Xi Jinping set to take reins in China Vice President Xi Jinping was appointed secretary general of the 18th Chinese Communist Party Congress, a procedural move heralding the start of a once-a-decade leadership transition that begins today. Mr Xi’s appointment is further evidence that he’ll replace President Hu Jintao as head of the party at the end of the congress. During the meeting, the Communist Party is set to appoint a new generation of leaders that will include a new Politburo Standing Committee.
Pages 8 & 9 www.macaubusinessdaily.com
Year I Number 158 Wednesday November 8, 2012
Editor-in-chief: Tiago Azevedo
Deputy editor-in-chief: José I. Duarte
Looser imported labour law looms
ssembly members have approved a first reading of the bill to amend the law on imported labour. But some legislators doubt the proposed changes would have any effect. The government aims to ease the ban on non-resident workers being re-employed immediately if their contracts end but legislators urged the administration to overhaul the entire law. Trade union representative Lam Heong Sang asked the government to set up a mechanism for adjusting the
foreign labour quota depending on the economy’s health. The bill states that a non-resident worker will be permitted to stay in Macau legally and find a new job in any sector once his contract expires. At present the law says a nonresident worker must first return home for six months. But workers whose contracts are ended prematurely on valid grounds must still leave Macau for six months. Non-resident workers already number over 109,000 in the city as of the end of September, accounting for almost one third of the work force. More on page 3
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Melco Crown Q3 rev falls but Nov starts strong Melco Crown Entertainment Ltd’s net revenue was down four percent year-on-year in the third quarter, at US$1.01 billion (8.08 billion patacas). The company said the fall was primarily due to lower group-wide rolling chip volumes in VIP table games, linked to high rollers’ wait-and-see attitude to China’s leadership transition due today. But Lawrence Ho Yau Lung, MCE’s co-chairman, said the early signs for November revenue were strong. “Even in the first few days the GGR [gross gaming revenue] growth has been quite phenomenal – much higher than the rest of year,” he told analysts on a conference call last night.
Barack Obama defeats Romney to win re-election President Barack Obama’s victory positions him to claim a mandate for pushing a proposal through Congress that would let tax cuts expire for top earners and avert US$1.2 trillion in automatic spending reductions. Mr Obama defeated Republican Mitt Romney to win a second term that will begin with the same balance of power in Congress: Democrats controlling the Senate and Republicans holding the majority in the House. The president prevailed despite lingering dissatisfaction with the economy and a hard-fought challenge by Mr Romney. Mr Obama said he was returning to the White House “more determined, and more inspired than ever about the work there is to do, and the future that lies ahead”.
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business daily November 8, 2012
New companies hit record high Small firms, wholesalers and retailers surge, driven by soaring in investment from the mainland Vítor Quintã
Companies incorporated in third quarter of 2012
Some 340 wholesale and retail companies were created in the third quarter of this year
record number of companies were incorporated in the third quarter this year, the majority were small enterprises in
the wholesale and retail sector, data released yesterday shows. There were 992 companies incorporated between July and
September, a 16.7-percent increase over the same period last year. It was the highest quarterly rise since the Statistics and Census
Service began collecting data in 2001. Most new companies were established in the wholesale and retail sector, 340, followed by 204 firms in business services and 154 new real estate agents. Capital invested in new companies fell by almost two-thirds to 162 million patacas (US$20.3 million) last quarter, the second quarter in a row this figure has declined. A dramatic tumble in the capital in new business service companies accounted for most of the fall. Investment fell from 409.8 million patacas in the third quarter of last year to 19.7 million patacas this year. The city’s statistics bureau said there was a “predominance of new incorporations with small capital” and 678 incorporations had a registered capital less than 50,000 patacas. At the other extreme, there were 28 new companies with a registered capital of at least 1 million patacas. They accounted for 64.8 percent of new capital invested with a total of 105 million patacas. Most capital came from residents, at 76 million patacas, followed closely by mainland investors with 70 million patacas. More than a decade’s worth of measures to improve economic integration with the Pearl River Delta region seem to have had an impact. The delta’s nine provinces accounted for 62 million patacas in investment – the majority, 56.5 million patacas, came from Guangdong – with Hong Kong investors adding 12 million patacas. The number of companies who closed down last quarter was 121, a slight decrease over the same time last year. Capital lost fell by almost half, from 22.9 million patacas to 11.7 million patacas.
Get Nice botches loans to Grand Waldo head
Lung Hon Lui has been Grand Waldo’s general manager since 2006
et Nice Holdings Ltd has breached Hong Kong Stock Exchange regulations in providing credit for securities trading to the general manager of Grand Waldo hotel-casino. In a November 2 filing, the company said its subsidiary Get Nice Securities had granted Lung Hon Lui loans of just HK$34,130 (US$4,400) between April 2011 and March 2012, even though the limit of credit was set at HK$50 million. Get Nice said the credit terms were “fair and reasonable and in the interests of the company and its shareholders,” and were negotiated “on an arm’s length basis, on normal commercial terms and on terms no more favourable to Mr Lung than” to other parties. But the Hong Kong-based company admitted that it “should have complied with, but was in
breach of, the applicable reporting and announcement requirements”. The non-compliance “was an isolated event and was inadvertently overlooked as Mr Lung has been a margin client of the group long before his becoming a director” in April 2011, Get Nice said. The company board approved the loans to the Grand Waldo executive but adopted “a number of remedial actions,” including requesting information on connected transactions before the appointment of any potential director. The goal is “to prevent recurrence of similar events in the future as well as to strengthen the internal control of the group,” Get Nice said. According to the Get Nice annual report, Mr Lung has been Grand Waldo’s general manager since its 2006 opening. V.Q.
November 8, 2012 business daily | 3
MACAU Legislator asks for more local, yuan investments
Review labour law from ground up, govt told Legislative Assembly approves change to imported labour law giving workers greater flexibility to find new jobs Tony Lai
he Legislative Assembly has approved a first reading of a bill to change sections of the law on imported labour but it urged the government to overhaul the entire law, introduced in 2010. The new bill would give nonresident workers six months to find another job in any sector once their employment contract expires. At present, the law says a non-resident worker must first return home for six months before seeking another job. Secretary for Finance and Economy Francis Tam Pak Yuen told the assembly yesterday the revision countered “irregularities since the implementation of the law”. “Such an adjustment can better bring out the advantage of such a ban, which is to stabilise the local
employment market,” he said. The bill would also introduce a third option allowing workers to find a new job if they quit or are asked to leave their current jobs, or if their employer has their quota revoked. The worker would have six months to find a job in the same sector. After passing the bill on its first reading, members of the legislative assembly asked for more changes. “Why is there only such minor adjustments to the imported labour law. Why don’t we take this time to review other provisions of the law,” legislator Kwan Tsui Hang said. Ms Kwan said she doubted the proposed changes would have any effect. She wants a mechanism to deter jobseekers landing in Macau as tourists and finding a job.
Trade union representative Lam Heong Sang urged the government to set up a mechanism for adjusting the foreign labour quota depending on the economy’s health. “In some industries like the construction sector, the local labour force serves as a complement to the imported workers instead of being the other way around,” he said. “Right now the government grants approvals for the hiring of imported workers without proper management.” Legislators Ho Ion Sang and Mak Soi Kun were concerned about oversight of the companies that serve as agents for imported workers. Mr Tam said the government would speed up drafting a legal framework to regulate human
The government should investment more of its money in the local market, as well as in some yuan-dominated products, legislator Chan Chak Mo said yesterday. To do so would guarantee better returns for the public coffers, he said. The money in the government reserves totalled about 290 billion patacas (US$36.3 billion) in the first eight months this year but the investment return rate only reached 0.7 percent last year, Mr Chan told the Legislative Assembly during yesterday’s meeting. The Monetary Authority of Macau should plough more money into the city’s banking market instead of investing it overseas. Aside from better returns, the move would also help to stabilise the city’s financial system, Mr Chan said. He also asked the city’s de facto central bank to apply for a bigger quota to invest in the mainland’s interbank bond market. Macau’s quota currently stands at 10 billion yuan (12.5 billion patacas), said Mr Chan. China’s financial markets are largely shut off to investors from abroad and the country’s currency is not fully convertible. Under the Qualified Foreign Institutional Investor scheme, an investor is granted a licence and an investment quota by the mainland regulator. Earlier this year, the Chinese government raised the total maximum QFII quota by US$50 billion to US$80 billion.
resources agencies. He admitted there was room for improvement in the law’s operation but did not give a timeframe for further revisions. The bill passed but Ms Kwan, Mr Lam and Lee Chong Cheng, from the Macau Federation of Trade Unions, abstained from the vote. A standing committee will now discuss amendments to the bill.
Revision links tax crime to money laundering
ax crimes could be considered predicate offences for money laundering if a law revision proposed by the government on Monday is approved. The Financial Intelligence Office has launched a consultation paper, asking for the opinion of financial institutions, casinos, luxury retailers and estate agencies until the end of the month. The office admits that “many of the deficiencies” pointed in a 2007 report carried out by the Asia Pacific Group on Money Laundering and Offshore Group of Banking Supervisors “cannot be simply addressed through reforms at operational level”. “It is necessary to revise the existing laws and regulations,” the document says. The Anti-money Laundering and Anti-terrorist Financing Legislation were first introduced in 2006. If the revision were enforced, companies would be required to request the identity cards, passports
or company registration certificates for contract partners, customers or patrons. They would also need to implement internal controls to detect suspicious transactions and report all suspicious transactions, even the ones that were rejected. The revision would also include the body that in the future will be responsible for supervising estate intermediaries and agents. The law that for the first time regulates estate agencies was approved at the Legislative Assembly last month but has yet to be published in the Official Gazette. The revision would make it clear that when providing credit to business partners – namely VIP gaming promoters or junkets – companies should also do a background check on who really controls the company. Opening any anonymous accounts or accounts in assumed names would be “completely forbidden,” the office stressed. V.Q.
Govt plans to revise the anti-money laundering bill introduced in 2006
business daily November 8, 2012
Doubts cloud Sai Van night market plan Small businesses, restaurants fear they will be excluded from a planned tourism overhaul Stephanie Lai
The government has earmarked the Sai Van Lake area for a night market and tourist attraction
small- and medium-sized enterprises will be locked out of the project, since the criteria for applications have not been made public. Macau Legend Development Ltd chief executive David Chow Kam Fai said he was not convinced that the bureau had envisaged a “just and open” set of criteria used to decide which businesses would qualify for the night market. “If there’s a contractor taking care of all the decisions, on what criteria is the bureau choosing the contractor to take up the project?” Mr Chow wrote in an opinion piece published in yesterday’s Chinese-language Macao Daily News. Mr Chow is a member of the city’s Tourism Development Committee and Fisherman’s Wharf Investment Co Ltd chief executive.
he planning behind a government initiative to set up Sai Van Lake as a tourist drawcard has been questioned by Macau business leaders. The plan to build a 2,000 square metre restaurant and promenade, and market stalls for gifts and food, has been put out for public consultation for two months. But the city’s Civic and Municipal Affairs Bureau has not yet held a session to better explain the project.
That could happen next week and the bureau said it would soon disclose the environmental impact assessment report. The bureau is committed to the original plan to transform the Sai Van Lake area into a night market, emphasising that the leisure space near the lake will be kept with the addition of a green lane and a fishing zone, the bureau’s chief, Raymond Tam Vai Man, told media on Tuesday. The business community fear that
Chan Chak Mo, legislator and executive director of Future Bright Group, supports the night market project because it could help diversify the city’s tourism scene. He also leads the association that organises Macau’s food festival. Mr Chan said a private company should be responsible for managing the development. But Mr Chow said it should be the government setting up clear guidelines for SMEs to have a chance
to take part in the project. Macau Small and Medium Enterprises Association administrator Kenneth Lei Chi Leong shares the same opinion. “Unless the government has a tilting policy towards the small and medium businesses, like a subsidy plan or rent control, these businesses will have no game there,” Mr Lei told Business Daily. He said costs associated with transport, promotion and management would be a significant barrier to SMEs that want to take part in the project. “The night market project is like an endless extension of the annual Food Fest at the plaza,” he said. “Unless there is a special government division in charge of keeping it clean and managing the space, the business will not be sustainable.” Veteran restaurant owner Chan Wing Lam said he strongly opposes the night market plan for the Sai Van Lake area. Mr Chan is also the president of the Traders Association of Macau Good Cuisine. “The plan itself is fine but the priority ought to be not destroy the tranquillity of Sai Van,” he told Business Daily. “We had many failures in setting up night markets at Areia Preta and Patane before, mainly attributed to people’s complaint of noise and unattended garbage and sewage.”
November 8, 2012 business daily | 5
Melco Crown net earnings down 4 pct in Q3
Lawrence Ho Lau Yung
But majority owned Studio City ‘on track’ for mid-2015 opening: co-chairman Michael Grimes
acau casino developer and operator Melco Crown Entertainment Ltd (MCE) said yesterday its net revenue for the third quarter of 2012 was US$1.01 billion (8.08 billion patacas), representing a decrease of four percent from US$1.06 billion against the comparable period in 2011. Adjusted earnings before interest, taxation, depreciation and amortisation were US$226.4 million for the third quarter of 2012, a six percent year-on-year decline compared to the US$240.3 million in the third quarter of 2011. The company said the fall in net revenue was primarily attributable to lower group-wide rolling chip volumes in VIP table games, partially offset by a significant increase in revenues in the mass market segments at its existing Cotai resort City of Dreams. “Even though there’s very little
uncertainty with regard to the change of leadership in China, people were just waiting for it to happen before really coming out in full force,” said MCE cochairman Lawrence Ho Lau Yung in a conference call with analysts to discuss the quarter’s earnings. But he stated: “Our mass market operations particularly at City of Dreams continue to drive our group wide profitability, delivering more consistent, stable earnings and cash flow.”
Studio City Mr Ho added that most of the pilings and foundations had been completed on his company’s latest Cotai project – the 60 percent owned Studio City. He added that a fixed price, lump sum contract had been signed with a main contractor for the above-ground
building phase, and it was “on track to open around mid-2015”. MCE said in a regulatory filing last month the total development budget for Studio City is approximately US$2.9 billion, of which US$2.04 billion is construction. Geoffrey Davis, MCE’s chief financial officer, said yesterday that of the US$2.04 billion, approximately 40 percent (US$825 million) will be in the form of equity from the project owners, with a US$225 million completion guarantee. But he hinted that MCE might end up funding more than 60 percent of the equity. “The first 800 (million U.S. dollars) will go in pro rata at our ownership stake currently at 60 [MCE] to 40 [others]. The remainder will go in 100 percent funded by MCE, subject to the option for our minority shareholder to put in their 40 percent of that amount, but we’ll know that in about six
months,” he stated. The debt portion of the funding would come from a form of bonds known as secured notes – some of them high yield according to a Hong Kong Stock Exchange filing yesterday – that will not need to be guaranteed by MCE. Simon Cheung of Goldman Sachs (Asia) LLC asked on the call why the Studio City project would be using senior notes not guaranteed by MCE when MCE was nearly in a net cash flow position and had cash in the bank. Geoffrey Davis explained: “Our financing structure at Studio City does reflect the fact we do have several projects underway, with Manila [Belle Grande casino resort in the Philippines]; Studio City, as well phase three [a new hotel tower] at City of Dreams. And it also reflects the fact we don’t own 100 percent, we own 60 percent.”
S&P gives ‘B-’ rating to Studio City senior notes Up to US$1.8 bln of Cotai resort costs not directly guaranteed by Melco Crown
tandard & Poor’s Ratings Services yesterday issued a corporate credit rating for Studio City Co. Ltd, a vehicle used to fund and deliver a Cotai casino project of the same name. S&P gave the Melco Crown Entertainment Ltd subsidiary a B+ ‘stable’ rating for its long-term corporate credit outlook. Studio City Co. is an indirectly held unit of Melco Crown, which in its turn is a 60 percent equity owner of the Studio City scheme. But the unit needs its own credit rating independent of MPEL. That’s because it is seeking to raise finance for Studio City via so-called senior secured notes that are not themselves guaranteed by MPEL. “The stable outlook reflects our view that the timing and costs of the company’s Studio City Project will be in line with our expectation,” said the ratings agency.
MPEL took a majority interest in Studio City in June last year, at which time it said the project cost would be US$1.9 billion (15.2 billion patacas). On October 19 this year it said in a filing to the United States Securities and Exchange Commission that the scheme would cost US$2.9 billion – including US$2.04 billion for construction – overall a 52 percent increase on the originally quoted costs. MPEL said in the filing that “a refined design incorporating enhanced entertainment offerings and increased tender prices,” accounted for some of the rise. A number of analysts have speculated that MPEL had significantly to boost its entertainment offer at Studio City as the price for getting political support from the government for Studio City’s casino. The gaming facility – the financial engine of the project and the main draw for investors – has not so far
been mentioned in the Official Gazette. ‘Gazetting’ is the process by which acts of the Legislative Assembly, administrative regulations and executive orders from the city’s chief executive become legal and enforceable.
High leveraging MPEL said in its October 19 U.S. filing it had entered into a commitment letter with a group of mandated lead arrangers for US$1.4 billion in “senior secured credit facilities” toward the cost of Studio City. A senior secured note is a form of bond that usually attracts lower interest than other bonds. The term ‘senior’ indicates that in the event of a company running into difficulty, holders of such bonds have precedence in terms of repayment of the interest and the principal sum borrowed over most other classes of debt. At the same time as issuing a credit
rating for Studio City Co. yesterday, Standard & Poor’s also assigned its ‘B-’ issue rating to a proposed issue of senior notes by Studio City Finance Ltd, which wholly owns Studio City. “Studio City’s ‘b’ stand-alone credit profile reflects the company’s ‘weak’ business risk profile and ‘highly leveraged’ financial risk profile, as our criteria define these terms,” said S&P. On October 22, Melco Crown Entertainment Finance Ltd said in a filing to the Singapore Stock Exchange it was looking to raise a further US$400 million from senior notes for the construction of Studio City. But in the October 19 U.S. filing, MPEL said: “Melco Crown Entertainment will neither be an obligor nor a guarantor under the senior secured credit facilities. The senior secured credit facilities will be guaranteed by the subsidiaries of SCC [Studio City Co.] and its holding company.” M.G.
business daily November 8, 2012
Entertaining times Spotlight On... ahead on Hengqin Macau TrailHiker
My expectation is that Macau TrailHiker becomes a ‘Best in Class’ sports tourism event in Asia Robert Kirby Director Macau TrailHiker
What’s Macau TrailHiker’s aim? The mission of Macau TrailHiker is to organise on an annual basis a successful Macau community event that promotes corporate social responsibility, physical and mental health, teamwork, communication, leadership, sports tourism, and also benefits local charities and showcases the greener side of Macau. Our four guiding principles when organising the Macau TrailHiker are: safety; courtesy; efficiency and showmanship. These incidentally are the same values promoted by the Walt Disney Company in its operations.
How will you measure success? We have a number of ways of doing that. They include judging whether our title sponsor and supporting sponsors are very satisfied with the professionalism and execution of the 2012 Macau TrailHiker. Other gauges of success include: the competing teams being satisfied with the signs around the course (so that
no team takes the wrong route); sufficient water, bananas and sports drinks at the eight check points; no serious injuries; more spectators coming out to support the teams along the course and being able to create a fun and friendly environment on Saturday, November 10. Three other important measurements are: having more overseas teams register so that Macau TrailHiker can help promote further the greener side of Macau to the overseas market; the teams liking the contents of their Macau TrailHiker kit bag; and recruiting sufficient volunteer ‘crew’ for the event (we will need 150) and ensuring they also enjoy the event.
How will the event develop?
Macau firms can open entertainment venues, performance troupes but critics say they need support to be competitive
acau companies will be able to launch entertainment ventures on Hengqin Island from next year, the Ministry of Culture has confirmed. The ministry’s ruling grants Macau and Hong Kong service companies the right to establish wholly owned entertainment venues on a pilot basis on Hengqin and one other special economic area, Shenzhen’s Qianhai. Macau-based firms will also be allowed to establish “performing arts groups” on the mainland, though only on an equity joint venture basis, in which the mainland partner is the majority shareholder. The ruling also permits wholly owned “Internet access service businesses”, including Internet cafés, anywhere on the mainland. The moves are a part of the ninth supplement to the Mainland and Macau Closer Economic Partnership Arrangement signed in July, which focuses on liberalising the services sector. The measures have been welcomed by Álvaro Barbosa, dean of the University of Saint Joseph’s newly created Faculty of Creative Industries. “Any measure, even an isolated one, taken to provide more opportunities to local entertainment companies is certainly interesting,” he told Business Daily. Last year, Hong Kong
conglomerate Lai Sun Group announced that it would invest 18 billion yuan (23 billion patacas) on the construction of a “Creative Culture City” in Hengqin. The development will focus on movie and music production, training, performance arts, exhibitions and conventions. The conglomerate includes a former partner in the Macao Studio City development, eSun Holdings Ltd. Mr Barbosa said Macau companies may not have huge financial resources at their disposal, but that it was up to them “to make the best of the opportunities that arise. And usually only the better prepared ones do”.
Sight, sound and vision A lecturer in audiovisual design, Mr Barbosa is confident that Macau firms are up to the challenge. “They have a lot of potential and there is a lot of investment being made,” he said. The city has some unique advantages, including “easy access to financing and a very strong tourism market”. Mr Barbosa says the city’s entertainment business has focused on meeting the demand created by the gaming industry, mainly creating audiovisual productions for casinos. But there are other “interesting projects”
being formed that should be encouraged by the government through a medium- and long-term development strategy. The founder of a creative business incubator in Portugal, he warned that “without a clear strategy, isolated measures could have a negative impact in the long-term as they create unrealistic expectations”. The government’s efforts to boost the creative industries has been all about “shooting in every direction, from culture to media. There is no focus on high-potential sub-sectors,” he said. Mr Barbosa called for better support to develop audiovisual productions, saying it was one sector in which Macau could become an “ideal mediation platform”. Audiovisual content could become a vehicle to broadcast Macau’s cultural attractions, namely the World Heritage centre but also the city’s cuisine, which he says is not yet being used to its full potential. Other areas that look prime for investment are fashion and jewellery design. The Mainland and Macau Closer Economic Partnership Arrangement was implemented on 2004. The latest supplement, which comes into effect on January 1, also makes it easier for Macau companies to set up publishing joint ventures in Hengqin.
My personal expectations are that Macau TrailHiker comes to be seen as a “Best in Class” sports tourism event in Asia; that it sells out within four weeks of the team registration launch day; that it helps to preserve and promote the greener side of Macau and that it continues to support the needy in Macau through our charitable donations from this annual event. The entertainment industry will have the chance to make it big in Hengqin by setting up new venues (Photo: Manuel Cardoso)
news where it matters
November 8, 2012 business daily | 7
MACAU Portugal appoints new consul By early 2013 Portugal will have a new consul-general in Macau, Vítor Sereno, Portuguese news agency Lusa reported on Tuesday, quoting a source from the Portuguese Ministry of Foreign Affairs. Mr Sereno is currently the head of cabinet of Portugal’s Ministry of Parliamentary Affairs but has had diplomatic assignments in Guinea-Bissau and Argentina, before becoming consul in Germany and the Netherlands. The 41-year-old diplomat will replace the current consul-general Manuel Cansado de Carvalho, who took over the position in February 2009.
Alves named to oversee bank deposit guarantee Government announces committee members to manage 300 mln patacas deposit protection fund
he government has named the appointees to two committees that will help manage a fund supporting the deposit protection scheme, with legislator and lawyer Leonel Alves leading the oversight commission. Mr Alves is also Sands China Ltd legal adviser. The bank deposit protection act came into effect last month, turning a temporary scheme from 2008 into a permanent fixture. Speaking after the bill’s passing into law in September, Executive Council spokesperson Leong Heng Teng said 95 percent of deposits held in banks would be covered. The Executive Council set the maximum compensation payable if
a bank collapses at 500,000 patacas (US$62,500) for each account. Mr Leong said at least 300 million patacas would be required to ensure the normal operation of the fund, which will be managed by three committees focusing on oversight, consultation and administration. Mr Alves will be joined on the oversight committee by two members from the Financial Services Bureau, Lam Bun Jong and Kuok Chong Hon. The consultation committee is comprised of three members from the Macau Association of Banks: Bank of China Ltd (Macau Branch) deputy general manager Ip Sio Kai, Banco Nacional Ultramarino SA director Kan Cheok Kuan and ICBC (Macau) Pension Fund Management Co Ltd
director Cheng Wing Fai. The fund’s third committee, covering administrative affairs, has the same members as the administrative committee of the Monetary Authority of Macau. The authority’s chairman, Anselmo Teng Lin Seng, will lead the fund. The deposit protection scheme was set up during the global financial crisis, when rumours circulating on the Internet started a run on Wing Hang Bank Ltd. The government will kick-start the fund with 150 million patacas. All of the city’s 25 licensed banks will start contributing an annual payment by 2014 equivalent to 0.05 percent of their deposits.
Announcing the scheme in September, Mr Leong could not say when the fund might reach its target of 300 million patacas. He said the law allowed the fund to “borrow money from the Monetary Authority for compensation in case of lack of capital”. T.A.
Macao Water had its contract renewed in 2009
Higher rent for Macao Water M
acau’s water distributor will pay a further 150,000 patacas (US$18,790) a year in rents to the government, according to the new Macao Water Supply Co Ltd’s concession contract. The revision, published in yesterday’s Official Gazette, increases the annual rent for the water supply facilities from the 3 million patacas set three years ago to 3.15 million patacas. The hike is likely to impact Macao Water’s profits, which dropped by 5.4 percent last year to 56 million patacas. In May the company asked the government to increase the money it pays the company for each cubic
metre of water it supplies to the city due to inflationary pressures. The government currently pays Macao Water 4.39 patacas per cubic metre but the concessionaire is asking for a 26.2 percent increase. The company’s contract was last renewed in 2009 and the concession will last until 2034. This initial revision also gives the Macau government the power to decide which areas will have supply of recycled water and when. The contract says that if the Maritime Administration asks Macao Water to start supply to a specific district, the company has just 60 days to comply with the regulator’s order. V.Q.
business daily November 8, 2012
HKEx profit declines on turnover
Xi to take mantle o
Average daily turnover fell 27 pct in the third quarter
As Communist Party begins its 18th Natio
ong Kong Exchanges and Clearing Ltd, the world’s No.2 exchange operator by market value, beat estimates with a 19 percent drop in third-quarter net profit, with overall performance hit by a sharp decline in trading volumes and a pullback in new listings. HKEx, which announced the acquisition of the London Metal Exchange in June to lower its reliance on equities trading, said it was working diligently towards closing its first major overseas purchase. “So far, no major issues have been identified,” HKEx’s banker-turned chief executive Charles Li said in statement, adding that an integration management office has been set up to spearhead the preparation for Day-1 operations. HKEx said it made a net profit of HK$1 billion (US$129.5 million) in July-September, down from the HK$1.24 billion earned a year earlier. Average daily turnover, a key determinant of exchange income, fell 36 percent in the third quarter to HK$46.4 billion, the company said in a statement. For the nine months ended September, turnover dropped 27 percent. “The exchange has seen the bottoming of the earnings cycle in the third quarter” as global monetary easing is boosting daily turnover, said Dominic Chan, a BNP Paribas SA analyst in Hong Kong, who has a buy rating. “The market consensus target price needs to move up after
this third-quarter result.” China’s economic slowdown and the weak performance of big IPOs last year has seen Hong Kong deal volumes tumble 82 percent for the year to date, according to Thomson Reuters data, hurting HKEx’s revenues. High profile names to delay offerings in Hong Kong, which not so long ago was the world’s IPO capital, include luxury jeweller Graff Diamonds. Other Asian bourses also put in a weak performance in the latest quarter with Singapore Exchange Ltd’s net profit falling 15 percent. A series of new rules to restrict foreign purchases and discourage speculation in Hong Kong’s red-hot property market has also raised hopes that more money will flow into the stock market. “We expect the equity markets to continue benefiting from these inflows, particularly in view of limited investability in the residential markets as policy measures begin to tighten further,” JP Morgan analyst Harsh Modi said before the earnings release. Reuters
hinese leaders convene this week to anoint the country’s next leaders, as the Communist Party maintains an iron grip on the economic powerhouse despite mounting calls for change in the Internet era. Vice President Xi Jinping is set to take over a country that in just a few decades has gone from a faminewracked basketcase to the world’s second-largest economy, and now has growing diplomatic heft and military reach as well. Mr Xi, 59, is expected to succeed President Hu Jintao as the generalsecretary of the 82-million-strong Communist Party at its 18th congress, which starts today in the Great Hall of the People on Beijing’s vast Tiananmen Square. The heir apparent has been number two to Mr Hu since 2008, and his appointment to head the all-powerful party will make his promotion to president of the world’s most populous nation, expected in March, a formality. Mr Xi, like many emerging leaders a “princeling” son of one of Mao Zedong’s lieutenants, inherits a cashrich China newly willing to confront the United States over issues from Syria and Iran to North Korea. With increasing maritime power, it asserts claims to seas and islands disputed by Japan, Vietnam, the Philippines and others, and has a
growing rivalry with the United States in the Pacific Ocean.
Great uncertainties Experts do not expect any sudden policy change by the new leadership and anticipate China will stick to its priorities, including avoiding a worsening of the financial crisis in Europe, its biggest export market. There are greater uncertainties on the domestic front, where Mr Hu’s “golden decade” is ending with growth slowing to 7.5 percent, the lowest since the global financial crisis of 1998. “Xi Jinping’s job is far more difficult than Hu’s job,” said Ben Simpfendorfer, managing director of Hong Kong consultancy Silk Road Associates. “It would have been much easier to introduce reforms over the last decade, not the next decade.” Mr Xi will be only the sixth leader since Chairman Mao founded the People’s Republic in 1949. But ever since the “Great Helmsman” plunged China into chaos, the Communist Party has preferred rule by consensus and Mr Xi will be only first among equals, balancing the priorities of different factions for the next decade. In China’s one-party state, the fiveyearly communist congress is far more important than the national parliament, which convenes once a year in March.
Beijing, Tokyo tussle Li honeymoon off over disputed islands as easing bets end Diplomatic struggle may further damage trade relationship
hina and Japan challenged each other’s claims to uninhabited islands at a summit of Asian and European leaders, signalling continued tensions between the region’s biggest economies as the debt crisis damps growth. Foreign Minister Yang Jiechi accused Japan of intentionally provoking China by bringing up the dispute at the summit in Laos that ended on Tuesday, state-run Xinhua reported. Chinese Premier Wen Jiabao and Japanese Prime Minister Yoshihiko Noda attended the AsiaEurope Meeting, which is held every two years and involves leaders from about 50 countries. “In response to the fact that China developed its unfounded claims, Prime Minister Noda made clear Japan’s position and reiterated to clarify that Japan has been responding to this matter in a calm way as a country responsible for peace and stability in East Asia,” Japan’s foreign ministry said in a statement late on Tuesday. The diplomatic tussle over the East China Sea islands known as Senkaku in Japan and Diaoyu in China threatens to further damage
a US$340 billion trade relationship. China has dispatched more patrol vessels into Japan-controlled waters to bolster its claims over an area rich in fish, oil and natural gas. Mr Noda’s administration bought the islands two months ago after Tokyo Governor Shintaro Ishihara, a China critic, proposed purchasing and developing them. The prime minister discussed relations with China in a meeting with Herman Van Rompuy and José Durão Barroso, the leaders of the European Union. Mr Barroso declined to comment on the spat during a press briefing at the end of the summit. Chinese and Japanese officials this week concluded two days of talks on the matter in at least the third diplomatic engagement in the past month. China reiterated that it “won’t cede even half a step on its sovereignty” over the chain, Foreign Ministry spokesman Hong Lei said last Monday. “To be honest, there is a gap between us,” Japanese Foreign Minister Koichiro Gemba told reporters yesterday in Tokyo. “I feel this is going to take some time.” Bloomberg
But global banks expect new leaders to gear up stimulus
Li Keqiang is set to take over as premier in March
nflation concerns have prompted swap traders to scrap bets Li Keqiang will ease monetary policy after he is flagged as China’s next premier at a Communist Party congress starting today. The cost to lock in the three-month Shanghai interbank offered rate for a year rose 25 basis points in the past month to 3.76 percent, four basis points above the benchmark floating rate after trading below it for 18 months. The pessimism of traders in
Shanghai is at odds with global banks including HSBC Holdings Plc, which wrote this month that there is “little doubt” China’s new leaders will gear up stimulus for the world’s second-biggest economy during the transition. Mr Li needs to balance the risks of rising bad loans with inflation forecast to reach 3.4 percent in the third quarter of 2013, up from 1.9 percent in September, according to the median forecast of 28 economists surveyed by Bloomberg News.
November 8, 2012 business daily | 9
The roughly week-long congress will see more than 2,000 delegates appoint a new Central Committee of about 200 people. In turn, they choose the party’s 25-strong Politburo from their ranks and the elite Politburo Standing Committee. The congress will climax with the standing committee members, including Li Keqiang, expected to succeed Wen Jiabao as premier in charge of day-to-day administration in March, trooping out together. Their number – the committee has nine men now, but analysts expect a reduction – and the order
KEY POINTS Special communist party meeting every 10 years Leaders over age of 68 will be retired New line-up of seven or nine top leaders to be unveiled Most names already decided in secret, none elected Factions more important than policies
“Borrowing costs for companies and between banks may rise because inflation will go up and liquidity won’t be as abundant,” said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., a brokerage and underwriting company. “There are a lot of uncertainties for policy makers to weigh next year. They don’t want to loosen further to stir up inflation but neither should they tighten too much to hurt the economy.” The People’s Bank of China has held its benchmark lending rate at 6 percent since cutting to that level in July. The central bank has also kept the reserve ratio for the biggest banks at 20 percent since May. Authorities have been on pause since then as inflation has ticked up from 1.8 percent in July, its lowest since November 2009. The U.S. Federal Reserve’s third round of socalled quantitative easing threatens to lead to further acceleration of price rises, according to Masterlink Securities’ Ms Yuan. “Inflation pressure will come back again next year as pork prices may rebound and U.S. QE3 threatens to add imported inflation,” she said. The increase in the inflation rate comes as economists forecast economic growth will pick up this quarter to 7.7 percent from 7.4 percent in the three months ended September 30, the weakest growth since the first quarter of 2009.
Li’s challenges Mr Li is currently vice premier and a member of the Politburo Standing Committee, the highest ruling body in the party. He will work with Premier
in which they line up will indicate whether conservatives or reformers have the upper hand. The party has had an “annus horribilis” heading into the congress, wracked by the Bo Xilai scandal and a drip-feed of reports about rampant corruption in high places. Mr Bo, who embraced Maoist revivalism and was a Politburo member until April but has now been expelled from the party, is being held in secret pending trial for corruption and abuse of power, including over his wife’s murder of a British businessman. His rise had stoked anguish among reformers and despite his fall, his supporters remain many and influential, amid disquiet about economic policies that have opened up one of the world’s largest chasms between rich and poor.
Gradual reform The phenomenal boom of recent years was engineered by Deng Xiaoping, who took power in 1978, ditching the previous ultraegalitarianism and unshackling China’s long-suppressed entrepreneurial spirit – under the party’s strict direction. The transformation has created a middle class equipped with cars, computers and smartphones – and one increasingly used to debating events online, with the congress the first of the social media era. Despite the heavy hand of state censorship, Internet outrage regularly focuses on perceived corruption, and the party has vowed to clamp down on graft among China’s ruling circles, without stemming the flow of revelations. China’s “red aristocracy” – the offspring and relatives of communist leaders – have amassed fortunes on the back of their links with powerful state-owned companies and opaque
Wen Jiabao in setting monetary policy until a March session of the legislature at which he is expected to formally take over. China’s third-quarter growth may have been weaker than official data indicate, as reflected in slowing electricity production and other data, according to analysts at Standard Chartered Plc and Capital Economics Ltd. Mr Li was quoted in 2007 as saying he watched data on power, rail cargo and loans because gross domestic product numbers were “man-made.” The remark was published in a leaked diplomatic cable published by WikiLeaks in late 2010. Chinese commercial banks’ delinquent obligations may rise 10 percent this year and accelerate in 2013 if concerns about a rebound in inflation lead authorities to tighten monetary policy, according to China Orient Asset Management Corp. The company is one of the nation’s four state-owned asset managers established in 1999 to take over trillions of yuan of bad loans from the country’s largest lenders. Total non-performing loans at China’s four-biggest banks increased 2.1 billion yuan (US$336 million) in the third quarter to 295.7 billion yuan, according to separate statements from the lenders last month. “A tightening monetary policy is generally negative to credit quality of banks,” Stanley Li, an analyst at Mirae Asset Securities (HK) Ltd, a unit of the South Korean brokerage, said. “If the inflation rate rises to more than 5 percent, there’s likely to be an obvious tightening and this will be negative to credit quality.” Bloomberg
Xi Jinping, centre, will take over from Hu Jintao, right
public procurement systems. At the other end of Chinese society, 260 million migrant workers have no right of residence in the cities where they work, and hundreds of millions more still live in rural areas where they are often exploited by local party bosses. China sees an estimated 180,000 protests a year on issues ranging from land grabs to pollution to workers’ rights, and many experts believe popular unrest will only mount in future. “As people get richer, as they get readier to stand up for their rights, as they are prepared to defy Communist
Party officials who sell their land illegally to industrial establishments which then pollute their landscape, then the possibility of a democratic opening I think exists,” said Roderick MacFarquhar, a Harvard-based China scholar from Britain. But MacFarquhar believes that any political reform will be slow and gradual – and this week the Communist Party will put on a grandiose show of unity to remind China, and the world, that it remains unquestionably in charge. AFP
How China is ruled
he Chinese Communist Party’s more than 80 millionstrong membership makes it the biggest political party in the world. Its tight organisation and ruthlessness help explain why it is also still in power. The party oversees and influences many aspects of people’s lives – what they learn at school and watch on TV, even the number of children they are allowed. It is made up largely of government officials, army officers, farmers, model workers and employees of state-owned companies. It is unrepresentative of China as a whole. Only a quarter of its members are women, for example. It is also obsessive about control, regularly showing itself capable of great brutality in suppressing dissent or any challenge to its authority. Joining the party brings significant privileges. Members get access to better information, and many jobs are only open to members. Most significantly in China, where personal relationships are often more important than ability, members get to network with decision-makers influencing their careers, lives or businesses. To join, applicants need the backing of existing members and to undergo exhaustive checks and examination by their local party branch. They then face a year’s probation, again involving assessments and training. The party has a pyramid structure
resting on millions of local-level party organisations across the country and reaching all the way up to the highest decision-making bodies in Beijing. In theory, the top of the pyramid is the National Party Congress, which is convened once every five years and brings together more than 2,000 delegates from party organisations across the country. The congress’ main function is to “elect” a central committee of about 200 full members and 150 lowerranking or “alternate” members”, though in fact almost all of these people are approved in advance. In turn, the central committee’s main job is to elect a new politburo and its smaller, standing committee, where real decision-making powers lie. AFP
business daily November 8, 2012
ASIA Fukushima clean up may hit US$125 bln The cost of cleaning up the mess left by meltdowns at Fukushima nuclear power station and compensating those affected may double to US$125 billion, the plant’s operator said yesterday. Tokyo Electric Power Company (TEPCO) said decontamination of irradiated areas and paying people whose livelihoods or home life have been affected would cost more than the five trillion yen it had estimated in April. “There is a view that we may need the same amount [again] of additional money for the decontamination of low-level radiation areas and costs of temporary facilities for storing waste,” the company said in a statement. The utility – one of the world’s biggest – received one trillion yen of public cash in April in exchange for granting the government a controlling stake. The money was intended to prevent the company, which generates and supplies electricity to millions of people, including in and around Tokyo, from going under.
Park dismisses rivals’ merger South Korea’s conservative presidential frontrunner Park Geun-Hye dismissed the decision of her two left-leaning rivals to merge their campaigns as a political “circus”. Moon Jae-In from the main opposition Democratic United Party and Ahn Cheol-Soo, a software mogul running as an independent, announced on Tuesday a potentially game-changing alliance with a single, unified candidate. “Will they be able to overcome the crisis in people’s livelihoods with such a ‘merger circus’ that has nothing to do with the people’s lives?”, Yonhap news agency quoted Ms Park as telling a meeting of her policy advisers. “How can we put people’s lives in the hands of those who are obsessed with taking power through publicity stunts rather than developing policies?” she said at a separate meeting with supporters. Although Mr Moon and Mr Ahn agreed to merge their campaigns, they have yet to decide which one will drop out of the race in favour of the other.
Private-equity deals poised to rebound Analysts see deals picking up next year
outheast Asia’s private-equity investments will pick up as early as next year, reversing a half-decade slump as the region’s improving economic outlook attracts funds, said Sebastien Lamy, a partner at Bain & Co. Private-equity deals in the region this year are expected to match 2011’s US$5.3 billion or post a decline, before staging a rebound over the next two years, Mr Lamy said, citing Bain research. The investments dropped from a peak of US$12.3 billion in 2007, according to data from the corporate consulting firm. Transactions will grow as the biggest developing economies in Southeast Asia, which has a combined population of about 600 million, accelerate even as the expansion in China and India slows. Investors almost doubled funds allocated to the two nations in the three years through 2011, while funds spent in Southeast Asia stagnated, McKinsey & Co. said in a May report. “The overall economic outlook for Southeast Asia remains solid and we are seeing strong interest by investors,” Mr Lamy, a partner at Bain in Singapore, said in an interview
yesterday. “Deal-making in the region will pick up in 2013 or 2014.” The region is drawing more global players. KKR & Co., the private equity firm run by Henry Kravis and George Roberts, said October 25 it opened an office in Singapore and plans to expand its business lending to Asian companies amid a shortage of funding in the region. The New York-based company is seeking to make more loans including mezzanine financing and investments in high-yield bonds over the next five years, said Joseph Bae, managing partner of KKR Asia Ltd.
Powerful reversal Navis Capital Partners Ltd, which manages US$3 billion of private and public equities, also said last month that private- equity investors are set to increase bets in Southeast Asia. “There is a question mark about prospective returns, given the slowdown in the Chinese economy,” Navis managing partner Nicholas Bloy said in an interview on October 24. A slowdown of private-equity investments in Southeast Asia “will reverse itself very powerfully in the next two or three years.”
Deals in the region may be hurt by the European debt crisis and slowing growth in Asia’s biggest economies, said Larry Oberfeld, a London-based senior analyst at private-equity research firm PE Asia. “There are some uncertainties,” he said by telephone. “Growth in China is slower than expected, which hampers deal-making in Southeast Asia. And the concerns surrounding the European fiscal crisis are also having an impact.” The rebound in Southeast Asia investments was also delayed as some deals in Vietnam and Indonesia were held back, said Mr Lamy. In Indonesia, investors are having
Australian firm wins landmark case against S&P Canada, India clinch IMF Australia vows to take the fight to Europe nuclear deal Canada and India on Tuesday clinched a deal opening the door to Canadian exports of uranium and other nuclear supplies to the energy-hungry South Asian nation for the first time in nearly four decades. The agreement during an official visit by Canadian Prime Minister Stephen Harper came after Indian and Canadian negotiators ironed out a deadlock over monitoring Canadian exports of nuclear materials and technology to India. The pact will allow implementation of the Nuclear Cooperation Agreement signed by the countries in 2010, by Mr Harper and Indian Prime Minister Manmohan Singh in Toronto, and help Canadian companies “play a greater role in meeting India’s growing energy needs,” Mr Harper said in a statement. The announcement that will allow Canadian uranium to be used to power Indian reactors ends close to 40 years of awkward relations after India used Canadian nuclear technology to build its first atomic bomb.
Toyota expects Thai sales to climb Toyota Motor Corp. expects sales in Thailand to increase 72 percent to a record this year as production rebounds from last year’s flood disruptions. Toyota expects to sell about 500,000 units in the Southeast Asian country this year, Kyoichi Tanada, president of Toyota’s Thai unit, said yesterday in Bangkok. That compares with sales of 290,000 units in 2011, and its record tally of 326,000 in 2010. The maker of the Corolla is expanding in Thailand, its biggest production base in Southeast Asia, as part of a plan to increase emerging market sales to about half its total by 2015. The automaker’s Thai unit operates three plants making models including Camry sedans and Hilux pickup trucks. The company plans to build 880,000 cars in Thailand this year, Mr Tanada said. The automaker delivered 430,000 units in the country in the first 10 months of this year, more than the total delivered in the whole of 2011.
Potential costs for S&P are huge
n Australian firm that won a landmark case against Standard & Poor’s over financial products that collapsed ahead of the global economic crisis said yesterday it would take its fight to Europe. IMF Australia, a listed company that funds large legal claims, won a world-first lawsuit against the ratings agency this week on behalf of 13 towns that lost US$16.5 million on AAA-rated synthetic derivatives called CPDOs.
The Federal Court of Australia ruled that S&P’s assessment of the “grotesquely complicated” CPDOs, or constant proportion debt obligation notes, as “extremely strong” had been “misleading and deceptive”. It was the first time a ratings agency has stood trial over complex debt derivatives, whose collapse was seen as a major cause of the 2008 global meltdown, and IMF Australia has described the ruling as a key precedent for future actions.
IMF Australia executive director John Walker said he would travel to Europe at the weekend to meet investors from Germany, Austria and the Netherlands, and either France or Britain to discuss a similar CPDO lawsuit. Mr Walker said such a case would be run in the Netherlands on behalf of investors in Europe, where he estimated that CPDO notes worth up to two billion euros were issued in the three years before the crash. “The laws of most [advanced]
November 8, 2012 business daily | 11
South Korea widens nuclear probe KEPCO chief resigns, citing personal reasons
Investors are looking for business opportunities
difficulties finding companies of the right size, and price expectations between buyers and sellers are still too wide, he said. Investors in Vietnam are taking a wait-and-see approach because of the economic outlook, he said. Vietnam faces a high risk of faster inflation, Do Thi Nhung, deputy head of the State Bank of Vietnam’s monetarypolicy department, said last Monday. “You have had continued fears around inflation and pressures on the dong,” Mr Lamy said. “Indonesia and Vietnam are still seen as the most attractive destinations in the region. However, the wave of deals expected by many for this year will come later.”
outh Korean regulators expanded a probe over fake safety certificates yesterday to cover all the country’s 23 nuclear reactors, in a move that could dent rock-solid public support for the industry and threaten billions of dollars worth of exports. Two reactors remained shut, raising the prospect of winter power shortages, as the government looks into how thousands of parts for the reactors were supplied using forged safety documents. Kim Joong-kyum, the president and CEO of power utility Korea Electric Power Corp (KEPCO), which owns the operator of the nation’s nuclear plants, tendered his resignation for what KEPCO officials said were “personal reasons”. An economy ministry official said the presidential office would decide this weekend whether to accept Kim’s resignation. KEPCO shares ended down 3 percent at their lowest close in four weeks. The closure of the two plants and concerns of more widespread potential problems
wi th S o u th Ko r ea ’ s l a r g e a n d growing nuclear programme come after last year’s nuclear disaster in neighbouring Japan. “Following Fukushima, our residents have become more and more concerned about safety levels at the reactor,” said Na Seungman, who chairs the local council in Yeonggwang county, some 300 km (186 miles) southwest of the capital Seoul and home to the two shuttered reactors. South Korea’s Nuclear Safety & Security Commission said it set up a team of 58 private and public investigators to inspect all the country’s reactors to see if they were supplied with parts with forged certificates. “The team will inspect all 23 reactors, which will take some time, as you can imagine,” a spokeswoman for the commission, which supervises nuclear safety, told Reuters. The commission said it plans measures to improve supply systems, quality controls and external auditing. Eight companies submitted
60 false certificates to cover more than 7,000 parts used in the two reactors between 2003 and 2012, and Economy Minister Hong Sukwoo told parliament that most of the documents, which purported to come from certifying body UCI, were forgeries. A senior ministry official told Reuters that UCI was one of 12 U.S. certifiers, but was not one of the eight firms under investigation. The firms have not been named. Due to maintenance, other glitches and the investigation, seven of South Korea’s 23 nuclear reactors – which generate close to a third of the country’s electricity – are now closed. The authorities have stressed that the parts are non-crucial and there is no safety risk. Public support for nuclear power remains strong in South Korea, even after the Fukushima disaster last year, and Seoul plans to build another six nuclear reactors by 2024. The regulator, however, has come under fire. Reuters
countries are similar insofar as they affect the creation and dissemination of financial products,” Mr Walker told AFP. “All of those jurisdictions have a concept of a duty of care and similarly a concept of misrepresentation, and those two laws were basically the laws that addressed the issues in Australia.” Mr Walker said IMF had been advised that “similar findings will occur in the Netherlands” as in the Australian case if the same facts were to be established – something he said he was “confident” would happen. Evidence tendered in the Australian trial could be used in a European court, added Mr Walker, giving IMF a “powerful dossier of information to put before the Dutch judiciary including emails between S&P employees debating the ratings process for ABN”. The so-called “Rembrandt” CPDOs were known as Castle Finance or Chess notes in Europe, and Mr Walker said IMF was exploring legal claims in Europe against S&P and the Royal Bank of Scotland (RBS), which took over the Dutch bank, ABN AMRO, that issued the products. “IMF has retained lawyers to investigate launching similar claims in Europe against S&P and RBS on behalf of major European banks and pension funds if there is sufficient demand to make proceedings commercially viable,” Mr Walker said. “IMF is currently determining which institutions in Europe have valid claims; that is, where the rating was a material factor in the decision to invest.” The Federal Court of Australia ruled that S&P could only have rated the CPDO AAA on the basis “of an unreasonable combination of unreasonably optimistic inputs but not otherwise” and had failed to act with reasonable care. S&P has rejected the decision and plans to appeal. AFP
Fake certificates led to the closure of two plants
Indonesia to pour money in infrastructure Country may invest up to US$12 bln in ports
President Susilo Yudhoyono is pushing for infrastructure build-up
road winds through plantations from the site of Unilever’s planned US$150 million factory to the coast in western Indonesia – ending at a port too small to load the chemicals the company
seeks to ship from the remote region. “We’re committed to the investment,” said Sancoyo Antarikso, a Jakarta-based director of the Indonesian unit of Unilever, the world’s second-largest consumer goods maker.
“But we need government support to build infrastructure.” President Susilo Bambang Yudhoyono plans to fix that by pouring US$12 billion into ports by 2025, supporting special economic zones in the nation of more than 17,000 islands. It’s part of his goal to expand Indonesia’s economy almost fivefold to at least US$4 trillion in the period. Unilever’s plant making ingredients for soaps and shampoos will lie in one such zone, Sei Mangkei, 830 miles (1,335 kilometres) northwest of Jakarta. “Development of ports is essential,” said Henry Sandee, a senior trade specialist at the World Bank in Jakarta. “Trade between islands can take place at low costs only when ports function well.” Mr Yudhoyono’s plan is to add infrastructure to achieve growth of as much 9 percent a year, as in China. The pace of expansion in the world’s fourth-most populous nation has averaged about 5.6 percent in the past decade, less than China’s 10.6 percent. In addition to fanning domestic shipping costs, berths that are too shallow for bigger vessels curb direct links to overseas markets such as Europe, forcing Indonesia to feed goods abroad through terminals in Singapore. Bloomberg
business daily November 8, 2012
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business daily November 8, 2012
Opinion Obama and Romney fought cleanest fight in history Noah Feldman
Law professor at Harvard University
ow that the candidates have left the hustings (whatever those are) behind, it can be said: this was the cleanest presidential campaign in recent memory, perhaps in American history. Before you get exercised about Mitt Romney’s sketchy tax math or President Barack Obama’s attacks on Bain Capital Partners LLC, take a deep breath and look at the evidence. If you can step outside your preference for your own candidate, you will see a good, clean, hard fight – one focused overwhelmingly on the issues and informed by the fundamentally decent competitive impulses of the candidates. Both wanted very much to win, but neither was willing to ride dirty to get there. Start with character. For the first time in decades, no candidate insinuated or allowed his supporters to insinuate that the other candidate was fundamentally fraudulent. There was no swift-boating, and other than Donald Trump and a handful of other attention-seekers and fringe conspiracy-mongers, there were no “birthers” darkly hinting that one candidate was Manchurian. Yes, Obama pointed to Romney’s flip-flopping and suggested he had no core principles, but that was very different from alleging that Romney had concocted his past out of whole cloth. Some proRomney ads depicted Obama as a self-loving celebrity, but this was a legitimate line of attack against a president who received the Nobel Peace Prize just for showing up.
emit even the most subtle hints about Mormonism’s polygamist past or its outlying present beliefs and practices. When was the last time you heard somebody talking about Mormon garments, an irrelevant topic that nonetheless came up repeatedly in the 2008 primaries? Nor was there any attempt to invoke the (non-canonical) White Horse Prophecy
For the first time in decades, no candidate insinuated or allowed his supporters to insinuate that the other candidate was fundamentally fraudulent
associated with Joseph Smith, which predicted that the U.S. Constitution would someday be saved by a heroic “white horse” associated with the Church of Jesus Christ of Latter Day Saints. Mitt Romney deserves equal credit for saying exactly nothing about Obama’s former pastor Jeremiah Wright, an intellectual inheritor of black liberation theology. Romney also distanced himself from even subtle implications about Barack Hussein Obama’s Muslim family background or his childhood in Indonesia. He refused to tap into growing anti-Muslim sentiment in the heartland that can be seen in proposals for preposterous antisharia laws in several states. A cynic could plausibly claim that religion was a potentially radioactive topic for both candidates, dismissing their discretion as nothing more than self-preservation. I don’t buy it: each side could reasonably have calculated that it had more to gain from subtle religious aspersions than it had to lose. A much more probable explanation is that Romney and Obama, both buffeted in the past by illegitimate religious sentiments, were genuinely unwilling to use bigotry as a weapon. Besides, the combination of self-interest and principle is the base on which religious tolerance was
built in the West. It is to be admired, not disparaged.
Permissible distortions What about the White House’s insistence that Romney was lying about the president’s record, or Romney’s displeasure that Obama attributed to him the private sorrows of individuals who lost their jobs after Bain Capital acquired their employers? The short answer is that such distortions are part of the altogether permissible political game of dramatic overstatement and policy imprecision. Sure, Romney wasn’t exactly telling the truth when he accused Obama of “apologising” to the world. But it was true that Obama came to office with the express strategy of reassuring America’s allies that he wasn’t Bush, and that the swashbuckling, “time of our choosing” nightmare of foreign policy disasters was over. Any democratically elected politician in any country on earth would be inclined to characterise this stance as “apologetic” to win votes. A pro-Obama ad (not produced by the campaign) that told a heart-breaking story of a woman’s fatal cancer after her husband lost his job in a Bain Capital firing was also not, strictly speaking, true. (It turned
out that five years had elapsed, and that she had her own health insurance from a separate job until that job disappeared.) But the point of the ad was to suggest that a man who got rich acquiring firms and resizing them for resale was not likely to feel sympathy for those who became unemployed as a result. Show me a politician who would not take this approach against a private-equity millionaire, and I’ll show you a person who couldn’t win an election for dogcatcher. People in finance and private equity may feel personally offended by the ad, but that is because they aren’t running for anything. In the 1800 presidential election, John Adams’s supporters said that Thomas Jefferson was an atheist who was having an affair with his slave, Sally Hemings. Of course, both of these charges were more or less true. But that isn’t the point: mudslinging of the personal, character-assassination type is a longstanding and persistent feature of our electoral politics. This time around, however, two basically decent men took the high road. In this highly polarised, highly partisan moment in our political history, we should allow ourselves a moment to appreciate just how impressive this really was. Well done, candidates. Bloomberg View
Outre candidates Then there’s religion. Remember that issue? It’s not only that neither candidate insisted God was on his side and his side only, in the way George W. Bush managed to suggest in two different elections. No, this was a race between the two most religiously outre candidates in U.S. history, offering nearly infinite opportunity for a faith war. Yet it never came. Four years ago, commentators (myself included) wondered seriously whether the public would ever accept a Mormon president. Yet the Obama campaign did not
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November 8, 2012 business daily | 15
Getting to normal
Leading reports from Asia’s best business newspapers
Inquirer Australian firm Nido Petroleum Ltd. expects to generate strong cash flow in the second half of 2013 when the two wells to be drilled under the second phase of development of the Galoc oil field in offshore Palawan start producing oil. In a regulatory filing, Nido Petroleum said that based on the estimates of field operator Galoc Production Co, the two new wells will increase field gross production from 5,200 barrels of oil per day (bopd) to 12,000 bopd.”
Jakarta Globe Indonesian state energy firm Pertamina announced another major corporate revamp plan, in its latest move to improve corporate governance and increase revenue. The Jakartabased company said it plans to separate its shipping and lubricant business units to enable them to generate more revenue. Ali Mundakir, Pertamina’s vice president for corporate communications, said the separated companies are expected to focus more on exploiting their related business opportunities and provide greater contribution to Pertamina’s push to become a world-class energy company by 2023.
Asian Age India will not be able to raise the standards of efficiency in administration unless corruption in high places is not destroyed and nepotism and black marketing is rooted out, Comptroller and Auditor General of India (CAG) Vinod Rai said yesterday. “Unless we destroy corruption in high places, root out every trace of nepotism, we will not be able to raise the standards of efficiency in administration.” The CAG also noted that citizen groups have become very discerning and more demanding.
Korea Herald South Korea’s job market is expected to report sluggish growth next year due to the prolonged economic slowdown, market watchers said Monday. According to the LG Economic Research Institute, a total of 280,000 jobs are expected to be added to the local employment market next year, decreasing 34 percent from this year’s estimated 430,000 jobs. The weaker outlook comes as the central bank slashed its 2013 economic growth estimate by 0.6 percentage points to 3.2 percent.
Director of the Centre for European Policy Studies
financial crisis erupts when a large volume of assets in the financial system suddenly appears to be risky and investors want to get rid of their holdings. These assets become “toxic” – not simply risky, but carrying a risk that cannot be quantified. Toxic assets are not traded according to a normal riskreturn calculus. Given that their risk cannot be calculated, their owners justwanttosellthem–sometimes at any price. In 2007-2008, this was the case for a class of securities based on residential mortgages in the United States (RMBS, or residential mortgage-backed securities). During the boom phase, these securities were sold as riskfree, on the assumption that U.S. house prices could not decline, as this had never happened before in peacetime. But this assumption was shattered when a broadbased decline in real-estate prices began in 2007 and loss rates on mortgages suddenly increased. As a result, RMBS were found to be much riskier than anticipated. Initially, there was little basis for re-pricing them rationally, because the event (a peacetime decline in U.S. house prices) was unprecedented. Moreover, banks and other financial institutions, which held large volumes of RMBS, were illequipped to measure the risk, and in some cases would have been bankrupted had they been forced to sell their holdings at the fire-sale prices prevailing at the height of the crisis. The euro crisis followed a similar pattern. Until recently, public debt was considered the ultimate safe asset. Indeed, its risk-free status was embedded in the European Union regulatory framework, which allows banks to hold large volumes of any euro zone country’s public debt without having to put aside any capital to cover potential losses.
Moreover, many banks had so much public debt on their balance sheets that they would have been bankrupted in the event of a full-blown default. This led to extreme instability in the euro zone’s banking system.
toxic, allowing the market to function normally again. In the end, the U.S. authorities even made a small profit on the assets that they had acquired at the height of the crisis. This pattern can be only partly repeated in the euro zone, where both debt socialisation and a return to normal risk assessment appear more difficult.
The de facto default by Greece early this year ended investors’ complacency. The government bonds of peripheral euro zone countries thus became toxic
No risk-free assets As with RMBS, this view that public debt was totally safe was underpinned by the “fact” that no advanced country, at least in the post-1945 era, had ever defaulted. Investors thus assumed that they did not need to assess the credit risk of euro zone countries’ (national) public debt. The de facto default by Greece early this year ended investors’ complacency. The government bonds of peripheral euro zone countries thus became toxic. Given the unprecedented nature of the Greek default, the market valuation of peripheral debt has been fluctuating widely, still searching for “fundamentals,” such as deficit or debt levels, that could explain the evolution of risk premia over time.
A financial crisis ends when the doubtful debt either has been socialised, or its valuation has stabilised, and it has migrated to investors who are solvent enough to bear the risk. This was the case in the U.S. The authorities acquired some of the “toxic” assets, which over time became easier to value, as a few years of data on mortgage delinquency rates allowed investors to find ways to measure the risk. The market prices of most RMBS rebounded as losses due to homeowners simply abandoning their properties were much lower than had been feared at the height of the crisis. Moreover, holdings of RMBS migrated to institutions that were able to support and manage the remaining risk. Today, RMBS are no longer considered
Limited capacity for debt socialisation reflects the EU Treaty’s no-bailout clause, which bars outright mutualisation at the euro zone level of (national) public debt. Moreover, the lending capacity of the new rescue fund, the European Stability Mechanism, is capped at €700 billion (US$905.6 billion), which represents only a fraction of the total public debt of the countries potentially needing financial assistance. Only the European Central Bank could implement true socialisation of national debt in the euro zone. But EU law expressly forbids any form of ECB financing of deficits. A return to normal risk assessment is also more
difficult in Europe. The European Council has solemnly declared that Greece’s de facto default (orchestrated through so-called “private-sector involvement”) remains an exceptional and unique case. But the promise of a return to the status quo ante of risk-free public debt is not compatible with the continuing limits on the socialisation of national debt. Indeed, the risk has become more concentrated as banks in the periphery have increased their investment in their own countries’ bonds. A sovereign default in Europe will never be a mere value to be plugged into some statistical risk model. These differences imply that the return to normal market conditions will be slower in the case of the euro crisis. Nevertheless, the crisis should abate somewhat, because the most risk-averse institutions have by now sold their holdings of peripheral countries’ sovereign debt. Moreover, the ECB has clearly stated that it will not allow the euro to disintegrate. That guarantee has insured investors against their biggest risk. © Project Syndicate
business daily November 8, 2012
CLOSING China to shut small, illegal mines
German industrial production drops
Beijing will launch a campaign to shut down small and illegal mines in a bid to improve safety and efficiency in the sector, the government said yesterday. China, the world’s largest consumer of a raft of commodities, is setting tougher environmental and mining standards as it tries to conserve domestic resources. The clampdown could cause a temporary fall in domestic supplies and boost its reliance on imports. A similar campaign for the coal sector was launched in 2008, which triggered a surge in imports. Beijing has also begun to crack down on the rare earths industry.
German industrial production fell for a second month in September as the sovereign debt crisis damped growth and investment in Europe’s largest economy. Production dropped 1.8 percent from August, when it fell 0.4 percent, the Economy Ministry in Berlin said yesterday. From a year earlier, production fell 1.2 percent when adjusted for working days. Yesterday’s report is the latest to suggest the debt crisis is finally catching up with Germany, which has been outperforming its euro-area counterparts. Factory orders slumped 3.3 percent in September and business confidence fell to a 2 1/2 year low in October.
Obama defies economic omens to win re-election Slight margin in votes, a confortable lead in electoral votes
resident Barack Obama swept to an emphatic re-election win over Mitt Romney on Tuesday (U.S. time), making history by transcending a dragging economy and the stifling unemployment that haunted his first term. The 44th U.S. president and the first African American to claim the Oval Office was returned to power after a joyless election which appears to have deepened, rather than healed, his nation’s political divides. “In this election, you, the American people, reminded us that while our road has been hard, while our journey has been long, we have picked ourselves up, we have fought our way back,” Mr Obama, 51, said at a victory party in Chicago. “I have never been more hopeful about America. And I ask you to sustain that hope,” Mr Obama said, striving for inspiration rarely shown in a campaign where the prophet of hope of 2008 became a conventional, brawling politician. “I have always believed that hope is that stubborn thing inside us that insists, despite all the evidence to the
contrary, that something better awaits us so long as we have the courage to keep reaching, to keep working, to keep fighting.” With only Florida among the battleground states still to be declared, Mr Obama had 303 electoral votes, well over the 270 needed to win the White House. He had a slim lead in the national popular vote, leading Mr Romney by 50 percent to 49 percent, after drawing more than 56 million votes. Turnout appeared strong, though official figures had yet to be released. As Mr Obama’s victory was confirmed with wins in rustbelt Ohio and his spiritual political home in Iowa, large crowds suddenly materialised outside the White House, chanting “four more years” and “O-bama, O-bama.” Republican nominee Mr Romney, 65, deflated and exhausted, offered a classy tribute, as he consoled dejected supporters in Boston moments after phoning Mr Obama to formally concede. “This is a time of great challenges for America and I pray that the president will be successful in guiding
our nation,” Mr Romney said. In a show of bipartisanship after a searing campaign, the president said he wanted to meet his vanquished foe to find common ground to move America forward.
Obama’s challenges Mr Obama’s victory means that he will get the chance to embed his healthcare and Wall Street reforms deep into the fabric of American life – Mr Romney had pledged one of his first acts would be the repeal of Obamacare. He may also get the chance to reshape the Supreme Court in his liberal image for a generation, a move that would shape policy on issues like abortion and gay rights. The president will also look abroad as he builds his legacy, and will face an immediate challenge early in 2013 over whether to use military force to thwart Iran’s nuclear programme. Mr Obama’s win bucked history, as it came with the unemployment rate pegged at 7.9 percent, the highest
level for a re-elected president in more than 70 years. Remarkably, his coalition of Hispanic, black, and young voters turned out in similar numbers to those of his heady change-fuelled campaign in 2008, shocking Mr Romney’s team and presenting a new American face to the world. But once the euphoria fades, the president will face a tough task enacting his second term agenda after Republicans, who thwarted him repeatedly in his first mandate, retained control of the House of Representatives. Democrats kept the Senate but fell short of the 60-vote super majority needed to sidestep Republican blocking tactics. The president paved the way to victory with a staunch defence of Democratic bastions in Pennsylvania, Wisconsin and Michigan, at which Mr Romney had taken a last-minute run when he saw more conventional paths to the White House blocked. Mr Obama also locked in swing states, including Virginia – where he became the first Democrat to win since 1964 four years ago – Nevada, Ohio, New Hampshire, Colorado and Iowa, crushing his opponent’s slim hopes of a viable path to victory. Mr Romney could only wrestle Indiana and North Carolina from Mr Obama’s 2008 map. The win in Iowa will be especially sweet for the president, as the heartland state nurtured his unlikely White House dreams way back in 2007. A tear rolled down his cheek as he held his last-ever campaign rally there late on Monday. AFP
U.S. investors staring at fiscal cliff
A victory against the odds, in times of economic crisis
.S. investors will hit trading floors this morning with the same president and the same problems in gridlocked Washington. First up: a looming budget crisis that could send the U.S. economy reeling. President Barack Obama beat back Republican challenger Mitt Romney to win a second term, but he will still have to contend with a Republicancontrolled House of Representatives that could make forging a compromise on pressing issues like the coming “fiscal cliff” difficult. “There will be an immediate shift to government gridlock and the fiscal cliff issue, and that will be a headwind for stocks,” said Michael Yoshikami, chief executive officer and founder of Destination Wealth Management in Walnut Creek, California. The fiscal cliff is a US$600 billion package of automatic tax increases and spending cuts, scheduled to take effect at the end of 2012, that could severely strain economic growth.
Mr Obama is expected to demand tax increases for the wealthy as part of a deal to reduce spending to tackle the nation’s deficit. Many investors thought that Mr Romney as president-elect would have had a smoother time in negotiations. “The real challenge is for [Obama] to bridge the differences with Congress and work to get in the middle,” said Jason Ader, a former Wall Street gaming analyst and a Romney supporter. Steven Englander, Citigroup’s head of G10 foreign exchange strategy, said markets could panic toward yearend if it looks as though no deal is imminent to avoid the fiscal cliff. If that happens, investors will think twice about lending the U.S. government money at low interest rates, which would strain the economy, widen the deficit and hurt the dollar. It also raises the possibility that major credit-rating agencies will cut the U.S. debt rating. Reuters