in more than three years are in fear for their jobs everywhere except in the very place investors are most concerned about – China. Despite six straight quarters of slowing growth, there are more job vacancies in China than there have been for around a decade, giving workers the unlikely luxury of jobhopping during a downturn. “It’s not that I am not happy in my current job, but everyone has the freedom to look for better opportunities and bigger companies to work for,” said Mr Hu, an urban planner browsing a weekend jobs fair in north Beijing. “I am 80 percent satisfied with my job right now, but my ideal (monthly) pay after taxes is 20,000 yuan (US$3,100),” he said,
Chinese workers still not feeling the pinch
personnel or hardware would be stationed on Sansha.
Beijing approves troops for disputed islands ASEAN calls on all parties to show self-restraint
hina will establish a military garrison on a disputed island in the South China Sea, part of an increased assertiveness in the resource-rich waters that’s straining ties with nations in the region and the U.S. The garrison for the new city of Sansha was approved as 1,100 Chinese residents elected a legislature to oversee the area, the Xinhua News Agency reported yesterday. Sansha is on the Paracel Islands, which are also claimed by Vietnam.
The move adds to recent efforts by China, the Philippines, Vietnam, Taiwan and Brunei to affirm command over disputed islands in the waters. While it may rile other claimants in the South China Sea, China sets up military garrisons in all its administrative districts, according to Arthur Ding, a research fellow at the Institute of International Relations in Taiwan. “In order to show its seriousness, just like any other administrative area, China set up a military unit
there,” Mr Ding said in a phone interview. “It has nothing to do with combat preparation.” About 150 Vietnamese protesters marched through Hanoi yesterday to decry China’s claims over the Spratly and Paracel islands. The demonstrators, including parents with toddlers and seniors, defied police requests to disperse and circumvented barricades aimed at preventing access to a square where the Chinese embassy is located. The Xinhua report didn’t provide details on what kind of military
China welcomed a statement by the Association of Southeast Asians last week calling for self-restraint in resolving disputes in the waters. The 10-member bloc had failed to issue a communique after a meeting of foreign ministers this month for the first time in its 45-year history because members differed over wording that may have criticised China’s actions. Asean’s eventual statement was “in line” with China’s policies, the official Xinhua News Agency said in a commentary published July 21. In June, China’s State Council approved the establishment of the prefecture-level city to administer the Paracel and Spratly Islands. Vietnam, the Philippines and Malaysia have “de facto military occupation and administration” over most of the disputed islands in the South China Sea, parts of which are also claimed by Taiwan and Brunei, according to the International Crisis Group. Sansha will be based on Yongxing, the largest island in the Paracels with an area of 2.1 square kilometres (0.8 square miles). The chain is several hundred kilometres southeast of Hainan. China ousted Vietnam from the 30 islets and reefs that comprise the Paracels in a 1974 battle in which 71 soldiers were killed. Earlier this month, China rebuffed U.S. calls to quickly complete a code of conduct for the seas as Secretary of State Hillary Clinton warned more clashes are likely without a region- wide deal. Asean failed to reach consensus on handling disputes in the South China Sea. Bloomberg
China’s 1-year rate swap rises
Citic buys CLSA unit
China’s one-year interest-rate swap jumped the most in almost five weeks on speculation cash supply will wane as banks hoard funds to meet monthend capital requirements. The redemption of reverse repurchase contracts this week exceed that of repos and bills by 99 billion yuan (US$15.5 billion), up from 60 billion yuan last week, according to data compiled by China Merchants Bank Co. The central bank today gauged demand for sales of seven-day reverse repo contracts this week, according to a trader required to bid at the auctions.
Citic Securities Co., China’s largest brokerage by market value, agreed to buy Credit Agricole SA’s CLSA unit for US$1.25 billion, joining banks across Asia acquiring the assets of troubled European financial firms. The Chinese firm completed its purchase of a 19.9 percent stake in the brokerage for US$310.3 million, the companies said in a statement last Friday. Citic Securities will buy the remaining 80.1 percent for US$941.7 million, subject to conditions including regulatory approval, the companies said.
July 24, 2012 business daily | 9
wdown declining to give his full name. Skilled staff are in short supply as the world’s second largest economy has moved up the industrial value chain. And even more fundamentally the country is working through the demographic shift wrought by the government’s decades-old onechild policy. During the 2008/09 economic downturn, firms in the mainland let go staff, only to end up paying more to rehire when the economy rebounded sharply, reducing profits. Learning from that lesson, firms this time are opting to cut hours rather than jobs. While that means things could turn quickly worse if China’s export and output dip deepens, evidence from jobs fairs in Beijing and Shanghai suggests employees were looking for fresh windows of opportunity rather than battening down the hatches. Mr Hu was typical of over a dozen workers Reuters interviewed at the two fairs - looking to quit uninspiring or tiring jobs in favour of better prospects and the likelihood of more money.
Among the unemployed people at the fairs, most had just left school and had searched for work for less than two months. Few felt the chill from the economic slowdown, or thought job prospects could be threatened, a perception backed up by data showing China’s urban labour to supply ratio has remained solidly above 1 for seven consecutive quarters - meaning there are more vacancies than there are people to fill them. “If you are not picky about the company and the pay, it’s not hard to find a job,” said Arlene Zhu, a recent business graduate attending a job fair in Shanghai. “I hope I can find a job in the next two weeks, all the better if the pay is above 2,500 yuan (a month).”
No compromises Official data shows China’s average annual wages in 2011 were 42,452 yuan in state-owned firms, 24,556 yuan in the private sector, 56,061 yuan in Beijing and 52,655 yuan in Shanghai. The government has decreed minimum wages should grow by an average of at least 13 percent in the five years to 2015. With home prices nationwide still hovering close to record levels -
Average annual wage for China
down just 3-4 percent from alltime highs in Beijing and Shanghai, private sector data shows - workers say they cannot compromise on pay. The no-nonsense approach to pay is one reason firms such as KFC parent Yum Brands Inc are reporting quarterly profits that miss investor expectations, and blaming higher wage costs as a key reason for doing so. Jobs are an especially crucial indicator in China, with the Communist Party hyper-sensitive to the risk of social upheaval that unemployment could pose to its oneparty rule. And that makes nuances on jobs especially significant for investors, not least because since official unemployment data was first published in 2004 the rate has been largely static between 4-4.3 percent, partly because it
omits about 160 million rural migrant workers who are usually the first to be fired. The situation is not as dire this time, said Stephen Green, an economist at Standard Chartered, pointing to surveys of manufacturers which show they are hiring, albeit less briskly, with the pace likely to ease further this year. Still, that would leave China creating new jobs in 2012 on a net basis, Mr Green said, to the relief of Beijing, which wants to absorb an average 7 million new graduates joining the workforce every year between 2011-2015. Indeed, at the fair for whitecollared workers in Beijing, state organisers tried to show a thriving labour market. An organiser who declined to be named said 108 large firms were hiring at the fair, though a handout listed only 56, mostly mid-sized technology, financial and construction companies. Exporters, hardest hit by the slowdown, were missing. Over in Shanghai, firms in the growing services industry dominated the job fair. Some manufacturers were present, but not in the same force as in previous years. Reuters
Growth rise expected for second half of the year Annual target likely to be missed
hina’s industrial output in the second half of 2012 could grow 10.7 percent over the previous year as factory activity picks up in response to Beijing’s pro-growth policies, an official newspaper reported yesterday, citing a government think tank. “We forecast industrial sector performance to show evident recovery late in the third quarter or early in the fourth quarter,” said a report made by a think tank affiliated to the industry ministry, according to the China Securities Journal. Beijing’s measures to boost domestic consumption, easier monetary policy and falling commodity prices would combine to spur industrial activity and cut corporate cost burdens, the think tank said, but added that sluggish external demand would restrain recovery. China’s industrial output in June
Deadly toll from heavy rains in Beijing Beijing residents reacted angrily yesterday after the worst rains to hit the Chinese capital in more than 60 years left at least 37 people dead, with another seven still missing. As of Monday morning, nearly nine million users of China’s popular Sina Weibo microblog had posted their fury at the absence of any official warnings, and at the failure of the city’s outdated drainage systems to cope with Saturday’s deluge. The rains and flooding caused 10 billion yuan (US$1.6 billion) in damage, while nearly 66,000 people had to be evacuated from their homes.
rose 9.5 percent from a year ago and grew 10.5 percent in the first half of this year. Even if the forecast of a 10.7 percent rise in the second half is accurate, the full-year reading would still miss the annual 11 percent target set by the industry ministry at the start of this year. China’s annual economic growth rate slowed to 7.6 percent in the April-June period, the slackest pace in more than three years, confirming expectations of a downward trend that leaves fullyear growth on course for its softest showing since 1999. The latest Reuters benchmark poll forecasts that China’s economy should recover modestly in the second half, with growth of 7.9 percent in the third quarter and 8.2 percent in the fourth quarter Reuters
business daily July 24, 2012
Singapore raises inflation outlook As housing and healthcare costs increased in June Kevin Lim
ingapore’s central bank said yesterday full-year inflation was expected to be in the upper half of the official forecast range, indicating monetary policy may stay tight even as the economy slows. The Monetary Authority of Singapore’s (MAS) comments came as the city-state’s consumer prices rose 5.3 percent from a year earlier, beating the 5.2 percent median forecast of economists polled by Reuters and exceeding May’s 5.0 percent pace. For the first six months of 2012, inflation averaged 5.1 percent from a year earlier. Price rises were led by accommodation, which rose 10.5 percent, and private road transport, up 7.5 percent, over this period. The MAS and most private sector economists, however, expect the pace to moderate in the second half. “Accommodation cost inflation, while moderating, has been stronger than expected, as leasing contracts continue to be renewed at rentals that are considerably higher,” the Ministry of Trade and Industry and the MAS said in a joint statement. “For the whole year, CPI-All Items inflation is likely to come in at the upper half of the 3.5-4.5 percent forecast range,” they added. Vincent Conti, an economist at ANZ Bank, said inflation at above
historical levels will likely prompt MAS to maintain its stance of allowing a gradual appreciation of the Singapore dollar at a slightly steeper-than-usual pace when it releases its next half-yearly policy statement in October. This was despite the weak economy and stable core inflation, which was unchanged monthon-month in June following a decline of 0.1 percent in May. The 2.7 percent annual rise in core inflation was, however, well above the long-term average of 1.9 percent, Mr Conti said. The MAS’s core inflation measure excludes accommodation and private road transport, which are strongly influenced by government measures. Singapore’s trade-dependent economy shrank 1.1 percent in the second quarter on an annualised and seasonally adjusted basis, reversing a strong January-March performance in another sign that weakness in Western countries has begun to affect Asia.
Car price spike Singapore’s inflation has exceeded most of its neighbours due to a shortage of apartments and government moves to slow a rise in the car population.
Prices of certificates of entitlement for smaller cars have risen 64 percent this year
For June, accommodation cost contributed 2.2 percentage points to the overall rise in the CPI, the government said. The spike in the price of certificates of entitlement (COE) which motorists need to buy a new car has been the other major driver of inflation. The government auctions a limited amount of COEs to manage the number of cars in the city-state.
COE prices for smaller cars have risen by 64 percent since the start of the year, and a new entrylevel Toyota Vios sedan now costs S$116,000 (US$92,500), including the COE, according to motoring website SGcarmart.com. The Vios would have cost around S$77,000 had the car been purchased at the start of 2012. Looking ahead, many economists expect inflation to ease in coming
Tokyo warns of China slowdown Bank of Japan to stick to an ultra-easy monetary policy
hina’s economic outlook was cut by Japan, its biggest Asian trading partner, as the There is Shanghai Composite Index fell to its lowest level in three years on concern about now a consensus faltering domestic demand among major central and export growth. “The slowdown in the global banks that when economy is becoming more widespread,” the Cabinet interest rates are zero, Office said in a monthly report simply expanding the released in Tokyo yesterday. Song Guoqing, an academic member of a monetary policy central bank’s balance committee, said on Saturday sheet won’t boost the that China’s expansion may be 7.4 percent, the least since economy the first quarter 2009. Japan’s increased pessimism Masaaki Shirakawa, echoes that of the Bank of Japan Governor International Monetary Fund, which lowered 2013 global growth forecasts this month on Europe’s debt crisis and slower expansions in emerging economic growth rate will be markets from China to India. close to 8 percent in coming Chinese stocks fell yesterday to months, but I personally am the lowest since March 2009 as more pessimistic because there weakness in corporate profits are problems on the export threatens to add to the drags on side,” Mr Song said at a forum growth from property-market in Beijing. curbs and limited export demand. The Bank of Japan said it would “The consensus is that China’s stick to an ultra-easy monetary
policy. Governor Masaaki Shirakawa stressed the central bank’s resolve to maintain powerful monetary easing until 1 percent inflation was in sight, but countered the view held by some lawmakers that it was not expanding its balance sheet aggressively enough to support the economy. “The key purpose of our policy is to push down corporate borrowing costs,” Mr Shirakawa told a parliamentary committee. “There is now a consensus among major central banks that when interest rates are zero, simply expanding the central bank’s balance sheet won’t boost the economy.”
Yen haven Europe’s woes have bolstered the yen’s appeal as a haven for investors, causing the currency to appreciate more than 5 percent against the dollar since mid-March and rise to an 11year high against the euro. Japanese Finance Minister Jun Azumi reiterated yesterday that authorities are ready to take “decisive” action on speculative and volatile movements in foreign-exchange markets. The
yen traded at 78.10 against the dollar in Tokyo and the common currency touched 94.56 yen. Japan’s government said that the expansion in China is “slowing a bit,” lowering its evaluation of Japan’s largest trading partner for a third month while leaving its assessment of its own economy unchanged. “The economy is still on a downtrend and that means corporate earnings could be worse-than-expected,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co. “The government is slow to respond to the economic slowdown and the market is disappointed at the magnitude of pro-growth measures.” “Sharp fluctuations” in financial markets stemming from global uncertainty could hurt Japan’s growth prospects, the Japanese government said. The government reiterated that the economy is “on the way to recovery at a moderate pace” in part because of rebuilding projects. Still, turmoil in Europe has boosted haven demand for the yen that could hurt exports, it said. Bloomberg/Reuters
July 24, 2012 business daily | 11
S.Korea to ease mortgage lending In bid to spur consumption; more loosening expected Sangwon Yoon
S KEY POINTS June consumer price index rose 5.3 percent year-onyear Housing costs accounted for 2.2 percentage points of the overall rise 2012 inflation seen in upper half of 3.5-4.5 percent forecast
outh Korea will ease a rule on mortgage lending to stimulate the real-estate market and boost consumption as faltering global demand hurts the export-reliant economy, an adviser to President Lee Myung Bak said. “We have seen that there are many irrational aspects to the debt-toincome ratio limit” banks apply to residential mortgage borrowers, Kim Dae Ki told reporters yesterday in Seoul. “While we will maintain the basic framework of the regulation, we concluded that certain irrational parts of the rule should be eased,” he said, without elaborating. South Korea’s central bank unexpectedly cut its benchmark interest rate on July 12 for the first time in more than three years as policy makers stepped up measures to counter the impact of Europe’s debt crisis, a Chinese slowdown and muted U.S. job creation. Growth in Asia’s fourthlargest economy may have slowed to 0.5 percent in the second quarter from the previous three months, according to the median estimate in a Bloomberg
months although some warn the decline may not be as rapid as Singapore authorities hope. “The danger is that with the tightness of the labour market in Singapore, this can be entrenched into higher price and wage expectations. We will continue to see higher inflation for sometime to come,” said Credit Suisse economist Robert Prior-Wandesforde.
News survey ahead of a preliminary report due Thursday. “We expect Korea’s export-oriented economy to continue to struggle amid tougher global economic conditions,” economists led by Mark Williams and Andrew Kenningham at Londonbased Capital Economics Ltd wrote in a note released yesterday. “As a result, the Bank of Korea’s policy rate cut this month is likely to be followed up with more loosening soon,” they wrote.
Prices fall Mr Kim spoke to reporters a day after Mr Lee convened a special meeting to discuss and review policies for the second half of the year. Attendees included the prime minister, ministers responsible for portfolios including the economy, labour, welfare and land, the central bank governor, business leaders and economists. South Korea’s Finance Ministry said in a statement yesterday that it would provide specifics on measures to stimulate domestic consumption “as soon as possible”.
Home prices in Seoul and surrounding areas have stalled after a 66 percent jump in the decade to February 2008 raised household debt to record levels and triggered government measures to cool the market. Residential property transactions in greater Seoul fell 38 percent from a year earlier in the January-April period, according to data from the Ministry of Land, Transport and Maritime Affairs. Home prices nationwide have dropped 0.7 percent this year, according to an index compiled by Kookmin Bank, the nation’s largest lender. When housing prices fall, banks tend to seek faster repayment of loans or increase interest rates, Mr Kim said. “We don’t want to further raise the burden for mortgage holders as a result of falling realestate prices,” he said. Among measures being considered are exemptions from some depositto-income ratio regulations for wealthy retirees who have real-estate assets, Kim said. Bloomberg
Home prices in come cities have stalled after a 66 percent jump in the decade
Australian mining boom faces expiry date It could end in two years, says budget forecaster Deloitte
Surplus plans may end as China slows and with coal and iron ore prices dropping
ustralia’s mining boom will slow more sharply than expected and could be over within two years due to easing demand from China and falling prices, a leading economic forecaster warned yesterday.
Mining exports to industrialising Asian nations, chiefly China, helped Australia weather the global crisis without entering recession and prompted Canberra to vow a budget surplus for the 2012-13 fiscal year starting July 1.
But Australia’s leading privatesector budget forecaster Deloitte Access Economics said the surplus plans could be undone as China slows and with coal and iron ore prices dropping. Its June quarterly business outlook said while the mining sector continued to drive economic growth and provide a buffer from problems in Europe and China, it would not last forever. “The strong bit of Australia’s twospeed economy won’t stay strong for more than another two years or so,” Deloitte said, referring to the mining boom. In an interview with ABC radio, Deloitte director Chris Richardson said demand in key markets for Australian minerals was slowing. “China is slowing, India is slowing, Brazil is slowing. And you’re seeing those prices come off at the same time as costs have risen in Australia in recent years,” he said. “It does not mean that the investment boom goes away tomorrow. You know there’s a lot of petrol left in the tank for another year or two years still to come,” Mr Richardson said. “But beyond that the strong bit of Australia’s economy is starting to be called into question.”
The government insisted a decline in mineral prices had been factored into the budget as well as a drop in capital gains tax revenue caused by a stock market still impacted by the global financial crisis. “The budget will return to surplus,” said Prime Minister Julia Gillard. While robust mining exports have driven strong Australian growth, the associated lift to its dollar has hit other industries hard, and shadow treasurer Joe Hockey said the government was too reliant on mining. “The government has built a budget that is wholly captive to the mining boom and the taxes to be collected from mining taxes,” Mr Hockey told reporters. “Now it’s apparent the budget is unravelling because it was built on smoke and mirrors.” Despite the warning, Mr Richardson said the Australian economy remained a global standout. Australia’s economy expanded by 3.2 percent in the year to June 2012. “We judge ourselves against our own experience and Australia has done so well for so long that, you know, we want to keep doing better and that’s a tough yardstick,” Mr Richardson said. AFP
business daily July 24, 2012
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52W (H) 3083.191 (L) 2254.567
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July 24, 2012 business daily | 13
MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GAlAXy ENtErtAINMENt
MElco croWN ENtErtAINMENt
MGM cHINA HolDINGS 27.5
18.6 Max 19.08
SANDS cHINA ltD
SJM HolDINGS ltD
WyNN MAcAu ltD 14.1
22.5 Average 22.718
15.7 13.8 Max 14.06
WTI CRUDE FUTURE Sep12
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GAS OIL FUT (ICE) Sep12
NATURAL GAS FUTR Aug12 HEATING OIL FUTR Aug12 METALS
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SUGAR #11 (WORLD) Oct12
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JAKARTA COMPOSITE INDEX
1.0274 1.553 0.9926 1.2099 78.05 7.9894 7.7567 6.386 55.945 31.78 1.2597 30.043 42.048 9503 80.191 1.20095 0.77905 7.7276 9.6651 94.44 1.03
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0.6367 -0.0836 -5.4906 -6.6507 -1.4606 0.1277 0.1379 -1.425 -5.1479 -0.7237 2.9293 0.7855 4.2618 -4.567 -2.1935 1.319 6.9752 5.2617 7.107 5.5273 0.0097
1.1081 1.6618 0.9939 1.4549 84.18 8.0449 7.8113 6.4483 57.3275 32 1.3199 30.716 44.35 9662 88.637 1.24736 0.88861 9.3616 11.6793 114.18 1.0311
0.9388 1.5235 0.7071 1.2082 75.35 7.9823 7.7526 6.2769 43.855 29.63 1.1992 28.764 41.57 8458 72.057 1.00749 0.77552 7.7187 9.6549 94.24 1.0288
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business daily July 24, 2012
Do business schools incubate criminals? Luigi Zingales
Professor at the University of Chicago Booth School of Business
he recent scandals at Barclays Plc, JPMorgan Chase & Co., Goldman Sachs Group Inc. and other banks might give the impression that the financial sector has some serious morality problems. Unfortunately, it’s worse than that: we are dealing with a drop in ethical standards throughout the business world, and our graduate schools are partly to blame. Consider, for example, the revelations about two top executives at the elite consulting firm McKinsey & Co., which has avoided public vilification despite the transgressions of its former employees. McKinsey director Anil Kumar – a graduate of the University of Pennsylvania’s Wharton School – pleaded guilty to providing insider information to hedge-fund manager and fellow Wharton alumnus Raj Rajaratnam. Rajat Gupta, a graduate of Harvard Business School who served for nine years as McKinsey’s worldwide managing director, was convicted of insider trading in the same case. Although Gupta had long left McKinsey when the actions leading to his conviction took place, it would be short-sighted not to take the problem seriously. While every firm can have its bad apples, when these bad apples are at the top, it suggests that a company has either a corrupt culture or a defective selection process, or both. This is particularly troubling at a company like McKinsey, which cites the integrity and quality of its consultants as key advantages. “Keep our client information confidential” is one of its credos, proudly displayed on its website. Where did Gupta, Kumar and others get the idea that this kind of behaviour might be OK? Most business schools do offer ethics classes. Yet these classes are generally divided into
teachers are not aware of what they are doing. My colleague Gary Becker pioneered the economic study of crime. Employing a basic utilitarian approach, he compared the benefits of a crime with the expected cost of punishment (that is, the cost of punishment times the probability of receiving that punishment). While very insightful, Becker’s model, which had no intention of telling people how they should behave, had some unintended consequences. A former student of Becker’s told me that he found many of his classmates to be remarkably amoral, a fact he took as a sign that they interpreted Becker’s descriptive model of crime as prescriptive. They perceived any Economics and greed failure to commit a high-benefit crime Oddly, most economists see their with a low expected cost as a failure subject as divorced from morality. to act rationally, almost a proof of They liken themselves to physicists, stupidity. The student’s experience who teach how atoms do behave, is consistent with the experimental not how they should behave. But findings I mentioned above. physicists do not teach to atoms, and In other words, if teachers pretend to atoms do not have free will. If they be agnostic, they subtly encourage did, physicists would and should be amoral behaviour without taking any responsibility. concerned about T r u e , how the atoms economists being instructed are not moral could change their behaviour While every firm can philosophers, and we have and affect the particular universe. Experi- have its bad apples, when no competence mental evidence to determine suggests that these bad apples are at what is ethical the teaching of and what is not. economics does the top, it suggests that We are, though, have an effect able to identify on students’ be- a company has either behaviour that haviour: it makes a corrupt culture or makes people them more selfbetter off. ish and less cona defective selection When a theatre cerned about the catches fire, common good. process, or both the individual This is not inincentive is to tentional. Most two categories. Some simply illustrate ethical dilemmas without taking a position on how people are expected to act. It is as if students were presented with the pros and cons of racial segregation, leaving them to decide which side they wanted to take. Others hide behind the concept of corporate social responsibility, suggesting that social obligations rest on firms, not on individuals. I say “hide” because a firm is nothing but an organised group of individuals. So before we talk about corporate social responsibility, we need to talk about individual social responsibility. If we do not recognise the latter, we cannot talk about the former.
rush to the exit as fast as possible. Yet if everyone in the audience rushed at once, the crowd near the door would allow fewer people to escape – indeed, many could die. Not surprisingly, there are social norms against this behaviour. People who violate those norms are judged rude, egotistical, ill-behaved, or in certain cases even criminally negligent. When the economist Milton Friedman famously said the one and only responsibility of business is to increase its profits, he added “so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” That’s a very big caveat, and one that is not stressed nearly enough in our business schools.
Free competition Lobbying to secure a competitive advantage from the government certainly does not represent “open and free competition.” Similarly, preying on customers’ addictions or cognitive limitations constitutes deception, if not outright fraud. Not to mention using clients’ confidential information for personal gain, manipulating a major interestrate benchmark such as Libor, or selling financial products you know to be flawed. The way to teach these ethics is not to set up a separate class in which a typically low-ranking professor preaches to students who would rather be somewhere else. This approach, common at business schools, serves only to perpetuate the idea that ethics are only for those students who aren’t smart enough to avoid getting caught. Rather, ethics should become an integral part of the so-called core classes – such as accounting, corporate finance, macroeconomics and microeconomics – that tend to be taught by the most respected professors. These teachers should make their students aware of the reputational (and often legal) costs of violating ethical norms in real business settings, as well as the broader social downsides of acting solely in one’s individual best interest. Of course, no amount of instruction can prevent some people from engaging in bad behaviour. It can, however, contribute to a social consensus that would discourage diffuse fraud, like the widespread misreporting of Libor rates or the wilful self-delusion and dishonest dealing that helped turn the subprime crisis into a global financial disaster. The daily scandals that expose corruption and deception in business are not merely the doing of isolated crooks. They are the result of an amoral culture that we – business-school professors – helped foster. The solution should start in our classrooms. Bloomberg View
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July 24, 2012 business daily | 15
wires Leading reports from Asia’s best business newspapers
Thai Financial Post The Tourism Authority of Thailand (TAT) Northeastern and Northern Region Offices and A Day magazine are inviting true ecotourists to join two local celebrities on a unique trip under a concept called ’7 Green Ways’ to explore and promote eco-tourism in Thailand - one to Chiang Khan district of Loei and the other to Nan province. The two provinces are designated as pilot areas for Thailand’s ‘Going Green’ policy, which is targeting the younger generation’s participation and responsibilities in conserving the environment.
Japan Times Honda Motor Co. said Thursday it will begin producing its Jazz compact and a hybrid version at a plant in Malaysia by the end of the year. Honda Malaysia will use its existing line in the country to start making the vehicles. A new line will become operational next year and is expected to double annual capacity at the Malaysian plant to 100,000 units, Honda said, adding it will employ around 700 local workers. Malaysia is Honda’s biggest hybrid vehicle market in Southeast Asia.
Financial Express The Insurance Regulatory and Development Authority (Irda) has introduced an online application that enables Indian users to compare non-life insurance products of different insurers. The application currently lets users browse through different features of the products such as coverage, exclusions, discounts and deductibles among others. The application has been developed to providing a mechanism for consumers to make an informed decision when it comes to buying insurance cover.
Jakarta Post PT Pertamina has inked a US$2 billion deal with United States-based company Celanese to develop a coal-toethanol converter facility in Indonesia. Under the agreement, signed on Thursday, Pertamina would be responsible for arranging the ethanol distribution, determining the site’s location, as well as finding coal supply, while Celanese has agreed to sell its ethanol, used as a fuel additive, to supply fuel for Indonesia’s transportation needs.
American pie in the sky Nouriel Roubini Chairman of Roubini Global Economics and a professor at New York University’s Stern School of Business
hile the risk of a disorderly crisis in the eurozone is well recognised, a more sanguine view of the United States has prevailed. For the last three years, the consensus has been that the U.S. economy was on the verge of a robust and self-sustaining recovery that would restore abovepotential growth. That turned out to be wrong, as a painful process of balance-sheet deleveraging – reflecting excessive private-sector debt, and then its carryover to the public sector – implies that the recovery will remain, at best, below-trend for many years to come. Even this year, the consensus got it wrong, expecting a recovery to above-trend annual GDP growth – faster than 3 percent. But the firsthalf growth rate looks set to come in closer to 1.5 percent at best, even below 2011’s dismal 1.7 percent. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of U.S. manufacturing will boost growth in the second half of the year and fuel abovepotential growth by 2013. The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013 – close to stall speed. First, growth in the second quarter has decelerated from a mediocre 1.8 percent in January-March, as job creation – averaging 70,000 a month – fell sharply. Second, expectations of the “fiscal cliff” – automatic tax increases and spending cuts set for the end of this year – will keep spending and growth lower through the second half of 2012. So will uncertainty about who will be President in 2013; about tax rates and spending levels; about the threat of another government shutdown over the debt ceiling; and about the risk of another sovereign rating downgrade should political gridlock continue to block a plan for medium-term fiscal consolidation. In such conditions, most firms and consumers will be cautious about spending – an option value of waiting – thus further weakening the economy.
Growth can wait Third, the fiscal cliff would amount to a 4.5 percent-ofGDP drag on growth in 2013 if all tax cuts and transfer payments were allowed to expire and draconian spending cuts were triggered. Of course, the drag will be much smaller, as tax increases and spending cuts will be much milder. But, even if the fiscal cliff turns out to be a mild growth bump – a mere 0.5
percent of GDP – and annual growth at the end of the year is just 1.5 percent, as seems likely, the fiscal drag will suffice to slow the economy to stall speed: a growth rate of barely 1 percent. Fourth, private consumption growth in the last few quarters does not reflect growth in real wages (which are actually falling). Rather, growth in disposable income (and thus in consumption) has been sustained since last year by another US$1.4 trillion in tax cuts and extended transfer payments, implying another US$1.4 trillion of public debt. Unlike the eurozone and the United Kingdom, where a double-dip recession is already under way, owing to front-loaded fiscal austerity, the U.S. has prevented some household deleveraging through even more publicsector re-leveraging – that is, by stealing some growth from the future. In 2013, as transfer payments are phased out, however gradually, and as some tax cuts are allowed to expire, disposable income growth and consumption growth will slow. The U.S. will then face not only the direct effects of a
If the U.S. starts to sneeze again, the rest of the world – its immunity already weakened by Europe’s malaise and emerging countries’ slowdown – will catch pneumonia
fiscal drag, but also its indirect effect on private spending. Fifth, four external forces will further impede U.S. growth: a worsening eurozone crisis; an increasingly hard landing for China; a generalised slowdown of emerging-market economies, owing to cyclical factors (weak advancedcountry growth) and structural causes (a state-capitalist model that reduces potential growth); and the risk of higher oil prices in 2013 as negotiations and sanctions fail to convince Iran to abandon its nuclear program.
Powerless policies Policy responses will have very limited effect in stemming the U.S. economy’s deceleration toward stall speed: even with only a mild fiscal drag on growth, the U.S. dollar is likely to strengthen as the eurozone crisis weakens the euro and as global risk aversion returns. The U.S. Federal Reserve will carry out more quantitative easing this year, but it will be ineffective: long-term interest rates are already very low, and lowering them further would not boost
spending. Indeed, the credit channel is frozen and velocity has collapsed, with banks hoarding increases in base money in the form of excess reserves. Moreover, the dollar is unlikely to weaken as other countries also carry out quantitative easing. Similarly, the gravity of weaker growth will most likely overcome the levitational effect on equity prices from more quantitative easing, particularly given that equity valuations today are not as depressed as they were in 2009 or 2010. Indeed, growth in earnings and profits is now running out of steam, as the effect of weak demand on top-line revenues takes a toll on bottom-line margins and profitability. A significant equity-price correction could, in fact, be the force that in 2013 tips the U.S. economy into outright contraction. And if the U.S. (still the world’s largest economy) starts to sneeze again, the rest of the world – its immunity already weakened by Europe’s malaise and emerging countries’ slowdown – will catch pneumonia. © Project Syndicate
business daily July 24, 2012
CLOSING Cnooc buys Nexen for US$15.1 bln
Mukherjee elected India president
Cnooc Ltd agreed to pay US$15.1 billion in cash to acquire Nexen Inc. in the biggest overseas acquisition by a Chinese company. China’s largest offshore oil and gas explorer is paying US$27.50 for each common share, a premium of 61 percent to Calgary-based Nexen’s closing price on July 20, according to its statement to the Hong Kong stock exchange yesterday. Nexen will give Cnooc assets in Canada, the U.K., West Africa and the Gulf of Mexico that produced 207,000 barrels a day in the second quarter, boosting the Chinese company’s output by about 20 percent.
Pranab Mukherjee was elected as the next president of India, the world’s most populous democracy, capping a four-decade career in politics and delivering the ruling party a hard-earned poll success. Mr Mukherjee defeated his rival Purno A. Sangma, a former speaker of the lower house of parliament, securing more than half the total votes cast as counting continued, V. Narayanasamy, a minister in the prime minister’s office, said by phone. He will take the oath of office on July 25. The CNN-IBN television channel said Mr Mukherjee had won more than double the number of votes cast for Mr Sangma.
Spain woes rattle markets again Madrid sinks deeper into mire as borrowing costs hit record
arkets have fallen on fears Spain’s indebted regional governments will push the country towards full bailout. The prospect of more Spanish regional governments following Valencia in asking for aid sent the cost of insuring the nation’s debt to a record. Credit-default swaps on Spain jumped as much as 31 basis points to 636, according to data compiled by Bloomberg, and were at 632 at 1:30 pm in London. A basis point on a swap protecting 10 million euros (US$12.1 million) of debt from default for five years is equivalent to 1,000 euros a year. Spain created an 18 billion-euro bailout mechanism last week to help cash-strapped regions even as it struggles to access financial markets, with 10-year bond yields surging as high as 7.57 percent yesterday, before trading at 7.49 percent. The bond yield indicates the interest rate the government would have to pay to borrow new money, and acts as a measure of investor confidence in Spain’s creditworthiness. On Friday, the yield had been 7.28 percent. Catalonia on Sunday said it’s considering tapping the fund and El Pais reported that four other regions may seek assistance. “With Spain already struggling to fund itself, investors are right to fret over what an additional 18 billion euros of funding would do,” said Harpreet Parhar, a strategist at
Credit Agricole SA in London. Swaps on Spain imply a 42.5 percent chance of default within five years, according to CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements. Spain’s regions face about 15 billion euros of debt redemptions in the second half of this year as the nation’s recession worsens. The euro area’s fourth-largest economy shrank 0.4 percent in the three months through June as the toughest austerity measures in its democratic history pushed the country to a third consecutive quarter of contraction, the Bank of Spain said yesterday.
Borrowing costs Surging borrowing costs are also threatening Italy, where Prime Minister Mario Monti said last week that Spanish protests against austerity are adding to euro concerns. Italy’s 10-year benchmark bond over similarmaturity German securities was 5.20 percentage points, the highest since January 10, and credit-default swaps jumped 21 basis points to a more than one-month high of 547. Concern that Greece is struggling to meet its bailout commitments ahead of today’s visit by the troika of international creditors – the European Commission, the
Spanish debt risk soars to record as regions ask for assistance
European Central Bank and the International Monetary Fund – also weighed on sentiment. “Sovereign debt restructurings beyond just Greece are still on the cards,” said Neil Williams, chief economist at Hermes Fund Management in London. “Every ’cunning plan’ so far to solve the eurozone crisis seems to take one step forward, then two steps back.”
High-end HK rents to fall 4.2 pct As companies cut back on expatriate packages – Jones Lang LaSalle Alex Frew McMillan
he chill winds blasting through financial markets have hit rents for luxury properties in Hong Kong as
banks lay off high earners and international companies cut back on expatriate packages, property brokerage Jones Lang LaSalle said yesterday. With luxury homes costing HK$100 million (US$15 million) or more, rental yields for high-end homes already yield less than 2 percent, a
Runaway market – Property prices have risen 9 percent in the six months to June 30
return set to dwindle further. “Housing budgets have been cut, and companies are switching from corporate leases to personal leases, which will affect super luxury rents as well,” Marcos Chan, the company’s head of research for Hong Kong, told Reuters. Hong Kong has the most expensive office and retail property in the world. According to Knight Frank, only London’s Knightsbridge neighbourhood commands dearer rents than Hong Kong. It costs US$25,000 per month to house a CEO and his family in a 3,000-square-foot home in the city’s traditional luxury neighbourhoods, the Peak and the south side of Hong Kong island, the rival brokerage reported last week. Housing the same family in a Knightsbridge costs US$30,000 a month. Jones Lang Lasalle, issuing a midyear report on the state of Hong
Shares in Europe fell, with Spain’s main share index down 5 percent at midday. On the currency markets, the euro fell to a twoyear low against the US dollar, at US$1.2082, while in Asian trade the euro had fallen to an 11-year low against the Japanese yen, 94.37 yen, its lowest level since November 2000. Bloomberg
Kong’s property market, saw rentals at the luxury end falling 4.2 percent in the second half of 2012, after a 7.5 percent fall in the first half. The hard times in the financial sector is also seen reining in a runaway market. Hong Kong property prices have risen 9 percent in the first half of the year, to stand around 50 percent higher than they were at the start of 2009, with luxury homes showing the fastest gains. Despite fears that Hong Kong has formed a housing bubble, home prices remain supported by recordlow interest rates and the large amounts of equity that home owners have built up. Economic uncertainty has however hit demand, with transactions in the city down 25 percent in the first half of 2012 compared the same period the year before. “You will see a dramatic stop in growth in luxury capital values,” Joseph Tsang, Hong Kong managing director for Jones Lang LaSalle, said, with at most a 2 percent increase in values for the second half of the year. “People will wait and see.” Reuters