Hotels more New deal expensive but still opens door booked up to Lao flights
Cable TV and antenna firms can ‘co-exist’ Page 2
April 19, 2013
espite jumps of 50 or 60 percent in parking space annual rents, drivers are reluctant to buy spaces because of the uncertain outlook for the property market says an expert. More people are opting to rent spots short-term rather than buy them. “Seven out of every 10 deals this year are parking leases
and the rest are sales,” the general manager of CarparKing Co Ltd, Chan Lik Ki, told Business Daily. Mr Chan said that last year sales had accounted for at least half of parking space deals. But in the current nervy investment climate, parking spots are seen as a marginal asset. More on page 4
Lower leased-line fees little help to phone users
Wednesday June 26, 2013
Editor-in-chief Tiago Azevedo
Drivers make U-turn over parking spots
The proposed reduction in the cost of leasing Companhia de Telecomunicações de Macau SARL (CTM)’s landline telecoms network is not enough to create a truly competitive market, a person in the industry told Business Daily. On Monday CTM said it would reduce its charges for allowing companies to lease an international line – for overseas connections, namely Internet access. The change takes effect from next month. Page 3
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Filipinos immigrate despite South China Sea tensions
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Macau had more Filipino non-resident workers last month than ever before, despite a call here for a boycott of Philippine products and Filipino labour. At the end of last month over 17,300 Filipino blue-card holders were in Macau, 170 more than in April, data released yesterday by the Human Resources Office show. It is the highest number since publication of such data began in 2007. Page 5
Record attendance at G2E Asia says Reed Global Gaming Expo Asia had record visitor numbers this year according to co-organiser Reed Exhibitions. The event held at CotaiExpo at The Venetian Macao in May had 5,851 attendees said Reed, adding it was an increase of 16 percent on the previous year. Reed previously reported 2012 attendance as 6,161 people. It’s reduced that figure to 5,046 due to some 2012 attendees being double counted. Page 6
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June 26, 2013
Hotels more expensive but still filling up M
acau hotel rooms cost more last month than a year earlier, but that did little to slow the hospitality business, as hotel occupancy rates rose. In May the average rate for a hotel room was 1,372 patacas (US$172), or 3.7 percent more than a year earlier. But the average occupancy rate of all hotels increased by 3.7 percentage points to 84.4 percent. Data released by the Macau Hotel Association this week show the biggest increase was in the average cost of a night in a room in a fourstar hotel, which rose by 7.4 percent. But four-star hotels still have the cheapest rooms, costing an average of 852 patacas per night. Five-star hotels, which contain two-thirds of hotel rooms in Macau, charged an average of 1,634 patacas
per night, 2.4 percent more than a year earlier. Three-star hotels were almost 600 patacas cheaper. Although they were the most expensive, high-end hotels were the busiest last month, having an occupancy rate of 84.8 percent, 5.2 percentage points more than a year earlier. The average occupancy rate of all hotels increased in spite of the addition of almost 4,000 hotel rooms to market in the past 12 months. Only in three-star hotels did the average occupancy rate fall slightly, to 84.3 percent. The Macau Hotel Association gathered its data from its 42 members, comprising 22 hotels with five stars, 11 with four stars and nine with three stars. V.Q.
Five-star hotels were the busiest of all Macau hotels last month
Casino corporate tax issue ‘resolved by year-end’ Solaire shareholder hopes court action can be avoided in tussle between Pagcor and Philippines taxman Michael Grimes
he chairman of Philippines casino investor Bloomberry Resorts Corp says he expects a tax dispute between the Bureau of Internal Revenue and industry regulator the Philippine Amusement and Gaming Corp to be “resolved before the end of the year”. Fitch Ratings said in a report last week that a 30-percent corporate income tax on casinos announced by the tax bureau in April was “potentially a notable detriment” to market growth. It suggested that tax breaks for the country’s new casinos – venues being built at Entertainment City in Manila Bay – were designed to allow operators better margins on gaming operations than rival jurisdictions such as Macau, so they could plough more money back into player incentives such as rebates for VIP gamblers. Enrique Razon – whose firm is majority shareholder in the US$1.2 billion (9.59 billion patacas) Solaire Resort & Casino that opened in Manila in March – said on the sidelines of Bloomberry’s annual stockholders’ meeting it was up to Pagcor to settle the tax issue. “I think it will be resolved before the end of the year. If it is not resolved by Pagcor, it could end up in court. Hopefully, it is resolved in the executive department,” the Manila Standard newspaper reported Mr Razon saying. Lawrence Ho Yau Lung, cochairman of Macau casino operator Melco Crown Entertainment Ltd, which itself has an investment in Belle Grande Manila Bay, a US$1 billion new casino project at Entertainment City, hinted in May that he expected
Solaire Resort & Casino, Manila
the tax bureau and Pagcor to solve the problem internally and not pass on costs to the new private sector investors. Mr Ho said in May during MCE’s first quarter earnings call: “… Pagcor understands the fact, and the Philippine government understands the fact, that there are billions of
dollars of investment to be invested in Entertainment City and if there was a kind of a game change or a rule change at this stage, that would obviously impact that. So I think, all in all, with what’s happening in the market and how positive it is, we are hopeful that the government will do the right thing.”
New deal opens door to Laos flights L
aos’ national carrier is interested in launching charter services to Macau, after the two jurisdictions agreed to open up their aviation market. LaoAirlines“haveindicatedtoustheir intention to operate charter services” to the territory, a Civil Aviation Authority spokesperson told Business Daily. A Lao Airlines representative was present yesterday at the signing of an air services agreement between Macau and Laos. Both sides agreed to set no capacity or destination restrictions on any airline interested in launching future passenger or cargo routes linking the two jurisdictions, the authority said in a press statement. There is however no timeframe for when Lao Airlines could start its charter flights to Macau. “We haven’t yet received their formal application,” the authority spokesperson said. The air services deal was signed by Secretary for Transport and Public Works Lau Si Io and Laos’ minister of Public Works and Transport, Sommad Pholsena. Before the signing the two officials met “to exchange updates about the economic development of Macau and Laos, especially the air transport markets,” the statement says. The deal “has paved favourable conditions for the operation of air services between Macau and Laos in the future,” it adds. Other regional carriers have also plans to start flying to Macau. FlyFirefly Sdn Bhd, operating as Firefly and a subsidiary of Malaysia Airlines, plans to operate charter services between Johor Bharu and Macau “commencing this August”, the regulator told Business Daily a forthnight ago. “But they have not yet filed in their formal application.” Philippine Zest Airways has also applied to the aviation authority to fly here from Manila three times a week, starting October 15. “Our assessment is underway,” the authority said. V.Q.
June April 26, 19, 2013 2013
Share cable television profits, pan-democrats recommend The association urges settlement of the cable television dispute before it becomes an election issue Tony Lai
acau Cable TV Ltd and the public antenna companies should share the profits they make from cable television transmissions and so end their 14-year-old dispute, the New Macau Association – otherwise known as the pan-democrats – has told the government. Andrew Cheong Shu Kin was part of a New Macau Association delegation that met officials of the Bureau of Telecommunications Regulation behind closed doors yesterday. Mr Cheong told reporters after the meeting that the government still wished Macau Cable TV and the public antenna companies to find a way to supply homes with cable television that respected the law.
Macau Cable TV won a court injunction to stop public antenna companies’ illegal activities (Photo: Manuel Cardoso)
He said his association had suggested in the meeting that Macau Cable TV and the public antenna companies could share the profits they make from cable television transmissions. The Court of Second
Instance ruled on June 6 that within 90 days the public antenna companies must stop illegally relaying cable television transmissions. Macau Cable TV’s concession gives it the exclusive right to supply
homes with cable television. No appeal against the court’s ruling is allowed. The government is obliged to enforce the ruling, so many households face the prospect of a television blackout this autumn. Mr Cheong said the government had not rejected his association’s profitsharing suggestion. Government officials would soon meet representatives of 12 antenna companies to discuss solutions to the problem, he said. The director of the Bureau of Telecommunications Regulation, Lawrence Tou Veng Keong, did not speak to reporters after yesterday’s meeting. The president of the New Macau Association, Jason Chao Teng Hei, urged the
government to solve the problem quickly to prevent it becoming an issue in the Legislative Assembly elections in September. Mr Chao told reporters that the issue could lead to “social instability”. He advised the government to “safeguard the public interest”. Mr Cheong said the government had intimated that it would make public its proposal for solving the problem by the middle of July. The New Macau Association’s alternative solution is for the government to end Macau Cable TV’s concession early and compensate the company. Mr Chao accused Macau Cable TV of failing in its duty to ensure all of Macau had access to its cable network. Mr Tou has said the government will open up the cable television market when Macau Cable TV’s 15-year concession ends next year. During yesterday’s meeting the New Macau Association also urged the government to formally ask the United States whether it engaged in cyber-espionage in Macau. This month Edward Snowden, a former contractor of the U.S. National Security Agency, alleged that the United States had engaged in cyber-espionage in Hong Kong and mainland China.
Lower leased-line fees little help to phone users Cut proposed by CTM too small to make dent in costs it passes to rival telecom operators, says industry Stephanie Lai
he proposed reduction in the cost of leasing Companhia de Telecomunicações de Macau SARL (CTM)’s landline network is not enough to create a truly competitive market, a person in the industry says. And that means that customers of rival telecommunications operators will benefit little from it, he added. On Monday CTM said it would reduce its charges for allowing companies to lease an international line – for overseas connections, namely Internet access. The change would take effect from next month. CTM’s chief executive officer Vandy Poon Fuk Hei said the firm would lower the charges for existing corporate customers by 20 percent, while a 15 percent reduction was pencilled in for new commercial subscribers. Mr Poon said the company was “very close”
to reaching an agreement with the government over the tariff change. Business Daily tried to confirm this statement with the Telecommunications Regulation Bureau but received no reply at the time of going press. Banks and financial institutions are the major users of international leased line services, CTM said. The company did not disclose any details on how the tariff cut would work. It applies to services provided to rival telecommunications operators and to ticketing and booking sites run by casinos and hotel operators. CTM told Business Daily it currently has no plans to lower the charges for local leased line services. However, on Monday Mr Poon did say CTM was “working on it”.
Too little, too late The proposed reduction is “good news” but it
falls far short of the telecommunication sector’s expectation, a person who works in the industry told Business Daily. CTM last reduced its leased-line fees by between 10 percent and 40 percent in August 2010. “But it is still not a very competitive price when compared to Hong Kong and mainland China,” the telecommunications insider said. One operator of a wireless network, SmarTone Mobile Communications (Macau) Ltd, said last month that leased-line fees were six to eight times higher here than in similar markets such as Hong Kong. “So, even if the Internet leased line eventually got a 15 to 20 percent reduction in cost, it is still not quite as competitive as in other places,” the person said. Michael Choi, the head of the city’s newest telecommunications
A tariff reduction proposed by CTM will mean little to most telephone users (Photo: Manuel Cardoso)
operator Companhia de Telecomunicações de MTEL Ltda, told media on June 3 that the expensive leased line payments were one of the major burdens of Internet service providers. “In 1996 over 20 companies applied to provide Internet services but most of them eventually vanished because of the [leased line] cost factor,” noted Mr Choi. “If MTEL does not lay its own network, obviously we will be just the 24th company to gradually vanish,” he said. The tariff cut will have
a very limited impact, preventing rival operators from reducing charges to consumers, an industry insider suggested. “Though the government has positioned Macau to have a liberalised telecom market four years ago, until now there is no solid competition,” the executive said. “The telecom operators are still paying too much for the leased lines and, because of that, very limited benefits can be passed on to consumers in terms of pricing,” he added.
June 26, 2013
Uncertainty makes renting parking spots the fashion
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An estate agent says 70 percent of parking space deals so far this year have been leases
Reach for the stars Hotel occupancy rates in the first third of this year were lower than in the equivalent period of the preceding two years. From January to April, the simple average of monthly occupancy rates was two to three percentage points below those in 2011 and last year. However, industry averages hide significant differences among different sorts of hotels.
Guesthouses are a singular case. Their average occupancy rates are lower than those of any other sort of accommodation. In the period represented in the chart, the average occupancy rate of guesthouses was just below 60 percent. Two-star hotels had the next-lowest average occupancy rate, just over 76 percent. The pattern of changes in the average occupancy rate of guesthouses as time goes by is smoother than those of other sorts of accommodation. The variations are less extreme. This may be due to the guests that stay in guesthouses being different from typical visitors, and to under-reporting. But guesthouses count for little in the hotel market. The more stars a hotel has, the greater its occupancy rate tends to be. The only exception to this tendency is four-star hotels, which have an average occupancy rate more than three percentage points higher than that of fivestar hotels. The ups and downs of occupancy rates are similar for all categories of hotel, following a mostly predictable seasonal pattern. Changes from month to month can occasionally be big, especially in the peak months. The plots show month-to-month variations of over 10 percentage points and, at times, nearly 20 percentage points. J.I.D.
26.3 pp Difference between the highest and lowest average occupancy rates by hotel category since January 2010
The monthly rent for a parking space in Areia Preta now averages 2,600 patacas
ore people are opting to rent car parking spaces rather than buy them because of the uncertain outlook for the property market, an estate agent that specialises in parking spaces says. “Seven out of every 10 deals this year are parking leases and the rest are sales,” the general manager of CarparKing Co Ltd, Chan Lik Ki, told Business Daily. Mr Chan said that last year sales had accounted for 50 percent to 60 percent of parking space deals. “Buy er s a r e wa r y a b o u t a n adjustment in the property market, as they see the sluggish prospects for the Hong Kong market,” he said. The number of homes sold in Hong Kong last month was 4,276, fewer than a year earlier for the third consecutive month. The Hong Kong government took further measures to rein in the property market there in February. CarparKing says the greater proportion of parking space leases here has pushed up rents – by 50 percent to 60 percent in some cases.
The average monthly rent for a parking space in Areia Preta has risen to 2,600 patacas (US$325), from 1,600 patacas a year ago. Mr Chan said another reason for the greater proportion of parking space leases was that the owners of parking spaces were “in no hurry” to put their property up for sale. “Some owners are locked in by the latest special stamp duty, while many continue to ask for a high price as they see inelastic demand for car parking,” he said. The government expanded the special stamp duty to cover parking spaces last October. The special stamp duty is a levy of 20 percent on the sale of real estate if it is sold within a year of being purchased, or of 10 percent if it is sold between one and two years after being purchased.
Interim trend Mr Chan said the price of a parking space in the north of the city had risen to 1.8 million patacas from 1.6 million patacas a year ago.
“There is a limited number of parking spaces in Macau, but the amount of vehicles keeps going up,” he said. Official data show 220,000 motor vehicles were on the road at the end of April, 5.3 percent more than a year earlier. The increase in the number of light vehicles was 7.7 percent. Mr Chan said the city had only about 11,500 public parking spaces and 5,000 private parking spaces in January. The Transport Bureau said in December that it would consult the public in the first quarter of this year about changes in road traffic control measures, including increases in public car parking charges. But since then nothing more about this has been heard from the bureau. Mr Chan expects more car park leases than sales to remain the trend for the next few months. The trend would change only once the United States began to adjust its monetary policy, so making the outlook for the property market here clearer, he said.
June 26, 2013
Filipinos flood in despite S. China Sea tensions But mainland Chinese continue to fuel the boom in imported labour Vítor Quintã
The number of Filipino non-resident workers here has increased every month since February 2010
acau had more Filipino nonresident workers last month than ever before, despite a call here for a boycott of Philippine products and Filipino labour. At the end of last month over 17,300 Filipino bluecard holders were in Macau, 170 more than in April, data released yesterday by the Human Resources Office show. It is the highest number of Filipinos since the office began releasing data on imported labour in 2007. Last month an association and four companies here took out a front-page advertisement in the Chinese-language Macao Daily News asking people not to buy Philippine goods or hire Filipino workers. The Philippin e vice consul here, Fernando Beup, told Business Daily: “I don’t think there was really any significant impact.” The ad, financed by entities linked to Alan Ho, a nephew of gaming tycoon Stanley Ho Hung Sun, was placed in the newspaper amid international tension over the killing last month of a Taiwan fisherman by the Philippine Coast Guard. The government in Taipei froze new hiring of Filipinos by employers in Taiwan. The mainland Chinese government backed
Taipei’s stance. China and the Philippines dispute ownership of territory in the South China Sea, and the dispute resulted in a maritime confrontation last year. “Generally Macau is fairly insulated from the political issues emanating from either Taiwan or mainland China,” Mr Beup said. “Macau businesses and people are very much aware that this issue is far remote from their concerns,” he said. “Macau society is very familiar with Filipinos, their culture. They have been here for a very long time.”
Need for skills The number of Filipino workers here has increased every month since February 2010. About 6,500 have been hired since then. Mr Beup is confident that there will be no Filipino exodus this year or after. “There will be no decrease,” he said. “There is still expansion going on in the gaming, hospitality industry.” Several large casino resorts are due to open in Cotai from 2015 onwards. “Macau will need more skilled workers,” Mr Beup said. Not even the opening of big casinos in Entertainment City – a cluster of four Las
Generally, Macau is fairly insulated from the political issues emanating from either Taiwan or mainland China Fernando Beup, Philippine vice-consul
Vegas-style casino resorts being built by Manila Bay – would keep Filipinos from coming to work here, he said. The first of the resorts, the Solaire Resort and Casino, opened in March. Developer Bloomberry Resorts and Hotels Inc said last July that it had hired over 400 Filipinos that had been working in Macau and Singapore. “There were a few hundred who returned,” Mr Beup acknowledged. But he said many more Filipinos would still be looking overseas for work, as the unemployment rate in the Philippines was 7.5 percent. Entertainment City “will not open overnight”, Mr Beup said. “It will take a few years
to gain enough momentum to create a significant number of new jobs.” The number of nonresident workers here continues to break records. Another 3,000 signed up for work last month – more than in any month in the past year – bringing the total to 118,600.
Building frenzy Of the new arrivals, 2,315 were from the mainland, bringing the number of non-resident mainlanders working here to 72,023, the most ever. The number of nonresident Vietnamese workers rose by 289 to a record 11,024. The number of nonresident workers from Hong Kong reached 5,620, the most for one year. In August 2008, before the global financial crisis shook Macau, Hong Kong was Macau’s second-biggest source of imported labour, with 16,445 workers here. Hong Kong is now Macau’s fourth-biggest source of imported labour. Of the non-resident workers that arrived last month, 1,223 came to work in the construction industry, i n c r e a s i n g t h e number of non-resident construction workers here to a record 17,377.
The construction industry is gearing up to build the new casino resorts in Cotai. But hotels and restaurants are still the biggest employers of non-resident workers, taking on 414 more last month and so increasing their combined imported workforce to 35,526. The number of imported domestic servants increased by 206 to a record 18,878. Only 12 of the maids were mainlanders. But an influx of domestic servants from the mainland is due soon, ab o u t 3 0 0 b e i n g s e t t o arrive here under a trial scheme. Estate agents and business services enterprises, which include building security and cleaning companies, hired 228 more nonresident workers last month, increasing their combined imported workforce to over 10,000 for the first time.
17,318 Filipino nonresident workers in May
June 26, 2013 April 19, 2013
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Financial Monitor Gentle braking The rise in the consumer price index began to show signs of slowing in May last year. Annual inflation peaked in August, when it began slowing gently, falling to 5.59 percent in May this year. The behaviour of the CPI is influenced by the behaviour of its main component, the prices of food and non-alcoholic beverages. Spending on food and non-alcoholic beverages makes up almost one-third of the spending on what is in the basket of consumer goods and services used to gauge price changes. It is the component of the CPI that shows the greatest increases in prices – over 9 percent for most of last year. There are obvious parallels between the plots for food and non-alcoholic beverage prices and the CPI.
Prices of other sorts of goods or services behave quite differently. The second-most important component of the CPI is housing and fuel, accounting for 22.8 percent of typical consumer expenditure. Only prices of housing and fuel kept rising throughout the period represented in the chart. It cannot be over-emphasised how unfortunate it is that housing and fuel costs are grouped together. Grouping them is likely to lead to underestimation of their effect on the spending behaviour of consumers. The rise in transport costs has been slowing, having accelerated earlier on. The fall in transport cost inflation is the steepest among all the goods and services shown in the chart. The fall in clothing and shoe price inflation follows a similar but less pronounced path. It was steady at the outset and began to fall slowly early last year.
Record attendance at G2E Asia says Reed Co-organiser says numbers up 16 percent on a year earlier as rival show set to debut in November Michael Grimes
he Global Gaming Expo casino industry conference and trade show in Macau had a record number of visitors this year according to co-organiser Reed Exhibitions. The event held at CotaiExpo at The Venetian Macao from May 21 to 23, had 5,851 attendees said Reed, adding it was an increase of 16 percent on the previous year. Reed had previously reported in some news releases that the 2012 attendance was 6,161 people, but has now revised that figure down to 5,046. The reason for the 22 percent difference was mainly due to some 2012 attendees being double counted, Reed told Business Daily by e-mail. “This exhibition, together with the corresponding conference program and value-enhancing networking activities, has provided a powerful platform for hundreds of local suppliers..,” said Nat Wong, president of Reed Exhibitions Greater China separately in a prepared statement. Reed’s partner for the event – now in its seventh year – is the American Gaming Association. This year’s event saw no flare up of the trade dispute between Macau-based equipment supplier LT Game and Nevada-based SHFL entertainment Inc. that had soured the mood at the 2009 and 2012 shows
J.I.D. The content of this column is the work of Business Daily’s journalists.
Year-on-year rise in housing and fuel prices in May
G2E Asia 2013
when customs officials intervened on the show floor. On the first day of the 2013 edition however, the Macau Gaming Equipment Manufacturers Association – chaired by LT Game chairman Jay Chun – announced it would hold its own gaming industry trade show in November, also at CotaiExpo. Mr Chun told Business Daily the new event – called the Macau Gaming Show – would include VIP junket operators as exhibitors – a segment of the industry not specifically covered by G2E Asia’s exhibition floor. “…they [junkets] produce 70 percent of the [gaming] income from Macau. And they want to stand out and show the rest of the world that we are well regulated. It’s not an underground activity,” Mr Chun told us. Reed stated that at G2E Asia 2013, a total of 19 jurisdictions and 139 companies – 33 of them first timers to G2E Asia – were represented. The events firm added there were 7,087 square metres (76,245 sq. feet) of showroom floor space in 2013. That’s a 19 percent increase year-on-year, and another record for the event said Reed. Show innovations this year included a new application for iPhone and Android users giving access to event news and information
and themed pavilions for ‘Business Solutions and iGaming’ and ‘Security & Surveillance’. The three-day conference portion of the event drew 642 participants. The Global Gaming Women breakfast and roundtable discussion highlighted the growing leadership role of women in casino operations and equipment supply companies. The educational component of the event – the one-day Gaming Management Certificate Program – was run in partnership with the University of Macau and University of Nevada, Las Vegas. The United States’ President Barack Obama this year sent a message of support to G2E Asia. It followed the granting – by the U.S. Commercial Service of the U.S. Department of Commerce – of Trade Fair Certification to Reed Exhibitions, to organise the official U.S. Pavilion. G2E Asia 2013 also marked the retirement of Frank J. Fahrenkopf Jr as president and CEO of the AGA. Mr Fahrenkopf has led the association since 1995, but officially steps down this Sunday, though will remain in a consulting role. His successor is Geoff Freeman. He joins the AGA from the U.S. Travel Association, where he served as chief operating officer.
April 19, 2013
June 26, 2013 April 19, 2013
Greater China Moody’s cuts outlook for Hong Kong banking system The outlook for Hong Kong’s banking system was lowered to negative from stable at Moody’s Investors Service Inc. on lenders’ increasing exposure to borrowers in China. Hong Kong banks are increasingly reliant on the mainland because real interest in the city rates remain low amid surging property prices, the credit-rating company said in a statement. These circumstances “may contribute to adverse future operating conditions for Hong Kong banks,” it said. Non-performing loans at Chinese banks rose for six straight quarters through March 31, the longest deterioration in at least nine years.
Cash squeeze risks miss of growth target More banks trimmed China’s growth projections for 2013
hina’s biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998. Goldman Sachs Group Inc and China International Capital Corp yesterday joined banks from Barclays Plc to HSBC Holdings Plc in paring their growth projections this year to 7.4 percent, below the government’s 7.5 percent goal. The cuts followed a tightening in central bank liquidity
that left the overnight repurchase rate more than double the year’s average. “The current leadership is trying to build its reputation in a different way than the previous administration, which felt that its target was holy and had to be met regardless of the circumstances,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who previously worked for the World Bank. The danger is that putting the growth goal aside undermines public confidence in China’s economic policy
making that’s already been shaken by limited communication on the government’s objectives behind the cash squeeze. The central bank on Monday contributed to the biggest drop in Chinese stocks in almost four years by releasing a week-old statement saying liquidity was “reasonable”. The government set the 7.5 percent target at a March conference where Mr Li became premier. Seventeen of 56 respondents to a Bloomberg News survey last week gave estimates of
HKEx to introduce new products: CEO Hong Kong Exchanges & Clearing Ltd will balance competition and cooperation with mainland exchanges and introduce new cash-settled commodity products, said Charles Li, chief executive of the company that owns the London Metal Exchange. The bourse would probably introduce monthly cash-settled metals products denominated in Chinese yuan first then move into other commodities and physical settlement, Mr Li said. “We are not seeking to change it but we look to profit from it,” Mr Li said of the business model. “We will be seeking return from our investment in a fair and reasonable way.”
Sinopec agrees US$1.5b Angola deal China Petrochemical Corp, also known as Sinopec, has agreed a deal to buy U.S. firm Marathon Oil Corporations’s stake in an Angolan oil and gas field. Under the terms of the deal, Sinopec will pay US$1.52 billion for Marathon’s 10 percent stake in the field. Sinopec had purchased a 5 percent stake in the field from France’s Total SA in 2011. Chinese firms have been buying energy sources across the globe in an attempt to meet rising domestic demand and feed its fast-growing economy.
Li Keqiang – missing growth target?
Chinese buyers turn to overseas property markets Mainland buyers of Hong Kong property at four-year low Yimou Lee and Twinnie Siu
O Guangzhou Shipyard to sell new shares Guangzhou Shipyard International Co., a unit of the nation’s biggest shipbuilder, fell in Hong Kong trading after unveiling plans to sell new shares and buy a shipyard. Guangzhou Shipyard plunged as much as 20 percent before closing at HK$5.87 in Hong Kong, down by 18 percent. The stock traded in Shanghai fell by the daily limit of 10 percent. The shipbuilder plans to sell as much as 2.5 billion yuan (US$407 million) of new shares to investors including its parent, China State Shipbuilding Corp, and buy a shipyard part-owned by the parent. The proposals come amid falling orders and rates in the shipping industry.
n the seventh floor of a luxury hotel in the heart of Hong Kong, a Chinese couple listens carefully as an agent takes them on a virtual tour of an upmarket property development for sale, not in the city but in London. Cash-rich mainland Chinese, who some in Hong Kong blame for pushing property prices to record highs, have fled the city’s real estate market, scared off by cooling measures that have sent them scouring overseas for better options. For many, the search starts in the ballrooms of Hong Kong’s luxury hotels which host overseas property fairs nearly every weekend, offering prospective buyers a glimpse of homes abroad while providing refreshments such as sparkling water and the bitesized Cantonese snack dim sum. “We can only see pictures of the project now so that’s why we have to go to London to take a look at the environment of the building,” said Christina Chen, who flew with her husband from Shanghai to Hong Kong to check out plans
of a development at London’s Olympic Park before flying there herself to see it. “The return on investment is much higher in London than in China and Hong Kong,” she said in a room at the Landmark Mandarin Oriental, a popular choice for property exhibitors. Mainland Chinese accounted for 18 percent of new luxury home sales in Hong Kong in the first quarter – the lowest level in four years – down from 43 percent in the third quarter of last year, before cooling measures were announced, according to real estate company Centaline Property Agency Ltd.
“Mainland Chinese have lost the ticket to buy properties in Hong Kong, now that tightening measures are in force,” said David Hui, overseas sales director at Centaline. “If they want to invest in property, they now need to go overseas.”
Offshore projects Hong Kong, where property prices are among the most expensive in the world, has imposed a series of tightening steps since October, including a 15 percent tax on foreigners that many industry watchers believe was targeted at mainland buyers.
Share of new luxury homes in HK sold to mainland buyers in the first quarter
June April 26, 19, 2013 2013
Greater China 7.5 percent or less for gains in gross domestic product this year.
Estimates cut Mr Kuijs, who said the target may be at risk this year, on June 10 cut his 2013 call to 7.5 percent from 7.8 percent and projected 8.1 percent growth next year, down from 8.4 percent. “If they fail to achieve 7.5 percent, they will lose credibility with the markets, provincial leadership and financial institutions,” said Liu LiGang, Australia & New Zealand Banking Group Ltd’s head of Greater China economics in Hong Kong, who also formerly worked at the World Bank. “That means that in the future, whenever they say something, the market may interpret it differently, and the credibility issue is something very critical for them to consider,” said Mr Liu, who this month cut his 2013 growth forecast to 7.6 percent. The overnight repurchase rate was 6.47 percent yesterday, more than double this year’s average of 3.09 percent, according to a fixing compiled by the National Interbank Funding Centre. The seven-day repurchase rate declined yesterday for a third day. On Monday, a private survey showed Chinese bankers reporting increased lending this quarter while fewer companies are taking out loans. The incongruity indicates that “credit appears to be concentrated on a few borrowers,” according to the report from New York-based China Beige Book International, modelled on the U.S. Federal Reserve’s Beige Book. China last failed to exceed the government’s annual growth target as Asia grappled with its financial crisis in 1998, when Zhu Rongji became premier. That year, the economy expanded 7.8 percent, compared with an 8 percent goal.
The flight abroad has taken them increasingly to Britain and the United States, where Chinese rank alongside Canadians as the fastestgrowing group of buyers, data from the U.S. National Association of Realtors shows. In London, overseas buyers accounted for 2.2 billion pounds (US$3.4 billion) worth of new-build property in 2012, up from 1.8 billion pounds in 2011, according to estate agent Knight Frank LLP. Buyers from greater China are among the top three. The search for homes has accelerated, with Hong Kong’s overseas property transactions jumping nearly 50 percent in May from a year earlier – of which mainland Chinese made up a fifth of sales, according to two property agents in the city.
Growth averaged 9.9 percent from 1999 to 2012, when Premier Wen Jiabao was at risk of missing a 7.5 percent target before interest-rate cuts and accelerated investment approvals helped stoke a rebound late in the year. Policy makers’ willingness to allow a prolonged cash crunch this month signalled a “fundamental shift in attitude from Beijing,” analysts led by Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, wrote in a note. “We had suspected that Premier Li would want to drive significant reforms,” the analysts said. “We underestimated, however, his apparent willingness to make policy choices that would risk putting further downside pressure on the economy.” The People’s Bank of China is treading on dangerous ground as it clamps down on the shadow banking system. As Chinese stock markets tank, and the contagion spreads, policymakers are looking to minimise regulatory arbitrage. Th e m ed i a n es ti m a te o f 5 6 economists surveyed by Bloomberg News from June 14 to 19 is for growth this year of 7.7 percent. That compares to a median forecast of 8.1 percent three months earlier. Bloomberg News
KEY POINTS Credit crunch puts 7.5 pct target at risk Tightening concerns send jitters through markets Growth averaged 9.9 pct from 1999 to 2012
More than 40 offshore projects are on offer in Hong Kong this month, most with price tags below HK$7 million (US$900,000), with lawyers and bank representatives on hand for quick sales. Cherrin Loo, director of international residential sales at property consultant Savills Plc, said she expected the number of overseas projects on show in Hong Kong this year to jump 30 percent to 50 percent from a year earlier. With a significant drop in mainland Chinese buyers, Hong Kong developers have shifted their focus back to local end-users, with some cutting prices to lure buyers. In May, the number of Hong Kong property transactions stood at its second lowest in 16 months, up 20.5 percent, according to Centaline. Reuters
Iron-ore cargoes double ship rates Vessel owners more bullish as China seen buying
he biggest jump in shipping rates since September is spurring speculation that demand from Chinese steelmakers is rebounding after stockpiles of the second-biggest seaborne cargo dropped to a five-year low. Rates for Capesizes, the largest iron-ore carriers, doubled in 10 days, a sign to ICAP Plc and Pareto Securities AS that more cargoes are being booked. The shipments would arrive in two to three months, boosting port stockpiles that fell to about 21 days of demand in April, the lowest level since 2007. Shares of Nippon Yusen K.K. and Kawasaki Kisen Kaisha Ltd, the biggest Capesize owners, will rally as much as 18 percent in 12 months, the averages of 29 analyst estimates compiled by Bloomberg show. While Chinese steel production expanded almost three times faster than global output last month, the advance in ore cargoes may be more about replenishing inventories than a sign the second-biggest economy is accelerating. A gauge of interbank funding in China rose the most on record last week amid a cash crunch and manufacturing is contracting. The shipments are more bullish
for vessel owners, with rates now rising for a fourth month as fleet capacity expands at its slowest pace since 2002. “Stockpile levels in China are very, very low and rising Capesize rates are the first sign that demand for iron ore is returning,” said Eirik Haavaldsen, a shipping analyst at Pareto in Oslo. “You can see how fast the market can turn around as more shipments come out of Australia and Brazil and miners take more tonnage to China.” Earnings for the 1,000-foot-long vessels will average US$10,750 a day in the third quarter, the most since the last three months of 2012, according to the average of nine analyst estimates compiled by Bloomberg. Even though that’s almost double the average this quarter, rates will still be below the US$16,000 owners need to break even, Pareto estimates. Bloomberg News
Shipment rates rising for a fourth month
June 26, 2013 April 19, 2013
Asia Vietnam FDI up 5.6 pct y-o-y The inflow of foreign direct investment into Vietnam rose an estimated 5.6 percent in the first half of this year from a year ago to US$5.7 billion, a government agency said yesterday. Foreign companies’ investment pledges into the country also increased 15.9 percent to US$10.5 billion, the Planning and Investment Ministry’s foreign investment agency said in a report. FDI inflows into the Southeast Asian nation peaked at US$11.5 billion in 2008 and since then have been around US$10 billion to US$11 billion a year.
Thai govt risks farmer ire to curb fiscal burden Mounting losses arising from rice-purchase programme a concern for foreign investors
Seoul seeks to boost investment South Korea plans to introduce new measures aimed at boosting domestic corporate investment, its finance minister said yesterday, as the recovery in Asia’s fourth-largest economy has been delayed on global uncertainties. Minister Hyun Oh-seok told reporters after a meeting with leaders of top business associations that the government was studying into possible measures, without giving more details such as when the measures will be announced.
Losses from the ricepurchase programme last year
T Cyber attack hits S.Korea websites South Korea has issued a cyber alert after an apparent hacking attack on government websites. The website of the presidential office was one of several official and media sites hit by an apparently co-ordinated attack yesterday morning. The identity of the hackers was not known, a government statement said. “The government can confirm a cyber attack by unidentified hackers that shut down several sites including the Blue House,” the Science Ministry said in a statement, referring to the presidential office.
Sumitomo eyes stake in insurance unit Sumitomo Life Insurance Co is among companies preparing to bid for a stake in the life insurance unit of PT Bank Negara Indonesia, according to two people with knowledge of the matter. Sumitomo Life, Japan’s third-largest life insurer, is weighing an offer for a 40 percent stake that may be valued at as much as US$800 million, the people said. Bank Negara, controlled by Indonesia’s government, plans to start the sale of the insurance unit stake in the next two weeks.
Philippine imports rise in April Philippine imports in April rebounded after three months of decline, but a doubledigit contraction in electronics purchases underscores concerns about the country’s key technology exports. Philippine imports in April rose 7.4 percent from a year earlier, the first rise since December, due to an aircraft order by a local carrier, data from the statistics agency showed yesterday. The data shows continued weakness in the electronics sector, as imports of components and devices shrank 19 percent from last year.
hai Prime Minister Yingluck Shinawatra risks a backlash from farmers who helped put her in power after cutting guaranteed rice prices following criticism that the programme put the country’s finances at risk. The Cabinet last week approved a 20 percent reduction in rice-purchase prices to help stem losses from the programme that the government estimates at about 137 billion baht
(US$4.4 billion) last year. Moody’s Investors Service said on June 3 the subsidies hamper Thailand’s goal of achieving a balanced budget by 2017 and are negative for the nation’s sovereign ratings. “If the government doesn’t listen to farmers’ voices, the Pheu Thai party won’t have farmers as a shield to protect them,” said Charin Singdee, head of the farmer council from Singburi province, referring to Ms
Shinawatra’s ruling party that won a parliamentary majority in 2011 elections. “If the price is cut, it is like farmers are being bullied.” Ms Shinawatra raised minimum wages, handed incentives to firsttime car buyers and paid rice farmers as much as 50 percent more than domestic market rates since taking power two years ago with support from poorer areas in northern Thailand. The Moody’s report and
Singapore office rents down by 16.3 pct Office landlords offset fewer bankers as vacancies tumble
ingapore’s office landlords, long dependent on banks, are broadening their tenant base to soak up empty space as the commercial property market inches toward recovery after a three-year slump in rents. Rents in the best buildings may start to rise this year, according to brokers CBRE Group Inc. and Cushman & Wakefield Inc. Vacancies in the city-state fell to 5.1 percent in the first quarter, the lowest since September 2008, from the previous three months, CBRE said. Annual new supply will be 38 percent lower than in the past 20 years, CapitaCommercial Trust forecasts. Property owners such as CapitaCommercial and Suntec Real Estate Investment Trust are using the cheapest rents in three years to lure commodity traders, law firms and software companies. The new tenants are moving in as financialservices firms scale back expansion plans in the wake of the European debt crisis. “Singapore’s office market is getting a lot more diversified,” said Elysia Tse, senior vice president
of strategy and research at Aviva Investors Asia Pte, which has US$2.5 billion in property assets in the AsiaPacific region. “We are at the turning point where we see supply stopping, demand slightly turning positive, vacancy declining and rents have stopped falling.” Office inventory surged after the government in 2005 extended the traditional central business district with the development of Marina Bay, which sits on about 360 hectares of reclaimed land of which 80 hectares is allocated for the business district. The area is home to 10 office towers and gaming billionaire Sheldon Adelson’s landmark Marina Bay Sands hotel and casino.
of lower-priced secondary space. Prime-office lease rates declined to S$9.55 (US$7.46) per square foot per month in the first quarter, the lowest since the same period in 2010, according to CBRE, which ranks Singapore’s overall office rents the 19th highest globally. Rents
Lower costs Then came the collapse of Lehman Brothers Holdings Inc. in September 2008, a global recession and later the euro zone crisis. Vacancy rates soared to a post-crisis high of 14.5 percent in the third quarter of 2010. Singapore experienced the largest annual decrease worldwide, at 16.3 percent, due, in part, to increases in both new supply and the availability
The average monthly rent for offices built in the past three years at Marina Bay fell 1.1 percent
June April 26, 19, 2013 2013
Asia opposition attacks prompted her to establish a committee to verify losses and lower prices. “The fiscal burden arising from this programme is one of the key concerns of foreign investors,” said Santitarn Sathirathai, a Singaporebased economist at Credit Suisse AG. “But beyond the fiscal cost, the programme also distorts incentives for people. Thailand already has labour shortages in many productive sectors and this programme encourages more rice growing by many people who perhaps should not be doing so.”
Biggest loser Agricultural exports slipped 4.4 percent in April, led by an 8.4 percent decline in rice shipments. That has weighed on the baht, which is the biggest loser after the Indian rupee and Philippine peso this quarter in Asia, Bloomberg data show. The Bank of Thailand cut its policy interest rate on May 29 for the first time this year to boost growth after the Southeast Asian nation’s expansion slowed more than estimated to 5.3 percent last quarter. The government last month lowered its 2013 GDP forecast to as little as 4.2 percent and cut its target for export growth to 7.6 percent from 11 percent. Thailand has spent 588.7 billion baht since October 2011 to buy 40.47 million tons of unmilled rice from farmers. The programme has increased domestic demand and purchasing power by 2 percentage points and helped improve farmer income by about 115 billion baht a year, according to the government. The government is carrying debt of almost 160 billion baht for 20122013 from implementing the rice price-support programme, according to official estimates. By setting purchase limits, it will lose about 80 billion baht a year, calculated from
for prime space – the most stable, high-income producing properties – peaked at S$18.80 in August 2008, CBRE data show. “We are becoming more optimistic about the prospects and outlook for the office sector,” said Moray Armstrong, executive director of office services at CBRE in Singapore. Companies are being attracted by some of the lowest occupancy costs in Asia. Rents, local taxes and service charges average US$99.65 per square foot on an annual basis, according to a CBRE survey published June 21. That compares with US$235.23 in Hong Kong, the world’s most expensive office market, and US$161.16 in Tokyo. Bloomberg News
the difference between the support price and market price, including interest and storage costs. “One concern related to the rice-pledging scheme is that it has impaired fiscal transparency and hampers progress towards deficit reduction,” said Steffen Dyck, assistant vice president at Moody’s in Singapore. While potential losses are sizable, the rating company is maintaining its stable outlook on Thailand, as other macroeconomic and external factors are supportive, he said.
Rural support Trimming the purchase programme helps, “but a gradual phase-out all together and a move to other transfer programmes will be better,” Mr Santitarn said. “It will be even better if they can gradually switch to targeted cash subsidies for farmers that do not distort the incentive to produce rice and the rice market mechanisms.” Parties linked to former Prime Minister Thaksin Shinawatra have won the past five elections on support from rice-growing areas that are poorer and more populous than the rest of Thailand. “This is a policy that the Pheu Thai party announced during the election campaign and it should keep its promise,” Prasit Boonchei, president of the Thai Rice Farmers Association, said. “When benefits that farmers are supposed to get are slashed, farmers are smart enough to know who they will vote for in the next election.” Not everyone opposes the price cut. More than 400 farmers submitted a letter urging the government to continue the programme even with the revised price of 12,000 baht per ton, Sansanee Nakpong, minister to the prime minister’s office, said yesterday. Bloomberg News
Philippine stocks enter bear market As overseas investors sold the nation’s equities
hilippine stocks entered a bear market as the nation’s benchmark equity index slumped for a fifth day amid the biggest monthly foreign sell-off on record. The Philippine Stock Exchange Index tumbled 3.1 percent to 5,789.06 in Manila, the lowest close since December 19. The gauge has lost 22 percent from a record 7,392.20 set on May 15, wiping about US$62 billion in value from the nation’s stocks as of yesterday’s close. Valuations dropped to a sevenmonth low and volatility climbed to the highest in more than four years. Overseas funds sold a net US$344 million of Philippine stocks this month through Monday, heading for the biggest monthly outflow since Bloomberg began compiling the data in 1999. Philippine stocks have slumped from a record, wiping as overseas investors sold the nation’s equities after U.S. Federal Reserve chairman Ben S. Bernanke said on May 22 the central bank could consider paring stimulus if the country’s employment market showed sustainable improvement. Mr Bernanke said on June 19 the Fed may start reducing bond purchases this year and end the program in 2014 should risks to the U.S. economy abate. “The slump was caused by expectations the U.S. will taper monetary stimulus and not by a
deterioration in the Philippine economic and corporate outlook,” Jerome Gonzalez, who helps manage US$230 million at Philequity Management Inc., said. “This has opened a good window to come in and start buying in tranches. Our fundamentals remain intact.” The benchmark index is trading at 16.1 times projected 12-month earnings, the cheapest since November 23, from a record 20.8 times on May 15. That compares with MSCI Emerging Markets Index’s 9.2 times. The Philippine gauge’s 30-day volatility climbed to 38.5, the highest since January 2009. Ayala Corp, owner of the nation’s largest builder and biggest bank by market value, tumbled 9.2 percent, the steepest loss since October 27, 2008. It was the biggest contributor to the index’s decline yesterday. Belle Corp, which is building a Manila casino with Macau casino operator Melco Crown Entertainment Ltd, plunged 12 percent, the sharpest loss since February 28, 2007. The peso rose 0.9 percent to the dollar, paring this month’s loss to 2.8 percent, the worst performance in Asia after the Indian rupee and Malaysian ringgit. “It’s not a question of valuations anymore,” Rico Gomez, from Rizal Commercial Banking Corp, said. “It’s a matter of the level of risk that investors are willing to take.” Bloomberg News
Indonesia leader apologises for haze Malaysian PM sending protest letter, pledges support
alaysia Prime Minister Najib Razak will send a protest letter to his Indonesian counterpart as finger pointing continues over responsibility for the heavy haze shrouding the region. Malaysia wants Indonesia’s cooperation to enforce more effective measures and punish those responsible for setting illegal fires, Mr Najib said yesterday in Kuala Lumpur. Indonesia President Susilo Bambang Yudhoyono has apologised to his neighbours and pledged to work on solving the issue. Smog has drifted north along Malaysia’s western coast after pollution reached a record in Singapore last week. Some areas of Malaysia were classed as very unhealthy or hazardous yesterday as Kuala Lumpur’s 88-floor twin towers remained obscured. “The question of who owns the plantations is not the issue here but when something of this magnitude happens, there should be no concern of whether the plantations are owned by Indonesia, Malaysia or Singapore but rather action taken
against those responsible,” Mr Najib said, according to state news service Bernama. The premier’s comments were confirmed by his office. Singapore and Malaysia have been plagued for decades by periodic haze from forest fires on Indonesia’s Sumatra island, with regular spats over responsibility even as all three have strong economic links. The number of hotspots in Riau province increased to 154 on June 23 from 92 the day before, according to the country’s disaster management agency.
Indonesia briefing Malaysia plans to offer Indonesia aircraft that can be used as water bombers to assist in putting out fires, Mr Najib said. It is also offering to host a meeting of the sub-regional ministerial steering committee on trans-boundary haze in Kuala Lumpur next week, G. Palanivel, Malaysia’s Minister for Natural Resources and Environment, said on Monday. Indonesia plans to add ground
Kuala Lumpur’s twin towers remained obscured
forces to fight fires and increase its ability to extinguish them from the air, Mr Yudhoyono said. Fire-fighting continued on Sumatra yesterday with a third water-bombing helicopter deployed, operating alongside two planes used to create artificial rain. The airport in Sumatra’s Pekanbaru may have hourly shutdowns depending on weather conditions due to the haze, Bambang Ervan, spokesman at Indonesia’s Ministry of Transport, said yesterday. Bloomberg News/Reuters
June 26, 2013
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Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 58.0
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June 26, 2013 April 19, 2013
The transatlantic free-trade imperative Alfred Gusenbauer
Former Chancellor of Austria in 2007-2008
he confirmation of Michael Froman as the U.S. Trade Representative is a fitting moment to highlight the many opportunities that a free-trade agreement between the European Union and the United States would offer Europe, America, and the world. Today’s three-tier global economy – 6 percent growth in emerging markets, 2 percent growth in the U.S., and no growth in Europe – shows ominous signs of paralysis and nationalistic unilateralism. Many see currency wars looming. In such an economically insecure global environment, riddled with protectionist booby traps, a free-trade pact between the world’s two largest trading blocs, accounting for roughly 40 percent of global GDP, has never been more important. Historically, free trade and economic growth have gone together, as have protectionism and stagnation, and deeper trade integration of the U.S. and EU economies would strengthen growth on both sides of the Atlantic. The U.S. economy’s projected 2 percent growth this year, despite a 1.8 percentof-GDP cut in government spending, implies real privatesector growth of 3.8 percent. Although both the Federal Reserve and the European Central Bank have actively intervened to boost economic recovery, the results could not be more different.
In the U.S., the banking crisis was tackled rapidly and in a sustainable manner, while Europe is still going from one bailout to the next. Moreover, America’s stimulus programme obviously worked (notwithstanding criticism from the left for being too small, and attacks from the right for being too large). Another contributing factor may be a basic difference in mentality: many Europeans tend to over-emphasise risk when assessing opportunities.
industrial sector are currently 25 percent lower than the European average. Even more significant, however, are the differences in energy costs, which are now up to 50 percent lower in the U.S. – a gap that is likely to widen further as America’s shale-gas revolution continues. This has led energyintensive European industries – including producers of glass, steel, chemicals, and
Linking interests In any case, America is the first country in the recession-stricken part of the global economy where public stimulus has led to enough private investment and growth that fiscal consolidation has become possible. The more America and the EU grow together, the more the EU will benefit from the U.S. recovery. Demand for European goods will increase, and the EU’s member states can – and should – align their economies with U.S. growth. History suggests that the hope for a self-sustained recovery in Europe might well prove deceptive; almost always, the European economic cycle has followed and reinforced that of the U.S. Today, for example, a prolonged recession in Europe is, alongside budget cuts, generally seen as posing the greatest risk to a sustained U.S. recovery. Labour costs in the U.S.
pharmaceuticals – to invest heavily in the U.S. Often, they manufacture high-quality upstream products, which are then processed further in Europe. The Austrian steel producer Voestalpine AG, for example, will start producing steel pellets in the southern U.S. that will then be upgraded to high-quality alloys in Austria. The combination of lower production costs in the U.S. and Europe’s world-class finishing capabilities is a recipe for first-rate products at competitive prices. In this way, European investment is contributing to the reindustrialisation of the U.S. while simultaneously ensuring high-quality European jobs.
An EU-U.S. freetrade zone would strengthen transatlantic political bonds and effectively refute the frequent lament that America has lost interest in Europe
But Europe must do more to reinvigorate its own manufacturing sector. The last attempt to create an EUU.S. free-trade zone, under President Bill Clinton, failed because of the EU’s rigid, antiquated agricultural policy. A new effort would help Europe to replace its agricultural policy with a research-and-development policy aimed at boosting industrial competitiveness. Despite all the lip service paid at multilateral summits to policy coordination, imbalances within the global economy are fuelling a rise in tensions. At a time when many are seeking salvation in nationalism, an EU-U.S. free-trade zone would be a powerful symbol
of cooperation in overcoming global challenges. The increasing economic weight of Asia is also a geopolitical game-changer. China’s massive arms build-up shows that economic power without military power is only a temporary phenomenon. So the focus in world politics is shifting from the Atlantic to the Pacific. Europe should know where it belongs. An EU-U.S. freetrade zone would strengthen transatlantic political bonds and effectively refute the frequent lament that America has lost interest in Europe. In his second inaugural address, President Barack Obama called an EU-U.S. free-trade zone a core project of his second term. Secretary of State John Kerry repeated this during his visit to Germany this spring. Now it is up to export-oriented EU countries like Germany, the Netherlands, Sweden, and Austria to press for action on the American offer of negotiations. Europe has engaged in navel-gazing for long enough. Its malaise has raised questions about whether its democratic capitalism will survive the economic challenge posed by authoritarian and quasiauthoritarian regimes. I, for one, prefer making political decisions to wallowing in doubt and self-pity. A transatlantic trade pact would align both economies with the fundamental interests of the West. © Project Syndicate
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June April 26, 19, 2013 2013
China loses control wires of its Frankenstein economy Business
Leading reports from Asia’s best business newspapers
Taipei Times Civic groups says Taiwan’s Premier Jiang Yi-huah should step down if he does not guarantee that the service trade agreement with China will not be validated until the legislature conducts a de facto review of it. “The premier should publicly promise that he will not validate the pact until the Legislative Yuan reviews and approves it. If he does not promise this, or unilaterally validates the agreement, we call on lawmakers to dissolve the Cabinet and boycott it by all means possible,” Cross-Strait Agreements Watch convener Lai Chung-chiang was quoted as saying.
Korea Herald South Korea’s finance minister called for businesses to expand investment and employment in order to help break the cycle of a prolonged low growth. “I expect the meeting to serve as a chance to have sincere and productive discussions that could lead to pre-emptive investment and expanded employment, eventually cutting the low growth trend,” Finance Minister Hyun Oh-seok told in a meeting with heads of the country’s major business lobby groups. The country’s gross domestic product grew less than 1 percent for the past eight straight quarters.
Bloomberg View columnist
he world has grown used to the idea that China’s leaders are masterful stewards of their gargantuan economy. They steered brilliantly around the iceberg of the 2008 financial crisis, maintaining growth of near-double-digit rates. So when People’s Bank of China chief Zhou Xiaochuan began clamping down on excessive liquidity last week, some observers viewed him as a Chinese Paul Volcker. Now that the worst was over, Zhou seemed to indicate, it was time for China to rein in lending and prevent a credit bubble from swelling. Then reality intervened. After the overnight repurchase rate zoomed to a record 13.91 percent, Zhou had to back off, hastily injecting fresh funds to stem the turmoil. The chaos traumatised money markets. Some were dismayed by signs that Zhou would end the era of easy money in China. Others feared that he couldn’t. Indeed, continuing unease this week underscores how limited Zhou’s powers actually are.
Zhou Xiaochuan, People’s Bank of China chief
The Star Datuk Seri G. Palanivel, Malaysia’s newly appointed Environment and Natural Resources Minister will be in Jakarta to meet representatives of Malaysianowned plantations there and also to hold discussion with Indonesia’s Environment Minister Balthasar Kambuaya. Mr Balthasar announced late last week that 14 companies had been identified and were being probed for open burning. Of the total, eight are Malaysia-owned, according to the government.
The central bank needs to confirm it will rein in interbank liquidity, explain the means by which it plans to do so, and indicate what the endgame is
Bangkok Post Thailand’s government has bowed to the private sector’s calls for rice auctions to speed up releasing its massive stocks. But it remains committed to going ahead with existing secret sales of rice and government-togovernment contracts despite repeated calls by businesses for the government to scrap murky and inefficient methods. Sompong Kitireanglaro, president of rice exporter Ponglarp Co, said the government should reinstate common rice auctions instead of selling its stocks to single private firms under secret deals.
Over the past decade, China’s economy has grown addicted to excessive credit growth, with state-owned banks encouraged to finance as many new skyscrapers, highways, airports, dams and ghost towns as needed to pump up gross domestic product. Free-flowing liquidity – mostly to state-owned enterprises – kept stocks and real estate buoyant, foreign investors bullish and China’s 1.3 billion people away from Tiananmen Square. Zhou can’t cut off the
money now without banks suffering from withdrawal. And the danger is that nobody really knows how healthy China’s giant, state-owned banks are, or how big its shadowfinancing system has grown. When Stephen Green of Standard Chartered Plc in Hong Kong called China’s credit system “a big black box, and it’s quite scary,” he wasn’t exaggerating.
Mystery data How can anyone trust that China is growing at a rate of 7.7 percent, as the government claims, when crucial variables in its data tabulation are a mystery? Bank of America Corp economist Lu Ting in Hong Kong risked China’s ire by alleging its trade surplus was 1/10 the US$61 billion it reported as of mid-May. The nobody-knows character of China’s credit system – quantity, quality or excesses – is even more worrisome. The U.S. shadow-banking system, with its off-balancesheet vehicles and murky dealings, helped drive world markets off the rails in 2008. Imagine the damage an entire shadow economy could cause if it unravels. China’s leaders avoided bursting one bubble in 2008 by creating new ones. Yet
China cannot forever delay its day of reckoning. Total credit may reach 200 percent of GDP this quarter, up from 130 percent in 2008. Mainland banks are currently adding assets at the rate of an entire U.S. banking system every five years. Traditionally, Beijing has viewed opacity as a powerful tool for policing the channelling of funds between banks and companies. That murkiness is now proving dangerous. The central bank needs to confirm it will rein in interbank liquidity, explain the means by which it plans to do so, and indicate what the endgame is. Its vague, boilerplate statements are only exacerbating distress in the markets. At the same time, Zhou is fundamentally helpless: He cannot be truly effective unless the country’s top political leadership decides that the Communist Party is going to get out of the banking business. China needs to allocate capital less recklessly and price it according to economic reality, not according to the dictates of officials who profit from the current arrangement. If the government really wants to reduce the role of state-run companies in China’s economy – as it should, because only a thriving private sector can
increase innovation and competitiveness – it must privatise the banks first.
Powerful creature Putting off that hard task has turned the Chinese economy into a Frankenstein monster. It’s a giant and powerful creature born of unorthodox experiments, and its makers are increasingly losing control. No one envies Chinese President Xi Jinping and Premier Li Keqiang. They must manage a slowing economy and institute critical reforms, all without panicking the markets and destabilising Chinese society. They should study the precedent set by former premier Zhu Rongji, whose efforts to modernise stateowned enterprises in the late 1990s put more than 40 million Chinese out of work but added much-needed balance to the economy. Any shock therapy will be painful. And to be effective, it must treat the underlying problem, not just the symptoms. Otherwise, Zhou’s every effort to drain credit will only send waves of panic through the markets. He’s right that China’s Frankenstein needs to be stopped. But only its creators can do that. Bloomberg View
June 26, 2013
Closing EU delays Turkey membership talks
Monetary easing long way from over: King
European Union governments postponed the resumption of Turkey’s membership talks by at least four months, protesting Prime Minister Recep Tayyip Erdogan’s heavy-handed treatment of peaceful dissenters. Turkey got a symbolic declaration that the entry process, on hold since mid2010, will proceed once Turkey obtains a positive progress report from the EU in October. Germany floated the compromise after threatening to block the restart of the talks, which had been scheduled for today. Egemen Bagis, Turkey’s EU negotiator, had warned that an EU snub would lead Turkey to consider “other options”.
Bank of England Governor Mervyn King said the global economic recovery is at risk of further setbacks and central banks are a long way off tightening monetary policy. “Clearly the level of interest rates and the scale of asset purchases will have to be unwound and we must return to more normal conditions at some point,” Mr King said in testimony to lawmakers at the Treasury Select Committee in London yesterday. “That point is not today,” he added. “Even in the U.S., what you’ve seen there is that they’re still providing more stimulus,” Mr King said.
Rout in Asian shares continues HK-listed China shares at 20-month low on credit squeeze in China surged to records. “Global markets are taking off risk and will continue to be jittery until interbank rates in China stabilise,” said Ichiro Yamada, general manager of equities who helps oversee the equivalent of US$3 billion at Fukoku Mutual Life Insurance in Tokyo. “Japanese shares are falling along with other markets, but it’s also the most resilient market because it benefits from a stronger dollar.”
sian stocks fell as a gauge of the biggest Chinese shares traded in the mainland sank deeper into a bear market amid concern a cash crunch will curb growth in the world’s second-largest economy. Jiangxi Copper Co, China’s biggest producer of the metal, dropped 4.6 percent in Hong Kong. Newcrest Mining Ltd fell 2.4 percent after Australia’s No. 1 gold producer cut jobs at its Lihir mine in Papua New Guinea. Guangzhou Shipyard International Co, a unit of China’s
largest shipbuilder, plunged 17 percent after announcing plans to sell shares and buy a shipyard. The MSCI Asia Pacific Index fell 0.3 percent to 125.42 as of 5.30 pm in Tokyo, reversing gains of 0.5 percent. Almost two shares fell for each that rose on the measure. The gauge dropped 13 percent from this year’s high on May 20 through yesterday after Federal Reserve chairman Ben S. Bernanke said the U.S. central bank may start dialling down stimulus, and as money-market rates
China’s CSI 300 Index, representing the biggest companies in the Shanghai and Shenzhen stock exchange, dropped 0.3 percent, extending losses for fifth day. The measure has fallen 22 percent from this year’s high, surpassing the 20 percent threshold that some investors consider as a bear market. The benchmark Shanghai Composite Index slid 0.2 percent, paring losses of as much as 5.8 percent earlier. The overnight interbank interest rates fell for a third day, the longest run of declines in a month, as the central bank refrained from selling bills amid the worst cash crunch in at least a decade. China’s central bank said it will keep money-market rates at a “reasonable” level and seasonal forces that have driven them up will fade. The People’s Bank of China has provided liquidity to some financial
Club Med buyout secures board blessing Buyout offer brings China into the orbit of travel-services firm
Chinese investor and a French private equity firm have won over Club Mediterranee SA with an improved 557 million euros (US$729 million) takeover bid, seeking to accelerate a shift at the holiday resorts pioneer to fastgrowing emerging markets. Gaillon Invest, the holding company created by Axa Private Equity and Fosun International Ltd to buy Club Med, said yesterday they would pay 17.5 euros a share for the stock they do not already own, up from their previous offer of 17 euros.
Club Med’s board favours the offer, and investors represented on the board pledged to tender 14.9 percent of shares outstanding, Gaillon said. That brings the stock controlled by the bidders to 34.23 percent. The offer is valid subject to acceptance by owners of 50 percent of the shares. A transaction including debt would be the biggest acquisition of a travel-services company in six years, and may end almost half a century of public listing for Parisbased Club Med, which started on
the Mediterranean island of Mallorca in 1950 in a village of used military tents. Listed since 1966, Club Med was a pioneer of the all-inclusive holiday resort. Club Med shares have closed above 17 euros every day since May 28, the day after Axa and Fosun, its largest shareholders, announced their plan to team up with management to buy the company, indicating investors may be betting on a sweetened offer. Club Med fell on hard times in the past decade because of stiff competition and an unsuccessful
institutions to stabilise money market rates and will use short-term liquidity operation and standing lending facility tools to ensure steady markets, according to a statement posted to its website yesterday. Hong Kong’s Hang Seng Index gained 0.2 percent after falling as much as 2 percent. The Hang Seng China Enterprises Index fell 0.8 percent, deepening its slide. Japan’s Topix index slid 1 percent, while the benchmark Nikkei 225 Stock Average lost 0.7 percent. South Korea’s Kospi index dropped 1 percent and Taiwan’s Taiex Index retreated 1.2 percent. Australia’s S&P/ASX 200 Index slipped 0.3 percent and New Zealand’s NZX 50 Index decreased 1.1 percent. Singapore’s Straits Times Index rose 0.4 percent. Raw-material producers led declines among the MSCI Asia Pacific Index’s 10 industry groups. Jiangxi Copper dropped 4.6 percent to HK$13.02. BHP Billiton Ltd, the world’s biggest miner, fell 1.7 percent to A$30.81 in Sydney. Glencore Xstrata Plc, the world’s largest exporter of power-station coal, sank 3.1 percent to HK$33.15 in Hong Kong, the lowest close since its May 2011 listing. The company is proposing to scale down operations at its Ravensworth mine in Australia amid difficult market conditions, Tony Galvin, general manager at the mine, said in an e-mailed statement. Bloomberg News
expansion into services. A more recent drive to recast itself as an upmarket operator has been hampered by a flagging European economy. Fosun and Axa, along with chief executive Henri Giscard d’Estaing, plan to accelerate Club Med’s expansion in markets such as China to help it cope with tough trading in Europe, where it still makes over 70 percent of its revenue. The company has said it aims to operate five villages in China by 2015, including three by the end of this year. Beyond China, Club Med is speeding up expansion in Russia and Brazil, with the goal to lift the contribution of emerging markets to sales to 33 percent by 2015 from around 25 percent. The firm, which operates around 70 resorts worldwide, competes with global hoteliers including Intercontinental Hotels Group Plc and Accor SA. Reuters