Macau needs tourism strategy plan: academic
Year I Number 246 MOP 6.00 Monday March 25, 2013 Editor-in-chief Tiago Azevedo Deputy editor-in-chief Vitor Quintã www.macaubusinessdaily.com
The city needs a strategic master plan for its tourism industry says academic Glenn McCartney. The plan – to decide the image the city presents to would-be visitors and what the community wants from its highest earning industry – should be created after consultation between the public and private sectors, and equally importantly the local residents, he says. Pages 6 & 7
Home lending beats unfinished flats law T
Midland Macau Ltd, a real estate agent, said a possible reason was buyers taking loans on purchase of unfinished flats – ahead of the government’s tightening of rules for developers on the marketing of uncompleted properties. But the January total of new home loans remained far below the September 2012 figures. That was the peak month for new mortgage lending last year.
he value of new residential mortgages granted by banks rose in January, after falling for three consecutive months, the Monetary Authority of Macau said. The combined value of new home loans was 2.98 billion patacas (US$372.9 million) in January, 13.7 percent more than in December.
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ICBC profit close to MOP1 billion
Inflation respite likely to be brief
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CTM payments being reviewed: regulator
4pct of gaming workers are ‘suicide risk’: survey
The city’s telecom regulator confirmed at the weekend it is checking the royalty payments made by the city’s biggest telecoms operator, Companhia de Telecomunicações de Macau, SARL (CTM). According to a filing to the Hong Kong Stock Exchange on Thursday, CTM might be forced to make backdated payments to the Macau government starting from 2001. “Regarding royalty of previous years, it is rather a confirmation process on payments made instead of [a] review,” the Bureau of Telecommunications Regulation told Business Daily in a written reply.
Nearly four percent of gaming workers it surveyed are a suicide risk, claims the Macau Gaming Enterprises Staff’s Association. It suggests insults and threats directed to staff from casino players when they lose are one factor affecting workers’ mental health. The association polled 491 casino staff to score in a range of one to four – with four being the most stressful – their experiences in a range of workplace scenarios. The group says any score averaging above three suggests the person might be prone to suicidal thoughts.
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business daily March 25, 2013
Visitors up 11.5 pct in February Year-on-year comparisons difficult due to Chinese New Year
More flights out of Macau are expected this year, with new routes on the horizon, the airport operator says
Airport prepares for services to Russia The airport operator is eyeing direct flights to more places and expects a bump in revenue this year Stephanie Lai
irect flights to Russia are part of Macau International Airport Co Ltd’s plans for this year. The airport company’s director of finance and administration, Grace Cheang Sok Kuan, told reporters on Friday that it was also interested in adding scheduled flights to Shandong, Tianjin and Zhengzhou in the mainland, and to Indonesia and other Southeast Asian countries. Ms Cheang was speaking after meetings of the company’s board and shareholders, held to approve last year’s report and financial results, and this year’s strategy. “The route expansion is basically still in the negotiating process, where we are dealing with issues like aviation rights,” she said. “It is hard to set a specific timeframe for the flight route expansion plan, as it involves the coordination of overseas flight companies as well.” The Civil Aviation Authority told Business Daily it had received no applications for services on any of the routes mentioned by the airport operator. The Macau Government Tourist Office opened a representative office in Moscow on Tuesday, after approving last year visa-free entry for Russians entering Macau, in an
effort to tap a new source of tourists. Macau Government Tourist Office director Maria Helena de Senna Fernandes told travel trade magazine TTG Asia that her office would “probably look at the Middle East in the future” because of the affluence of its travellers.
Fresh challenges The airport company’s main shareholders, Sociedade de Turismo e Diversões de Macau SA and the government, increased its operating capital last year to allow it to repay bank loans for the airport’s early development. It made its first profit ever last year of 66.89 million patacas (US$8.36 million). Its revenue grew by 17 percent last year to 769 million patacas. The company said an increase in passenger volume helped increase revenue. Macau International Airport handled 4.49 million passengers last year, 11 percent more than the year before, and 41,997 aircraft movements, 8 percent more. But the real money-spinner last year was the company’s non-aviation business, including duty-free retailing and leasing advertising space, which provided
55.4 percent of its revenue. The company forecasts that revenue will rise to 798 million patacas this year and that the number of passengers the airport handles will increase to 4.7 million. The board did not discuss on Friday plans to expand the airport by 2030. The shareholders were told that the company had returned to the government two plots of land together covering 37,000 square metres, which will be used for the first phase of the Light Rapid Transit railway. “The return of the land to the government is free of charge, as we are trying to support government policy,” said Ms Cheang. She said the airport company was waiting for the government’s response to its pleas to help solve problems such as a shortage of suitable workers, road traffic congestion around the airport and flocks of birds that interfere with air traffic. “We hope that by drawing the government’s attention to our concerns, there will be means to tackle these issues soon,” she said. “As for the traffic jam problem around here, the government may make some changes, such as relocating some of our taxi ranks and bus stations.”
isitor arrivals to Macau increased 11.5 percent yearon-year in February, with mainland arrivals up 17.4 percent show data from the Statistics and Census Service. Gaming industry analysts point out it’s difficult to make meaningful year-on-year comparisons on tourist statistics for February 2012 versus the same month this year. That’s because 2013’s numbers include the Lunar New Year holiday – a traditionally busy time for tourism from the mainland. Nearly a million people visited Macau just in the eight days from February 5 to February 12 inclusive – a 15.64 percent increase from a year earlier according to figures published last month by Macau Government Tourist Office. Around 70 percent of the visitors during the holiday period were from mainland China, suggest the MGTO figures gathered from the Public Security Police, the body responsible for immigration control. The government’s consolidated numbers for the whole month show 2,376,840 arrivals in February. A total of 63.5 percent – 1,508,599 people – were from the mainland. And 53.2 percent of all visitors in February were same-day arrivals. In the first two months of 2012, same-day visitors accounted for 54.6 percent of all arrivals according to the statistics service. Government data consistently show that those who stay one night or more spend more, though given the rising cost of hotel accommodation in the city, that’s not surprising. Elsewhere in this edition of Business Daily, Glenn McCartney assistant professor, Gaming and Hospitality Management, University of Macau, discusses the issue of what sort of tourism Macau wants – a focus on ever greater numbers in the lower-spending mass segment, or a strategic plan for higher-spending ‘quality’ tourism. In February, visitors from the United States, Australia and Canada fell 6.6 percent, 21.4 percent and 4.6 percent respectively year-on-year. The average length of stay by all visitors stood at 0.9 days, the same as in February 2012. In February 2013 overnight and same-day visitors registered 1.8 days and 0.2 days respectively – numbers identical to those recorded a year earlier. M.G.
Yr-on-yr rise in mainland visitors in February
March 25, 2013 business daily | 3
Mortgage lending rebounds in January New home loans for residents grow but remain far from pre-curbs figures Vítor Quintã
he value of new residential mortgages granted by banks started the year on the mend, after falling for three consecutive months, the Monetary Authority of Macau said. The combined value of new home loans was 2.98 billion patacas (US$372.9 million) in January, 13.7 percent more than in December. But the monthly total of new home loans remains far from the September figures, which was the peak month for new mortgage lending last year, as homebuyers rushed to take out loans before the government introduced new curbs on the overheating property market. In October the government
made yet another attempt to cool the property market, reducing the maximum proportion of the value of a home that a bank is allowed to lend for flats worth more than 6 million patacas. Noelle Cheung, sales director of Centaline (Macau) Property Agency Ltd, said last month that the new rules, coupled with an increase in home prices, had pushed prospective homebuyers into a tricky corner. She told Business Daily that now that banks lent a smaller proportion of a home’s value, buyers had to make bigger downpayments. Ms Cheung said another headache for buyers was that often a bank’s valuation of a home “is not even
close” to the price being asked it. The value of new mortgages granted to non-residents fell by 60.9 percent to 94.9 million patacas in January, an 11-month low, according to the data released on Friday. The lending recovery was fuelled by new mortgage lending to Macau residents, which grew by 21.3 percent to 2.89 billion patacas in the first month of the year. The value of new mortgages granted for unfinished housing grew by 28.7 percent in January to 115.5 million patacas. New mortgage lending for commercial property is also recovering, growing by 61.6 percent to 3.77 billion patacas in January.
MOP2.98 P billion Value of new home loans in January
Bank director ‘very satisfied’ with performance in ‘challenging environment’ Vítor Quintã
Thursday, he did not disclose any concrete figures, which will only be released later this year. But, considering that last year ICBC Macau had a profit of 789 million patacas (US$98.7 million), this increase would push the bank’s
ICBC Macau expects the approval for a Hengqin branch by ‘mid-year’, Mr Shen said
Geopolitics of pollution Tiago Azevedo
ICBC profit close to MOP1 bln
he profits of Industrial and Commercial Bank of China (Macau) Ltd (ICBC) grew by 22 percent last year, chief executive Shen Xiaoqi said. Speaking to Business Daily on the sidelines of a media dinner on
profit for 2012 to about 962 million patacas. The increase was slightly slower the market average. Last year, the total operating profits of the banking sector increased by almost a quarter to 6.3 billion patacas. The value of the loans granted by the bank was 17.8 percent higher last year, Mr Shen said in his speech, lower than the 26.2 percent marketaverage increase. The figure hints at a slowdown in consumer credit and commercial loans because in January Mr Shen said the value of mortgage loans handled by ICBC Macau had doubled last year. On the other hand the bank’s deposits grew slightly faster than the market average, up by 37.8 percent last year. The executive told Business Daily he is “very satisfied” with ICBC Macau’s performance in 2012 amid a “challenging environment” created by the global economic crisis. The effects of the crisis are still being felt and now the monetary easing policy of several governments is “pushing so much money into the market and leading to more inflation,” he said. ICBC Macau expects to get the approval from the China Banking Regulatory Commission to become the city’s first bank to open a branch on Hengqin Island by “mid-year,” Mr Shen said. “We have the full support from the local authorities, namely the approval from AMCM [the Monetary Authority of Macau],” he added.
ollution is a clear danger to China’s new leaders and a big concern for the public. Record levels of smog blanketed Beijing earlier this year, with the most insidious air particulates exceeding World Health Organisation limits daily. The WHO says a safe level for PM2.5 readings is 25 micrograms per cubic metre. Air samples in Beijing peaked as high as 993 micrograms a cubic metre on January 12. Just this month, officials warned the public to stay indoors as air pollution again exceeded hazardous levels. The mainland is already home to some of the world’s most polluted rivers and other sources of drinking water. The World Bank says China has 16 of the 20 dirtiest cities on the globe. The public has recently begun to seek more information about PM2.5 pollution, the fine airborne particulates that in high concentrations cause disease and premature death. Exposure to PM2.5 contributed to 8,572 premature deaths in Beijing, Shanghai, Guangzhou and Xi’an last year, according to estimates by Greenpeace and Peking University’s school of public health. The geopolitics of pollution has the potential to turn toxic. How China nurtures and protects – or ravages – the environment affects the planet. The public in Macau are occasionally advised to stay indoors as pollution is blown into the city. Air pollution has worsened this year, particularly near main roads and in residential areas of the peninsula, according to official data. In January the daily index of the quality of the air at the city’s roadsides averaged 105.7 points and the daily index of the quality of the air on the peninsula averaged 94. Air quality is considered bad when the index exceeds 100.
Obscured landscape The city’s landscape is often obscured by smog, and much of the air pollution is generated by the coal-fired power stations and smokestacks across the border in the mainland’s industrial south. Increases in emissions and the demand for coal could make China’s air 70 percent worse by 2030, according to Deutsche Bank AG. But exhaust from traffic in Macau’s increasingly congested streets also plays a role. As the mainland’s 1.3 billion people grown richer, they will buy motorbikes, cars and air conditioners, dealing a further blow to the environment. The same will happen here if timely action is not taken. China can go green, if it acts now. It needs radical measures, including sharp reductions in coal and motor vehicle use, matched by massive investments in clean energy, and urban and intercity railways. Macau would stand to benefit but the government here has to act quickly as well to limit demand for private vehicles and to promote green technology. The public wants the government to do more to improve air quality. The problem, however, is a lack of political will. Enterprising politicians are extracting too much money from the present economic structure to tolerate a quick shift towards sustainability. This means smokestacks in the mainland will continue to foul the skies over Macau for years to come as the unchecked pursuit of economic growth offers rewards tarnished by environmental degradation.
business daily March 25, 2013
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HOSPITALITY Home town advantage The latest survey of manpower and pay in the gaming industry shows diverging trends in the earnings of resident and non-resident workers. The average remuneration of all gaming workers rose by 7.9 percent last year. But the pay rises were not evenly spread among all workers in the sector. It is sometimes said that employing imported labour is detrimental to Macau workers. The most recent data from the Statistics and Census Service not only fail to support this assertion, they positively debunk it, in the light of the miniscule amount of unemployment here. In most job categories, the average pay of residents is considerably higher than that of non-residents.
This is not the case in all job categories. At or near the top of the gaming industry hierarchy, residents typically earn less, in some cases by up to one-third. The more specialised the job, the bigger the pay difference is likely to be. But people in these roles make up only a small proportion of the industry’s workforce, and lower down the ladder it is residents that command the pay premium. Macau workers either have a monopoly on some jobs, such as working as a croupier, or are paid considerably more than imported labour for other reasons. The average pay premium that resident workers command ranges between 20 percent and up to more than 60 percent, depending on the role. That gap suggests a distorted market, where the comparatively high wages enjoyed by residents are supported in part by a squeeze in nonresidents compensation.
Any inflation respite will likely be brief There’s been a dip in inflation but business should expect an annual rate of about 5 percent, says economist Vítor Quintã
he average annual rate of inflation in the first two months of this year was slower than a year earlier, official data indicate, and inflation is forecast to slow further this month. But one economist says this period of relief will be short and that the annual rate of inflation will remain a “quite serious” 5 percent for the rest of the year. Annual inflation averaged 5.6 percent in January and February, having averaged 6.3 percent in the first two months of last year. Lumping the first two months of the year together for comparison with a year before reduces distortion in separate comparisons of each month, which is caused by the Lunar New Year holidays having fallen in February this year but in January last year. The annual rate of inflation in February was 6.16 percent, the fastest for six months but slower than the rate of 6.8 percent rate in January last year. It is too soon to say that lower rates of inflation are here to stay, according to the chairman of the
Macao Association of Economic Sciences, Joey Lao Chi Ngai. “We expect inflation to remain a problem. Whole-year inflation will remain around 5 percent, which is still quite serious,” Mr Lao told Business Daily. He believes that inflation is accelerating. The annual rate of inflation rose in
We expect inflation to remain a problem. Whole-year inflation will remain around 5 percent, which is still quite serious Joey Lao Chi Ngai, chairman, Macao Association of Economic Sciences
that gaming floor resident workers earn higher in average
Restaurants usually increase their prices during the Lunar New Year holidays
each of the last three months of last year before falling unexpectedly to 5.04 percent in January, the lowest for 21 months. Prices rises typically slow in the month after Lunar New Year and sometimes even fall, the consumer price index indicates. Mr Lao said inflation would slow this month, but not by much. Restaurants usually increase their prices during the New Year holidays, saying they have to pay their staff holiday overtime. But Mr Lao expects no postholiday reduction in restaurant prices. Macau households spend onequarter of their money on eating out. Their next-biggest outlay is housing costs which, Mr Lao expects, will continue to rise. “In the coming three to five years there will still be a lot of demand for home rental, with a lot of outside labour coming to work in Macau,” he said. He said the limited supply of new flats would mean growth in the housing stock would remain “very slow”. The result was a “very tense” housing market, Mr Lao said.
March 25, 2013 business daily | 5
CTM payments being reviewed: regulator Internet licence of Macau’s biggest telecom operator to expire next month Vítor Quintã
CTM pays the government five percent of its telecommunications services revenue
he telecommunications regulator is checking the royalty payments made by the city’s biggest telecommunications operator, Companhia de Telecomunicações de Macau, SARL (CTM). CTM shareholder Citic Telecom International Holdings Ltd had said the Bureau of Telecommunications Regulation was “reviewing CTM’s royalty
payment (…) back from 2001”. “Regarding royalty of previous years, it is rather a confirmation process on payments made instead of [a] review,” the bureau told Business Daily in a written reply. Citic Telecom said the authorities claim “payments that have been made by CTM were only on a provisional basis and subject to final approval”. According to a filing to the Hong
fixed telecommunications network operator” under the new licences. Last year the government launched a tender to open up the landline telecommunications market, seeking to issue three new licences, including one for CTM. The only bidder was Companhia de Telecomunicações de MTEL, Ltda, which proposed a joint venture with mainland telecommunication equipment and network solutions provider ZTE Corp. In its reply the bureau did not provide a timeframe for when MTEL might be granted a licence. In January the bureau director Lawrence Tou Veng Keong said MTEL would soon get a permit. “We are only waiting to receive some additional information,” Mr Tou said, quoted by Radio Macau. CTM confirmed that it applied in November for renewal of its Internet licence for a further five-year period. The application “is under evaluation and subject to [the] government’s final decision,” the bureau said. CTM’s Internet licence will expire next month, not in 2016 as Business Daily had reported on Friday.
Kong Stock Exchange on Thursday, the operator might be forced to make backdated payments starting from 2001. The bureau did not comment on this issue. In a written reply to Business Daily, CTM declined to comment: “We do not want to speculate on the impact of the government’s review which is still under process.” CTM pays the government five percent of its telecommunications services revenue – including Internet services –, under its current concession revised in January 2012. In addition the regulator “is proposing to apply royalty on the services included in the new fixed network licence which will likely be issued in 2013,” Citic Telecom added.
MTEL on hold CTM said it was “not in an appropriate position to comment on this issue which is a decision of the authority”. Asked if these royalty payments could be higher than at present, the bureau said that “CTM will be treated the same as the other public
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business daily March 25, 2013
Macau needs tourism strategy plan
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Second wave Investment was the main driver of economic growth last year. It was the only component of expenditure that rose faster than gross domestic product. Investment grew by 27.1 percent last year, at current prices. In the preceding two years it grew by 64 percent.
To determine where Macau as a tourism destination and as a community wants to be in a few years time, a strategic master plan is needed, suggests academic Glenn McCartney. It should be created after consultation between the public and private sectors, and equally importantly, the local residents, he says. Mr McCartney, assistant professor, Gaming and Hospitality Management, University of Macau, adds the territory needs to be better marketed to attract different types of tourists Luciana Leitão
Photo by Manuel Cardoso
The chart shows several things worth highlighting. Since 2010, our post-crisis reference point, all the main types of investment have risen. Public investment has exploded, albeit from small beginnings. Public investment made up less than 18 percent of all investment in 2010, but last year it made up almost one-third. Most of the growth was due to rising public expenditure on construction, as work on new housing and new transport infrastructure got into full swing. In the past two years public investment in construction has almost tripled. It accounted for 90.6 percent of public investment last year. Public investment in equipment has more than doubled. The growth in public investment detracts attention from the fast rise in private investment. Private investment in the past two years has increased by just under 40 percent, a figure that would be remarkable if it were not dwarfed by the rise in public investment. The rise in private investment was due to an increase of 42 percent rise in investment in construction and an increase of 32 percent rise in investment in equipment. The figures suggest that we have entered a new period of investment expansion. J.I.D. The content of this column is the work of Business Daily’s journalists.
Increase in public spending on construction in the past two years
The number of visitors to Macau keeps increasing. Can we handle such a boom in tourism? It’s this search for a magical number every destination looks for. There’s no magical number. The physical carrying capacity we can change by widening a street, by adding more hotel rooms, so physical carrying capacity can be increased in destinations or it can be restricted, through visas and policies. What I am more concerned about is the social carrying capacity, which is the ability of the community within Macau to absorb more and more numbers. The whole carrying capacity thing has many aspects to consider, before you come to what is appropriate for Macau given its
size, residents’ background; so you have to measure it properly. The social carrying capacity is very simple, it’s things like the residents’ tolerance towards the numbers of people, towards ‘taking my taxis’ and ‘going to my restaurants’ or when the menu starts changing to suit the visitor and the prices start to go up. You look for those, the cracks in the social fabric where residents are complaining too much. Also, it is the ability of the government to have enough capability and capacity to be able to manage these numbers. That can be [involve] a policy, legislation, and also it can be physical infrastructural. We look at government capacity and capability as well, that’s another
dimension. We [also] look at the poorer environment, which gets scarred, physical landscapes get scarred, be it heritage buildings or nature; people tread on grass and destruction, they start rubbishing [littering], so we have to put all those dimensions together, then when you look at that you say ‘okay, what appropriate amount of people should we be bringing in, given all these numbers’. It’s not as simple [as] to say ‘you know what, we have a threshold’. There’s a certain threshold where when you reach it, then things start to negatively impact the destination, because the numbers are too big, so residents get a little bit more irritated, the environment starts to deteriorate and so on. The whole visitor experience starts to deteriorate too, because they are not having a good time, they are not feeling so welcomed. The whole big thing has to be thought of. If you have a task force - I believe they [government] have one - you have to look at many of these aspects. The carrying capacity is just one of the many pillars that we should be constantly monitoring. I don’t think we have a benchmark, so we don’t know if we’re moving up and down or if we don’t know what’s good, then how are we able to correct it? We have to put corrective actions into place, but if we don’t know what’s the number to be having, then we don’t know which corrective actions we should do. We’re not measuring it in an effective way and we don’t know all of these dimensions. We may not know the actual ‘capacity’ number, but when residents start complaining, like what happened during Chinese New Year, isn’t this a hint that we might be achieving a capacity limit? We have a thing called seasonality in tourism and it’s got peaks and dips. Macau suffers this as well as many others. Because suddenly you have these
March 25, 2013 business daily | 7
MACAU peaks and I think you get critical levels of capacity during Chinese New Year, you get to the level where things are shaking. At an event like the Olympics, suddenly London also peaked – hotels had full occupancy, etc -, but if you know this is going to happen, you can plan ahead and you can keep the systems going; we can plan better when it [demand] is peaking. Then when it’s low that’s when they [the relevant bodies] do more marketing. What we’re trying to do is to flat[ten] the line and that’s the big challenge. I think if we know these peaks are coming, we should be planning ahead. Chinese New Year was a critical moment and we had a few incidents at the border. The Macau Government Tourist Office director said it was a one off event, but do you think something should be done to control the influx of people? To me, there is probably too much focus on numbers. It should be about tourism quality and management. But governments are obsessed with numbers, because it looks good in a press release. Let’s go beneath the numbers, what does that mean in terms of the quality of the tourism we’re bringing in? How much are they spending? How long are they staying? Some destinations in the world, particularly small islands, actually limit numbers, because they look for quality type of experience, so they would look for people who stay four to five days.
What I am more concerned about is the social carrying capacity, which is the ability of the community within Macau to absorb more and more [tourist] numbers
It works very much in the integrated resorts, where they want to bring in more premium type gamblers, but they also want to bring in the conventions and exhibition market, in which they stay for four or five days and it’s also a higher-spending leisure market. The government always pitches the numbers, but in the private sector they don’t look so much at the numbers, they look at what comes of the numbers, and that’s an area we should explore more. Historically, Macau has had the problem of being a day-tripper destination, and we haven’t moved much from that. We still have a large percentage coming for a day and leaving, so we have to think about ‘how do we get him to stay longer and spend more?’. That statistic starts to generate a lot more money for the economy and that’s the approach I would take rather than focusing on the mass tourism.
Macau hasn’t shifted from the typical day-tripper tourist, so has our strategy been wrong? We haven’t addressed Macau’s brand image. If Macau is still perceived as a gaming destination then it doesn’t matter, because people won’t have a convention here. The integrated resorts [owners] are going all over the world and they are saying ‘come to Macau, it’s more than a gaming product’. They’re doing their thing, but we have to look at overall destination branding strategy. The last 10 years if we haven’t moved, why haven’t we moved and what corrective actions should we be taking? In the last 10 years, we became more reliant on a few rather than becoming a diverse travel market. What should be the right marketing for Macau? It’s about collaboration between all stakeholders, not just the government saying Macau is a place of heritage and then integrated resorts come out and do their bit. ‘We’re an integrated resort, we have gaming, we have convention centre and we have an arena.’ It’s completely fabricated, so here’s your fabricated environment and then you have the authentic side of Macau, which are the heritage sites. We have these two positions and you put them together and come out with a clear marketing strategy where both are in agreement. I think there should be more collaboration, because there has been very little of that. Is that why the MICE sector isn’t as successful as it should be? If I’m selling [the] MICE industry, I’m flying to Mumbai and I say ‘come to Macau’, and they say that Macau is all about gaming. Instead, integrated resorts show them the videos of The House of Dancing Water, Titanic and 3D cinema, all these other products that are non-gaming. They’re trying very hard to bring in a diversified market, because they have to convince people to come to Macau, [and] not Hong Kong, Shanghai, because this is a very competitive market. MGTO has done its bit also, but how are we going collaborate more? MGTO is trying a new strategy, diverting tourists to less known heritage sites, to avoid certain areas to be overcrowded. Is this a good strategy? I fully agree we should disperse tourism beyond the ‘honey pot’ [most popular areas], because of the physical numbers. It’s physical deterioration and the other reason is that economic benefits don’t go beyond a certain area. Look at say the vendor outside and how can he benefit selling his soft drinks? In these [other] heritage sites the locals are not getting any economic benefit, so I think they should spread [the tourists]. We should have a visitor impact model, a visitor management process monitoring people coming in. This is all about site management. You need all those things in place. Will infrastructure such as the light railway, the new Taipa ferry terminal and the bridge linking Hong Kong, Zhuhai and Macau, help? Obviously yes, because of the traffic congestion. Delegates walking from the [Taipa] temporary ferry terminal [boats] have to do so with no air con. It takes a few minutes.
That is not a quality tourism experience for a guy in suit and tie with luggage. When you get off the Macau ferry terminal, several of my friends complain they [the porters] just dump the luggage. This is not a quality tourism experience and we call it touch points - if you have these taken cared of, on arrival, taxis, concierge, those are all quality experiences, then you’ll have quality. Unfortunately, its unpredictable, and people start to form opinions upon arrival. Service quality is really the key to make sure that visitor experience is really a good one. But service quality has to do with the shortage of human resources? Yes, that’s Macau. How do you have a workforce that delivers quality? Macau has challenges there, because we have restrictions of import that should be looked at. We have places around the world that do welcome foreigners. It’s called skills transfer and we need that to become more professional. You’ve mentioned we need a master plan. What kind of master plan? It is like a strategy document. ‘Where do I want to be in five years?’ It’s a dynamic document and it’s always changing. After consultation, a lot of [sector] players decide about tourism strategy, transportation network, etc. The community must be very much part of it; after all, the tourists are coming into their city. Macau doesn’t have a strategy document, but given the [tourist]
numbers it’s becoming more critical that we get one in place very soon. If we’re not auditing the system, if we’re not thinking about the quality, if we are not doing a measurement of service quality or environmental impact assessment, then what can we do to stay on track? That should be high on the agenda. I would like to see the document really make progress, because through that we can transform into diversification.
The government always pitches the numbers, but in the private sector they don’t look so much at the numbers, they look at what comes of the numbers, and that’s an area we should explore more
business daily March 25, 2013
Four percent of gaming workers a ‘suicide risk’ Threats and insults from losing customers are a factor, claims workers’ association Tony Lai
early four percent of gaming workers it surveyed are a suicide risk claims the Macau Gaming Enterprises Staff’s Association. It suggests insults and threats directed to staff from casino players when they lose are factor negatively affecting the workers’ mental health. “There were workers with suicidal tendencies,” claimed Tam Pou Iong, the association’s director-general, in a press conference. “There are always cases where [gaming] operators are only concerned about their revenues, being tolerant for the clients to insult or even physically threaten the workers,” she added. The association polled 491 casino workers – about 11 percent of its membership – and asked them to score in a range of one to four – with four being the most stressful – their experiences in a range of workplace scenarios. The group says that any score averaging above three overall suggests the person might be prone to suicidal thoughts or at risk from self-harm. A total of 21.6 percent of those surveyed scored above 2.5 points and 3.7 percent registered more than three points. The association represents about 4,400 Macau gaming workers – around eight percent of the 52,485 employees recorded in the sector by the government at the end of December 2012.
Davis Fong Ka Chio, director of the Institute for the Study of Commercial Gaming, said in reaction to the association’s findings: “Society should pay attention to these figures, which can be considered as high and dangerous.” The academic from the University of Macau told reporters at a responsible gaming event on Saturday: “Gaming workers with suicidal thoughts may think that there is not enough social support set up for them.” Research published in the
Not a game – some casino workers a suicide risk claims workers’ group
China State Construction made a smaller profit here last year amid a ‘buoyant’ construction market Tony Lai
Suicide rate A total of 81 people – 66 of them Macau residents – killed themselves in the city in 2011 according to figures released early last year by the cabinet of the Secretary for Security, Cheong Kuoc Va. The government doesn’t give information on the occupation of victims or their motives. The World Health Organization says that any suicide rate higher than 13 people per 100,000 population is considered “high”. Based on a local population (including non-residents) of 557,400 at the end of December 2011 according the Statistics and Census Service, then the Macau rate was 11.8. If the non-locals who killed themselves here during 2011 are factored in, the rate rises to 14.5 per 100,000. Ms Tam of Macau Gaming Enterprises Staff’s Association, thinks the government should set up mechanisms banning gaming workers from entering any casinos on their days off. There were cases of gaming workers killing themselves after running up unsustainable gambling debts, she claimed. The Social Welfare Bureau told media on Saturday that it was working with some nongovernmental organisations to provide more counselling services to casino employees. With Michael Grimes
Nova Park builder triples revenue
he contractor of the residential project Nova Park in Taipa generated more revenues but fewer profits here last year amid a booming construction market. State-owned China State Construction International Holdings Ltd reported revenues of over HK$859.5 million (US$110.7 million) last year in Macau, more than three-times higher than the HK$243 million posted a year before. The “satisfactory results in business development” were helped by the strong construction sector here,
past fortnight by, respectively the Institute for Tourism Studies and the Macau University of Science and Technology, suggested gaming employees were the least committed and least happy compared to staff in other sectors. “They are stressed and their working conditions are not that favourable any more,” Edmund Loi Hoi Ngan, a gaming expert from Macao Polytechnic Institute told Business Daily. “The monthly salaries in the other industries have also been raised in a
relatively big scale in recent years,” he added, suggesting that the now record average monthly salary for card dealers – nearly 16,000 patacas (US$2,000) in the fourth quarter – didn’t compensate for a deteriorating quality of life in the casino workplace.
“spurred by the launch of public housing and mega casino projects”, the company said on March 21. The revenues generated here mostly came from construction contracts, said the company, adding “the total contract value of new construction projects awarded in Hong Kong and Macau hit a historic high” last year. However its gross profits in Macau dropped by 16.2 percent to HK$59.6 million last year, China State Construction told the Hong Kong Stock Exchange.
The company did not lay out reasons for this decline. It only said the “Hong Kong and Macau markets have the problem of labour shortage and insufficient subcontracting resources”. The competition among the contractors in the two cities has also “intensified”, the firm continued. The company won 29 contracts worth over HK$36.8 billion last year, with the Macau market accounting for 2.4 percent of the value, or HK$883.2 million. This includes the contract for Nova Park, the fourth phase of the Nova City housing project in Taipa owned by conglomerate Shun Tak Holdings Ltd. Looking ahead China State Construction will focus on government and large-scale private projects in Macau this year and “strive to achieve a breakthrough in investment-driven contracting”. The construction of several casino resorts is expected to start this year while the government will also start building another 6,000 public houses. Macau’s market accounted for 4.3 percent of the company’s total revenues of HK$19.8 billion last year, which shot up by 17.1 percent year-on-year. It posted gross profits of HK$2.4 billion, increasing by 34 percent from 2011.
March 25, 2013 business daily | 9
HK electronic trading rules may see firms exit business Record keeping, systems testing and risk management procedures to increase costs Eleni Himaras
ew electronic-trading regulations in Hong Kong may cause some firms to exit the business due to increased compliance costs, according to James Wadham, a partner at law firm Clifford Chance in Hong Kong. Intermediaries will be responsible for all orders made via their electronic trading platforms under the new rules released by the Securities and Futures Commission on Saturday after a consultation that closed in September. While firms won’t be held strictly liable for misconduct or wrongdoings, they will be responsible for all settlement and financial obligations for orders sent through their systems, including those by clients that can send orders directly to venues. Hong Kong is the most recent jurisdiction after Australia and Europe to update rules for electronic trading after the practice was blamed for a May 2010 incident that saw the Dow Jones Industrial Average briefly
lose almost 1,000 points in less than 20 minutes. The new rules also require thorough testing of electronic systems and keeping of records of how the systems are developed and used and of any “material” failures or delays. “The proposals may cause some providers to reconsider whether this is a viable service,” Mr Wadham said by telephone. “There will need to be a significant cost increase around compliance and if you’re not prepared to incur that, you may have to get out of this business.” The SFC rules, which come into effect January 1, are based on principles published August 2010 by the International Organisation of Securities Commissions on direct electronic access to markets, the Hong Kong regulator said in a statement.
Clarity, safety “The initiatives are intended to provide clarity to intermediaries on the standards that they are
expected to meet when they conduct electronic trading,” Ashley Alder, chief executive of the SFC, said in the statement. “They must have appropriate policies, procedures and controls in place to ensure their electronic trading activities will not pose undue risks to the market.” The conclusion paper clarified that “intermediaries will not be held strictly liable for their clients’ misconduct or wrongdoings”. The proposed rules suggested making intermediaries “ultimately responsible,” without this specification. The heightened cost of compliance, Mr Wadham said, will come from the record keeping, systems testing and risk management procedures. The rules will be part of Hong Kong’s code of conduct for securities market participants, meaning breaches would be punishable by sanctions including fines and licence suspensions. “It will be challenging, but it should be enough time for most,
Hong Kong is the most recent jurisdiction to update rules for electronic trading
depending on their existing systems and controls,” Mr Wadham said of the January 1 deadline. “Some providers are not as well resourced as others, and they will have more to do.” The new rules only apply to orders placed using electronic systems including the Internet, and do not apply to the operations of alternative trading venues and dark pools, anonymous platforms that do not display prices, the SFC said. A separate market consultation on the platforms will be published later this year, the SFC said in the statement. Bloomberg News
business daily March 25, 2013
GREATER CHINA China Construction Bank profit up 14 pct China Construction Bank Corp., the world’s second-largest lender by market value, posted its slowest profit growth in six years as the slowing economy curbed demand for financial services. Net income rose 14 percent to 193.2 billion yuan (US$31.1 billion) in 2012, or 0.77 yuan a share, from 169.3 billion yuan, or 0.68 yuan, a year earlier, the Beijing-based lender said in a statement to the Shanghai Stock Exchange yesterday. That exceeded the 192.7 billion yuan average estimate of 29 analysts in a Bloomberg survey.
Xi’s first state trip yields ‘breakthrough’ oil deals
and can send crude via its Kozmino port or through Kazakhstan.
Resource access China will also gain access to energy resources in Russia, the world’s biggest producer of oil and gas. CNPC will work with Rosneft to explore three offshore blocks in the Barents and Pechora Seas and eight onshore areas, Mr Sechin said. Rosneft agreed with China Petroleum & Chemical Corp., or Sinopec, to “optimise” work at Sakhalin-3, saying the project may be expanded. Sechin signed the agreement for a US$2 billion credit facility with China Development Bank President Zheng Zhijie. Gazprom, Russia’s naturalgas export monopoly, signed an memorandum with CNPC on building a pipeline along the socalled eastern route with shipments of 38 billion cubic meters a year, starting in 2018, CEO Alexei Miller told reporters in the Kremlin. Gas deliveries may rise to 60 billion cubic meters. The deal may include advance payments from China for gas, Miller said. Gazprom and CNPC plan to set legally binding terms for supplies in June and sign deal by the end of this year, he said.
Chinese president to attend BRICS summit in South Africa
Heading to Africa
across sectors are needed. History has shown that the only way to surmount growth obstacles is to undertake sweeping changes, Mr Zhang said. “This is a very important job for us,” he told a business forum, saying areas that needed change include government institutions, the household registration system and environment protection standards. “If not, even if our absolute economic size gets bigger, our economy, our growth standards, will still be at the mid- to low-end.”
China’s new leader flew out off Moscow yesterday to begin a tour of Africa. Mr Xi will set out plans for mining and infrastructure development on his trip to Africa this week, as China seeks to reassure leaders on the continent who have voiced unease about its trade relations. During his eight-day trip, Mr Xi will stop in Tanzania, Congo Republic and South Africa, where he plans to sign business cooperation deals and attend a summit of BRICS nations. Trade between Africa and China doubled since 2007 to more than US$200 billion and Chinese investment stands at US$20 billion, according to Standard Bank Group Ltd., Africa’s biggest lender. While African nations welcome the investment and the job creation that comes with it, leaders from Botswana’s Ian Khama to Nigerian central bank chief Lamido Sanusi are asking whether the relationship has benefited Africa as much as it has China. That’s a shift in tone after officials welcomed China for taking a different strategy from the West by offering investment without demanding poverty alleviation, democratic reforms or anti-corruption measures. “There’s a belief that since Africa got a raw deal from the colonial West, then the Chinese must be Africa’s best friend,” George Ayittey, a Ghanaian economist and president of the Free Africa Foundation, a Washington-based research institute, said in a phone interview. “But the evidence doesn’t show that, and the main criticism is that they are building infrastructure in exchange for Africa’s resources in deals that are structured to favour China.”
Mr Xi, left, and Russian President Vladimir Putin met in the Kremlin in Moscow
hina agreed to double oil supplies and supported construction of a natural gas pipeline from Russia under “breakthrough” agreements during President Xi Jinping’s first state trip abroad. OAO Rosneft, the world’s biggest traded oil producer by output, will borrow US$2 billion from China Development Bank Corp., backed by 25 years of oil supplies, under accords signed on Saturday in the Kremlin. The Russian company also offered China National Petroleum Corp. access to Arctic resources, and OAO
Gazprom said it plans to conclude a 30-year gas-supply contract to China by year-end. Mr Xi was visiting his counterpart Vladimir Putin in Moscow, building stronger alliances with Russia to counter U.S. influence in the Asia-Pacific and the Middle East. Russia is seeking to strengthen ties with its neighbour, the world’s second-biggest economy, boosting crude shipments and opening a new market for gas as demand in Europe stagnates. “We didn’t come here and waste our time,” Mr Xi said through a
Russian translator at the Kremlin ceremony. He told Mr Putin he felt their “souls are open to each other” and said the accords represent a “breakthrough”. Rosneft will boost oil supplies to China by 800,000 metric tons this year, chief executive Igor Sechin said after the signing with CNPC counterpart Zhou Jiping. Annual exports may climb to as much as 31 million tons, or more than 620,000 barrels a day, through three routes, from 15 million tons currently, he said. Russia has a spur to China from its East Siberia-Pacific Ocean link,
Vice premier urges broad reforms
hina’s economy faces more headwinds as it struggles with surplus production capacity and risks to the financial system, a member of the country’s top decisionmaking body said yesterday, calling for sweeping reforms, including lessening state control. Vice Premier Zhang Gaoli, a member of the highest-ranking Politburo Standing Committee, warned that failure to extend reforms would consign the economy to years of low-quality growth. “There are increasing downward economic pressures and the problem
of excess capacity is worsening,” Mr Zhang said. “Objectively speaking, there are potential risks in the financial area.” China’s US$8.4-trillion economy fought its worst slowdown in 13 years last year when weak exports and interest rate hikes from the year before dragged annual growth to 7.8 percent – impressive by world standards but the grimmest for China since 1999. The downturn, which surprised many with its length and depth, led analysts to warn that China’s days of heady, double-digit economic growth are over and that broad reforms
March 25, 2013 business daily | 11
India to ease rules for purchasing rupee bonds S. Korea’s Hyun urges stable currency market South Korean Finance Minister Hyun Oh Seok said stabilising foreign-exchange markets should be an important policy agenda as the yen’s slide continues to threaten Korean exports. “The foreign-exchange market can be a source of shock” for the economy, Mr Hyun told reporters in Bundang on his second day as the nation’s finance chief. “We always need to make sure stabilising the foreign-exchange market is an important policy agenda.” Mr Hyun’s comments come as Asia’s fourthlargest economy plans a stimulus budget to spur growth while the decline in Japan’s currency is making Korean goods relatively more expensive. The yen weakened against all 16 major currencies tracked by Bloomberg News in the past six months, including a decline of about 21 percent against the won. The official called for international cooperation to deal with the yen’s slide, saying a discussion is needed at the G-20 level. “We need to factor in the yen problem as we think about policy measures, as exports and domestic demand are two big pillars of our economy,” he said. Mr Hyun, 62, was appointed by President Park Geun Hye on Saturday in the face of objections from opposition lawmakers. He vowed to use “all possible measures to speed the economic recovery” in his written inaugural speech, and said measures should be announced within March. Mr Hyun was president of the state research centre Korea Development Institute, which was founded by Ms Park’s father, former dictator Park Chung Hee. He has a Ph.D. in economics from the University of Pennsylvania and previously worked at the World Bank, as well as South Korea’s finance ministry.
Chairman of Leighton quits The chairman of Australia’s Leighton Holdings Ltd has quit in a row with majority owner Hochtief AG, saying he felt the German builder no longer supported his company’s independence. Two non-executive directors also walked away after what all three “perceived to be a breakdown in relations with the major shareholder Hochtief,” Leighton said in a statement on Friday. The exit of chairman Stephen Johns and nonexecutive directors Wayne Osborn and Ian Macfarlane sent shares in Australia’s biggest construction company down almost 7 percent to near a two-month low. The departures also highlighted conflict with a director appointed by Hochtief’s parent, Spanish group ACS. In his letter of resignation, Mr Johns said there had been conflict with Hochtief chief Marcelino Fernandez Verdes, a close confidant of ACS CEO and chairman Florentino Perez. ACS has strengthened its control over Hochtief’s management since it acquired a majority stake in Germany’s largest builder in 2011. Mr Johns said Mr Verdes had interfered in the appointment of an independent director, which subsequently did not go ahead, and that Mr Verdes then requested his resignation as chairman. “These actions gave rise to serious concerns that Hochtief no longer supported the important principle of board independence,” Mr Johns wrote. In a later statement, issued after it became aware the letters of resignation had been made available to the media, Leighton said it did not agree with the conclusions drawn by the resigning directors. “There have been a series of events in recent months which are open to interpretation,” it said, adding the remaining Australian directors had no “specific information” that Hochtief no longer supported the independence of Leighton’s board. Hochtief, for its part, said it was in full support of the remaining Leighton management, including chief executive Hamish Gordon Tyrwhitt and finance chief Peter Allan Gregg. Bloomberg News/Reuters
Slacken regulation makes it easier for foreign institutional investors
ndia will ease investment rules for foreign funds purchasing government and corporate bonds, as policy makers seek more inflows from abroad to finance a record current-account deficit. The government will remove all restrictions and sub-limits within the two broad categories starting April 1, keeping the cap for sovereign debt at US$25 billion and US$51 billion for securities issued by companies, Finance Minister Palaniappan Chidambaram told reporters yesterday in New Delhi. A new “on tap” system will replace the existing auction procedure for foreign investment in corporate debt, he said. “There were a number of sub divisions,” Mr Chidambaram said. “To rationalise, it is proposed to merge the sub limits.” The measure is the latest in a series of policy changes Mr Chidambaram is spearheading since September to revive a faltering economy, including opening up aviation and retail industries to foreigners. The government estimates India needs more than US$75 billion of foreign capital this year and next to fund the current-account deficit, which widened to US$22.3 billion in the three months to September 30, or 5.4 percent of gross domestic product. Mr Chidambaram is relaxing the restrictions in response to feedback from investors when he met them on a tour of Asia and Europe almost two months ago.
The government will review investment limit on corporate bonds when 80 percent of the cap is exhausted, Mr Chidambaram said. The cap on government bonds will be enhanced based on “utilisation levels, demand from foreign investors, macroeconomic requirements and on prudent offshore and onshore balance.” The rupee has appreciated 2 percent versus the dollar since the policy revamp began on September 13, and traded at 54.34 on March 22, according to data compiled by Bloomberg. Still, the currency remains down 5.8 percent in the past
12 months, a period when the S&P BSE Sensex climbed 8 percent. The US$1.8 trillion economy will probably expand 5 percent in the financial year ending March 31, according to government estimates, the slowest pace in a decade. Mr Chidambaram vowed to cut the budget deficit to 4.8 percent of GDP next year, from an estimated 5.2 percent this year, seeking to avert a downgrade in credit ratings after Standard & Poor’s and Fitch Ratings lowered the sovereign outlook to negative, a step closer to junk status. Bloomberg News
Ticket size “It makes it easier for foreign institutional investors,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd in Mumbai. “It will increase the ticket size of investments since the sub-limits have been removed. It will widen the pool of foreign investors.”
Mr Chidambaram is relaxing the restrictions in response to investors’ feedback
Stocks post biggest weekly decline since August A sian stocks fell, with the regional benchmark index posting the biggest weekly drop in seven months, as Cyprus struggled to prevent a financial collapse, stoking concern Europe’s debt crisis is intensifying. HSBC Holdings Plc, Europe’s biggest lender, slid 1.9 percent in Hong Kong. BHP Billiton Ltd, the world’s biggest mining company, lost 6 percent in Sydney as commodities fell amid concern Europe’s crisis will hinder global growth. Toyota Motor Corp., the world’s largest carmaker, lost 2.8 percent after Japan’s new central bank governor stopped short
of announcing new stimulus. The MSCI Asia Pacific Index fell 1.7 percent to 134.31 last week, the biggest weekly decline since the period ended August 31, amid concern that an unprecedented levy on bank deposits in Cyprus may be a sign of deepening crisis in Europe. “Nobody knows what’s going to happen next,” said Grace Tam, Hong Kong-based global market strategist at JPMorgan Asset Management Ltd. “Cyprus can damp market sentiment in the short term but it’s something we’ve already seen happening in Europe, so we are not fairly concerned.”
The MSCI Asia Pacific Index rallied 3.8 percent this year as improving economic data from the U.S. and speculation that Japan will deploy more stimulus countered concern China will move to cool its property market. The Topix Index, Japan’s broadest share gauge, fell 1.2 percent last week even after reaching the highest close since October 2008 on March 21. Australia’s S&P/ASX 200 Index dropped 3 percent last week, the biggest weekly drop since May. Singapore’s Straits Times Index slid 0.8 percent. South Korea’s Kospi Index declined 1.9 percent. Hong Kong’s Hang Seng Index fell 1.9 percent. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 2.2 percent as a private survey on March 21 showed Chinese manufacturing may expand faster than estimated. India’s S&P BSE Sensex dropped 3.6 percent amid concern the withdrawal of the government’s biggest partner from the ruling alliance may jeopardise economic reforms. Reuters
business daily March 25, 2013
MARKETS Hang SENG INDEX PRICE
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March 25, 2013 business daily | 13
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China takes one step away from one-child policy Adam Minter
The Shanghai correspondent for the World View blog
hina’s notorious “one-child” population-control strategy has always been about money and resources. Did China have sufficient food to feed a billion mouths? Could a rapidly expanding population be led into a modern, market-oriented future? Morality, social impacts and the preservation of Chinese culture were seemingly secondary concerns, even in the face of international condemnation of coercive means to enforce the policy. Now, more than three decades into the “one-child” policy (actually, a set of policies restricting the number of children Chinese may have), the economic calculus that made Chinese population control a logical and even necessary (in the eyes of many Chinese) course of action is faltering. As a result, earlier this month the Chinese government took the first steps toward reforming how its population-control policies are devised, enforced and perceived. China’s once cheap and plentiful pool of workers is becoming more scarce and expensive; the labour force declined by 3.45 million in 2012 and is expected to decrease by 10 million per year starting in 2025. The shrinking pool of workers will be forced to support an expanding population of senior citizens – 200 million in 2013 – that is expected to arrive at 360 million (more than the current U.S. population) in 2030. Meanwhile, over the next two decades, pension liabilities may reach more than US$10 trillion. Partly in response to this coming crunch, the government has begun floating proposals to raise China’s retirement age, much to the chagrin of future retirees. On March 16, Luo Jun, a Beijing-based chief executive officer of an online travel agency, used his Sina Weibo microblogging account to express irritation: “There’s something that’s always puzzled me. We insist that family planning must continue as a national policy because we have too many people. However, proposals to postpone retirement suggest that there are too few people and a labour shortage. The logic is contradictory.” The solution, at least for some Chinese microbloggers, is simple. The deputy editor of the Guangxi Daily News, a news portal in Guangxi province, tweeted via Sina Weibo on March 16: “The key to solving the problems of an ageing society is to offer a second-child policy rather than postpone the retirement age.”
Calls for reform China’s population-control policies have actually undergone adjustments almost from their inception. Today,
there are numerous exceptions that allow for second children. The 8 percent of China’s population that belongs to an official minority is exempt from restrictions. Nonetheless, over the last decade, calls for reform – especially in the form of a widespread second-child policy – have become more insistent. The most serious discussions typically happen each spring during the annual “two sessions” of China’s top legislature and legislative advisory body, when Beijing is flooded with local officials with time on their hands (in between rubber-stamping new proposals and leaders). Invariably, these discussions and reform proposals amount to little more than topics for the media to cover. Still, in many quarters, both public and official sentiment in favour of population control remains strong. Most arguments allude to some version of the statistic contained in this passage from a March 7 editorial in the Communist Party-owned, pro-government Global Times newspaper: “We have avoided more than 400 million people being born in China since the 1980s, relieving the stress on national finances.” Popular support for this point of view, and extensions of it, are not hard to find on Chinese microblogs. For example, on March 12, a microblogger in Shanghai, reacting to news that the population-control policies might be relaxed, could not contain his contempt: “Family Planning Commission officials: watering down population control policies to solve the problems of an ageing population is like drinking poison to quench thirst. The problems posed by an ageing population will pass, but unleash our fertility and we’ll be ruined.” Arguably, a bigger impediment to the reform of China’s population policy is that China’s National Population
and Family Planning Commission, the agency in charge of enforcing population control, reportedly employs more than 500,000 people. This makes it a particularly potent political force in a country where public-sector employment remains an important means of patronage and economic development. Outright abolition of the agency and its policies would create more problems than it would solve – at least, from the perspective of Chinese leaders primarily concerned with stability.
Cautious approach A more cautious political approach is needed. A key first step came this month during the 2013 two sessions, when, as part of a restructuring of China’s State Council (roughly equivalent to a U.S. presidential cabinet), China’s new government merged the National Population and Family Planning Commission with the Health Ministry. The restructuring siphoned off
China’s new government seems to be connecting its population policy making to the macroeconomic trends
responsibility for what Xinhua, the state-owned newswire, reported as “drawing up the population development strategies and population policies” from the National Population and Family Planning Commission to the National Development and Reform Commission, China’s chief economic planning agency. By doing this, China’s new government seems to be explicitly connecting its population policy making to the macroeconomic trends that have begun to worry economists at home and abroad. The purpose of the merger is at once obvious and murky: Obvious in that it weakens the powerful National Population and Family Planning Commission but murky in that commission’s focus is much altered. It’s a point made by Wang Yukai, a professor with the Chinese Academy of Governance, in an interview with Xinhua: “’After the integration, China still needs to keep to its family planning policy, but what is more important is that China must strive to improve the quality of the population,’ he said, referring to boosting various aspects of people’s lives, including education, health and general well-being.” Though Xinhua did not spell out any specific policies, a public shift toward more qualitative, rather than quantitative, targets is monumental. Still, it’s taken more than 30 years for the negative economic consequences of China’s population-control policy to become serious enough to inspire reform. Surely, a demographic rebalancing will take as long. But even if the economic benefits of reform are far off, the more important humane effects could be felt sooner, providing Chinese citizens with expanded, though still limited, reproductive freedoms that they haven’t known in decades. Bloomberg View
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March 25, 2013 business daily | 15
wires Leading reports from Asia’s best business newspapers
Asahi Shimbun Japan’s agriculture ministry and the ruling Liberal Democratic Party are considering ways to compensatefarmersforexpected income losses caused by the participation in the Trans-Pacific Partnership free trade agreement, sources were quoted as saying. The TPP will, in principle, eliminate tariffs from all imported goods. Domestic agricultural products, which are currently protected by high tariffs on imported farm products, are expected to be particularly impacted. One idea put forth is an expansion in fiscal 2016 or 2017 of the existing “agricultural insurance” programme.
Korea Herald South Korea’s new finance minister said that it needs to be cautious of introducing taxation on foreign currency transactions, called the Tobin Tax, indicating that such a measure could trigger a capital outflow. The South Korean government said earlier that the country may move to tighten its regulation on capital flows in and out of the country amid worries that growing volatility in the currency market could hurt the country’s overall economic stability. “We need to discuss more whether to strengthen existing measures, or introduce a new step,” Hyun Oh-seok was quoted as saying.
Jakarta Post Indonesian restaurateurs and fast-food business have thrown their support behind a new restaurant franchise rule, saying the rule is in keeping with their aim to spur growth in the industry. Indonesia Restaurant and Café Entrepreneurs Association chairman Eddy Suyanto was quoted as saying that the new rule, which puts a ceiling on the number of company-owned outlets for restaurant franchisors, would help generate a proliferation of restaurants and cafes. “If we team up [with other parties], the business will grow faster because business opportunities are spread to other business players that can provide capital, resources and workers,” he said.
Economic Times Lion Air’s record aircraft orders underline the ambitious plans the privately held Indonesian group is hatching to emerge as a pan-Asian low cost carrier, throwing a serious challenge to AirAsia Bhd, the region’s biggest budget airline. The rivalry intensified on Friday when Lion Air launched its first service in Malaysia, barging onto AirAsia’s home turf. Lion Air’s co-founder Rusdi Kirana placed a blockbuster order for 234 medium-haul jets with Airbus last week, just a year after ordering a record 230 Boeing planes.
Global markets’ time factor Mohamed A. El-Erian
CEO and co-CIO of PIMCO, and the author of When Markets Collide
n recent months, the dichotomy between booming financial markets, on the one hand, and sluggish economies and dysfunctional politics, on the other, has loomed large. Yet insufficient attention is being devoted to a critical factor – time, and who controls it – that could well mean the difference between an orderly global resolution of today’s growing inconsistencies and a return to a more troubled phase. Markets have been understandably buoyant in the first quarter of 2013. Most economic data confirm that, after the trauma caused by the global financial crisis, the United States’ economy is healing, and doing so in an accelerated fashion. The sequence is now well established. It started with large multinational companies, which are on as solid a financial footing as I can remember. Smaller firms are gradually recuperating; banks have rebuilt their capital cushions and reduced their dubious assets; the housing sector has stabilised; and a growing number of households are re-establishing healthier balance sheets, especially as employment gradually picks up. This private-sector recovery is helping government finances. The U.S. budget deficit has been on a downward trend for now, helped by both higher revenues and lower pressure on spending (for example, payments to the unemployed have fallen as joblessness has declined). The healing process is also evident in Europe, though, unfortunately, it is effectively limited only to sovereign-bond markets. The real economy remains under enormous pressure in several countries, as economies contract and unemployment remains alarmingly high. After flirting with disaster last July, interest-rate spreads for eurozone bonds have generally been subdued, and financial segmentation has been slowly reversed (that is, at least before European officials embarked on the controversial path of trying to impose losses on guaranteed bank deposits in Cyprus). Moreover, as Ireland’s highly successful 5 billion euro ten-year bond issue in midMarch demonstrated, some countries are in the process of restoring normal access to capital markets.
Expansionary policies The impact on markets of these trends has been turbocharged by central banks, which are risk markets’ best friends. This is not because they wish to play that role; rather, it is because higher asset prices are essential if central bankers stand any chance of delivering
the desired economic outcomes of higher growth and stronger job creation. This is most evident in the U.S., where markets love the Federal Reserve’s trifecta of near-zero policy interest rates (negative in real terms), aggressive forward policy guidance, and asset purchases – all of which push investors to take more risk. Markets also welcome the fact that the Fed’s hyperactive experimentation is forcing other central banks around the world to pursue more expansionary policies. Indeed, from the Bank of Japan’s dramatic policy U-turn to the Bank of Mexico’s surprise interest-rate cuts, the Fed’s approach is affecting central banks in a growing number of countries. Pushed further away from best-case scenarios, they are unable to ignore the global liquidity impact of the Fed’s policies, yet they lack the right policy tools to address it.
Today’s markets rely heavily on the old adage that ‘time heals all wounds’. The timekeepers are central banks
The mix of endogenous healing and strong central-bank tailwinds, including from a “whatever it takes” European Central Bank, has also helped markets shrug off troubling political uncertainties. Be it the U.S. Congress’s paralysing polarisation or Italy’s protest vote against the established political order, politicians are being given time to overcome their dysfunction, thereby minimising any immediate disruptive impact.
Unloved market rally Understandably, investors have interpreted all of this as a green light to take more risk. And with the hype this month over eight successive records for the Dow Jones index (and many other records around the world), excitement induces more investors to enter riskier asset markets. The excitement is not anxiety-free, however, and rightly so. Investors worry about the longer-term consequences of political dysfunction, another year of European economic
contraction, disastrously high unemployment, unprecedented – and thus untested – central bank policies, and increasing global tensions. And the bungling of the Cyprus rescue does not help. No wonder some have called the recent market rally “one of the most unloved” in history. This mix of excitement and anxiety is, in fact, a sign of the looming crossroads that faces investors. One road, involving a relatively orderly handoff from policy-assisted recovery to self-sustaining growth, offers the possibility of even greater financial rewards, as rapidly improving economic and political conditions validate current artificial pricing and drive it higher. The other road is a lot less attractive. With insufficient endogenous healing and no economic escape velocity, the effectiveness of central banks’ policies wanes and political dysfunction increases, leading to financial losses, volatility spikes, and huge riskmanagement challenges. Given current policy and political uncertainties – and the multiple equilibria that they entail – it is difficult to predict with a high degree of confidence which road eventually will be
taken and when. Those who claim otherwise may well fail to appreciate fully the exceptional nature of the current situation. In these circumstances, timing may not be everything, but it may prove to be a key determinant of the probabilities. If the journey to the crossroads is accelerated by a large geopolitical shock (originating in, say, the Middle East or North Korea) and/or a serious political breakdown in Europe (for example, a prolonged political paralysis in Italy), the probability of taking the adverse path rises to an uncomfortably high level. If, however, central banks can contain domestic and global inconsistencies long enough, the combination of endogenous healing and eventual political progress would significantly improve the probability distribution. Have no doubt: today’s markets rely heavily on the old adage that “time heals all wounds”. The timekeepers are central banks. But their control of the clock is less than perfect; and it will become increasingly ineffective if economic improvement faces additional political headwinds in the months ahead. © Project Syndicate
business daily March 25, 2013
CLOSING Sinopec 2012 profit falls 12.8 pct
BP to buy back US$8 bln in shares
China Petroleum & Chemical Corp. posted a 13 percent profit decline last year, beating estimates as refining losses narrowed. Net income declined to 63.9 billion yuan (US$10.3 billion) from 73.2 billion yuan in 2011, the company known as Sinopec said in a statement to the Shanghai Stock Exchange. Sinopec’s operating loss for refining reached 11.9 billion yuan in 2012, compared with a loss of 37.6 billion yuan in 2011, according to the statement. PetroChina Co., the country’s second biggest refiner, lost 43.5 billion yuan on refining last year, narrowing from a loss of 60.1 billion yuan in 2011.
BP Plc has said it will buy back US$8 billion of shares, returning to shareholders the money they had put into a complicated Russian venture. It said it “expected to return to shareholders an amount equivalent to the value of the original investment in TNK-BP”. BP agreed to sell back its 50 percent stake in TNK-BP to Russia’s Rosneft in October in return for US$17.1 billion in cash and shares. “This buyback programme should also allow our shareholders to see benefits in the near-term from the value we have realised by reshaping our Russian business,” chairman Carl-Henric Svanberg said.
Canadian oil glut hits Nexen: CNOOC Canadian crude prices suffering amid Alberta oversupply
hinese state-owned energy company CNOOC Ltd, which last month completed a US$15.1 billion takeover of Canada’s Nexen, has been hit by a Canadian oil glut that is depressing prices for Canadian crude, a senior executive said. Vice President Fang Zhi said CNOOC saw Nexen as an eventual secure supply of energy for China but also wanted to secure the highest price possible for its oil in markets currently accessible. As output has surged, overtaxed pipeline capacity to U.S. markets from the oil-rich province of Alberta has been a major factor in driving down the price of Canadian heavy crude, cutting into bottom lines of producers. Western Canada Select heavy oil sold for more than US$40 a barrel below the price of U.S. benchmark West Texas Intermediate in January. Prices have improved, but analysts and traders say the fundamentals remain negative. “As a producer, we would very much like to get rid of the discount in price that we are all suffering,” Mr Fang told a conference on China arranged by the Canadian International Council think tank. CNOOC finally completed its contentious takeover of Nexen on February 25, some seven months after China’s largest-ever successful foreign takeover was announced. The bid caused unrest inside Canada’s ruling Conservative Party.
CNOOC finally completed deal for Nexen last month
Some legislators opposed the idea of a Chinese state-owned company buying up Canadian energy assets. Ottawa approved the deal only after making clear it would not allow foreign state-owned firms to build up dominant positions in the
Alberta tar sands. “As a commercial organisation, we typically would pursue the highest price for our products in the open market but we do realise that there is a need ... for energy security as well as diversification,”
Mr Fang told the conference. “We very much look at Canada as a potentially stable source of supply.” The Canadian government’s desire to boost oil exports to China hinges on projects such as Enbridge Inc’s proposed Northern Gateway pipeline from Alberta to the Pacific Coast. That pipeline may never be built, given heavy environmental and aboriginal opposition. TransCanada Corp’s proposed Keystone XL pipeline from Alberta to Texas, which would also ease the oil glut, still needs Washington’s approval and that is not guaranteed. Mr Fang said given the likely growing world thirst for oil, Canada need not be too worried about finding markets. “We are looking at a world where some 3 billion people are striving for industrialization ... You probably do not have to really worry about the demand [for Canadian energy products],” he said. As part of CNOOC’s undertakings to satisfy the Canadian government that the deal would have a net benefit to the country, it pledged to keep all Nexen’s staff. Mr Fang said there were some challenges integrating the two firms “such as cultural differences and even the time difference between Calgary and Beijing”. He added: “There will be a grace period but nothing is insurmountable.” Reuters
Fitch says U.K. downgrade more likely A month since Moody’s downgraded Britain
ritain looked poised to lose its AAA rating from a second ratings agency after Fitch Ratings warned it was likely to downgrade the country in the coming weeks, citing high government debt levels and weak growth. A month since Britain was downgraded by Moody’s, Fitch put the country on review and said a downgrade was a heightened possibility. A decision is due by the end of April, Fitch said in a statement. Sterling fell sharply, dropping half a cent against the dollar. The review announcement comes hard on the heels of the government’s annual budget last week, which halved Britain’s growth forecast for this year and raised borrowing projections.
The move by Fitch was not unexpected but will be another setback for finance minister George Osborne. He has staked his reputation on repairing Britain’s public finances and had promised to protect its triple-A rating. Britain’s finance ministry, which is three years into an austerity plan, said Fitch’s announcement showed “there are no easy answers to problems built up over many years”. “But we are, slowly but surely, fixing our country’s economic problems,” a Treasury spokesman said, citing a reduction by one third of the budget deficit and the creation of 1.25 million jobs since the government took office in 2010. The opposition Labour Party, leading in the polls before an election
due in 2015, said Mr Osborne’s budget had been a “wasted chance” to change economic course. It wants the government to water down its austerity policy and do more to find growth. “Osborne’s plan has catastrophically failed on growth, living standards and the deficit,” Labour finance ministry spokesman Chris Leslie said in a statement. Fitch first warned that Britain’s rating was under threat in March 2012 when it noted debt levels were already “significantly above the AAA median” and the government had very limited room for manoeuvre. Since then, the economic outlook has deteriorated, pushing the government’s deficit-reduction strategy further off course. Reuters
Mr Osborne says ‘there are no easy answers’