Year I Number 154 Friday November 2, 2012 MOP 6.00 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte
New record for Oct gaming rev With such a high base to work from, even a modest 3.2 percent year-on-year expansion in October’s gaming revenue set a new monthly record for the industry. Macau casino revenue increased to 27.7 billion patacas (US$3.5 billion) last month. It beat the record 26.85 billion patacas achieved in the same month a year earlier, according to data from Macau’s Gaming Inspection and Coordination Bureau released yesterday. Page 3
Deadlock on severance pay reform moves W
orkers and employers have failed to agree on changes to severance pay. The trade unions want caps on severance pay abolished, but the employers insist otherwise. “It’s difficult for the two sides reaching a consensus as they each have their own stand and difficulties,” Labour Affairs Bureau director Wong Chi Hong told reporters. He said the government would analyse the opinions from both sides and submit a draft bill to the Standing Committee for the Coordination of Social Affairs, for
discussion again in the first quarter of next year. The labour relations law says laid-off workers are entitled to severance pay equivalent to one month’s salary up to a maximum of 14,000 patacas (US$1,750) for each year of service, as long as the total payment does not exceed 168,000 patacas. Trade union leader Ella Lei Cheng I told reporters that her side wants both limits abolished, as this would better protect employees with high salaries and those that had stayed loyal for many years.
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Wanted: talent, to defuse demographic time bomb
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Kiang Wu funerals deal ‘cuts out middlemen’
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Gazette bus service contracts says Reolian
Suitably-qualified and talent-proven workers in the Chinese medicine sector and creative industries will have priority in getting residency under a proposed revision of the residency rules. The government’s motivation is to diversify further Macau’s economy to make it less reliant on casinos, and to help tackle the demographic challenges facing the city over the next two-and-a-half decades. As Business Daily reported yesterday, Macau’s its current trajectory, by 2036 there will be one retired or otherwise economically inactive person for every two workers. Unless young and talented labour is attracted to the city, the government and those left working will share a big financial burden to support the non-workers.
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Govt still working on Cotai build permits
business daily November 2, 2012
Breakthrough in severance pay talks elusive The trade unions still want the caps on severance pay abolished, but the employers insist otherwise Tony Lai
“There must be certain restraints in the compensation, or else this will put employers in a difficult and unfair position,” said Vong Kok Seng, one of their representatives. The caps were particularly important in view of the high turnover of employees in the prevailing economic environment, he said. The government said yesterday it would finish early next year drafting proposals for a statutory minimum wage for all cleaning and security staff, and proposals for regulations on part-time employment. Mr Wong said the Standing Committee for the Coordination of Social Affairs would discuss the initial results of a University of Macau study on the subject next month. At present only security and cleaning staff employed by companies contracted by the government are entitled to a minimum wage. Mr Wong said changes to pension and social security contributions would not be on the committee’s agenda next month. No proposals for such changes had been received from the Social Security Fund, he said. The staff of the secretary for social and cultural affairs, Cheong U, wrote to Legislative Assembly member Ng Kuok Cheong last month saying the government hoped to change pension and social security contributions this year.
Workers and employers have failed to agree on changes to severance pay
he stalemate between workers and bosses over severance pay remains unbroken after their representatives locked horns at a meeting yesterday of the Standing Committee for the Coordination of Social Affairs. “It’s difficult for the two sides reaching a consensus as they each have their own stand and difficulties,” Labour Affairs Bureau director Wong Chi Hong told reporters. “The government will analyse the opinions from both sides and submit a draft bill to the standing committee for discussion again in the first quarter of next year,” Mr Wong said. He declined to say whose stand the government would support.
The labour relations law says laidoff workers are entitled to severance pay equivalent to one month’s salary up to a maximum of 14,000 patacas (US$1,750) for each year of service, as long as the total payment does not exceed 168,000 patacas. Trade union leader Ella Lei Cheng I told reporters that her side wants both limits abolished, as this would better protect employees with high salaries and those that had stayed loyal for many years. “The compensation lags severely behind the city’s economic development,” she said. The caps were set in 1997, when only 10 percent of the workforce earned more than
14,000 patacas a month. Ms Lei said that nowadays more than 30 percent of the workforce earned more than 14,000 patacas a month. “Removing the ceiling will not put as much pressure on businesses as they fear – they only need to make this payout under certain conditions, which is when they lay off employees,” she said. She said the salaries of most workers in small enterprises did not exceed 14,000 patacas.
The government will analyse the opinions from both sides and submit a draft bill to the standing committee for discussion again in the first quarter of next year Wong Chi Hong, Labour Affairs Bureau director
The employers will countenance only raising the salary cap to 17,000 patacas.
New rules, scoring system eyed for qualified labour Workers in ‘emerging’ industries such as creative sectors and Chinese medicine will be given priority in gaining residency Vítor Quintã
he government wants to revise the rules for granting residency to qualified workers, introducing a scoring mechanism that would give priority to staff in “emerging” industries. The proposal is part of a preliminary document for Macau’s demographic policy framework, which will be up for public consultation for three weeks from Saturday. The document, prepared by the government’s Policy Review Office, proposes a revamp of residency rules and assessment procedures to “attract more qualified labour to live in Macau”. This will involve the introduction of a scoring system that gives priority to workers who are “more necessary,”
Lao Pun Lap, head of the public thinktank, explained yesterday. “Of course, priorities might change in time.” It should be a priority to support the development of emerging industries, including creative industries and traditional Chinese medicine, says the document. There is also a need to support the transformation and recovery of traditional industries. Asked if the criteria for the scoring system would include applicants’ age and qualifications, as in other places, think-tank adviser Un Kin Chong stressed: “This would depend on the people’s feedback during the consultation.” Although non-resident workers already number over 110,000 in the
city, accounting for almost one third of the work force, Mr Lao said the document had little on their role. The expert said there was not enough resident labour to respond to demand and that this was affecting residents’ quality of life and the quality of service they were being provided with. Imported labour “will continue to play an important role” in Macau’s economy and “their number is likely to continue increasing,” he said. Macau will need “between 150,000 and 200,000 non-resident workers” until 2036, the think-thank head added. Asked if the government would revamp the imported labour quota system or introduce a ratio of resident to non-resident workers for each
economic sector, Mr Lao stressed that public opinion would be gauged first before any decision was made. The consultation is hoped to produce a demographic policy designed to counter the ageing of the population, which will include more investment in continuing education and the “gradual creation of an efficient mechanism to protect the elderly”. The people will also be asked about measures to encourage residents to have more children, though Mr Lao admitted he was pessimistic on the issue. “It’s not easy to change the population’s mentality to boost fertility. Nonetheless, we will study the measures introduced by other regions,” he said.
November 2, 2012 business daily | 3
New October record for gambling revenue But industry still cautious on VIP market prospects Associate Editor
acau casino revenue increased to 27.7 billion patacas (US$3.5 billion) in October. It beat the record 26.85 billion patacas achieved in the same month a year earlier, according to data from Macau’s Gaming Inspection and Coordination Bureau released yesterday. The year-on-year expansion was a better than expected 3.2 percent. Analyst consensus had been for two percent growth. Casinos’ marketing promotions during the eight-day Golden Week holiday might have been a positive factor. The concessionaires’ market shares of gaming revenue for October, excluding slot play – released yesterday – show the biggest monthon-month fall for Wynn Macau Ltd. It was down three percent to 10 percent, pushing it into fifth place, although J.P. Morgan in Hong Kong said the firm’s stock could be attractive to investors if – as some analysts expect – the company makes a special dividend announcement this month.
MOP 27.7 billion Gross gaming revenue for October
The biggest market share gainer of the month was Sands China Ltd, which added three points to register 21 percent. SJM Holdings Ltd remained steady in top spot with 27 percent, while Galaxy Entertainment Group Ltd was up one point and firmly in third spot with 19 percent. Melco Crown Entertainment Ltd held at 14 percent and fourth place, while MGM China Holdings Ltd was down one percent of market share, to register nine percent in October. Despite the new record for October revenue, there remains some caution within the industry about the pace of growth in the VIP baccarat market, which for the past five years has accounted for at least 65 percent of annual gross gaming revenue. Grant Bowie, chief executive officer
and executive director of MGM China Holdings Ltd, the operator of MGM Macau, said in remarks to analysts on Wednesday that the market was consolidating after a period of massive growth. But during the conference call to discuss the results of MGM China and its parent MGM Resorts International, Mr Bowie conceded that the transition of power on the mainland as well as a slowing of China’s economy might have “cooled the market somewhat” for high roller play.
Bright future – Cotai serving mass market
The National Congress of the Communist Party of China – an event held every five years – will formally appoint China’s new generation of leaders when its starts in Beijing next Thursday. That might help create more certainty for Macau’s VIP visitors and encourage them to step up the intensity of their gambling, said Gabriel Chan, director at Credit Suisse in Hong Kong. Macau’s saving grace during this more cautious phase for VIPs has been the higher margin mass-market gamblers and leisure visitors. Spending by China’s expanding middle class has kept overall gambling revenues from dropping significantly. But growth rates have fallen substantially over the past six months, albeit from a high denominator, given that Macau achieved 42 percent year on year revenue expansion in 2011. Seasonal variations in demand make quarter-on-quarter comparisons generally less useful than year-onyear ones, but even by year-on-year comparison, 2012 has seen a more lumpy quality to growth than 2011. Gross revenue rose 12 percent year-onyear in September to 23.9 billion patacas.
But in July it managed only 1.5 percent, the slowest pace since 2009. That result was however negatively affected by a category nine typhoon – the strongest cyclone to hit Macau in a decade. Nonetheless, the prospects of significant supply-led growth look
strong in the next few years. The government has now granted either land concessions or building permits – or both – to all six concessionaires for a new round of casino building on Cotai, with opening dates mostly in 2015 or 2016. With Bloomberg/Reuters
Market Share Per Operator (2011-2012)
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
26% 27% 26% 27% 28% 27% 25% 29% 26% 26% 26% 27% 27%
Sands China 14% 16% 17% 19% 18% 17% 18% 17% 18% 22% 19% 18% 21% Galaxy
21% 20% 19% 19% 17% 20% 21% 20% 23% 19% 21% 18% 19%
13% 13% 14% 13% 13% 12% 13% 11% 12% 11% 12% 13% 10%
15% 13% 14% 13% 14% 14% 14% 12% 13% 13% 13% 14% 14%
11% 11% 10% 10% 10% 10% 10% 11% 9% 9% 10% 10% 9%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
* Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total
Sands China hires locals on eve of Q3 results
Sands Macao – held recruitment fair this week
as Vegas Sands Corp., the majority owner of Macau casino operator Sands China Ltd, reports its third quarter earnings today Macau time. Kenneth Fong of J.P. Morgan in Hong Kong said in a note to investors that Sands China’s quarterly result was likely to be boosted by the opening of a second casino – Pacifica – in Phase 2A of its Sands Cotai Central resort on the Cotai Strip. “We expect Sands
to witness the strongest EBITDA [earnings before interest, taxation, depreciation and amortisation] quarter-onquarter growth at 14 percent, benefiting from the ramp up of its new Sands Cotai Central casino [Pacifica] and strong mass volume of The Venetian during the summer season,” said Mr Fong in an earnings preview. He added that Sands China’s Hong Kong-listed stock, currently trading at
around HK$25 (US$3.2) to HK$26 per share, presented good value for entry to Macau names as well as a dividend yield of five percent. Sands China this week hired 600 more locals as casino dealers following a two-day recruitment fair at Sands Macao. More than 1,200 people had applied for the posts said the company. Sands China adds that it currently employs more than 23,000 people across its four
Macau properties – Sands Macao, The Venetian Macao, The Plaza and Sands Cotai Central – including more than 17,000 local residents. “In 2011 alone, Sands China promoted over 1,000 local team members to higher positions across its varied operations. And in just the first quarter of this year, nearly 1,300 locals were promoted within the company,” said the firm in a statement. A.E.
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HOSPITALITY Flight patterns A gradual rise in the number of flights this year was dominated by connections to mainland China and Taiwan, although connections to the latter have declined significantly in the past three years, probably because of direct China-Taiwan flights being resumed. The number of flights in the first nine months of this year rose by 7 percent from the equivalent period last year, with flights to the mainland rising by 44.6 percent to 5,199 and flights to Taiwan falling by 9.2 percent to 3,963. Three other markets, Thailand, South Korea and the Philippines, have also contributed to the rise, the last two to a much lesser degree. In relative terms, Thailand was the fastest growing destination, with flights there rising by almost 66 percent.
In the first nine months of each of the past three years the number of flights to the mainland rose by 1,605 while the number to Taiwan decreased by 1,024. Direct flights between the mainland and Taiwan resumed in 2008. About a quarter of all flights go elsewhere. The figures show a definite declining trend in connections to Taiwan and a rising trend in connections to the mainland and Thailand. Together, flights to the mainland and Thailand now make up just under 50 percent of all flights, having made up 36 percent in 2010.
‘Cut out the funeral middleman’: Kiang Wu Kiang Wu Charitable Association claims new funeral parlour management protects customers’ rights Stephanie Lai
company’s exclusive contract to run the Kiang Wu Hospital’s funeral parlour will benefit bereaved families, pledged Fong Chi Keong, director of Kiang Wu Charitable Association. ENZE Funeral Services Ltd (known as ‘Ian Chek’ in Cantonese) on September 26 took over the management of the only funeral parlour in Macau that covers traditional Chinese services and cremation. Yesterday, Kiang Wu Charitable Association and Ian Chek co-held a press conference in response to recent protests from four funeral service companies. They claim the association has allowed Ian Chek to dominate the market. “With the new management, we’ve actually cut down the middleman part in the whole service chain,” said Mr Fong. “There used to be middlemen referring the funeral service to certain companies, which could take a commission of 30 percent or more off a funeral case costing over 10,000 patacas [US$1,253],” he pointed out. The removal of middlemen has made it possible to offer cheaper prices to customers, Mr Fong added. He stressed the pricing system for funeral services has been more transparent since Ian Chek took over, with service prices ranging from 19,500 to 51,200 patacas. Mr Fong also rejected the claim that other funeral service companies were not allowed to run businesses at the funeral parlour. Amongst the 112 funeral services
ENZE Funeral Services – running Kiang Wu hospital’s funeral parlour (Photo: Manuel Cardoso)
held at the parlour last month, the Kiang Wu funeral parlour took up 53 cases, whereas five other local companies – including San Long Yuen Services Funeral Co Ltd – ran the remainder, Mr Fong stated. Businessmen Lao Moon and Chong Pang Weng are the shareholders of both company Ian Chek and San Long Yuen. Sang Long Yuen will stop providing services at the Kiang Wu funeral parlour next year, Mr Chong said.
Coffin protest An open tender is being considered to select a new company to run the management of the funeral parlour
once a planned reconstruction is completed, said António José de Freitas, executive director of Kiang Wu Charitable Association. The two-year rebuilding scheme involving complete demolition of the existing parlour will begin in 2013, the association announced earlier this year. “The association used to negotiate and find the proper management company to run the parlour,” says Mr Freitas. “And we don’t rule out the possibility of seeking a new management company after the reconstruction is done,” he said. Philip Cheong Chi Wai, operator of ‘Tim Fok’ coffin and funeral service, one of the undertakers protesting against the deal, refuted Mr Fong’s claim that the protesters were using middlemen companies to lure business. Earlier this week, Mr Cheong told media that Tim Fok and the three other undertakers were banned from running funeral services at the Kiang Wu funeral parlour. “We only accept companies that specialise in funeral services to take up the business at the parlour, but not those doing both coffins and the funeral,” stated Mr Lao, the general manager of Ian Chek. “The association should show evidence that we were using middlemen to lure business,” Mr Cheong replied. The four protesting companies plan to march from Avenida do Almirante Lacerda to the Executive Council’s offices on Monday, Mr Cheong told Business Daily.
No more sweet 18 for casinos
Starting yesterday, only people 21 and older are allowed to enter or work in casinos, as a new law came into effect. The bill also allows for problem gamblers to voluntarily request two-year bans on admission. (Photo: Manuel Cardoso)
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MACAU Food safety centre could open before law The establishment of a food safety centre should not have to wait for the bill on food safety coming into effect, said Chan Chak Mo, who chairs the Legislative Assemblyâ€™s second standing committee. The Civic and Municipal Affairs Bureau could set up the centre at any time as the bill only gives powers to the bureau instead of the centre, he told reporters after yesterdayâ€™s meeting. The committee was waiting for a new version of the bill from the government to clarify numerous provisions, including penalties.
Construction labour demand drops off A hiatus in the construction of big casino resorts means less need for building workers Stephanie Lai
he purchasing power of resident construction workers increased by 0.6 percent in the third quarter, so it is now back to what it was at the beginning of 2010, data released yesterday by Statistics and Census Service show. The real wage index for resident construction workers rebounded to 100.1 points because the wages of electricians, bricklayers and plasterers rose. However, the purchasing power of construction workers in general, including imported labour, declined for the third consecutive quarter, the real wage index dipping by 0.3 percent to 86.7 points. The average daily wage of all construction workers in the third quarter, at 556 patacas (US$70), was 0.8 percent higher than in the second.
The average daily wage of resident construction workers fell by 0.4 percent to 671 patacas. The average daily wage of carpenters fell by 17.9 percent to 528 patacas, and that of painters fell by 13.8 percent to 531 patacas. The Statistics and Census Service said the falls were due to a decline in demand after the completion of the construction of some tourist and gaming facilities, including the second phase of Sands Cotai Central. Demand is not expected to remain slack for long, as construction of other developments such as the Galaxy Macau and Wynnâ€™s Cotai resort begins in earnest. The average daily wage of welders rose by 13.3 percent to 669 patacas in the third quarter and that of levellers rose by 10 percent to 666 patacas.
The prices of construction materials for housing fell in the third quarter for the first time in a year, the price index dropping by 1.5 points to 118.9 points. The average price of spiral and round steel bars decreased by 6.5
percent to 5,570 patacas per tonne. But the average price of ordinary portland cement increased by 2.6 percent to 746 patacas per tonne and that of concrete increased by 2.2 percent to 437 patacas per cubic metre.
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Reolian still wants proper concession
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Entrepot trade The figures suggest exports are recovering. After the contraction due to the progressive disappearance of the textiles industry, the figures are, indeed, promising. But what drives the export figures now are re-exports – goods imported only to be exported. So we are not talking about products made here, or domestic exports. In the first nine months of this year re-exports accounted for three-quarters of the value of all exports. Domestic exports fell by 7.7 percent from a year before but re-exports rose by 65.7 percent. Much of the growth was in exports of products that Macau did not export before, that are not made here or that have only recently begun to be made here. The main destination is Hong Kong. That is the case with exports of tobacco and wine (T&W in the chart), diamonds and diamond jewellery (DJ) and clocks and watches (C&W).
Together, these three categories of goods now account for about 18.9 percent of exports, having accounted for just over 4 percent in 2004. Some of these goods were not exported at all before 2004, or exported only in tiny quantities. Diamonds and diamond jewellery were exported for the first time in 2004, when 1.7 million patacas (US$212,962) worth were shipped. Last year 225 million patacas worth were exported. Hong Kong is virtually the only destination for exports of diamonds and diamond jewellery and of clocks and watches. Only tobacco and wine were exported in any considerable quantities in 2004. Exports of tobacco and wine were 23 times greater in 2011, two-thirds of them going to Hong Kong. These kinds of goods may be the future of exports, but they will do nothing to resuscitate manufacturing industry here.
The bus operator keeps up its fight for the status of public service concessionaire Vítor Quintã
us operator Reolian Public Transport Co Ltd is not giving up its struggle to become a public service concessionaire, even though the Court of Second Instance rejected last week the company’s case for becoming one. Reolian’s general manager, Cédric Rigaud, told the Portuguese-language newspaper Ponto Final that it will appeal to the Court of Final Instance in the next few days. The company wants all three bus operators, including Transportes Urbanos de Macau SARL (Transmac) and Sociedade de Transportes Colectivos de Macau SARL (TCM) – to be considered public service concessionaires. Reolian says this would bring more transparency to public utilities by requiring the concession contracts to be published in the Official Gazette.
Should Reolian, a joint venture between France’s Veolia Transport RATP and Macau’s H. Nolasco Group, succeed in becoming a public service concessionaire, it would be exempt from paying road tax on its buses. The present bus service contracts include no such exemption, but they do allow the bus operators to seek reimbursement of road tax payments from the Transport Bureau. Reolian took its case to court shortly after the introduction in August last year of the new bus system. The company argued that in levying road tax on its imported buses, the government was treating it differently from the other bus operators. The other bus operators did not pay road tax under their old contracts, which expired last year.
If Reolian had its way, bus service concession contracts would be published in the Official Gazette (Photo: Manuel Cardoso)
Auditor resigns as Birmingham Int. again fails to file results
BIHL chairman Carson Yeung Ka Sing
irmingham International Holdings Ltd – the Hong Konglisted majority owner of English football club Birmingham City – has again delayed publishing its trading
results. It means the firm has now failed to file results for the year ended June 30 2011, interim results for the six months ended December 31 2011 and the annual results for year ended June 30, 2012. The football club part of the business made a 10 million pounds (129 million patacas) loss for the year ending June 30, 2011 according to accounts filed in the United Kingdom this June. The club’s financial report quoted BDO, an independent auditor called in to review the accounts as saying: “A number of factors have made us sceptical as to whether we have received all relevant information and explanations necessary for the audit from the directors.” Now BDO Ltd, a Hong Kong unit
of financial services company BDO International Ltd, has resigned as auditor of Birmingham International. This, said a filing to the Hong Kong Stock Exchange, was: “…due to the auditor being unable to obtain consistent, reliable and complete audit evidence and due to the auditor having reservations on the effectiveness of corporate governance and the system of internal controls of the company.” BIHL chairman Carson Yeung Ka Sing, a Hong Kong resident with Macau business interests, faces trial at the District Court in Hong Kong at the end of November on money laundering charges. He denies wrongdoing. The football club adds that the charges are unconnected with its business. A.E.
November 2, 2012 business daily | 7
MACAU Frozen pork supply deals signed in Sichuan Two Macau companies have signed deals with mainland China suppliers over the purchase of 40 tonnes of frozen pork, the Economic Services Bureau announced on Wednesday. One of the two companies also became an official agent, thus opening a new supply channel for Macau’s food market, authorities stressed. The deals were signed during the 8th China Food Expo, held in Sichuan capital Chengdu from October 26-29. A delegation of 24 people from Macau joined the expo, as well as a business matching initiative in Meishan city.
Govt keeps mum on Cotai progress Casino operators will need to wait longer for the government go-ahead for their projects in Cotai Tony Lai
he government has yet to give a definitive schedule for approving construction work on casino projects in Cotai. Casino operators MGM China Holdings Ltd and SJM Holdings Ltd announced separately last month they had been given the green light for land concessions in Cotai. This means that all six gaming concessionaires have projects planned for the area. So far Galaxy Entertainment Group Ltd has received a building permit, to start the second phase of its Galaxy Macau resort in April, while in August Melco Crown Entertainment Ltd was given approval to resume piling and foundation work at its
Macau Studio City site. Secretary for Transport and Public Works Lau Si Io gave no hint about which could be the next project to get permission to begin construction or when that might happen. “Right now I have too many cases at hand and I do not have much information about the progress of those projects,” he told reporters after a visit to public housing in Taipa. He added that the government would handle the construction applications only after the land grants were made official. MGM and SJM are still waiting for their land grants in Cotai to be published in the Official Gazette. Mr Lau stressed that the
government would continue to review and improve the graft oversight mechanism after the Commission against Corruption uncovered a cases of alleged bribery at the Land, Public Works and Transport Bureau. A worker is accused of receiving bribes of over 1.8 million patacas
(US$225,000) from engineering companies undertaking at least three projects together worth over 100 million patacas. Mr Lau declined to reveal details of the cases, saying the authorities would punish the companies in question if the courts found them culpable.
Macau to lose EU trade benefits Vítor Quintã
Cotai - Casino operators waiting for construction permits
I.T Macau business ‘grows steadily’ Macau exports to the EU have fallen by 90.4 percent in the last five years
acau will lose its privileged access to the European Union’s 500 million consumers by 2014 as the bloc handed on Wednesday benefits to poorer states. Issuing a revised list of countries entitled to reduced- or zero-import tariff rates for the world’s biggest consumer market, the European Commission said that the “new scheme will be focused on fewer beneficiaries to ensure more impact on countries most in need”. The new system of Generalised System of Preferences will come into effect January 1, 2014, for 89 nations, 49 of which are listed as least developed countries.
Removed are 20 territories listed for three years running by the World Bank as “high income” economies, including Macau, Brunei, Saudi Arabia, and the five Gulf states. The move is likely to have little impact on Macau’s economy, as the value of exports to the European Union has fallen by 90.4 percent in the last five years and in the first three quarters of this year it accounted for less than 4 percent of all exports. Exports to the European Union started falling fast after 2005, when the bloc imposed anti-dumping measures on imports of leather shoes “consigned from Macau SAR”. With AFP
ong Kong fashion retailer I.T Ltd suffered from a onefifth decline in profit in the March-August period but its business in Macau continues to perform well. In an interim report released on Tuesday, the group posted a year-onyear drop of 20.2 percent in its net profit to HK$120.1 million (US$15.5 million) in the six months ended August 31 although its turnover rose by 23.3 percent to HK$2.97 billion. The drop was due to a rise in operating costs and a smaller profit margin “from more proactive promotions and discount offers,” I.T chairman Sham Kar Wai wrote in the report. Its operating spending rose by 23.2 percent to HK$1.61 billion, according to the report. The group’s operating profit
underwent declines in its two major markets – Hong Kong and mainland China – due to “slower customer traffic and weaker consumption sentiment”. But its profit in other regions, namely Macau and Taiwan, grew by 12.1 percent to HK$25.1 million. Growth in Macau and Taiwan was pushed by a 37.5 percent increase in retail sales to HK$120.1 million in the six months ended August 31. Mr Sham wrote: “Benefiting from mainland China tourist traffic and strong local consumption demand, Macau business continued to grow steadily.” The fashion house retails brands Izzue, Venilla Suite, Chocoolate, b+ab, French Connection, 5cm and double-park, and has stores in The Venetian Macao and New Yaohan. T.L.
business daily November 2, 2012
GREAT CHINA Beijing probing EU solar products China said yesterday that it would launch anti-dumping and anti-subsidy investigations into imported European Union solar-grade polysilicon, in the latest instance of tit-fortat trade tensions in the global solar industry. The move comes as the EU’s executive body mulls duties targeting Chinese solar producers, a probe launched in September after companies accused Chinese rivals of “dumping”, or deliberately selling products for less abroad than at home. The Commerce Ministry said it would “merge” the EU investigations into ongoing probes of U.S. and South Korean-made solar products “to evaluate the accumulated impact of products from the three regions”.
October manufacturing gains traction New data point to fourth-quarter rebound Lucy Hornby
hina’s economy is finally regaining some traction, official and private sector factory surveys showed yesterday, although they pointed to a sluggish recovery with the latter recording its 12th straight month of slowing growth. The surveys add to other signs of economic revival in October after domestic credit curbs and weak demand from overseas markets pushed down third-quarter growth to its lowest rate since the depths of the global financial crisis. The National Bureau of Statistics reported the official October Purchasing Managers’ Index (PMI) rose to 50.2 from 49.8 in September, just below a 50.3 forecast by a Reuters poll last week. It marked the first reading above 50 – which divides a pick up in activity from a slowdown – since July and backed the view that growth could be picking up in the world’s secondlargest economy. “The continued rebounding of sub-indexes including new orders, export orders and quantity of purchases, indicates companies’ destocking process has basically ended,”
Zhang Liqun, a researcher with the Development Research Centre of the State Council, wrote in a statement accompanying the index. “We expect China’s economic growth will end its decline and rebound slightly in the future.” The HSBC Purchasing Managers’ Index rose to 49.5 in October from 47.9 in September. The reading was the highest since February, and
KEY POINTS Official PMI climbs above 50 level first time since July HSBC index highest since February, but still below 50 Support view economic slide over, signs of recovery
deviated more than usual from the October flash, or preliminary, reading of 49.1 released last week. “October’s final PMI rose to an eight-month high, implying that China’s industrial activity continues to bottom out following a modest pick-up last month,” wrote HSBC economist Hongbin Qu in a statement accompanying the survey. “This is mainly driven by the increase of new orders, thanks to the filtering-through of the earlier easing measures, while exports outlook remains challenging.” The new orders sub-index rose to 51.2 – its first time in expansionary territory since October of last year.
Pick-up seen Recent data has shown signs that the economy stabilised in September and the factory surveys are one of the first indications it began perking up in October. “The return of the PMI above 50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been stronger than the consensus
expected,” Zhiwei Zhang of Nomura said in a comment emailed to Reuters. “We believe macro data will continue to surprise on the upside in coming months, as the government continues to ease policy through the period of leadership transition.” Economic activity in the fourth quarter is widely expected to pick up after annual growth slowed to 7.4 percent in the third quarter. That would put it on track to beat the government target of full-year growth of 7.5 or above. Manufacturers reported higher input costs – particularly for raw materials – but for the first time in a year were able to pass those on by raising prices, Markit Economics, which compiles the HSBC survey, wrote. The private HSBC PMI captures views mainly of smaller, export-oriented firms in China’s vast factory sector. The employment sub-index rose to its highest level in eight months, but it remained below 50. China has so far avoided the massive job losses or urban unrest feared by the ruling Communist Party, which has seen a year of political infighting as factions ready for a once-in-a-decade
Luxury sales to get boost after leadership change But rebound seen only next year as consumers are still slow to spend Vinicy Chan
uxury companies are betting that Chinese shoppers who are buying fewer gold bars and lavish gifts for their business dealings will loosen the purse strings after a oncea-decade government change in Beijing. The leadership transition beginning November 8 will clear uncertainty on political appointees and economic policy, encourage business gifting and boost luxury sales next year, said Kent Wong, managing director at the world’s largest jeweller, Chow Tai Fook Jewellery Group Ltd. At the Communist Party Vice President Xi Jinping probably becoming party head. At a March session of the legislature, Mr Xi will probably succeed Hu Jintao as president. Vice Premier Li Keqiang is set to replace Premier Wen Jiabao. After a year of slower consumer spending, any increase would be a windfall for Greater China’s 27-billion euro (US$35 billion) luxury market. It
is the world’s second largest, according to Bain & Co., and benefits from purchases of ostentatious presents for business associates and bureaucrats. More-generous gifting would also aid next year’s sales at companies, including Chow Tai Fook, Cartier watch seller Hengdeli Holdings Ltd and LVMH Moet Hennessy Louis Vuitton SA. “We expect industry sales to grow more than 10 percent in the second half of next year, driven by pent-up demand for luxury,” said Mr Wong. “When new government officials take office, they will lay out policies and strategies that would clear investment uncertainties and pave the way for corporate gifting to pick up.”
Next year’s demand A rebound won’t be immediate. China’s economy expanded at its slowest pace in three years in the third quarter and consumers are still slow to spend.
Gold bars carved with lucky characters are popular with shoppers at Chow Tai Fook
Chow Tai Fook and smaller jeweller Luk Fook Holdings International Ltd may report earnings declines from a year earlier in their six-month updates in November, according to Citigroup Global Markets Inc. Sales may be better in the coming year as the political changes help unleash demand, said Luk Fook executive director Nancy Wong, who forecasts an increase in gifting in the first quarter of the calendar year. Gifts are important in Chinese personal and professional life and centre around the idea of reciprocity. CLSA Ltd estimates that about 30 percent of sales in China’s luxury industry come from purchases of gifts bought for business reasons, weddings and other personal celebrations.
Gold bars carved with lucky characters and Swiss watches are popular with business shoppers at Chow Tai Fook and Luk Fook stores. Gifting, which will take until the second half of next year to pick up, will also aid companies such as Swatch Group AG’s China partner Hengdeli as well as LVMH, said HSBC analyst Erwan Rambourg. Optimism for next year is encouraging chains to keep their expansion plans. Chow Tai Fook expects to add about 200 stores in Greater China next year. Luk Fook will open 50 to 60 stores by the end of March, and introduce a line of gold bars engraved with characters symbolising the coming lunar Year of the Snake. Bloomberg
November 2, 2012 business daily | 9
GREAT CHINA Sinopec exploring takeover bid China Petrochemical Corp. is considering an acquisition of French oil explorer Etablissements Maurel & Prom, three people with knowledge of the matter told Bloomberg. China Petrochemical, also known as Sinopec Group, has held informal discussions with Maurel in the past year though hurdles to a deal remain, said two of the people. A deal could value Maurel at more than US$2 billion, the people said. Maurel’s chief executive Jean-Francois Henin said in August the company isn’t big enough to remain independent and partnering with another company or being acquired would allow development of oil and natural-gas projects.
New home prices rise on sales, SouFun says Property curbs have shown ‘preliminary effects’ – Premier Wen
Twin PMI surveys show economy perking up
leadership transfer in November. An output sub-index in the HSBC PMI also rose after a September dip, and average lead-times – a proxy for how busy factories are – lengthened. “Survey respondents that experienced longer delivery times attributed deteriorated supplier performance to a rise in the number of orders placed to vendors,” Markit wrote. On the export front “weak demand from Europe and the U.S. was reported”, it said. After monetary loosening moves earlier in the year, credit supply in China has increased while inflation
has stayed low, allowing planners to relax and hold off on further measures. Some analysts expect additional moves after the 18th Party Congress in November, to present the new leadership with an economic boost. Planners have so far defied expectations of further cuts in interest rates or required bank reserves, after a round of moves this summer. Some analysts have now scaled back on those expectations, with Ting Lu of Merrill Lynch saying yesterday he still expects one more reserve cut but no more interest rate cuts. Reuters
Central bank reins in yuan rise
Credit outlook The eastern city of Wenzhou had the biggest gain in October, increasing 3.7 percent, SouFun said. September new home prices rose in fewer than half of the 70 cities that the government tracks from a
Move comes after record strong close on Wednesday
hina’s central bank set a weaker midpoint for the yuan against the dollar yesterday aiming to slow the currency’s rise, dealers said, as it hit the strong-side limit of the trading band for a third straight day. The People’s Bank of China set its midpoint at 6.3017 per dollar, slightly weaker than Wednesday’s fix of 6.3002. Traders said this suggested that the central bank was looking to rein in yuan appreciation, and that without the central bank’s actions the currency would most likely be strengthening further. “In the market everyone is selling dollars and less people are buying them. It’s certainly possible that (without the trade limit), the rate could break the 1 percent barrier,” said a Shanghai trader at a Chinese city commercial bank. The central bank widened the trade band limit in April, allowing the exchange rate to rise or fall 1 percent from the mid-point set by the central
hina’s new home prices rose for a fifth month as sales picked up in a sign government curbs are helping stabilise the property market. Prices climbed 0.17 percent to 8,768 yuan (US$1,405) per square metre in October from September, SouFun Holdings Ltd, the country’s biggest real estate website owner, said in an e-mailed statement yesterday, based on its survey of 100 cities. The growth rate was the same as in September. “The market has quite a healthy status with modest price and sales rises,” said Johnson Hu, a Hong Kongbased property analyst at CIMB-GK Securities Research. “This is what the government would like to see.” Home prices have reversed declines since June after the central bank cut interest rates to stem an economic slowdown and some local authorities eased restrictions as land-sale revenues fell. China’s property curbs have shown “preliminary effects,” though the market is still “unstable,” the official Xinhua News Agency said on October 17, citing Premier Wen Jiabao’s comments in meetings he held with industry leaders, company executives and some local government officials. The government should stick to the property policies, he said.
month earlier, government statistics showed last month. Official figures are released on the 18th of each month. China’s housing prices should continue to “rationalise” over the next 12 to 18 months as the central government’s “strong hand” on the sector remains, Sanford C. Bernstein Ltd analysts, led by Kenneth Tsang, wrote in a report on Wednesday. Chinese developers’ credit outlook improved as the recovery in prices eased liquidity pressures and a slowing economy limited authorities’ incentive to further tighten policy, Standard & Poor’s said in a September 18 report. The credit rating company may see some “positive rating actions” in the next six months as defaults by so-called distressed developers are less likely after asset sales. Home sales rose 20 percent in September from a month earlier to 540.4 billion yuan, according to data from the National Bureau of Statistics. Bloomberg
8,768 yuan China’s new home prices per square metre in October
bank each day. The yuan opened at 6.2394, within 0.02 percent of the strong-side boundary, but weaker than Wednesday’s record strong close of 6.2372. The currency strengthened in the morning and hit the strong-side boundary of 6.2387 at 11.27am before weakening slightly to 6.2392 around midday. Yesterday was the third straight day the upper limit of the trading band has been reached, and the fifth time in six trading sessions since it was hit for the first time last week. Analysts suggested the yuan’s recent strength against the dollar may be due in part to a decrease in outflows of speculative money. According to analysis by Bank of America Merrill Lynch, capital outflow in September more than halved against August, narrowing to 30 billion yuan. This may have helped reduce demand for U.S. dollars and supported a rise in the spot and forward yuan price. Reuters
Local authorities seen easing restrictions as land-sale revenues fell
business daily November 2, 2012
S. Korea’s exports climb in October Recovering trend to continue for the remainder of the year – official
outh Korea’s exports unexpectedly rose for the first time in four months as demand from emerging-market countries offset the effects of a slowdown in major economies. Overseas shipments rose 1.2 percent in October from a year earlier, after a revised 2 percent decline in September, the Ministry of Knowledge Economy said in a statement yesterday. The median estimate in a Bloomberg News survey of 16 economists was for a 0.7 percent decline. Consumer prices rose 2.1 percent last month from a year ago. South Korea’s industrial production also rose for the first time in four months in September, adding to evidence that Asia’s fourth-largest economy may rebound. The Bank of Korea will decide interest rates on November 9, after saying in a report to parliament on Wednesday that growth momentum is weakening. “The latest data gives some hope that the economy hit a bottom,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “This should give some relief to the central bank next week.” Exports to Southeast Asian nations rose 21.1 percent in October from a year ago and sales to China gained 5.7 percent, according to yesterday’s report. Overseas shipments to the European Union rose 2 percent, while those to the U.S. declined 3.5 percent. Imports rose 1.5 percent from a year earlier in October, the ministry said. The trade surplus was US$3.8 billion after a US$3.1 billion excess in September.
Recovery seen slow The nation’s biggest companies have shown resilience, with Hyundai Motor Co. reporting profit that beat analysts’ estimates in the third quarter. Hyundai, South Korea’s
Overseas shipments rose 1.2 percent last month
largest carmaker, said on October 25 it will probably beat its full-year sales forecast as deliveries climb 8.2 percent in the fourth quarter, led by demand in China. Samsung Electronics Co., the world’s biggest maker of TVs and mobile phones, said Oct.
South Korea’s trade surplus in October
26 that operating profit from telecommunications more than doubled as its Galaxy brand devices widened their lead over Apple Inc.’s iPhone. “Things have started to move up in Korea, even if not at full steam yet,” said Ronald Man, a Hong Kong-based analyst at HSBC Holdings Plc. “This momentum would need to be sustained for economic growth to pick up.” While the nation’s economy expanded at the slowest pace in three years in the third quarter, South Korea’s output rose 0.8 percent in September from August, when it dropped a revised 0.9 percent, Statistics Korea said yesterday. The production data is a sign economic conditions are improving while global uncertainties persist, Finance
Minister Bahk Jae Wan said in a statement yesterday. A private survey showed separately the country’s manufacturing sector shrank in October for a fifth consecutive month, although at a slower pace than in September, as new export orders failed to break a months-long decline. A deputy economy minister said the recovering trend would continue for the remainder of the year, but analysts, while agreeing that the worst was past, said it would take a while longer before the global economy stages a firm rebound. “The third quarter was the bottom [for the South Korean economy] for sure, but this ‘bottom’ will likely stretch out,” said Park Hyung-jung, an economist at Meritz Securities. Bloomberg/Reuters
India’s manufacturing nudges up Supported by a pick up in new orders and easing of price pressures Yati Himatsingka
ndia’a manufacturing growth inched up in October from September’s 10-month low, supported by a pick up in new orders and an easing of price pressures, a survey released yesterday showed. The HSBC manufacturing purchasing managers’ index (PMI), which gauges the business activity of India’s factories but not its utilities, nudged up to 52.9 in October from 52.8 in September. The index has remained above 50, which divides growth and contraction, for over three and a half years. “Economic activity in the manufacturing sector picked up slightly thanks to firm new orders,” said Leif Eskesen, an economist at HSBC, which sponsors the survey. “Looking ahead, the recovery in manufacturing growth is likely to be slow.” The new orders sub-index, an indicator of future output, edged up to 54.9 last month from 54.4 in September while export orders grew
for the second straight month albeit at a slightly slower pace. Data released last month showed manufacturing rose 2.9 percent in August from a year earlier after contracting 0.4 percent in the previous month. Overall output at factories, mines and utilities rose an annual 2.7 percent. Input and output price indexes fell to their lowest levels in more than two years. But Mr Eskesen said this did not necessarily indicate India’s inflation, which rose to a 10-month high of 7.8 percent in September, would cool anytime soon. Instead, Mr Eskesen said inflation would remain elevated for a while yet, reflecting a Reuters poll which suggested prices will peak in the last three months of 2012 before slowing. The central bank has maintained that high price pressures keep it from cutting interest rates in the face of slowing economic growth. The Reserve Bank of India has held interest rates steady since April even
Recovery in manufacturing growth likely to be slow, analyst says
as many other central banks cut rates. It left rates on hold again on Tuesday but cut the cash reserve ratio for banks, which is expected to inject 175 billion rupees (US$3.25 billion) into the banking system. Unusually, Governor Duvvuri Subbarao gave fairly explicit policy guidance, saying the central bank
might ease policy in January to March, the final quarter of the fiscal year, when it expects inflation to ease. The central bank is under pressure from the government and industry to cut rates to try to help revive economic growth, which has slipped to its weakest pace in almost three years. Reuters
November 2, 2012 business daily | 11
InBrief Sony posts seventh straight loss Sony Corp. unexpectedly posted its seventh straight quarterly loss on falling demand for TVs as consumers flock to Apple Inc. and Samsung Electronics Co. devices. The secondquarter net loss totalled 15.5 billion yen (US$194 million), the Tokyobased company said in a statement yesterday. The company kept its estimate to report its first annual profit in five years. It recently completed the sale of its chemical business to statebacked Development Bank of Japan for 58 billion yen. Other asset sales may further inflate operating profit this business year. The shares fell 4.1 percent to 915 yen.
Sharp expects bigger full-year loss Japan’s Sharp Corp, the struggling maker of Aquos TVs, increased its full-year operating loss forecast to 155 billion yen (US$1.94 billion) from a previous 100 billion yen loss forecast. At a net level, it almost doubled its full-year loss forecast to 450 billion yen. Sharp said, however, it expects to post an operating profit in the current October-March second half, after losing 168.9 billion yen (US$2.11 billion) in the first half year – a target that will allow its banks to justify a US$4.6 billion bailout of the TV maker. Sharp posted a July-September operating loss of 74.8 billion yen.
Indonesia September trade improves HSBC PMI manufacturing index, new export orders up
ndonesia’s trade picture improved more than forecast in September and manufacturing grew strongly in October, signalling a recovery from weak exports that have weighed on Southeast Asia’s largest economy in recent months. Inflation also climbed in October but remained within Bank Indonesia’s target range, leading economists to expect the central bank to keep interest rates at a record low into 2013 to help support the domestic demand that is the economy’s mainstay. On top of showing Indonesia is gaining some traction, the data reinforced a trend seen across Asia, where big economies are slowly picking up after a year battling global headwinds.
Export growth continues to indicate that the economy remains weighed by lower global demand, relatively low commodity prices and high base effects Gundy Cahyadi, economist, OCBC
Panasonic shares drop on forecast Shares in Panasonic dived nearly 20 percent yesterday after the Japanese firm warned of a mammoth US$9.6 billion annual loss in the latest sign of trouble for the nation’s hard-hit electronics giants. The consumer electronics firm’s shares closed 19.45 percent lower at 414 yen (US$5.17) in Tokyo trading after it said late Wednesday that it would report the huge loss as it undergoes a major overhaul of its troubled business. Moody’s warned that it had put Panasonic’s credit rating on review for a possible downgrade after cutting its rating by two notches in September.
Kempinski to run North Korean hotel The world’s tallest hotel will open next year in the North Korean capital of Pyongyang as the impoverished totalitarian regime burdened by international sanctions seeks foreign currency through a boost in tourism. The 105-story, pyramid-shaped Ryugyong Hotel, whose foundations were poured almost three decades ago, will open partially in July or August, German luxury-hotel operator Kempinski AG chief executive Reto Wittwer said yesterday at a forum in Seoul. Kempinski will be the first western hospitality service to operate in North Korea, he said. “This pyramid monster hotel will monopolise all the business in the city,” Mr Wittwer said.
September exports fall less than forecast, surplus widens
Business surveys yesterday showed an improving factory sector in China, Indonesia’s top trade partner. “Good data as a whole, especially the fact that Indonesian import growth has returned back to positive territory. The fact that the trade balance has recorded another surplus is also encouraging,” said Gundy Cahyadi, economist at OCBC Bank Bhd. Indonesia’s exports still fell 9.35 percent in September from a year ago, the sixth month in a row in which they were lower than a year earlier. This was better than a forecast 14.7 percent drop and August’s 24 percent slump, as exports of metal ores and palm oil jumped. Exports look likely to pick up further, after Indonesia’s HSBC Purchasing Managers’ Index (PMI) rose in October to 51.9, the highest level since HSBC started the survey in 2011, though economists said a
full recovery was likely to be slow. “Export growth continues to indicate that the economy remains weighed by lower global demand, relatively low commodity prices and high base effects. We look for export growth to gain ... only towards the second half of 2013,” Mr Cahyadi said. Indonesia’s imports in September rose 1.2 percent, better than a forecast for a 5.3 percent drop. August saw a surprise 8 percent fall, the first year-on-year fall for a month since November 2009, leading to concerns that domestic demand could be slowing. September saw a trade surplus of US$550 million, compared with August’s US$250 million. Between April and July, Indonesia reported four consecutive trade deficits, hitting the rupiah, emerging Asia’s worst-performing currency this year. Reuters
Kingfisher woes show need for bankruptcy law Analysts say govt has to revise ‘outdated tool’
Kingfisher still struggling to resume services
ingfisher Airlines Ltd, controlled by liquor tycoon Vijay Mallya, is struggling to resume services after five straight years of losses and mounting debt forced it to ground planes. India’s bankruptcy laws aren’t helping. The carrier can’t emulate U.S. airlines that have gone through courtled Chapter 11 restructuring, as India doesn’t have any similar procedures for service providers. Under the existing law, a government body only oversees rehabilitation of companies with licences to run factories. Kingfisher’s troubles highlight how
India’s corporate laws have failed to keep pace with growth and emergence of new businesses in Asia’s thirdbiggest economy. Lack of a modern legal framework makes it slower for struggling companies to renegotiate debts and cut cost, said Jai Pathak, partner-in-charge at Gibson, Dunn & Crutcher LLP. in Singapore. “India needs a comprehensive bankruptcy law that will allow financially distressed companies to revive faster,” Mr Pathak said. The existing system doesn’t “provide a framework by which companies can take preventive measures to avoid a further downward spiral.” Current rules allow companies that operated for at least five years and holding a factory licence to approach the Board for Industrial and Financial Reconstruction if accumulated losses equal or exceed their net worth. Under the Indian Companies Act of 1956, firms can voluntarily wind up operations or a court can order their closure. In a court-ordered shutdown, an official liquidator will be appointed to oversee the process and distribute
the proceeds from sale of assets to creditors. “BIFR is the most outdated tool available under law in India,” Kishor Ostwal, managing director at CNI Research Ltd in Mumbai, said. “There are examples where companies have applied for rehabilitation and it has taken several years for even the plan to be approved. It’s next to impossible.” BIFR took almost four years to approve a rehabilitation plan for Windsor Machines Ltd, which was declared a ‘sick’ company in June 2006. By the time the revival plan got approval from the agency in April 2010, the company had made quarterly profits. India ranked 116 among 185 economies when it comes to ease of resolving insolvency, according to Doing Business 2013 data published by International Finance Corp. and the World Bank. The nation’s ranking fell from 109 in 2012. India scored 132 for the overall ‘ease of doing business’ in the latest report published last month. Bloomberg
business daily November 2, 2012
MARKETS Hang SENG INDEX NAME
SANDS CHINA LTD
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AIA GROUP LTD
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HANG LUNG PROPER
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52W (H) 21847.69922
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IND & COMM BK-H
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BANK OF COMMUN-H BYD CO LTD-H
CHINA LIFE INS-H
PICC PROPERTY &
PING AN INSURA-H
CHINA MERCH BK-H
INDEX 10701.21 HIGH
52W (H) 11916.1
CHINA NATL BDG-H
Shanghai Shenzhen CSI 300 PRICE
DAQIN RAILWAY -A
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NAME ALUMINUM CORP-A
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SHANG PHARM -A
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GD POWER DEVEL-A
BANK OF BEIJIN-A
BANK OF CHINA-A
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BAOSHAN IRON & S
BYD CO LTD -A
CHINA CITIC BK-A
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CHINA COAL ENE-A
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SANY HEAVY INDUS
PRICE DAY %
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52W (H) 2781.99 (L) 2172.878906
FTSE TAIWAN 50 INDEX NAME
PRICE DAY %
TAIWAN MOBILE CO
TPK HOLDING CO L
ASIA CEMENT CORP ASUSTEK COMPUTER AU OPTRONICS COR
HON HAI PRECISIO
HOTAI MOTOR CO
HUA NAN FINANCIA
CHANG HWA BANK
CHENG SHIN RUBBE
CHIMEI INNOLUX C
MEGA FINANCIAL H
CHINA STEEL CORP
NAN YA PLASTICS
CHINATRUST FINAN CHUNGHWA TELECOM
YULON MOTOR CO
DELTA ELECT INC
FAR EASTERN NEW
SYNNEX TECH INTL
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INDEX 5033.49 HIGH
52W (H) 5621.53 4950
(L) 4643.05 30-October
November 2, 2012 business daily | 13
MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GAlAXy ENtErtAINMENt
MElCo CroWN ENtErtAINMENt
MGM CHINA HolDINGS 37.50
SANDS CHINA ltD
SJM HolDINGS ltD
WyNN MACAu ltD 17.4
16.6 Average 29.910
16.4 Max 17.08
WTI CRUDE FUTURE Dec12
BRENT CRUDE FUTR Dec12
GASOLINE RBOB FUT Dec12
GAS OIL FUT (ICE) Dec12
HEATING OIL FUTR Dec12
Silver Spot $/Oz
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Palladium Spot $/Oz LME ALUMINUM 3MO ($) LME COPPER 3MO ($) 3MO ($)
LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Jan13 CORN FUTURE
22.0 Max 22.7
AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
1.0375 1.6157 0.9334 1.2936 79.98 7.9826 7.7501 6.2397 53.7413 30.72 1.2206 29.244 41.205 9622 82.971 1.20746 0.80065 8.0762 10.3279 103.46 1.03
-0.1636 0.2731 -0.5142 -0.5306 -0.175 0 -0.0013 -0.0385 0.1349 -0.0977 -0.0819 -0.106 -0.0971 0.0208 -0.006 0.024 0.8093 0.3764 0.5432 0.3673 0
1.626 3.9503 0.5035 -0.1929 -3.8385 0.213 0.2232 0.8863 -1.2584 2.7018 6.2264 3.5392 6.3949 -5.7472 -5.4706 0.7727 4.0892 0.7182 0.2333 -3.6729 0.0097
1.0857 1.6309 0.9972 1.3868 84.18 8.0308 7.7979 6.3964 57.3275 32 1.315 30.5 44.35 9662 88.637 1.24569 0.86648 8.7923 11.089 111.44 1.0311
0.9582 1.5235 0.8762 1.2043 76.03 7.9823 7.7498 6.234 48.6088 30.2 1.2152 29.084 41.12 8875 74.482 1.19995 0.77553 7.7018 9.6245 94.12 1.029
MACAU RELATED STOCKS (H) 52W
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PHILIPPINES ALL SHARE IX
HSBC Dragon 300 Index Singapor
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Laos Composite Index
INTL GAME TECH
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business daily November 2, 2012
Opinion The world after November Javier Solana
Former Secretary-General of NATO and EU High Representative for the Common Foreign and Security Policy
n November 6, either Barack Obama or Mitt Romney will emerge victorious after an exhausting electoral race, setting the wheels in motion for the coming four years. An ocean away, on November 8, more than 2,000 members of the Chinese Communist Party (CCP) will gather in Beijing. Approximately a week later, the members of the Politburo Standing Committee will walk out in hierarchical order, preparing to take charge of a growing country of 1.3 billion people. The leaders of the world’s two largest economies are changing. So is the world itself. The Middle East, in particular, is experiencing a moment of intense transformation. While reconstruction – both literal and figurative – is commencing in some parts of the region, countries like Syria are aflame. Others, such as Iran, with its moribund revolution, have never ceased rumbling. Amidst a crumbling economy, the country remains belligerent, using its Lebanese proxy, Hezbollah, to launch at least one successful drone flight above Israel and reportedly initiating recent cyber attacks. As a result, relations among regional actors remain tense. After his speech at the United Nations appealing for a “red line” on the Iranian nuclear programme in the spring or
summer of 2013, Israeli Prime Minister Binyamin Netanyahu called an early general election, which could potentially give him a strong mandate for action against Iran. Egypt, meanwhile, is finding its own equilibrium, both domestically, drafting a new constitution, and in terms of foreign policy. Then there is Turkey, straddling Europe and the Middle East. An emerging economy poised to become a regional power, it has exchanged fire with its neighbour to the south, Syria, and has called on its NATO allies to bolster its security. This is part of the changing panorama that new world leaders will inherit in the Middle East – a region in which the United States has been deeply involved. After nearly a decade of draining military engagement, the U.S. combat mission in Iraq concluded in 2010, and the combat mission in Afghanistan is set to end in 2014.
America’s energy liberation The next American president will also inherit a country with a markedly changed geopolitical perspective. Technological advances and innovation have begun to turn the longstanding dream of energy independence into a reality. Whereas extraction of America’s extensive reserves of natural
gas was previously thought to be unfeasible, technologies such as hydraulic fracturing (“fracking”) have ushered in a shale-gas revolution. Indeed, the U.S. is on the cusp of energy self-sufficiency. Last year, for the first time in 15 years, less than one-half of the oil consumed in the U.S. was imported. Annual growth in shalegas production has increased from 17 percent between 2000 and 2006 to 48 percent between 2006 and 2010. By 2035, shale gas is projected to account for roughly one-half of total U.S. energy production.
The leaders of the world’s two largest economies are changing. So is the world itself
The repercussions of this revolution will not be only economic. Politically, reduced reliance on foreign oil may allow the U.S. to concentrate on its foreign-policy shift toward Asia. But it is not just the new
U.S. leader who will inherit a changed world. Across the Pacific, the days of recordbreaking economic growth in Asia – a key component of social and political stability – may be coming to an end. Indeed, events in China in recent months have revealed internal unease. Though nationalist sentiment directed against external foes tends to divert attention temporarily from internal turmoil, the country’s serious domestic problems need to be addressed. China’s economy and politics, ideologically transformed in all but name, will soon need to be adapted to address rising social inequality.
China social challenges Despite global economic headwinds, China’s leaders will surely remain focused on maintaining and boosting growth, in order to lift more Chinese out of poverty and avert social unrest; they are also certain to continue monitoring the oil-rich Middle East. After years of relying on America’s presence in the region, playing an advantageous waiting game, China’s next leaders may embrace a more active role. And, because China’s reputation in the region is untainted by a legacy of imperialism, they may be in a rather advantageous
position to do so. Meanwhile, the European Union is struggling with its own demons. Despite the EU’s need to focus inward while weathering the global economic crisis, the Union must not abandon its neighbours to the south. It is crucial to engage with the southern Mediterranean region as a critical meeting point – a place of political, economic, and energy cooperation. In this respect, the EU’s most valuable tools are its signature, Nobel Prize-winning model of multilateral dialogue and soft power. Next door, Russia, too, must respond to new vulnerabilities stemming from changing global conditions. The Kremlin continues to support Syrian President Bashar al-Assad’s regime, maintaining a strict aversion to military intervention and seeking to defend its strategic interests, including its naval base in the Syrian city of Tartus. That stance has translated, most obviously, into repeated vetoes of UN Security Council resolutions aimed at ending a conflict that has already produced tens of thousands of victims.
Multilateral legitimacy International inaction on Syria is bad news not only for the country’s people; it is also eroding the legitimacy of one of the world’s most important multilateral institutions. Given that the issues of Iran and Syria are closely connected, internal division among the Security Council’s five permanent members (the U.S., China, Britain, France, and Russia) could be extremely damaging to the search for a solution to Iran’s nuclear-enrichment drive. That is reflected in the current stalemate in talks between them (plus Germany) and Iran. Too much is at stake, which is why all possible tracks for a negotiated outcome must be pursued. Whether or not recent rumours of bilateral U.S.-Iran talks prove true, such initiatives should be welcomed. While the big players remain preoccupied with their internal changes, the region continues to smoulder. The main question now is whether the leaders who emerge in November will be fire-fighters or fire starters. © Project Syndicate
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November 2, 2012 business daily | 15
wires Leading reports from Asia’s best business newspapers
The right way to break up the banks Brad Miller
Democratic representative from North Carolina in the U.S. Congress and serves on three subcommittees of the House Financial Services Committee
Jakarta Globe The chairman of the Indonesian Employers Association has called on the government to stop selling gas overseas and focus on the domestic market to help boost the economy. Sofjan Wanandi, the head of the organisation known as Apindo, said Indonesia could miss an opportunity to develop its industrial capability if the country’s massive natural gas resources continued to be shipped overseas. He said the government needed to refuse being dictated to by foreign investors in the gas sector.
Korea Herald Korea and China began their fourth round of negotiations on a free trade agreement on Tuesday amid growing attention to whether the two sides will be able to draw up negotiation guidelines for each industry sector. During the previous round of FTA talks, the two sides reached an agreement on removing tariffs on products within 10 years of the implementation of their free trade accord. In early May, Korea and China started formal free trade negotiations, expected to take two years.
Bangkok Post Passenger traffic through Thailand’s six major airports rose nearly 8 percent in the last fiscal year to set a new record, but the growth rate was just half that of the year earlier. The combined passenger throughput at airports including Suvarnabhumi for the year ended September 30 was 71.52 million, 7.87 percent higher than the previous year when the year-on-year growth was 15.46 percent. Passenger traffic in fiscal 2011, totalling 66.30 million, rebounded strongly from a year ago.
Vietnamnet The Ministry of Planning and Investment (MPI) has suggested proposing a state’s steering committee on foreign direct investment (FDI) management, which will have the “super power” to deal with the problems which cannot be settled by ministries and branches. The national steering committee would be headed by a Deputy Prime Minister and is a part of the plan on renovating the FDI management in the new development stage, when Vietnam would be choosier in attracting foreign investment, striving for investment quality
aniel Tarullo, a respected and independent member of the Federal Reserve, has now concluded that the megabanks are too big and that Congress should do something about it. Presumably he is referring to legislation that Sherrod Brown of Ohio introduced in the Senate and I proposed in the House to cap the size of banks. Senator Brown and I welcome Governor Tarullo as an ally. He needn’t just look to Congress. Regulators already have the power to cure many ills of too-big-to-fail banks. Lenders would effectively break up in place if their subsidiaries – or at least some of them – operated as truly separate corporations. The nine biggest bank holding companies together have almost 20,000 subsidiaries. JPMorgan Chase & Co. (JPM) has 3,391 subsidiaries; Goldman Sachs Group Inc. (GS) has 3,115; Morgan Stanley (MS) has 2,884; Bank of America Corp. has 2,019; and so forth. Each of the seven biggest bank holding companies has units in at least 40 countries. Goldman Sachs has 1,670 subsidiaries abroad. Lehman Brothers Holdings Inc., with about 8,000 units, left them all in the shade. More subsidiaries are apparently not an indicator of better management. In theory, each unit is a separate corporation. The stock of the subsidiaries is owned, directly or indirectly, by a parent corporation.
Limiting liability “Bank” holding companies create subsidiaries for tax or regulatory purposes, but rarely to limit liability, the usual reason for creating corporations. The liability of a corporation is limited to the assets of the corporation where the corporation meets certain legal requirements. The corporation must observe the formalities of corporate law, such as having a board of directors. The assets of the corporation must be kept separate, rather than commingled with those of others. T h e c a p i t a l o f the corporati on must be reasonably adequate for its business. Most important, the corporation must present itself as a separate entity, so any business partners know its obligations will only be satisfied by that corporation’s assets. In practice, bank holding companies’ subsidiaries do little of that. The holding companies operate as a single enterprise with consolidated management and a common pool of capital and liquidity. In short, each of the megabanks is just one big sloppy mess of an enterprise, with every subsidiary on the hook for the liability of the parent corporation and all of
Sheila Bair, former president of FDIC, has argued for smaller, manageable banking units
the siblings. The megabanks regard that as a virtue. Bank executives sometimes justify the combination of logically distinct businesses – mortgage servicing, credit cards, home-equity lines of credit, derivatives trading – into one enterprise by claiming “synergies,” the business advantages that other generations have sometimes called “conflicts of interest.” More often, they claim the advantage of “liquidity.” A subsidiary obtains credit not just on the strength of that corporation’s assets, but on those of the holding company. That is a nightmare for bank supervision. A regulator has no realistic way to assess the risk posed in thousands of subsidiaries engaged in
That is a nightmare for bank supervision. A regulator has no realistic way to assess the risk posed in thousands of subsidiaries engaged in all manner of businesses with unlimited liquidity
all manner of businesses with unlimited liquidity, and the experience of American International Group Inc. teaches that the liability of one relatively small subsidiary can matter. Some existing laws – Section 23A of the Federal Reserve Act, the Volcker rule and the “pushout” rule for swaps trading – try to isolate certain riskier activities from insured deposits, but none protects nonbank units from each other.
Bair’s challenge Sheila Bair, in her book “Bull by the Horns,” argues that regulators have the authority under the “living wills” provision in the Dodd-Frank law to require systemically important financial institutions to restructure “if they cannot show that their nonbank operations can be resolved in bankruptcy without systemic disruptions.” According to Bair, megabank operations should be “simplified and subsidiarised” into “discrete, separately managed legal entities” based on business lines. Bair said that breaking up megabanks entirely “is an attractive option,” but she doubts “there is sufficient support in Congress for passing legislation to break them
up.” I’m sure she meant no disrespect to Senator Brown’s and my legislative talents. Stand-alone institutions would be easier to manage and supervise. They would also be far less messy to resolve. Even if the enterprise became insolvent, many subsidiaries could still operate relatively normally. Stand-alone units could be sold or spun off without significant disruption to the enterprise or to the financial system. They would also enlist the help of the market in supervising megabanks. Market participants cannot realistically assess the assets and liabilities of a megabank any more than a regulator can. They assume that megabanks are still too big to fail, so they will get paid one way or another. If market participants knew they could be paid only from the assets of the specific subsidiary with which they did business, they would consider that subsidiary’s assets and potential liabilities. That diligence is part of “market discipline,” a drastic change from the unlimited liquidity for every line of business. Governor Tarullo really should consider requiring stand-alone subsidiaries under existing law, just in case Senator Brown’s and my bill hits a snag. Bloomberg View
business daily November 2, 2012
CLOSING Greek bank list editor on trial
Chinese fund buys stake in Heathrow
Journalist Costas Vaxevanis has gone on trial in Athens for breach of privacy after publishing the names of 2,000 Greeks with Swiss bank accounts. French authorities gave the names to their Greek counterparts two years ago, but documents were never investigated. Some of those named, said to include many prominent Greeks, are suspected of using the HSBC accounts in Switzerland for tax evasion. Mr Vaxevanis says the list he published is the same one that was given by the then French finance minister Christine Lagarde to her Greek counterpart two years ago.
China Investment Corporation (CIC), the mainland’s sovereign wealth fund, has bought a 10 percent stake in the firm that owns London’s Heathrow airport for US$726 million. Heathrow Airport Holdings’ other UK airports include Stansted, Southampton, Glasgow and Aberdeen. CIC was set up in 2007 to invest some of China’s foreign exchange reserves. Despite concerns in other countries about Chinese access to key assets, the U.K. has been developing closer business ties with China. This is CIC’s second major investment in U.K. infrastructure. In January, it bought 8.68 percent of the firm behind U.K. utility group Thames Water.
Greece warns on grim economic outlook Athens slashes forecast of 2013 primary budget surplus Germany, the EU’s biggest creditor nation, on the need for European government lenders to participate in reducing Greece’s debt burden. “There is a harsh debate between the IMF and Germany about OSI [official sector involvement],” said the participant, who spoke on condition anonymity. The IMF also opposed pressure from Berlin to make Greece put aid tranches and earmarked tax revenue into an escrow account to service its debts, and for automatic measures to kick in if its adjustment programme veered off course again, the source said. Govt forecasts a 4.5 percent economic contraction in 2013
reece revealed on Wednesday that it will overshoot its deficit and debt targets again next year because of a deeper than forecast recession as euro zone finance ministers debated how to keep the near-bankrupt state afloat. Athens needs to push through spending cuts and tax measures worth 13.5 billion euros (US$17.5 billion) as
well as a raft of economic reforms to satisfy EU and IMF lenders and secure more bailout money next month to avoid bankruptcy. Parliament in Athens took a step forward by narrowly passing a required privatisation measure, but the precariousness of the government’s majority fuelled doubts about the passage of other more contentious
Time pressure reforms next week. After a two-hour conference call of ministers from the 17-nation Eurogroup, German Finance Minister Wolfgang Schaeuble told a news conference: “There was considerable progress.” However, another person on the call said there was no real progress because the International Monetary Fund remained at loggerheads with
Eurogroup chairman Jean-Claude Juncker said in a statement he expected a deal at the finance ministers’ face-toface meeting on November 12 provided Greek authorities had completed a list of prior actions. Mr Schaeuble said ministers expected to receive a crucial report from the socalled “troika” of international lenders on November 11 or 12, near the deadline, but insisted: “Time pressure cannot lead to
irresponsible solutions.” The German minister also said there were no concrete negotiations yet with Cyprus, which has said it may struggle to pay public sector salaries in December without aid, and they would probably not start until 2013. The ministers received more bad news earlier when Athens slashed its forecast for a budget surplus before debt servicing costs next year, dimming one of its few bright spots as rounds of austerity deepen a recession already into its fifth year. The government forecast a 4.5 percent economic contraction in 2013, which will push public debt to a record 189.1 percent of gross domestic product. The primary budget surplus is forecast to be just 0.4 percent, well down on the 1.1 percent pencilled in previously. Thomas Wieser, the coordinator of euro zone finance ministers, said Greece’s lenders were not discussing at present another debt write-off, or “haircut”. EU diplomats said other ways of stretching out official loans were on the table. Reuters
Czechs cut rates close to zero As economy enters its second recession since 2009
he Czech central bank cut its main interest rate to close to zero as policy makers relax monetary conditions amid a deteriorating economy. The Ceska Narodni Banka
reduced the main two-week repurchase rate to a recordlow 0.05 percent, almost three-quarters of a point below the euro-area benchmark. Czech policy makers are discussing whether to use other
tools for relaxing conditions after cutting the benchmark rate from 0.75 percent this year. With the economy in its second recession since 2009, the bank board agreed to weaken the koruna if it needs to ease beyond what another rate reduction would achieve, Governor Miroslav Singer said last month. “Consistently weak data are pointing to an anti-inflationary eco n o m y , wi th d em a n d inflation remaining negative,” Lubos Mokras, an analyst at Ceska Sporitelna AS, the Czech unit of Erste Group Bank AG, said in a note before the decision. “Exports, which have up to now kept the Czech economy afloat, are also slowing.”
Interest-rate cuts have helped fuel a Czech bond rally. The yield on fiveyear koruna notes were at a record-low 0.935 percent after the rate announcement, according to generic data compiled by Bloomberg. Monetary authorities in eastern European Union members are following central banks in the U.S. and U.K. in easing policy to tackle an economic slowdown as Europe fights a debt crisis. Hungary’s central bank cut its main interest rate by a quarter-point to 6.25 percent on October 30, the third reduction in as many months. The Czech economy is suffering from weak domestic
demand after the government cut investments and raised taxes to trim the budget gap. The central bank will also present a new economic forecasts, including the rate outlook, yesterday. Czech gross domestic product fell 0.2 percent in the second quarter from the previous three months, the third consecutive contraction, after consumers responded to the worsening economic outlook by spending less. The Finance Ministry forecasts GDP to fall 1 percent this year, compared with a previously estimated contraction of 0.5 percent, it said yesterday. Bloomberg