Property cooling – nice idea, limited impact A leading real estate executive tells Business Daily the government’s latest attempt to control property prices cannot solve the problem. What makes housing unaffordable – the shortfall in the supply of land and homes – is a structural issue says Jeff Wong Chi Wai, Jones Lang LaSalle Macau’s head of residential property.
Year I Number 150 Monday October 29, 2012 MOP 6.00 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte
Pages 6 & 7
In the money
Median wages at record levels M
edian monthly wages in the city are the highest since records began 16 years ago. Monthly salaries of Macau residents reached a median of 13,000 patacas (US$1,625) in the third quarter of 2012. That was a rebound from the second quarter,
where they fell for the first time in four years. More than one in four positions by the end of September were in the recreational, cultural and gaming sector. There are no available data on the wages of non-resident labour, even though that workforce accounts for
almost one third of the total – 109,038 out of 351,200 jobs. A total of 1,637 outside workers were hired in September alone, according to data released by the Human Resources Office. Most of the new staff joined the construction industry or the hotel and
restaurant business. The construction industry, still booming from the launch of the second phase of Galaxy Macau and Wynn’s Cotai resort, accounted for about a quarter of September’s non-resident hirings – 463 people. More on page 3
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Hot money still nowhere in sight
Hong Kong is preparing for inflows of investment capital linked to the United States’ economic stimulus programme. But the Macau authorities believe there is nothing to fear here. There’s currently no clear sign of hot money flowing to the city, Macau’s top financial officials said. They also expressed confidence in measures to cool down the property market.
Harsher penalties in Ao-linked trial appeal
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Four businessmen saw their suspended sentences turned into jail terms after the Public Prosecutor’s Office appealed a judgement linked to the Ao Man Long corruption scandal. In addition, another defendant – who had been acquitted in the case related to the former transport and public works secretary – will be tried again. The Court of Second Instance criticised the lower court’s original judgement.
More Zhuhai routes mean more business
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Zhuhai Airport’s new routes serving mainland China are complementary not competition to services from Macau International Airport, says the latter’s operator, Sociedade do Aeroporto Internacional de Macau, SARL. Macau has a longterm strategy to develop medium- and long-haul flights to Indonesia, northeast China and India. Long-awaited direct flights to India could be in service by early next year, says CAM.
business daily October 29, 2012
Govt sees no signs of hot money yet Finance secretary pledge to pay close attention to any fluctuation in capital flows Tony Lai
here is currently no clear sign of hot money flowing to Macau amid the recent monetary moves by authorities in the neighbouring region, MSAR’s top financial officials stressed. The Hong Kong’s de facto central bank intervened four times in less than a week starting October 19 by selling a total of HK$14.4 billion (US$1.8 billion). These interventions came after the Hong Kong dollar touched the upper level of its 29-year-old peg to the United States, HK$7.75. The Hong Kong dollar appreciation was linked to an inflow of capital after the latest round of the United States economic stimulus programme. “At this present stage, I don’t see a strong influx of capital to Macau, but there are, of course, some minor fluctuations,” said Secretary for Economy and Finance, Francis Tam Pak Yuen. He told media on Friday: “Would we feel the same strong impact as what Hong Kong is feeling?
Currently no but we will pay close attention to the matter.” The secretary stressed that the government had different measures to cope with hot money flows, namely the eight measures announced earlier this month by a public taskforce on the property market. A part of those measures, two taxation hikes on property transactions, got the nod from the Legislative Assembly last week and will come into effect after being published in the Official Gazette. The levies include the extension of special stamp duty on houses to commercial, office and car-parking spaces and a 10-percent levy on outsiders and companies. Mr Tam also pledged they would increase transparency in releasing information in case of any significant influx of capital. Anselmo Teng Lin Seng, chairman of the Macau Monetary Authority, echoed Mr Tam’s views in a separate occasion on Friday, saying the current data on the city’s economy shows no capital influx.
The government is extending the special stamp duty on houses to commercial, office and car-parking spaces (Photo: Manuel Cardoso)
Lan Kwai Fong casino owner offers shares buy back A
boardroom battle between Hong Kong cinema producer Charles Heung Wah Kueng and other shareholders in Macau casino owner China Star Entertainment Ltd appears to have ended in a truce. China Star Entertainment Ltd has confirmed an offer to buy back 887,901,665 ordinary shares of the company at HK$0.35 (US$0.05) per share – the closing price of the Hong Kong-listed stock at close of trading on Friday. The offer to shareholders is open until November 9 according to a filing
to the Hong Kong Stock Exchange. The reason given for the buy back is that the current traded share price does not reflect the net value of the company’s assets. China Star claims the company’s assets per share reached HK$1 in the last year. One of China Star’s main assets is Macau casino hotel Lan Kwai Fong, which operates under a gaming licence from Sociedade de Jogos de Macau SA, founded by Stanley Ho Hung Sun. Charles Heung Wah Kueng and his family – who control 43.86 percent of China Star’s stock – opposed the share buy back when it was first
proposed in July. But a majority of the stock – 56.14 percent – is in the hands of others; when public shareholders (42.67 percent) and another bloc of private owners (13.47 percent) are taken into account. Earlier this year China Star paid Mr Heung HK$618 million for a 49 percent stake in Lan Kwai Fong, giving it control of the property. The cinema producer then made a bid to buy up to 59.79 percent of China Star, which would have taken his stake in that business up to 76.5 percent. China Star is mostly focused on production and distribution of films
SJM-licensed Lan Kwai Fong
and television drama series but it is also an investor in a VIP gaming room at SJM’s Grand Lisboa casino. A.E.
Amax board lacks ‘credibility and integrity’: independent director A
max Holdings Ltd, an investor in Macau VIP gambling rooms, has been riven by yet more boardroom infighting according to a company filing to the Hong Kong Stock Exchange. Wu Dingjie – an independent non-executive director of Amax since September 2010 and one of the few survivors of a September board reshuffle – has issued stinging attacks on Amax’s corporate governance via the Chineselanguage press in Hong Kong. According to a filing with the HKSE, Mr Wu alleged in comments published by Tai Kung Po and Apple Daily that Amax board
Greek Mythology Casino
members “do not have the necessary credibility, independent judgment and integrity” to run the company.
In addition, said the filing, Mr Wu – a former mainland journalist who has also served as director of investments at GF Futures, a mainland-incorporated specialist in the futures and derivatives markets – alleged Amax had not taken “prompt action” to convene a special board meeting to discuss the September board changes. But perhaps most damningly, Mr Wu criticised as inadequate Amax’s attempts to check the validity of a loan due to Chan Mei Huen by Greek Mythology (Macau) Entertainment Group Corp. Ltd. The latter company is described as an “associate” of Amax. Greek Mythology (Macau)
is also the holding entity for the casino operation at New Century Hotel Taipa. Ms Chan – also known as Chen Mei Fun – is the business partner and former girlfriend of Ng Man Sun, also known as Ng Wai. Mr Ng worked for three decades as a junket room operator for former Macau gaming monopolist Stanley Ho Hung Sun. In June Mr Ng was beaten by masked intruders as he dined with a female companion at the New Century. From his sickbed he placed a newspaper advertisement that effectively accused Ms Chan of being behind the attack. A.E.
October 29, 2012 business daily | 3
Social contribution Wages reach new heights to rise this year Government hopes to adjust social security contribution and retirement pension by the end of the year
Despite the arrival of more non-resident workers, the labour supply grew even tighter last month
he Social Security Fund will submit proposals to amend both the retirement pension and the contribution amount. Both proposals will be sent for the Standing Committee for the Coordination of Social Affairs to discuss “soon,” authorities said. The government hopes to implement the new pension and contribution amounts “by this year after getting the consensus” from the committee, Cheung Sou Mei, who heads the cabinet of Secretary for Social Affairs and Culture, wrote in a reply to an inquiry from legislator Ng Kuok Cheong. Chief Executive Fernando Chui Sai On on Friday also said he would address the retirement pension issue in next year’s Policy Address, to be announced next month. Mr Chui made the statement after meeting with a New Macau Association delegation headed by Mr Ng. The pension is presently set at 2,000 patacas (US$250) even though the employers and the
employees have to pay only 30 patacas and 15 patacas respectively each month as contribution. “The increase of the pension has to be accompanied by the raise of the social security contribution” in order to maintain the sustainability of the fund, Ms Cheung added. The new contribution amount is likely to double to 90 patacas, Chan Pou Wan, deputy director of the fund said in August. Ms Chan added the ratio of employers’ and workers’ contributions would gradually be changed to from 2:1 to 1:1. But one of the city’s largest workers’ groups, Macau Federation of Trade Unions, expressed doubts this month on the contribution ratio and asked for more scientific data to support the government decision. The fund now has to rely on the government’s injection, with a further 37 billion patacas planned for the coming four years, the reply confirmed.
orkers have never been paid better than in the third quarter of this year, when the median salary rose to 11,700 patacas (US$1,470) a month, 700 patacas more than in the second quarter. Data released by the Statistics and Census Service on Friday show the median salary has increased by 1,400 patacas this year. The median salary is the highest since records began in 1996. Pay for residents rebounded in the third quarter to a median of 13,000 patacas a month, having fallen in the second quarter for the first time in four years. No data on the wages of nonresident workers are available, even though they make up almost onethird of the workforce. A further 1,637 workers from outside Macau were hired last month, bringing the number of non-resident workers to 109,038. Data from the Human Resources Office shows it is the third month in a row that a new record has been set. The size of the city’s workforce increased to 351,200. Most of the new workers are in construction, or hotel and restaurant industries. The construction industry hired 463 more non-resident workers last month. The hotel and restaurant industry hired 393 more last month and about 2,300 in the third quarter overall. Most of the jobs growth was in businesses in the recreation, culture and gaming sector, or the transport, storage
More than one-quarter of the workforce was employed in the recreation, culture or gaming industries at the end of last month
and communications industries. The recreation, culture and gaming sector was the city’s biggest employer in the third quarter, accounting for 26.4 percent of all jobs. About 15.8 percent of jobs were in hotels or restaurants. The number of unemployed was stable at 7,000, 20.8 percent of them were seeking their first job. A shortage of labour seems to have grown more pronounced with the proportion of the population in the workforce falling by 0.1 percentage point to 72.2 percent. The main reason for the decline was a fall of 0.4 percentage point in the female labour force participation rate to 66.3 percent, the lowest figure since January last year.
End of the year wishes José I. Duarte
s the end of the year approaches, the government will get into gear for the Policy Address that accompanies the presentation of the budget to the Legislative Assembly. The discussion seldom seems to rise above the trivial, with the occasional posturing of this or that participant adding colour but not always substance. That is unfortunate as it diminishes the Legislative Assembly as a political body, with at least the passive consent of its members; and devalues and misuses what is supposed be the top political event of the year, alienating sections of the community which could contribute positively to the debate. It would be foolish to underestimate the event’s symbolic meaning or to ignore the potential it has as a policy forum and as an event to mobilise the public. Therefore, I would like to venture topics I think are deserving of clearer aims and approaches and on which the Policy Address
and the ensuing discussion would be welcome to focus. First of all, the labour policy. Time will tell how much damage the government has inflicted to the economy, in attempting to satisfy smaller domestic constituencies. An unbalanced labour market, seldom overpriced in low productivity segments and under-staffed in more technically demanding areas; inflows and outflows resulting from whims or the interests of the day, adding avoidable stresses to housing supply and infrastructure; these are just some of the costs of practices that make a mockery of efforts to improve governance. It is time to have a reasoned debate on how the economy may evolve. The same should be done in terms of the workforce and the policies that are appropriate to minimise negative impacts on the economy, the city and the society. A second topic that should be up for discussion is housing.
Measures taken here and there, under the pressure of the shifting circumstances, allow the government to claim it is doing something. It cannot anticipate the consequences of its decisions. It cannot even reasonably explain how those measures are supposed to improve matters. A comprehensive policy to control supply is required. It should anticipate the needs of the economy and the population flows that go with them. There is a need for policies that reduce distortions in the market. Namely, the city needs a serious discussion and urgent action real estate purchases by non-residents, including dealing with “speculation”. Speculation is not buying and selling real estate in the hope of a profit or gain. That is a business or a personal investment, and neither is illegitimate. Speculation is feeding on or reinforcing market distortions created or maintained by the de facto government policy in these matters, and carried on under its complacent eye. Finally, the efficiency and reliability of the government should be assessed. Tardy and inconsistent decisions, when not plainly illegal, are features that create a drag on the economy, accentuate perverse incentives to the economic agents and reduces their confidence. When the courts themselves complain about the high number of processes they receive due to ignorance about and non-compliance with the law by the public services, something is deeply wrong. Are a modern administration and the rule of law still in the list of advantages used to promote the city elsewhere? An acknowledgement of these problems at the Assembly would be a start. A commitment to
address them, and a reflection on the right tools for that purpose would, at least, restore some confidence in the government. Other subjects could be brought to the fore, that too would be fitting. The topics above seem to be the most urgent. If properly dealt with, it would go a long way to support a better economic and living environment. Some readers might remind me about the pataca peg, which seems to have outlived its usefulness and has a major and pervasive impact on the economy. That is a complex and sensitive matter that does not seem yet ready for primetime at the assembly. Hopefully, someone in the government is aware of it and the Monetary Authority of Macau is carrying out the necessary studies and defining the required plans for a properly managed transition to another regime, at the right time. This is my last editorial as the deputy editorin-chief of this newspaper. Helping to launch a new paper, focused on economic and business matters in Macau, was a challenge the publisher threw at me about one year ago. I am glad I accepted it, but it was always a temporary assignment. Now, past the tough and demanding times that launching a new publication always entails, my collaboration with the newspaper and its related publications will go on, as close as before, but on a different footing. I leave the daily duties of the newspaper confident that the team is able and committed to consolidating its position as a newspaper of record. It is also time to let them know it was a privilege embarking with them on the adventure.
business daily October 29, 2012
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HOSPITALITY Plateau in arrivals
Prosecution victory in Ao-linked appeals Four businessmen off to jail after Ao Man Long-related hearings Vítor Quintã
The most recent data for monthly visitor arrivals suggest a small slowdown. Last month’s results indicate that there were 0.2 percent fewer visitors in September than a year before. This is a small variation. In absolute terms, it amounts to fewer than 17,000 visitors or about 0.06 percent of last year’s figure.
he Public Prosecutor’s Office scored a significant win in its appeal over a trial linked to the corruption scandal around former transport and public works secretary Ao Man Long. The appeal has resulted in the Court of Second Instance sentencing four businessmen to jail time. The judges did however throw out a prosecution appeal aimed at increasing the sentence of Mr Ao’s alleged partner in crime, Pedro Chiang. The bench stressed he was never officially informed of the judgement. Mr Chiang fled Macau in 2007 and was last seen living in Portugal.
But an associate of Mr Chiang, Miguel Wu Ka I, saw his suspended sentence of one year and 10 months turned into three years in jail for two crimes of active corruption. In addition, the three businessmen who admitted bribing Mr Ao to win two construction contracts at the Macau Stadium – Ng Cheok Kun, Tang Chong Kun and Ngai Mang Kuong – will each spend two years and three months in jail. Authorities had also appealed against the lower court – the Court of First Instance – decision to acquit seven of the 13 defendants, including Lam Man I, the wife of engineer Chan
Lin Ian. The latter was found guilty of passive corruption but fled Macau. The Court of Second Instance found that the acquittal of Mrs Lam, who was charged with money laundering, involved “an obvious mistake” and ordered a retrial of her case. The judges were very critical of the lower court judgement, stressing that on several occasions “it had considered as proven, facts that were contradictory and irreconcilable”. The Court of Second Instance also regarded as “unfortunate” decision by the Public Prosecutor’s Office not to request that all defendants forfeit the assets involved in the crimes.
If we compare the graphs showing arrivals by month for 2010, last year and this year to date, the variations are broadly similar and there is no apparent deviation from the pattern. Generally, the second quarter typically sees a slowdown, before a sharp rise in summer. September heralds a contraction. If anything, this year’s results show more extremes of variation in the first half. But the variations fit within a range that that is essentially no different from last year’s results. The correlation of the three lines between June and September is uncanny. If trend lines were drawn over the results for last year and this year, they would be similar. A plot of the cumulative number of arrivals reveals more similarities.
Govt in rush to pass urban planning bill Stephanie Lai
For visitor arrivals up to the end of September, both lines overlap perfectly. Arrivals in January were 19 percent higher than January last year. That lead has been eroded during the year and the difference in arrivals between January and September is now less than a single percentage point. Last year ended with 12 percent growth over 2010. Unless there is an unforeseen change in the behaviour of visitor arrivals, the city will have about the same number of visitors this year as last. J.I.D.
n urban planning bill could go through the Legislative Assembly during its current term, says the head of the Land, Public Works and Transport Bureau’s urban planning department, Lao Iong. “This is no easy task ... but, with the cooperation and help of the assembly’s advisers, we hope to complete this whole project within [the life of] this legislature,” Mr Lao told reporters on Friday. He said a bill amending the land law would also to be sent to the assembly in its current term, and that the amendments would take into account the provisions of the urban planning bill “to prevent any mismatch”. The bureau announced the results of three months of public consultation on the new legislation at Friday’s press conference. Many of the opinions received were about the proposed urban planning committee. Mr Lao said the urban planning
committee might start out as a consultative and advisory body and gradually acquire the power to make decisions. The committee would gather and analyse opinions on big projects and changes in land use that might alter the urban landscape, the city’s cultural heritage or its environment. Its members would be appointed by the chief executive. Most opinions expected fewer than half of the committee’s members to be government representatives, and the remainder to be architects, engineers, urban planners or representatives of residents. Many suggested that members should sit on the committee for more than two years, to ensure consistent policy making. Mr Lao said members should be restricted from deliberating on matters where there may be a conflict of interest, so the committee’s opinions would be “fair and just”.
He said the government would have to build up a body of expertise in urban planning. “As the city still has no professional qualification system for urban planners, that adds to the difficulty for making the urban planning committee a body with decision-making powers,” he said. Land, Public Works and Transport Bureau deputy director Chan Pou Ha said the city did not have a professional qualification system for surveyors and valuers. On the question of deciding compensation for the compulsory purchase of land, Mr Lao said the bureau was “still studying the details for a property assessment group”. “As we don’t have surveyors and valuers in Macau, we have to consider if we can just simply borrow the neighbouring regions’ concept of having the surveyors included in the assessment group,” he said.
October 29, 2012 business daily | 5
Airport unfazed by Zhuhai expansion Macau’s airport company says mainland competition is a ‘win-win situation’ Tony Lai
he city’s airport will not be sidelined by the rapid development of the airport in Zhuhai, according to Macau International Airport Co Ltd. Zhuhai Sanzao Airport added services to four more mainland cities yesterday, including Nanjing and Tianjin, and increased flight frequencies on two other routes. The Civil Aviation Administration of China said the changes increased the number of flights from Zhuhai airport to 222 a week to 26 cities. The airport serves domestic routes only. Macau air port’s mark eting director Eric Fong said, in contrast, Southeast Asia was the main market for airlines using the airport and were the origin or destination of about 40 percent of flights. “There is no competition between the airports on both sides but they can achieve a win-win situation,” Mr Fong told public broadcaster TDM. He said the airport had its own appeal for airlines flying to mainland cities. Airlines began services to Vietnam and Taichung in Taiwan in the first half of this year, bringing the number of services to and from Macau to 31. The new development plan for the Macau airport, however, may not be presented by the end of this year as initially planned. The master plan is awaiting a new financial report, following an injection of capital made earlier this year by the government and Sociedade de Turismo e Diversões de Macau SA, into the Macau International Airport Co Ltd – CAM, which operates the infrastructure, Portuguese-language newspaper Jornal Tribuna de Macau reported last Friday. But Mr Fong said Macau airport also had a long-term strategy to persuade airlines to fly mediumhaul or long-haul routes to India,
The first direct flights to India could begin early next year, the Macau airport operator says (Photo: Manuel Cardoso)
Indonesia and the northeastern mainland city of Shenyang. The first direct flights between Macau and India could begin early next year. Indian low-cost airline SpiceJet told Macau airport executives in August that it had applied to the aviation authority in India to fly between New Delhi and Macau three times a week. Mr Fong said SpiceJet was waiting for the Indian government’s go-ahead. Macau airport expects the number of passengers it handles to exceed 4.4 million this year. It has handled about 3.6 million passengers so far this year, 9 percent more than in the equivalent period last year.
Motor industry revs up despite speed bumps The mainland’s auto parts industry is exporting more than ever before and is working to improve quality Stephanie Lai
About 4.05 million passengers used the airport last year. Mr Fong said visitor numbers had
increased organically and that the airlines were better promoting the city as a destination.
Business jet-set set to climb steeply The number of business aviation flights will grow by 15 percent this year to more than 1,500, the Macau International Airport Co Ltd expects. The airport’s director of logistic cargo development, Cui Guang, said the city had great potential to attract high-end visitors arriving in private business aircraft. Mr Cui told a forum at the Macau Business Aviation Exhibition at the weekend that about 1,170 business jets had used the airport in the first three quarters this year, accounting for 3.8 percent of all flights and carrying nearly 5,600 passengers. The airport is considering expanding or revamping its business aviation terminal if future conditions allow. Mr Cui said a new hangar for business jets should be ready this year or early next year.
14.4 percent First-half growth in mainland exports of auto parts
xports of motor vehicle parts grew rapidly in the first half of this year, according to an official of the China Association of Automobile Manufacturers. But the mainland motor industry yearns to make a leap in the quality of its vehicles and parts, in view of the political and economic difficulties it faces abroad. The association says exports of parts amounted to nearly US$27 billion (216 billion patacas) in the first half, 14.4 percent more than a year before. “Growth in our auto parts exports to South America, North and southern Africa, eastern Europe and Southeast Asia is even higher than for vehicles,” said Zhu Xiaoping, head of the
association’s motor and electrical components committee. Mr Zhu spoke Friday at the 2nd Asia-Pacific Auto Summit China manufacturing internationalisation forum, a part of the China (Macau) International Automobile Exposition. First-half exports of engines and electrical components to Brazil, Russia, India and South Africa grew by 11.2 percent. Exports of engine and electrical components to the United States, Japan and South Korea increased by between 6.1 percent and 9.4 percent. In contrast, exports of parts to Europe plunged. Mr Zhu said the lingering shadow of the euro zone debt crisis and uncertainty about the US economy would remain
Car factories in the Pearl River Delta are having problems finding workers due to rising labour costs
obstacles to the export of vehicles. He said the “time-bomb” of the Sino-Japanese dispute over the Diaoyu Islands in the East China Sea and the mainland’s disputes with other countries over territory in the South China Sea also dimmed the outlook for exports. He said the mainland faced a turning point, with rising labour costs and shortages of skilled workers in the Yangtze River Delta and Pearl River Delta – problems now spreading to central and western regions. Mr Zhu said the mainland’s parts industry would now concentrate on
exporting to Brazil, Russia, India and South Africa. “Their auto industry is developing strongly, but their auto parts manufacturing basics have large room for improvement,” he said. Zhang Kelin, the deputy director of the China Association of Automobile Manufacturers, warned that the industry could no longer pursue its strategy of competing on price in markets abroad. The industry should develop the ability to innovate and design better engines and safety devices.
business daily October 29, 2012
Govt must think long-term on real estate
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Inside home loans Housing has been dominating the headlines these past few weeks. The government, always under pressure on housing matters, has announced another set of measures to control loans offered to would-be homebuyers. This is an appropriate time to look at mortgages and make a baseline analysis against which the most recent attempts to cool the real estate market can be measured. Since April, monthly information on mortgage lending to residents and non-residents has been published and data from the first quarter has also been released.
The government’s latest attempt to control real estate prices cannot solve the problem that makes housing unaffordable – the shortfall in the supply of land and homes, says Jeff Wong Chi Wai, Jones Lang LaSalle Macau’s head of residential property. Mr Wong told Business Daily that prices would cool only when there was more land for mid-market flats. That, he said, would mean government intervention in the market. Luciana Leitão
Photo by Manuel Cardoso
The first obvious feature in the graph above is sustained growth in mortgage lending to residents in the first half of this year. Some of the rapid growth may be viewed as the market catching up. In the fourth quarter of last year there was a sharp drop in new home loans. Over the summer months, a constant rise in the supply of new loans levels out. The proportion of new loans given to nonresidents has increased recently. Home loans to non-residents seem to have picked up at the same time that loans to residents levelled out after August’s peak. In August, the value of new home loans given to non-residents was slightly less than 10 percent of the amount lent to residents.
The value of outstanding mortgages increased sharply at the beginning of this year. It has grown steadily, but more slowly, after February. In comparison, the amount of outstanding loans to non-residents as a percentage of loans to residents has declined slightly in the course of the year. It was 8.8 percent in January and is now about 8 percent. J.I.D.
The government has announced new measures to rein in property prices, including a 10 percent levy on purchases made by foreign buyers. Is it enough to control real estate speculation? The government is taking a step to cool down the market. The objective is good but the effectiveness of these measures may not be as great as they think. First of all, one of the main targets is to exclude foreign investors or people using companies from investing in residential properties but, based on government statistics, less than 10 percent of foreign people invest in the real estate sector. Of course, the new measures will make it more difficult for foreign people to invest here, but it doesn’t affect the price so much. One of the major reasons is that the major purchasing power is still with the locals, especially for those small lump-sum apartments. That’s why I think this is just a gesture for the public to see the government is taking active measures in response to the market. Many people ask why prices of Macau properties are going so high. [They say] Foreign investors come here and then they buy and speculate in the property sector. That’s why the price keeps going up. But, honestly, if we go into details and analyse it scientifically, this is not the major reason. What about the extension of the stamp duty to shops, offices and parking spaces? Honestly, this is surprising, because this sector is not so related to the interest of the general public. From past experience, we can see that the special stamp duty, imposed over a period of two years, doesn’t help much in controlling prices. It just decreases the transaction volume. I think prices in the retail and office sector may not decrease. They will just stay firm or even increase, but the transaction volume will definitely decrease.
Another major measure is to lower the loan ratio. For people buying apartments from 3 million patacas [US$375,805] to 6 million patacas, it’s 70 percent for locals, and for non-locals it’s even lower. Six million patacas to 8 million patacas, it’s 60 percent. In this thrust, they are correct. They cool down the market and also provide more of a cushion to our financial sector. The major thing the government will want to do, in addition to trying not to let prices go up to another crazy level, is to provide more protection to the financial sector. No one knows if prices will be corrected. I think everything has its own cycle.
The government needs to cool down the market effectively by increasing supply, and not with these types of measures, especially as a long-term strategy
If the market corrects it, then we must very carefully take a look at our financial sector, especially the banks and mortgages. Everyone knows now that the American people are in big trouble now due to mortgage problems. But the most important thing is on the supply side. The major reason why prices of Macau properties keep going up is there is a shortage of supply. So speculation is not the major reason for the increase in prices? People need a home when they get wealthier or economic conditions improve. The other reason is investment demand. It is what we call speculation. Right now, Macau is still the area with the best prospects in this region. Our gross domestic product growth is up to 10 percent this year. Our gaming revenues are still on the high side. Even though there may not be any new record, at least they’re still on the high side. The demand for both end-uses, whether they want to improve economic conditions or for investment is definitely very strong, even though we’re now trying to exclude foreigners. In order to respond to the new demand, the government definitely needs to take active steps. We can see the government is trying to increase the public housing supply. That’s why we have the 19,000 public housing units scheme which, I do believe, is good. But at the same time the government also needs to take care of the private sector. More important, the government needs to speed up the amount of projects it approves. There has not been significant progress in the past three years. If the government focused on granting land to developers to build reasonably priced flats, rather than concentrating on housing for lowincome earners, would real estate become cheaper? There are two different things. For
October 29, 2012 business daily | 7
MACAU public housing, I think definitely some people cannot afford private housing. We need to take care of these people, like the very poor people or the disabled or even people in the lower income group. But even middle-income earners find it difficult to afford a home. Definitely, for middle-income people, in the present environment it will be more difficult to afford a home. They may not be able to do so, as they may need to use up to 40 percent of their housing income to do the mortgage or something like that. The point is, this is not a typical situation because right now people know the interest rate is extremely low. But if you look at the longer term, this is not a typical situation. One of the problems is the shortage of supply. In residential properties there are still some new recordhigh transactions in the market, but the transaction volume has definitely decreased. With the new measures to lower the loan-tovalue ratio, even more people are excluded from buying a new house, because they don’t have enough capital for the down payment. This is not the objective of the government, as it wants everyone to own a comfortable home at affordable price. Honestly, some things are contradictory. In the short term, we have many things to do, like cut down speculation, try to increase the cost of capital for people, but this is not a long-term solution. A long-term solution is to increase the supply. Definitely, because economic growth each year has been in high double-digits in the past decade, there should be strong housing demand, but our supply cannot catch up with the growth. That’s the reason why the prices keep going up. Of course, in one day, if interest rates go up, the price will correct. But this is the normal market situation. These measures proposed last week were designed to fight speculation. Will they be effective? Honestly, right now, I don’t think people speculate a lot. You can hold a property for at least two years, at least for residential, and we don’t classify it as speculation. Right now, because the interest rate is so low, the inflation rate is so high and the pataca is pegged to the Hong Kong dollar, which is pegged to the depreciating US dollar, people want to do something against depreciation. So their capital goes into hard assets like real estate. This is an abnormal situation. If you look at our history, we don’t think it will last forever. Should the government intervene more? Every market will self-correct but I don’t know when it will happen. Personally, I feel prices will still go up. The government needs to cool down the market effectively by increasing supply and not with these types of measures, especially as a long-term strategy. There are so many side-effects of these measures. Lowering the loanto-value ratio is good, but the special stamp duty or any kind of new taxes will just distort the market a lot. In the short run, as a temporary measure, it is okay, maybe for two years. But I don’t agree it will be needed in the longer term. More important, it’s not just the physical conditions but the land supply. Right now many people rush to buy because they do not know how many units will be available to be sold in the coming years. One of the major problems is that so many
From past experience, we can see that the special stamp duty, imposed over a period of two years, doesn’t help much in controlling prices
units have been awaiting approval from the government in the past few years, and there is no significant improvement on that. Second, it is the land supply. They are very eager to sell, because they are not speculators. It’s just like a factory. Since 1999 we have only had two public tenders: one in 2004 and the other one in 2008. All the land is now in the private market. First, it is not so transparent. Second, it is so limited. That’s why people don’t have a clear idea of it. In the future the government should release a schedule, saying how many pieces of land it has sold each year. The government should be more transparent when it comes to land deals? Definitely. I think that they’re going in the right direction. They’re talking about the land law in the Legislative Assembly. They are aware of the problem but they need to act quickly. We need to consult the general public and formulate a general consensus. It’s a process and we need to do that. The major concern for us is still the supply and the transparency of the whole market.
The new measures will make it more difficult for foreign people to invest here, but it doesn’t affect the price so much
business daily October 29, 2012
Hong Kong property tax targets foreig Govt stiffens resale stamp duty fees and applicability period to deter speculation High property prices seen as rising risk to financial stability
ong Kong’s government announced its first property tax targeted at overseas buyers, stepping up efforts to cool home prices as U.S. monetary easing and record-low interest rates raise the risk of a bubble. Non-local and corporate buyers will have to pay a 15 percent tax upon purchase, Financial Secretary John Tsang told reporters at a press conference on Friday. The government also raised a resale tax on property by about 5 percentage points and extended the period during which it will apply to three years from two. Hong Kong is imposing its third set of property curbs in two months after home prices almost doubled over three years to become the world’s most expensive. The city’s de-facto central bank was forced to defend the currency’s peg to the U.S. dollar for the first time since 2009 this month as the Federal Reserve’s third round of quantitative easing sparked an inflow of cash into the city. “These measures will be effective in reducing the number of transactions, but ineffective in curbing the property prices,” said Cusson Leung, a Hong
Kong-based property analyst at Credit Suisse Group AG. “The non-local buyers’ stamp duty is more of a PR stunt as it responds to Hong Kong homebuyers’ demand to raise the barrier for foreign investors.” Record low mortgage rates, an influx of buyers from other parts of China and a lack of new supply have been underpinning the Hong Kong property market, prompting Chief Executive Leung Chun Ying, who was sworn in as the city’s leader in July, to accelerate land sales and give preference to local buyers in some projects.
Speculators targeted The nine-member Hang Seng Property Index has jumped 30 percent this year, driving the benchmark Hang Seng Index to the highest in more than 12 months this week. Property owners who sell their homes within six months of their purchase will need to pay a 20 percent special stamp duty, up from 15 percent, Mr Tsang said. For resale between seven months and 12 months, the duty will increase to 15 percent, and transactions between
13 months to 36 months, the duty will be 10 percent. “The current housing supply lags behind the soaring demand; we need to work on the demand-side measures,” Mr Tsang said. “These measures target specifically property investors who resell the flats within three years, but not the genuine end-users.” Prices of small to medium-size apartments have advanced 21 percent this year, raising concerns
The non-local buyers’ stamp duty is more of a PR stunt as it responds to Hong Kong homebuyers’ demand to raise the barrier for foreign investors Cusson Leung, Credit Suisse Group
Chinese industrial profits rebound in September Companies’ net income rose for first time in six months
hinese industrial companies’ profits rose in September for the first time in six months, adding to signs economic growth is picking up following a sevenquarter slowdown. Net income rose 7.8 percent from a year earlier to 464.3 billion yuan (US$74.3 billion), the National Bureau of Statistics said on Saturday. That compared with a 6.2 percent decline in August, the year’s largest drop. Profits for foreign-funded companies and those from Macau, Hong Kong and Taiwan fell 11.4 percent year-on-year to 809.3 billion yuan. Saturday’s report followed data showing industrial production and retail sales accelerated in September and a manufacturing gauge rose in
about affordability, he said. The surge in property prices is out of sync with the economy where exports and retail sales have been declining, Mr Tsang said. “The low-interest rate environment will likely continue and Hong Kong property prices are likely to climb,” he said. “The property bubble is likely to increase the risks” to the economy and people’s livelihoods, he said.
Non-local buyers account for 19.5 percent of total sales of firsthand properties in Hong Kong in 2011 and 6.8 percent of total sales of second-hand properties in 2011, Mr Tsang said. Hong Kong joins Macau and Singapore in efforts to cool soaring property prices by targeting nonresidents. Macau last week imposed an additional 10 percent stamp duty on foreigners and corporate entities. The new measures won’t apply to Hong Kong permanent residents, who according to the Basic Law of Hong Kong have right of abode in the special administrative region.
464.3 bln yuan Chinese industrial profits in September
October. Chinese Premier Wen Jiabao said the economy will keep showing “positive changes,” according to a report last week by the official Xinhua News Agency. “As upstream commodity prices are falling, Chinese corporate profits have room to rise,” Wang Tao, chief China economist at UBS AG in Hong Kong, said before the report. Huaneng Power International Inc., which develops and operates power plants across China, said last week that its third-quarter profit rose 757 percent to 2 billion yuan. Industrial companies’ profits in the first nine months of the year declined 1.8 percent to 3.5 trillion yuan, according to the statement. That compares with a 3.1 percent drop in the first eight months and a 27 percent gain in the same period
in 2011. The government began reporting monthly year-over-year profit changes in October 2011. The previous profit declines have weighed on stocks this year, with the benchmark Shanghai Composite Index down 6 percent so far in 2012. The gauge dropped 1.7 percent on Friday. Revenue for industrial companies in the first nine months increased 10.2 percent from a year earlier to 65.7 trillion yuan, the statistics bureau report showed. Sales rose 29.6 percent in the January-September period of 2011. China’s economy will probably rebound in the fourth quarter, Jia Kang, a Ministry of Finance researcher, said at a conference in Beijing yesterday. The nation will achieve its full-year growth target of
Recent data show industrial production and retail sale
7.5 percent and “the rebound in the fourth quarter is likely to extend into next year,” Mr Jia said at an event at Peking University. China’s foreign-exchange regulator said yesterday that the nation is not suffering from capital flight, even as growth in foreign reserves eased “significantly” in the third quarter. The country’s third-quarter
October 29, 2012 business daily | 9
AgBank net profit up 16pct Third quarter profit beats estimates after cutting bad loan provisions
gricultural Bank of China Ltd, the country’s No.3 lender by market value, posted a thirdquarter net profit gain that beat estimates as the bank cut the amount of cash set aside to cover bad loans. Net profit rose 16 percent to 39.58 billion yuan (US$6.34 billion) in July-September, AgBank said in a statement on Friday. That compares with the average estimate of 37.42 billion yuan in a Reuters poll of 11 analysts. Analysts had expected profitability to be hit by the central bank’s decision in June to lower the floor on lending rates while raising the ceiling on
gners Hong Kong’s central bank tightened mortgage lending on September 14 after saying the Fed’s latest quantitative easing risks pushing up home prices that have already surpassed their October 1997 peak. That marked the start of a 70 percent decline to August 2003, according to an index compiled by Centaline Property Agency Ltd. They have soared more than 240 percent since that trough nine years ago. Hong Kong home prices have risen 18 percent this year, according to the Centaline index. They fell 4 percent in the last three months of 2011, the biggest quarterly drop since the global credit crisis, after mortgage restrictions and as China’s economy began to slow. Buyers from other parts of China made up 36.8 percent of all new sales by value in the first quarter, down from 37.9 percent in the previous three months, according to Midland Holdings Ltd. The proportion reached 53.9 percent in the third quarter last year, the realtor said. The number of home transactions in Hong Kong rose 42 percent in August from a month earlier, the biggest increase since March.
deposit rates. But AgBank, like Bank of China Ltd on Thursday, surprised with better-than-expected earnings growth by cutting so-called credit costs, or the amount of money set aside to cover bad loans. Provisions for impairment losses fell by over a fifth from a year earlier to 10.85 billion yuan in the third quarter, AgBank said. “Credit costs at AgBank are the lowest we’ve ever seen,” said Mike Werner, an analyst at Sanford Bernstein in Hong Kong. Worries about bad loans lurking in China’s banking system have weighed on the outlook of
AgBank has over 350 million customers
Sinopec third-quarter income falls 9.4pct But increases in fuel prices helped margins
hina Petroleum & Chemical Corp., Asia’s biggest refiner, posted a 9.4 percent decline in third-quarter profit, beating estimates, as two increases in retail fuel prices in the period helped margins. Net Income dropped to 18.3 billion yuan (US$2.93 billion) or 0.199 yuan a share, from 20.2 billion yuan or 0.226 yuan a share a year ago, the company, known as Sinopec, said in a statement to the Shanghai stock exchange yesterday. That compares with a median estimate of 14.19 billion yuan in a survey of nine analysts compiled by Bloomberg. China, which controls retail fuel prices to contain inflation, raised prices twice in August and September
after inflation dropped to 1.9 percent in September from as high as 4.5 percent in January. Sinopec, forced to sell fuel below cost under the pricing system, posted its lowest half-yearly profit since 2008 in the six months ended June 30. “Operations in the third quarter improved thanks to our active adjustments in production and sales,” the company said in the statement. “Prices of chemical products also rebounded in the third quarter after a big decline in the second quarter.” Crude production rose 2.3 percent in the first nine months to 245 million barrels and natural gas output increased 15 percent to 438 billion cubic feet, according to the statement.
es accelerated in September
current account surplus was US$70.6 billion, bringing the nine-month surplus to US$147.8 billion, the State Administration of Foreign Exchange said on Saturday. Capital and financial accounts recorded a three-month deficit of US$71 billion, bringing the nine-month gap to US$85.4 billion, it said. Bloomberg
lenders, and thrown the spotlight on their ability to cope with an increase in loan defaults should the economy slow further. AgBank’s non-performing loan ratio fell to 1.34 percent at the end of September from 1.39 percent at the end of June. Its overall bad loan balance dropped to 83.9 billion yuan from 84.5 billion yuan at the end of the second quarter. Broader indicators show Agbank’s ability to weather a spike in bad loans remains healthy, said Mr Werner at Sanford Bernstein. The money that AgBank has squirreled away to pay for potential bad loans is sufficient to cover four times its outstanding bad loans, according to the data in the earnings statement. AgBank’s net interest margin, which measures loan profitability, narrowed to 2.82 percent at the end of September from 2.85 percent at the end of June. China Construction Bank Corp. posted profit growth that decelerated to 12.4 percent as the weakest economic expansion in three years crimped demand for financial services and led to more defaults. Third-quarter net income climbed to 51.9 billion yuan, or 0.21 yuan a share, from 46.2 billion yuan, or 0.18 yuan a share, a year earlier, the Beijing-based lender said.
Sinopec is forced to sell fuel below cost under the mainland’s pricing system
Realised crude prices rose 2.5 percent to 100.69 a barrel, while realised natural gas prices rose 5.5 percent to US$5.77 per thousand cubic feet, it said. Brent crude, the benchmark for more than half of the world’s oil, averaged US$112.20 a barrel in the first nine months, according to data compiled by Bloomberg. Capital spending reached 83.4 billion yuan in the first nine months, with 35 billion yuan going toward exploration and production, the statement showed. Meanwhile, authorities in eastern China vowed to conduct an environmental assessment on a chemicals project after protests against the proposed facility turned violent. The protesters, numbering over a thousand, were opposing the expansion of a plant owned by Sinopec, in the eastern port city of Ningbo, according to Phoenix Television. The project is still in its preliminary stages and the government will conduct an environmental assessment, the city’s Zhenhai district said in a statement on its website. Bloomberg
business daily October 29, 2012
Mallya will not sell ‘family silver’ for Kingsifher Blames taxation and the Indian government for airline problems Alan Baldwin
ndian liquor baron Vijay Mallya does not have to do a deal with U.K. drinks giant Diageo and will not sell prized assets to rescue his grounded Kingfisher Airlines Ltd, he told Reuters at the weekend. Speaking in his office at Force India, the Formula One team he co-owns, the UB Group head poured scorn on media reports that he would be forced to sell stakes in profitable businesses to fund Kingfisher. “That is the media perspective of what I am going to do. I am not so sure that I lack commercial acumen to the extent that I would sell a hugely thriving, successful business to take the cash and put it into an airline in an environment such as India,” Mr Mallya said at the Indian Grand Prix at the Buddh International Circuit south of New Delhi. “My group is sufficiently cashgenerative to fund the airline as we have done. We have put almost 150 million pounds (US$241.47 million) since April 2012 into the airline. But that has not meant that I have had to sell my family silver to fund the airline.” Mr Mallya has been talking to Diageo Plc, makers of brands including Johnnie Walker whisky and Smirnoff vodka, about selling a stake in his United Spirits Ltd.
Earlier this weekend he said he was unsure whether or not he would agree terms with the London-listed firm. “I do not have to do a deal with Diageo at all,” said Mr Mallya. “I am under no compulsion whatsoever. But having said that, I will do what is good ... for myself, my family wealth and for long-term shareholder value.” “I must do that for every business because these are public companies and I owe it to the shareholders and stakeholders in these companies,” he said. “Selling assets to fund the airline? No plans of that nature whatsoever.”
Best shot Kingfisher Airlines, which has never made a profit, had its licence suspended by India’s civil aviation authorities last week and has not flown since the start of October after a protest by employees, who had been unpaid since March. The cash-strapped carrier said on Friday it would use its own money to try and get back in the air. The day before, staff had agreed to return to work after the airline said it would pay three months of overdue salary by November 13. According to the consultancy Centre for Asia Pacific Aviation,
The government needs to look at taxation very seriously. You can’t have a 25 percent average sales tax on fuel when crude oil prices that used to hover around US$60 or US$70 a barrel are now well in excess of US$100 a barrel Vijay Mallya, Kingfisher Airlines owner
Kingfisher has total debt of about US$2.5 billion. Mr Mallya said the airline had to be dealt with professionally, but he wanted it to survive. “The environment and government
policy must also encourage me to do that,” he said. “So we are going to give it our best shot. We are committed to that.” The tycoon, who said on Twitter earlier in the week that he was relieved to no longer be a billionaire on the latest Forbes list because it might lessen some of the envy directed at him, defended the management of the company. He said there were many reasons for Kingfisher’s predicament, but laid much of the blame on taxation and the Indian government. “Very high fuel costs, obscenely
Australia unveils Asia manifesto Gillard outlined a major foreign policy plan aimed at improving Asian ties James Paton
Australia plans to boost trade links to Asia to at least a third of gross domestic product by 2025, compared with a quarter today, she said. Australia also plans to improve diplomatic relations with China, its top trading partner, along with India, Indonesia, Japan and South Korea, while expanding ties with countries including Vietnam and Mongolia, the prime minister added. The country’s GDP per person should be in the world’s top 10, compared with 13th in 2011, requiring a gain in productivity, the government said. That would lead to an increase in Australia’s average annual income to about A$73,000 (US$75,723) per person in 13 years from about A$62,000 in 2012.
boost growth. In Australia, central bank Governor Glenn Stevens has cut interest rates to revive demand outside of a resource boom that may peak earlier than previously forecast. “We will continue to support a greater role for Asian countries in a rules-based regional and global order,” according to the report, entitled ‘Australia in the Asian Century’. “Australia’s alliance with the U.S. and a strong U.S. presence in Asia will support regional stability, as will China’s full participation in regional developments.” The U.S. is boosting its military presence in the Asia- Pacific region as China’s power grows and is deploying as many as 2,500 marines in the northern Australian city of Darwin. Bloomberg
Universities, languages Prime Minister Julia Gillard said Australia is well placed to benefit from the economic rise of China and India
ustralia must strengthen education, trade and infrastructure to take advantage of Asia’s economic growth, Prime Minister Julia Gillard said in a report yesterday, outlining goals for 2025. “As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the
prospects of proximity,” according to the report released by the government. “Australia is located in the right place at the right time.” Australia, whose economy has avoided recession for 21 years amid surging Asian demand for iron ore, coal and natural gas, will need to rely on more than luck to benefit from the region’s expansion, Ms Gillard said.
The government wants to have 10 of the world’s top 100 universities by 2025 and a school system among the five best. Australia also plans to give more students access to Asian languages and to ensure one-third of board members of the biggest publicly-listed companies have Asian expertise. A global economic slowdown has prompted policymakers from the U.S. to Europe and China to add to stimulus measures in 2012 to
KEY POINTS Australia launches new push for Asia ties Canberra aims to lift Asia trade to one-third of GDP Policy document targets China, India growth
October 29, 2012 business daily | 11
ASIA Hitachi near British nuclear project deal Japanese company made best offer, looks set to win
Diageo Plc is in talks to buy a stake in billionaire Vijay Mallya’s United Spirits
high taxation, lack of foreign investment permission, until literally six weeks ago – so many different factors which make the Indian aviation space actually somewhat unattractive other than the potential growth going forward,” he explained. “The government needs to look at taxation very seriously. You can’t have a 25 percent average sales tax on fuel when crude oil prices that used to hover around US$60 or US$70 a barrel are now well in excess of US$100 a barrel.” Mr Mallya has been looking for
partners for the airline and said two investment bankers had been hired as part of the search. “Both an Indian partner or partners or a foreign partner. We are in dialogue with a number of potential investors,” he said. “Now, you can’t possibly sew up a deal in six weeks. It’s impossible. It takes more like six months. Everything is moving. There are a lot of moving parts and we are trying to put together a good solid strong package,” he said. Reuters
itachi Ltd, Japan’s largest industrial electronics maker, is close to buying British nuclear new-build project Horizon, two people familiar with the matter told Reuters. “Hitachi has made the best offer and has a good chance to get Horizon,” a source familiar with the matter said, speaking on condition of anonymity. Another person with knowledge of the proceedings also said Hitachi, which is leading a consortium bidding for the project, was likely to be the winner. Japanese media said on Saturday the deal was expected to be worth more than 50 billion yen (US$628.5 million) while analysts have put the value of Horizon at about 500 million euros (US$646.6 million). Horizon, which plans to build 6 gigawatts (GW) of nuclear capacity, was put up for sale by its owners, German utilities E.ON and RWE, in March, as Germany’s decision to pull out of nuclear power hurt their finances. Hitachi is expected to hold a board meeting tomorrow to approve the deal and officially announce it later that day, both the Asahi daily newspaper and Kyodo newswire reported, citing sources familiar with the matter. Hitachi officials were not immediately available to comment. Officials at E.ON and Horizon declined to comment, while a RWE spokesman said: “We are in the final stages. We will probably say more in the coming days.” On Thursday, a RWE spokes-
woman said it was in advanced talks to sell Horizon, after a German newspaper reported that a consortium led by Hitachi was the front runner for the Gloucester-based venture. Hitachi, along with Canadian counterparty SNC-Lavalin, and Westinghouse plus its parent company Toshiba Corp, have both made bids for Horizon, a source with direct knowledge of the matter said earlier this month. In early October, France’s Areva dropped out of the race to buy Horizon after earlier announcing it was bidding with China Guangdong Nuclear Power Holding. E.ON and RWE, which are both the focus of ratings agencies with debts of about 41 billion euros and 34 billion euros respectively, each paid about 250 million euros for Horizon’s two nuclear sites, at Oldbury near Bristol and Wylfa on Anglesey. The two electricity companies have been under pressure since last year when Germany announced its intention to end nuclear energy use by 2022. Reuters
Singh overhauls government Amid push to bolster Indian economy
ndian Prime Minister Manmohan Singh overhauled his cabinet six weeks after unveiling the biggest policy changes in a decade as he bids to invigorate an embattled minority government in what may be his last reshuffle ahead of elections due within 18 months. Seven cabinet ministers and 15 junior ministers were sworn in by President Pranab Mukherjee at a ceremony in the colonial-era president’s palace in central New Delhi yesterday. Salman Khurshid, 59, was named foreign minister after S.M. Krishna, 80, resigned from the post ahead of the reshuffle. Rahul Gandhi, the scion of three Indian prime ministers who is expected to take on a more senior party role, was not among those drafted into Mr Singh’s team of ministers. Ashwani Kumar was elevated to cabinet rank and given the law and justice portfolio. Ajay Maken was also promoted as minister for housing & urban poverty alleviation. Shashi Tharoor, 56, who quit as junior minister in April 2010 amid allegations that he influenced the award of a cricket franchise to his benefit was re-inducted. “The prime minister is organising the team that will take him into the next elections,” said N. Bhaskara Rao, chairman of the New Delhi-based Centre for Media Studies. “He has
taken a young and fresh set of faces that will be able to inject some energy into the cabinet.”
Losing ground After two years, during which corruption charges and opposition within the ruling alliance paralysed policy making and stripped away voter support, Mr Singh and his finance minister, Palaniappan Chidambaram, have rolled out a string of policy changes in a bid to restore credibility. The overhaul led to the government’s largest coalition ally quitting, an exit that has left Mr Singh dependent on the whim of regional parties to pass legislation in parliament. Subsidies on diesel have been cut and overseas supermarket chains allowed to open stores. Investment regimes for power markets and broadcasting were eased. Foreign airlines can now own minority stakes in local carriers, and the government has accelerated a plan to sell shares in state-owned companies and lowered the tax paid by Indian businesses that borrow abroad. Veerappa Moily, 72, was given charge of the petroleum ministry, while S. Jaipal Reddy, who held the portfolio previously, was named minister for science and technology and earth sciences. Jyotiraditya Scindia, 41, was named power minister.
Former Indian Foreign Minister S.M. Krishna resigned on Saturday ahead of the cabinet reshuffle
Mulayam Singh Yadav, the leader of the Samajwadi Party, the third-largest party in Parliament, has signalled his support to the government, while saying he will continue to oppose the retail policy. Others unwilling to face the electorate in the next few months may also bail Mr Singh out in the legislature. Two-thirds of the way through its second term, the Congress party is
trying to reverse declining support. Opinion polls show Congress may lose power to a coalition led by the Bharatiya Janata Party, the main federal opposition. A BJP-led group may win as many as 205 seats, while Mr Singh’s coalition may win 78 fewer seats than the 259 it secured in May 2009, a poll carried out by Nielsen and India Today forecast in August. Bloomberg
business daily October 29, 2012
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1.6064 3.6222 0.3638 -0.1775 -3.4401 0.2117 0.2206 0.7297 -0.9519 2.7018 6.2264 3.4896 6.1373 -5.708 -5.0713 0.6061 3.6955 0.6484 0.5576 -3.2897 0.0097
1.0857 1.6309 0.9972 1.4171 84.18 8.0308 7.7979 6.3964 57.3275 32 1.315 30.5 44.35 9662 88.637 1.24569 0.87843 8.9881 11.3316 111.6 1.0311
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business daily October 29, 2012
Opinion A simpler way to end too big to fail Deborah Solomon Paula Dwyer Bloomberg View Editors
oes size matter? When it comes to U.S. banks, the answer is increasingly yes. Limiting banks’ size is a rare example of agreement among prominent Democrats and Republicans, who complain equally that U.S. banks have grown too big, too complex and too risky. They also agree that big banks benefit unfairly from an implicit government guarantee despite the authority Congress gave regulators in the DoddFrank Act to dismantle troubled banks. (Does anyone really believe Washington would let JPMorgan Chase & Co. fail?) Agreement tends to end there, however. Some officials, including Thomas Hoenig, a Federal Deposit Insurance Corp. director, and Dallas Federal Reserve President Richard Fisher, are pushing to break up the largest banks. Others, including Treasury Secretary Timothy Geithner, advocate bigger capital cushions so banks can absorb losses without a bailout. So we read with interest about a new idea that has entered the mainstream, one that wouldn’t break up the big banks, which we’ve argued against, and instead would cap the size of their non-deposit liabilities. Such liabilities consist of borrowings from the Federal Reserve, commercial paper and – perhaps riskiest
of all – overnight repurchase agreements, or repos, in which banks pledge their securities as collateral for overnight loans.
Limit borrowings Put simply, insured banks would have to limit such borrowings to a specific percentage of U.S. gross domestic product. The idea, floated in a recent speech by Dan Tarullo, the Fed governor most responsible for bank supervision, is worth considering. A cap would force banks to shrink without government bureaucrats arbitrarily taking them apart. It would also curb banks’ continued reliance on the overnight loans that leave them vulnerable to runs, which is what helped bring down Bear Stearns Cos. and Lehman Brothers Holdings Inc. Ohio Democratic Senator Sherrod Brown is proposing to limit non-deposit liabilities to 2 percent of GDP. Such a level would force the nation’s top five banks to shrink significantly – possibly too much. A 2 percent cap would seriously crimp former investment banks such as Goldman Sachs Group Inc. and Morgan Stanley, which became commercial banks during the financial crisis and continue to rely almost entirely on non-deposit funding. A fee, instead of a cap, would be a more
market-friendly alternative: banks could be assessed a levy based on the size of their non-deposit liabilities. Banks have grown too big. And non-deposit liabilities, not retail deposits, account for most of the growth in bank size since the mid-1990s. The five largest U.S. banks now control more than half of all U.S. banking assets – nearly US$9 trillion worth – up from 17 percent in 1970. N o n deposit liabilities at almost all big banks exceed Brown’s proposed cap. JPMorgan has more than US$982 billion in noncore liabilities (about 6.3 percent of GDP), according to data compiled by Bloomberg Industries. Bank of America Corp. has US$889 billion
(5.7 percent) and Citigroup Inc. has US$816 billion (5.2 percent). Goldman Sachs and Morgan Stanley are at roughly 5.2 percent and 3.9 percent, respectively. One reason banks have gotten bigger is that they are rewarded for size. Toobig-to-fail banks can borrow more cheaply than smaller banks, according to FDIC data, effectively handing large firms a government subsidy. Dodd-Frank tried to address this with tougher capital and regulatory standards for banks with more than US$50 billion in assets. The law appears to be working: a recent study by economists at the New York Fed found that investors are beginning to price in a higher risk of default on senior bonds issued by large institutions.
One reason banks have gotten bigger is that they are rewarded for size. Too-big-tofail banks can borrow more cheaply than smaller banks
Yet many economists and lawmakers say Dodd-Frank merely codified too-big-to-fail, effectively granting special status to large banks. In the first presidential debate, Republican nominee Mitt Romney referred to the DoddFrank Act as “the biggest kiss” to Wall Street banks. That brings us back to the crux of the problem, non-deposit liabilities. As of 2008, there was about US$2.8 trillion in outstanding repo borrowings. In March
of that year, the five largest Wall Street investment banks were rolling over a quarter of their balance sheets every night, according to Princeton University economist Hyun Song Shin. Reliance on repos has since declined, although it’s still a US$1.7 trillion overnight market. Brown’s measure has the support of Alabama Republican Senator Richard Shelby, former Fed Chairman Paul Volcker and former FDIC Chairman Sheila Bair. Yet determining an appropriate cap could prove nettlesome. Why not 1 percent or 3 percent? A fee would be better. Banks would be less likely to overborrow if they knew they would be charged a fee for every dollar of non-deposit liability. Such a levy would also bring money into the federal government at a time of fiscal strain. (A similar fee proposed by the Barack Obama administration as a way to recoup bailout costs was estimated to bring in about US$90 billion over 10 years.) As with a cap, lawmakers would have to decide which liabilities to include and which deposits to exclude. Valid worries persist about the risks large firms pose to the financial system. The incentives must shift so banks are penalised, not rewarded, for bigness. Bloomberg View
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October 29, 2012 business daily | 15
wires Leading reports from Asia’s best business newspapers
The Asian tigers of nationalism
Christopher R. Hill
Former U.S. Assistant Secretary of State for East Asia and Dean of the Korbel School of International Studies, University of Denver
Bangkok Post The Bank of Thailand has cut next year’s economic growth forecast to reflect a softening domestic economy and a worsethan-expected impact from the global economic downturn on exports. Thailand’s central bank now expects economic output to grow by 4.6 percent in 2013, downfrom5percentinitsprevious forecast, and growth this year to remain unchanged at 5.7 percent from the previous forecast three months ago. Assistant governor Paiboon Kittisrikangwan said exports have decelerated much more than feared due mainly to knock-on effects from the slowdown in Asia.
Yomiuri Shimbun Japan’s government will likely postpone drawing up its midand long-term basic energy plan until next year due to stalled debates over the goal of zero nuclear power plants operating in the 2030s, sources told the publication. Due to the government’s indecision on the target, the Economy, Trade and Industry Ministry’s advisory committee for energy issues decided to postpone discussions on components to be included in the plan, the sources said. Some of those involved have expressed desire to wait for a new administration, to be formed after the next House of Representatives election.
Jakarta Post Indonesia’s flag carrier PT Garuda Indonesia (GIAA) said that in the first nine months of this year its total revenues grew by 14.4 percent to US$2.39 billion and its net profits climbed 51.9 percent to US$56.48 million. “Indonesia’s trade relations with other countries continue to grow. The government’s MP3EI [the Acceleration and Expansion of Indonesia’sEconomicDevelopment Master Plan] and the regional autonomies also played a role in our business development,” GarudapresidentdirectorEmirsyah Satar said in Jakarta. The total number of passengers rose by 20.2 percent to 14.89 million.
Business Inquirer Four Philippine airlines have asked for the rights to start flights to the Kingdom of Saudi Arabia following a recently signed bilateral deal that increases flights between the Philippines and the Middle East’s biggest nation. Documents filed at the Civil Aeronautics Board showed that flag carrier Philippine Airlines (PAL), its sister firm Air Philippines Corp. and budget carriers’ Cebu Pacific and Zest Airways have indicated plans to start flights to Riyadh and other Saudi cities next year. PAL alone asked for a daily flight each to Riyadh, Jeddah and Damman, all from Manila, translating to 21 flights a week
mong the many arguments that former Serbian President Slobodan Milošević used to make to his interlocutors was that he never incited nationalism among his people. Indeed, his public statements and speeches during those turbulent times were carefully calibrated to avoid any outright exhortation to nationalism. But it was not so much the words that he used as it was the music. With his crafty use of code words and body language to encourage a sense of victimhood among Serbs, Milošević was one of the most demagogic nationalists Europe had seen in generations. Today, East Asia – especially China – is awash in a sea of nationalism. The patterns of this age-old scourge are familiar, featuring national narratives based on a supposed record of victimisation. In China’s case, the narrative revolves around “the century of shame,” when China was too weak to defend itself against encroachments on its sovereignty, and the idea that it should never have to succumb again. Among Japanese nationalist groups, the narrative is one of frustration with the wartime Allies’ version of history; almost 70 years – and billions of dollars in reparations and foreign assistance – later, Japan would like to move on. “We are done apologising,” Liberal Democratic Party leader Shinzo Abe has said. Whether this outbreak of nationalism will end soon depends on the willingness of governments in the region – not just China’s – to take a stand and appeal to their publics to cease and desist. These governments need to engage in a more honest dialogue with their citizens.
Historical frustrations While historical frustration often shapes the narratives that fuel nationalism, there are clearly deeper and more powerful forces at work. One of Japan’s persistent problems in recent years has been growing disenchantment with the political class and its inability
to articulate a vision for the country’s future. Many young Japanese are alienated from their country’s politics. Although this is hardly an exclusively Japanese phenomenon, the narrowness of the political elite has made the problem more acute than elsewhere. Japan is rapidly becoming one of the world’s oldest nations. Having already passed
China’s leaders need to stand up and articulate more clearly to the country’s restive public this vision of membership in an interdependent world
its population peak, it will, in the continued absence of significant immigration, begin an increasingly rapid slide down the demographic curve, becoming a country that is much smaller than it is today. And China has been a major source of angst for Japan, because, historically, there has seldom been a time when both countries could be strong. Thus, in the hierarchical understanding of power that prevails in East Asia, if China is up, Japan surely must be down. But Japan remains one of the world’s most culturally sophisticated societies. And, just as the British made the transition from “Rule Britannia” to “Cool Britannia,” Japan, too, can engage in an internal process to define better its identity as a vibrant modern culture in the context of globalisation. Japanese culture has global reach, and
much to be proud of, besides a desultory and unproductive debate about victimisation and rock-strewn islands. The problem in China is more serious. China is moving toward another leadership transition, relatively calm by the standards of other powers, where elections sometimes take on the characteristics of political warfare. China’s political rivalries do not play out in televised national debates; rather, they play out in the shadows, leaving the public to guess what the country’s leadership has in store. As China’s economy slows, the public stirs, and its confidence in nonelected leaders wanes. While some of the criticism calls for more openness and accountability in government, much of it is less inspiring to the rest of us. The critics ask – often in pointed terms – what the government is doing to safeguard the country’s economic interests. In democratic countries, such critics would group themselves into some kind of political movement, ultimately creating an opposition party that, through the dialectical process of democracy, would influence policymaking by the party in power. China, however, lacks the institutional framework needed to channel this sentiment into the political process. This does not mean that opposition disappears, much less moderates itself;
rather, it simmers and incubates – and gathers strength.
New vision Meanwhile, the Chinese Communist Party has no intention of ceding economic nationalism to an Internetbased proto-opposition. After all, rapid economic growth lies at the heart of the CCP’s raison d’état, so it embraces economic nationalism, whether in disputes with Japan, the Southeast Asian countries, or the United States. China needs to rein in these processes. However it is done (which is for the Chinese to figure out), China has no choice but to embrace a world order based on stable relationships among countries – including its own neighbours. Indeed, whether nationalists like it or not, this is the future that China has, in effect, already chosen. China’s leaders need to stand up and articulate more clearly to the country’s restive public this vision of membership in an interdependent world. Regardless of whether it charts a course toward a brighter or darker future, a country’s political leadership by definition plays the central role at the helm. Leaders of both China and Japan need to accept their position in this process and, above all, not simply ride on the froth of current events. © Project Syndicate
business daily October 29, 2012
CLOSING Wen’s family rejects NY Times claims
Berlusconi warns Italy cabinet
Lawyers for Chinese Premier Wen Jiabao’s family have rejected New York Times claims that they have amassed “hidden riches” of billions of dollars. In a statement carried by Hong Kong media, they said that while some of the family were involved in business activities none of it was illegal. The lawyers also denied that Mr Wen had any role in his family’s business activities, nor allowed them to influence policy. The U.S. newspaper reported on Friday that Mr Wen’s family controlled assets worth at least US$2.7 billion. NYT sites are blocked in the mainland, as are references to the report on micro-blogging sites.
Italian ex-PM Silvio Berlusconi has threatened to bring down the government of technocrats led by Mario Monti. Mr Berlusconi said the cabinet was leading Italy into a “spiral of recession” and that his centreright PDL party would decide in the coming days whether it would end its support. It is the largest party in parliament and the move could trigger early polls. His comments come a day after he was found guilty of tax fraud. He is expected to appeal against the four-year-jail sentence – reduced to one – on charges of inflating the price of distribution rights bought by his Mediaset group to avoid paying taxes.
Greek opposition rejects new cuts Says it will vote against the package, but won’t force poll
Alexis Tsipras, head of Syriza party
reece’s opposition leader denounced international lenders’ demands as dealing the “final blow” to a devastated economy but said he would not seek to bring down the government. Alexis Tsipras, head of the far-left Syriza party, said cuts to wages and welfare payments in a package the
government agreed with the European Union and International Monetary Fund would pile misery on Greeks enduring a fifth year in recession. Mr Tsipras, 38, said his party would vote against the package expected to go before parliament this week, and called on members of the ruling coalition to break ranks
and do the same. “If these measures are implemented, it will be the final blow for the Greek economy,” he told Reuters in an interview, noting that economic output had already shrunk by a quarter over the past five years, leaving one in four Greeks out of work. “We have never seen anything
like it in modern European history in a country at peace. Greece is like a country ravaged by war.” Athens has been locked in talks for months with its coalition allies and international lenders on the 13.5 billion euro (US$17.5 billion) austerity package required to secure the next tranche of the bailout and avert bankruptcy. Mr Tsipras said he had no desire to see Greece exit the euro zone but the government and its European partners had to recognise that the country could not afford to pay its debt. “Greece is already bankrupt, it’s just that its banks have not been allowed to go fold because the entire European banking system would be threatened with bankruptcy,” he said. Despite their strong position, members of Syriza would not push Greece to fresh elections by resigning their parliamentary posts this week, said Mr Tsipras, who was in Paris for a meeting of European left-wing parties. “Our top priority is to overturn this policy. It is not a time for tricks, it is not a time to provoke the fall of the government,” he said, adding his party would continue to oppose austerity measures from the parliamentary benches. Reuters
Citi fined over Facebook IPO Other underwriters also being probed, regulator says
itigroup fired its top Internet analyst, Mark Mahaney, and paid a US$2 million fine to a Massachusetts regulator to settle charges that the bank improperly disclosed research on Facebook IPO and information on other tech companies. It was the first formal charge involving an underwriter’s disclosure of sensitive financial information ahead of the social media company’s US$16 billion initial public offering in May. Lead underwriter Morgan Stanley has come under criticism for revealing revised Facebook Inc. earnings and revenue forecasts to select clients on conference calls ahead of the IPO, leaving the rest of the investing public in the dark. In the Citi case, a junior analyst working for Mr Mahaney emailed some research to journalists at the Techcrunch news website, who published some of the information in a blog post, according to the Massachusetts complaint released on Friday.
The state’s top securities regulator, William Galvin, charged Citigroup Global Markets Inc. with breaking Massachusetts securities laws that prohibit analysts at underwriting firms from sending “written research or other written content” until 40 days after Facebook’s IPO. He would not say how close his office might be to charging any other firms, or what kind of evidence they may have. Gavin said the Citi case was completed first because his office was able to obtain emails showing how the analysts broke the rules. Some market participants questioned whether the Citi analysts’ actions were that bad. They noted that Mr Mahaney has consistently received high marks in surveys of institutional investors.
Ongoing investigation Citi fired Mr Mahaney and the junior analyst, and said it was pleased that the matter with Massachusetts has been resolved.
Mr Galvin told Reuters he is still probing the other underwriters involved in Facebook’s IPO, including Morgan Stanley, Goldman Sachs and JPMorgan Chase. “Unfortunately, the message from this is that analysts should give less information to cover their behinds. But the smooth functioning of markets requires the exact opposite of this,” said Max Wolff, chief economist and senior analyst at research firm GreenCrest Capital. “This is a move in the wrong direction,” he added. Legal experts say it is unclear whether industry rules specifically prohibit brokerages from giving information to select groups of clients in a phone call, as Morgan Stanley did. So far, there has been no regulatory action against Morgan Stanley or any of its analysts. According to the Massachusetts complaint, an unidentified junior analyst sent some of Citi’s confidential views on investment risks and revenue
Facebook went public with a record US$16 billion IPO in May
estimates for Facebook to two employees at TechCrunch.com, which is owned by AOL Inc., three weeks before Facebook went public on May 18. Mr Mahaney failed to supervise this junior analyst, according to the Massachusetts complaint. One of the most respected Internet analysts on Wall Street, Mr Mahaney had already been in trouble with his bosses for sharing information with journalists. With various regulators looking at the Facebook listing, Mr Galvin is the first to come out with a fine, albeit a small one. Reuters
Published on Oct 29, 2012