Economy ‘Young entrepreneurs’ loans plan to include 44-yr-olds
Tuesday June 4, 2013
Editor-in-chief Tiago Azevedo
April 19, 2013
Job hoppers push down service quality J
ob-hopping linked to Macau’s enviable full employment makes it near impossible to improve staff training and service standards, suggest recruitment professionals. Annual rates of employee turnover
in the fourth quarter of last year ranged between 3.8 percent in the gaming and wholesaling industries to 19.9 percent in the transport industry, official data show. “It is not cost effective… for companies to invest heavily
in training when the turnover rate is too high,” says Jennifer Liao, managing director of EvolutionHR Consultancy. ‘Job changers’ are defined by the Statistics and Census Service as people that have switched employer
within the previous 12 months. Those numbers were published up to 2008, but haven’t appeared since. Back then 12.1 percent of the employed population were in that category. More on pages 6 & 7
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Licence approval delay hit MTEL’s cable laying plans
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ompanhia de Telecomunicações de MTEL, Ltda became yesterday Macau’s second licensed operator of fixed-line telecommunications services. The government took longer than expected to approve the firm as a competitor for the city’s main operator Companhia de Telecomunicações de Macau SARL (CTM). As a result the newcomer has missed out on the opportunity of laying network cables during the city’s infrastructure works launched last year, such as public housing and the light rapid transit railway, MTEL chairman Michael Choi told media yesterday. The investment in the telecommunications service might exceed MTEL’s original target of one billion patacas (US$125 million) Mr Choi said.
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May second best month Galaxy Macau Phase II ever for city’s casinos – budget up 22.5 pct
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Macau casinos generated 29.6 billion (US$3.7 billion) in gross revenues last month, up 13.5 percent yearon-year, official figures released yesterday by the Gaming Inspection and Coordination Bureau show. It was the second highest monthly tally of all time, only beaten by March’s 31.3 billion patacas. So far this year, accumulated gross gaming revenue has reached 143.2 billion patacas, a 14.2 percent increase over the first five months of 2012.
The budget for phase two of casino resort Galaxy Macau has risen by nearly one quarter, to HK$19.6 billion (US$2.45 billion) from the HK$16 billion originally forecast said Galaxy Entertainment Group Ltd’s vice chairman Francis Lui Yiu Tung yesterday. In March Mr Lui told our sister publication Macau Business magazine that construction costs on Cotai had risen “30 percent in three years”.
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June 4, 2013
Licence approval delay hit MTEL’s cable laying plans New operator says tariffs will be ‘more competitive’ than CTM Stephanie Lai
ompanhia de Telecomunicações de MTEL, Ltda became yesterday Macau’s second licensed operator of fixed-line telecommunications services. The government took longer than expected to approve a competitor for the city’s major local telecommunication operator Companhia de Telecomunicações de Macau SARL (CTM). As a result the company has missed out on the opportunity of laying network cables more effectively by taking advantage of all the infrastructure works launched last year, such as public housing and light rapid transit railway, MTEL chairman Michael Choi told media yesterday. Lawrence Tou Veng Keong, director of the Bureau of Telecommunications Regulation, defended that it took time to ensure that MTEL’s network building would not impose too great an impact on the city’s road conditions and traffic. “I cannot see that it has imposed any negative impact on MTEL’s input to the market,” said Mr Tou in a press conference. In a separate press conference, the MTEL chairman also downplayed the issue. “We have also heard of other infrastructure plans like the laying of a natural gas grid or drainage pipes,” Mr Choi added. “We will see how to adjust our network cable setting in tandem with those projects through a better coordination with the government departments.” The MTEL boss added that they would deliver a plan of the cable network building to the government “very soon”. The cables to be set underground would all be fibre optic, he added.
CTM to invest MOP494 mln in five years The city’s biggest telecommunications company, Companhia de Telecomunicações de Macau SARL (CTM), plans to invest 494 million patacas (US$61.8 million) until 2017 in improving its services, according to a notice published in the Official Gazette yesterday. Most of the money, 266 million patacas, will go toward expanding the fibre optic broadband network to all of Macau by 2015. CTM is also planning to hire a further 27 workers. The operator received a fixed landline licence until the end of 2021 but will face competition from newcomer Companhia de Telecomunicações de MTEL, Ltda.
‘We would expect to break-even only in 2018’, says MTEL chairman Michael Choi (Photo: Manuel Cardoso)
Aside from running local and international leased line services and data services, MTEL could also provide cloud computing to Macau consumers, the notice published in the Official Gazette says.
Shadow investors MTEL has 18 months to ensure its network covers 30 percent of Macau’s households, as well as to sign up its first customer. The company also has two years to set up its own network covering all of Macau’s schools and universities. Failure to meet these requirements can result in a maximum fine of 500,000 patacas (US$62,500), Mr Tou said.
The telecommunications regulator added that MTEL also needed to deliver a new service tariff plan, as the current prices charged by CTM are different from what was written in MTEL’s bid. Two years ago, MTEL stated that it could roll out a tariff 30 percent lower than CTM’s charges, while providing a fast and stable Internet access. Mr Choi admitted that the tariff proposal listed in its bid would have to be discarded. A new proposal was not ready yet, he added. “Anyway we will always stick to our original aim to provide a more competitive price for our telecom services,” said Mr Choi. The eventual investment in the
Competition looming on Internet access A
s soon as Macau’s new landline telecommunications provider begins offering services, there will also be more companies seeking to offer Internet access, the city’s telecommunications regulator predicted. Even though the Internet market is open, no other company has stepped forward to compete against Companhia de Telecomunicações de Macau SARL (CTM). “It is a bit difficult,” Bureau of Telecommunications Regulation director Lawrence Tou Veng Keong told media yesterday. “As CTM is the only operator in the market offering the leased
line services, it is difficult for other companies to provide [Internet] access services in competition with CTM,” he said. Companhia de Telecomunicações de MTEL, Ltda was yesterday awarded a landline licence. When the company begins its operations, which are slated for within 18 months, “there will be enough competition to ensure that operators offer Internet access services,” Mr Tou said. In fact, MTEL said yesterday it would apply next week for a licence to provide Internet services, Portugueselanguage Radio Macau reported. Mr Tou hopes that by the time
telecommunications service might exceed MTEL’s original target of 1 billion patacas, he said yesterday. The chairman said the company has sound financing to back it up. “We would expect to break-even only in 2018, with profits emerging one or two years before our concession ends [in 2021],” he said. ZTE (Hong Kong) Ltd and Yangtze Optical Fibre and Cable Co Ltd, will supply MTEL with technical solutions, but they are not shareholders or directors in the company, Mr Choi said. The executive said MTEL’s major shareholders are three Macau companies that will finance the investment. But he declined to identify those companies.
There will be enough competition to ensure that operators offer Internet access services Lawrence Tou, director, Bureau of Telecommunications Regulation
MTEL is up and running the government has also revised the telecommunications regulations. “On the next phase we will study the so-called convergence services; it will surely include Internet services. It is a network not just for one type of service – it is a network for all services,” he said. V.Q.
June 4, 2013
Young entrepreneurs not so young after all Owners of start-ups will not have to be spring chickens to get interest-free loans Vítor Quintã
Limits set on drugs in food
The Executive Council says many youngsters wish to start a business but lack capital
he government has raised to 44 from 35 the maximum age of the young entrepreneurs that it intends to lend money to interest-free, the Executive Council announced yesterday. The government hopes to encourage permanent residents aged between 21 and 44 to start their own companies by offering them loans of up to 300,000 patacas (US$37,500). The loans will last for up to eight years, but borrowers must begin repaying them after a year and a half. Borrowers can take out several loans as long as they do not all add up to more than 600,000 patacas. The Economic Services Bureau said two months ago that entrepreneurs between the ages of 21 and 35 would be eligible for interest-free loans. “We made this change taking
as a reference the experience of Hong Kong, Taiwan and mainland China,” Executive Council spokesperson Leong Heng Teng said yesterday. Mr Leong said Hong Kong and the mainland regarded young entrepreneurs as those up to 35 years old and Taiwan regarded young entrepreneurs as those up to 45 years old. “It will allow the plan to be more flexible,” he said. Asked if the Executive Council had suggested raising the age limit, he replied: “This results from the Executive Council, with the approval of the Chief Executive.” Mr Leong said a commission with up to seven members – “probably personalities with knowledge in the areas of youth and business” – would assess the loan applications. He said that while small or
medium enterprises were eligible for the SME Aid Scheme only after they had been operating for at least two years, only people that had never been an officeholder in a Macau-registered company would be eligible for the loan scheme for young entrepreneurs. “We can see from the Commercial [and Movable Goods] Registry there are many young people launching their own business,” Mr Leong said. In a written statement, the Executive Council said: “One of the problems they face is the lack of capital.” Mr Leong said the loans could be invested in any sort of business, without restriction. He said that the most important factor to be considered in deciding on applications for loans would be the objectives of the applicants. He did not say when the scheme would begin.
Macau’s own limits on the permissible amounts of veterinary drugs in food for human consumption will apply from October 20, the Executive Council announced yesterday. The limits will apply to all “edible parts of animals”, including pork, beef, chicken, duck, lamb, fish and shrimp that are imported, processed or retailed here. At present Macau uses international standards for the safety of food products containing traces of drugs. In February ParknShop outlets here removed a brand of frozen meals from their shelves after the Hong Kong Centre for Food Safety warned that the meals could contain horsemeat contaminated with high levels of a veterinary painkiller. Asked if Macau was setting its own limits because of the horsemeat affair, Executive Council spokesperson Leong Heng Teng said only: “At this point we consider this step to be the most convenient one.” Mr Leong said other subsidiary legislation arising from the food safety law would also have to come into force on October 20.
China Taiping posts biggest profit ever Macau’s largest non-life insurer shrugs off a fast rise in claims Vítor Quintã
he city’s biggest non-life insurer, China Taiping Insurance (Macau) Co Ltd, had its most profitable year ever last year. The China Taiping group’s operation here made a net profit of 63.68 million patacas (US$7.96 million) last year, 63.7 percent more than in 2011, according to the company’s annual report, released yesterday. It was the insurer’s most profitable year since it began publishing its annual results in the Official Gazette, in 1999. The China Taiping group “again achieved a good result” in Macau, general manager Jiang Yidao says
in the annual report. China Taiping Macau absorbed a rise of 44.2 percent in insurance claims, which amounted to 154.5 million patacas. This was equivalent to 34.4 percent of its premium income. The average in the non-life insurance industry is 30.7 percent. China Taiping Macau’s non-life premium income rose by 34.6 percent to 449 million patacas. It had 27.21 percent of the Macau non-life insurance market, keeping what Mr Jiang calls its “leading position in this sector”.
China Taiping Macau kept its lead in the non-life insurance market last year
Most of China Taiping Macau’s business is property and casualty insurance. Mr Jiang says China Taiping Macau also made money from its investments. China Taiping Insurance Holdings Co Ltd told the Hong Kong Stock Exchange last week that China Taiping Macau’s investment income had risen almost sixfold to HK$49.29 million last year.
China Taiping Insurance Holdings is buying unlisted assets, including China Taiping Macau, from its parent company, China Taiping Insurance Group Co Ltd, for 368.6 million yuan (480.6 million patacas). As part of this restructuring, China Taiping Macau will increase its issued share capital to 120 million patacas from 80 million patacas, according to a notice published in the Official Gazette last week.
June 4, 2013
May second best month ever for casinos Tally of MOP29.6 bln came despite worst rain for 30 years mid-month Michael Grimes
Market Share Per Operator (2012-2013)
May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
29% 26% 26% 26% 27% 27% 28% 26% 26% 26% 27% 26% 23%
Sands China 17% 18% 22% 19% 18% 21% 21% 21% 20% 21% 21% 22% 21% Galaxy
20% 23% 19% 21% 18% 19% 16% 18% 19% 19% 18% 18% 19%
11% 12% 11% 12% 13% 10% 12% 10% 11% 12% 11% *
12% 13% 13% 13% 14% 14% 14% 14% 14% 13% 14% *
11% 9% 9% 10% 10% 9% 10% 11% 9% 10% 9% *
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
* Not available Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total
Raining cash – May a near record for casinos
acau casinos generated 29.6 billion (US$3.7 billion) in gross revenues last month, official figures released yesterday by the Gaming Inspection and Coordination Bureau show. It was the second highest monthly tally of all time, only beaten by March’s 31.3 billion patacas. May’s result was achieved despite some of the heaviest rain since 1982. On May 8, 170 millimetres (6.7 inches) of rain fell in just six hours in parts of the city according to the Meteorological and Geophysics Bureau. More bad weather followed in the third week of the month. As
Gaming Gross Revenue (2012-2013)
a result transport in and to Macau suffered some disruption. Judged year-on-year, May’s totals were up 13.5 percent. So far this year, accumulated gross gaming revenue has reached 143.2 billion patacas, a 14.2 percent increase over the first five months of 2012. Union Gaming Research Macau said in a note on the May numbers: “…we believe the figure could have been somewhat higher (although still not the all-time record) but for the severe weather experienced during the third week of the month with Macau and nearby parts of Guangdong recording the heaviest rainfall in more than 30 years.” Union Gaming added the market was on track for around 16 percent
business as usual
expansion year-on-year during 2013. “With the first five months of 2013 registering 14.2 percent growth we are maintaining our full year GGR growth estimate of approximately 16 percent that we first established in January. This contemplates VIP growth of around 10 percent (as compared to eight percent in 2012) and mass market tables and slots growth of around 30 percent (in line with the previous three years),” stated the research house.
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Govt rejects developer’s EIA on Coloane tower Vítor Quintã
T Paulo A. Azevedo firstname.lastname@example.org
he Transport Bureau has to deal with much more than the chaotic traffic that troubles Macau, but there are clear signs of the bureau’s lack of ability to cope with the tasks ahead. It reflects the way many civil servants – plenty of them in senior positions – perceive their role in a system that allows almost no accountability and has become a nest for nurturing personal relations instead of promoting hard work, integrity and quality. The management flaws pointed out by the Commission of Audit in its recent report on bus services were known about, although not as widely as they are now. Numerous other flaws can be found in the bureau’s handling of other responsibilities in its portfolio. However, the Transport Bureau does not act until critical voices become unbearably loud. The same applies to most bodies of the public sector. In this respect, the bureau’s behaviour mirrors that of almost all government departments. Worse, when the government accepted in 2011 the assertions made by Sociedade de Transportes Colectivos de Macau SARL (TCM) and gave TCM one of the contracts to run the buses, it showed that some sort of funny business – which continues to defy both common sense and scrutiny – was going on. This is especially so in the light of TCM’s owners being allowed to sell the company a few months later. In failing to promote road safety, in failing to rethink transport infrastructure and in failing to heed the public’s needs, the bureau has become a serial failure. What is more, Secretary for Transport and Public Works Lau Si Io’s public humiliation of his subordinate in an effort to shrug off any responsibility, predictable as it was, set a bad example. It was an attempt to make it seem as if the bureau’s problems had suddenly popped up out of nowhere, and that its lack of strategy had not been glaringly obvious for at least a decade. In this, the attempt was yet another failure. It succeeded only in exposing the absence of the kind of good leadership that we yearn for.
he Environmental Protection Bureau has rejected a developer’s environmental impact assessment (EIA) report on a high-rise block of flats it proposes to build on Coloane. The bureau’s director, Cheong Sio Kei, told reporters on Sunday that the environmental impact assessment was not good enough because it should have had “a much wider reach”. Mr Cheong said the government had asked the developer, Hong Kong’s Win Loyal Development Ltd, to assess the building’s impact on the quality of the air within 500 metres and on peace and quiet within 300 metres. Win Loyal is controlled by Capital Estate Ltd chairman and Hotel Fortuna owner Sio Tak Hong. The government is still in the process of instituting an environmental impact assessment system. Secretary for Transport and Public Works Lau Si Io said in January that a bill covering environmental impact assessments would be ready this year. Mr Sio has said Win Loyal has plans to build several residential tower blocks, each 20 to 30 storeys high and together containing about 2,000 upmarket flats, on a site in Alto de Coloane. The government has said it would
allow a building up to 100 metres tall on the site. The site, which contains an 80-year-old Portuguese military bunker, covers 56,592 square metres and could yield up to eight times that amount of floor space. The project has provoked a public outcry. Members of Legislative Assembly belonging to the New Macau Association have sucessfully pushed for a debate in the assembly on the protection of Coloane. Mr Sio said in March: “We have the absolute right to develop the plot and we are determined to carry on with it.” He was speaking in Beijing, where he was attending the Chinese People’s Political Consultative Conference as a Macau representative. Win Loyal submitted its proposal to the government on February 27. The proposal meets the government’s present planning standards. The Legislative Assembly is currently debating bills on urban planning and on amendments to the land law. Mr Sio’s Capital Estate also owns a plot of land on Coloane, next to Estrada de Nossa Senhora de Ka Ho. The plot covers 9,553 square metres. Capital Estate intends to build six upmarket homes on it.
June 4, 2013
Budget for second phase of Galaxy Macau swells Galaxy Entertainment plans to add more bells and whistles to its Cotai casino resort Alexandra Lages
alaxy Entertainment Group Ltd is spending nearly one quarter more on the expansion its Galaxy Macau casino resort in Cotai. Galaxy Entertainment vicechairman Francis Lui Yiu Tung told reporters yesterday that his company had increased the budget for the second phase of the Galaxy Macau by HK$3.6 billion (US$464 million), an increase of 22.5 percent. Mr Lui was speaking after the company’s annual general meeting in Hong Kong. He said the budget for the second phase was now HK$19.6 billion. Galaxy Entertainment said in April last year that it would spend about HK$16 billion on the second phase. The first phase cost it HK$16.5 billion and opened in May 2011. Mr Lui said the increase in the budget for the second phase was due to the company wishing to add more elements to the resort. He did not elaborate. Work on the second phase has
Galaxy Entertainment is looking for more opportunities in Macau, says Francis Lui
begun and is due to finish in 2015. It will have 500 live gaming tables. Galaxy Entertainment’s chief financial officer, Robert Drake, said the company intended to spend up to HK$60 billion on the third and
fourth phases. Mr Drake said work on the third phase was due to begin around the end of this year. The third phase will have up to 4,500 hotel rooms. The first and second phases combined will have 3,500.
The third phase will also have 1.3 million square feet of shop space and a big multi-purpose indoor arena, as Business Daily reported.
Gaining momentum Galaxy Entertainment had HK$14.4 billion in cash, cash equivalents or short-term investments on December 31, according to the Bloomberg news agency. Galaxy Entertainment recently agreed to buy Grand Waldo casino, next door to the Galaxy Macau, for HK$3.25 billion. Once the deal is closed, the company will have a 65 percent share in the property. The Galaxy Entertainment executives did not disclose yesterday their plans for the Grand Waldo. But Mr Lui said his company and the Grand Waldo’s staff would discuss how they might keep their jobs. He said Galaxy Entertainment would look for more opportunities in Macau to benefit its shareholders in the long run. He also said the company would pursue opportunities to invest in Hengqin Island, but gave no details. Mr Drake told Business Daily last month that Galaxy Entertainment was considering building a golf course or “some other non-gaming amenity” on Hengqin, if it could acquire the land. He said the company wished to build facilities on Hengqin to complement those it had in the Galaxy Macau. Mr Drake said he expects 2013 casino revenue for the city to increase by “mid-teens,” while VIP revenue will expand by a “high single digit”. “We see some positive signs that the market is gaining some momentum,” he said.
Corporate Michael Evans named COO MGM Hospitality MGM Resorts International – 51 percent owner of Macau casino operator MGM China Holdings Ltd – has promoted Michael Evans to chief operating officer of MGM Hospitality. He was previously executive vice president of global development. “Michael has made significant contributions to our company and I am very pleased to appoint him to the top position of our MGM Hospitality team,” said Bill Hornbuckle, president and chief marketing officer of MGM Resorts International. In China MGM runs Diaoyutai MGM Hospitality Ltd a joint venture with Diaoyutai State Guesthouse in Beijing. MGM China said in a Hong Kong filing on Friday that there might be a delay in issuing a circular confirming China State Construction International Holdings Ltd as the HK$10.5 billion (US$1.35 billion) main contractor on MGM Cotai. It said this was “…due to the time required to prepare the relevant financial and other information to be included in the circular pursuant to the requirements under the listing rules”.
Macau architect featured at Venice Biennale Macao Museum of Art is exhibiting works from by contemporary Macau artists at the Venice Biennale in Italy. It includes an installation by Carlos Marreiros, an award-winning architect urban planner, designer and artist born in Macau who has studied here and in Europe. He’s also a trustee of Macao Foundation and a member of the Macau-SAR Government Consultative Council of Culture and the Macau-SAR Government Environment Council. Four local artists – Sequeira Pa Keong, Lai Sio Kit, Chan Ka Keong and Denis Murrell – also attended the exhibition opening. The Venice Biennale, a world-renowned visual arts exhibition, was first held in 1895, and this year marks its 55th edition. Macao Museum of Art has represented the city at the Biennale since 2007. This year, the Macau exhibition is located in a two-storey building with a courtyard, which is adjacent to the Arsenale, the main venue of the Biennale. The Macau exhibition runs until November 24.
June 4, 2013 April 19, 2013
To distress of bosses, job-hoppers abound Job-hopping is rife because the labour market is a seller’s market Tony Lai
Annual staff turnover reached 19.9 percent in the transport industry last year (Photo: Manuel Cardoso)
n the two years since he graduated with a degree in business management, Ng Cheong On has been a sales assistant selling Japanese goods, a human resources officer in a gaming company and an exhibition organiser’s helper. “I still do not know why I landed my first job as a sales assistant,” Mr Ng told Business Daily. “Perhaps I felt pressured by seeing all my classmates had found jobs.” He left the job after less than two months, as he disliked being on his feet the whole day. He had enough of his second job after eight months, as he was unhappy “with the complicated human relations in the workplace”. Mr Ng’s experience of job-hopping is not uncommon in Macau, and headhunters say job-hopping is a big headache for employers. The managing director of MSS Recruitment Ltd, Jiji Tu, says of employment: “Nowadays, it could be considered stable if a person works for one or two years, and long if a person works for three years or more.” The latest survey of the labour market by the Labour Affairs Bureau found that in the first half of last year only 22.5 percent of the employed population had been working in the same company for more than 10 years. In 2007 the proportion was 26 percent. Ms Tu told Business Daily that jobhopping had become more prevalent as “there are many job opportunities, due to economic growth”. The latest official data on jobhopping are from 2008, when workers regarded as job-hoppers
numbered 39,200, 12.1 percent of the employed population. In 2006 the proportion was 9.5 percent.
Limited choices A survey last year, commissioned by the Macau Federation of Trade Unions and the Macau Association of Economic Sciences, found 23.3 percent of the 10,500 workers surveyed intended to change jobs within a year. The managing director of human resources company EvolutionHR Consultancy Ltd, Jennifer Liao, points out that jobhopping is easier when the labour market is a seller’s market. Ms Liao says the labour market is a seller’s market because of the government’s restrictions on imported labour and because the unemployment rate is only 1.9 percent, the third-lowest in the world. The government requires an employer to have a certain number of employees that are residents before it will give the employer a quota for imported labour. The government refuses to disclose the ratios of resident to non-resident workers it requires. Mr Liao says: “When companies have been left with limited choices beyond hiring residents, local candidates have more choices. Candidates can change jobs over simple reasons.” According to the Human Resources Office, the city had over 115,600 non-resident workers at the end of April, making up almost onethird of the employed population.
and verify transcripts and receipts, all the time.”
Nowadays, it could be considered stable if a person works for one or two years, and long if a person works for three years or more Jiji Tu, managing director, MSS Recruitment
Audrey Fong (not her real name) has been working for a Macau television broadcaster only since April, but she already wishes to find another job. “I just feel bored,” she told Business Daily. After graduating from university last year, Ms Fong worked for a food company for seven months. “Many jobs in the market are just boring – at least, in my experience. You sit there and play Facebook [games],” she says. “Some of my friends have a lot of free time at work, while others have to work long hours – but mostly routine or mechanical stuff. For instance, my sister’s job at the bank is to check
Difficult situation Ms Tu of MSS Recruitment says she knew one applicant that shunned a job opportunity simply because he did not wish to work on Taipa. Annual rates of employee turnover in the fourth quarter of last year ranged between 3.8 percent in the gaming and wholesaling industries to 19.9 percent in the transport industry, official data show. Royal Supermarket Co Ltd describes its turnover rate as “high”. The supermarket chain has a workforce of about 500 and loses 10 resident employees per month, making its annual rate of employee turnover 24 percent. The company says it means “to explore all channels to attract residents to the supermarket sector”, giving a 13th or even 14th month’s pay each year and awarding monthly bonuses to its best front-line staff. It has imported 80 workers this year to fill vacant positions. Small and medium enterprises are in the same boat. “Our members are facing a very difficult situation, especially when it comes to retaining people,” says the administrator of the Macau Small and Medium Enterprises Association, Kenneth Lei Chi Leong. “There is no possibility of competing with the salaries paid by gaming companies, which are much higher than what SMEs can afford,” Mr Lei told Business Daily last week. Official data show the average
June 2013 April 4, 19, 2013
Macau It is not cost effective… for companies to invest heavily in training when the turnover rate is too high Jennifer Liao, managing director, EvolutionHR Consultancy
monthly earnings of workers in the gaming sector were 18,040 patacas (US$2,255) at the end of last year. Median monthly pay generally was 12,000 patacas. Even the gaming companies need to use all the tricks in the book to keep their casinos adequately staffed.
Candidate-driven Melco Crown Entertainment Ltd’s latest annual report says that last year the company spent over HK$158 million on employee benefits, including directors’ emoluments, 16.8 percent more than in 2011. And last year Melco Crown Entertainment did not even open any big new facilities that required
a lot of extra employees. Casinos dangle all kinds of enticements in front of employees in an effort to keep them in the fold. Sands China Ltd’s annual report says: “Offering attractive and fulfilling career opportunities is important for retaining team members.” Last year the company “promoted 2,129 team members (87 percent local Macau residents),” the report says. “Of this number, 396 team members were promoted to management positions (96 percent local Macau residents).” Galaxy Entertainment Group Ltd’s annual report says the company gave training to 93 percent of its 15,000 employees last year. Wynn Macau Ltd’s annual report says the company has a stock incentive plan which may grant shares to its 7,000 employees for their contributions to “enhancing the value of Wynn Macau”. Ms Liao of EvolutionHR says Macau has a “candidate-driven” labour market. This is “never a good thing”, she says. “We ended up with candidates who have not had the necessary skills or experience in a role, leading to other issues,” she says. These other problems include lower efficiency, lower productivity and lower job satisfaction, she says. “From the employer’s perspective, it is hard to find ideal candidates. From the job seeker’s perspective, it is hard to find an ideal job,” Ms Liao says. But job seekers have more bargaining power, she says. “It is not cost effective… for
She has yet to make up her mind about what sort of job she would like next. Mr Ng, the exhibition organiser’s helper, says: “There are always many vacancies here, but it depends on whether you regard those as opportunities.” He will leave his job in the autumn to study graphic design in Canada, obeying an inclination to see more of the world. “Will I come back to Macau to work? We will see,” he says.
companies to invest heavily in training when the turnover rate is too high,” she says.
No worries Ms Tu of MSS Recruitment thinks the scarcity of suitable workers will increase, leading to more job-hopping, when several new casino resorts open in Cotai in 2015 and 2016. “This problem will plague smallscale, large-scale, locally-based or global firms,” she says. A spokesperson for the Policy Review Office, a government thinktank, said on the radio last week that the city would need 45,000 more workers by 2016. The office had previously said just 40,000 more workers would be needed by then. Chief Executive Fernando Chui Sai On mooted last month the possibility of allowing non-resident students studying at the city’s universities to take up employment here after graduation. Trade unions have expressed their opposition to this idea, saying it would harm the interests of resident workers and give priority to the interests of the gaming operators The vice-president of the Macau Federation of Trade Unions, Kwan Tsui Hang, who is a member of the Legislative Assembly, proposed on Tuesday that the Assembly debate the idea. Ms Fong, the bored employee of a television station, says: “One is free to switch jobs nowadays without any worries, as there are always lots of choices in casinos and hotels.”
KEY POINTS Fewer people stay in same company long-term Restrictions on imported labour hurting firms Resident workers have high bargaining power Firms reluctant to invest in staff training
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June 4, 2013 April 19, 2013
Factory activity shows economy slowing down HSBC/Markit PMI falls to 49.2, lowest since October; official services PMI hits the breaks Xiaoyi Shao and Jonathan Standing
Official services PMI announced yesterday
actory activity in the mainland shrank for the first time in seven months in May and growth in the services sector cooled, evidence that the world’s secondlargest economy is losing further momentum in the second quarter. The HSBC Holdings Plc and Markit Purchasing Managers’ Index (PMI) for May dropped to 49.2, the lowest level since October 2012 and
down from 50.4 in April, as domestic and overseas demand fell. The figure was slightly lower than a preliminary reading of 49.6 released on May 23. Fifty divides expansion from contraction compared with the month before. China’s economic growth surprised financial markets by weakening in the first quarter and that trend may not have changed, said
Zhiwei Zhang, chief China economist at Nomura Inc. in Hong Kong. “We think China’s economic growth will probably continue to slide,” he said. “Our forecast of GDP growth in Q2 is to slow to 7.5 percent from 7.7 percent in Q1.” The MSCI’s broadest index of Asia-Pacific shares outside Japan gave up as much as 0.2 percent to hit its lowest level in nearly seven weeks
after the data, while Australian shares dipped before stabilising. “The downward revision of the final HSBC China Manufacturing PMI suggests a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions,” said Qu Hongbin, chief China economist at HSBC. In the HSBC manufacturing PMI, compiled by U.K.-based Markit Group Ltd, the sub-index for total new orders dipped to 48.7, the first time it has retreated below 50 since last September and the new export orders sub index was below 50 for the second consecutive month. The indexes suggested falling demand from both domestic and overseas firms. China’s official manufacturing PMI, released on Saturday, rose but remained close to 50. It ticked up to 50.8 in May from April’s 50.6, although it also pointed to falling orders from export markets. The official PMIs focus on bigger and state-owned firms, while the HSBC/Markit series covers more smaller private enterprises. The Chinese government’s official PMI for the non-manufacturing sector, released earlier yesterday, also pointed to a loss of growth. The growth in the sector, which also includes construction, fell to 54.3 in May from 54.5 in April, the lowest since September last year. Even with the drop in the index, service industries are “expanding at a quite high rate,” said Sun Chi, a Hong Kong-based economist at Daiwa Capital Markets. At the same time, economic growth will be “relatively flat” in the coming months with the absence of a major policy shift, she said. “Big Chinese enterprises are at the front of the line to benefit from progrowth policies and eased credit,” Mr Sun said.
Momentum elusive The figures add to evidence China’s economy is struggling for momentum, buffeted by weak
China growth limited by small manufacturers Small and mid-sized companies operating ‘with minimal policy support’, says economist
hinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy and underscoring the need for the government to shift support away from larger, state-backed companies. The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said on Saturday. A private manufacturing index yesterday that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction. The divergence illustrates Premier Li Keqiang’s challenges in achieving sustainable growth across the world’s second-biggest economy while increasing consumption and reducing reliance on exports and investment. “It is too early to conclude that
an economic rebound has begun” in China, Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong, said in a report yesterday. “There is still a strong bias towards larger enterprises and coastal areas in terms of fiscal and credit policy implementation,” and small and mid-sized companies appear to “operate with minimal policy support,” Shen wrote. Divergences in the manufacturing indexes are common given their different focus and coverage, said Wang Tao, chief China economist at UBS AG in Hong Kong. The decline in the official PMI’s gauge for smaller companies is consistent with the HSBC index, Ms Wang said before yesterday’s release. “Business activity at small businesses is much weaker than bigger companies, showing sluggish growth momentum,” said Ken Peng, a BNP Paribas SA economist in
Beijing. The official manufacturing PMI’s output sub-index was higher than the one for new orders, “and that’s not a good sign because it reflects growing inventories at manufacturers,” Mr Peng said. Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, lowered product prices for June delivery, according to a May 9 statement on its website, the first cut in nine months as supply exceeds demand. About 54 percent of the increase in steel output in the first four months of the year has become inventory sitting in warehouses, Wang Xiaoqi, vice chairman of the China Iron & Steel Association said last week. President Xi Jinping said expansion is on a “more stable footing,” the Xinhua News Agency reported on Friday. The fundamentals of the Chinese economy are “sound,” according to the English-language
Official PMI for smaller companies fell to 47.3 in May
transcript of a written interview released by Xinhua before his visit to Latin America and the Caribbean. Domestic demand, especially consumption, is playing a bigger role in driving growth, employment is stable and incomes are rising, Mr
June 2013 April 4, 19, 2013
Greater China exports demand and overcapacity in some industrial sectors. The government is also attempting to rein in credit growth, a lot of which is not finding its way into productive investment but into speculative areas such as property. The IMF and OECD last week cut their forecasts for 2013 economic growth to 7.75 percent and 7.8 percent, respectively. China’s annual economic growth slowed to 7.7 percent in the first quarter from 7.9 percent in the previous quarter. The full-year annual growth of 7.8 percent in 2012 was the weakest since 1999. The IMF’s cut brings it into line with recent revisions by private institutions, including Bank of America-Merrill Lynch, which pared its forecast this month to 7.6 percent from 8 percent, and Standard Chartered Plc, which cut its estimate to 7.7 percent from 8.3 percent. Despite the slowdown, most economists believe Beijing will refrain from big-bang stimulus as long as the labour market holds up, since employment is crucial for social stability. Both the official PMI and the HSBC PMI show employment is falling. The government has set a 2013 growth target of 7.5 percent, a level Beijing deems sufficient for job creation while providing room to deliver reforms to the economy to reduce its reliance on exports. While some economists believe that Beijing may miss its 7.5 percent growth target this year, China’s leaders appear to be comfortable for now with a moderation in economic growth. Premier Li Keqiang said last month the country has limited room to rely on government spending or policy stimulus to spur its growth. “Big manufacturers are supported by state-led investment while smaller firms are more exposed to the volatile export market,” said You Hongye, an economist at China Essence Securities in Beijing. “We still cannot see any signs of recovery but the chances of any sharp slowdown are also small.” Reuters
Home prices jump defying tightened curbs Prices gain 6.9 percent in May from a year earlier, survey shows
hina’s new home prices jumped in May by the most since they reversed declines in December, as the government’s efforts to tighten property curbs this year fail to deter buyers. Prices surged 6.9 percent from a year earlier to 10,180 yuan (US$1,659) per square metre, SouFun Holdings Ltd, the country’s biggest real estate website owner, said in a statement yesterday after a survey of 100 cities. The costs rose 0.81 percent from April, the 12th month of gains on a monthon-month basis. China will widen property tax trials, which have only been imposed in Shanghai and Chongqing, the State Council said in a statement posted on the central government’s website on May 24. The government stepped up a three-year campaign to cool home prices in March, with only the capital city of Beijing issuing the toughest measures among 35 provincial-level cities, according to Centaline Property Agency Ltd, the country’s biggest real estate agency. “Against the backdrop of rising land prices, supply shortages in key
Guangzhou and Shenzhen in the southern province of Guangdong are rejecting some projects seen as too expensive, according to CEBM Group, an advisory company. Beijing will probably cap home prices on a “large scale” in the second half of the year, 21st Century Business Herald reported on May 30, without citing anyone. “While home prices may keep rising, the possibility of an acceleration in gains is limited,” Zhao Zhenyi, a Shanghai-based property analyst at Industrial Securities Co., said by phone, citing an expected inventory recovery in
Index shows solid reductions in output and new business
Xi was quoted as saying. A Bloomberg News survey of economists showed the People’s Bank of China is more likely to raise interest rates than cut them in the coming year.
Taiwan May PMI sees first fall in 6 months aiwan’s Purchasing Managers’ Index for May posted its first fall in six months pulled down by sharp falls in output and new business, as well as declines in input costs and output prices, a survey by HSBC Holdings Plc and the Markit Group showed yesterday. The index fell to 47.1 in May from 50.7 in April, the first deterioration in operating conditions since November 2012, and the sharpest in eight months. Readings above 50.0 signal an
cities and expectations of looser monetary policy, the expectations for further home-price gains going forward remain relatively strong,” SouFun said in the statement. The average price in the 10 biggest cities, including Beijing and Shanghai, jumped 9.7 percent from a year earlier to 17,202 yuan per square metre, up 1.1 percent from April, SouFun said.
Lenovo meets investors on dollar notes L
enovo Group Ltd, the world’s second-biggest maker of personal computers, began investor meetings yesterday to discuss a possible U.S. dollar-denominated bond sale. The Beijing-based company met investors in Hong Kong yesterday, and plans to meet Singapore investors today and in London tomorrow, a
improvement in business conditions while readings below indicate deterioration. The trade-reliant economy’s orders are a leading indicator of demand for Asia’s exports and for high-tech gadgets. Its April exports orders shrank for a third row in a month which raised concerns about future trends and led the government to lower 2013 GDP forecast to 2.4 percent from 3.59 percent. Output and new orders each decreased solidly during the month, and firms worked through
person familiar with the matter said last week, asking not to be identified because the details are private. The cost of insuring Asian corporate and sovereign bonds against nonpayment increased and is on course for its highest close in almost two months, according to credit-default swap traders. Asian companies pay an average 4.15 percent to sell dollar debt, the most since October, according to Bank of America Merrill Lynch indexes. Globally, bonds fell an average 1.5 percent last month, led by a 2 percent drop in Treasuries, the indexes show, amid speculation a strengthening U.S. economy will allow the Federal Reserve to reduce stimulus. Data this week will likely show companies added 165,000
The average price in the 10 biggest cities jumped to 17,202 yuan per sq. m.
major cities. “We don’t think the price changes will trigger more strict price controls, and that should be neutral tilted toward positive for the industry.” The month-on-month increase in May was 0.19 percentage point slower than in April, a second consecutive month of narrowing, according to SouFun. Bloomberg News
backlogs of work and lowered their purchasing activity accordingly. Meanwhile, further reductions in prices were recorded, with both input costs and output prices falling at accelerated rates. Manufacturing new orders in Taiwan decreased at a solid pace during May, ending a five-month sequence of growth in the sector. Respondents indicated that new business had decreased from both domestic and foreign sources. New export orders also fell for the first time in six months. Respondents reported a general deterioration in global economic conditions, with lower new orders from China, Europe and the United States mentioned specifically. “Where new orders fell, this was linked to weaker demand in both domestic and export markets. A number of respondents blamed the reduction in demand to a general slowdown in global activity,” HSBC said in a statement. Reuters
workers last month, matching the gain in April, analysts estimate. “Borrowing costs will definitely be higher and I think new issuance will not be an easy sell in this market,” said Brayan Lai, a Singaporebased analyst in emerging-market credit trading at Jefferies Group LLC. “Sentiment is very wary at the moment and markets will be closely observing data releases and economic actions over the next couple of months.” Lenovo plans to use the proceeds from any bond sale for general corporate purposes, including working capital, and for any acquisitions that may occur, it said in a statement to the Hong Kong stock exchange dated on May 31. Bloomberg News
June 4, 2013 April 19, 2013
Asia few expecting early moves to reduce corporate taxes nationwide or to make it easier for firms to lay off workers in business sectors on the decline, at least ahead of a July election for parliament’s upper house. A third tranche of the growth strategy to be unveiled tomorrow is expected to focus on the creation of special economic zones where deregulation and tax cuts can be implemented in limited geographic areas such as big cities.
The benchmark Nikkei tumbled to a six-week low yesterday
Deregulation is priority for growth, says Abe Japanese PM to push forward his economic policies
apanese Prime Minister Shinzo Abe emphasised yesterday that deregulation is the priority for the nation’s growth strategy and aimed to push forward his economic policies. Mr Abe, speaking to reporters after the Tokyo International Conference on African Development (TICAD) held in the city of Yokohama near Tokyo, said he would watch market movements closely but refrained from commenting on them. “I acknowledge deregulation is the priority for our growth strategy. As I decided to join talks of the TPP
[Trans-Pacific Partnership], I would like to push forward what needs to be done without hesitation,” Mr Abe said. Investors have not yet given up hope that Mr Abe’s aggressive fiscal and monetary expansionary policies will end deflation and two decades of economic stagnation. But a note of caution has crept in since Tokyo share prices began to slide on May 23 after months of heavy gains. Mr Abe also said he expected the financial markets to calm down gradually as the Bank of Japan is communicating with the markets.
“Our economic policies are proving fruitful for certain. We should be more confident,” Mr Abe said. The benchmark Nikkei tumbled to a six-week low yesterday, extending its slide from a 5-1/2-year high touched on May 23. Many want to see concrete steps for deregulation and structural reform in Mr Abe’s “Third Arrow” growth strategy, due to be unveiled along with macroeconomic guidelines including fiscal reform on June 14. But expectations for structural reform are already dimming, with
Goshi Hosono, secretary general of Japan’s biggest opposition party, challenged the government to better protect the elderly and small companies, charging Japan’s prime minister’s policies with ignoring the risks of monetary easing and a weakened currency. “It’s a fact that monetary easing and a weaker yen improved the mood, but there are also side effects and risks,” the Democratic Party of Japan’s Mr Hosono said on public broadcaster NHK’s Sunday Debate programme. “The government hasn’t taken sufficient care regarding the increased burden on pensioners and small business from rising import prices.” Polls show voter support for policies that have helped drive benchmark stocks to five-year highs this year. Japan’s economy expanded the most in a year in the first quarter as pledges for monetary easing weakened the yen and boosted shares, supporting exports and consumer spending. Thirty-five percent of respondents in an April 23 Mainichi newspaper poll cited the economy as the most important issue in parliamentary elections scheduled next month. Mr Abe, whose first, 12-month stint as premier ended in 2007 due to ill health, is supported by 74 percent of the electorate, according to a Yomiuri newspaper poll published April 16. Mr Abe said yesterday he expected communication from the Bank of Japan to calm the markets. “All the figures improved in April: employment, consumption and production,” he said. “Our policies are gradually beginning to bear fruit and we should be more confident.” Reuters/Bloomberg News
Singapore’s DBS takes one more shot at Danamon Bank extends agreement with Temasek on Danamon deal Saeed Azhar
BS Group Holdings Ltd, Southeast Asia’s biggest bank, yesterday gave itself one more chance to buy a controlling s ta k e in Indonesia’s PT Bank Danamon after Jakarta threw a spanner in the works of the proposed US$7.2 billion takeover. DBS said it had extended its agreement with Temasek Holdings Pte Ltd to buy the Singapore state investor’s controlling 67.4 percent stake in Danamon for two more months, after Indonesia’s central bank approved the deal but capped DBS’ share at 40 percent. Analysts said DBS and Temasek are now in a bind as Southeast Asia’s biggest banking deal hangs in the balance. “Increasingly, this is becoming an inefficient deal for DBS from an operational and capital perspective.
And at some stage, it also becomes a question of credibility for DBS,” a person familiar with the process said. “It’s a messy situation and the debate within DBS is whether to live with the short-term pain or walk away,” the person added. The person declined to be identified because he is not authorised to speak to the media. DBS shares dropped 1.69 percent in Singapore trading. Without a controlling stake the Singapore lender will have difficulty integrating Danamon with its existing business in Indonesia. A 40 percent stake also means it will have to deduct between 100 and 150 basis points from its regulatory core capital under Basel III, which is seen as punitive for banks owning minority stakes. Temasek, meanwhile, wants to swap its 67.4 percent stake in Indonesia’s
sixth-biggest bank for more shares in DBS, giving it indirect exposure to the rapidly growing Indonesian banking sector through DBS. A Temasek-led vehicle bought a 51 percent stake in Bank Danamon in 2005 for an undisclosed price and subsequently increased its stake to 67.4 percent over the next few years. Bank Indonesia, as part of its approval, conditioned the purchase of a DBS controlling stake in Danamon on Singapore allowing Indonesian lenders greater access to the Southeast Asian banking hub’s US$33 billion financial services industry. Singapore has promised to open up its financial services sector to Indonesian banks, in the areas of wholesale banking and limited retail banking for Indonesian students and workers.
But Indonesia wants more in the form of reciprocity for local banks in Singapore, which analysts said implied full banking licences. These allow foreign banks to open several branches in the city-state and accept retail deposits. “It does not cost DBS anything to wait and see a little bit given that the regulators are talking, which is a positive,” said Kevin Kwek, a banking analyst at Sanford C. Bernstein & Co. “Whether they will come to an agreement that would be in DBS’ favour is a question mark.” DBS said in yesterday’s statement the “long-stop date”, or last date for the agreement, had been extended until August 1, after which the share purchase agreement would lapse unless both parties mutually agreed to a further extension. Reuters
June 4, 2013 April 19, 2013
Indonesian inflation slows in May Consumer prices within government’s target range
We have the room to increase the rates but it has to also be in response to what will be the likelihood of our economic growth Halim Alamsyah, deputy governor, Bank Indonesia
Food prices – down for a second consecutive month
ndonesia’s inflation rate unexpectedly slowed to 5.47 percent year-on-year in May due to lower food prices, official data showed yesterday. Inflation was now back within the government’s 2013 inflation target range of 3.5-5.5 percent, according to the central statistics agency, after slowing from 5.57 percent in April. Inflation also fell 0.03 percent on a monthly basis, compared with a 0.10 percent decline in April. It was the second consecutive month that inflation has slowed following the government’s decision to ease import restrictions which had caused prices of staple foods to skyrocket at the start of the year. Statistics agency chief Suryamin, who goes by one name, said food
Singapore Air buys planes to take on budget airlines
ingapore Airlines Ltd chief executive Goh Choon Phong watched budget airlines in neighbouring Indonesia and Malaysia order some 800 aircraft in the 2 1/2 years he has been at the helm. With the third-highest cash reserves among airlines globally, Mr Goh responded last week with a record US$17 billion purchase. Singapore Air, including its affiliates, now has US$46 billion of aircraft orders with Airbus SAS and Boeing Co. The airline needs more planes as Malaysia-based AirAsia Bhd. and Indonesia’s PT Lion Mentari Airlines wean away budget travellers as Asia’s economic growth spurs travel. With
prices had fallen due to a “successful price control policy introduced by the government”. However, economists have cautioned that inflation could rise sharply if the government hikes fuel prices for the first time in more than four years, as it is expected to do soon. A rise in fuel prices would push up the cost of everyday goods due to the increased expense of transportation. Indonesia also posted a trade deficit of US$1.61 billion in April, after a US$100 million surplus the previous month, according to the statistics agency. The turnaround was caused by an increase in imports and weaker prices for commodities, a major export for Indonesia, official data showed. “This was the second highest
competition to lure bankers in the city-state increasing from Middle East carriers, MrGoh has revamped his first- and business-class offerings, undeterred by a 31 percent drop in stock price during his tenure and Wall Street’s downsizing. “Goh is taking the right step forward,” said Timothy Ross, head of Asia-Pacific transport at Credit Suisse AG in Singapore. “They need to look at what they do well, and that is medium- to long-haul premium passenger travel. These orders play to that strength.” Singapore Air on May 30 announced orders for 30 of the Boeing 787-10X variant, 30 Airbus A350-900s, and an option for 20 more that it may choose to convert to a larger A350-1000 variant, according to a statement. It’s the first order for the stretched version of Boeing’s Dreamliner. “These new aircraft will provide opportunities to grow and renew our fleet and enhance our network,” Mr Goh said in the statement. “They demonstrate our commitment to the Singapore hub and our confidence in the future for premium full-service travel.” Bloomberg News
shortfall in the country’s history,” Credit Suisse economist Robert PriorWandesforde said.
Higher key rate Indonesia’s central bank Deputy Governor Halim Alamsyah said using the benchmark reference rate to damp price gains would be more credible than raising the rate it pays lenders on overnight deposits. Bank Indonesia has room to boost borrowing costs, Mr Alamsyah said in an interview yesterday. Inflation may accelerate to 7.7 percent should the government raise fuel prices, compared with about 5.5 percent without an increase, he said. If “inflation expectations are going higher than what we are expecting,
Capital spending drops in Japan
apanese firms cut spending on plant and equipment in the year to January-March for a second consecutive quarter, in a sign that the government’s sweeping stimulus has yet to encourage companies to boost business investment. The 3.9 percent fall in capital spending followed an 8.7 percent annual decline in the final quarter of last year, which was the first decline in five quarters, Ministry of Finance data showed yesterday. The reading suggests that there will be no major revision to Japan’s gross domestic product growth for January-March, after preliminary data showed expansion of 0.9 percent from the previous quarter, or an annualised rate of 3.5 percent, analysts said. The latest capital spending figure will be used to calculate revised
then of course the most credible way to respond is by raising the BI rate,” Mr Alamsyah said, when asked whether Bank Indonesia would prioritise increasing its key rate or the deposit facility rate known as Fasbi. “We are considering the trade-off between maintaining the momentum of our economic growth and also containing the inflation expectations.” Bank Indonesia kept its key interest rate unchanged for a 15th consecutive meeting last month as the threat of inflation outweighs the risk of slowing growth. Economists from HSBC Holdings Plc to Citigroup Inc. have predicted the central bank will raise the Fasbi before the reference rate. The economy grew at the slowest pace in more than two years in the first three months of 2013 as declining exports and government spending countered gains in consumption and investment. “We have the room to increase the rates but it has to also be in response to what will be the likelihood of our economic growth,” Mr Alamsyah said. “We have several options, whether we should increase the interest rates, whether we should only tighten the liquidity situation of the system.” AFP/Bloomberg News
GDP data for the first quarter. “My impression as that the pace of decline in capital expenditure is not large enough to lead to a significant change in GDP,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute. “Capital expenditure has not improved yet, but there’s no reason to be pessimistic. The economy is recovering, but gains in capex may not appear until the third quarter.” Japan’s first-quarter GDP growth was the fastest in a year, outpacing that of the United States, as Prime Minister Shinzo Abe pursued a policy mix of massive fiscal spending and aggressive monetary stimulus. However, companies have been reluctant to increase spending on plant and equipment. Preliminary GDP data showed corporate investment fell 0.7 percent from the previous quarter, marking a fifth straight quarter of declines. Still, many analysts expect expenditures to pick up gradually as the world’s third-largest economy gains momentum. Reuters
June 4, 2013
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0.9638 1.5282 0.956 1.303 100.08 7.996 7.7631 6.1313 56.6188 30.43 1.2579 29.955 42.055 9899 96.462 1.24564 0.85258 7.9888 10.4194 130.4 1.03
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1.0625 1.6381 0.9972 1.3711 103.74 8.0111 7.7664 6.3964 57.3275 32 1.2948 30.203 43.54 9962 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032
0.9528 1.4832 0.9022 1.2043 77.13 7.9824 7.7498 6.1203 51.3863 28.56 1.2152 28.913 40.54 9329 75.241 1.20054 0.77553 7.7018 9.6245 94.12 1.0289
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After the gold rush Nouriel Roubini
Chairman of Roubini Global Economics and Professor of Economics at NYU’s Stern School of Business
he run-up in gold prices in recent years – from US$800 per ounce in early 2009 to above US$1,900 in the fall of 2011 – had all the features of a bubble. And now, like all assetprice surges that are divorced from the fundamentals of supply and demand, the gold bubble is deflating. At the peak, gold bugs – a combination of paranoid investors and others with a fear-based political agenda – were happily predicting gold prices going to US$2,000, US$3,000, and even to US$5,000 in a matter of years. But prices have moved mostly downward since then. In April, gold was selling for close to US$1,300 per ounce – and the price is still hovering below US$1400, an almost 30 percent drop from the 2011 high. There are many reasons why the bubble has burst, and why gold prices are likely to move much lower, toward US$1,000 by 2015. First, gold prices tend to spike when there are serious economic, financial, and geopolitical risks in the global economy. During the global financial crisis, even
the safety of bank deposits and government bonds was in doubt for some investors. If you worry about financial Armageddon, it is indeed metaphorically the time to stock your bunker with guns, ammunition, canned food, and gold bars. But, even in that dire scenario, gold might be a poor investment. Indeed, at the peak of the global financial crisis in 2008 and 2009, gold prices fell sharply a few times. In an extreme credit crunch, leveraged purchases of gold cause forced sales, because any price correction triggers margin calls. As a result, gold can be very volatile – upward and downward – at the peak of a crisis. Second, gold performs best when there is a risk of high inflation, as its popularity as a store of value increases. But, despite very aggressive monetary policy by many central banks – successive rounds of “quantitative easing” have doubled, or even tripled, the money supply in most advanced economies – global inflation is actually low and falling further. The reason is simple: while base money is soaring,
the velocity of money has collapsed, with banks hoarding the liquidity in the form of excess reserves. Ongoing private and public debt deleveraging has kept global demand growth below that of supply. Thus, firms have little pricing power, owing to excess capacity, while workers’ bargaining power is low, owing to high unemployment. Moreover, trade unions continue to weaken, while globalisation has led to cheap production of labour-intensive goods in China and other emerging markets, depressing the wages and job prospects of unskilled workers in advanced economies. With little wage inflation, high goods inflation is unlikely. If anything, inflation is now falling further globally as commodity prices adjust downward in response to weak global growth. And gold is following the fall in actual and expected inflation. Third, unlike other assets, gold does not provide any income. Whereas equities have dividends, bonds have coupons, and homes provide rents, gold is solely a play on capital appreciation.
Now that the global economy is recovering, other assets – equities or even revived real estate – thus provide higher returns. Indeed, U.S. and global equities have vastly outperformed gold since the sharp rise in gold prices in early 2009. Fourth, gold prices rose sharply when real (inflationadjusted) interest rates became increasingly negative after successive rounds of quantitative easing. The time to buy gold is when the real returns on cash and bonds are negative and falling. But the more positive outlook about the U.S. and the global economy implies that
While gold prices may temporarily move higher in the next few years, they will be very volatile and will trend lower over time as the global economy mends itself
over time the Federal Reserve and other central banks will exit from quantitative easing and zero policy rates, which means that real rates will rise, rather than fall.
Modest share Fifth, some argued that highly indebted sovereigns would push investors into gold as government bonds became more risky. But the opposite is happening now. Many of these highly indebted governments have large stocks of gold, which they may decide to dump to reduce their debts. Indeed, a report that Cyprus might sell a small fraction – some 400 million euro (US$520 million) – of its gold reserves triggered a 13 percent fall in gold prices in April. Countries like Italy, which has massive gold reserves (above US$130 billion), could be similarly tempted, driving down prices further. Sixth, some extreme political conservatives, especially in the United States, hyped gold in ways that ended up being counterproductive. For this far-right fringe, gold is the only hedge against the risk posed by the government’s conspiracy to expropriate private wealth. These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks’ “debasement” of paper money. But, given the absence of any conspiracy, falling inflation, and the inability to use gold as a currency, such arguments cannot be sustained. A currency serves three functions, providing a means of payment, a unit of account, and a store of value. Gold may be a store of value for wealth, but it is not a means of payment; you cannot pay for your groceries with it. Nor is it a unit of account; prices of goods and services, and of financial assets, are not denominated in gold terms. So gold remains John Maynard Keynes’s “barbarous relic,” with no intrinsic value and used mainly as a hedge against mostly irrational fear and panic. Yes, all investors should have a very modest share of gold in their portfolios as a hedge against extreme tail risks. But other real assets can provide a similar hedge, and those tail risks – while not eliminated – are certainly lower today than at the peak of the global financial crisis. While gold prices may temporarily move higher in the next few years, they will be very volatile and will trend lower over time as the global economy mends itself. The gold rush is over. © Project Syndicate
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June 4, 2013
The coming Cool War with China
Leading reports from Asia’s best business newspapers Noah Feldman
China Daily Beijing has moved to cut the number of items that require Central Government approval, in a move some say will help create a more efficient and friendly environment for business and help boost economic growth. The State Council has announced reforms of 133 items that require top-level approval, including rights on investment and production in the economy, which will be delegated to lower-level governments. The most important reform is to change the way resources are allocated, with the market instead of the government playing the leading role, premier Li Keqiang said last month.
Times of India Government’s efforts to promote India as an investment destination does not seem to be yielding fruits as FDI inflows registered dropped by 38 percent to US$22.42 billion in 2012-13 compared to a year before. FDI inflows were worth US$35.12 billion in 2011-12. The government had taken several policy decisions in the past few months to attract foreign investments. Important among these include, allowing FDI in multi-brand retail and civil aviation sectors and seeking legislative approval for increasing FDI cap in insurance and pension sectors.
Taipei Times The Chinese yuan may become fully convertible in a couple of years, providing ample business opportunities for Hong Kong, Taiwan and other places aiming to become offshore yuan trading hubs, HSBC Holdings Plc’s top executive in Hong Kong said in Taipei. “We expect yuan to be fully convertible in 2015 in terms of meeting trade settlement and investment needs,” said Anita Fung, HSBC Hong Kong chief executive.
Bangkok Post The government’s planned 2-trillion-baht (US$65.7 billion) infrastructure investment will be the main driver of Thailand’s economic growth over the next five or six years now that weak demand in the West has muddied the export outlook. Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong last week said the hefty investment over the course of seven years starting later this year will add 1.5 trillion baht to GDP. “This investment will improve our country’s efficiency and prepare us for competition with trade rivals once the Western countries recover,” Mr Kittiratt said.
Law professor at Harvard University and Bloomberg View columnist
omeone steals your most sensitive secrets. Then, planning a faceto-face meeting, he says he wants to develop “a new type” of relationship with you. At what point, exactly, would you start thinking he was planning to drink your milkshake? Ahead of the first summit meeting between U.S. President Barack Obama and President Xi Jinping of China on June 7, the two nations are on the brink of geopolitical conflict. As its officials acknowledge, China is a classic rising power, poised to challenge U.S. dominance. In historical terms, the sole global superpower never gives up without a fight. “China’s peaceful rise” was a useful slogan, while it lasted, for China’s leaders. “America’s peaceful decline” will get no one elected, whether Democrat or Republican. Geopolitics is almost always a zero-sum game. If China can copy or work around U.S. missile defences, fighter jets and drones, the U.S.’s global position will be eroded – and the gains will go directly to China. At the same time, trade between the two rivals remains robust. Last week, Henanbased Shuanghui International Holdings Ltd agreed to buy the U.S. pork-processing giant Smithfield Foods Inc. (SFD) for US$4.7 billion. This could be the single-largest Chinese acquisition of a U.S. company, and it is reason for enthusiasm. Mutual ownership of significant corporate assets across borders doesn’t miraculously guarantee peace, nor can it make conflict disappear overnight. But it gives both sides the incentive to manage geopolitical conflict, and not let it overtake the tremendous mutual benefits created by trade.
Entwined economies The juxtaposition of rising tensions over cyber-attacks and the pork cooperation perfectly captures the paradoxical state of ChineseU.S. relations – and explains why officials on both sides are struggling to come up with a new conceptual framework to understand the change. Never before has a rising power been so economically interdependent with the nation challenging it. The ties go beyond the U.S.’s 25 percent market share for Chinese exports or China’s holdings of 8 percent of the outstanding U.S. national debt. They include about 200,000 Chinese studying in the U.S. and perhaps 80,000 Americans living and working in China. The combination of geopolitical competition and economic interdependence sets the terms for the struggle that won’t be a new Cold War so
much as a Cool War. If the Soviet Union and the U.S. avoided all-out conflict because of mutually assured nuclear destruction, the relations between China and the U.S. today could be defined by the threat of mutually assured economic destruction. The economic costs of violent conflict would be incalculably large. As a practical matter, however, we mustn’t assume that economic interdependence precludes the possibility of oldfashioned violence. On the positive side, China is urging North Korea to reengage with the six-party talks and denuclearise the Korean Peninsula – a sign that the government in Beijing realises that its unruly ally could do significant damage to regional stability. On the negative side, North Korea seems perfectly content to ignore its mentor’s directives. As we learned during the Cold War, proxies don’t always behave the way their would-be masters want them to. It is far from clear that the Americans and the Soviets wanted their allies in the Middle East to go to war in 1967, 1973 or 1981. What steps, then, should Obama take in preparation for a summit at which he will confront an adversary who wants a much greater role in their mutual relationship? How should we think about keeping the Cool War from getting hot?
‘Chinese dream’ The first is to understand the structure of motivation on the other side. A nationalist Chinese public will expect a rising China to be treated as a counterpart by the U.S. – and Xi, who has spoken of achieving the “Chinese dream,” must be attuned to this public expectation over the medium term. In the immediate future, however, the legitimacy of the Chinese Communist Party still depends upon continued high rates of export-driven growth. And Xi’s most important job – today, tomorrow and forever – is keeping the party in power. Understanding this
motivation reveals the main U.S. levers against a rival bent on narrowing the militarytechnology gap: China’s continuing dependence on the U.S. export market, and more broadly, China’s need to integrate into the global economy to maintain economic vitality. Of course, it would be precipitous for Obama to draw any direct links between U.S. security interests and America’s willingness to keep its borders open to Chinese companies. But the message should nevertheless be communicated clearly: The U.S. won’t tolerate being subject to cyber-attacks designed to change the military-strategic balance.
A country that steals your trade secrets can become your economic enemy; one that steals your national-security secrets is signalling that it may become an actual security enemy. The long-term strategy for managing the Cool War is the same: Keep the pork foremost. The positive gains from trade can and must be leveraged to move both sides’ incentives away from force and toward cooperation. We shouldn’t be seeking to create a utopia. But we can and should use the magic of trade and economic cooperation to shift the incentives that push great powers to fight each other. The iron laws of history, like the iron laws of economics, are malleable. Bloomberg View
June 4, 2013
Closing Eurozone manufacturing downturn eases
Fire in China poultry plant kills dozens
The pace of decline in the euro zone’s manufacturing sector eased in May as new orders picked up, according to a closely-watched survey. Markit’s Purchasing Managers’ Index (PMI) for the euro zone manufacturing sector rose to 48.3 from April’s 46.7, marking its highest level in 15 months. A reading below 50 indicates shrinking activity. However, the sector has now contracted for 22 months in a row, according to the Markit survey. In Germany the PMI figure rose to 49.4, while Spain’s PMI reading of 48.1 was a 24-month high and Greece’s reading of 45.3 was a 23-month high.
At least 119 people were killed by a fire at a poultry processing plant in China, the nation’s deadliest blaze in 13 years. The fire broke out in the city of Dehui, Jilin province, after an explosion, the official Xinhua News Agency reported. The gates were locked when the fire began, according to survivors, who said the building’s complicated interior and narrow exits were hampering rescue efforts. “Any fatal casualties over 100 that’s not a natural disaster will make the government very nervous, in fear of possible social unrest,” Willy Wo-lap Lam, assistant professor of history at the Chinese University of Hong Kong, said.
Euro zone on track for gradual recovery: Draghi ECB president sees signs of stabilisation in ‘challenging’ economy
Recovery starting later this year, says Mario Draghi
uropean Central Bank President Mario Draghi said that while the economic outlook in the euro area is “challenging,” he still expects a
recovery this year. “There are a few signs of a possible stabilisation,” Mr Draghi said in a speech in Shanghai yesterday, according to a text provided by the
Frankfurt-based central bank. “Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year.” After reducing the ECB’s benchmark interest rate to a record low of 0.5 percent last month, Mr Draghi signalled he’s prepared to cut again if economic data worsen. While unemployment in the 17-member euro area reached a fresh record in April and the recession deepened in the first quarter, most economists in a Bloomberg News survey said they didn’t expect the ECB’s Governing Council to lower borrowing costs when it meets on Thursday. “The drivers of such a gradual recovery are the highly accommodative monetary policy and export growth, caused by growing foreign demand,” Mr Draghi said. Recent increases in stock markets are “benefiting virtually all economic agents, including corporations, banks and households,” he said.
Recapitalisation needs As the financial sector is the intermediary between the ECB’s
loose monetary policy and the real economy, transparency is needed about the risks that remain on the balance sheets of lenders across the region, Mr Draghi said. That’s a pre-condition for restoring “lasting health” in the banking sector, he said, adding that the central bank can’t help lenders recapitalise. “It is – first and foremost – the responsibility of shareholders to ensure that their bank is solvent and able to sustain its core business,” he added. “And if the private sector is unable or unwilling to provide the capital necessary to achieve solvency, it is for the fiscal and regulatory authorities to decide whether and how to act.” Once the ECB conducts an assetquality review of European banks and before it takes over responsibility for supervision next year, any capital shortfalls will need to be plugged by governments or the region’s bailout fund, Mr Draghi said. The central bank will present its proposal for a single resolution mechanism for euro area banks this month, he stressed. “The national budgets and where needed, the ESM, will have to provide adequate backstop,” he said. Mr Draghi also defended the ECB’s potentially unlimited and, as yet, unused OMT bondbuying programme. The German Constitutional Court will hold a hearing on a case that challenges the OMT’s compatibility with German primary law later this month. Bloomberg News/Reuters
Merkel reins in plan to transfer powers to Brussels Easing of euro crisis, shift in German priorities prompts rethink
erman Chancellor Angela Merkel has come out against handing the European Commission more powers, in the clearest sign yet that she is reining in her ambitions to create a “fiscal union” in which euro members cede control of their budgets to Brussels. The comments, made in an interview with weekly Der Spiegel, come days after Merkel held talks with President Francois Hollande in Paris and the two unveiled joint proposals for the future shape of the euro area, including the creation of a permanent president of the Eurogroup forum of finance ministers. Mrs Merkel spoke out strongly in favour of closer fiscal integration earlier this year, but France and some other euro members have deep doubts about ceding sovereignty – a step which would require politically sensitive changes to the EU treaty – and Berlin appears to have realised
that this resistance is too great to overcome for now. “We seem to find common solutions when we are staring over the abyss,” Mrs Merkel had said in April. “But as soon as the pressure eases, people say they want to go their own way. “We need to be ready to accept that Europe has the last word in certain areas. Otherwise we won’t be able to continue to build Europe,” she added at the time. The move away from such views reflects both an easing of the crisis in response to actions by the European Central Bank and a shift in Germany’s focus from insisting on deficit reduction in euro zone stragglers to pushing for structural reforms. With a German election looming in September and a new anti-euro party threatening to eat into support for her conservative bloc, Mrs Merkel may also be adjusting her message for
Angela Merkel – moving away from more fiscal integration
voters at home, many of whom are leery about ceding national powers. “I see no need in the next few years to give up more powers to the Commission in Brussels,” Mrs Merkel
said in the interview, adding that she agreed with Mr Hollande on EU member states cooperating more on economic issues. Reuters