Year I Number 163 Thursday November 15, 2012
Editor-in-chief: Tiago Azevedo
Deputy editor-in-chief: José I. Duarte MOP 6.00
‘Save now, buy later’ I SSN 2226-8294
ocals shouldn’t be panicked into stretching their finances to buy a home in the current supplysqueezed market said the city’s Chief Executive Fernando Chui Sai On yesterday. He told the Legislative Assembly that help for the property market is on the way in the form of freshly built homes and of land for new residential zones. “The government hopes the young don’t feel that unless they purchase flats today, they have no chance in the future,” he told legislators. The Chief Executive added residents also need to
think about whether their income is big enough to afford a house. “For a family that wants to buy a home in the private market, the contribution ratio [monthly payments] should not exceed 40 percent of the [monthly] household income,” the city’s leader said. A seminar held by University of Macau scholars yesterday gave the city’s leader some credit for more long-term thinking in policy, but several contributors suggested the policy address was still short on details.
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With nearly half of all Macau’s visitors in the first half of 2012 coming from mainland China – and half of those coming from neighbouring Guangdong province and thus mainly day trippers – it’s proving hard in an economic downturn to achieve the government’s policy of pushing up average length of stay. According to the Statistics and Census Service, the average length of stay for visitors in Macau hotels in September was 1.28 nights, down by 0.18 nights from last year. The length of stay has remained below 1.3 nights since June – four consecutive months – the worst trend since August 2007, when the average stay was at just 1.21 nights.
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business daily November 15, 2012
macau Logistics vocational centre on the way The government’s logistics development committee has reached “an initial consensus” with the China Federation of Logistics and Purchasing to set up a licensing and training centre for logistics in Macau. The Transport Bureau said on November 14 that this centre would help raise the competitiveness of the city’s professionals. Apart from the centre, both parties will also sign a framework agreement on strategic cooperation. The Chinese logistics federation has so far provided courses to 2.5 million people in the mainland in the past nine years.
Govt’s muddled vision for future draws mixed reaction Academics praise Policy Address for a vision on the city’s economic development but say it lacks detail on how to get there Tony Lai
The Policy Address shows more long-term vision than in previous years, a forum heard yesterday
cademics at the University of Macau are mostly positive about the measures announced in Tuesday’s Policy Address. What is needed is long-term plans and greater detail about how the city’s development will be managed. “Comparatively, this Policy
Address has a more long-term vision than in previous years, a more definite direction and more comprehensive content,” Hao Yufan, dean of the Faculty of Social Sciences and Humanities said yesterday at a seminar analysing the address. Political commentator and professor
More measures helping middle class expected
he director of the University of Macau’s Institute for the Study of Commercial Gaming thinks “there is still room for improvement in measures for the middle-class” but that the tax relief initiatives included in the policy address is good enough for now. Davis Fong Ka Chio told media on the sidelines of a forum yesterday that the refund of 60 percent of salaries tax paid this year shows “respect for the middle class’ hard work and effort”. The policy address also includes an increase in the tax-free allowance on wages. From next year the first 30 percent of earnings will be exempt from salaries tax – up from 25 percent this year. People with annual income below
144,000 patacas (US$18,000) will be fully exempted from salaries tax. The administration also pledged to establish a professional licensing mechanism for some occupations. The government’s next step should be to help the middle class to raise their competitiveness and move up the social ladder, said Mr Fong. He expects more measures to come in the next few years. Responding to criticism that the policy address made little mention of the city’s cornerstone casino industry, Mr Fong said the administration had in the past few months laid out a blueprint for the next 10 years, by approving several Cotai resorts. T.L.
of communications Agnes Lam Iok Fong said there was still “a small gap” between her expectations for long-term planning and the policy laid out by Chief Executive Fernando Chui Sai On. “There is basically a direction for long-term measures but the Policy Address lacks details on how to set up such plans,” she told the forum. “For example, the tax refund for the middle class is a good initiative. But what I expect the government to do is to establish a mechanism that will refund tax paid by residents when the income [of the administration] reaches a certain amount.” The government plans to refund 60 percent of the salaries tax paid this financial year, with a maximum repayment of 12,000 patacas (US$1,500). Ms Lam said the focus on social issues such as the social security system was appropriate but that there was not enough emphasis on housing and education.
Keeping pace Institute for the Study of Commercial Gaming director Davis Fong Ka Chio criticised plans to spend 9.77 billion patacas on measures such as the cash handout scheme. He said it was not “good practice” for the government to inject 37 billion patacas into the Social Security Fund over the next four years. Most of that spending will come from gaming revenues. “For the next three to five
years, gross gaming revenue can still cover [the expense] of social welfare and cash handouts, but there are a lot of uncertainties in the future,” Mr Fong said. He wants employers and workers to forge a consensus on an increase in the monthly contribution to social security, currently set at 30 patacas for employers and 15 patacas for employees. Legal expert Lok Wai Kin said the Policy Address lacked adequate measures to gauge the city’s development as a global tourism centre. “Is this evaluated by the number of tourist arrivals, the quality of services provided or residents’ quality of life. The administration should gradually carry out studies to find out,” he said. Ms Lam said the government should offer solutions for “obvious contradictions between the pace of economic development and residents’ livelihoods”. “If we cannot solve some livelihood problems during the next five years, should we consider slowing the pace of economic development and of growth in the tourism and gaming industries?” she said. Where the Policy Address falls flat is in not tackling “overdevelopment” of the gaming and tourism industries, she said. Mr Fong told reporters after the forum that over-development was not a problem in Macau. “In the next 10 years, there will only be five more casino resort projects [in Cotai],” he said.
November 15, 2012 business daily | 3
MACAU Work injuries reach record high The number of victims of labour accidents reached a record of 2,930 in the first half this year, the highest since the government began to compile data in 1999, according to the Labour Affairs Bureau. The death toll of nine people was also a historic high. The major reasons for accidents were workers over-straining themselves and falling down, accounting for over 40 percent of the cases. Work accidents were more common among employees in the retail sector (28 percent) and office staff (24 percent).
Don’t worry about housing -Chief Executive Chui Sai On assures legislators that homes policy is being given priority Stephanie Lai
Chui’s cash splash: bigger, not better Tiago Azevedo
he government hopes the young don’t feel that unless they purchase flats today, they have no chance in the future,” said Chief Executive Fernando Chui Sai On at the Legislative Assembly yesterday. Housing concerns remained the most heated topic during a question and answer session after Mr Chui’s Policy Address for 2013. He admitted being particularly concerned with young people’s anxiety over home ownership. Mr Chui added that with public housing supply growing, the five new areas of land reclamation reserved for housing and 25 plots of idle land taken back by the government, the young “need not worry too much”. The Chief Executive also mentioned that residents need to think about whether their income is big enough to afford a house. “What we have to consider is: for a family that want to buy a home in the private market, the contribution ratio [monthly payments] should not exceed 40 percent of the [monthly] household income,” the city’s leader said.
Mr Chui pledged to map out the definition and terms of ‘Macau land for Macau residents’ – an idea pushed by local pan-democrats and mirroring a similar initiative in Hong Kong – aimed at preventing non-residents buying some kinds of property. The idea is to help residents that cannot purchase in the private market, but are not eligible for public housing. “Secretary for [Transport and] Public Works Lau Si Io will introduce more about the public housing policy later at the assembly, including the concept of Macau land for Macau residents”, he explained to legislator Chan Meng Kam.
Lifting salaries During the session another legislator – Ho Ion Sang – criticised government moves to cool down the real estate market as too “passive” and unable to safeguard middle-class needs for home purchase. “In the short term, we cannot find an ultimate solution to let residents quickly find a home, while keeping the property market at a healthy growth,” Mr Chui admitted.
“The housing problem is a complex one that requires long-term planning,” he stressed. “If we only adopt a short-term, heavy-handed measure to deal with the property market, society will need to bear certain consequences as well,” – namely a possible drop in the value of existing homes, Mr Chui noted. “The MSAR government will take a holistic consideration,” he added. As legislators asked questions on inflation pressure and better welfare for employees, Mr Chui again urged local employers, especially the bigger companies, to raise workers’ salaries. The chief executive did not confirm whether there would be another salary increase for civil servants, noting that he has not yet received the suggestions from the special review committee created last year. “We can alleviate the inflation pressure through lifting salaries and subsidising the population,” said Mr Chui. “And as for civil servants’ requests for a higher pay, I remain with a positive attitude on the issue,” he added.
he Policy Address delivered by Chief Executive Fernando Chui Sai On this week was mostly dull and without much in the way of forward thinking. The public got more sweeteners in the form of cheques and subsidies, tax benefits, promises of more public housing and a pledge for a more efficient government. The talking point before the address was how much was the government’s cash giveaway going to be. Mr Chui did not disappoint, duly handing over more money. He promised 8,000 patacas (US$1,000) for permanent residents and 4,800 patacas for non-permanent residents, all at a cost of many billions of patacas. “Since 2007, the polls have all supported the cash sharing and, as this policy has been welcomed and respected by the public, I see it as a sharing of our economic growth,” Mr Chui told reporters after the address. Of course people cheer if they are handed cheques. It means they have more to spend on satisfying a few of their whims. But what impact do the handouts have on the economy? Has the government looked into the effects of the handout scheme and assessed the consequences? I am still not convinced that the cash handouts do more than produce short-lived smiles. The programme should not be regarded as a realistic relief measure or a device to share the city’s wealth. Public funds would be better put to work if they were channelled to people that needed them, to schemes that would reduce the income gap, improve workers’ qualifications and, perhaps, improve healthcare and education standards. Unfortunately, there is still much that needs to be done to improve these parts of our society. Mr Chui offered few targets or deadlines to get the job done. Our officials seem to be short of ideas on developing other industries and Mr Chui gave little indication on how government will be made more efficient. Even the customary legislative agenda was dropped from the Policy Address, leaving the public without a timetable of the much-needed revision of dozens of laws. Criticism of the government’s productivity has increased over the past few years and without drastic changes everything will remain the same. I laud the focus on bettering the lives of Macau citizens, and the subsidies and handouts will satisfy some people’s needs, but the public should not be pampered. The focus should be on investing in the city’s long-term development, giving residents the ammunition they need to deal with a more competitive environment envisaged as Macau integrates into the Pearl River Delta region. For that, we need more than recurring clichés.
I laud the focus on bettering the lives of Macau citizens, and the subsidies and handouts will satisfy some people’s needs, but the public should not be pampered
business daily November 15, 2012
Court backtracks on Longer cooling-off another Ao-tied deal for new life policies Property development company led by Life insurance policyholders will have Pedro Chiang loses appeal over plan to three weeks to cancel products and claim build two residential towers in Areia Preta a full refund Vítor Quintã
Ao Man Long backed a project for two 32-storey towers near the Macau peninsula reservoir in 2006
onstruction of twin 32-storey towers on the former site of a leather factory will not go ahead after the Court of Second Instance confirmed the project’s approval is linked to a web of corruption spun by jailed civil servant Ao Man Long. The decision comes seven months after the same three judges sided with the same developer, Companhia de Investimento e Desenvolvimento Pr e dial T r us t A rt L d a, wh ose executive director was Pedro Chiang – Mr Ao’s alleged right-hand man. In March, the court accepted Trust Art’s appeal, saying that the company’s case should have been heard before authorities annulled a 2006 revised land concession. The original concession allowed for the construction of a single 18-storey residential tower. The judgement, which was not unanimous, said the lack of a prior audience made it impossible to confirm if the decision to cancel the revised land concession was adequate. The document was signed by Mr Ao in his former role as the head of
Transport and Public Works. Trust Art’s victory was shortlived, with Chief Executive Fernando Chui Sai On taking the case to the Court of Final Appeal. In July, the court ruled there was no need for the developer to be heard. Even if there was a prior audience, annulling the concession revision “was inevitable” as soon as the Court of Final Appeal found Mr Ao guilty of corruption involving the Rua dos Pescadores site, the judges wrote. With that issue solved, the case returned to the Court of Second Instance, which last month said Mr Chui “did well” in revoking Mr Ao’s decision, which had ignored the legal height limit of 63 metres for Areia Preta. The judges believe Mr Ao’s conviction was enough to prove the deal was tainted, as was the land concession that increased the project’s area. The judgement, released yesterday, dismissed the fact that Mr Chiang, who was trialled in absentia, had not been informed of his prior sentence of six years and 10 months in jail for active corruption.
tarting from June, consumers will have a 21-day window to claim a full refund on new life insurance policies, the Monetary Authority of Macau announced yesterday. The 21-day cooling-off period begins the day a consumer receives the policy and ensures they have the right to a full refund if they cancel the policy in that time, according to a notice published in the Official Gazette. Existing rules also allow for a maximum cooling-off period of 21 days but the countdown begins from the day the customer signs up for a policy, which restricts the time available to cancel the policy. The current rules were approved in 2003. The Monetary Authority said it was “convenient” to revise the guidelines after “considering the experience” gained from the existing rules and after hearing the opinion
of the Macau Insurers’ Association. “Life insurance is a contract of a long-term nature and, as such, [it] requires that purchasers are fully aware of the inherent costs and benefits,” the authority said. “This extra protection gives to the consumer a reasonable period of time to reflect on a commitment that is both long-term and, quite often, of high costs.” The new rules will start in June to give insurers enough time to “carry out the necessary internal adjustments,” the notice said. The city’s life insurance industry has been much less profitable than providers of general insurance, with several smaller companies reporting losses last year. However, the premium income of life insurers has continued to grow fast, with an increase of 23 percent in the first quarter of this year compared to the same time last year.
November 15, 2012 business daily | 5
Hotel data healthy but visitors not staying on A Strong hotel occupancy figures from January until September are undermined by a sustained decline in length of stay Tony Lai
The average occupancy rate rose to 81 percent at the city’s hotels and guesthouses in September
Claim against Viva Macau shareholder reaches court Government investment fund has launched a case against major shareholder of defunct low-cost airline Vítor Quintã
ore than two years after now-defunct airline Viva Macau failed to repay a government loan of 212 million patacas (US$26.6 million), the case will finally go to court. In a notice published in several Macau newspapers yesterday, the Industrial and Commercial Development Fund announced it would sue the loan guarantor and major shareholder in Viva Macau, Hong Kong-based Eagle Airways Holdings Ltd. The fund has asked the Court of First Instance to seize Eagle Airways’ stake in Viva Macau – Sociedade de Aviação Ltda, which has “a face value” of almost 25 million patacas. The court has asked other creditors to come forward. Speaking at the Legislative Assembly yesterday, Chief Executive Fernando Chui Sai On confirmed that “judicial proceedings were underway”. The government is unlikely to recoup any of its loan, as Viva Macau was declared bankrupt in September 2010. At the time, a report prepared by the court-appointed administrator estimated the airline’s debts at about US$38 million and could not identify any assets.
The directors of Eagle Airways include Kevin Ho King Lun, the nephew of the former chief executive Edmund Ho Hau Wah; Kevin McKenzie, business development director of Ignite Media Group; and Ngan In Leng, Viva Macau’s former chairman. The lawsuit is another headache for Mr Ngan, who has already seen some of his assets seized by the court over a debt connected to a deal to build Taipa’s Wa Bao housing estate with a company controlled by the government of Fujian province. Meanwhile, a complaint lodged by Mr McKenzie has led to the United States’ State Department launching a probe into the government. The inquiry is trying to determine if the government expropriated the property of American investors during the winding up of Viva Macau.
lthough government officials insist extending tourists’ length of stay is a priority, data released yesterday shows there is still a long way to go. The Statistics and Census Service said the average length of stay at the city’s hotels in September was 1.28 nights, down by 0.18 nights on the same time last year. The average length of stay has remained below 1.3 nights since June – four consecutive months – which is the worst result since August 2007 when the average stay was 1.21 nights. This year’s results challenge the government’s ambition and are much lower than an average stay of 3.9 nights in Singapore and 3.6 nights in Hong Kong. The outgoing director of the Macau Government Tourist Office, João Manuel Costa Antunes, said last month: “What we want as a tourism city is tourists visiting Macau and spending nights here.” Though tourists are spending less time here, the city’s 100 hotels and guesthouses welcomed more than 785,000 visitors in September – up 11.9 percent in year-on-year terms – and the room occupancy rate increased by 1.2 percentage points to 81 percent. The data also underlines the growing importance of package tours
amid a downturn in overall arrivals. Nearly 750,000 visitors entered Macau on tour packages in September, an increase of more than one-fifth on the same time last year. Growth was even faster over the first three quarters of this year, reaching 24.5 percent, with more than 6.57 million tourists arriving on tour packages or about 31.5 percent of all arrivals. Macau received more than 20.86 million tourists in the first nine months of this year, an increase of 1 percent over the same stage last year. Monthly visitor arrivals have declined since May. The growing importance of package tourists was particularly evident in arrivals from Taiwan, which grew 80 percent to more than 587,000 tourists in first nine months of the year. Total arrivals from Taiwan fell by 13.4 percent in the same period to about 817,000 people. The mainland is still the biggest market for package tourists, with a 20.9 percent increase in visitors’ arrivals to 6.57 million people in the first nine months of the year. The surge was even more significant in package tours from Guangdong, from which there were 1.77 million arrivals, almost twice as many as in the same period last year.
business daily November 15, 2012
Wynn Resorts must Spotlight On... face Okada claims VANG IEK GROUP
Closer connections to the mainland mean more customers will drive their cars into China Daniel Wing Yiu Cheng Executive Director Vang Iek Group
What is your business? Vang Iek Group is a well-established transportation and trading company with a long history in Macau dating back to 1935. We are the exclusive distributor of Mazda cars in Hong Kong and Macau and the distributor of Hyundai cars in Macau. In addition we are the exclusive dealer in Macau for Jaguar and Land Rover. Aside from automotive sales, we also operate 100 yellow taxis, and a car rental business in Macau.
What’s the local market like? The booming Macau economy has led to an increase in sales of luxury cars. Luxury vehicle sales were only three percent of our group’s unit sales for last year. But this year we expect 10 percent of our unit sales will be from Jaguar and Land Rover. The booming economy has also led to some labour shortages and some high rental costs. That has created headaches for all the local SMEs.
How will your business develop? The growth of Macau’s automotive sales industry will be slow in the mass-market sector because of the small size of Macau, the limited road space, and the high cost of parking, fuel and tax. We plan to put most of our effort into the sale of luxury brands such as Jaguar and Land Rover. Customers in the luxury segment have fewer concerns about the high cost of car ownership in Macau. We are very optimistic about the prospects for Jaguar and Land Rover in the next five years. The model range for Jaguar is still narrow compared with other luxury marques. However, we are very happy to see that there will be more models – from supercars to executive sedans – introduced to Macau in the near future. Closer connections to the mainland mean more customers will drive their cars into China. And most customers in the luxury market believe that owning a bigger car – such as a sports utility vehicle – is a safer option when driving in China. As a result our Land Rover business is growing very rapidly. Land Rover has introduced a very competitive SUV called the Range Rover Evoque. It has recorded very good sales in Macau this year. Land Rover’s flagship Range Rover will have a model change in the fourth quarter this year, and we expect the strong sales to continue.
But Nevada judge dismisses ‘racketeering’ allegation against Steve Wynn
ynn Resorts Ltd must face claims by Japanese billionaire Kazuo Okada that the casino firm’s directors abused their powers when they forcibly redeemed his 20 percent stake in the company, a Nevada judge ruled. Clark County District Judge Elizabeth Gonzalez sitting in Las Vegas on Tuesday United States’ time, rejected a request by Wynn Resorts to dismiss the claims. The casino operator had argued Mr Okada had failed to support his allegation that its directors breached their duty of care and loyalty. But the judge did dismiss a racketeering claim by the Japanese gaming equipment maker against the casino operator’s chairman and chief executive officer, Steve Wynn, and Kim Sinatra, the company’s general counsel. James Pisanelli, a lawyer for Wynn Resorts, said outside court the racketeering claim had been “frivolous”. “The evidence will carry the day for the other claims,” he added. Wynn Resorts, in an escalating feud between Mr Okada and Steve Wynn, redeemed Mr Okada’s shares in February for a 10-year promissory note worth US$1.9 billion (15.2 billion patacas), which the Japanese entrepreneur says is a 30 percent discount from their market value. Wynn Resorts sued Mr Okada for breach of fiduciary duty at the same time.
‘No doubt’ “There can be absolutely no doubt that most of the members of this board, if not all of them, are beholden to Mr Wynn and that they are not disinterested in this transaction,” Howard Privette, a lawyer for Mr Okada, told the judge during Tuesday’s hearing. Mr Okada’s attorney said most of the board members were long-time associates of Steve Wynn and had a substantial number of Wynn Resorts shares, which gave them a financial windfall from the rise in the share price after the redemption
Wynn Resorts Ltd – to explain share removal
of Mr Okada’s stake. Mr Privette declined to comment outside court after Tuesday’s hearing. Wynn Resorts alleges that Mr Okada made improper payments to gaming regulators in the Philippines, where he’s developing a casino resort, in possible violation of U.S. anti-bribery laws. The board redeemed Mr Okada’s shares because his conduct created a threat to Wynn Resorts’ “good standing with gaming regulators,” according to a filing on September 26.
University donation Mr Okada, the chairman of Tokyo-based Universal Entertainment Corp., had said in court filings that Steve Wynn wanted to oust him because he questioned and voted against a US$135 million donation to the University of Macau last year.
Mr Okada helped Steve Wynn bankroll the casino operator – which has resorts in Las Vegas and Macau – 12 years ago. In his counterclaims to Wynn Resorts’ lawsuit, Mr Okada said Steve Wynn runs the business as a “personal fiefdom” and pac k s t h e board with “friends who do his personal bidding.” He seeks a court ruling that the redemption of his shares is invalid. Wynn Resorts contends Mr Okada was angry since at least February last year about the board’s refusal to get involved with the casino project he’s developing in the Philippines, according to the breach-of-fiduciaryduty lawsuit the company filed against Mr Okada on February 19. The board was concerned about “deeply ingrained” corruption in the Philippines, according to the Wynn Resorts complaint. Bloomberg/M.G.
news where it matters
November 15, 2012 business daily | 7
Cards for the masses Credit cards figures suggest a profitable market segment for banks
he credit card industry has passed two new thresholds that underline an increasing level of affluence in Macau. Data released by the Monetary Authority of Macau said the number of credit cards issued by Macau-based banks exceeded 600,000 in the third quarter, with total credit of more than 10 billion patacas (US$1.3 billion). That is about 1.1 card per capita, each with an average spending limit of 16,500 patacas, suggesting that credit cards are now a mainstream source of credit. The volume of credit used was 2.89 billion patacas, less than 30 percent of the total offered. Receivables were about half of that value, at about 1.4 billion patacas, amounting to less than 15 percent of the total credit offered. The figures point to a profitable market segment for banks. That sentiment is reinforced by the fact that the delinquent amount was down by 17 percent compared to the same period last year. The small blemish in this picture of banking bliss is a rise in the threeto-six month delinquency rate, which rose by 16 percent compared to the same period last year. For the first time, the Monetary Authority has also released data specific to dual-currency cards that can be charged in patacas and yuan, and are counted as two separate cards. The statistics reveal almost all yuan-denominated cards have
More cards than residents
this feature. The big rise in their numbers is, in practice, almost identical to the increase in dual-currency cards. The growth in yuan-denominated cards tends to be overestimated by the smaller number of cards issued. The Monetary Authority does not publish detailed data on usage
according to the currency associated with locally issued cards: the pataca, Hong Kong dollar and yuan. The 54 percent year-on-year rise noted in the last quarter is mainly due to starting from comparatively smaller figures. Over time, the rates of growth for these cards will converge with growth in cards that
are billed in patacas. The convenience of dualcurrency cards will likely lead to the disappearance of cards that bill only in yuan. In the third quarter, just 443 cards were denominated in yuan only, down from 818 in the previous quarter. J.I.D.
business daily November 15, 2012
Party congress sets Xi, Li on lead New leadership line-up to be unveiled today
Causeway Bay, priciest retail area New York’s Fifth Avenue ended its 11-year run as the world’s most expensive retail area, dethroned by Hong Kong’s Causeway Bay, according to a survey by real estate services company Cushman & Wakefield. The average retail real estate rent in the Causeway Bay shopping area surged 34.9 percent from a year earlier to an annual US$2,630 per square foot, Cushman & Wakefield said in its report. Manhattan’s Fifth Avenue came in second with average retail rent at US$2,500 per square foot, followed by Paris’s Avenue des ChampsElysees, where the average rent rose 30 percent to US$1,129 per square foot.
New anti-dumping cases on chemicals China will implement anti-dumping measures against precursor chemical toluene diisocyanate imported from Europe and has begun a separate investigation of other chemical imports from Europe and the United States, the government said yesterday. The measures come a few days after Commerce Minister Chen Deming told reporters that, while he does not seek a trade war, he will act to protect the interests of Chinese firms in solar and other industries. The Ministry of Commerce said in a statement on its website the anti-dumping investigation will last until February 18.
Vehicle prices fall for 6th straight month China’s vehicle prices fell for the sixth straight month in October, according to the National Development Reform Commission, as dealerships cut prices to clear inventories. Prices of locally produced vehicles fell 1.3 percent from a year earlier, with passengervehicle prices dropping 1.8 percent, the NDRC’s price monitoring bureau said in a statement yesterday. Average vehicle prices in the world’s largest auto market may again come under pressure in the fourth quarter as dealerships slash prices further to meet year-end sales goals. Prices of imported vehicles fell 3.8 percent in October, the commission said, while commercial vehicle prices declined 0.7 percent.
PCCW may broadcast English league PCCW Ltd, which controls Hong Kong’s biggest telecommunications operator, entered final talks for local broadcast rights for the U.K.’s Barclays Premier League soccer, taking over from I-Cable Communications Ltd. PCCW Media is seeking to complete an agreement soon that will allow it to show 380 league games for three seasons starting in 2013-2014 over its Now TV service and platforms including the Internet, the company said in a Hong Kong stock exchange filing yesterday. The contract costs PCCW less than US$200 million, the Standard newspaper reported, citing an unidentified person. The win would return the broadcast rights to PCCW, which had lost them to I-Cable for three seasons starting in 2010.
Xi Jiping, left, Li Keqiang named to China leader panel
hina’s Communist Party has concluded a week-long congress, a day before unveiling its new leadership lineup. More than 2,200 delegates met to select a new Central Committee of roughly 200 party members in Beijing’s Great Hall of the People. That committee will meet today to endorse China’s top decisionmaking body, the Politburo Standing Committee. The new line-up will be keenly watched for signs of China’s future economic and political direction. In a closing statement, President Hu Jintao said the congress had
“replaced older leaders with younger ones” and made decisions of “farreaching historical significance”, Xinhua news agency said. The congress put Vice President Xi Jinping a step closer to taking power for the next decade in a landmark transition. Mr Xi was renamed to the Central Committee, a widely expected development that was singled out in a report by state media, suggesting he was firmly positioned to be announced as the party’s top leader. The main business of the congress, which is held every five years, was to select a new circle of
leaders at a time when China faces major economic challenges and growing scrutiny from its citizens. The party did not immediately release the full Central Committee list. However, state news agency Xinhua reported the appointments of a number of officials from each of the two main factions that observers believe are jockeying for power, suggesting give-and-take in the backroom dealings. In one corner is octogenarian former president Jiang Zemin, who is seen as a kingmaker after making a surprise political comeback, while the other faction comprises Mr Hu’s allies.
Manila to urge Beijing to start sea code talks Leaders to meet during a regional summit next week
hilippine President Benigno Aquino will urge China to start negotiations on a set of rules to avoid conflict in the South China Sea during a regional summit next week, a government official said. The 10-member Association of Southeast Asian Nations in July agreed on a code of conduct for operating in the waters. China, undergoing a once-in-adecade leadership transition, said at the time it will start talks with Asean “when conditions are ripe,” according to the official Xinhua News Agency. “We are ready to negotiate with China,” Raul Hernandez, spokesman for the Philippine foreign affairs department, told reporters in Manila yesterday, referring to Asean. “We hope China would respond positively, and immediately tackle this issue so we can have something binding.” China has resisted calls by Asean members and U.S. Secretary of State Hillary Clinton to quickly reach a
deal on a code of conduct, preferring instead to push for joint development of resources to ease tensions. Vietnam and the Philippines reject China’s map of the sea as a basis for sharing oil, gas and fish in the waters. Asean leaders will meet with Chinese Premier Wen Jiabao and U.S. President Barack Obama, Japanese Prime Minister Yoshihiko Noda and other regional leaders during meetings in Phnom Penh next week. Cambodia holds Asean’s rotating chairmanship. Last year, Asean and China agreed on guidelines to implement a nonbinding agreement signed in 2002 that called on signatories to avoid occupying disputed islands, inform others of military exercises and resolve territorial disputes peacefully. The eight guidelines approved last year say activities in the sea should be step-by-step, on a voluntary basis and based on consensus. While Asean reached agreement on elements of a code of conduct in
the South China Sea, the bloc failed to reach consensus on handling disputes in the waters in a communique. They eventually agreed on six principles that avoided mentioning a standoff earlier this year between China and the Philippines over the Scarborough Shoal, which both countries claim. “With these six principles on the South China Sea issue, we can move forward and these summits will be on a totally different dynamic,” Mr Hernandez said. “We are hoping and expecting that there will be smooth and very productive results on these meetings.” Bloomberg
November 15, 2012 business daily | 9
dership path Officials rail against
Besides singling out Mr Xi, considered a consensus figure who leans toward Mr Jiang, Xinhua mentioned in the same dispatch that Mr Hu protégé Vice Premier Li Keqiang was also re-appointed to the committee. Mr Li is tipped to become China’s next premier in March, when Mr Xi is expected to be named president. Xinhua also singled out about a dozen other officials who have been tipped for inclusion in the Politburo Standing Committee, China’s elite power grouping which is to be unveiled today when its members march onto the stage. Vice-Premier Wang Qishan, propaganda chief Liu Yunshan, party organisation chief Li Yuanchao, Tianjin party boss Zhang Gaoli and Vice-Premier Zhang Dejiang are all thought to be front-runners. Only the line-up of the standing committee – currently at nine members but likely to be reduced to seven – and its pecking order will provide certainty on the factional outcome. Analysts say that despite rivalries between the two camps which are largely divided on patronage lines, they broadly agree China must reform its economy away from a dependence on exports, while maintaining a firm hand on dissent. Mr Xi’s ascension has been expected since 2007, when he was given a position on the standing committee. That indicated his status as heir apparent to Mr Hu, who officially relinquishes party control this week. Mr Hu will also leave his post as the head of the military commission, Radio Television Hong Kong reported, citing Zhang Qinsheng, deputy chief of the People’s Liberation Army general staff. AFP
We hope China would respond positively, and immediately tackle this issue so we can have something binding Raul Hernandez, Philippine foreign affairs department
Worried it blocks major companies from expanding overseas
An estimated 200 million Chinese jobs are in the export sector
hina’s top trade and investment officials are railing against what they call a rising tide of global protectionism that blocks its major companies from expanding overseas and further integrating into the global economy. The officials, speaking on the sidelines of a week-long Communist Party Congress, said protectionism was emerging across the world, not just in the West. It damaged global growth, frayed relations and could see China focus its investments in neighbouring Asian nations, the officials said. “We are against it,” Industry Minister Miao Wei told reporters yesterday when asked what he thought about protectionism as he left the Great Hall of the People after the closing session of the congress. Commerce Minister Chen Deming had set the tone earlier last week, deriding the “Cold War mentality” of Washington lawmakers who urged U.S. firms in a landmark report last month not to do business with two top Chinese telecom equipment makers because of risks to national security. He was followed by Lou Jiwei, chairman and CEO of China Investment Corporation, who told Reuters a rise in protectionism was forcing a rethink at the country’s US$482 billion sovereign wealth fund, which would not spend money in countries “that do not welcome us”. “There are other places to invest,” Mr Lou said. Asia is a particularly favoured option for CIC, thanks to some of the fastest rates of growth and development in the world – which are themselves levered to China’s own economic dynamism. Li Ruogu, president of the Export-Import Bank of China, which is a main source of loans for Chinese firms investing abroad, complained of “added layers of
KEY POINTS Officials see protectionism emerging Say companies prevented from joining the global economy Damages global growth, threatens trade relations Seeking ‘other places’ to invest
p r o tecti o n i s m ” b ei n g s t a c k e d up against China’s increasingly outward-looking companies.
Increasingly sensitive Comments in between from bosses of some of the biggest state-owned enterprises – all of which have a Communist Party secretary at the top of their management structure – have reinforced views in some quarters that Beijing is becoming increasingly sensitive to protectionism. Fu Chengyu, chairman of China’s oil giant Sinopec Group, said in London on Tuesday that politics made deals in the West increasingly difficult. Sinopec’s rival, Cnooc Ltd, is struggling to win regulatory backing from Canada’s government for a US$15.1 billion bid for Nexen Inc. A decision has been repeatedly delayed even though it has been approved by shareholders. Even before the congress started, officials from government-run
think-tanks that directly feed into policymaking had spoken to Reuters about a perceived rising tide of protectionism and how China might best try to turn it. China’s trading partners, in turn, complain that state-backed companies they compete with globally get unfair support from Beijing – either through subsidies, tax breaks, cheap bank loans, or a deliberately undervalued currency. Since joining the WTO in 2001, China has had 29 complaints of unfair trade practices brought against it. Around two thirds have been launched by the United States and the European Union, with others coming from a mix of developing and developed economies. Foreign analysts though see recent rising rhetoric driven by political transition in both Washington and Beijing, a rash of troubled cross-border takeovers and the toughest conditions in three years for the country’s export-focused factory sector. “This is playing to a domestic audience in the sense that a lot of manufacturers, a lot of exporters, aren’t doing too well and they are putting pressure on the Ministry of Commerce to do something,” said Alistair Chan, an economist at Moody’s Analytics. “There isn’t a lot that the government can do to help global demand, but one thing they can do is advocate for less protectionism. In terms of an actual trade war, I think that risk is quite minimal.” China’s economy depends heavily on trade and investment flows. Exports were worth about 31 percent of GDP in 2011, according to World Bank data, while an estimated 200 million Chinese jobs are in the export sector or supported directly by foreign investment. Reuters
business daily November 15, 2012
ASIA Toyota recalls 2.77 mln vehicles worldwide Toyota Motor Corp yesterday announced a global recall of 2.77 million vehicles over water pump or steering problems in the latest blow to the firm’s reputation. Japan’s biggest automaker said there were no reported injuries or accidents, but it had received about 400 complaints in Japan over the pump issue and a handful about the steering problem. Toyota’s latest recall involves a number of vehicles manufactured between August 2000 and December 2011, including its popular Prius hybrid, Toyota said. About 1.5 million of the vehicles were sold in Japan, with the remainder sold around the world.
Olympus sued by investors Olympus Corp., the camera and endoscope maker that admitted an accounting fraud, said it was sued by a group of 48 investors for 19.1 billion yen (US$240 million) in damages. The lawsuit by investors including State Street Bank and Trust Co. and Government of Singapore Investment Corporation Pte Ltd was disclosed after markets in Tokyo closed yesterday. It was filed on June 28 to Tokyo District Court, Olympus spokesman Yasutoshi Fujiwara said. The lawsuit is in addition to 14 similar cases Olympus has in Japan where investors are suing over the accounting fraud.
S.Korean economy ‘to bounce back’ South Korea’s central bank governor said yesterday the local economy appears to have bottomed and may bounce back more than the central bank had expected. “The South Korean economy will not get any worse, although it won’t recover in a V-shape. It remains to see if it does in an L-shape but I expect it to bounce back harder than that,” said Bank of Korea Governor Kim Choong-soo. The governor also said the central bank is currently watching the volatility of the won, rather than the currency’s specific levels against the dollar.
Vietnam’s PM vows to boost companies Vietnam’s Prime Minister Nguyen Tan Dung pledged to help struggling companies with additional tax measures in 2013, deal strictly with bank violations and improve oversight of state conglomerates in an address to the National Assembly in Hanoi yesterday. Vietnam’s economy is “stagnating” due to high levels of non-performing loans and unsold inventories at companies, which Dung said are the main “obstructions” to expansion. The government will cut interest rates in 2013 in line with inflation to make it less expensive for companies to borrow, he added.
Noda to dissolve Diet tomorrow Japanese PM paves way for December election
apanese Prime Minister Yoshihiko Noda said he is willing to dissolve the Diet tomorrow, paving the way for elections that polls show his Democratic Party of Japan (DPJ) will lose. Speaking in parliament a day after the DPJ reached a deal with the two main opposition parties on legislation to fund the rest of this year’s budget, Mr Noda said he would dissolve the lower house if a deal is reached to cut the number of lawmakers in the chamber. Shinzo Abe, head of the Liberal Democratic Party, said he agreed. “Let’s do this,” Mr Noda said. “Based on that, I will dissolve parliament on November 16.” The prime minister’s popularity has plummeted over his management of an economy burdened by stagnant growth, deflation and the world’s largest debt. He faces a potential rebellion from some ruling party lawmakers who want to put off an election. Mr Noda told DPJ Secretary-General Azuma Koshiishi his intention to hold election on December 16, which was greeted with disapproval, Kyodo News reported without citing anyone. Mr Noda’s disapproval rating rose five percentage points to 64 percent, the highest since he took office in September 2011, an Asahi newspaper poll published yesterday showed. His approval rating was unchanged from three weeks ago at 18 percent. Asked which party they would vote for in the proportional representation section if the election were held now, 29 percent of respondents to the Asahi poll picked the LDP, compared with 12 percent who opted for the DPJ.
PM Noda’s disapproval rating rose to 64 percent
The paper surveyed 1,611 people and provided no margin of error.
Downgrade expected The government will likely downgrade its assessment of the economy in a monthly report due at the end of the week, government sources told Reuters yesterday, as the global economic slowdown pushes the country to the brink of recession. That would mark the fourth consecutive month of downgrades, the longest since the aftermath of the collapse of U.S. investment bank Lehman Brothers. The weakening outlook increases the pressure on the government and the Bank of Japan to bolster the economy and could make some lawmakers reluctant to follow through with a plan to raise the sales tax next year. The government is scheduled to
release its monthly assessment of the economy tomorrow. Last month, the government said the economy was weak but showing signs of bottoming out. Declining exports and a drop-off in consumer spending following the expiration of subsidies on energyefficient cars are the main reasons the government is considering a downgrade, the Nikkei newspaper reported earlier yesterday without citing sources. The government has said that it will compile some stimulus measures by the end of this month, but the worst public debt burden among major economies limits the government’s ability to pump-prime the economy. Japan’s economy shrank in the September quarter for the first time since last year, adding to signs that slowing global growth and tensions with China are nudging the world’s thirdlargest economy towards recession. Reuters/Bloomberg
SingTel forecasts drop in annual sales
S Global Logistic plans share sale Global Logistic Properties Ltd, a unit of Singapore’s sovereign wealth fund, plans to raise about 104.8 billion yen (US$1.3 billion) through an initial public offering that is poised to be Japan’s second-biggest this year. The company will sell 1.75 million shares in the sale and seeks to list in Tokyo on December 21, according to a document filed with the country’s stock exchange. Global Logistic said on November 1 it intended to raise 209 billion yen from selling 30 of its 68 Japanese logistic facilities to a real estate investment trust that it will partly own and manage.
ingapore Telecommunications Ltd forecast its first drop in annual revenue in 14 years after it posted a weakerthan-expected quarterly profit, hit by tough competition in its key Australian market. SingTel, Southeast Asia’s largest telecommunications firm by market value, relies on Australian unit Optus for two-thirds of its revenue, but competition with the likes of Telstra has grown increasingly fierce amid slowing growth in that country’s mobile market. SingTel said yesterday that it now expects a “mid-single digit” percentage decline in Australian operating revenue for the financial year ending March 2013, a reversal
from its earlier forecast for a lowsingle-digit increase. “With the revised revenue outlook for Australia, the consolidated revenue of the group is expected to decline by a low-single digit level,” SingTel said in a statement. SingTel last reported a fall in annual revenue in 1998/99, Thomson Reuters data shows. SingTel, however, expects earnings before interest, tax, depreciation and amortisation (EBITDA) at the group level to be stable, in line with earlier guidance. For its July-September quarter, SingTel, which also owns large stakes in several mobile operators including India’s Bharti Airtel and Indonesia’s Telkomsel, had an underlying net profit of S$886 million (US$725 million). That was up only slightly from S$885
KEY POINTS Q2 underlying net profit S$886 mln; forecast S$896 mln Australia op revenue to fall by mid-single digits Strong Singapore dollar also impacted earnings million a year earlier and undershot the S$896 million average estimate of six analysts polled by Reuters. “The main issue is with Australia. It’s really in the pricing, on bundles offered on fixed line products that is impacting top-line revenue,” said
November 15, 2012 business daily | 11
ASIA India PM to get US$15 bln investment India’s Prime Minister Manmohan Singh is set to sign deals for infrastructure projects worth US$15 billion on a visit to Japan this week, a report said yesterday. The trip, which starts today, will see the Indian premier hold talks with his Japanese counterpart Yoshihiko Noda and lunch with Japanese business leaders, said officials at the foreign ministry and industry lobby Keidanren (Japan Business Federation). A total of 19 infrastructure projects worth 1.2 trillion yen will benefit from the deals, which will involve Japanese manufacturers and trading houses, the Nikkei business daily reported.
Lagarde woos Southeast Asia Seeks to exchange views about the global economy Sandrine Rastello and Shamim Adam
Christine Lagarde week-long visit started yesterday in Malaysia
said Eswar Prasad, a former head of the China division at the Washingtonbased lender. “The main risk for the IMF is that it comes to be seen as less relevant to the region, both in terms of the advice it has to offer and in its role as provider of a financial safety net,” said Mr Prasad, now a senior fellow at the Brookings Institution in Washington. For Ms Lagarde, who spent most of her first 17 months at the IMF consumed by Europe’s debt crisis, the trip also shows appreciation for the contribution Malaysia and the Philippines made to a US$461 billion increase in the fund’s resources this year, when the U.S. and Canada abstained. The visit, which mixes meetings with officials and business leaders, concludes on November 20 in Cambodia with the East Asia Summit, where Ms Lagarde will join leaders of the Association of Southeast Asian Nations and other countries, including newly re-elected U.S. President Barack Obama.
resh from yet another meeting in Brussels on Europe’s debt crisis, International Monetary Fund managing director Christine Lagarde yesterday kicked off a three-country tour of Southeast Asia, which is thriving after emerging from turmoil more than a decade ago. Her week-long visit, which starts in Malaysia and includes the Philippines and Cambodia, builds on ties that took years to mend after the 1997 Asian financial crisis forced
Michael Wu, an equities analyst with Morningstar in Sydney. “We were expecting EBITDA to decline ... but they did match their declining revenue with declining costs, so EBITDA is stable. That’s encouraging,” he added. Nomura Securities said revenue and operational trends at Optus were weak, noting Telstra had gained market share in Australia’s mobile market after discounting the gains in subscriber numbers following Optus’s purchase of Vivid Wireless earlier this year. Optus, Australia’s No.2 telecom after Telstra, saw revenue drop 4 percent to A$2.24 billion (US$2.34 billion) during the quarter from a year earlier, due to price competition in mobile phones and a mandated reduction in mobile termination rates. SingTel’s results were also hurt by the strength of the Singapore dollar, which depressed contributions from India, Indonesia and Thailand. Reuters
some countries into unpopular IMF austerity policies. Now th e fu n d i s s eek i n g to maintain its influence in a region that is helping power the world economy while reducing its reliance on the IMF’s financial support. These countries, which didn’t need IMF help during the global crisis of 2008, are building up foreign currency reserves and boosting regional alliances to ensure they can weather future shocks on their own,
Her goal is to “engage, listen and exchange views about the global economy,” Anoop Singh, who heads the IMF’s Asia-Pacific department, said. Recent economic data have shown signs of recovery in Asia. South Korea’s unemployment rate fell to 3 percent in October, the lowest in more than four years, amid a rebound in the nation’s exports and industrial output, a report showed yesterday. Hong Kong may report faster yearon-year growth in the third quarter,
The main risk for the IMF is that it comes to be seen as less relevant to the region, both in terms of the advice it has to offer and in its role as provider of a financial safety net Eswar Prasad, senior fellow, Brookings Institution
according to a Bloomberg News survey ahead of Friday’s release. Australian consumer confidence surged to a 19-month high in November, a Westpac Banking Corp. and Melbourne Institute survey showed yesterday in Sydney. The country’s wage price index, which measures hourly pay rates excluding bonuses, advanced 0.7 percent in the third quarter from the previous three months, the statistics bureau said separately. “Asia is now the global growth leader and you see how much many Asian countries have improved the fundamentals over time,” Mr Singh said. “There are clearly many lessons the world can learn from Asia.” “Asia’s fundamentals are quite good, the banking system is sound and fiscal positions are healthy, and that’s partially a direct consequence of the IMF’s policies,” said Tomo Kinoshita, chief economist at Nomura Holdings Inc. in Tokyo. Bloomberg
San Miguel in talks to invest in Cayman Airways S an Miguel Corp., the Philippines’ biggest company, and affiliate Philippine Airlines Inc. are in talks with Cayman Airways for a possible investment. Discussions with the Cayman Islands government and the state-owned carrier cover “a number of investment opportunities,” Ramon Ang, president of both San Miguel and Philippine Air, said yesterday in a mobile-phone message. He didn’t elaborate. Philippine Air is in talks to invest in a foreign carrier, Mr Ang said in June, as he applies the same strategy of expanding through acquisitions to build up San Miguel. The brewer of the century-old San Miguel beer brand has expanded from food and
drinks to industries including oil, power and infrastructure to meet a target of doubling sales. “San Miguel’s investment in Cayman Airways may turn out to be a really wise investment, but it needs to communicate the strategy better,” said Jomar Lacson, an analyst at Campos Lanuza & Co. in Manila. San Miguel rose 0.2 percent to 109.20 pesos in Manila trading yesterday. The stock has lost 6.5 percent this year, compared with a 25 percent gain for the benchmark Philippine Stock Exchange Index. Cayman Airways operates six planes serving Caribbean and U.S. destinations, according to its website. Talks between Cayman
Airways and San Miguel are “very preliminary” and include “reviewing the ability to code share, to provide aircraft operations and other strategic areas,” Cayman Islands Premier McKeeva Bush told lawmakers last week, according to a transcript provided by his office yesterday when asked for comment. San Miguel may also buy nonvoting shares in the airline, though the approval process is “lengthy,” Mr Bush said. Ang has said San Miguel’s acquisition of stakes in PAL and affiliate Air Philippines Corp. would help boost sales this year to almost US$20 billion and to US$30 billion by 2017. Reuters
business daily November 15, 2012
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INDEX 10405.76 HIGH
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FTSE TAIWAN 50 INDEX NAME ACER INC ADVANCED SEMICON ASIA CEMENT CORP
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1.0454 1.59 0.9438 1.2756 79.94 7.9834 7.7507 6.2252 54.875 30.69 1.2216 29.057 41.13 9630 83.571 1.20397 0.80226 7.9231 10.1817 101.97 1.03
0.3841 0.0189 0.6463 0.5835 -0.5879 -0.005 -0.0026 0.0321 -0.2187 -0.0326 0.2046 0.0138 0.0851 0.0415 -0.9633 0.0598 -0.5609 -0.4165 -0.5687 -1.1572 0
2.3998 2.2969 -0.6039 -1.5817 -3.7903 0.2029 0.2155 1.1212 -3.2984 2.8022 6.1395 4.2055 6.5889 -5.8255 -6.1493 1.0648 3.8803 2.6644 1.6726 -2.2654 0.0097
1.0857 1.6309 0.9972 1.3614 84.18 8.0308 7.7979 6.3964 57.3275 32 1.315 30.5 44.35 9662 88.637 1.24438 0.86648 8.613 10.887 111.44 1.0311
0.9582 1.5235 0.8931 1.2043 76.03 7.9823 7.7498 6.2202 48.6088 30.2 1.2152 28.914 40.996 8875 74.482 1.19995 0.77553 7.7018 9.6245 94.12 1.029
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HSBC Dragon 300 Index Singapor
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business daily November 15, 2012
Opinion What’s troubling India? Kenneth Rogoff
Former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University
ndia’s recent fall from macroeconomic grace is a lamentable turn of events. After many years of outperformance, GDP growth has slowed sharply. Annual output will most likely rise by less than 5 percent this year, down from 6.8 percent in 2011 and 10.1 percent in 2010. Reform has stalled amid profound political paralysis. All of the major emerging economies face weakening external demand, but India’s slowdown has been exacerbated by a drop in investment that reflects a deeper loss of official direction and business confidence. Even the International Monetary Fund’s forecast of a modest improvement in 2013 is predicated on the government’s ability to breathe life into a spate of stalled economic reforms. India’s recent torpor has underpinned a remarkable shift in global opinion. Just a couple of years ago, India was developing a reputation as the cool place to invest. Heads of state tripped over one another to meet business leaders in Mumbai, hoping to pave the way for a significant expansion of trade and investment. Now their interest has faded, along with the macroeconomic numbers. And yet changes currently afoot might just turn things around. India’s octogenarian prime minister, Manmohan Singh, has recently awakened to the desperate need for renewed momentum. Economists around the world have taken note of
the arrival of Raghuram Rajan as chief economist in the finance ministry. Rajan is a superstar academic researcher, a brilliant writer on political economy, and a former chief economist for the IMF. But it is far from obvious that Sonia Gandhi, President of the Indian National Congress and the country’s most powerful politician, shares Singh’s reform agenda. True, the cabinet is being reshuffled to elevate younger ministers. But the process points to a continuation of the tradition whereby most ministers are appointed on the basis of their loyalty to the Gandhi family rather than their merit and accomplishments.
the early 1990’s. Back then, Singh, as finance minister, played a central role. He could count on the IMF – which had real policy leverage, owing to India’s need for a bailout programme in 1991 – to provide external support to counter the huge internal obstacles to reform. Today, however, there is no external counterweight to the domestic political pressure that is stalling further liberalisation.
Internal barriers Unfortunately, for a country as poor as India, only sustained rapid growth can lead to enduring development gains. India’s poverty rate (an indicator that is admittedly both conceptually and practically difficult to measure) fell by half between 1981 and 2010, to just under 30 percent – a remarkable achievement. But faster-growing East Asia has experienced significantly greater progress, with the poverty rate falling from 77 percent to 14 percent over the same period. Why has India’s growth acceleration fizzled? For many years, India benefited from the long-lasting impact of economic liberalisation in
True, India’s government must now consider growing threats to the country’s investment-grade credit rating. The major ratings agencies are increasingly complaining about the country’s lack of a growth strategy and its outsize budget deficits. But the impact has been limited, owing to the authorities’ ability to stuff debt down the throats of captive local banks, insurance companies, and pension funds. Indeed, this “financial repression” tax on domestic savers remains a huge opaque source of funding for India’s debt-ridden government. It also prevents funds from being channelled to private-sector investment projects with far higher rates of return than the government can offer.
Still many opportunities
Devolution might sound unrealistic, but if Singh’s new reform agenda is again blocked, perhaps it will be time for a more radical assessment
The good news is that, from an economic perspective, there is still plenty of low-hanging fruit for restoring growth. Although India is right to avoid taking financial liberalisation to the extreme that the United States did in the decades before the recent meltdown, it can do quite a lot without assuming inappropriate risks, as a commission headed by Rajan detailed a few years back. The retail sector is a huge source of inefficiency that effectively places a massive tax on India’s poor by driving up prices. Instead of suing foreign retailers like Wal-Mart, India should be finding ways to emulate and benefit from their hyper-efficient methods. Infrastructure is slowly improving, but roads, ports, water access, and the electricity grid are still horrific across large parts of the country. Of course, India’s democratic government cannot simply bulldoze through people and the environment to create infrastructure. But the obstacles also include layers of corrupt bureaucrats and politicians – a vast network of resistance to reform. Some argue that central-government paralysis is inevitable in a democracy of 1.2 billion people, and that the only way to re-energise India is to establish a looser confederation of its constituent states. Devolution would unshackle the economically more successful states. And, by combating the culture of aid dependency in economically weaker states, India’s poorer regions might benefit in the long run as well. As dysfunctional as a decentralised Europe seems to be these days, India might benefit from moving a few steps in that direction, even as Europe itself struggles to become more centralised. Devolution might sound unrealistic, but once upon a time so did the European Union. If Singh’s new reform agenda is again blocked, perhaps it will be time for a more radical assessment. © Project Syndicate
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November 15, 2012 business daily | 15
OPINION China’s new leaders face wires an economic turning point Business
Leading reports from Asia’s best business newspapers
Vice chairman of corporate and investment banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration
South Korea should make efforts to enhance its financial stability by tackling volatile cross-border capital flows in a bid to beef up its economic fundamentals, the country’s top central banker said yesterday. Bank of Korea Governor Kim Choong-soo said at a forum in Seoul that Korea should continue its efforts to dispel potential risks lurking in the financial system. Since 2010, Korea has taken a set of macro-prudential steps as the country has fallen victim to volatile capital flows.
Jakarta Post The Investment Coordinating Board (BKPM) says it will work with national flag carrier Garuda Indonesia to boost investment in Indonesia. BKPM chief M. Chatib Basri and Garuda Indonesia president director Emirsyah Satar signed a memorandum of understanding to promote the BKPM abroad at BKPM’s office in Central Jakarta on Monday. According to the latest data from the BKPM, investment in Indonesia topped Rp 229 trillion (US$23.81 billion) in the first nine months of 2012, up 27 percent from the same period last year.
Business Times Malaysia’s Sunway Bhd’s award-winning Sunway Integrated Resort City in Bandar Sunway, Selangor, will be replicated in Johor from 2014, with a 12 billion ringgit (US$3.69 billion) gross development value. The managing director of Sunway’s property development division Ho Hon Sang is bullish on the project due to the large number of foreigners buying properties worth above 1 million ringgits in the state. Mr Ho said that Sunway will offer a wide range of properties when it launches them in phases from 2014.
Bangkok Post The SET-listed Italian-Thai Development Plc is willing to forge joint ventures for various aspects of the Dawei megaproject in Myanmar. These include port facilities, power plants, roads, railways, water supply, industrial estates, telecommunications and townships at the deep-sea port and industrial zone. Eight joint ventures will be established soon to operate roads, rail, water, power, industrial estates, a port, telecommunications and relocating residents of the community of Dawei. The first phase, is scheduled for completion in 2014.
s the U.S. has been consumed by its own political transition (or, more precisely, lack thereof), it has paid scant attention to the one occurring in China. Yet how the new Chinese leadership navigates its economic challenges may well turn out to be far more important to the global economy than how the fiscal cliff drama plays out in Washington. The opening of the 18th National Congress of the Communist Party of China this month, which will usher in the presidency of Xi Jinping, has been accompanied by a variety of indicators that the Chinese economy is strengthening a bit. But there’s reason to worry that Xi will not enjoy such good economic news throughout his tenure. A growing body of academic studies warns that economic growth in China might slow substantially in the years and decades to come. One crucial reason is that, in the past, it has been driven disproportionately by workers moving from farms to factories. That method of raising productivity may now be largely exhausted – because most of the workers who could successfully make the transition already have.
Shifting productivity The point at which moving workers from agriculture to manufacturing no longer leads to economic gains is called, in the literature of economic development, the Lewis turning point – after the Nobelwinning economist Arthur Lewis. If China is at or near its Lewis turning point, Xi will face an extraordinary economic challenge, with far-reaching geopolitical
ramifications. Estimates by Xiaodong Zhu of the University of Toronto provide some sense of how large the historical gains from shifting workers from agriculture to manufacturing have been. In 1978, agriculture accounted for 69 percent of total employment in China. And because average labour productivity outside agriculture was six times as much as inside it, shifting workers across the sectors generated huge productivity gains. By 2007, however, agriculture accounted for only 26 percent of total employment. As a result, since 1997, migration rates have risen, on average, less than 5 percent a year – down from 10 percent between 1985 and 1997. At the same time, the relative quality of the migrant workers appears to be declining. For example, their average age has been rising – because most young workers, who presumably are better suited to factory work, have already left. A slowdown in growth of the pool of productive
China represents a greatly leveraged bet on economic growth – and if growth is much harder to achieve, that bet may turn sour
workers can be expected to generate wage pressures in the coastal manufacturing regions, and that is indeed what Hongbin Li, Lei Li, Binzhen Wu and Yanyan Xiong of Tsinghua University have already found. In 1978, the annual wage of the average Chinese urban worker was US$1,004 in 2010 U.S. dollars. By 2010, it had risen to almost US$5,500. Wages have grown especially fast for more highly educated workers, but they have risen noticeably for lesseducated workers, too. And, somewhat surprisingly, wages are higher at non-exporting companies than at exporting ones. What’s more, the Tsinghua University researchers say, China is “already experiencing labour shortages.” They point to survey data from China’s Ministry of Human Resources and Social Security suggesting that, in a sample of 117 cities, the number of newly created jobs now exceeds the number of job seekers. In 2001, by contrast, this same survey found that new job seekers exceeded
newly created positions by 50 percent. Not everyone considers this to be evidence that China has reached the Lewis turning point. Jane Golley and Xin Meng of the Australian National University say there is still little to suggest rising wages are the result of a shortage of unskilled labour. “China still has abundant workers who are underemployed with very low income in the rural sector,” they wrote. “We argue that China’s unique institutional and policy-induced barriers to migration have prevented many rural workers from migrating to cities.” This interpretation is much more encouraging, because it suggests that China could reopen the spigot of migration by making policy changes.
Turning point The International Monetary Fund says that reality lies somewhere in the middle – that the Chinese economy will reach the Lewis turning point sometime between 2020 and 2025 – about the time when Xi’s term ends. Even after that point has been reached, high growth is still possible – it will just be more difficult. Xi will face enormous political and economic difficulties. As my former colleague Larry Summers likes to put it, China represents a greatly leveraged bet on economic growth – and if growth is much harder to achieve, that bet may turn sour. So for Xi’s sake, as well as the rest of the world’s, let’s hope the growing evidence of wage pressures, reduced migration and labour shortages reflects obstacles that he can remove, rather than an inherent constraint on Chinese growth. Bloomberg View
business daily November 15, 2012
CLOSING Ireland may need official funding
U.K. jobless claims unexpectedly rise
Moody’s Investors Service said Ireland may need an official funding backstop as it seeks to exit its bailout program at the end of 2013 and return to international bond markets. “The agency expects that the end of Ireland’s current EU/IMF support program at year-end 2013 will prompt the need for official financing being available,” Moody’s said yesterday in a report. Ireland’s credit rating of Ba1, the highest non-investment rating, “reflects the significant deterioration in the government’s financial strength” following its banking crisis and economic contraction.
U.K. jobless claims rose at the fastest pace in more than a year and job creation slowed, suggesting the labour market is succumbing to a fragile economic outlook. Joblessbenefit claims rose to 1.58 million in October. The figures suggest the labour market’s recent resilience in the face of a recession may be waning. Economists expect unemployment to begin rising in coming months as companies respond to a weak economic outlook freezing hiring or cutting payrolls. Latest survey evidence indicates that companies are currently cautious in their employment plans.
“Fiscal cliff” back on centre stage after election Tax dispute still a major obstacle to agreement on public deficit
oth sides in the U.S. “fiscal cliff” debate stood their ground on Tuesday as they gathered in Washington for the first time since the elections, with a fundamental tax dispute preventing a broader compromise on deficit reduction. The White House made clear it was ready to negotiate with Republicans on taxes and spending, but a spokesman for Democratic President Barack Obama said he will not budge on insisting that tax rates for the wealthy must rise in 2013. Obama wants to extend the individual income tax rates for 98 percent of Americans, but he will not agree to extend them for the top 2 percent of earners, White House spokesman Jay Carney told a briefing. He said the president would demand that a deficit-cutting agreement include US$1.6 trillion
President Obama and House Speaker Bohener
in new tax revenues. Senate Republican leader Mitch McConnell said his party was open to discussing new government revenues, but not raising tax rates. “We’re ... not about to further weaken the economy by raising tax rates and hurting jobs,” he said. The defiant remarks came as Congress returned from a post-election break with seven weeks left to deal with the “fiscal cliff,” a convergence of urgent tax and spending issues that, if mishandled, could plunge the economy into another recession according to the non-partisan Congressional Budget Office. Obama foreshadowed the difficult talks during a call on Tuesday evening to thank thousands of campaign volunteers, whom he encouraged to stay involved.
“We’re going to have some triumphs and some successes, but there are going to be some tough days, starting with some of these negotiations around the fiscal cliff,” he said. “We’re going to need you guys to stay active.” While the big fight is over tax rates, the dispute has held up other consequential tax measures on which there is less disagreement. Among them is a fix to the alternative minimum tax, which is designed to protect Americans who are not wealthy from being taxed as if they were. In a new letter to lawmakers on Tuesday, the U.S. tax commissioner reiterated that more than 60 million taxpayers - half of all individual filers - could be adversely affected
Workers launch southern Europe strikes Social instability increasing on prolonged austerity
orkers across southern Europe launched an unprecedented string of strikes to battle austerity cuts yesterday, paralyzing factories and grounding more than 700 flights. Unions called general strikes in Spain and Portugal, the first such action across the Iberian peninsula, along with temporary walkouts in Greece, the epicentre of the debt crisis, and Italy. It was the first time workers had agreed on simultaneous strikes in four European countries, said the European Trade Union Confederation, which organized the “Day of Action and Solidarity.” “In some countries, people’s exasperation is reaching a peak,” said the confederation’s general secretary Bernadette Segol. “We need urgent solutions to get the economy back on track, not stifle it with austerity. Europe’s leaders are wrong not to listen to the anger of the people who are taking to the streets.” Spain, the eurozone’s fourthlargest economy where one in four workers is unemployed in a deep recession, was holding its second general strike in eight months to protest draconian budget cuts. In the main squares of Madrid,
by Congress’ failure to resolve these lower-profile issues. The letter said millions would not even be able to file their returns or receive a refund until late March, while the IRS belatedly adjusts its systems. Generally weak since the elections, U.S. stock markets were flat on Tuesday, with nervous investors eyeing Washington amid skepticism about lawmakers’ ability to make fiscal decisions. About half of Americans doubt that Obama and congressional Republicans will be able to reach an agreement to resolve the “fiscal cliff,” according to a poll released by the Pew Research Center for the People and the Press. Reuters
the main unions strung up banners declaring “They are taking away our future!”. They deployed pickets overnight at airports, markets and bus and railway stations. In neigbouring Portugal, Lisbon’s metro service was was out of service, while ferries across the River Tagus and trains across the country ran skeleton services. Rubbish collecion ground to a near halt. Portugual’s unions have called marches and rallies in some 40 towns and cities against the centre-right government’s austerity policies. Greece is the epicentre of the eurozone’s debt crisis but its unions are focused on the national crisis and its protest is limited to a three-hour work stoppage and a rally in Athens. Italian unions, too, have called a four-hour walkout. Union-led rallies were also being in support of the day of action in France, Belgium and in Poland, where workers decry a “social and wage-dumping” in their country. In Germany, viewed by many in southern Europe as the paymaster behind the austerity drive, the union federation DGB has called protests across the country including in Berlin and Frankfurt. AFP