Year I | Number 27 | Tuesday May 8, 2012 Editor-in-chief | Tiago Azevedo Deputy editor-in-chief | José I. Duarte MOP $ 6.00 www.macaubusinessdaily.com
‘Advanced’ talks on SJM Cotai
Office in Taipei opens this Sunday
Inflation stalks migrant workers
Tax code binned, full review looms A
fter taking ten years to draft a tax code and letting it spend a year frozen at the Legislative Assembly, the government has decided to remove the proposal and go back to square one. The Financial Services Bureau confirmed to Business Daily that this unprecedented decision was made, but only “after serious consideration”. The next step will now be to set up a special working
group to launch “a complete and detailed review” of Macau’s tax system, which might include “amending existing tax laws and enacting new tax laws”. The existing tax system, which was created in the 1970s, survives another day, even though authorities claim the lack of a tax code has been identified since the handover. The proposal that has now been dropped would have introduced new interna-
tional standards from the Organisation for Economic Cooperation and Development, which three years ago almost classified Macau as a tax haven. It would have also allowed taxpayers to pay taxes in the period between the official deadline and the beginning of enforced collection or to pay taxes in instalments, as well as setting a two million-pataca (US$192,300) ceiling for fines.
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No expansion in sight for SMEs HANG SENG INDEX
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Most small and medium enterprises are not expecting to grow this year, as bosses say they are facing high running costs, a shortage of labour, limited demand and strong competition. About 64 percent of owners expect their businesses to carry on just about unchanged in the coming year, and 16.2 percent expect business to be worse, shows a survey carried out by the Macau Economic Association.
HSI - Movers Name
WANT WANT CHINA
CHINA RES POWER
HONG KG CHINA GS
Jeweller planning to open flagship store in Macau
CHINA LIFE INS-H
LI & FUNG LTD
COSCO PAC LTD
Graff Diamonds aims for June listing igh-end Londonbased jeweller Graff Diamonds is planning to list in Hong Kong on June 7, as it seeks to raise up to US$1.0 billion (7.99 billion patacas) in one of the biggest IPOs this year. The firm plans to start taking orders from investors in a roadshow between May 21 and 31 and is set to price the initial public offering at the end of the event, according to a term sheet seen by Dow Jones Newswires and quoted by AFP.
The IPO is set to be one of this year’s blockbuster share sales after China’s second largest brokerage Haitong Securities last month raised US$1.68 billion from its Hong Kong IPO, the world’s biggest so far this year. The jeweller’s listing in Hong Kong will enable the company to raise its profile in Asia and tap the fast-growing luxury goods market on mainland China. Graff Diamonds’ presence
in Asia includes boutiques in Hong Kong, Shanghai, Beijing, Tokyo and Taipei. It is planning to open three flagship stores in the Chinese city of Hangzhou, Macau and Dubai this year, according to its website. The jeweller will join other luxury brands using Hong Kong as a gateway to the burgeoning Chinese market, after the listings of firms such as Prada of Italy, US handbag maker Coach and US luggage maker Samsonite.
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Swamp wars As casino companies vie with each other to make the most upbeat announcement on the next phase of Cotai resort building, a Hong Kong investor says he welcomes more projects – but takes the hype on timing with a pinch of salt. When media speculation, financial industry expectation and government roadblocks combine in the context of Macau gaming industry development, it all adds up to – Swamp Wars.
business daily May 8, 2012
Govt drops Tax Code bill, opts for full review The government has recalled its proposed Tax Code, which has spent nearly a year in the Legislative Assembly getting nowhere Vítor Quintã firstname.lastname@example.org
The government intends to do a ‘complete and detailed review of the current tax system’
he government has withdrawn the Tax Code bill from the Legislative Assembly after the legislation spent almost a year in limbo, and says it is now preparing a review of the whole tax system. The government sent a document to Legislative Assembly president Lau Cheok Va giving the reasons for the withdrawal, the assembly told Business Daily yesterday. The Financial Services Bureau said the decision to withdraw the Tax Code bill had been made only “after serious consideration” but gave no reason for the bill remaining in the assembly for almost a year. The bill was presented to the assembly last June. The first vote was postponed and was never held. Mr Lau said at the time: “The issues included are very bulky and as such the legislators will have enough time to read and weigh up its content.” The Financial Services Bureau said: “The government had proposed the Tax Code in the hope that it would lay a solid foundation for the tax system
of the SAR by consolidating and standardising the current tax laws.” A former director of the bureau, Orieta Lau Ioc Ip, stressed in 2009 that the present tax system had been created in the 1970s. The Jornal Tribuna de Macau quoted her as saying then that the lack of a code had been identified as a problem during the handover but that it had taken 10 years to draft it. At that time legal adviser João Janela da Silva described the Tax Code as the backbone of a more modern and efficient tax system. The next step would have been to introduce legislation for the various areas of taxation. Now, the Financial Services Bureau said, the government “intends to set up a special working group to study the feasibility of amending existing tax laws and enacting new tax laws, including the Tax Code, after it does a complete and detailed review of the current tax system”. The bureau added: “By doing so, it is hoped that the SAR can better cope with its future economic
development needs.” The bureau gave no blueprint or timeframe for the review.
Changes canned The new Tax Code would have introduced standards set by the Organisation for Economic Cooperation and Development, brought together present laws and defined principles for the development of the tax system. The government had said the code would be important for attracting new companies and investment, and for promoting economic diversification. For instance, it would have allowed companies to use a financial year different from the official fiscal year and would have encouraged the submission of tax declarations electronically. It would also have affected individuals, allowing them more flexibility in choosing when to pay their taxes. The bill would have set a ceiling of 2 million patacas (US$192,300) on tax fines, and banned taxpayers in debt to the government from receiving tax benefits.
It would have given explicit options for individuals and companies that disagreed with their tax assessments to pursue, such as calling for administrative or even judicial reviews. The OECD gave Macau higher marks last September for its willingness to exchange information on tax matters, less than two years after it almost labelled the city a tax haven. The government has so far concluded tax information exchange agreements or double taxation agreements with 13 countries. The latest deal, signed in March, was with India. The Tax Code bill is the first bill to be withdrawn by the government before it passed its first reading in the assembly. In 2009, a bill that would have lowered the age of criminal liability for serious crimes from 16 to 14 vanished from the assembly after being approved on its first reading. The bill attracted a lot of criticism at the committee stage. The government confirmed two years later that the bill had been shelved indefinitely.
Lusophone-China mediation forum mooted for Macau Contracts specifying Hong Kong as the arbitrator for disputes have prevented the expansion of such forums Kelsey Wilhelm email@example.com
he city may soon serve as an arbitration centre for companies from the mainland and Portuguese-speaking countries, according to a proposal discussed at the Macau Forum last Friday. The forum’s secretary-general Chang Hexi drew attention to the similarity between the legal systems of Macau and Portuguese-speaking countries and called for a study into its establishment. Macau Lawyers Association president Jorge Neto Valente told Rádio Macau he supported the
proposal. “It’s an idea that the association naturally supports because it would bring here a prestigious institution, but we need the necessary conditions here to set it on its feet,” he says. Mr Valente will attend the International Lawyers Congress to held later this month in Angola. If approved, the centre would become one of a number of arbitration centres based in Macau. The arbitration centre of the World Trade Centre has tackled two disputes in 13 years of operation.
The arbitration centre of the Macau Lawyers Association, created 14 years ago, received its first case in February and the Monetary Authority’s arbitration centre has resolved just two cases in 10 years of operation. Most problems preventing the expansion of this form of dispute resolution lie in contract clauses specifying Hong Kong’s Arbitration Centre as forum for disputes. This could change, but due to the “regrettable speed at which the judicial system in Macau functions,
without government support, this centre might never make it,” Mr Valente said. “It’s not something that costs a lot of money to run, but it has to be promoted, and it has to be done with the government’s support,” he said. The lawyer believes outside negotiators need to be brought in order to ensure impartiality in disputes. In a small city such as Macau, he said “people have many links” and impartial arbitration was necessary to ensure “matters can be judged in accordance with the law”.
May 8, 2012 business daily | 3
SME bosses predict stagnant year A survey finds most small and medium enterprises are not expecting to grow this year Cherry Lee
ore than 80 percent of small and medium enterprises have no plans to expand in the coming year, according to the results of a survey carried out by the Macau Economic Association. The survey says these enterprises are facing high running costs, a shortage of labour, limited demand and strong competition. There are about 10,000 to 20,000 registered small and medium enterprises in Macau, some consisting of a single person. The association surveyed 1,022 SMEs, more than 70 percent of which are retailers and 9.3 percent restaurants. It found that 64 percent of owners expect their businesses to carry on
just about unchanged in the coming year, and 16.2 percent expect business to be worse. Only 19.4 percent expect their enterprises to grow. Rents account, on average, for more than 20 percent of running costs, as most enterprises need to lease business premises. The high running costs are causing some entrepreneurs to consider closing their businesses or selling their premises if they own them. Most business owners said they hoped the government would relax restrictions on importing labour because they faced difficulties in finding enough staff. SMEs are the first the feel the pinch
in the labour market, as they are losing out in the competition for employees against larger employers such as casinos. “After 2005, a lot of the small, medium and micro-enterprises are not aiming for development, but for survival,” Kenneth Lei, administrator of SME association in Macau, had told Business Daily last month. The association represents about 500 to 600 companies in all industries. The survey also found that 62 percent have no succession plan, mostly because there is no suitable candidate to take over from the owner. Some owners admitted that they had never thought about who
should succeed them or carry on their businesses. The results suggest that young people prefer to pursue careers in big companies or the government rather than carry on their parents’ businesses. More than 90 percent of business owners have no operating plan and fewer than 20 percent have records of their accounts. The survey also found a dearth of technology. Only half of enterprises use computers and fewer than 25 percent own a cash register. Only a quarter use the Internet to maintain a web page or for procurement. SMEs make up more than 90 percent of Macau’s enterprises.
business daily May 8, 2012
macau ‘Advanced’ talks on SJM Cotai project – company First quarter profit up 22 pct, revenue hits HK$19.7bn Associate Editor
Grant Govertsen of Union Gaming Research Macau, who participated in the call, said in a note afterwards: “We continue to believe that while it appears the government might approve many Cotai projects this year, it [government] will likely employ the numerous levers it has at its disposal – e.g. slow-playing certain approvals, labour quotas, etc. – in order to spread out the timing of development as conditions warrant.” SJM said it was adding 30 to 35 VIP gaming tables across at least three separate junket rooms at its flagship Grand Lisboa property during the second half of 2012. “SJM intends to populate these junket rooms with tables from its existing allocation – i.e. it will likely harvest under-performing tables from its other self-promoted casinos,” added Union Gaming.
Profit jump Shuffle – underused tables moved to Grand Lisboa’s VIP operation
iscussions between SJM Holdings and the Macau government over the company’s request for a Cotai casino project ‘remain at an advanced stage’ the company told analysts in
a conference call yesterday. The call, to discuss the Hong Konglisted firm’s first quarter unaudited results, added SJM expects to receive its land approval ‘in the near-term’.
SJM Holdings Ltd, the Macau casino operator founded by the city’s former gaming monopolist Stanley Ho Hung Sun, reported a 22 percent year-on-year profit increase in the first quarter. Gambling revenue for the company rose 8.5 percent to HK$19.7 billion (US$2.5
billion). During the same period gross gaming revenue for the market as a whole grew 27 percent year-on-year according to figures from the local regulator the Gaming Inspection and Coordination Bureau. The company’s market share fell to 27.3 percent in the first quarter, from 31.9 percent a year earlier, SJM said in a statement to the Hong Kong Stock Exchange. Analysts point out that market share is calculated on gross gaming revenue – mostly generated by live table baccarat, which has variations in how much the house gets to keep. So when the house has an unlucky spell relative to baccarat’s theoretical hold, that has some impact on market share. SJM’s local operating unit Sociedade de Jogos de Macau, provides gaming licences for 20 out of the total 34 casinos in Macau, but only owns the full economic benefit from three of them. They are Casino Lisboa, Grand Lisboa and Casino Oceanus at Jai Alai (Jai Alai, formerly managed individually, is now part of the Oceanus operation). The remainder are satellites where SJM and third parties share the revenue.
May 8, 2012 business daily | 5
Seeing is believing in Cotai swamp wars Investors separate fact from warm wishes in scramble for new projects Associate Editor
finance industry source say there’s some scepticism among investors about the public relations war that has broken out among Macau gaming operators regarding new Cotai casino projects. Concessionaires currently seem to be falling over each other to be the first to announce good news to their backers on the next round of resort building in the world’s biggest single casino jurisdiction by gross gaming revenue. Macau generated annual GGR of 267.867 billion patacas in 2011 – up 42.2 percent on a year earlier. Press officers and investor relations executives from several Macau concessionaires with Cotai permissions pending have been working overtime since Galaxy Entertainment announced on April 26 it was the first to start a new round of Cotai schemes with its HK$16 billion Galaxy Macau Phase 2.
Cool reception Just six days after Galaxy’s announcement, Wynn Macau received official gazetting of its 21-hectare (51-acre) Wynn Cotai land concession. Steve Wynn, chairman of parent company Wynn Resorts, said he expected to be working on the site “before June” even though he doesn’t yet have a construction permit and that normally takes several months to obtain in Macau. Undeterred by the cool reception Mr Wynn’s gung-ho approach received from some analysts, two days later, MGM China’s chief executive Grant Bowie said the company was expecting “imminent” approval on its Cotai land. To top off a busy eleven days, Melco Crown Entertainment (MPEL) - which already has Cotai land rights for Studio City but not casino permission – is currently building what appears be a construction project building on that site in apparent anticipation of the government’s green light – as Business Daily first reported last month. One analyst suggests the project building probably cost the equivalent of several million U.S. dollars to set up, although that’s relatively small change when it comes to the public relations war that most publicly-owned companies have to wage from timeto-time to support their share price. And MPEL has been more reticent than Wynn and MGM China in its public statements regarding Cotai. An MPEL spokesman in Hong Kong said yesterday: “We are completing some site preparation work, but have not recommenced construction of Studio City. We
Something stirring – project buildings rise on Studio City despite no official word on casino approval
are respectful of the government process and continue to cooperate with the authorities to move things forward.” But even MPEL couldn’t resist a bit of positive spin for the benefit of the investment community, hinting that building work on Studio City could begin before the end of June – without citing any evidence to support the claim. “As mentioned in our previous announcements, we expect to recommence construction in the first half of 2012 and continue to be optimistic about that timeline,” the spokesman concluded. A Hong Kong-based investor in Macau gaming equities, said he welcomed the expansion of the industry, but suggested investors would like to see local transport infrastructure catch up with resort building.
More infrastructure “Investors see the move to open up new casinos, new gaming tables and new hotels as a positive development,” said the investor. “I do think though we’re a bit more sceptical – than perhaps the industry is – regarding the timetable for future developments on Cotai. For example investors would like to see more infrastructure in place in order to take in more tourists and transport them efficiently before a lot more resort supply comes into the market.”
KEY POINTS Five casino resorts pending approval for Cotai MGM China – Applied to lease and build on 7.2 hectares on Cotai. No land or casino approvals yet MPEL – Studio City, 13-hectare Cotai site - land approval but no casino approval Sands China – has land and building permission for Cotai 3 plot up to April 2013. Company hopes to negotiate timetable extension SJM – Request for 7.4 hectares of Cotai land. No land or casino approvals yet Wynn Macau – Land approval for 21-hectare plot gazetted May 2. Construction approval pending
The extra complication in Studio City’s case is the lack – officially at least – of formal casino permission on a project budgeted last year by MPEL co-chairman Lawrence Ho Yau Lung at US$1.8 billion. “I don’t think banks would let them raise debt on capex [project capital] unless the government was very clear on whether there’s a casino,” says the Hong Kongbased investor. But he added that earnings from MPEL’s existing Cotai resort City of Dreams would in likelihood mean only a portion of the Studio City cost would come from bank loans. “And there are other ways of securitising loans. For example against the cash flow of your existing casino projects,” explained the investor, adding that options might include MPEL going back to its original syndicate of lenders for City of Dreams and rescheduling existing loans, or paying down existing loans and then refinancing. “To put the whole thing into perspective, the balance sheets of the Macau casino operators are now becoming deleveraged as the projects mature and the operational cash flow ramps up,” he stated. “Banks are actually vying to see if they can be involved in Macau casino projects. If you look at credit quality, cash flow and ability to service debt, the quality of lending business regarding these casinos is very good,” added the source.
business daily May 8, 2012
City’s Taipei office opens this Sunday Secretary Cheong U visits Taiwan later this week to officially inaugurate an office open since November
ecretary for Social Affairs and Culture Cheong U will preside over the inauguration of the Macau Economic and Cultural Office in Taiwan on May 13, a government spokesman said yesterday. Macau government spokesperson Alexis Tam Chong Weng, who was in charge of setting up the office, is also expected to attend the ceremony. The territory’s representative office in Taipei is open to the public since last November, mainly to assist Macau residents living, working, studying, travelling and doing business in Taiwan. There are more than 4,000 Macau students attending the island’s universities. Last year, former Tourism Development Committee secretary-general Nadia Leong Kit Chi was appointed head of the office, located in the Taipei 101 building. The government is paying a rent of 380,000 patacas a month (US$ 47,500) for the 1,595-squaremetre space.
The Macau Economic and Cultural Office is on the 56th floor of the Taipei 101 building
Even though the office will only be officially inaugurated about six months after it opened, a spokesperson of the cabinet of the secretary for Social Affairs and Culture said it did not amount to a delay. The time gap was expected due to the packed itinerary
of Mr Cheong, he said. Moreover, Macau also “had to wait for Central Government approval to open an office in Taiwan”. Beijing authorities have been encouraging both Macau and Hong Kong to strengthen ties with Taiwan.
Taiwan’s representative centres in the two SARs were upgraded from semiofficial establishments to Taipei Economic and Cultural offices last July. Mr Cheong also became the first top Macau official to visit Taiwan since the handover in September
2010 when he led a delegation of 100 people. Hong Kong Financial Secretary John Tsang is expected to attend the opening ceremony of the Hong Kong office, according to the Taiwanese government media service. C.A.
Vacant flats retrieved for civil servants Government says flats allocated to the United Nations, plus another 160 homes, will be allocated to public workers
ome of the houses allocated to the United Nations will be made available to civil servants by the end of the year through a public tender. Another 160 homes might also be offered to public workers in a public tender by June to staff who meet unspecified criteria. Both decisions were announced by bureau director Vitória Alice Maria da Conceição in reply to an inquiry in the Legislative Assembly from legislator
José Pereira Coutinho. The Financial Services Bureau wants to repossess by December homes that have been allocated to the United Nations since 1992. Mr Coutinho, also president of the Macau Civil Servants Association, said about 30 homes were allocated to private entities, which were to be used by non-residents, namely UN foreign personnel. Half of them lay vacant for a year, he added. Mr Coutinho wanted to
know when authorities intended to build houses for public workers, as there were only 172 available. The response was that there was no such plan. However, Ms Conceição recalled that public workers already benefitted from a housing subsidy, increased last year and extended to most of the administration’s workers. The issue was brought to public attention by Portuguese newspaper Hoje Macau.
The official said, out of the 942 units under the bureau’s management, 43 had been allocated to non-resident personnel and 87 given to nonprofit associations. Five more homes had been allocated to tenants on humanitarian grounds: they were either residents affected by 1984 and 2001 demolitions or relatives of public servants living there for more than 20 years. A total of 160 units could
be made available to public workers, she added. Ms Conceição also said a commission for the classification of households was created last year by Chief Executive Fernando Chui Sai On to follow-up on the allocation of the 160 units. The commission is composed by representatives of the Financial Services Bureau, Housing Bureau and the Lands, Public Works and Transport Bureau. C.A.
Weather Beijing 29/17o C Changchun 23/11o C
Harbin 17/8o C
Xian 31/18o C Shanghai 25/20o C Chengdu 30/22o C Kunming 24/14o C Haikou 34/24o C Sanya 33/27o C
Guangzhou 34/25o C
MACAU (7 May-12 May) Day
Shenzhen 33/25o C
Hong Kong 32/27o C
Macau 31/26o C
35/25 C o
26/15 C o
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May 8, 2012 business daily | 7
MACAU CTM to open ‘megastore’
ompanhia de Telecomunicacões de Macau (CTM) is set to open its biggest telecom shop in Macau, a spokesperson told Business Daily. The “megastore” will be in Hoi Keng Tin, near the Red Market area, and will help expand CTM’s services to the residents of the “fast developing district”, the spokesperson said. It will be one of two new stores set to open in the next two months, complementing the Rua Pedro Nolasco da Silva shop that opened near Senado Square last Saturday. A new store will also open in the Nam Van district by the end of the month, bringing the number in the area to two. The new stores target businesspeople working in central locations and are expected to expand their customers among teenagers and tourists. The shops will offer smart phones, iPhones and tablets among other products and services.
The purchasing power of construction workers dropped a further 4 percent in the first quarter of this year
Inflation hits imported construction workers
The real value of wages of non-resident construction workers continues to decline, while the value of the pay of resident workers remains stable
he purchasing power of construction workers dropped a further 4 percent in the first quarter of this year, as the end of work on the Sands Cotai Central resort led to lower pay across the industry. The real wage index, which takes into account inflation and thus reflects the buying power of the money employees take home, has declined by more than 10 points in the last two years, even though wages have increased, according to the Statistics and Census Service. The average daily wage of all construction workers in the first quarter dropped to 563 patacas (US$70.40), 3.4 percent less than in the fourth quarter of last year, having risen in the two preceding two quarters. The real wage index for all employees fell to 89.5 points in the first quarter, 3.4 percent less than three months before. The average daily wage of resident construction workers, however, rose by 1.3 percent to 646 patacas a day. The real wage index for resident
employees rose by 0.1 percent to 98.9 points, showing that their wages have kept up with inflation. The government has set a strict quota for labour imported by the construction industry, saying a company must take on at least one resident worker for each new nonresident employee it imports. The annual inflation rate continued to average more than 6 percent in the year ended March 31. The average daily wage of unskilled workers increased by 1.9 percent to 373 patacas in the first quarter and that of carpenters rose by 8.2 percent to 569 patacas. The average daily wage of skilled and semi-skilled employees dropped by 4.2 percent to 568 patacas, and that of bricklayers and plasterers fell by 3.1 percent to 525 patacas. The average daily wage of electricians and electrical workers declined the most, by 9.9 percent to 565 patacas. The situation is likely to change quickly, with the almost simultaneous start of work on two projects in Cotai: the second phase
Budget surplus close to 2012 goal
acau’s budget surplus reached 29.7 billion patacas (US$3.7 billion) in the first four months of this year, the Financial Services Bureau announced yesterday. This figure already represents 82.5 percent of the 36 billion patacas surplus predicted by the government for the whole of 2012. If this pace remains unchanged then the territory will need less than a month to hit the forecast and it would close the 2012 books with a record surplus of 89.1 billion patacas. The surplus has been fuelled by public revenue, which increased 21.1 percent to 40 billion patacas. The administration remains reliant than ever on gaming taxes, with
direct taxes – 35 percent on gross revenue – jumping more than a quarter to 35.1 billion patacas, accounting for 87.5 percent of all public revenue. The government also charges about 4 percent of indirect taxes on gaming. On the other hand, public spending fell 2.7 percent to just 10.4 billion patacas, which means the Administration only spent 15.8 percent of the budget during the first four months. The 19.8 billion-pataca public investment plan remained just about, with just 5.1 percent of the money already spent. Still, this 653 million patacas figure represents a six-fold increase year-on-year. V.Q.
of the Galaxy Macau and the new Wynn resort. University of Macau professor Davis Fong Ka Chio warned last week that the two projects could lead to a new shortage of construction workers. X.C.
business daily May 8, 2012
Lenovo to launch facility in mainland Lenovo Group Ltd said yesterday that it will invest about 5 billion yuan (US$793 million) over the next five years in an integrated mobile devices facility in China to meet rising global demand for smartphones and tablet computers. The Lenovo (Wuhan) Industrial Base will carry out research and development, production and sales of mobile devices such as the company’s LePhone smartphones and LePad tablet computers for China and global markets. The facility is scheduled to begin operations in October 2013, Lenovo said in an emailed statement. Lenovo said sales from the industrial base were projected to reach 10 billion yuan by 2014, and to rise to 50 billion yuan within the next five years.
Taiwanese stocks plunge 2.11pct Taiwan stocks ended 2.11 percent lower yesterday, their biggest singleday percentage loss in four and a half months, tracking regional declines after elections in Greece and France fuelled uncertainties about the eurozone and cut appetite for risk. The main TAIEX index fell 162.87 points to 7,538.08, after opening down 1.2 percent. Oil and gas counters were the biggest losers, shedding 4.19 percent. Electronics shares were down 2.1 percent, with HTC losing 4.35 percent. Financial shares lost 2.16 percent. The Taiwan dollar was down by T$0.044 to trade at T$29.324.
Toyota sales up 68pct in April China sales by Japan’s Toyota Motor Corp and its two local joint-venture partners rose 68 percent in April from a year earlier to about 81,700 vehicles, according to a company spokesman. For the first four months of the year, the Japanese auto maker sold a total of about 293,200 vehicles, a 14.3 percent increase from the same period last year, said the spokesman, Takanori Yokoi. Mr Yokoi said the large year-on-year jump in April sales was due chiefly to the fact that sales during April last year were comparatively low because of the massive earthquake on March 11. “If things go as normally as we expect, we should be able to meet our sales goal” of selling one million cars this year, he said.
A regional exchange-rate coordination system would help intra-regional trade, says Taiwan’s central bank governor Perng Fai-nan
Asia needs forex coordination: Perng Taiwan’s central bank governor urges regional economies to be prepared for ‘external shocks caused by volatile and unpredictable’ flows Andrea Wong
sia should set up an exchange-rate coordination mechanism to ensure the region’s currencies reflect economic fundamentals and maintain financial stability, Taiwan’s central bank Governor Perng Fai-nan said. “Short-term international capital flows can create tension for intra-regional exchange rate movements,” Mr Perng said at an Asian Development Bank meeting in Manila over the weekend, according to a transcript of the speech posted on the lender’s website. During the past year, capital has poured into Asia and “disrupted economic and financial stability,” Mr Perng said, adding that regional economies need to be well prepared for “external shocks caused by volatile and unpredictable” flows. Emerging-market bond funds had inflows for 12 straight weeks through the first week of April, according to data from EPFR Global, a U.S. provider of fund flows. Investors put US$540 million into emergingmarket fixed-income funds in the week ended April 25, EPFR said, and the MSCI Emerging Markets
Index has gained 11 percent this year. “It’s not difficult to see that short-term international capital movements rather than economic fundamentals have become the main driver of movements in exchange rates and stock prices” across Asia, said Mr Perng, who is the longest-serving central bank governor among Asian economies tracked by Bloomberg.
Too diverse Mr Perng, who left borrowing costs unchanged at 1.875 percent for a third meeting in March, has said he would focus more on inflation than growth this year. Asian policy makers agreed last week to double the size of their foreign-currency reserve pool as they step up efforts to shield the region from global financial shocks. Japan, China, South Korea and 10 Southeast Asian nations agreed to boost the so-called Chiang Mai Initiative Multilateralization agreement to US$240 billion. Even as they increase cooperation,
Asian nations are unlikely to follow Europe in pursuing a single currency anytime soon, Malaysian central bank Governor Zeti Akhtar Aziz said. The region remains too diverse and such a move would be too costly, she said. Philippine central bank Deputy Governor Diwa Guinigundo echoed Mr Perng’s concern, saying at an ADB meeting that capital flows complicate monetary policy. A regional exchange-rate coordination system will also help facilitate intra-regional trade, investment and economic integration by lowering transaction costs, said Mr Perng. The yen remains close to a high against the dollar that has hurt exporters such as Sharp Corp., while South Korea’s Samsung Electronics Co. has benefited from a weaker won. Taiwan may sign a cross-strait currency settlement agreement with China as early as this month, the Taipei-based Economic Daily News reported, without saying where it got the information. Bloomberg
Taiwan’s inflation accelerates on food prices
HK shares dive on Europe elections
Consumer price index climbed 1.44 percent in April
Hong Kong stocks fell, with the benchmark index dropping the most in five months, as U.S. employers added fewer jobs than expected and France’s election of a socialist president fuelled concern a weakening commitment to spending cuts will deepen the debt crisis. The Hang Seng Index fell 2.6 percent to 20,536.65 at the close, the steepest decline since December 9. The Hang Seng China Enterprises Index of mainland stocks dropped 2.8 percent to 10,574.51. The benchmark Hang Seng has fallen about 5.3 percent from this year’s peak on February 29.
aiwan’s inflation rate accelerated for a second month in April on higher food prices, reducing scope to cut interest rates to support a slowing economy. The consumer-price index climbed 1.44 percent from a year earlier, compared with a revised 1.25 percent increase in March, the statistics bureau said in Taipei yesterday. The median of 12 estimates in a Bloomberg News survey was for a 1.41 percent gain. Central bank Governor Perng Fainan has committed to focusing more on inflation than growth in 2012, as
costlier fuel prompted the government to raise its forecast for consumer-price gains this year to 1.94 percent from 1.46 percent. Electricity tariffs will rise from June 10, posing greater risks for an economy that expanded at the slowest pace since 2009 in the first quarter as a struggling global recovery hurt exports. The central bank “remains on edge about the lagged impact of Q1’s sharp uptick in global energy prices,” Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc, said before the data.
The monetary authority is unlikely to “cut rates any time soon to counter still weakening European demand,” she said. Food prices rose 2.11 percent in April from a year earlier, yesterday’s report showed, while clothing climbed 5.92 percent. Core consumer prices, a category excluding vegetables, fruit, fish and energy, gained 0.92 percent. Wholesale prices, which track the cost of goods sold to retailers and producers, fell 0.55 percent. Bloomberg
May 8, 2012 business daily | 9
April inflation to show stabilising economy: survey Analysts polled expect annual consumer price inflation to have moderated to 3.3 percent Yahoo close on deal to sell Alibaba stake Yahoo Inc could be weeks away from selling 15 to 25 percent of Alibaba Group’s stock back to China’s largest e-commerce company, in a deal designed to eliminate complexities that had scuttled the parties’ previous negotiations, a person familiar with the matter said. The two companies have been in talks for a month, the person said, but cautioned that there is no guarantee a deal will be reached. Numerous discussions have been held in recent years about a deal for Alibaba to reclaim some or all of the 40 percent stake in the company that Yahoo acquired in 2005. A US$17 billion tax-free asset swap between the two companies fell apart in February. The latest deal would not be tax-free and would be much more straightforward, the person told Reuters on Friday. “The overall complexity of this deal is much simpler. There’s no IRS risk, there’s no complications with regards to the identification of assets,” the person said. In a best case scenario, a deal could be weeks away, the person said. Yahoo and Alibaba declined to comment. Yahoo acknowledged that it was in talks with Alibaba, during its firstquarter earnings conference call with analysts last month. During the call, Chief Executive Scott Thompson said the two companies were working on a “simplified” transaction to “monetize” a portion of Yahoo’s stake in Alibaba. To fund the deal, Alibaba would raise capital. The valuation that Alibaba receives in the fund-raising will determine how much Yahoo earns in the transaction, the source said.
Pay China swaps, says Credit Suisse Investors should pay interest-rate swaps in China because its economy is unlikely to experience a hard landing, reducing the chance of stronger policy stimulus in the coming months, according to Credit Suisse Group AG. Manufacturing growth accelerated for a fifth month in April, while new bank lending surged by 1.01 trillion yuan (US$160 billion) in March, the most since January 2011, official data show. China is targeting a 7.5 percent increase in gross domestic product in 2012, having aimed for 8 percent in each of the last seven years. Policy makers won’t mind a slowdown provided social stability and the 4 percent inflation target aren’t compromised, Credit Suisse said. “Growth is stable and not really weakening a lot and there’s been some fine-tuning of policies,” said Ashish Agrawal, an Asian rates strategist in Singapore at Switzerland’s secondlargest bank. “They have done some credit loosening, easing lending into the system and reserve-ratio cuts, while making sure money-market rates don’t fall a lot.” Credit Suisse recommended clients pay the one-year swap rate at 3.27 percent in a research note released May 2, targeting a rise to 3.6 percent without setting a timeframe. Investors should abandon the trade if the swap rate drops to 3.05 percent, Mr Agrawal said in an interview yesterday. The recommendation aims to capitalise on swap rates that signal market participants are still positioned for easier liquidity and reductions in borrowing costs, mr Agrawal said, based on interestrate swaps for one to five years that are below the one-year deposit rate of 3.5 percent. “We recommend fading out what markets are pricing in,” he said.
Retail sales are expected to be steady year-on-year from March’s 15.2 percent level
ew evidence that the Chinese economy has bottomed out and is now stabilising is likely to be seen in a raft of data due out on Friday, with inflation falling and output strengthening, a Reuters survey showed. Analysts polled by Reuters expect annual consumer price inflation to have moderated to 3.3 percent, from 3.6 percent in March, remaining well below the government’s 4 percent target. Month-on-month, prices are expected to have dropped by 0.5 percent after March’s 0.3 percent fall. Rising inflation last year had prompted Chinese policymakers to sharply reduce credit supply, especially to private borrowers, throwing the real estate sector into disarray and cooling economic growth. The government has eased economic policies since in a programme of “fine-tuning” which has seen it cut 100 basis points from the required reserve ratios of banks to support credit growth since autumn, while cutting business red tape and taxes. “We think April data would show
that economic activity is rebounding modestly, but may not be sufficient to clear all the doubts,” analysts at UBS said in a note to clients. Producer prices are likely to have fallen by 0.5 percent on year in April, the Reuters poll showed. That would be more than the 0.3 percent drop in producer prices for March, as a slow real estate sector reduced the demand for raw materials. International crude oil prices sank in April compared with March this year, and April’s prices were also lower than a year before. However, Chinese gasoline and diesel prices have been at historical highs since mid-March. Power prices are also at record highs as China raises state-set prices to gradually bring them in line with generation costs, although residential prices are adjusted slowly to minimise the impact on inflation. An earlier purchasing managers survey indicated that input prices are rising, but increased buying by factories primarily reflects restocking, with domestic demand still tepid.
Overall, the PMI surveys also pointed to an uptick in the economy after a trough in the first quarter. But both the official PMI and an independent survey published by HSBC showed a continuing discrepancy between growth enjoyed by larger firms and the difficulties of smaller firms struggling to get credit. Continued difficulty in getting loans may have contributed to a softening in fixed asset investment, which analysts expected to have slowed to 20.5 percent growth on year in April, down from 20.9 percent in March. Fixed asset investment has underpinned the economy as export growth has wilted, though government action to crimp the speculative real estate bubble it has fuelled is beginning to bite. Retail sales, also due on Friday, are expected to be steady year-on-year from March’s 15.2 percent level. Economists point to urban and rural per capita incomes rising faster than GDP so far this year as offering key support to consumption growth as inflation eases. Reuters
Bidding war looms as Beijing Enterprises ups stake
hinese conglomerate Beijing Enterprises Group has again raised its stake in takeover target China Gas Holdings Ltd, bolstering the prospect of a US$2.3 billion-plus bidding war for the mainland gas distributor between two state-owned companies. State-owned Beijing Enterprises Group - parent of utility Beijing Enterprises Holding Ltd - snapped up HK$663 million (US$85.4 million) worth of shares in China Gas yesterday to take its holding to 12.65 percent, although the motive behind its move was not immediately clear. The firm paid HK$4.10 each for 161.8 million shares, representing
a 17 percent premium to the HK$3.50 a share offered by statefirm Sinopec and ENN Energy Holdings in an unsolicited bid for China Gas bid last year. China Gas rejected the offer by Sinopec and ENN Energy, saying it failed to reflect the true value of the company. The move by Beijing Enterprises Group followed its purchase of a 5.4 percent stake in China Gas from Oman Oil last week for US$126 million, when it took its stake to nearly 9 percent. Industry watchers were unclear about the strategy behind Beijing Enterprises Group’s move. “We expect the original offer price
from Sinopec/ENN to be adjusted upwards as shareholders will now use the HK$4.10/share transaction price as a reference point,” said Mike Yip of CIMB. Chinese companies rarely make unsolicited offers and it is even rarer to see two state-owned entities vying for the same asset. But the possibility of a battle by the Beijing firm with the consortium formed by Sinopec and domestic gas distributor ENN could not be ruled out, analysts have said. Shares in China Gas rose as much as 5.4 percent yesterday to HK$4.11, their highest level in more than a year, in a broader market down 2.6 percent. Reuters
business daily May 8, 2012
ASIA Stocks fall most in six months Asian markets slumped as France and Greece rejected austerity
The central bank says U.S. credit rules may hurt Japan’s ability to carry out its monetary policy
Japan seeks relief from Fed proposal U.S. credit rules damaging for Japanese monetary policy
ederal Reserve plans for rules on credit risk may hamper monetary policy in Japan and have an “adverse impact” on the liquidity of high-quality sovereign debt, the Japanese central bank said in a letter to the Fed. Single-counterparty credit limits “could have unintended impacts on non-U.S. financial systems,” Bank of Japan Executive Director Kenzo Yamamoto said in the letter dated April 28 and posted on the central bank’s website yesterday. It’s the second time since December that the central bank has expressed concerns about proposed U.S. financial rules, joining companies from Goldman Sachs Group Inc. to JPMorgan Chase & Co. The Fed curbs on counterparty risks for financial firms are aimed at containing the damage from the collapse of a bank or a government to prevent another global financial crisis. “It’s a polite suggestion from the
BOJ,” said Katsuhide Takahashi, Tokyo-based director of credit markets at Citigroup Global Markets Japan. “What the BOJ really means to say to the Fed is don’t make trouble for Japan’s financial system.” Mr Takahashi said the central bank could have been more explicit in asking the Fed to exclude Japanese government bonds and other developed nations’ sovereign debt from the rules, in the same way that U.S. Treasuries are exempted.
Money markets Under the rules, U.S. financial institutions could be unable to maintain “sufficient” amounts of reserves in their current accounts with foreign central banks, Mr Yamamoto said. Limits relating to non-U.S. sovereign debt securities may reduce liquidity and hinder money-market operations that use
them as collateral, the official said. “The counterparties of the Bank of Japan in conducting money-market operations include a number of U.S. financial institutions with current accounts with the bank,” he added. “The proposed rule therefore could reduce the effectiveness of the bank’s monetary policy conduct, and hamper the daily payments and settlements via the current accounts with the bank.” The Bank of Japan believes the Fed will find a “creative and practical solution” and avoid unintended consequences through international talks. The Fed plans to limit financial firms with at least US$500 billion in assets from having credit risk to any other exceeding 10 percent of its regulatory capital plus excess loan-loss reserves. That is stricter than a 25 percent restriction that’s applied more broadly to banks in the Dodd-Frank financialoverhaul law. Wall Street leaders joined in a closed-door meeting last week to lobby the Federal Reserve to soften proposed rules that they said could harm the economy. Chief executive officers including Jamie Dimon of JPMorgan, Bank of America Corp.’s Brian T. Moynihan and Goldman Sachs’s Lloyd C. Blankfein gave their views on Fed proposals to limit counterparty risk and proprietary trading. Bloomberg
Micron Technology to double market share M icron Technology won the right to negotiate exclusively to buy Elpida Memory Inc after offering more than 200 billion yen (US$2.5 billion) for the failed Japanese chipmaker, a source with direct knowledge of the deal said, paving the way for the U.S. company to more than double its global market share. By acquiring Elpida, Micron will boost its share to 25 percent, surpassing South Korea’s SK hynix
and becoming the second-biggest maker of memory chips used in personal computers, according to U.S. technology research firm IHS iSuppli. Samsung Electronics is the largest. Elpida, which also makes chips used in smartphones and tablets, has been searching for an investor to sponsor its restructuring after filing for bankruptcy protection in February with 448 billion yen in liabilities.
Part of the 200 billion yen will be used to repay Elpida’s debts and part of it will be invested in the chipmaker’s operations, the source said, declining to be identified because the negotiations are confidential. As of March 1, Micron held US$2.1 billion of cash and short-term investments, while long-term debt totalled US$2.2 billion, according to the company’s earnings statement for the quarter ended March 1.
sian stocks fell, with the regional benchmark index declining the most in six months, as concern grew that the European debt crisis may worsen after Francois Hollande was elected France’s first Socialist president in almost two decades. Mr Hollande, the first Socialist in 17 years to lead Europe’s secondbiggest economy, pledged to push for less austerity. Samsung Electronics Co., the world’s No. 1 maker of mobile phones by sales, dropped 1.3 percent in Seoul after U.S. employers added fewer jobs than expected. Sony Corp. sank 4.5 percent, leading losses among Japanese exporters on concern a weaker euro will damp overseas income. Miner and oil producer BHP Billiton Ltd. lost 4.1 percent in Sydney as copper and crude futures fell. “The situation in Europe is tough,” Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Asia Ltd, said on Bloomberg Television. The firm oversees about US$10 billion. “Very few nations can stand austerity. If the European Monetary Union stays the same, something has to give.” The MSCI Asia Pacific Index declined 2.4 percent to 121.14 as of 5:30pm in Tokyo, its biggest drop since November 10. About 10 shares fell for each that rose on the gauge. The measure lost 0.2 percent last week after Australia’s central bank cut its economic growth forecast and U.S. services industries expanded less than forecast, sparking concern the global recovery may be faltering. The Nikkei 225 Stock Average sank 2.8 percent as Japanese markets resumed trading after a four-day weekend. South Korea’s Kospi Index slid 1.6 percent and Australia’s S&P/ASX 200 Index closed down 2.2 percent, its biggest loss since December. Volatility rose as stocks tumbled. The Nikkei Stock Average Volatility Index surged 14 percent to 22.58, the highest since March 15. Futures on the Standard & Poor’s 500 Index fell 0.7 percent yesterday. The gauge sank 1.6 percent in New York on May 4 after a report showed payrolls climbed 115,000 in April, the smallest gain in six months and below economists’ estimates for a 160,000 advance. The jobless rate unexpectedly fell to a three-year low of 8.1 percent as people left the labour force. Bloomberg
The Nikkei 225 Stock Average sank 2.8 percent and South Korea’s Kospi Index slid 1.6 percent
May 8, 2012 business daily | 11
InBrief Philippines likely rose 5.2pct in Q1, says Aquino The Philippine economy likely grew at least 5.2 percent in the first quarter, the fastest pace in more than a year, according to the nation’s president. “First quarter excluding agriculture, I was told already” indicates a 5.2 percent expansion, President Benigno Aquino said in an interview in Manila May 4. “So far agricultural figures that have been sent my way, the prognosis is it has expanded also - so it will not serve to bring down the 5.2 but it will probably enhance it.”
Singapore inflation expected to ease Singapore’s central bank is committed to price stability in the medium term and monetary policy should temper but not totally offset cost pressures from the supply side, its deputy managing director Ong Chong Tee said yesterday. Mr Ong also said inflation was expected to ease gradually over the year. “With respect to cost pressures arising from the supply side, monetary policy should aim to temper but not fully offset this,” Mr Ong told a conference. “Over time, the cumulative appreciation of the exchange rate will temper the pace of price increases in the economy,” he added.
Suzuki recalls over 100,000 Swifts Japan’s Suzuki Motor said yesterday it will recall about 109,000 Swift subcompact cars worldwide, half of them in Japan, to repair a defect that may cause petrol leakage. The cars were produced between September 2010 and last month with 55,146 of them shipped to the domestic market and 53,801 others exported outside the country, including Australia, Mexico, and Europe, a company spokesman said. Suzuki said in a statement that an inadequate connection on the rubber fuel filler hose could cause petrol to leak.
India delays rule against tax avoidance Regulation delayed until the fiscal year beginning April 2013
ndia deferred a plan to clamp down on tax avoidance by a year after the proposals stoked concern that foreign investment will decline and hurt growth in Asia’s third-largest economy. The applicability of the so-called General Anti-Avoidance Rule, or GAAR, will be delayed until the fiscal year beginning April 2013, Finance Minister Pranab Mukherjee said in parliament yesterday. The burden of proving tax evasion will shift from the taxpayer to the revenue department, and steps will be taken to ensure the rule is applied objectively, he said. The rupee extended gains and Indian stocks erased losses after Mukherjee deferred the changes and cut capital gains tax for overseas investors. He originally announced the anti- avoidance measure, and a plan to ensure taxation of overseas deals in which an Indian asset is transferred, less than two months ago in the annual budget. “This should be positive in the short term,” said Prasanna Ananthasubramanian, chief economist at Mumbai-based ICICI Securities Primary Dealership Ltd. “I expect capital flows should pick up because the India-related uncertainty has gone away.”
Rupee up The rupee strengthened one percent to 52.96 per dollar as of 3:07 pm in Mumbai, while the BSE India Sensitive Index of stocks rose 0.5 percent. The currency weakened 16 percent last year, the worst performer in Asia. The yield on the most-traded 9.15 percent note due November 2024 fell four basis points, or 0.04 percentage point, to 8.656 percent as of 3:08 pm in Mumbai, according to the Reserve Bank of India’s trading system. The long-term capital gains tax rate for non-resident investors and private equity firms is being reduced to 10 percent from 20 percent, Mr Mukherjee said. Moves to clarify tax laws won’t override India’s double-taxation agreements and won’t be used to open cases where assessment orders have already been finalised, he said. India is grappling with the fastest inflation and widest fiscal deficit among the largest emerging economies, as well as a record trade
India decided to withdraw the excise duty on precious metals jewellery, finance minister says
shortfall that’s pressured the rupee. India’s economy expanded 6.1 percent in the three months through December from a year earlier, the slowest pace in almost three years.
Gold tax axed
The world’s largest bullion importer has also withdrawn the excise duty on precious metals jewellery, Mr Mukherjee said yesterday. Jewellers closed stores for three weeks in March in the longestever strike, after the government doubled import levies on gold and imposed a one percent excise duty on non-branded ornaments. The stoppage ended on April 6 after the government assured jewellers that their concerns would be
considered. The strike cost the industry about 200 billion rupees (US$3.9 billion) in lost revenue, according to the All India Gems & Jewellery Trade Federation. The tax removal may boost demand in India, increasing imports and bolstering global gold prices after they climbed 4.9 percent this year. “The Finance Minister has understood our problems and removed the tax on both branded and unbranded jewellery,” said Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation. “Demand should recover from now and imports will improve as jewellers who had not stocked up earlier will start buying.” Bloomberg
Indonesia GDP slowest in six quarters
Currencies slide on First-quarter growth was 6.3 percent from a year ago European elections Asian currencies fell, led by South Korea’s won and Malaysia’s ringgit, after the results of elections over the weekend in Europe stoked concern the region’s debt crisis may worsen. “With the Greek result, it’s doubtful whether they can stick to the reform package. We’ve seen a fair bit of risk aversion coming in,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. The won slid 0.6 percent to 1,138.50 per dollar in Seoul, according to data compiled by Bloomberg. The ringgit weakened 0.4 percent to 3.0555, the Singapore dollar dropped 0.5 percent to US$1.2484 and the Philippine peso lost 0.1 percent to 42.35.
ndonesia posted its slowest growth in six quarters in the first three months of this year as exports fell due to weaker global demand, and the central bank might have to hold its policy rate steady for the whole year to spur the domestic economy. Growth could further slow this year to the lowest since 2009 if private consumption and investment fail to compensate for weaker exports, and with a likely rise in inflation expectations, investors may be tempted to sell Indonesian assets for now. Government data yesterday showed first-quarter growth was 6.3 percent from a year ago, as expected,
and still among the highest in the region, but exporters expect a shrinkage this year due to the weak recovery in the U.S. and ongoing debt problems in the euro zone. “Our main export destinations are still Europe and the U.S. We are counting on the domestic market,” said Tutum Rahanta, secretarygeneral of the Indonesian Retail Association, which has seen clothing exports to both regions falling. In the January-March quarter, export growth slowed to 6.9 from a year earlier, after gaining 29 percent in full-year 2011 to a record high of US$203.62 billion. The G20 country is less exposed to exports than many of its regional
peers, with private consumption accounting for 55 percent of GDP. Foreign direct investment jumped 30.3 percent in the first quarter compared with the same period last year, following a double stamp of approval by rating agencies for Indonesia as an investment grade country. “The key will be to see how domestic demand performs in the coming quarters. While sentiment remains very supportive, we would caution that the recent weakness in the rupiah may be a concern in the near-term, at least to the extent that this may affect consumption,” said Gundy Cahyadi, economist at OCBC. Reuters
business daily May 8, 2012
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The resistible rise of Asia? Brahma Chellaney
Professor of Strategic Studies at the Center for Policy Research in New Delhi
favorite theme in international debate nowadays is whether Asia’s rise signifies the West’s decline. But the current focus on economic malaise in Europe and the United States is distracting attention from the many serious challenges that call into question Asia’s continued success. To be sure, today’s ongoing global power shifts are primarily linked to Asia’s phenomenal economic rise, the speed and scale of which have no parallel in world history. With the world’s fastest-growing economies, fastest-rising military expenditures, fiercest resource competition, and most serious hot spots, Asia obviously holds the key to the future global order. But Asia faces major constraints. It must cope with entrenched territorial and maritime disputes, such as in the South China Sea; harmful historical legacies that weigh down its most important interstate relationships; increasingly fervent nationalism; growing religious extremism; and sharpening competition over water and energy. Moreover, Asia’s political integration badly lags behind its economic integration, and, to compound matters, it has no security framework. Regional consultation mechanisms remain weak. Differences persist over whether a security architecture or community should extend across Asia, or be confined to an ill-defined “East Asia.”
Security problems One central concern is that, unlike Europe’s bloody wars of the first half of the twentieth century, which made war there unthinkable today, the wars in Asia in the second half of the twentieth century only accentuated bitter rivalries. Several interstate wars have been fought in Asia since 1950, when both the Korean War and the annexation of Tibet started, without resolving the underlying Asian disputes. To take the most significant example, China staged military interventions even when it was poor and internally troubled. A 2010 Pentagon report cites Chinese military preemption in 1950, 1962, 1969, and 1979 in the name of strategic defense. There was also China’s seizure of the Paracel Islands from Vietnam in 1974, and the 1995 occupation of Mischief Reef in the Spratly Islands, amid protests by the Philippines. This history helps to explain why China’s rapidly growing military power raises important concerns in Asia today. Indeed, not since Japan rose to world-power status during the reign of the Meiji Emperor (1867-1912) has another non-Western power emerged with such potential to shape the global order. But there is an important difference: Japan’s rise was accompanied by the other Asian civilizations’ decline. After all, by the
nineteenth century, Europeans had colonised much of Asia, leaving in place no Asian power that could rein in Japan. Today, China is rising alongside other important Asian countries, including South Korea, Vietnam, India, and Indonesia. Although China now has displaced Japan as the world’s second largest economy, Japan will remain a strong power for the foreseeable future. On a per capita basis, Japan remains nine times richer than China, and it possesses Asia’s largest naval fleet and its most advanced high-tech industries. When Japan emerged as a world power, imperial conquest followed, whereas a rising China’s expansionist impulses are, to some extent, checked by other Asian powers. Militarily, China is in no position to grab the territories that it covets. But its defense spending has grown almost twice as fast as its GDP. And, by picking territorial fights with its neighbors and pursuing a muscular foreign policy, China’s leaders are compelling other Asian states to work more closely with the US and each other.
Asian powers acting In fact, China seems to be on the same path that made Japan an aggressive, militaristic state, with tragic consequences for the region – and for Japan. The Meiji Restoration created a powerful military under the slogan “Enrich the country and strengthen the military.” The military eventually became so strong that it could dictate terms to the civilian government. The
The future will not belong to Asia merely because it is the world’s largest, most populous, and fastest-developing continent. Size is not necessarily an asset. Historically, small, strategically oriented states have wielded global power
same could unfold in China, where the Communist Party is increasingly beholden to the military for retaining its monopoly on power. More broadly, Asia’s power dynamics are likely to remain fluid, with new or shifting alliances and strengthened military capabilities continuing to challenge regional stability. For example, as China, India, and Japan maneuver for strategic advantage, they are transforming their mutual relations in a way that portends closer strategic engagement between India and Japan, and sharper competition
between them and China. The future will not belong to Asia merely because it is the world’s largest, most populous, and fastestdeveloping continent. Size is not necessarily an asset. Historically, small, strategically oriented states have wielded global power. In fact, with far fewer people, Asia would have a better balance between population size and available natural resources, including water, food, and energy. In China, for example, water scarcity has been officially estimated to cost roughly US$28 billion in annual industrial output, even though China, unlike several other Asian economies, including India, South Korea, and Singapore, is not listed by the United Nations as a country facing water stress. In addition to its growing political and natural-resource challenges, Asia has made the mistake of overemphasising GDP growth to the exclusion of other indices of development. As a result, Asia is becoming more unequal, corruption is spreading, domestic discontent is rising, and environmental degradation is becoming a serious problem. Worse, while many Asian states have embraced the West’s economic values, they reject its political values. So make no mistake. Asia’s challenges are graver than those facing Europe, which embodies comprehensive development more than any other part of the world. Despite China’s aura of inevitability, it is far from certain that Asia, with its pressing internal challenges, will be able to spearhead global growth and shape a new world order. © Project Syndicate
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May 8, 2012 business daily | 15
Merkel must pitch in to make wires Europe’s new growth pact work Business Leading reports from Asia’s best business newspapers
Taipei Times The Vice Minister of Economic Affairs Hwang Jung-chiou has been appointed as the new chairman of Taiwan Power Co (Taipower), after Edward Chen tendered his resignation on Saturday. Premier Sean Chen gave the approval on Sunday. Sean Chen’s statement came after the Ministry of Economic Affairs said in a text message on Saturday that it had approved Edward Chen’s resignation and recommended that Mr Hwang fill the vacancy.
Marc Champion Mark Whitehouse Bloomberg editors
Straits Times Hotel room rates in Singapore hit four-year high in February. Tourists paid an average room rate of US$273.70 in February, according to preliminary Singapore Tourism Board (STB) statistics obtained by the newspaper. That was the highest since September 2008’s US$302.90, when the inaugural Singapore Grand Prix Formula One race was held. Barring that instance, February’s rate is the highest recorded in at least the past decade. The average occupancy rate was 89 percent.
Jakarta Globe Indonesia’s economy grew more than 6 percent as domestic consumption and rising investment helped to counter a global slowdown that has damped exports, reducing the need for further cuts in interest rates. Gross domestic product increased 6.3 percent in the first quarter from a year earlier, compared with a 6.49 percent pace reported earlier for the previous three months, Indonesia’s statistics bureau said.
Asahi Shimbun Honda Motor Co. and Yamaha Motor Co. are going head-tohead as the leading sellers of motorcycles in Indonesia, the world’s No. 3 market. The two makers combined command more than 90 percent of the market for motorbikes and both are bolstering their sales efforts to meet demand in the fastgrowing economy. Honda held a 53 percent share in sales in 2011, at 4.27 million units, while Yamaha ranks second with a 39 percent share
Times of India Indian markets could have lost an estimated US$10 billion worth investments from overseas funds and foreign individuals over a period of little more than one month on taxation worries. These investors have either pared their exposure to the Indian securities or have deferred their investments ever since India proposed a new tax policy, the General AntiAvoidance Rule late in March 2012, industry sources were quoted as saying.
tung by a backlash against austerity policies, Europe’s leaders are planning to draw up a new agreement aimed at boosting economic growth in the euro area. If they want the pact to have any effect, all the region’s politicians — and particularly German Chancellor Angela Merkel — will have to step out of their comfort zones. Vague battle lines have already been drawn. Merkel and European Central Bank head Mario Draghi want to encode the kinds of labormarket, pension-system and other so-called structural reforms that’ll make the likes of France, Greece and Spain more competitive. French president-elect Francois Hollande wants infrastructure projects, funded by specialpurpose European bonds, to boost jobs and demand. Whatever other ideas might arise before the agreement
is drawn up, possibly as soon as mid-June, it must include at least three elements if it is to really help reverse Europe’s recessionary trend. First, Europe’s leaders must recognise that common deficit rules alone will not guarantee the currency union’s survival. When countries such as Italy and Spain fall into a spiral of shrinking output and rising budget deficits, countries with stronger economies must be willing to help, either by transferring funds or by stimulating their own demand.
German spending Currently, that would mean more German spending. If Europe’s largest economy were to increase its aggregate demand by a percentage point, it would boost output in the rest of the euro area by roughly half a percentage
When countries such as Italy and Spain fall into a spiral of shrinking output and rising budget deficits, countries with stronger economies must be willing to help, either by transferring funds or by stimulating their own demand
point, as Germans bought more imports and spent more euros sunning themselves on Greek and Portuguese beaches. The Bundesbank would also need to live with a little more German inflation than the current 2.1 percent. Higher prices in Germany would help make other euro-area economies and their exports more competitive, reducing both their current account deficits and Germany’s surplus. Second, the agreement should give Spain and Greece in particular more time to bring down debts piled up over the past 30 years. Requiring them to slash education, research and development, and other budgets will only stunt their future growth potential. To calm markets concerned about Spain’s deficits, the rest of Europe — Germany again — and the International Monetary Fund would have to provide more bailout funds. Finally, the pact should acknowledge one of the most immediate requirements for a return to economic expansion: recapitalisation of private sector banks so that they can start providing businesses with more credit. Without that, Europe is doomed to anemic growth and a persistent confidence crisis, no matter what documents its politicians may sign. Structural reforms, of course, are essential for stricken parts of Europe to return to sustained growth. Unemployment in the euro area is now
11 percent, with huge variations from Andalusia in Spain (31 percent) to Bavaria in Germany (just over 3 percent). Given Europe’s aging population, future growth is going to have to come from raising both employment levels and productivity, which means more labor market flexibility. A new commitment to structural reform — assuming it applied to everyone, including the Germans and Dutch – could help take some of the sting out of measures that Greeks and Spaniards feel are being forced upon them by Merkel and unelected Eurocrats. Such reforms, though, take a lot of time to produce growth, and it’s hard to imagine an agreement that could successfully monitor and enforce them. Back in 2000, for example, European leaders signed up to the so-called Lisbon Agenda, committing to labor-market and other changes that would make Europe “the most competitive and dynamic knowledge-based economy in the world.” Governments ignored the promises, and there’s no reason to believe writing them down again will make them happen now. More immediate measures are needed to pull Europe out of its combined debt, banking and economic crisis. Over to you, Frau Merkel. Bloomberg View
business daily May 8, 2012
CLOSING Clinton presses India on Iran oil
EU to move against Argentina on YPF
U.S. Secretary of State Hillary Clinton has urged India to buy less oil from sanctions-hit Iran. In Calcutta, she commended India for “working to lower purchases of Iranian oil” and hoped it would do more. India has been facing pressure to buy less Iranian oil amid sanctions against Iran over its nuclear programme, which Tehran says is for civilian purposes. “[The] reason why India, China, Japan, etc who are primary purchasers of Iranian oil, are being asked to lower supply is to keep pressure on Iran,” Mrs Clinton said on the first leg of her visit to India.
The European Union’s trade chief said yesterday he would soon take measures against Argentina over its decision to expropriate the stake held by Spain’s Repsol in oil company YPF, though he did not say what action he was planning. EU Trade Commissioner Karel De Gucht criticised “the growing tendency towards protectionism across Latin America” in a speech in Brussels. “We will soon be moving forward with a response to Argentina’s action in the Repsol case,” he said. Argentina has refused to pay Repsol the full amount the Spanish group wants for its stake in YPF.
HKEx Q1 profit slips, confident on LME bidding Exchange operator would consider issuing new shares if needed, says HKEx CEO
ong Kong Exchanges and Clearing Ltd said it was confident of winning an auction to take over the London
Metal Exchange (LME), the world’s largest metals trading market, as it looks to China to drive new business growth in the face of declining stock
‘HKEx’s core strength is developing the China markets,’ says CEO Charles Li
Hollande sets France on new path New French President vows to redraw a pact on EU budget constraints, saying ‘austerity can no longer be the only option’
rancois Hollande’s honeymoon after his election as France’s first centreleft president in 17 years was cut short yesterday by jittery financial markets eager for signals on his policies and how hard he will push back against German-led austerity. The Socialist beat conservative Nicolas Sarkozy with 51.7 percent of Sunday’s runoff vote after a bruising campaign dominated by the same anger over economic crisis that has felled 10 other European leaders since late 2009. After jubilant left-wingers partied in the streets into the early hours in Paris, financial markets stuttered as the victory of anti-austerity parties in Greece, more than Mr Hollande’s election, fuelled fears about a new chapter in Europe’s crisis. Mr Hollande, who delivered a victory speech in his rural base of Tulle in central France on Sunday before flying to Paris to address tens of thousands of supporters in
historic Bastille square, admitted the festivities would have to be short-lived. “There is a lot of joy and pride but also apprehension at taking on this responsibility at a difficult time for the country and for Europe,” he said. “In every capital, beyond the heads of state and government, there are people who have found hope thanks to us, who are looking to us and want to put an end to austerity.” Mr Hollande has vowed to rework a deal on government debt in eurozone member-countries to focus on promoting growth. Centre-right incumbent Nicolas Sarkozy will hand power to Mr Hollande on May 15, following talks between the two camps, the presidency has said. Mr Hollande has called for a renegotiation of a hard-won European treaty on budget discipline championed by German Chancellor Angela Merkel and Mr
out between traders, has invited binding bids from what is reported to be a shortlist including HKEx, CME Group Inc, NYSE Euronext and InterContinental Exchange Inc (ICE).
market activity. Speaking after the world’s secondbiggest bourse operator by market value posted a 7 percent dip in quarterly profit, HKEx CEO Charles Li declined to be drawn on a timetable for bids for the 135-year-old LME, which handles about 80 percent of global metal futures trading and could cost up to US$1.6 billion. “Last week we said we were studying it. There’s not a lot we can say on this,” Mr Li said through a translator. Noting media reports that other global exchanges were bidding, the 50-year-old former journalist and investment banker said: “Great minds think alike ... if major exchanges are participating, there must be some value.” HKEx ownership would bring the LME closer to China, the world’s biggest consumer of commodities such as copper and which accounts for around 60 percent of LME trading volume. “HKEx’s core strength is developing the China markets ... if there is any business involving any opportunity to enhance our ability in this regard we will consider it,” said Mr Li, adding the exchange operator would consider issuing new shares if needed. The LME, which is owned by its members and has Europe’s last trading pit where orders are shouted
“We will continue to consider opportunities of this type. Of course we are confident,” said Mr Li, who is in his third year as CEO and has previously been China head for both Merrill Lynch and JP Morgan. While funding a bid should pose little problem to the HKEx, analysts have said it may struggle to realise shareholder value from a deal. Ivan Li, an analyst at Kim Eng Securities, downgraded HKEx shares to a ‘sell’ rating late last month, citing weak earnings and concerns over an LME deal. “We believe the potential winning bidder is likely to overpay for LME, and a potential takeover is unlikely to create any synergy or bring any substantial profit to HKEx in the short term,” he wrote. Concern that HKEx may overpay for LME, if it goes ahead with an offer, has contributed to an 18 percent drop in HKEx’s share price in the past 11 weeks, while the benchmark Hang Seng Index is down around 3 percent. January-March net profit dipped to HK$1.15 billion (US$148.2 million) from HK$1.23 billion a year earlier, as revenue was crimped by a decline in daily stock market activity. Turnover in shares traded on the Hong Kong stock exchange fell to HK$63 billion from HK$75.3 billion a year earlier.
Sarkozy. Mrs Merkel congratulated the president-elect by phone and invited him to Berlin to hold talks soon. Chinese Foreign ministry spokesman Hong Lei said China’s President Hu Jintao had sent a message of congratulation to Mr Hollande. “China is ready to work together with the French side... to deal with bilateral relations from a strategic and long term perspective,” Mr Hong told journalists at a regular briefing.
Marc Ayrault, a veteran socialist parliamentarian and mayor of the city of Nantes, who is also a German speaker and could help build up relations with Chancellor Merkel. Mr Hollande is also expected to include some trusted old hands in his government like Mitterrand’s prime minister Laurent Fabius but add many younger faces. His economic team, led by centre-left former finance minister Michel Sapin, includes politicians, industry leaders and public officials seen as market-friendly. The new government’s primary task will be to prepare for more elections, this time for the parliament or national assembly, which will take place at the start of June.
Short party The French President-elect is now expected to start work on forming a new government. Favourite for the post of prime minister is Jean-
Francois Hollande beat conservative Sarkozy with 51.7 percent of Sunday’s runoff vote