Year I - Number 69 Thursday July 5, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00 www.macaubusinessdaily.com
Learn from U.S. sub-prime homes disaster: academic U
sing market forces – such as cheap loans – to provide homes for low-income families may not be effective and can even be harmful, a conference heard yesterday. “Many countries’ experiences showed that supplying housing for middle or low-income households does not work well through the market mechanism,” said Timo-
thy Riddiough, the president of the American Real Estate and Urban Economics Association told the 4th Global Chinese Real Estate Congress held in Macau. Last week the New Macau Association called on the government to supply more ‘affordable homes’ for purchase by those who are not classified officially as poor and do aspire to home ownership.
But Mr Riddiough, professor in the Department of Real Estate and Urban Land Economics at the Wisconsin School of Business in the U.S. said providing bank home loans to low-income customers in the U.S. had been a major factor in creating the so-called ‘sub-prime’ lending troubles that sparked the global financial crisis of 2008.
Hong Kong’s new chief executive Leung Chun Ying has already promised his administration will rebuild the supply of public and affordable private housing in that city after years of the government there leaving the population more or less to the mercy of market price fluctuations in the mortgage and rental sectors. More on page 4
HANG SENG INDEX 19850
City moves up export value chain
People in glass houses – have bright ideas Page 5
Unalloyed joy: Sichuan scraps metal plant
Moody’s 2nd best rating – nobody cares
The old joke that banks readily lend to people who don’t need the money rings true after Moody’s Investors Service gave the Macau government an Aa3 credit grade – the second highest of its nine ratings. Thanks to a booming casino industry the government has had a fiscal surplus for a decade. In the past five years the surplus has averaged 15.5 percent of gross domestic product.
HSI - Movers Name
CHINA COAL ENE-H
CHINA UNICOM HON
SINO LAND CO
Pension fund needs urgent cash injection
HSBC HLDGS PLC
BANK EAST ASIA
A legislator said yesterday Macau should not be seduced by its current massive budget surplus into delaying further the proposed increases in monthly employee and employer contributions to the city’s public pension fund. “Who says Macau’s economy won’t [go] bankrupt one day like the ones in Europe?” said Au Kam San. The current 45 patacas (US$5.60) contribution only accounts for 10 percent of the monthly pension of 2,000 patacas.
COSCO PAC LTD
business daily July 5, 2012
Moody’s keeps sovereign debt rating at Aa3 Macau is the only sovereign covered by Moody’s that does not borrow anything José I. Duarte
he Moody’s Investors Service ratings agency says the government of Macau would not have much trouble in financing its sovereign debt – if it had one. In its annual report on Macau, released last week, Moody’s keeps the government’s rating at Aa3, the second-highest of its nine ratings. Moody’s bases its rating on several factors. One factor is the city’s strong public finances. The revenue the government gets from gambling puts it in a comfortable financial position. The government has had a fiscal surplus for a decade. In the past five years the surplus has averaged 15.5 percent of gross domestic product. Moody’s says the Macau government is the only government it rates that has no debt at all. Another factor is what Moody’s calls the city’s high degree of economic resilience. In other words, it seems immune from international crises. The economy’s dependence on a single industry, gaming, and a single main source of customers for this industry, the mainland, is a potential weakness and a risk.
If the government wanted to borrow money, it is there for the taking
The economy is also vulnerable to external shocks in the form of fewer tourists and competition in the gambling market from other
Asian destinations. However, the city has withstood all shocks so far and posted continuously high rates of economic growth. The average annual rate of real growth in GDP has been about 14 percent in the past decade, driven by exports of services – principally gamblinging and associated tourism services. But the economy may not be immune to a new kind of financial shock, such as a banking crisis in the mainland – although Moody’s stresses that it does not actually expect a banking crisis in the mainland. Most of the city’s banks are owned by outsiders, such as mainland banks, and the banking industry here is a net external creditor. It is these vulnerabilities that prevent the government from getting an even higher rating.
Moody’s ratings Moody’s Investors Service has nine ratings. The higher the rating, the less the risk of lending to the rated entity. At the top, in descending order, are its Aaa, Aa and A ratings, signifying low risk. Its Baa, Ba and B ratings signify substantial risk arising from some speculative characteristics. Its Caa, Ca and C ratings signify very high risk and little or no probability of recovery of either principal or interest. When added to the letters, the figure 1, 2 or 3 indicates the entity’s rank among all entities with the same rating. The number 1 means that it is in the top rank, 2 that it is in the middle rank and 3 that it is in the bottom rank. Macau’s Aa3 classification means its debt is high quality with low risk (Aa) and that is in the lowest rank of all entities with an Aa rating.
business as usual
Ahh, the smell of trouble Paulo A. Azevedo email@example.com
ou could say it was bound to happen, sooner or later. You might even say that many people were aware of the troubles to come, except for those with responsibilities – either officials or, perhaps, “business partners in the third degree”. The Greek Mythology Casino has been the kind of gaming business that should not be allowed to operate in Macau. It is the kind of gaming house that should be relegated to our recent history when gangs used to rule parts of this city. It is true that, as has happened in Las Vegas, some businesses go clean – or at least try – by listing on the stock exchange. However, you can wash away the blood from the books but not from the hands. Unfortunately, the latest trouble at Greek Mythology may just be the beginning. “It’s just a broken arm, not yet a broken tooth.” I hope my current, favourite joke does not become a reality.
July 5, 2012 business daily | 3
Report on social security improvements looming The government says proposal to enhance social security system ready soon Tony Lai
espite promises to release details of increases in contributions to the social security system and the establishment of a central provident pension, legislators in yesterday’s Legislative Assembly sitting said the government had been tardy. Social Security Fund president Ip Peng Kin told the assembly a report would be submitted next month and include details of a rise in contributions and pension payouts. He would not say by how much the contribution would be raised. “Increasing the contribution is the key to keep social security sustainable, or else the government will be seriously in the red 50 years from now,” he said. Mr Ip hinted that the pension, currently set at 2,000 patacas (US$250) a month, would not be pegged to the subsistence index. That allowance for low-income earners was increased to 3,360 patacas last month. “There are other measures which help the residents improve their life after retirement besides the pension,” he said. The 45-pataca monthly contribution accounts for about 10 percent of the pension, Mr Ip said. Currently, 15 patacas is paid by employees and 30 patacas come from their employer. The remainder is paid by the government, which plans to inject 10 billion patacas into the city’s social security system over the next two years. The problem was not a new one, legislator Paul Chan Wai Chi told the assembly. A solution had been frequently discussed and never implemented.
The legislators had different views about the fund
Legislator Kwan Tsui Hang called on officials “to find a way to resolve this as soon as possible, while the government still has money”. Legislator Au Kam San said the government must not keep on injecting capital. “Who says the Macau’s economy won’t bankrupt one day like the ones in Europe?” he said.
Fund restructuring The proposal to create a nonmandatory central provident fund will also be on the agenda of the standing committee Mr Ip said. It could become law by the end of this
year or early next year. The fund would form the second tier of the city’s social security system. Its launch would be promoted by providing tax benefits to companies in the private sector that already provide pensions to their employees and the city’s utilities companies. Legislator Ng Kuok Cheong suggested the government could market the scheme to schools and media companies. Mr Ip said the Social Security Fund would be restructured by a consultation committee made up of representatives from the government, employers, employees and the finance industry.
Alves out of La Scala talks L egislator Leonel Alves denied reports that he will represent two Hong Kong tycoons in the upcoming court case about the corruption of former Secretary for Transport and Public Works, but said his law firm will be involved. The legislator told reporters on the sidelines of the Legislative Assembly’s session yesterday that the rumours probably came from the fact that he was involved in related work in 2008. But he did not reveal whether he had provided legal services to Joseph Lau Luen Hung, Stephen Lo Kit Sing or to the company owned by Mr Lau, Chinese Estate Holdings.
The two businessmen were named as defendants in the case where they allegedly bribed former secretary Ao Man Long for securing the land plot where the luxury residential project La Scala, developed by Mr Lau’s company, is located. The case will begin at the Lower Court on September 17. Mr Alves, however, said the lawyers in his firm are involved in this forthcoming case, saying, “Each lawyer is independent and I cannot stop them from doing their job.” But he said that, as a member of the Executive Council, will not engage in any discussion in the council about the
land deal, to avoid conflicts of interests. The government announced last month they would start the procedures of revoking the land deal of La Scala. T.L.
Although the fund would not invest in gambling or real estate, the legislators had different views. Mr Ng and Ms Kwan said the fund could invest in affordable housing with the government leasing the land plots in “a very low price”. Their fellow legislator José Pereira Coutinho went further and suggested the fund should operate a casino. Another legislator, Mak Soi Kun, proposed the fund should invest in projects put to public tender. Meanwhile, Mr Coutinho said the standing committee was not representative and should include more voices from different sectors.
business daily July 5, 2012
macau The market is ineffective at supplying homes for middle-income and lowincome households, a seminar heard yesterday.
UFC’s first-ever China event The Ultimate Fighting Championship (UFC) announced on Tuesday its first-ever event in the Greater China, at Venetian Macao on November 10. “This is just the first of many world-class fights we plan to hold over the coming years in China,” said Lorenzo Fertitta, UFC chairman. “It’s our pleasure to be working with the UFC organization to bring such a major sporting event,” said Sands China Ltd. president Edward Tracy.
Waterleau loses bid for new public tender The Court of Second Instance rejected an injunction filed by a consortium made up of Belgium’s Waterleau Group NV and Beijing Originwater Technology Co Ltd against the government’s decision not to launch a new public tender for the Macau peninsula wastewater treatment plant. The judges said the decision to readmit the consortium that had initially been wrongfully excluded has so far caused no damage to the companies.
Money fixes don’t build homes, experts warn Experts say Macau could learn lessons from Hong Kong and Shanghai about housing low-income families Xi Chen firstname.lastname@example.org
Travel agency assn signs Portugal deal The Macau Travel Agency Association will sign on Saturday a cooperation agreement with the Portuguese Association of Travel and Tourism Agencies, according to media reports. The deal will be signed in Macau by the head of the Portuguese association, Pedro Costa Ferreira, who is coming to the city as part of a business mission led by Portugal’s Foreign Affairs minister Paulo Portas.
Court backs decision to ban triad member The Court of Final Instance has backed the police’s decision to stop an alleged 14K triad member from entering Macau. The verdict will send the case back to the Court of Second Instance, which had sided with the Hong Kong resident. Wan Kuok Koi, best known as ‘Broken Tooth’ Koi, who was sent to jail as the alleged leader of the 14K triad, will be released in December.
inancial fixes are not the longterm answer to the problem of housing middle-income and low-income households, and governments should try other solutions, experts say. Officials, academics and figures in the property industry from the United States, the Chinese mainland and Hong Kong agreed at the 4th Global Chinese Real Estate Congress that it was difficult to come up with a housing policy that balances social need and the health of the property market. “Many countries’ experiences showed that supplying housing for middle- or low-income households does not work well through the market mechanism,” American Real Estate and Urban Economics Association president Timothy Riddiough said. Mr Riddiough said the temptation to finance the purchase of homes by low-income households via bank loans in the United States had led to the 2008 financial crisis. “The government actually distorted the market, rather than address the fundamental problem,” he said. The director of the Shanghai Research Institute of Investment and Fixed Assets at the Shanghai Academy of Social Sciences, Dai Xiaobo, said the city was attempting to find the best
combination of market forces and government intervention. He said the mainland had gone through the commercialisation of the housing market in the 1990s, followed by the ramping-up of public housing construction in the past few years. “The Global Financial Crisis actually sped up the process of building public housing in China, as part of the stimulus package,” Mr Dai said. He has helped formulate housing policy in Shanghai. The mainland is building 36 million subsidised homes for sale, in an effort to ensure social stability by housing low-income households and to cushion the economy in the event of a slump in construction of upmarket housing. Public housing is expected to make up about two-fifths of new homes built in the mainland next year, having made up about one-third in 2010. Mr Dai said Shanghai had stateowned property developers to build subsidised housing. “If the apartments are not distributed, they can still be sold on the market,” he said. He said the city was trying to learn from the US and Singapore about how to improve the living standards of its residents. Participants said Hong Kong’s experience has shown that the
public sector could effectively provide cheaper housing. The head of the not-for-profit Hong Kong Housing Society, Wong Kit Loong, said it had joined forces with the government to fill market gaps in the supply of small and medium-sized flats. Flats in the society’s development at Heya Green, an urban regeneration project with homes with floor areas between 40 square metres and 60 square metres, had sold out in one day. The flats were for sale to individuals, not companies, and each individual could buy only one flat. The buyers are chosen by lottery in the event of demand exceeding supply. Mr Wong said the society had tried out some innovative schemes over the years, under the government’s direction. One was a rent-to-buy scheme in 2010. It helped households that had the ability to buy a home in the longrun but did not have the savings to make a down payment. Public housing makes up about one-third of the housing stock in Hong Kong. Macau does not have an equivalent of the Hong Kong Housing Society. However, the government is expected to finish building 19,200 flats this year, of which 10,000 will be for rent and 9,200 for sale.
July 5, 2012 business daily | 5
MACAU The unit value index for exports was 4 percent higher in the first quarter than a year before.
Value added to exports grows in Q1 Export volumes may be shrivelling but the prices charged for them are climbing VĂtor QuintĂŁ
he trade deficit is still growing but so is the value added to exports, official data show. The unit value index for exports, which measures the price of each product exported, stood at 101.6 points in the first quarter of this year, according to the Statistics and Census Service. The index was 4 percent higher than a year before and was the
highest in five years. The statistics service changed last year the base year it uses to calculate the index to 2011, so a comparison with earlier years was not possible. The index tracking the value of goods and services produced in Macau for export grew by 6.4 percent, reaching 101.9 points. It outstripped the index of the value of re-exports, which increased by 2.7 percent over the same time last year to 101.4 points. It was the third consecutive quarter that the index for domestically produced exports exceeded re-exports.
In annual terms, however, the value of re-exports had increased by about one-third and goods and services from Macau for export grew by an anaemic 1.4 percent. Re-exports are at their highest level since 2008. About one-third of all goods and services for export were produced in Macau, while the remainder were re-exports, or exports shipped through the city that have had no value added to them in Macau. The indexed volume of exports produced domestically last quarter fell by 4.7 percent to 94.2 points, its lowest level for five years.
In contrast, the quarterly index of the volume of re-exports rose by almost 30 percent to 120.7 points, its highest level for two years. In the past four years, all exports from Macau have seen their value and volume drop by more than half. The once dominant textile manufacturing industry is the main culprit, with indexes of value and volume falling by more than 86 percent. In the same period, the volume and value of imports increased by more than 40 percent. Since 2008 the value of consumer goods has more than doubled, while capital goods saw their value rise by 62.2 percent.
business daily July 5, 2012
macau Tap Seac “glass house” will become flagship of city’s push to develop creative industries
Photo by Manuel Cardoso
Turning glass house into shops, a creative solution Tap Seac’s “glass house” to be home to creative industry shopping mall by 2014 Vítor Quintã
he “glass house” will be creatively repurposed as a “shopping centre” for the creative industries, the head of the Cultural Affairs Bureau, Guilherme Ung Vai Meng, said yesterday. The building in Tap Seac was designed by Macanese architect Carlos Marreiros as part of a wider project to revamp the square. It has been empty since its completion in 2007, with the exception of
scheduled events. “There were many water leakages in the building. We have found what the problem is and the improvements are underway,” Mr Ung said. According to a notice published in yesterday’s Official Gazette, Mr Marreiros will supervise the process. The official notice said the building would become a “shopping centre”. “If all goes well, I believe the building could be operational by the end of 2013 or early 2014. Everything will be linked to the cultural industries,” Mr Ung said.
The final product could include libraries, exhibition spaces, as well as shops for creative products, he said. While the “glass house” will become the flagship of the city’s push toward building creative industries, other buildings will also be placed in the hands of creative entrepreneurs. C-Shop, another building designed by Mr Marreiros located near Parque Jorge Álvares in Nam Wan district, and the former shipyard, near A-Ma Temple, will also be revamped, Mr Ng said at the end of a meeting of the Cultural Industries Council.
Council chairman Leong Heng Teng said the rules for the fund to support creative industries could be ready by the end of the year. The fund will be open to Macauregistered companies only. He said there has been no indication of how much money would be in the fund but there would not be a limit on the size of individual grants. Mr Ng said the current funding proposal would see the government create its budget and its operations would not be tied to revenues from a specific tax, which is the case of the Macau Foundation.
Taipa pier opening faces further delay Pressure continues for Outer Harbour Ferry Terminal as Taipa Terminal delayed once more
he opening of the new Taipa Ferry Terminal has been pushed back a further six months to early 2014, according to the Maritime Administration. It was initially slated to open in 2007. It was reported on Tuesday that officials from the Maritime Administration told the Island Social Services Advisory Committee the construction of the terminal in Pac On would end in the middle of next year
and the facilities would be fully operational by early 2014. In October, Infrastructure Development Office Coordinator Chan Hon Kit said construction would be completed in the second quarter of next year. Just two weeks ago the head of the Land, Public Works and Transport Bureau’s Urban Planning Department, Lao Iong, reiterated that the terminal would “come to full operation within next year”. The 200,000-square-metre Pac
On terminal will be able to handle up to 15 million passengers a year. Authorities plan to turn the Taipa Ferry Terminal into the city’s No 1 terminal to ease traffic on the Outer Harbour Ferry Terminal. This latest delay will place further pressure on the existing infrastructure, which “is already overburdened by an excessive number of passengers,” Maritime Administration director Susana Wong Soi Man said in January. Authorities resumed full control of
the Outer Harbour infrastructure in December, as the concession contract with Stanley Ho Hung Sun’s Sociedade de Turismo e Diversões de Macau expired then. The Maritime Administration has promised to launch a 12-month renovation project this quarter, including the addition of luggage facilities and a baggage carousel but said there were no plans to expand the terminal’s capacity. V.Q.
Weather Beijing 29/22o C Changchun 28/17o C
Harbin 28/18o C
Xian 32/23o C Shanghai 38/28o C Chengdu 30/21o C Kunming 23/17o C Haikou 32/26o C Sanya 30/25o C
Guangzhou 33/24o C
MACAU (2 July-7 July) Day
Shenzhen 33/26o C
Hong Kong 33/26o C
Macau 30/26o C
July 5, 2012 business daily | 7
Global financial gloom hits BCP The Eurozone debt crisis weighs on BCP Macau’s lending Tony Lai
he profit before taxes of the Macau branch of Banco Comercial Português S.A. (BCP) increased by 14.6 percent to 71 million patacas (US$7.9 million) last year, hampered by the sovereign debt crisis in the Eurozone. According to the bank’s financial report, published in the Official Gazette yesterday, its deposit portfolio contained 2.4 billion patacas at the end of last year, 2.1 billion patacas of it in fixed deposits and 377 million patacas in demand deposits. The bank’s outstanding lending was 1.75 billion patacas, down from 2.6 billion patacas a year before. Because of the financial turmoil around the globe, the Macau branch took steps to expand its investment business and reduce its loan portfolio. Branch general manager José Pãosinho said the bank had been affected by the sovereign debt crisis in Europe, particularly in the
loan market. “The bank operations in the Asia-Pacific region could not be immunised despite the continuous good performance of the Asian economies, especially China and the Macau SAR,” said Mr Pãosinho. BCP has expanded its presence here since acquiring a new banking licence in May 2010.
The licence allows the branch to conduct business in patacas. Mr Pãosinho said the bank would continue its role as a bridge linking the mainland, Macau and other Portuguese-speaking countries. The bank said it could maintain its growth this year, even though its loan business would still be harmed by the euro zone debt crisis and the slowdown in the mainland economy.
Last week the branch was given ratings from two agencies, Moody’s and DBRS. Mr Pãosinho told reporters that the ratings were necessarily the same as those given to the parent company. The ratings for the branch had to be made explicit, as the branch would be directly involved later this year in the bank’s financing operations in the international market.
business daily July 5, 2012
Slowdown supports case for policy easing China’s services industries expanded at the slowest pace since August Nick Edwards
hina’s services firms grew at their slowest rate in 10 months in June, easing back from May’s 19-month peak, as new order growth cooled albeit while marking 43 months of consistent expansion, a private sector survey showed yesterday. The China HSBC services purchasing managers index (PMI) stood at 52.3 in June, down from 54.7 in May, indicating a marginal expansion of activity that capped job creation at a three-month low and bolstering expectations that Beijing will deliver further policy measures to boost growth. “Services activities softened in June due to slowing new business flows, which translated into only marginal growth of employment,” Qu Hongbin, the Hong Kong-based chief China economist at survey sponsor, HSBC, said in a statement. “This, plus the ongoing slowdown of manufacturing sectors, points to growing pressures on the jobs market – the last thing Beijing policy makers want to see. But with inflation also falling fast, we believe Beijing has sufficient room to step up easing and revive domestic demand,” Mr Qu said. The HSBC index, compiled by U.K. data provider Markit and tracking smaller firms mainly in the private
sector, completes the series of China PMI releases for June that broadly leave investors anticipating more policy easing in the near future. Two surveys of China’s vast manufacturing sector earlier in the month showed factory activity fell to a seven-month low in June, dampened by both external and domestic weakness. China’s official services PMI, released on Tuesday, rose to 56.7 to suggest the sector was expanding at its fastest pace in three months. The difference between the competing indexes is a result of using differing methodologies and samples. Chinese policymakers surprised markets in June with a 25 basis point
HSBC services PMI in June, showing growth slowed in China
cut to borrowing rates, bringing the official one-year lending rate down to 6.31 percent in the wake of a slew of deteriorating data. An outright interest rate cut had not been the market consensus. Instead, economists had expected Beijing to continue a programme of reducing the required reserve ratio of banks – a further cut to which many investors believe could come later this month as data on the second-quarter is published. China has lowered the amount of cash banks must keep in reserve in three 50-basis point steps since November 2011, freeing up an estimated 1.2 trillion yuan (US$190 billion) for fresh lending. The last cut was in May.
HSBC services PMI shows weakest growth in 10 months
Shows some evidence demand is muted
China’s fast-growing services industry – accounting for about 43 percent of economic output – has so far weathered the global slowdown much better than the factory sector. Relatively robust readings of both services indexes reflected long-term optimism businesses would benefit from the gradual rebalancing of economic activity towards services and consumption. The China HSBC services PMI has been above 50 – demarcating expansion from contraction – in
New order growth cooled, job creation capped Combined with factory PMIs indicates pressure on jobs market
every month since the index was first issued in November 2005. But signs of waning confidence near term are emerging. The China HSBC services new business sub-index hit an 11-month low of 52.2 in June, with the proportion of survey respondents reporting an increase in business activity barely outpacing those reporting a decrease
Dispute risks delay in Iran oil delivery Sinopec, NITC unable to agree on freight costs Chen Aizhu
Sinopec had scheduled to lift at least 500,000 barrels per day of Iranian oil this month
he delivery of millions of barrels of Iranian crude to China, its top buyer, is at risk of delay due to a dispute between refining giant Sinopec and shipper National Iranian Tanker Co (NITC) over freight terms, Beijing-based sources told Reuters. China has turned to NITC for delivery of the 500,000 barrels per day of crude it buys from Iran as a result of European Union sanctions. The EU measures took effect on Sunday and prohibit European insurers, who dominate the maritime sector, from offering cover on Iran crude. That left Sinopec unable to use Chinese shippers and forced it to use NITC. No vessels have been named to carry the 12 million barrels of crude that China has nominated for loading in Iran in the first 20 days of July, industry sources told Reuters.
“There is some problem between NITC and Unipec (Sinopec’s trading arm) over the freight issue,” said an Iranian oil official who requested anonymity as he was not authorised to speak to the media. “Unipec has proposed a number and it’s now under consideration by NITC. I hope this can be solved very soon,” the official said.
Shipments sinking Iranian oil shipments have already tumbled 40 percent this year, according to the International Energy Agency, as the Islamic Republic’s top customers – China, India, Japan and South Korea – scale back or halt their purchases amid Western sanctions aimed at halting Tehran’s nuclear programme. Industry watchers say Europe’s
marine insurance sanction is the most effective by Western nations against Iran’s oil trade. The sanctions ban EU insurers from covering tankers carrying Iranian crude anywhere in the world. About 90 percent of the world’s tanker insurance is underwritten in the West. Unipec last month requested that Iran deliver July-loading crude cargoes to Chinese ports and provide price quotes on a cost-insurance-freight basis. Before the EU sanctions, China typically paid Iran for the crude only and paid for its own freight and insurance. But in the absence of access to shipping insurance, it now has to rely on NITC’s vessels. “I hope and believe the Iranian side will cooperate as it’s a small technical problem,” said a Chinese crude oil trader. “They should not be wasting time on this. Otherwise they will face really big losses.” Sinopec, through Unipec and statetrader Zhuhai Zhenrong Corp, had scheduled to lift some 500,000 barrels per day of Iranian oil this month, traders said. However, Chinese traders said Sinopec’s import appetite could be limited after record imports in May and lacklustre
domestic demand that has forced it to cut production at its refineries. Its next deliveries consist of at least four NITC supertankers carrying as much as 8 million barrels of Iranian crude that are already on the water, shipping data show. They were loaded last month before the sanctions came into force. Reuters
12 million Barrels of crude should be delivered to China in the first 20 days of July
July 5, 2012 business daily | 9
InBrief Beijing to spur overseas investment Chinese private firms investing abroad will get new policy support, including tax relief and easier access to credit, the country’s top planning body said, to balance capital flows and move up the global value chain. The government will provide tax relief for private firms that have already paid income tax in foreign countries, according to guidelines issued by the National Development and Reform Commission (NDRC) on its website. Chinese banks will also provide more loans and export credit to help with mergers and acquisitions, the NDRC said, adding that the firms will be allowed to issue stocks and bonds, including yuan denominated, in overseas markets.
More property tightening urged
Slowing new business flows translated into only marginal growth of employment
on the previous month, at 16 percent and 14 percent respectively. “Confidence in the one-year business outlook remained below-trend, with panellists expressing concerns regarding the future path of economic growth,” Markit said in a statement. “The index measuring trends in overall new work was at a 10-month low. Anecdotal evidence
provided by survey respondents suggested that reduced new order intakes reflected muted demand conditions,” the statement added. A third consecutive monthly reading below 50 in the prices charged subindex underscored the softness of demand, as did a sharp fall in the input price sub-index. But easing price pressures are seen
by economists as positives, implying the central bank has room to ease monetary policy without igniting inflation risks – a key worry for Beijing which is obsessed with managing the impact of rising costs on social stability especially this year when the Communist Party will change its senior leadership. Reuters
China ‘scraps plant’ amid protest
lans to build a copper alloy plant in Sichuan province have been scrapped following violent protests by residents, a Chinese official confirmed. Officials in Shifang posted a statement on the city’s Twitter-like Weibo account on Tuesday evening announcing the move. “Shifang will not build this project henceforth,” Shifang Communist Party head Li Chengjing said in the post. The decision was made in response to public concerns, he added. Sichuan Hongda, the company building the plant, said in a notice posted on the Shanghai Stock Exchange website that it had stopped
construction after receiving a notice from the Shifang city government. The plant would have boosted the city’s economy and created jobs to aid recovery from the devastating 2008 Sichuan earthquake, said Mr Li in the statement. But he acknowledged that authorities had failed to inform the public about the project, resulting in a lack of understanding and support. The move came after protests on Sunday and Monday in Shifang involving large crowds of residents. Both police and residents were injured in the clashes as bottles were thrown and cars damaged,
they said. Authorities released 21 people who were detained after the clash, the second unusual official concession in two days. A city government notice yesterday said that of the 27 people who were taken away, six remained in detention. The decision came as crowds of local residents gathered outside a government office demanding their release, reports said. Despite the dual concessions, some Chinese called for the punishment of officials responsible for the violent crackdown. Reuters
percent in New York yesterday. The Shanghai Composite Index fell 1.88 points, or 0.1 percent, to 2,227.31 at the close. The CSI 300 Index slipped 0.2 percent to 2,464.92. “There’s a lack of liquidity in the market on concerns about the economy,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. “In the near term, any gains will be limited and trading is likely to be range-bound.” The Shanghai gauge is little changed this month after plunging 6.2 percent in June as signs the
Rail ministry wins US$24b bond quota China’s Ministry of Railways has won regulatory approval to issue 150 billion yuan (US$24 billion) in corporate bonds this year to fund expansion of the country’s rail network, three sources familiar with the situation told Reuters. The amount will be a 50 percent jump from last year’s 100 billion yuan approved for the ministry, who operates as a corporate entity in bond issues. With the latest quota, the National Development and Reform Commission, exempts the railway ministry from the usual requirement that debt must not exceed 40 percent of net assets in a display of special support for the cash-starved rail sector, sources said.
Ban to shark fin from official functions
Stocks drop on profit concern hinese stocks fell for the first time in four days as concern that construction activity is faltering dragged industrial companies lower, overshadowing a rally by energy producers. Taiyuan Heavy Industry Co. fell to the lowest level in 3 1/2 years after saying it will post a first-half loss. Sichuan Hongda Co. plunged 9.2 percent after the government ordered it to halt building a plant that drew protests. China Shenhua Energy Co. advanced 1.3 percent after oil jumped more than 4
China must roll out new measures to combat speculative housing demand as risks of a home price rebound rise, the official People’s Daily said in a commentary published yesterday. More than 30 local governments in the last few months have relaxed some of the property curbs Beijing had mandated previously in a two-year campaign to cool the country’s red-hot housing market. The People’s Daily said Beijing should closely monitor the local governments which had relaxed curbs and demand action if a big rebound in prices and complaints from home buyers occurs.
economic slowdown is deepening overshadowed an interest-rate cut on June 8. The gauge, which has risen 1.3 percent this year, trades at 9.7 times estimated profit, compared with the average of 17.5 since Bloomberg began compiling the data in 2006. Taiyuan dropped 8.1 percent to 3.18 yuan, the lowest close since Jan. 5, 2009. The company said it probably lost about 90 million yuan in the first half of the year because of falling demand and prices. Bloomberg
China will ban officials from consuming shark fin at government expense within three years, part of an ongoing effort to reduce corruption ahead of this year’s once in a decade leadership transition. The ban, reported by the state-run CNTV on its website, comes after Premier Wen Jiabao in March called for an end to using public funds to purchase cigarettes and “high-end” alcohol. Chinese officials spent 408.5 billion yuan (US$64 billion) on vehicle-related expenditures, 200 billion yuan on meals, and another 300 billion yuan on going abroad in 2004, China Central Television said on its website, citing the central Communist Party newspaper Study Times.
business daily July 5, 2012
Malaysia’s drive for IPOs propped up by pre-election politics
Malaysia to grab Asia IPO top spot But analysts say the momentum is likely to fizzle out
alaysia launched on Tuesday the US$2 billion initial public offering of state-backed hospital operator IHH Healthcare Bhd, marking the third biggest listing of the year globally and cementing its status as Asia’s top IPO destination for 2012. The sale of shares in IHH follows the US$3 billion listing on the Malaysian bourse last week of palm oil firm Felda Global Ventures Holding, which was the world’s biggest IPO of the year after Facebook Inc. The IHH IPO prospectus was launched at an event in Kuala Lumpur, continuing Prime Minister Najib Razak’s drive to monetise state-linked assets and boost the economic feel-good factor ahead of a general election due by next March. CIMB Group Chief Executive Nazir Razak, brother of the prime minister and head of the investment bank
that is lead global co-ordinator of the listing, said IHH’s market value of 22.9 billion ringgit (US$7.24 billion) based on an indicative IPO price of 2.85 ringgit per share would place it second to HCA Holdings – the world’s largest listed healthcare provider. “Malaysia looks set to be Asia’s top IPO market this year, a testament to both the quality of companies being listed and the resilience of the Malaysian equity market,” Mr Nazir told reporters. IPOs in Malaysia, where the equity market is dominated by local investors and a large domestic pension fund system, have defied a trend in financial markets such as Singapore, where motor racing firm Formula One decided to postpone its near US$3 billion flotation. As a result, Kuala Lumpur has been running neck-and-neck with China’s Shenzhen as Asia’s top IPO destination.
Sovereign wealth fund the Kuwait Investment Authority, asset manager Blackrock and 20 other big “cornerstone” investors have committed to buy nearly two-thirds of the shares on offer.
US$2 billion Value of IHH Healthcare Bhd’s IPO
But some investors warned Malaysia’s top dog IPO status was unlikely to last long. “Malaysia is now the largest IPO market in Asia and surely that is not sustainable,” said Abdul Jalil Abdul Rasheed, chief executive officer of Aberdeen Islamic Asset Management Sdn in Kuala Lumpur. “I think it’s just that Malaysia is probably having some time in the sun now that other markets are quite weak.” Analysts also say the resourcerich, developing Southeast Asian country of 28 million people is not on course to supplant better known
Japan plans stiffer penalties for insider trading Current fines designed mainly to forfeit ill-gotten profits
apan’s financial regulator plans to introduce steeper fines for insider trading in the wake of scandals engulfing Nomura Securities Co. Ltd and other brokerages, toughening regulations that critics have called too lax by global standards. Financial services minister Tadahiro Matsushita yesterday instructed an advisory panel of scholars and experts to review current regulations and propose new rules, including penalising those who pass on insider information. Under current rules, those who trade on insider information are subject to penalties but those who solely pass on tips go unpunished, which some blame for making insider trading relatively easy here.
The government hopes to submit a bill to introduce tougher rules in parliament next year. The country’s market watchdog, the Securities Exchange and Surveillance Commission, has been conducting an industry-wide investigation aimed at stamping out insider trading ahead of public share offerings, a problem that had gone unchecked in Japan for years. Nomura, Japan’s leading brokerage, has acknowledged it was the source of leaks on planned share offerings by energy firm Inpex, Mizuho Financial Group and Tokyo Electric Power in 2010. In all three cases, employees in its institutional sales department provided the tip-offs. The scandal has seen Nomura dropped as an underwriter for
planned bond offerings, and the brokerage is cutting top executives’ pay and temporarily shutting an equity sales desk in a bid to resolve the investigation. Critics say Japan sets fines that are too small to act as a deterrent against insider trading. In Japan, fines are designed mainly to forfeit ill-gotten profits, and in cases where investment funds commit insider trading for clients’ accounts, fines are calculated based on fees the funds receive from the clients. Late last month, the Financial Services Agency slapped fines of 130,000
yen (US$1,600) on a fund management arm of Sumitomo Mitsui Trust Holdings Inc for insider trading related to the public share offerings of Mizuho and Inpex in 2010. Reuters
July 5, 2012 business daily | 11
asia Crown seeks to lift Echo stake to 25 pct
Bidding war turning Echo into the most expensive casino target
Malaysia’s exports rebounded, growing more than economists estimated in May after falling for two months, giving the central bank scope to keep interest rates unchanged. It was the smallest monthly trade surplus in nearly 10 years, underscoring strong domestic demand. Overseas shipments rose 6.69 percent from a year earlier after falling 0.1 percent in April, according to a Trade Ministry statement yesterday. Malaysia’s imports rose 16.24 percent in May from a year earlier. The trade surplus narrowed to 4.6 billion ringgit (US$1.5 billion) from 7.51 billion ringgit in April. The gains may be short-lived as Europe’s sovereign-debt crisis and falling commodity prices weaken the outlook for exports. But Bank Negara Malaysia is expected to hold its benchmark rate at 3 percent today.
IPO capitals in the region such as Hong Kong and Singapore. “Maybe this year is a record, but whether it can be sustained is a different thing,” James Ratnam, a research analyst with TA Securities, said. Global accountancy firm Ernst and Young has said Bursa Malaysia was the third-biggest in terms of funds raised in IPOs in the second quarter of 2012, following NASDAQ and the New York Stock Exchange. It said in a release last week that the momentum of IPOs in Southeast Asia was driven by “resilient financial performance, the support of cornerstone investors, pension and other funds, and ample liquidity”. But analysts said the Bursa Malaysia was unlikely to be able to sustain the momentum, noting that it had failed thus far to attract major listings from global players and remained far smaller than regional rivals. Before this year, the last major listing in Malaysia was in 2010 when Petronas Chemicals Group Bhd., a unit of state oil firm Petronas, raised US$4.14 billion. Bernard Ching, head of Alliance Research, said big names wanting to list in Asia were still more likely to turn to Hong Kong or Singapore. “In a volatile global market, Malaysia tends to do rather well,” he said. “[But] when the global uncertainties dissipate, IPOs in other markets will also pick up.” AFP/Reuters
ustralian casino group Crown Ltd said yesterday it is now seeking regulatory approval to raise its stake in rival Echo Entertainment Group Ltd to up to 25 percent from its current holding of 10 percent. Companies linked to Kuala Lumpur-based gambling group Genting Bhd. and its billionaire chairman Lim Kok Thay last week also sought approval to boost their combined stake in Echo to more than 10 percent, mirroring a February request by James Packer’s Crown Ltd. Crown had sought regulatory approval to go above 10 percent but has now amended the application to as high as 25 percent. Under Echo’s constitution, no single party can hold more than 10 percent without regulatory approval. Crown said the regulators have accepted the amended application and no decision has been made. Genting has also applied to raise its stake beyond 10 percent and sources with direct knowledge have said it would be meeting regulators this week to present its case. On Tuesday, the regulators allowed fund manager Perpetual to raise its stake in Echo to up to 15 percent. Perpetual had sought regulatory permission in late 2011. The potential bidding war between the Malaysian gaming magnate and Mr Packer is turning Echo into the most expensive casino target since the financial crisis. Their interest already increased Echo’s market value by almost A$700 million (US$700 million) to A$3.3 billion, even as analysts
cut 2012 earnings estimates for Sydney’s only casino operator by 40 percent, according to data compiled by Bloomberg.
VIP driven Echo offers Packer, who wants a casino-hotel next to Sydney Harbour, and Genting, the only large Asian casino operator without a stake in Macau, the chance to profit from a surge in Chinese gamblers through Echo’s Sydney monopoly. Echo rose 0.7 percent to close A$4.33 a share in Sydney. Crown can bid as much as A$5 a share, 16 percent above yesterday’s close, CLSA Asia Pacific Markets said. An offer at that level would value Echo at 13 times estimated earnings before interest, taxes, depreciation and amortisation, making it the priciest casino takeover since 2006, data
US$700 million Echo gained in market value on bid for Sydney casino
Company hit with US$87 mln U.S. verdict on LCD prices
The Star casino has the monopoly in Sydney until 2019
Toshiba gets price fixing fine oshiba Corp. conspired with competitors to fix the price of display screens and is liable for US$87 million in damages, a U.S. jury ruled. The 10-member jury, after deliberating in federal court in San Francisco for less than two days, found the company liable to manufacturers that used the displays for US$17 million in damages and liable to consumers, who purchased
compiled by Bloomberg showed. “Genting rocking up on the register has turned the heat up,” Nick Berry, a Sydney-based analyst at Nomura Holdings Inc., said. “Crown is more likely to bid than not. They have to, to get the control they want.” Genting Singapore Plc said on June 8 it had bought a stake in Echo, without disclosing its size. By June 20, the combined holding by Genting Singapore and Genting Hong Kong Ltd had risen to 9.9 percent, according to Brisbane-based Echo. Echo, whose licence guarantees The Star casino a monopoly in Sydney until 2019, offers Genting the chance to tap so-called VIP gamblers from Asia, in particular China, who are already traveling to Australia in growing numbers, according to Chong Lee Len, an analyst at Affin Securities Sdn. “Genting and Crown have as much to gain as each other from buying Echo,” said Michael Wu, a Sydney-based analyst at Morningstar Inc. “Both have a very strong VIP business.” Genting and Crown may not be interested in acquiring all of Echo just to gain access to its VIP business, according to Ben Brownette, an analyst at Commonwealth Bank of Australia in Sydney. Echo’s VIP revenue of A$183 million in the six months through December accounted for 20 percent of the company’s A$908 million in total sales. “You’re going to have to overpay for all of the assets to get some kind of synergy gain in a small part of the business,” Mr Brownette said. “It doesn’t make a whole lot of sense.”
finished products, for US$70 million. Under antitrust law, defendants can be assessed damages of three times the overcharge, or US$261 million in the jury’s decision on Tuesday. Tokyo-based Toshiba was accused of meeting with competitors in hotel rooms to set prices for thin-filmtransistor liquid crystal displays, or LCD panels, from 1999 to 2006. The lawsuit was brought on behalf of U.S. makers of digital signs,
home-theatre equipment, laptop computers and office networks that bought the panels. Toshiba said it will appeal the verdict. “Toshiba plans to pursue all available legal avenues to correct that finding,” spokesman Julius Christensen said in an e-mail statement. The company has “consistently maintained that there was no illegal activity on its part in the LCD business in the United
States,” Mr Christensen said. Tobisha doesn’t plan to “revise projections for fiscal 2012 business performance due to this matter,” he said. Toshiba was the lone defendant on trial after at least seven Japanese, Taiwanese and South Korean panel makers settled buyers’ civil claims. Sharp Corp. and Samsung Electronics Co. were among those who agreed to pay US$927 million in settlements reached in December. AU Optronics Corp., Taiwan’s second-largest LCD maker, reached a settlement, lawyers said in April. LG Display Co. on May 1 resolved claims by consumers in eight U.S. states. Amounts weren’t disclosed. Bloomberg
business daily July 5, 2012
MARKETS Hang SENG INDEX PRICE
CHINA UNICOM HON
BANK OF CHINA-H
CLP HLDGS LTD
BANK OF COMMUN-H
BANK EAST ASIA
COSCO PAC LTD
BOC HONG KONG HO
HANG LUNG PROPER
CATHAY PAC AIR
HANG SENG BK
HENDERSON LAND D
CHINA COAL ENE-H
NAME AIA GROUP LTD
CHINA LIFE INS-H
CHINA CONST BA-H
CHINA MOBILE CHINA OVERSEAS CHINA PETROLEU-H
CHINA RES ENTERP
CHINA RES LAND
CHINA RES POWER
POWER ASSETS HOL
SANDS CHINA LTD
SINO LAND CO
SUN HUNG KAI PRO
TINGYI HLDG CO
WANT WANT CHINA
HONG KG CHINA GS
HONG KONG EXCHNG
HSBC HLDGS PLC
IND & COMM BK-H
LI & FUNG LTD MTR CORP
NEW WORLD DEV PETROCHINA CO-H PING AN INSURA-H
INDEX 19709.75 HIGH
52W (H) 22835.03
Hang SENG CHINA ENTErPRISE INDEX NAME
CHINA RAIL CN-H
CHINA RAIL GR-H
AIR CHINA LTD-H
BANK OF CHINA-H
CHINA SHENHUA-H CHINA TELECOM-H
CHINA PACIFIC-H CHINA PETROLEU-H
CHINA CITIC BK-H
CHINA COAL ENE-H
CHINA COM CONS-H
IND & COMM BK-H
CHINA CONST BA-H
BANK OF COMMUN-H BYD CO LTD-H
PICC PROPERTY &
PING AN INSURA-H
CHINA MERCH BK-H
CHINA COSCO HO-H CHINA LIFE INS-H
CHINA NATL BDG-H
INDEX 9684.47 HIGH
52W (H) 12902.97 (L) 8058.58
Shanghai Shenzhen CSI 300 PRICE
DATANG INTL PO-A
AIR CHINA LTD-A
EVERBRIG SEC -A
SHANXI LU'AN -A
GD MIDEA HOLDING
GD POWER DEVEL-A
SHENZ DVLP BK-A
ANHUI CONCH-A BANK OF BEIJIN-A BANK OF CHINA-A BANK OF COMMUN-A BAOSHAN IRON & S BYD CO LTD -A
CHINA CITIC BK-A
CHINA CNR CORP-A
CHINA COAL ENE-A
CHINA CONST BA-A
CHINA COSCO HO-A
HUAXIA BANK CO
CHINA CSSC HOL-A
IND & COMM BK-A
CHINA EAST AIR-A
YANGQUAN COAL -A
INNER MONG BAO-A
CHINA LIFE INS-A
INNER MONG YIL-A
CHINA MERCH BK-A
NINGBO PORT CO-A
PANGANG GROUP -A
CHINA STATE -A
PING AN INSURA-A
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CHINA VANKE CO-A
POLY REAL ESTA-A
CSR CORP LTD -A
SANY HEAVY INDUS
DAQIN RAILWAY -A
52W (H) 3140.102 (L) 2254.567
FTSE TAIWAN 50 INDEX NAME
PRICE DAY %
ASIA CEMENT CORP
AU OPTRONICS COR
CHANG HWA BANK CHENG SHIN RUBBE
PRICE DAY %
PRICE DAY %
HON HAI PRECISIO
HOTAI MOTOR CO
HUA NAN FINANCIA
YULON MOTOR CO
CHIMEI INNOLUX C
MEGA FINANCIAL H
CHINA STEEL CORP
NAN YA PLASTICS
CHUNGHWA TELECOM COMPAL ELECTRON
DELTA ELECT INC
FAR EASTERN NEW
SYNNEX TECH INTL
FAR EASTONE TELE
FORMOSA CHEM & F
TAIWAN GLASS IND
TAIWAN MOBILE CO TPK HOLDING CO L
INDEX 5097.18 HIGH
52W (H) 6026.51 5030
(L) 4643.05 02-Jul
July 5, 2012 business daily | 13
MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GALAXy ENtErtAINMENt
MELCo CroWN ENtErtAINMENt
MGM CHINA HoLDINGS 29.5
SANDS CHINA LtD
SjM HoLDINGS LtD
WyNN MACAU LtD 14.60
14.40 Max 14.58
WTI CRUDE FUTURE Aug12
BRENT CRUDE FUTR Aug12
GASOLINE RBOB FUT Aug12
NATURAL GAS FUTR Aug12 HEATING OIL FUTR Aug12 Gold Spot $/Oz Silver Spot $/Oz
Palladium Spot $/Oz
LME ALUMINUM 3MO ($)
LME COPPER 3MO ($)
LME NICKEL 3MO ($)
WHEAT FUTURE(CBT) Sep12
SOYBEAN FUTURE Nov12
COFFEE 'C' FUTURE Sep12
SUGAR #11 (WORLD) Oct12
COTTON NO.2 FUTR Dec12
AGRICULTURE ROUGH RICE (CBOT) Sep12 Dec12
AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
World Stock MarketS - Indices
1.028 1.5649 0.9543 1.2587 79.81 7.9868 7.7541 6.3476 54.3713 31.47 1.2639 29.832 41.736 9367 82.043 1.20117 0.80428 7.9845 10.0527 100.45 1.03
0.1949 -0.1786 0.0524 0.0477 0.0125 0.0025 0.0026 0.0772 0.0022 0.0318 -0.0633 0.0872 -0.1198 0.1281 -0.1828 0.005 -0.2176 0.104 -0.0448 -0.0299 0
0.6955 0.682 -1.6976 -2.8856 -3.6336 0.1603 0.1715 -0.8287 -2.4026 0.2542 2.5872 1.4984 5.0412 -3.1814 -4.4014 1.3004 3.6194 1.8749 2.9773 -0.7865 0.0097
1.1081 1.6618 0.9772 1.4549 84.18 8.0449 7.8113 6.4747 57.3275 31.96 1.3199 30.716 44.35 9662 88.637 1.24736 0.90183 9.3616 11.6793 117.5 1.0311
0.9388 1.5235 0.7071 1.2288 75.35 7.9823 7.7526 6.2769 43.855 29.63 1.1992 28.726 41.575 8458 72.057 1.00749 0.79505 7.8544 9.8423 95.6 1.0288
MACAU RELATED STOCKS NAME
AMAX HOLDINGS LT
BOC HONG KONG HO
CHOW TAI FOOK JE
CHEUK NANG HLDGS
17.1 Max 17.52
Platinum Spot $/Oz
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GAS OIL FUT (ICE) Aug12
DOW JONES INDUS. AVG
NASDAQ COMPOSITE INDEX
HANG SENG BK
FTSE 100 INDEX
DAY % YTD %
HSBC HLDGS PLC
HUTCHISON TELE H
LUK FOOK HLDGS I
MELCO INTL DEVEL
HANG SENG INDEX
CSI 300 INDEX
MGM CHINA HOLDIN
TAIWAN TAIEX INDEX
NEW WORLD DEV
SANDS CHINA LTD
SHUN HO RESOURCE
SHUN TAK HOLDING
SJM HOLDINGS LTD
WYNN MACAU LTD
S&P/ASX 200 INDEX
FTSE Bursa Malaysia KLCI
NZX ALL INDEX
JAKARTA COMPOSITE INDEX
PHILIPPINES ALL SHARE IX
HSBC Dragon 300 Index Singapor
STOCK EXCH OF THAI INDEX
HO CHI MINH STOCK INDEX
BOC HONG KONG HO
Laos Composite Index
INTL GAME TECH
Shanghai Shenzhen Composite index is listing the biggest companies by market capitalization. All data supplied by Bloomberg unless otherwise indicated.
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business daily July 5, 2012
The ECB should cut rates, then go further
Clive Crook Paula Dwyer
Bloomberg View editors
conomists surveyed by Bloomberg News expect the European Central Bank to cut interest rates after the ECB’s policy-making board meets today. We hope this forecast is right – and that the ECB doesn’t stop there. Most of those in the survey predicted that the bank’s benchmark rate would fall 0.25 percentage point to 0.75 percent, a new low. The forecast sounds right. Europe’s economy isn’t improving. The average unemployment rate in the euro area rose to a new high of 11.1 percent in May, according to figures released this week. With public debt already too high, the scope for fiscal stimulus in the worsthit economies is zero. That leaves monetary policy. Last week’s summit of European Union leaders finally made progress in coordinating a joint response to the financial crisis. Markets greeted the new moves with enthusiasm. The cost of Spanish and Italian government borrowing fell from unsustainable highs, and the euro gained ground. The ECB will want to keep up the momentum by following
political advances with new monetary action, as it has in the past. In truth, though, a further cut in interest rates is only the beginning of what the EU needs. At last week’s summit, euro- area governments agreed in principle to extend support to distressed banks directly, rather than through their governments. Markets had judged an earlier banksupport plan for Spain no good because it would add to Spain’s public debt and push private claims down the payment line in the event of default. The promise to help banks directly, together with an assurance that the planned support for Spain wouldn’t skip ahead of earlier claims, was what markets wanted to hear. The new bank-rescue plan, however, depends on progress in moving toward a European “banking union” with a single supervisor and maybe joint arrangements for deposit insurance and bank resolution. Governments have pledged to work on this, but the details aren’t clear. The best approach would be to lodge the new powers in the ECB, and then draw the boundary of the union so it
corresponds with membership of the euro area. This would greatly enlarge the ECB’s role – and that’s the idea. Too much diffusion of authority has delayed the EU’s response to the crisis. As quickly as possible, the EU ought to simplify its financial governance and consolidate its powers to intervene in an emergency. The ECB is the right vehicle. There has been less progress on another issue involving the ECB: quantitative easing, in which the central bank prints money to buy government debt. The ECB continues to hold back from this measure, arguing that its rules forbid direct lending
A further cut in interest rates is only the beginning of what the EU needs
to governments. The rules or their interpretation should be changed to give the ECB the same tools as the Federal Reserve and the Bank of England, both of which have signalled a willingness to buy more bonds if the recovery slackens. At the EU summit, leaders agreed to let the European Stability Mechanism, the new permanent rescue fund, intervene more flexibly in debt markets so that borrowing costs in Spain and Italy could be capped. A good idea – except that the 500 billion euros (US$630 billion) available to the ESM is far too small to be a credible bulwark. The ECB needs to stand behind the rescue fund with the bank’s effectively unlimited spending power, or else buy debt itself. Thursday’s ECB meeting will probably end with a cut in interest rates, which is surely warranted on its own terms. Containing this crisis, though, will require bolder steps – steps that Mario Draghi, the central bank’s chief, will need political backing to take. The sooner Europe’s leaders agree to them, the better. Bloomberg View
I’ve lived in Macau for 21 years. I was 4 years old when I first arrived and this is my home. It was here that I studied, played, fell in love and did everything that comes with growing up. There is no other place on Earth I dare to call my own. It shocks me when, in my own town, I cannot find a place to live. At 25 years of age, my choices seem to be very few. I certainly cannot afford to buy a house, nor can I stay more than two years in the same place because rents keep going up. If that continues, I doubt that I will be able to afford to live in Macau. It is most likely that I’ll just pack my things and move to neighbouring Zhuhai. It makes me sad to think the city, and the government that takes care of it, is ignoring a growing problem. The big boom of the gaming industry means everybody is obsessed with luxury. “The little guys”, the ones that truly think of Macau as being home, don’t count anymore. As a Macau resident I pay my own medical bills. The government is kind enough to give me 500 patacas a year to spend on my health. It also gives me 7,000 patacas a year, an amount that is supposed to make me re-think my appearance in public demonstrations. As I don’t speak Chinese or read it, there are a surprising number of things that I don’t know I’m entitled to because the government apparently forgets to translate a lot of information into the second official language. All of this would be bearable if, today, once again, I didn’t have to go home to pack up my books, clothes and furniture because the landlord wants the house back. There is no law in Macau that can help me. Even if there were, I doubt that anyone cares. This is the state of things: no one seems to care. I know I’m not alone. Most people my age either live with their parents or work two jobs to be able to pay the rent. I would like to ask our lawmakers and legislators how much they have invested in real estate because I can suggest three reasons for their apathy: interest, fear or incompetence. I’m not sure if I’m happy with any of the alternatives but what say do I have when it comes to choosing who governs me? I’m happy they allow us to speak, write and publish. It’s the reason I write to you today. Who knows, maybe someone will read this letter and decide to change things for the better. Raquel Dias* *Used to work for Essential Macau, part of the De Ficção Multimedia Projects
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July 5, 2012 business daily | 15
Closing Asia’s security gap wires Business Leading reports from Asia’s best business newspapers
The Telegraph The Indian government is considering a venture capital fund of around Rs 20 billion (US$ 367.8 million) to promote research and development in the pharmaceutical sector. “We are talking with Exim Bank for this,” commerce minister Anand Sharma told reporters here after reviewing the performance of the sector with industry representatives. The meeting also discussed foreign direct investment in the sector. While 100 per cent FDI in new projects are allowed, concerns have been raised over FDI in projects that involves purchasing equity, or a controlling stake, in an existing company.
Nikkei Sony Corp. said Tuesday it has brought to Japan a service that lets users listen to as many songs as they want on their smartphones, personal computers and other devices for 1,480 yen (US$14.7) a month. The Music Unlimited service has a library of more than 10 million songs from four major domestic record labels, including Sony Music Entertainment and EMI Music Japan. The initial lineup mostly consists of foreign music but is to eventually include domestic tracks. Sony intends to expand the library by calling on other labels to provide music.
Business World Philippine’s electronics exporters have cut their growth forecast for the year, noting continued global uncertainty even as Trade officials said official targets would be retained. “From 10-15 percent, we are lowering our forecast to 5-7 percent,” Semiconductor and Electronics Industries in the Philippines (SEIPI) President Ernesto B. Santiago said Tuesday. SEIPI at the start of the year projected a rebound to 2010’s US$31.1 billion after 2011 saw a 23.7 percent exports plunge to US$23.7 billion, due in part to a weak global economy and a deadly natural disaster that hit Japan.
Thai Financial Post The President of the Gems and Jewelry Industry Club under the Federation of Thai Industries has revealed that the Thai gems and jewelry sector is being hurt by the ongoing financial crisis in the EU. The export of the sector’s four main product groups, including diamond, gemstone, silver and gold jewelry, has been impacted since the end of 2011, given the economic slowdown in USA and EU. During the first five months of 2012, gem export figure has been experiencing a gradual decline of 20 percent in comparison with that of the previous year.
Deputy Director-General of the European Affairs Bureau of Japan’s Foreign Affairs Ministry
here was little surprise in President Barack Obama’s announcement late last year that the United States will strengthen its position in East Asia while drawing down its forces in Europe. After all, the security environment in East Asia is unpredictable and rapidly changing, unlike in Europe, where it is relatively stable. Against this background, efforts now underway to establish a comprehensive multilateral framework for the region can learn from the recent history of the Organization for Security and Cooperation in Europe (OSCE). The U.S. is not alone in shifting its security focus to East Asia. Russian President Vladimir Putin’s decision to host Russia’s first Asia-Pacific Economic Cooperation (APEC) meeting in Vladivostok in September reflects his country’s growing interest in the region. And, like the U.S., Russia attended last November’s East Asia Summit (EAS). The EAS, along with the ASEAN Regional Forum (ARF) ministerial meetings last July, made important contributions to improving the region’s security environment. The ARF’s effort to build a more predictable and constructive pattern of relations for the Asia-Pacific region is based on three stages: confidencebuilding, preventive diplomacy, and conflict resolution. At its 18th ministerial conference last year, ARF entered the second phase, preventive diplomacy, while continuing to strengthen confidencebuilding measures. Maritime cooperation was a focus of attention at both the ARF ministerial meeting and at the EAS, not least because China’s activities in the South and East China Seas have generated fresh uncertainty in the region. The ARF welcomed the adoption of “Guidelines for Implementation of the Declaration on the Conduct of Parties in the South China Sea.” Likewise, the EAS focused on combating “sea piracy, search and rescue at sea, marine environment, maritime security, maritime connectivity, freedom of navigation, fisheries, and other areas of cooperation.” Both meetings also focused on disaster management, with the ARF ministers reaching a common understanding on furthering regional cooperation. The ASEAN Coordinating Centre for Humanitarian Assistance in Jakarta is expected to play a central role in building a disaster-related information network across the region, and in developing concrete measures for disaster management. Similarly, many of the countries attending the EAS
Measures aim to reduce the risk of conflict by increasing trust among participating states, and by contributing to greater transparency in the field of military planning
stressed the need for response capabilities, such as emergency disaster relief. Japanese Prime Minister Yoshihiko Noda announced his country’s readiness to host an international conference this summer on major disasters, giving Japan an opportunity to share lessons learned from the 2011 Great East Japan Earthquake and tsunami. The aim must be to make the region more resilient to natural disasters as part of a broader framework for regional cooperation.
Multiple channels The rapid changes occurring in the Asia-Pacific region demand policies to maximize growth opportunities while minimizing risks. That is why Koichiro Gemba, Japan’s foreign minister, has proposed new “open and multilayered networks” with other Asia-Pacific countries. “Multilayered” means multinational cooperation on various activities that can be promoted through bilateral, trilateral, or multilateral mechanisms. Work within the ARF and EAS frameworks is already aligned with this concept, and Japan is pursuing its own trilateral dialogues with China and the Republic of Korea, as well as with the U.S. and Australia. Japan believes that these networks must be open to all of the Asia-Pacific region’s countries, as their establishment requires China’s full participation. But the rule needed to form the foundation of such a network must obviously adhere to international law, and the ARF meeting’s final declaration clearly reflected this concern. This is where lessons from the OSCE’s experience are relevant to Asia’s budding efforts to establish a regional architecture. In particular, de-
spite the significant socioeconomic and political differences between the Asia-Pacific region and Europe, the OSCE’s confidence- and securitybuilding measures are worthy of careful consideration.
Trust and transparency Such measures aim to reduce the risk of conflict by increasing trust among participating OSCE states, and by contributing to greater transparency in the field of military planning and other activities. The Vienna Document, which is the key to understanding these OSCE efforts, obliges annual exchanges of information on existing military forces, the structure of armed forces, and major weapons and defence systems. It also requires annual information exchanges on defence planning and budgets. Adoption of such measures in the Asia-Pacific region would do much to promote confidence and trust among Asian countries. A few steps in this direction have already been taken within the ARF framework, including the publication for more than a decade of an Annual Security Outlook based on contributions from
ARF countries. In 2010, ARF ministers widened the Outlook’s scope with the Simplified Standardized Format, which includes publication of national defence doctrines, defence expenditure, and the total number of personnel in a country’s armed forces. There have been two main approaches to meeting modern regional-security challenges: traditional alliances of the NATO type, which prepare for any potential threat to members, and comprehensive multilateral frameworks of the OSCE type, which include all relevant players within a region. As Europe’s post-1945 history clearly shows, traditional alliances and a comprehensive multilateral framework can be complementary, and are essential to maintaining regional peace and stability. Now the Asia-Pacific region is witnessing efforts to establish a similar comprehensive and multilateral framework through the ARF and the EAS. But, however successful such efforts may be, they will enhance, not lessen, the importance of existing bilateral relationships, such as the Japan-U.S. alliance. © Project Syndicate
business daily July 5, 2012
CLOSING France raises taxes on rich, companies
Man Utd seeks US$100m U.S. listing
France’s two-week-old Socialist government unveiled 7.2 billion euros (US$9 billion) of tax increases to meet deficit-reduction goals and avoid bond-market punishment. The largest new levy will be a one-time surcharge on wealthy individuals’ assets to raise 2.3 billion euros. Another 898 million euros will be reaped by ending a payrolltax holiday. “We face an extremely difficult financial and economic situation,” Finance Minister Pierre Moscovici said. “The wealthiest households, the big companies, will be asked to contribute. In 2012 and 2013, the effort will be particularly large.”
Manchester United Ltd has applied to list on the U.S. stock market in a share sale aimed at raising US$100 million. In documents filed with the Securities and Exchange Commission, the Premier League giant said it was listing on the New York Stock Exchange. The club had earlier explored the possibility of a US$1 billion flotation on the Singapore stock market. United, among the best-supported clubs in the world, said it would use money from the listing to repay debt. It had debt of 423.3 million pounds (US$662.5 million) in the third quarter of 2011.
Eurozone services shrink in June Sector firms also shed staff for the sixth month in a row
ll of Europe’s biggest economies are in recession or heading there and there is little sign things will improve soon, surveys showed yesterday, backing a growing view the region’s major central banks are poised to ease policy this week. Business surveys covering thousands of companies suggested the eurozone economy contracted again between March and June, and that Britain’s mild recession extended into a third straight quarter. The latest batch of purchasing managers’ indexes did nothing to alter expectations the European Central Bank will cut interest rates to a new record low today, or that the Bank of England will turn its printing presses on again to buy bonds. “The PMIs are bottoming out at a level consistent with further contraction of activity in the second quarter,” said James Nixon, chief European economist at Societe Generale, of the eurozone PMIs. Markit’s Eurozone Composite PMI was revised up in June to 46.4 from a preliminary reading of 46.0 that matched the May figure, but the index has undercut the 50 mark that divides growth from contraction for nine of the last 10 months. “We are looking for GDP to decline by 0.3 percent in the euro area in
Q2 and these numbers are perfectly consistent with that,” Mr Nixon said. PMI compiler Markit said the surveys were consistent with a 0.6 percent contraction for the eurozone economy in the second quarter, and 0.1 percent for Britain.
Job woes Worryingly, there were clear signs that Germany, Europe’s biggest economic engine, is also entering a modest downturn. Its services sector unexpectedly stagnated in June, as its PMI reading fell to its lowest since September last year. “Germany looks to have fallen into a renewed decline, though only a very modest drop in output is signalled. The pace of downturns in other major euro member states is far more worrying,” said Chris Williamson, chief economist at PMI provider Markit. He said output in Italy probably declined 1 percent in the second quarter, with steep downturns also on the cards in Spain and France. Perhaps the only bright spot in the PMIs was a sharp drop in price pressures among companies in the eurozone, suggesting inflation will decline in coming months. The PMIs showed little sign of relief for workers – eurozone firms cut jobs for the sixth straight month in June, suggesting the currency union’s record unemployment rate of 11.1 percent in May has further to climb. “Job losses are mounting as a result
Britain’s mild recession extended into a third straight quarter – survey
of falling demand, as companies seek to reduce costs and prepare for the possibility that worse is to come,” added Mr Williamson. While the eurozone’s services PMI also edged up slightly to 47.1 in June from 46.7 in the previous month, it was still anchored below the 50 mark for a fifth straight month. Britain’s dominant service sector, which accounts for the vast majority
of its private economy, grew at a much weaker pace than expected last month, as the PMI fell to 51.3 from May’s 53.3 compared with an expected 52.8. The latest round of gloomy data will solidify expectations the Bank of England will start another round of quantitative easing asset purchases when it meets today. Reuters
ANA to take stakes in rivals Asian deals boosted by US$2.6 billion capital raise
ll Nippon Airways plans to use part of the US$2.6 billion it is set to raise from equity markets this month to take stakes in or buy Asian rivals, underscoring the Japanese carrier’s rush to secure growth outside its mature home market. ANA said after the market closed on Tuesday that it would issue up to 211 billion yen worth of new shares to pay for fuel-efficient Boeing 787 Dreamliners, shore up its balance sheet and build up a war chest to invest in growth opportunities in Asia. The carrier indicated it would earmark a good portion of the funds for deal making offshore. ANA said it wants to take large stakes in its targets that would give it a say in management. Potential deals include becoming a top shareholder in a full-service carrier and the outright purchase of a budget airline.
“We have no intention of taking small minority stakes in a number of different carriers, simply marking our territory,” an ANA executive, who was not authorised to speak publicly about the matter, told Reuters. “Eventually we want to take majority stakes in airlines in different countries.” Many countries in Asia have regulations restricting ownership in their carriers. In those cases, ANA may look to take a smaller stake to start and build up its holding once the barrier to investment falls. “For those countries where there are no barriers, we could go for it all at once,” the executive said. ANA is moving to a holding company structure in April, which should make it easier to manage different brands. “Without M&A this share offering has no meaning. There is a 40 percent dilution and there needs to be good story around how they
are going to generate returns,” said Ryota Himeno, an airline analyst at Barclays in Tokyo. Mr Himeno said ANA would likely target low-cost carriers, rather than full-service ones. Budget airlines
have growth potential, accounting for just 15 percent of the AsiaPacific market, compared to around 30 percent in Europe and the United States, he said.
After taking stakes in domestic low-cost carriers, ANA plans to invest in growth opportunities across Asia