Better safe than sorry

MOP 6.00
Closing editor: Joanne Kuai
Publisher: Paulo A. Azevedo
Number 696 Monday December 29, 2014
Iron rice bowl
C
Year III
asino workers were once invulnerable. But things are changing.
Employees in the city’s biggest industry are being advised by their
employers to consider taking unpaid leave amid slumping gaming
revenues. It’s better than being laid off. But definitely sounds alarm
bells. A casino job no longer means an ‘iron rice bowl’
PAGE
3
Lionel Leong:
Govt. to scientifically
regulate gaming
industry
PAGE 2
Japan to inject
US$29 billion into
economy
PAGE 11
The People’s Bank
of China changes
lending rules
Better safe
than sorry
Even the Chief Executive is accountable. Chui Sai On wrapped up his
four-day duty visit to Beijing on Saturday. Whilst there, he reported on
developments in Macau over the past 12 months to state leaders. The
central government voiced continued support for the SAR’s development.
But Chinese President Xi Jinping sounded a cautionary note. Calling for
greater initiatives and vigilance in governing risks that might affect Macau
PAGE
Great expectations
Swings and roundabouts
Melco Crown Entertainment Ltd. is hot. Reaching a
four-week high in New York trading as overseas casino
expansion boosts outlook. A Bloomberg Intelligence
analyst said Melco’s mass market growth was “notable”
Industrial profits fell last month. The most
in two years. Energy firms suffered the slide
more acutely than others. While technology saw
profits peak
PAGE 5
www.macaubusinessdaily.com 5
PAGE 10
HSI - Movers
December 24
Name
%Day
Galaxy Entertainment
3.80
Sands China Ltd
3.08
Power Assets Holding
1.97
Hong Kong & China Ga
1.85
CLP Holdings Ltd
1.58
Hang Lung Properties
0.23
Cheung Kong Holdings
0.08
China Shenhua Energy
0.00
Hengan International
-0.06
Hutchison Whampoa Lt
-0.22
Source: Bloomberg
PAGE 8
Uncorking the market
Cotai Phase II will inevitably revitalise the Macau wine market.
Timothy Feather, founder of Claret Wines, tells Business Daily
that his new venture is getting off the ground at just the right
time. With a network of contacts in place, long experience of
Macau, plus a storage and distribution infrastructure all set up,
his 25 brands are already moving. All sourced from ‘family’
vineyards. And all set to capitalise on new properties coming on
stream from 2015
PAGE 6 & 7
INTERVIEW
I SSN 2226-8294
Brought to you by
2014-12-29
2014-12-30
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2 | Business Daily
December 29, 2014
Macau
DICJ in vanguard
New year, new issues of tightening up
of gaming policy
opinion
José I. Duarte
Economist
T
he start of a new year is often
associated with the idea of a fresh
start or at least a time for renewed
focus and commitment to whatever
objectives are deemed desirable. ‘New year,
new life’ – or so the Portuguese say. In the
case of Macau, that may be the case in
more ways than one.
For a moment, let us assume that the recent
decline in gambling revenues becomes
permanent; or, in a more optimist tone,
that after a certain period of contraction,
revenue stabilises and a new growth path
is established – but at a much lower rate
than hitherto. Let us further admit that the
mainland anti-graft drive seeks to achieve
more than declared and lasts longer than
anticipated. Then, let us posit the central
government has decided to quell the
financial flows and pricing practices that
are in part – some might dare say mostly
– responsible for the remarkable results
achieved by the sector. Put into this mix
also a pinch of suspicion that the current
business model underpinning its success
is not preferred or tolerated anymore by
those whose hands opened the taps and,
therefore, can also choose to close them.
Finally, let us admit that the currently
installed capacity is enough for the new
regime implicit in all the assumptions made
up to this point.
The obvious question then becomes: what
are the consequences for Macau? Certainly,
depending on the objectives, values, and, in
general, preferences of the various economic
and social agents, the answers may vary
significantly, and the stakes will also be
significantly different for them. Regardless
of our individual cases, one thing is certain.
Whatever the evolution and the impact
on various sectors of society government
behaviour, translated into specific choices
and decisions, will be a critical factor in the
process and their impact on various sectors of
the population. So, should these assumptions
prove true or, at least, partly true, what the
government expects, what the consequences
it anticipates are, and how it is expected to
deal with them are not trivial issues.
More of the same will be a poor answer to
such a change in the operational framework
hitherto dominant. A new thinking and
new approaches are presumably needed
on almost anything one can think of.
Supervising or regulating the casinos, the
labour market, the financial sector, real
estate operations, education and training
mechanisms, on one side; providing public
services, handling transportation systems,
infrastructure, utilities, on the other side,
will require new ways to anticipate and
monitor the evolution of the economy,
to figure the challenges that evolution will
raise and the design of solutions that will be
adequate. That was already the case, to be
sure. But the changed regime, if confirmed, will
make it only more so. The illusion that no matter
what mistakes or omissions the administration
is responsible for it will always be possible to
paper over the cracks with unending amounts of
money will become untenable.
After (hundreds?) of studies, surveys,
analyses, comments, conferences, seminars
and other activities, the administration
must be in a position to frame these issues
better than anyone else. It has access to
information that nobody else has, sooner
than anybody else, and a vast army of
officers. Based on what they know about the
Macau economy and society, and the current
circumstances and intentions of all the
relevant actors, what can the government
say to its subjects about the New Year? It
is time these questions are asked, possibly
more frequently and vigorously than has
previously been the case. It is also time that
some answers are formulated and made
public. This promises to be a very interesting
year, at least as far as those involved in
social and economic analysis are concerned.
And the others?
Prior to the new gaming policy chief’s reiteration
that the gov’t would closely monitor the gaming industry,
the regulator is imposing stricter requirements on VIP
gaming promoters setting up accounts for their clients
Stephanie Lai
sw.lai@macaubusinessdaily.com
P
rior to the city’s new Secretary
for Economy and Finance
Lionel Leong Vai Tac stressing
on Friday that the government
would reinforce the monitoring of
gaming development, the Gaming
Inspection and Coordination Bureau
(DICJ) had already issued a notice
that a new measure imposing further
restriction on setting up a VIP room
account for gaming promoters will be
implemented on January 1.
The notice, which according
to industry sources was one that
was sent by the gaming regulator
DICJ to the VIP gaming promoters
here on December 19, states that
gaming promoters have to present
a certificate of criminal record –
one free of offences – before setting
up an account for their gambling
clients. This new measure would
apply from January 1.
“This could really impose a big
impact on new VIP gaming clients,
especially those from mainland
China as the new measure would
mean more inconvenience for
them to have an account here to
issue commissions [to promoters]
or withdraw gaming capital,
and they can only rely on local
gaming promoters,” a VIP gaming
industry source said, adding that
the requirement of the criminal
record certificate also applies to
VIP operation collaborators from
outside Macau.
While the new measure could
deal a further blow to weakening
VIP gaming revenue, casino
sources Business Daily spoke to
believe that the act was a longterm measure meant to assist
local law enforcement units’
scrutiny of capital flows into
the territory.
The new measure would
be yet another addition to the
government’s arsenal of curbs on
the flow of illicit funds through
Macau. Hong Kong newspaper
South China Morning Post reported
on December 17 that a coordinated
security drive would give China’s
Ministry of Public Security
electronic access to all transfers
through the China UnionPay bank
payment card system to identify
suspicious transactions, citing
unidentified sources.
The Secretary for Economy
and Finance spoke briefly to
media on Friday, saying that the
government would seek to regulate
the development pace of gaming
industry here, and continue to
monitor the flow of money through
the gaming hub.
“ F o r o u r u p co m i n g t a s k s ,
I believe that to regulate and
monitor the [gaming] sector is
very important,” Leong told media
on Friday.
“We’ll seek to regulate the
development pace [of casinos]
so that they grow at a reasonable
scale,” Mr. Leong said. “We’ll also
monitor the industry, including
the in and outflow of the capital
involved, and see to their human
resource allocation – with all of
these I believe that can assist us
in monitoring the industry better,
and making sure that the sector
is healthy.”
Mr Leong, who has succeeded
Francis Tam Pak Yuen, also noted
on Friday that his team would
work on analysing the non-gaming
elements that Macau’s six casino
concessions have developed so
far – an important factor in the
government’s review of the renewal
of the concessions.
Macau’s six casino concessions
expire from 2020 to 2022.
“Of course, there is not an
international standard in defining
what a non-gaming element should
be but it would not hinder our
works,” Mr. Leong said, noting
that his team would adopt a
“statistical” approach in analysing
the non-gaming elements the six
casino concessions have developed
but did not elaborate further.
“We’ll reflect to society how
the non-gaming elements have
been developed – whether they
have grown more diversified,
what has been the direction of
this development and how fast it
is growing,” Mr. Leong said.
Business Daily | 3
December 29, 2014 Macau
Unions: Croupiers
encouraged to take
unpaid leave
Unpaid leave has been more encouraged
in some of the city’s casinos amid
the declining gaming revenue seen
in recent months, sparking worries
amongst croupiers, unions say
Stephanie Lai
sw.lai@macaubusinessdaily.com
T
he city’s casino workers’
union, Forefront of Macau
Gaming, told us that starting
from November some of its members
have already realised that unpaid
leave has been encouraged amongst
gaming table workers – namely,
croupiers, supervisors and pit
managers. Macau’s influential
traditionalist labour union, the
Federation of Trade Unions, also
reports similar accounts by their
casino worker members.
“In November, we had already
received reports from our members
that City of Dreams [operated by
Melco Crown Entertainment Ltd]
had posted notices informing
croupiers that they could ask for
unpaid leave”, Forefront of Macau
Gaming’s vice-director Lei Kuok
Keong said. “Unpaid leave policy
is always there with all casino
operators here but we felt that it
has actually been more actively
encouraged now”.
“The latest example is MGM
Macau, which recently issued a
notice that suggests croupiers can
ask for unpaid leave – the longest
being two weeks – from January to
March next year”, Mr. Lei said. “In
these months the Chinese New Year
holiday is an exception, though,
as the vacation’s a peak period for
visitors coming.”
“For the members’ feedback on
unpaid leave so far, we’re not very
worried as the policy is meant as
a proposal, and appears to be of a
provisional nature”, Mr. Lei from
Forefront of Macau Gaming added.
“But our concern is how this policy
will further evolve when the casinos
face even harsher business conditions
in the months following the Chinese
New Year vacation, and whether
any cost control measures from the
operators’ side will affect workers”.
According to official data,
Macau’s gross gaming revenue
dropped 19.6 per cent year-on-year
to MOP24.3 billion in November,
making it the sixth straight month
in a row’s decline against the
backdrop of visa restrictions, antigraft initiatives from the Beijing
Government and tighter credit in
mainland China.
“We’ve confirmed with our
members that the unpaid leave is
just a policy on a voluntary basis”,
Federation of Trade Union’s vicedirector Leong Sun Iok told Business
Daily. “Still, we believe that it has
to do with the adjustment stage
that the gaming revenue growth
has entered into now.”
The deepest fear that the casino
workers have is the re-occurrence
of compulsory unpaid leave, which
some of them experienced in 2008,
Mr. Leong said.
The casino industry saw its
gaming revenue decline from
December 2008 to June 2009 as
a result of the financial crisis but
it recovered the following month
with a year-on-year growth of 3.1
per cent.
In a press release issued on
Saturday, the Labour Affairs
Bureau noted that it has not
received any enquiries or complaints
related to unpaid leave lodged by
casino workers.
4 | Business Daily
December 29, 2014
Macau
Brought to you by
HOSPITALITY
Consolidating trends
The number of visitors to Macau again
increased in November. More than 2.8
million persons visited Macau, a value
that represents an increase of almost 15.2
per cent relative to the previous year. The
biggest rise had been recorded in the case
of same-day visitors. The respective rise
was 22.9 per cent, more than three times
bigger than the 6.7 per cent registered for
overnight visitors. These figures seem to
confirm the previous trends, with most of
the rise in tourists coming from same-day
visitors. In fact, if the final values of last year
have not yet been beaten, that is caused by
a relative shortage of overnight visitors. The
total of same-day visitors up to November
was still some 340,000 visitors short of the
final figure for 2013; but the total number
of same-day arrivals was already more than
half a million visitors above the final figure
for that year. In relative terms, the two
last months of published data - October
and November - also correspond to the
biggest difference in the shares of sameday and overnight visitors. In both months,
the share of same-day visitors exceeded 55
per cent, the two highest figures since the
beginning of 2010. In that period, only in
three instances – June, July and December
2102 – did the share of overnighters beat
the share for same-day visitors, and then
only marginally. That is, the most recent
data suggests a rising gap is developing and
consolidating.
Melco rises as overseas
opening boosts outlook
3200000 M
2800000 2400000 2000000 1600000 1200000 Jan
-­‐1
Ma 0 r-­‐1
Ma 0 y-­‐1
0
Jul-­‐ 1
Se 0 p-­‐1
No 0 v-­‐1
0
Jan -­‐1
Ma 1 r-­‐1
Ma 1 y-­‐1
1
Jul-­‐ 1
Se 1 p-­‐1
No 1 v-­‐1
1
Jan -­‐1
Ma 2 r-­‐1
Ma 2 y-­‐1
2
Jul-­‐ 1
Se 2 p-­‐1
No 2 v-­‐1
2
Jan -­‐1
Ma 3 r-­‐1
Ma 3 y-­‐1
3
Jul-­‐ 1
Se 3 p-­‐1
No 3 v-­‐1
3
Jan -­‐1
Ma 4 r-­‐1
Ma 4 y-­‐1
4
Jul-­‐ 1
Se 4 p-­‐1
No 4 v-­‐1
4 800000 Total Same-­‐day Overnight Note, further, that the two indicators follow
very similar paths throughout the year,
displaying neat seasonal oscillations. Their
gap used, however, to increase mostly in
the first part of the year. The latest figures
suggest that the gap may be widening and
doing so in most months of the year.
J.I.D.
55.75%
record share
of same-day visitors
in November
elco Crown Entertainment
Ltd., a Macau- based casino
operator, rose to a threeweek high in New York trading on
optimism overseas expansion and a
shift to mass- market customers will
improve its revenue outlook.
Melco’s American depositary
receipts gained 1 percent to $25.05,
extending their advance to a third
day. China Life Insurance Co., the
nation’s largest insurer, surged 7
percent to the highest since April 2011
following a rally among financial
stocks in Shanghai. Property listing
websites also rose. The Bloomberg
China-US Equity Index climbed the
most in five weeks.
Melco’s 13 percent rebound from
a 17-month low reached last week
helped cut its retreat this year to
36 percent. The company, which
is testing its casino resort in Manila
before an official opening scheduled
for the Lunar New Year in February, is
venturing beyond the world’s biggest
gambling hub as China’s economy
slows. The company has shifted its
focus to mass-market customers after
revenue from high-end gamblers
dropped amid an anti-corruption
campaign led by Chinese President
Xi Jinping.
Melco’s recent jump “is coincident
with the soft opening of its City
of Dreams in Manila, which is a
unique catalyst for Melco” before
the opening of new Macau resorts
later in 2015, Tim Craighead, a
Bloomberg Intelligence analyst, said
by e-mail Dec. 24. Melco’s growth
in mass market was “notable,” he
said. “The recent bounce brings some
welcome, though limited relief to the
year’s stock drop.”
Macau Visitors
Visitor arrivals at Macau, the only
place in China where casino gambling
is legal, increased 15 percent in
November, accelerating from an 11
percent expansion in October and 3.1
percent in September, according to
data released by the Macau Statistics
and Census Service.
After declining 4 percent this
year, Melco’s revenue will rise 17
percent in 2015 to a record $5.7
billion, according to the average of
19 analyst estimates compiled by
Bloomberg.
The China-US gauge climbed 2.5
percent, the most since Nov. 21, to
110.61. It is on track to gain 4.3
percent for the year, compared with
a 6.9 percent climb in 2013.
China Life, based in Beijing,
advanced to $57.95 in New York,
rising the most in a month. It surged
10 percent in Shanghai as financial
companies were buoyed by speculation
policy makers will take more measures
to bolster the economy.
SouFun Holdings Ltd., China’s
biggest real-estate information
website, rallied 4.2 percent to $7.47,
and smaller competitor E-House
China Holdings climbed 2.7 percent
to $7.68.
China will probably scrap
housing purchase limits in 2015 as
home sale prices will fall about 5
percent, Zou Linhua, a researcher
at the government-backed Chinese
Academy of Social Sciences said
Friday at a press briefing, according
to China News Service.
The Deutsche X-trackers Harvest
CSI 300 China A-Shares ETF, the
largest U.S. exchange-traded fund
that tracks mainland Chinese stocks,
jumped 6.8 percent to a record
$36.16 in its second week of gains.
The iShares China Large-Cap ETF,
the largest Chinese ETF in the U.S.,
added 3.4 percent to $41.68, rising
the most in a month.
Bloomberg
Business Daily | 5
December 29, 2014 Macau
End of term report
Chief Executive Chui Sai On has
wrapped up his four-day duty visit
to Beijing, during which time he was
received by President Xi Jinping
and Premier Li Keqiang
Joanne Kuai
joannekuai@macaubusinessdaily.com
T
he central government
is very concerned about
Macau’s long-term stability
and the nurturing of local talent,
said Chief Executive Chui Sai On,
who was in Beijing for his annual
duty visit from last Wednesday
until Saturday, during which
time he reported to the central
government on the situation of
Macau in the past 12 months. He
was received by Chinese President
Xi Jinping and Premier Li Keqiang.
When meeting with Chui,
President Xi Jinping said “The
new government officials have
taken up their posts. I hope that
Mr. Chui can take the great
responsibility of strengthening
the sense of leadership and be
aware of unexpected problems”.
In a separate meeting, Chinese
Premier Li Keqiang said that the
extension of Customs hours and the
Hengqin around-the-clock service
are special measures for Macau,
reiterating the central government
would continue to support the SAR
as always.
“Macau is still in the stage of
development and adjustment,” he
said. “The central government will
extend various support to Macau
as always, to enable the city to
develop positively and to improve
people’s living quality”.
Summarising his duty visit to
the media at a press event in Beijing
on Saturday, Mr. Chui said that he
had reported to state leaders on
the work of the government and
the administrative highlights of
the coming year, and listened to
the state leaders’ opinions on the
development of Macau.
“We have listened to the
instructions of the leaders of the
country. I and my new team will
submit the policy directives in
March. We will strive to fit it
with my proposed policy platform
when I was running for Chief
Executive, and thoroughly match
it with the works that need to be
implemented”, Chui said.
When asked about the work on
specifying Macau’s jurisdiction
of its offshore waters, Mr. Chui
said that the central government
has already approved the
commencement of related research.
Macau will actively support,
participate and co-operate in
completing the task by December
2015 as instructed.
“At present, the water
management areas do not belong
to the Macau SAR. Reconstruction
of the Patane Water Market, the
ferry terminal, etc, has to go
through a series of procedures for
application and await approval. If
the management areas belong to
the SAR, I believe things will be
different from the past”, he said.
Chui Sai On added that President
Xi was particularly concerned
about the long-term development
of Macau, including its long-term
stability and governance and
stepping up of adequate economic
diversification. It is hoped that
Macau will achieve its development
goal by establishing itself as a
World Tourism and Leisure Centre
and a trade and business services
platform bridging China and the
Portuguese-speaking countries,
enhancing regional co-operation,
cultivating talented people and
resolving related restrictions.
He also said that the central
government has rendered full
support to the development of
diverse industries in Macau,
including Chinese medicine, culture
and creativity, tourism training
and high-end services. Thanks to
the state’s support and promotion
of the Chinese medicine industry,
the World Health Organization
has confirmed the setting up of a
Chinese medicine training centre
in Macau next year.
“Orderly political
development”
Chinese President Xi Jinping
and Chinese Premier Li Keqiang
also met with Hong Kong Special
Administrative Region Chief
Executive Leung Chun-ying last
Friday. Leung was also in Beijing
to report on his work to the central
government.
Xi Jinping urged that the
development of the political system
in Hong Kong be conducted in
accordance with the real situation
in Hong Kong and in a legal and
orderly manner.
“The central government
supports the HKSAR Government
in the development of Hong Kong’s
political system in accordance with
the rules set in the HKSAR Basic
Law and relevant decisions by the
Standing Committee of the National
People’s Congress,” said Xi.
Premier Li said that the central
government would continue
to uphold the “One country,
two systems” concept and the
principles of “Hong Kong people
administering Hong Kong” and
“Macau people administering
Macau” with a high degree of
autonomy.
In the past year, Leung and the
Hong Kong SAR Government were
unfazed by difficulties, maintained
the region’s overall stability and
achieved new development, Li said,
adding that the central government
“fully endorses the work of Leung
and the SAR Government”.
The premier also called on
Hong Kong people to preserve
the achievements of the city as an
important international financial
hub, trade and navigation centre.
Leung said that the ShanghaiHong Kong Stock Connect scheme
is enhancing Hong Kong’s
connection with the mainland and
boosting Hong Kong’s financial
sector. He vowed to develop the
economy, improve the quality of
people’s lives and push forward
the development of the region’s
political system.
CE supports Rosario’s
decision to appoint Li Canfeng
C
hief Executive Chui Sai On said
that he approves of Raimundo
do Rosario’s decision to choose
Li Canfeng as the director of the
Land, Public Works and Transport
Bureau (DSSPOT). He was speaking
to reporters at a briefing on Saturday
following his four-day duty visit
to Beijing.
Li Canfeng served as deputy
director of DSSOPT between 1998
and 2008. During Ao Man Long’s trial
in 2007, he repeatedly said he could
not remember details related to the
case when giving testimony. When his
appointment as Bureau director was
announced many questioned whether
the decision was appropriate.
“We do conduct integrity
evaluation of any appointed top
officials and we choose them according
to their educational background
and experience. Mr Li Canfeng was
commissioned by Secretary Raimundo
and he had reported to me the entire
appointment process and why he
chose him and I have approved that.
But I won’t comment on anything
regarding the testimony in the courts
or anything related to things like
that”, said Chui Sai On.
Last Friday, the first day the new
government officials took up office,
DSSOPT issued a statement saying
that during an internal meeting of
the Bureau, Li Canfeng said that in
the past six years that he was not
in public service he had not been
involved in any private construction
project in Macau. Besides studying
on the mainland, Li was in Sichuan,
Guangdong and some other places
doing architectural design and other
technical works. When speaking to
reporters, Li also said he was happy
to be back in the office but felt the
pressure. However, he said he was
confident of doing a good job.
6 | Business Daily
December 29, 2014
Macau
Life and times of a wine connoisseur
After two years of no new openings of hotel-casinos in the territory the time
is ripe for new properties to emerge in Macau. With their opening, the wine market
should also increase significantly. At least, that’s what Timothy Feather,
the proprietor of recently founded Claret Wines, anticipates
Luciana Leitão
leitao.luciana@macaubusiness.com
Photos by Ruka Borges
I
n an interview with Business Daily,
wine expert Timothy Feather
said he sees potential in the new
openings that should occur up to
2018, opportunities that prompted
him to enter the market with a
new company. He acknowledges,
nevertheless, that Macau’s market
is getting tougher as it’s becoming
crowded and distributors from the
neighbouring region are entering the
territory supplying the same brands
at cheaper prices.
Why did you decide to set up Claret
Wines?
Claret is still a baby, two months
old. It started officially in October
but it wasn’t really selling; it
was just getting the office ready
and setting up the warehouse,
everything you need to do when
setting up your own company.
Considering Macau is a small wine
market and there’s already so many
wine companies, is there room for
one more?
I’ve been in Macau for many
years, since 1987. My background
is hotels — I started working in
Mandarin Oriental. My goal in
2002 was maybe to start a wine
company with what I had learned
in the UK but it didn’t quite work
out that way. I was offered a great
job at Sands, which was in its preopening stages at the time. I ended
up staying five years at Sands as
a beverage manager, which had
some part of wine. I left Sands
to go to MGM, doing almost the
same thing. And then somehow
along the way I met the guys from
Summergate and they made me
a good offer. Again, I ended up
for seven years with Summergate
but I learned a lot. We were
predominantly selling to the hotels
but also to restaurants, bars, pretty
much everywhere. I managed to
go to the fourth level of the WSET
[Wine and Spirit Education Trust].
Last year, things started to come
together. This has always been in
the back of my head. Financially,
we became able to do that and
at the same time, although I was
happy with Summergate Fine
Wines & Spirits, I was reaching the
glass ceiling — I was the director
of the office, so there was nowhere
to promote me to. The other reason
being that Macau was coming
out of a slow period of two years
- ever since 2003, there’s been a
hotel opening every single year
and in 2013/2014 there has been
nothing significant opening, but
now we look ahead — 2015 all the
way to 2018. There’s a massive
amount of openings [to come] new businesses, new casinos, new
opportunities, so if I’m going to do
it, now is the perfect time. By the
time 2015 comes up, I’m ready
— I have stocks, I have wine, I
have my services; I also consult,
if that’s required, on wine lists.
For the next four years [I will
Macau was coming out
of a slow period of two
years - ever since 2003,
there’s been a hotel
opening every single
year and in 2013/2014
there’s been nothing
significant opening, but
now we look ahead —
2015 all the way to 2018
be] working on openings, hotels,
showcasing my products. My
portfolio is still small. My business
is still small. But I’m going to grow
myself gradually, slowly — in fact,
my original plan was to take 15
brands and then stop but I kind
of ended up doing 25 brands. I
decided to give my portfolio a
theme.
What is your theme?
My theme is basically a theme
of family-owned estates because
my business is what I call family
owned — it’s just me, there are
no partners, just my wife behind
me. It’s a family business. A lot of
my wineries are bio-dynamics and
organic; there’s been a growing
demand for these in the last three
years, so I’m kind of following the
trend.
That’s your point of difference with
your competitors?
That’s the difference from the big
ones. Basically, I don’t work with
any huge corporations. I decided to
work with smaller, artisan, family
owned, handmade wines made
with a lot of experience and a lot of
love and hard work.
Will your target clients be hotelcasinos?
Primarily, yes. Having said that,
I’ve been quite surprised at the
demand by private clients. In
fact, when you start working with
casinos, they don’t come on board
immediately because there’re a
lot of processes involved — they
can’t just change their wine list;
you have to be patient, which
I’ve been quite lucky with. In the
first six weeks I’ve been open, I’ve
had quite a huge response from
private sales — not just from
friends but from old contacts and
Business Daily | 7
December 29, 2014 Macau
people I don’t even know, asking
to see the portfolio and the orders
have been quite good. And then
in January the hotels will start to
come online, which is another goal
of mine. Once the hotels start to
change their wine lists, it’s usually
in January. So, from January I’ll
start selling to the hotels and by
June I’ll look at the portfolio again
and maybe fill a few more gaps
because I don’t have every country
represented. I have the most
important ones — the biggest gap
would be Germany but I’m waiting
for the right thing.
I would like hotel-casinos to be the
major part of our business but at
the same time I want to develop
more corporate accounts, not
just from private customers but
companies who do gifting during
Chinese New Year, Mid-Autumn
Festival, and so on. I would expect
80/90 per cent of my business to
be with the hotel-casinos.
Considering the type of
consumption in Macau, is your
portfolio following the trend?
My portfolio follows the trend.
You have to look at the import
statistics. France is always king
in terms of value, then you have
Portugal, which is usually in terms
of volume, and then Australia
has continued to grow. If I were
to break my wine list down by
percentage, my biggest is from
France, the next is from Australia
and the rest is an even mix from
other countries. The more that I
see coming from other countries
I’m reflecting that as well.
Looking at the wine import
statistics, do you see the trend
changing over the past years?
One thing that I’ve noticed in the
past couple of years is the change
in the drinking habits of young
Chinese professional workers.
Some of them may have studied
overseas and learned about wine
there, some may have caught the
bug from their friends, but you
see a definite increase in young
20-something or 30-something,
who have a decent income training
up on what they drink. There used
to be a pretty big gap in the Macau
market — there were a lot of entry
level wines sold and then you had
the high-end wines, which were
going into the casinos, for the high
rollers. There has traditionally
been a bit of a gap in mid-level
wines but what I’ve seen in the last
few years is that this is improving
a lot. That’s quite encouraging and
this is a growing trend. It’s still not
very strong but it’s on the right
track. That’s nice because then
there will be more balance — it
was pretty unbalanced before.
The wine market in Macau must
be a very atypical one, considering
you have tourists — coming mostly
from Mainland China — and locals.
How do you satisfy the consumption
needs of these two distinct
segments?
To be honest, tourists don’t
consume that much. They usually
come to Macau for a day, they
don’t have much time, they’re on
a bus and taken around. I haven’t
targeted them yet. They may take
a bottle on the border gate or they
may go to the casino. Having said
that, they may go to the casino and
have a glass of wine when they’re
playing. Maybe some of that is
going to the low-end wines but it’s
not had a huge effect.
The wine lists from hotel-casinos
are targeting mostly tourists?
They [wine lists] are mostly
targeting locals. You have the
tourists that come in on huge tour
I’ll focus on Macau for at least two
to three years. If things develop
well, then maybe. I won’t touch
Hong Kong because Hong Kong
is not only competitive but quite
brutal. The competitors are much
more professional and not as easy to
compete with. China, maybe; it’s a
huge country. I’ve considered doing
[business] in Zhuhai or Zhongshan,
those regions, but again importing
wine into China is problematical,
there’s a lot of documentation
required, and so on.
groups but they’re not going into
a restaurant, sitting down and
drinking a bottle of wine. If you’re
talking about tourists who come
here by themselves for a day-trip,
yes, they may have a bottle of wine
but I would guess that’s probably
a smaller percentage — it’s mostly
made up of the huge Chinese tour
groups who come on buses and
they don’t have much choice as
to where they go. But there are
some guys who come on their own
from Hong Kong, Thailand and
wherever. I think they’re more
aiming at the locals because they’re
the crowd that keeps coming back.
Even the players, high rollers or
junkets are not targeted?
Those guys [junkets] we don’t
see much of. They go straight to
private rooms and they usually
[order] expensive stuff, which is
usually Bordeaux, but now they’re
increasingly going for Burgundy
because the Bordeaux market has
dropped quite a lot in the last
two years, and for many reasons:
overpricing, lack of confidence
whether it’s real or not because
there’s a lot of [fake] bottles
hanging around in China and
this has really affected people’s
confidence in the brand, so unless
you really know who you’re
buying from you need to know the
provenance of the wine. The drop
in the Bordeaux market has really
opened up the door for Burgundy
— Burgundy isn’t the traditional
thing that your Chinese consumer
likes because it’s so much lighter,
much more delicate but, to be
honest, a lot of them are not
drinking it for the taste but for the
face value.
Usually, Macau is seen as a
stepping-stone to entering the
Mainland China market. Is that
really the case?
Especially when I was in
Summergate, they would look at
some of our brands and say ‘we
want this brand to be in a casino
because we want all these guys that
There has traditionally
been a bit of a gap in
mid-level wines but
what I’ve seen in the last
few years is that this is
improving a lot
come to gamble to see this brand
and take this knowledge back to
China’. For me, maybe not, but for
some of the bigger wine companies
who have significant business in
China, like Summergate or ASC,
it’s always a goal.
But is it easy to graduate from the
Macau wine market to Mainland
China?
I’m not sure how it worked out
— whether it actually worked for
people who took their brand and
went back to China. Maybe; it’s
difficult to quantify.
Still, they’re very different markets?
Totally. You have Greater China,
Hong Kong and Macau — three
markets, totally different. Obviously
Hong Kong is more sophisticated,
almost like a wine hub; it’s almost
the centre of the wine world because
all of the big events go to Hong
Kong. Then you have Macau, which
is far from Hong Kong but growing
in sophistication every day. Then
you have China, which is still in its
infancy. China went through a big
surge; it started in 1999, and the
wine imports in China skyrocketed
for 10 or 15 years. Now, what we’re
seeing in China is a totally flat, if
not dropping [wine market] as a
result of two main things — the
government’s austerity measures,
about people not being able to be
so flashy and drink expensive wines
and expensive brands, so that’s
an effect. The second effect is that
people have overloaded China with
wine. From what I understand,
there are warehouses all around
China bursting with wine, which
is not moving as fast as they want
it to. This is another reason for the
slowdown — a lot of wine is still
sitting there and I guess a lot of it is
not in good condition. We have this
thing in China called the wine lake
— the wine lake is you have some
wine producers who will sell wine
containers to China and you will
never know what happens to the
wine once you get it to China. Some
guys don’t care, they don’t want to
know and many other guys are the
opposite — they sold a lot of wine
to China and ‘I would really like to
know where my wine is going but
my distributor is not telling me’.
It depends on who you’re working
with — if you’re working with a
big [company] you will know. It’s
almost a mystery.
So, it’s a risky market?
Yes. Summergate was lucky —
they were there at the beginning
of the wine market surge when
there were only a few companies.
Then, suddenly you had all the
competitors coming in and the wine
became much more challenging.
For your company, which is small, is
it your goal to enter the Mainland
China market?
Has the wine business in Macau
grown as much as expected a few
years ago?
It’s still growing but not growing as
fast — too many chefs and too many
distributors.
I [founded] this company knowing
that I have connections, I know the
market very well, I know the hotels,
and I know the people. Coming
to the Macau market without any
knowledge and without knowing
the people, I probably wouldn’t do
it right now. I would’ve done it six
or seven years ago, when the market
was more open but right now it’s
quite a crowded market.
Another challenge that we see is
coming from Hong Kong. The
Hong Kong wine market has also
not dropped but it has flattened,
as well, maybe affected by China.
This has made a lot of Hong
Kong distributors turn and look
at Macau. We find it difficult
because sometimes they’re parallel
importing, which means they’re
importing the same brands and so
its something we local distributors
maybe even get together over and
discuss. We’re competitors but at the
same time we’re the local guys and
we’re now seeing this huge surge
of distributors coming from Hong
Kong. Of course it’s not illegal —
they can do what they want. Some
casinos are quite loyal and will give
more support to local suppliers but
others will just buy whatever is the
cheapest. Now it’s already pretty bad
and we’re thinking: what happens
when the [Hong Kong-MacauZhuhai] bridge opens and they can
get in even faster? It’s a small worry
but we may [have to] do something
about it.
Are these Hong Kong competitors
becoming more aggressive and able
to surpass the locals?
Whether they can surpass [us]
or not, I’m not sure. What I
understand from speaking with
clients is that on several occasions
they’re not able to deliver on
their promises because in terms
of delivery time they don’t have a
warehouse in Macau, and stocks
in Macau, so a few customers
have been disappointed and kind
of burned by that but the bridge
might help them. It’s something
to be aware of. I thought about
forming an association, not only
for this but also in the future —
sometimes you might have three
events on the same day and that’s
not helping anybody, we’re just
cannibalizing each other.
You’ve mentioned that you expect
an increase in business due to the
coming openings. Do you expect
that to change the type of wine
market in Macau?
I think they will. New casinos
always want to add something
new and they always want to be
different. One problem is a lot of
them have similar wines, so there’s
an advantage for someone like
me. I’m opening up a portfolio
of wines which has never been
seen in Macau before, so I feel
confident people will want to try
my wines because people want to
try something different.
8 | Business Daily
December 29, 2014
Greater China
Qualcomm case
to be settled soon
The Chinese government said that it will
soon settle its antitrust investigation of
U.S. mobile chipmaker Qualcomm Inc.
The National Development and Reform
Commission (NDRC), the country’s antimonopoly regulator which launched a
probe of the San Diego-based company
13 months ago, said the case would
be settled lawfully, according to an
online statement. The notice cited Xu
Kunlin, director general of NDRC’s antimonopoly bureau. The NDRC also said
it had completed its seventh round of
discussions with Qualcomm President
Derek Aberle and his team earlier this
month.
Strong new listings
in 2015
Hong Kong’s stock market is forecast
to raise HK$180 to HK$220 billion
(US$23 to US$28 billion) from about
110 IPOs next year, backed by a large
pool of candidates seeking to be listed,
according to a report by Deloitte China.
Seven to eight large-scale initial public
offerings (IPO), mainly from financial
institutions
and
pharmaceutical
companies, are expected among Hong
Kong’s IPO activities, said the report.
The financial institutions include small
and medium-sized banks, insurance
companies, and brokerages that serve
clients across the border, Deloitte said,
adding that Internet financing and
interest rate liberalization are spurring
the new listings.
Financial support
for “going global”
The government will increase financial
support for Chinese companies
investing and operating overseas, or
“going global”. Better financing can
make more use of excess production
capacity and promote cooperation
with foreign companies, according
to a statement released after a State
Council executive meeting presided
over by Premier Li Keqiang. Approval
for overseas investment should be
made easier to obtain, including the
procedures for listing, mergers and
acquisitions overseas and for banks
setting up overseas branches. China
will ensure financing support for exports
of large equipment.
Civil aviation industry
flies higher
Civil aviation sector has grown steadily
this year with profits in the first 11
months hitting 29.94 billion yuan (US$4.7
billion), Chinese civil aviation authorities
said. The figure has surpassed annual
profits in 2013, according to Li Jiaxiang,
head of the Civil Aviation Administration
of China (CAAC). The civil aviation
industry achieved robust growth in
2014 by extending airports’ operating
hours, optimizing flight routes and
promoting global integration, Li said
at a national work conference on civil
aviation in Beijing.
Industrial profits
suffer sharpest fall
in 27 months
Oil, coking coal and nuclear fuel processing industries
saw their profits slide by 34.2 percent
Pete Sweeney
C
hinese industrial profits
dropped 4.2 percent in
November to 676.12 billion
yuan (US$108.85 billion), official
data showed on Saturday, the biggest
annual decline since August 2012 as
the economy hit major unexpected
headwinds in the second half.
Despite last month’s drop,
profits for January-November were
5.3 percent higher than in the first
11 months of 2013, according to
the National Bureau of Statistics
(NBS) data.
The NBS attributed November’s
profit drop to declining sales and
a long-running slide in producer
pricing power.
“Increasing price falls shrank the
space for profit,” the agency said.
It said the impact of prices for
coal, oil and basic materials falling
to their lowest levels in years “was
extremely clear”.
As the NBS analysis suggested,
the net slide in industrial profits was
driven primarily by weakness in coal
mining, and oil and gas industries,
where November profits tumbled
from a year earlier by 44.4 percent
and 13.2 percent respectively.
Oil, coking coal and nuclear fuel
processing industries saw their profits
slide by 34.2 percent, according to
the data.
On the upside, Chinese technology
industries saw profits grow sharply
last month. Telecommunications
firms saw a 20.7 percent increase,
electronics and machinery grew 15.1
percent and automobile manufacturers
enjoyed a 16.7 percent gain.
“This suggests that on the
one hand, in the context of
weak investment demand, stable
consumption demand provided a
certain degree of support; on the
other hand, promoting industry
Liquidity management
objective of central bank
T
he head of China’s central
bank’s research department
told a forum in Beijing that
China’s current monetary policy
is appropriate but that liquidity
management is increasingly important
in the face of high funding costs.
The remarks by the People’s Bank
of China (PBOC) research bureau
head Lu Lei were reported in the
official Securities Times newspaper.
“On the one hand, we can see the
difficulties in fundraising in the real
economy, being both difficult and
expensive,” he was quoted as saying.
“On the other hand, we see high costs
for off-balance sheet financing at a
large number of banking institutions;
these are two sides of the same coin.”
He said next year could see more
policy adjustments to reduce funding
costs, buttressed by the creation of
new financial products and services.
The comments follow the PBOC’s
surprise cut in its benchmark lending
rates in November, accompanied by
moves to inject cash into the system
through new short- and medium-
We can see the difficulties
in fundraising in the real
economy, being both
difficult and expensive
Lu Lei
PBOC’s research department head
term instruments.
Sources say the PBOC has also
told financial institutions it will
further ease loan-to-deposit ratio
requirements, having already relaxed
their enforcement in October, freeing
up more liquidity by unlocking existing
cash held by banks and in theory
increasing their propensity to lend.
The preference for more targeted
instruments and behind-the-scenes
easing is seen as less risky than a
system-wide cut in the bank reserve
requirement ratios (RRR), which
could pour as much as 2.4 trillion
yuan of fresh cash into the system
after accounting for the moneymultiplying effect of fresh lending.
However, while bank lending
rebounded in November, there is
little sign of an impact of funding
on lending rates, and the lending
rebound coincided with a massive
leverage-driven rally in China’s stock
markets, raising concerns that more
cash will only flow into speculation
instead of productive investment.
Reuters
Business Daily | 9
December 29, 2014 Greater China
Trade growth seen
missing target
The Chinese Academy of Social Sciences
predicted that real estate prices
in Chinese cities would continue
to slide in 2015
C
restructuring is having a positive
effect on efficiency,” the NBS
analysis said.
However, the unbalanced nature
of the performance highlights a
quandary regulators face. They want
to restructure the Chinese economy
away from credit- and energyintensive heavy industries toward
lightweight technology products and
services, yet they must also avoid
causing a crisis in the financial system.
If Beijing allows mass closures
among its sagging erstwhile industrial
champions in the name of economic
transformation, it also risks forcing a
wave of bad loans onto bank balance
sheets. That would make banks
even more reluctant to lend to the
next-generation companies which
authorities want them to support.
Economists are debating whether
the monetary easing steps taken
in recent months - including late
November’s surprise interest rate cut can prove effective in a context where
many companies are seeking fresh
capital primarily to roll over existing
debt amid weak customer demand,
while China’s most successful firms
remain reluctant to borrow.
Reuters
hina’s trade will grow 3.5
percent in 2014, implying
the country will fall short of
a current 7.5 percent official growth
target, according to a report on the
Ministry of Commerce’s website that
was subsequently revised to remove
the numbers.
The initial version of the report
published on the website on Saturday,
which quoted Minister of Commerce
Gao Hucheng, was replaced with
a new version that had identical
wording but with all the numbers
and percentages removed.
The Commerce Ministry did not
answer calls requesting comment on
the reason for the change.
China’s trade figures have
repeatedly fallen short of expectations
in the second half of this year, providing
more evidence that China’s economy
may be facing a sharper slowdown.
Foreign direct investment will
amount to US$120 billion for the
year, the earlier version of Ministry
of Commerce report said, in line with
official forecasts. The earlier version
of the report also said outward nonfinancial investment from China could
also come in around the same level.
That would mark the first time
outward flows have pulled even with
inward investment flows in China, and
would imply a major surge in outward
investment in December given that
the current accumulated level stands
slightly below US$90 billion.
The earlier version of the report
also predicted that retail sales growth
would come in at 12 percent for
2014, in line with the current average
growth rate.
In a separate report, the Chinese
Academy of Social Sciences predicted
that real estate prices in Chinese cities
would continue to slide in 2015,
with third- and fourth-tier cities
hit hardest. But it said the market
would have a soft landing as local
governments take action to provide
further policy support to the market.
Reuters
KEY POINTS
China’s total trade to grow
3.5 pct in 2015
Current official target at 7.5
pct for year
Outward investment could
pull even with inward
Chinese property slide will
continue in 2015- CASS
Seoul-listed Chinese small-caps find favour
With valuations at deep discounts of 50 percent or more to the KOSPI average,
they are drawing interest from investors more willing to take risks
Joonhee Yu
S
mall Chinese companies little
known even in their home
market are finding favour
among Korean investors looking for
bargains and high-growth stocks,
with China’s easing of capital controls
and a free-trade agreement helping
to stir up interest.
Seven out of 11 Chinese companies
trading on South Korea’s stock markets
posted double- or even triple-digit
percentage gains over the past three
months, while the broader markets
suffered losses of more than 4 percent.
Korean investors, worried about
governance issues, have typically been
wary of the small Seoul-listed Chinese
stocks, many too tiny to consider a
listing in North America or Europe.
China Gaoxian, a textiles company, was
delisted from the main KOSPI exchange
in 2013 after an accounting scandal.
Screens showing South Korea Stock
Exchange data
But with valuations at deep
discounts of 50 percent or more to
the KOSPI average, they are drawing
interest from investors more willing
to take risks, especially if they show
solid growth prospects.
“Given how cheap these stocks
were, I would say we’re now in the
process of normalisation,” said Park
Suk-jung, an analyst at HI Investment
& Securities. He said there was no
worry, at least yet, to worry about a
price bubble.
China Ocean Resources Co, a
fisheries company, has surged by
five-and-a-half times during the past
three months while home appliance
maker Wayport HK Co Ltd has gained
73 percent.
“These are companies that have had
a hard time being noticed back in the
mainland, but they can enjoy a more
significant profile in a smaller market
such as South Korea,” said Kim Yonggu, an analyst at Samsung Securities.
A key trigger for the rally was the
prospect for relaxed capital controls,
which would make it easier to collect
dividend payments. The Hong KongShanghai stock connect scheme, which
last month gave foreign investors
direct access to mainland shares, has
particularly raised hopes for further
opening in China.
“The dividend restrictions are
coming down, which was one of the
main obstacles holding back local
investors from making determined
bets in Chinese stocks,” said HI
Investment’s Park.
China and South Korea also
concluded negotiations last month
on a free trade deal with a promise
to sign it in the coming months, while
a direct yuan/won market opened its
doors on Dec 1, allowing for easier
and cheaper transactions.
Reuters
10 | Business Daily
December 29, 2014
Greater China
Central bank to widen
deposit base for banks
The move is seen as an additional
attempt to reinvigorate productive
business investment without resorting
to an across-the-board cut to reserve
requirement ratios
Headquarters of the People’s Bank of China
T
he People’s Bank
of China (PBOC)
will change rules
governing how loan-todeposit ratios are calculated
at banks starting from next
year, according to a copy of a
central bank document seen
by Reuters, in a move that will
boost liquidity conditions.
The PBOC will include
savings held by banks for
non-deposit-taking financial
institutions in banks’ deposits,
which will expand the base for
calculating loan-to-deposit
ratios, the document said.
Sources with knowledge of
the situation had told Reuters
last week that the PBOC was
weighing such a rule change.
Under the current rules,
Chinese banks are allowed
to lend up to 75 percent of
their deposits.
The PBOC did not respond
to requests for comment.
The sources said 24 major
financial institutions were
told at a meeting that even
if interbank deposits are
included in the base, they
may not need to set aside
additional reserves, leaving
more liquidity available for
lending and investment.
The move is seen as
an additional attempt to
reinvigorate productive
business investment without
resorting to an acrossthe-board cut to reserve
requirement ratios (RRR).
A 50-basis-point cut to the
RRR would pour an estimated
2.4 trillion yuan (US$386
billion) into the system after
taking into account the
Shanghai free trade zone to expand
The measure will allow companies in the extended areas
to take advantage of existing preferential policies
Pete Sweeney
money-multiplying effect
of fresh lending on the net
money supply.
Chinese stock markets,
which had pulled back from
recent peaks hit early last
week, rallied sharply on
Thursday and Friday after
rumours of the meeting began
circulating in local media.
The CSI300 bank index rose
more than 10 percent in just
two days.
Sources told Reuters the
PBOC had already effectively
loosened enforcement of
standing loan deposit ratio
rules to allow more capital
to flow into the system in
late October, prompted by
a raft of concerns including
looming deflationary pressure
and sliding industrial activity.
However, that loosening
was followed by a massive,
heavily leveraged rally in
the Chinese stock market,
without any noticeable
impact on lending or shortterm money rates.
This is bad news for
reformers, economists say,
as it suggests that previous
easing measures have once
again flowed primarily into
speculative ventures, as they
did during China’s stimulus
package in 2009, widely
blamed for producing asset
bubbles and bad debt.
Reuters
authorise competing zones in
other cities, it also launched
nationwide pilots testing
liberalisation for currency
controls and cross-border
investment, most recently
the Shanghai-Hong Kong
Stock Connect programme,
that diminished the zone’s
relative appeal.
Ending isolation
C
hina will dramatically
expand the size of a
free trade zone (FTZ)
in Shanghai to include the
city’s commercial centre
where major multinational
companies and Chinese banks
have their headquarters, state
media reported.
The official Xinhua news
agency cited the conclusion
of the 12th meeting of the
National People’s Congress
on Friday, but it did not
given a date for the formal
expansion nor mention any
new policies for the zone.
Under the plan, the zone
will be enlarged to include
the Lujiazui financial
district, Shanghai’s riverside
commercial centre and home
to its tallest skyscrapers. It
will include the Jinqiao and
Zhangjiang districts nearby.
The expansion will
allow companies in those
areas to take advantage of
existing preferential policies
for companies in the free
trade zone and it fulfils a
government commitment
Entrance to the Free Trade Zone in Shanghai
to expand the zone once
conditions were deemed ripe.
The zone was launched
in 2013 to much fanfare
but it has failed to live up to
expectations.
Media reports predicting
that opening the FTZ would be
followed by deep liberalisation
to China’s capital account, the
scrapping of wide restrictions
on foreign investment, and
even the lowering of China’s
censorship firewall inside the
zone went largely unfulfilled.
At the same time, the
leadership gave the green
light to many projects outside
the zone that duplicated or
exceeded the policy benefits
the Shanghai municipal
government hoped would
remain exclusive.
Not only did Beijing
The Shanghai zone’s
geographic isolation out near
the airport and the port area
was also a disadvantage.
Companies with existing
footprints in the city were
reluctant to relocate given
uncertainties about the depth
of Beijing’s commitment to the
Shanghai FTZ - a caution now
paying off for those who waited.
In addition, analysts
said that while many of the
liberalisations implemented
in the zone targeted service
industries, the zone’s separate
areas were all far from the
central business district.
Long commutes to
meetings deterred many
companies that might have
otherwise been interested,
analysts said.
In addition, real estate
speculation grew so fierce that
the zone government stepped
in to control prices.
The Xinhua report also
said that the geographic limits
of trade zones in Guangdong,
Fujian province and the city
of Tianjin had been set.
Reuters
Business Daily | 11
December 29, 2014 Asia
Japan approves US$29 billion
stimulus spending
Takaya Yamaguchi and Tetsushi Kajimoto
J
apan’s government approved
stimulus spending worth
US$29 billion aimed at helping
the country’s lagging regions
and households with subsidies,
merchandise vouchers and other
steps, but analysts are sceptical about
how much it can spur growth.
The package, worth 3.5 trillion yen
(US$29.12 billion) was unveiled two
weeks after a massive election victory
by Prime Minister Shinzo Abe’s ruling
coalition gave him a fresh mandate
to push through his “Abenomics”
stimulus policies. The government
said it expects the stimulus plan to
boost Japan’s GDP by 0.7 percent.
Given Japan’s dire public finances,
the government will avoid fresh
debt issuance and fund the package
with unspent money from previous
budgets and tax revenues that have
exceeded budget forecasts due to
economic recovery.
With nationwide local elections
planned in April which Abe’s ruling
bloc must win to cement his grip
on power, the package centres on
subsidies to regional governments to
carry out steps to stimulate private
consumption and support small firms.
Of the total, 1.8 trillion yen will be
spent on measures such as distributing
More than half will be
spent on measures such
as distributing coupons
to buy merchandise,
providing low-income
households with subsidies
for fuel purchases
coupons to buy merchandise,
providing low-income households
with subsidies for fuel purchases,
supporting funding at small firms and
reviving regional economies.
Rebuilding after disasters
The remaining 1.7 trillion yen
will be used for disaster-prevention
and rebuilding disaster-hit areas
including those affected by the March
2011 tsunami. Tokyo will also seek
to bolster the housing market by
lowering the mortgage rates offered
by a governmental home-loan agency.
“It’s better than doing nothing, but
I don’t think this stimulus will have a
big impact on boosting the economy,”
said Masaki Kuwahara, a senior
economist at Nomura Securities.
“This package directly targets
households and regions left behind
by Abenomics, so it may work
favourably to Abe’s ruling coalition
in the nationwide local elections.”
Kuwahara said the stimulus is
unlikely to spur consumer spending
amid uncertainty over the economic
outlook, adding that it could push
up GDP by just about 0.2 percent.
With little room left for Japan to
resort to big fiscal spending, analysts
Japanese Prime Minister Shinzo Abe (C) talks with Yoichi Miyazawa (R), Minister of
Economy, Trade and Industry, after the opening ceremony of the 188th Diet at the
Upper House in Tokyo
say the government must pin its hope
on wage hikes by big companies to
play a greater role in bolstering the
economy and pulling Japan out
of deflation.
The stimulus highlights a tough
balance Abe must strike between
boosting the economy and curbing
runaway debt, which is more than
twice the size of GDP, the biggest in
the developed world.
Philippines expects slower GDP growth
Despite strong fundamentals, the Philippine government said
it will continue implementing reforms
G
rowth of the Philippine
economy, one of the
fastest growing in the
Asia Pacific region, will be
slower this year compared to
that of last year, according to
the Philippine government’s
top economist.
In an earlier statement,
the country’s Socioeconomic
Planning Secretary Arsenio
Balisacan said that the
Philippine economy grew by
only 5.3 percent in the third
quarter of 2014, much slower
than the 7 percent expansion
in the third quarter of 2013.
Balisacan said that
the manufacturing sector
contributed the most to the
growth in the third quarter
despite a deceleration in its
gross value added from 8.9
percent in 2013 to 7.2 percent
in 2014.
He said that the biggest
contributor to growth was
net exports which grew by
125.7 percent.
Supported by the
strengthening of the global
manufacturing industry, the
country recorded a trade
surplus in the third quarter of
2014 amounting to 6.9 billion
pesos (US$157 million), a
recovery from the 26.9 billion
pesos deficit a year ago.
The growth in exports
was mainly driven by
merchandise exports largely
supported by the growth in
semiconductors, ignition
wiring sets, and articles
of apparel and clothing,
Balisacan said.
The biggest decline was
recorded in agriculture,
fishery and forestry sector
with a decrease of 2.7
percentage points.
Given the third quarter’s
performance, GDP growth
in the first three quarters is
estimated at 5.8 percent.
Blisacan, who is also
director general of the
National Economic and
Development Authority
The government
aims to improve
poverty incidence
as a percentage
to population
from 25.2 percent
in 2012 to 19
percent by 2016
(NEDA), the country’s top
economic policy making
agency, has admitted that
even hitting the low end of
the growth target for the year
would pose a big challenge.
He said that the country
has to grow by at least 8.2
percent in the fourth quarter
in order to attain a yearend
growth of 6.5 percent.
The government has earlier
forecast that the economy
would grow by 6.5 percent
to 7.5 percent this year.
Last year, the Philippine
economy grew by 7.2 percent,
the highest in Southeast Asia
and second only to China’s 7.7
According to the Bangko Sentral ng Pilipinas (pictured) the business outlook on the economy turned
more upbeat with the overall confidence index (CI) rising markedly
Reuters
percent in the whole of Asia.
The Philippine economy
grew by only 5.7 percent
in the first quarter and 6.4
percent in the second quarter.
Despite a slower-thanexpected growth, the
country’s macroeconomic
fundamentals have remained
strong, data showed. For
the first eight months of this
year, the net inflows of FDI
to the Philippines reached
US$4.3 billion although the
figure is still low compared
to FDI inflows in other Asian
economies.
Philippine merchandise
exports also grew by 15.7
percent for the month of
September alone, once
again topping trade-oriented
economies in East and
Southeast Asia since June,
according to the NEDA.
Consumer spending in the
Philippines also increased to
1.22 billion pesos in the second
quarter of 2014 from 1.21
billion pesos in the first quarter.
According to the Bangko
Sentral ng Pilipinas (BSP),
the country’s central bank,
the business outlook on the
economy turned more upbeat
with the overall confidence
index (CI) rising markedly
to 48.3 percent in the fourth
quarter from 34.4 percent in
the third quarter.
With the entry of more
foreign investments, the
government expects the
unemployment rate to
improve to 6.7 percent next
year and 6.6 percent in the
following year from the 7
percent average in the past
few years.
Xinhua
12 | Business Daily
December 29, 2014
Asia
S. Korean department
store sales fall
Sales at South Korea’s top department
stores fell in November by the
fastest pace in nearly two years on
an annual basis, official data showed
yesterday, adding to concerns that
Asia’s fourth-largest economy is losing
steam. Combined sales last month at
department stores run by the top three
chain operators fell 6.5 percent from a
year earlier, according to industry and
energy ministry data. That was the
biggest decline since January 2013.
November was the third month in a
row that sales dropped.
Japan airport
concession shortlisted
New Kansai International Airport
Co said shortlisted 20 bidders for a
multi-billion-dollar concession to run
Japan’s fifth-busiest passenger airport
for 44 years. They include Australia’s
Macquarie Group’s Macquarie Capital
Group, Singapore’s Changi Airports
International, and Global Infrastructure
Management,
which
operates
London’s Gatwick Airport, it said. The
license for Kansai will be bundled with
operating rights for the smaller Osaka
International Airport nearby. It should
fetch at least 2 trillion yen (US$16.6
billion), New Kansai International
officials said in July. The company will
use the proceeds to repay 1.2 trillion
yen of debt to the state.
Myanmar’s rice
exports drop
Myanmar earned over US$342 million
through exporting 914,969 tons of
rice in the first nine months (AprilDecember) of fiscal year 2014-15,
local media reported yesterday. Of
the rice export, 716,272 tons were
sold through border trade. Myanmar’s
rice is mainly exported to China and
other Asian countries and regions, as
well as Russia and some European
countries and African countries. One
ton of Myanmar rice was priced at
about US$400 last month. According to
official statistics, the rice export earning
during 2013-14 was US$460 million, a
15.4-percent drop from US$544 million
in 2012-13.
Singapore
manufacturing falls
Manufacturing output fell 2.8 percent in
November year on year, the Economic
Development Board said. The surprising
contraction marks a third consecutive
month of year-on-year decline in
manufacturing, as the manufacturing
output data for October was revised
to show a decline of 0.2 percent.
Excluding biomedical manufacturing,
the manufacturing output in November
declined by 3.1 percent year on year.
The biomedical manufacturing cluster’s
output decreased 1.1 percent year on
year in November. Within the cluster,
pharmaceuticals output dropped 4.4
percent, while the medical technology
segment grew 12.6 percent.
Vietnam’s economic
growth quickens
Inflation eased to 1.84 percent
in December from a year earlier,
the slowest pace since at least 2006
Nguyen Dieu Tu Uyen
V
ietnam’s economic growth
accelerated in the fourth
quarter as banks increased
lending and rising foreign investment
boosted exports.
Gross domestic product rose 6.96
percent in the fourth quarter from a
year earlier, quickening from a revised
6.07 percent gain in the three months
through September, according to data
released by the General Statistics
Office in Hanoi. For the full year, the
economy grew 5.98 percent, beating
the government’s 5.8 percent target
and compared with a median estimate
of 5.7 percent in a Bloomberg survey.
Vietnam’s central bank lowered
the dong deposit rate cap for some
terms in October, and has cut other
rates and devalued the dong this year
in a bid to help businesses. Exports
from overseas companies in the
country increased 15 percent this year
as disbursed foreign direct investment
rose 7 percent, data showed.
“The growth is being supported
by exports, mainly from foreign
companies,” Tran Dinh Thien,
director of the Vietnam Institute
of Economics in Hanoi, said before
the release. “Signs of economic
improvement are getting clearer, but
the growth is still fragile.”
The government has taken steps
to overhaul the financial system and
boost lending, with credit growth
rising 12.6 percent as of Dec. 22.
Meanwhile, falling oil prices have
helped ease inflation, and the
central bank said this week it aims
to maintain the dong’s stability next
year and pursue “flexible” monetary
policies to boost expansion and curb
price gains.
Vietnam typically releases GDP
data before the end of the stated
period, weeks before other countries
5.98 pct
Vietnam’s economic
growth
Malaysia’s floods seen
crippling palm supply
Malaysia’s meteorological department
expects more monsoon rains until the
end of the year
Anuradha Raghu
S
evere monsoon flooding in
Malaysia that has forced more
than a hundred thousand people
to evacuate, is likely to cause a biggerthan-expected disruption to crude
palm oil production in the world’s No.2
producer, planters and traders said.
This will give legs to the recovery in
benchmark Malaysian palm oil prices,
which plunged to their five-year lows
of 1,914 ringgit (US$549) three
months ago on fears of overwhelming
supplies of rival oilseeds, and took
another beating in early December
from a slide in crude oil prices.
Floods in key palm-growing
areas would hinder harvesting,
transportation and crushing of fresh
palm fruits, leading to tighter supplies
of the world’s most traded vegetable
oil in December and early 2015.
“This year the floods are quite bad.
It’s worse than normal. A lot of the east
coast estates are not functional now they are under water,” said Roy Lim
Kiam Chye, group plantations director
do. Some analysts have questioned
the third-quarter data, with Glenn
Maguire and Eugenia Fabon Victorino
at Australia & New Zealand Banking
Group Ltd. saying they were “skeptical
of the strong growth print, as most
economic indicators are pointing to
weaker growth data.”
Exports grew 13.6 percent this year
as manufacturers including Samsung
Electronics Co. and LG Electronics
Inc. boosted investment. Shipments
from FDI companies, including
crude oil, reached US$101.6 billion
this year, or 68 percent of the total,
data from the Foreign Investment
Agency showed.
Inflation eased to 1.84 percent in
December from a year earlier, the
slowest pace since at least 2006. The
government has ordered fuel retailers
to cut tariffs and asked industries to
at Malaysia’s Kuala Lumpur Kepong.
“The question is the supply that will be
affected. Even when harvesting resumes,
there will be a lot of quality problems.”
Thunderstorms prevent plantation
workers from harvesting fresh fruit
bunches from oil palm trees, leaving
them to overripe and in some cases rot.
Fruits that do get harvested,
however, may not make it to mills
in time to be crushed as roads are
inundated with water, or may have
to be turned away as mills are shut
due to flooding.
The delay in crushing and exposure
to excess water drive up the free fatty
acid (FFA) content in crude palm oil,
reducing its quality.
“If you got a 7 percent free fatty acid
KEY POINTS
Malaysia’s December palm
output seen plunging
around 18 pct
Nearly 120,000 evacuated in
the worst monsoon floods
in decades
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok
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Business Daily | 13
December 29, 2014 Asia
Thailand’s cenctral bank
cuts growth forecasts
Domestic demand remains subdued while tourism, badly hit
by unrest, is recovering slowly
Kitiphong Thaichareon and Pairat Temphairojana
T
stabilize prices before and during the
Lunar New Year holiday in February.
Retail sales grew 10.6 percent
this year from 2013,’s data
showed. Services rose 10 percent,
while manufacturing expanded
8.45 percent.
“The economy has improved
as businesses are getting better,”
Nguyen Bich Lam, head of the GSO,
said in a briefing. “The economy
will continue to improve in 2015
as manufacturing, services and
construction strengthen further.”
Fitch Ratings and Moody’s
Investors Service raised Vietnam’s
credit rating this year, citing improved
economic stability, with Moody’s also
revising its outlook on the country’s
banking system this month to stable
from negative.
Bloomberg News
(content), which is 2 percent above the
maximum permitable tradable level,
then you’re going to have higher losses
and problems to run the bad quality
oil through the machinery,” said a
second Malaysian-based planter, who
declined to be named.
“Output will drop 5 percent
more than it would have been for
December,” the planter added, and
estimates production could now drop
18 percent from November to around
1.43 million tonnes.
The worst-hit states are Kelantan,
Terengganu, Pahang and Perak,
which together account for about
30 percent of Malaysia’s palm supply.
A group of millers in southern
Peninsular Malaysia earlier this
week estimated that output across
Pahang, Johor and Malacca tumbled
36 percent between December 1 and
20 from a month earlier, traders said,
as heavy rains take its toll on palm’s
seasonally weaker cycle.
Malaysia’s meteorological department
expects more monsoon rains until the end
of the year, its website showed.
Palm prices, which closed at 2,249
ringgit on Friday and posted their biggest
weekly gain in two months, would be
underpinned by concerns about the steep
drop in output and investors refraining
from any sell-off, traders said.
“If you’re a palm oil player and
you see parts of the country under
water, you’re not going to take the
risk,” said the second Kuala Lumpurbased trader, who sees prices finding
a new support at 2,200 ringgit.
However, four planters and traders
contacted by Reuters expect any rally
in the near term to be capped at 2,300
ringgit as worries of weak crude prices
and record supplies of soybeans linger.
Reuters
hailand’s central bank said the
country’s economy will barely
grow this year and expand less
in 2015 than earlier forecast, thanks
mainly to how its growth engine of
exports is still sputtering.
The Bank of Thailand (BOT) on
Friday cut its 2014 economic growth
projection to 0.8 percent from 1.5
percent. The new year’s forecast
was reduced to 4.0 percent from
4.8 percent.
Exports will shrink 0.5 percent
this year, the central bank said, and
only rise 1 percent in 2015, rather
than the earlier-seen 4 percent.
November trade data released on
Friday showed how poorly exports
are faring.
The Commerce Ministry said
exports - equal to more than 60 percent
of GDP - last month contracted 1
percent from a year earlier, far worse
than the 3.6 percent expansion a
Reuters poll expected.
Exports to Japan were 10.7 percent
below a year earlier while those to
China tumbled 18.7 percent.
Thailand’s export woes have been
a big factor in economic recovery not
getting on track after the army seized
power in May.
Domestic demand remains
subdued while tourism, badly hit
by unrest, is recovering slowly.
Exports have been sluggish since
before political turmoil began hurting
Southeast Asia’s second biggest
economy in late 2013.
“The Thai economy recovers slower
than expected due to a slow recovery
in exports as the global economy is
expected to grow less than thought,
while government spending is also
lower than previously predicted,”
BOT Assistant Governor Mathee
Supapongse told a news conference.
Delays in public investment
projects “have also led to low growth
in private investment, already under
pressure from a slow recovery in
domestic demand,” he said.
The government expects
infrastructure spending to get under
way in 2015, boosting consumption.
The central bank, which revises
its economic forecasts every three
months, has steadily cut those for
2014 and 2015. In September 2013,
before street protests against the
government of then-Prime Minister
Yingluck Shinawatra began, the
BOT forecast 2014 growth at
4.8 percent.
The government maintains next
year will bring improvement. On
Thursday, Deputy Prime Minister
Pridiyathorn Devakula said he expects
2015 growth of 4.5 percent, driven
by public investment.
But Tim Leelahaphan, an
economist with Maybank Kim Eng
in Bangkok, said a recovery in 2015
“is not expected to be strong, even
with new stimulus measures.”
Reuters
Citi agrees to sell Japan retail banking to SMBC
The companies said customers of Citibank Japan will
continue to have access to Citi’s global ATM network
C
itigroup Inc. has agreed to sell
its Japanese retail banking
operations to Sumitomo Mitsui
Banking Corp (SMBC), as the U.S.
bank retreats from unprofitable
businesses around the world.
The acquisition price was not
disclosed. Sources with knowledge
of the deal had told Reuters that
SMBC, a unit of Sumitomo Mitsui
Financial Group Inc., would acquire
the business for about 40 billion yen
(US$333 million).
“This decision furthers Citi’s
global strategy of focusing our
resources where we feel we have
a competitive advantage, which
includes our Institutional Clients
Group businesses in Japan,” said
Citibank Japan CEO Peter Eliot in
a statement.
SMBC will acquire the Citibank
Japan retail banking operation’s
1,600 employees and 32 branches
and merge it with its private banking
subsidiary SMBC Trust Bank, the
companies said. Citibank Japan
has about 740,000 retail customers
and 2.44 trillion yen (US$20
billion) in deposits, according to a
joint statement.
The companies said customers
of Citibank Japan will continue to
have access to Citi’s global ATM
network, one of the most popular
services among Japanese customers,
after the SMBC acquisition.
SMBC said Citibank Japan’s
affluent customer base is very
attractive. “Its customer base is
different from that of Japanese
banks,” SMBC Senior Managing
Director Nobuaki Kurumatani told
reporters at a briefing.
He also said Citibank Japan’s 1
trillion yen worth of foreign-currency
deposits from customers is also very
valuable for his bank as it aggressively
expands overseas lending and needs
more stable dollar funding sources.
The companies said the deal was
expected to close in October 2015
subject to regulatory approvals.
Citigroup said in October it was
pulling out of consumer banking in
11 markets, including Japan, to cut
costs. Its Japanese consumer banking
business has been hurt by weak loan
demand and falling interest margins.
Reuters
KEY POINTS
Deal price not disclosed,
sources had said about $333
million
SMBC: Citi’s affluent
customer base, foreign
currency deposits are
attractive
14 | Business Daily
December 29, 2014
International
U.S.-based stock
funds hit record
Investors in U.S.-based funds poured
US$36.5 billion into stock funds in the
latest weekly period, marking the biggest
inflows on record as U.S. stocks surged
to record highs, data from Thomson
Reuters Lipper service showed on
Friday. The massive cash commitments
for the week ended December 24 were
the biggest since Lipper’s records began
in 1992. Investors pledged entirely to
funds that specialize in U.S. stocks,
which attracted US$39 billion, while
funds that invest in non-U.S. shares
posted US$2.5 billion in outflows.
Schaeuble warns
Greece about austerity
Any new Greek government would
have to respect austerity pledges made
by the current and past ones and the
country’s debt situation would not
change in the event of a snap election,
German Finance Minister Wolfgang
Schaeuble said. In an interview with
Bild newspaper, Schaeuble said Greece
has made “enormous progress” since
2009 in overcoming its debt crisis and
said “we ought to show a little more
respect for that.” But he said Greece’s
austerity vows were binding.
Russia forecasts
economic slump
Slumping oil prices have put Russia’s
economy on course for a sharp recession
and double-digit inflation next year,
government ministers said on Friday, as
authorities scaled up a bailout for the first
bank to succumb to this month’s rouble
crisis. The economy is slowing sharply as
Western sanctions over the Ukraine crisis
deter foreign investment and spur capital
flight, and as a slump in oil prices severely
reduces Russia’s export revenues and
pummels the rouble. The government
has taken steps to support key banks
and address the deepening currency
crisis in the past week.
Petrobras hit
with U.S. lawsuit
Brazil’s state-run oil company Petroleo
Brasileiro SA and some of its executives
were hit with a U.S. class action lawsuit
by investors in US$98 billion of the
company’s securities over an alleged
kickback and bribery scheme. News of
the case helped knock Petrobras shares
more than 4 percent lower. In midDecember, the stock hit its lowest in
nearly 10 years as a widening corruption
probe caused the company to delay
the release of its third-quarter earnings.
Petrobras has already been sued by
several U.S. investors who bought
American Depositary Receipts sold
by the company in New York.
French jobless ticks
up to new record
More people were unemployed in
France in November than ever before,
highlighting continued weak activity
in the euro zone’s second-largest
economy. The Labour Ministry said
the jobless total in mainland France
rose by 27,400 to 3,488,300, a 0.8
percent increase over one month and
5.8 percent over one year. The rise was
sharpest among unemployed aged 50
or over, up 11 percent on the year.
President Francois Hollande has seen
his popularity fall to the lowest ratings in
French polling history, with a key factor
being his failure to live up to promises
to tackle unemployment.
Trade-weighted euro
may be set for shock upswing
The ECB reckons that a 10 percent fall in the euro’s
effective exchange rate would deliver 40 to 50 basis points
of much-needed inflation to the euro zone
Jemima Kelly
W
hile investors are betting
the euro will fall against the
dollar next year, hopes that
the European economy will therefore
get a boost could be premature: it may
not depreciate at all against currencies
of other major trading partners.
As speculation grows that the
European Central Bank will ease
monetary policy more aggressively,
some economists predict the euro
could even slide to parity with the
dollar by the end of 2015 from around
US$1.22 now.
However, the dollar is no longer
the most important element in the
ECB’s trade-weighted euro index, its
favoured gauge of the euro’s strength.
That position is now held by the yuan
and against the Chinese currency -along with others such as sterling, the
Swiss franc and Japanese yen -- the
euro’s prospects are far from clear.
The euro has already lost around 3
percent against the dollar since early
October when the ECB said it would
buy rebounded packets of debt, as it
tries to fight off the threat of deflation
in the euro zone.
Expectations are strong that the
ECB will move on to quantitative
easing next year by buying government
bonds. This would involve printing
money in the hope of pushing inflation
that is close to zero towards its target
of just under 2 percent, a policy that
should weaken the euro.
The ECB reckons that a 10 percent
fall in the euro’s effective exchange
rate would deliver 40 to 50 basis
points of much-needed inflation to
the euro zone. However, the euro has
actually gained around a third of a
percent on a trade-weighted basis
since October.
China is now the euro zone’s
biggest trading partner, and the
common currency has held steady
against the yuan over the past month
while it has fallen 1.5 percent against
the dollar.
Any euro rise against the yuan
would effectively import disinflation
from China, hurting the ECB in
its campaign to avoid the kind of
deflation that has hit the Japanese
economy so badly in the past decade.
The U.S. economy is expected to
grow strongly in 2015, prompting
the Federal Reserve to start raising
interest rates and thereby boosting
the dollar, but the outlook for China
and its currency is far less clear.
“The potential for the yuan to
become more volatile next year is
certainly there,” said Paul Lambert,
head of currency at Insight Investment.
“There are certainly scenarios in
which the yuan would weaken.”
Saxo Bank’s Chief Economist
Steen Jakobsen reckons the yuan
will fall at least 5 percent against
the dollar next year as the Chinese
economy slows.
Race to the bottom
Many economists argue that the
main way for an ECB programme of
quantitative easing to work would be
through weakening the euro, but this
may be tricky to achieve.
KEY POINTS
Yuan, more important
for euro than dollar,
could weaken
Yen, sterling, also
vulnerable against euro
in 2015
Current account surplus to
underpin common currency
Among other constituents in the
ECB basket, third-ranked sterling
can expect a bumpy year, with Britain
facing its most uncertain parliamentary
election in decades in May.
The euro may also struggle to
weaken against the Japanese yen and
the Swiss franc, ranked four and five
respectively.
The Bank of Japan recently
expanded its own programme to
stimulate the domestic economy,
while the Swiss National Bank has
promised for the past three years
to cap the franc at 1.20 per euro.
Earlier this month, the SNB also
said it would start charging banks
for deposits in francs for the first
time since the 1970s, hoping to ease
upwards pressure on the currency.
Stephen Gallo, European head of
FX strategy at BMO Capital Markets,
said that furthermore, the euro would
remain structurally strong, helped
by the euro zone’s current account
surplus. ECB measures that would, for
example, revitalise the asset-backed
securities (ABS) market, could attract
foreign interest, further supporting
the common currency.
“Rather than seeing huge capital
outflows because the ECB is offering
cheap liquidity ... you could actually
get a decent amount of interest in
euro-denominated asset markets,” he
said. “Liberating the capital markets
in the euro zone should be positive
for the euro.”
Most of the other constituents in
the euro index are other European
currencies, heavily exposed to the euro
zone economy and from countries
with very low inflation. According to
Toscafund’s chief economist Savvas
Savouri, many of them are set to fall
sharply against the euro in 2015.
“It’s not just the dollar against the
euro that matters,” said Savouri. “It’s
the zloty, it’s the Czech crown, it’s
the Croatian kuna against the euro.”
Reuters
Business Daily | 15
December 29, 2014 Opinion
Business
wires
The Fed sets another trap
Leading reports from Asia’s
best business newspapers
TAIPEI TIMES
Stephen S. Roach
Faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China
The creditor banks of foodscandal-plagued Ting Hsin
International Group’s affiliated
developer decided not to
extend a syndicated loan
of US$204.73 million and
demanded full debt repayments
within three days. The move
put extra liquidity pressure
on the food conglomerate,
as it owes NT$21.9 billion in
bank loans to state-run lenders
alone, with NT$12.7 billion due
to mature by the end of the
year. “After several meetings,
the creditor banks decided
that Ting Lu Development Co
should pay off the syndicated
loan within three days,” said
Mega International Commercial
Bank, the lead bank of the
syndicated loan.
PHILSTAR
Imports of electronic products
dropped 11 percent in
October from a year ago,
the Semiconductor and
Electronics Industries in the
Philippines Inc. (SEIPI) said.
In a statement, SEIPI said
electronics imports declined
to US$1.11 billion in October
from US$1.25 billion in the
same month last year. The
group attributed the drop to
contractions posted by four
electronic products components/
devices (semiconductors) (16
percent), communication/
radar (34 percent), control
and instrumentation (14
percent) , and medical/
industrial instrumentation
(eight percent). Electronic
products accounted for the
biggest share in the country’s
total imports in October at
25 percent.
THE JAPAN NEWS
The Japan Post group officially
announced it will list the stocks
of its group companies, a move
that Japan Post Holdings Co.
President Taizo Nishimuro said
marked the “real first step” in
the privatization of the postal
industry after years of twists
and turns since it was initiated
by the 2001-06 administration
of Prime Minister Junichiro
Koizumi. The group plans to
simultaneously list shares of
the holding company and two
firms under its umbrella —
Japan Post Bank Co. and
Japan Post Insurance Co.
CHINA DAILY
Chinese conglomerate Dalian
Wanda Group Co, whose real
estate arm raised about US$3.7
billion in a Hong Kong share
sale on Tuesday, said it is
buying a controlling stake in a
domestic third-party payment
platform, stepping up its efforts
in the country’s booming online
to offline market. Wanda,
China’s biggest commercial
real estate developer, inked
the deal on Friday with 99Bill
Corp, an e-payment service
provider similar to PayPal,
with a reported investment
of 2 billion yuan (US$322
million). Neither Wanda nor
99Bill agreed to confirm the
investment amount.
Fed Chair Janet Yellen
A
merica’s Federal Reserve
is headed down a familiar
– and highly dangerous
– path. Steeped in denial of
its past mistakes, the Fed is
pursuing the same incremental
approach that helped set the
stage for the financial crisis of
2008-2009. The consequences
could be similarly catastrophic.
Consider the December meeting
of the Federal Open Market
Committee (FOMC), where
discussions of raising the
benchmark federal funds rate
were couched in adjectives,
rather than explicit actions.
In line with prior forward guidance
that the policy rate would be kept
near zero for a “considerable”
amount of time after the Fed
stopped purchasing long-term
assets in October, the FOMC
declared that it can now afford
to be “patient” in waiting for
the right conditions to raise
the rate. Add to that Fed Chair
Janet Yellen’s declaration that
at least a couple more FOMC
meetings would need to take
place before any such “lift-off”
occurs, and the Fed seems to
be telegraphing a protracted
journey on the road to policy
normalization.
This bears an eerie resemblance
to the script of 2004-2006, when
the Fed’s incremental approach
led to the near-fatal mistake of
condoning mounting excesses
in financial markets and the
real economy. After pushing
the federal funds rate to a 45year low of 1% following the
collapse of the equity bubble
of the early 2000s, the Fed
delayed policy normalization for
an inordinately long period. And
when it finally began to raise
the benchmark rate, it did so
excruciatingly slowly.
In the 24 months from June 2004,
the FOMC raised the federal
funds rate from 1% to 5.25%
in 17 increments of 25 basis
points each. Meanwhile, housing
and credit bubbles were rapidly
expanding, fuelling excessive
household
consumption,
a sharp drop
in personal
savings, and a
record currentaccount deficit
– imbalances
that set the
stage for the
meltdown that
was soon to
follow.
The Fed, of
course, has
absolved itself
of any blame
in setting up
the US and the
global economy
for the Great
Crisis. It was
not monetary
policy’s fault,
argued both
former Fed
Chairmen Alan
Greenspan and
Ben Bernanke;
if anything, they
insisted, a lack
of regulatory
oversight was
the culprit.
This argument
has proved
convincing
in policy and
political circles,
leading officials
to focus on a
new approach
centred on so-called macroprudential tools, including capital
requirements and leverage ratios,
to curb excessive risk-taking by
banks. While this approach has
some merit, it is incomplete, as
it fails to address the egregious
mispricing of risk brought about
by an overly accommodative
monetary policy and the
historically low interest rates
that it generated. In this sense,
the Fed’s instrumentalism of
2004-2006 was a policy blunder
of epic proportions.
The Fed seems poised to make
a similar – and
possibly even
more serious
– misstep in
the current
environment.
For starters,
given on-going
concerns about
post-crisis
vulnerabilities
and deflation
risk, today’s Fed
seems likely to
find any excuse
to prolong its
incremental
normalization,
taking a slower
pace than it
adopted
a
decade ago.
More important,
the
Fed’s
US$4.5 trillion
balance sheet
has
since
grown more
than fivefold.
Though the Fed
has stopped
purchasing
new assets,
it has shown
no inclination
to scale back
its
outsize
holdings.
Meanwhile
it has passed
the quantitativeeasing baton
to the Bank of Japan and the
European Central Bank, both
of which will create even more
liquidity at a time of record-low
interest rates.
In these days of froth, the
persistence of extraordinary
policy accommodation in a
financial system flooded with
liquidity poses a great danger.
Indeed, that could well be the
lesson of recent equity- and
currency-market volatility and, of
course, plummeting oil prices.
With so much dry kindling, it
will not take much to spark the
Central banking
has lost its way.
Trapped in a postcrisis quagmire
of zero interest
rates and swollen
balance sheets,
the world’s major
central banks
do not have an
effective strategy
for regaining
control over
financial markets
or the real
economies that
they are supposed
to manage
next conflagration.
Central banking has lost its
way. Trapped in a post-crisis
quagmire of zero interest rates
and swollen balance sheets, the
world’s major central banks do
not have an effective strategy for
regaining control over financial
markets or the real economies
that they are supposed to manage.
Policy levers – both benchmark
interest rates and central banks’
balance sheets – remain at their
emergency settings, even though
the emergency ended long ago.
While this approach has succeeded
in boosting financial markets, it
has failed to cure bruised and
battered developed economies,
which remain mired in subpar
recoveries and plagued with
deflationary risks. Moreover, the
longer central banks promote
financial-market froth, the more
dependent their economies
become on these precarious
markets and the weaker the
incentives for politicians and
fiscal authorities to address the
need for balance-sheet repair
and structural reform.
A new approach is needed.
Central banks should normalize
crisis-induced policies as soon
as possible. Financial markets
will, of course, object loudly.
But what do independent
central banks stand for if they
are not prepared to face up
to the markets and make the
tough and disciplined choices
that responsible economic
stewardship demands?
The unprecedented financial
engineering by central banks
over the last six years has been
decisive in setting asset prices
in major markets worldwide. But
now it is time for the Fed and
its counterparts elsewhere to
abandon financial engineering
and begin marshalling the tools
they will need to cope with the
inevitable next crisis. With zero
interest rates and outsize balance
sheets, that is exactly what they
are lacking.
Project Syndicate
16 | Business Daily
December 29, 2014
Closing
Steady growth in China’s logistics demand
Anti-graft watchdog to launch mobile app
Logistics demand in China grew steadily despite
subdued strength in the world’s second largest
economy, latest data showed. During the January-November period, goods worth 196.9 trillion
yuan (US$32.2 trillion) were moved around, an
8.3-percent growth from the same period last year,
according to data released by the China Federation
of Logistics and Purchasing (CFLP). Costs in the
logistics sector continued to retreat as lower oil
prices reduced transportation costs. In the first 11 months, costs rose 8.2 percent year
on year to 9 trillion yuan, slowing 0.1 percentage point from the first ten months.
China’s disciplinary watchdog will launch a mobile
application on January 1, part of its efforts to reach
to a broader audience amid China’s anti-corruption campaign. The new application will offer users
breaking news related to major anti-corruption
moves, such as inspection updates and construction of honest Party and government, the Communist Party of China’s (CPC) Central Commission
for Discipline Inspection (CCDI) said in a statement.
It did not specify whether the app will run on Apple’s iOS-based devices or Android
phones. The current website will also be updated on January 1.
How to guess oil price in Saudi budget
Four analysts’ oil price estimates are in a range of US$55 to US$63
S
audi Arabia’s 2015 state
budget assumes an oil
price close to current
levels of around US$60 a
barrel for Brent crude, a shift
from past budgets which were
based on prices well below
market levels, analysts say.
The kingdom doesn’t
reveal the oil prices that it
uses to calculate its annual
budgets. So analysts estimate
them, making assumptions
about several other variables
such as planned oil exports
and production for the
following year.
For the 2015 budget,
announced on Thursday, four
analysts’ oil price estimates
are in a range of US$55 to
US$63.
That does not mean Saudi
Arabia necessarily expects
such prices next year -Finance Minister Ibrahim
Alassaf said on Thursday
there was a great difference
of opinion over when prices
would start rebounding, with
some people predicting the
second half of next year and
others 2016.
Instead, the budgeted
oil price is an accounting
assumption that the government
uses to set a baseline for next
year’s revenues. If Brent
crude averages more than
US$60 next year, Saudi oil
revenues will probably be
larger than projected; if Brent
is below US$60, revenues will
KEY POINTS
Government doesn’t publish
oil price assumption in
budget
But finance minister
indicates it’s close to
current levels
Budget cuts oil price
assumption for first time
since 2009
be smaller.
Its 2015 budget plan
projects record spending
of US$229.3 billion, up
0.6 percent from the 2014
budget, while total revenues
are projected to drop to
US$190.7 billion -- leaving
a US$38.6 billion deficit.
In past years, Saudi
budgets commonly based
their calculations on oil prices
far below current levels. For
example, the 2014 budget
assumed an oil price below
US$70; when the budget plan
was announced, Brent crude
was trading at US$111.
In an interview with
Al Arabiya television on
Thursday, Alassaf confirmed
his ministry had departed
from past practice and
assumed an average 2015
oil price close to current levels
in its latest budget.
“We were realistic in our
estimates for next year’s
revenues in light of current
and expected developments
in the oil market. Maybe over
the past years I agree we were
conservative, but this year we
were realistic,” he said.
Leading Saudi investment
bank Jadwa Investment
said the 2015 budget was
consistent with an average
Saudi export crude price of
US$56 a barrel next year,
equivalent to a Brent crude
price of roughly US$60, and
oil production at 9.6 million
barrels per day (bpd), in line
with the current level.
Analysts at National
Commercial Bank (NCB),
the kingdom’s biggest bank,
made a slightly different
calculation, saying they
believed the budget was based
on a Saudi oil price of US$61.
The oil price assumption
in Saudi Arabia’s budget was
reduced for the first time
since 2009, both Jadwa and
NCB said.
Monica Malik, chief
economist at Abu Dhabi
Commercial Bank, said the
budget seemed to be assuming
a Saudi oil price of US$55
and output at 9.5 million bpd.
Emad Mostaque, strategist at
Ecstrat, an emerging markets
consultancy, estimated
US$63.
Mostaque noted that nonoil revenues this year were
US$30.7 billion; assuming
the same amount next year
implies the government
projects oil revenues of
US$160 billion in 2015, or
US$438 million a day.
Largest Chinese oilfield
to reduce output
HK new home sale proceeds
to reach record
Beijing expands subway
lines and fares
D
H
T
aqing Oilfield, the largest oilfield explored
by China’s major oil and gas producer
PetroChina, is expected to reduce its
production starting in 2015.
According to the economic working conference
of northeast China’s Heilongjiang Province on
Saturday, Daqing Oilfield, which produces nearly
one-fourth of China’s total oil output annually, will
see output reduction by 1.5 million tonnes next year.
By 2020, Daqing’s annual output will be slashed
to 32 million tonnes with an annual reduction of
more than 1.3 million tonnes, the conference said.
As China’s largest inland oilfield, Daqing has
produced more than 2.1 billion tonnes of crude
oil since production started in 1960.
It produced slightly more than 40 million tonnes
of crude oil in 2013, marking the 11th consecutive
year in which the crude oil output of Daqing
exceeded 40 million tonnes.
Limited oil reserves, high cost of development
and declining international oil prices have caused the
fast-depleting Daqing Oilfield to reduce output, a staff
who declined to be named from Daqing told Xinhua.
Xinhua
ong Kong’s new home sales are expected to
bring record proceeds this year as property
developers actively sell new residential
projects to raise cash for land.
Full-year new private residential sales in the city
are estimated at HK$175 billion (US$22 billion),
the highest since 1996, when the data was first
collected, Wong Leung-sing, an associate research
director at Centaline Property Agency Ltd., said
in an e-mailed statement.
“Home prices are so high that the new units are
sold at HK$10 million on average,” Wong said by
phone yesterday. His company is Hong Kong’s largest
privately held realtor. “Developers are actively selling
new residential units to generate cash.”
Sentiment has improved and buyers have returned
to the market after the city’s Occupy protests, Wong
said. Hong Kong developers are seeking to expand
their land banks as the city’s government accelerates
land sales to boost housing supply.
Dragons Range, a new residential project, has
generated sales of HK$4.4 billion this month
through December 19, according to the statement.
Bloomberg News
Reuters
he capital expanded its subway system
yesterday, extending three lines and opening
one more at the same time it ushers in a
price rise that has sparked complaints.
Beijing seeks to tackle worsening congestion
and reduce subsidies for transport.
This price rise is the first in seven years,
with Beijing ending the practice of a flat 2 yuan
(US$0.32) fare for all trips. Students and smart
card holders will get discounts.
The new and extended lines are part of a plan
to extend the network to more than 600 km by
2016, from around 500 km.
The price hike has prompted anger from some
commuters, who have taken to social media to
complain it will do little to alleviate chronic
overcrowding on some lines. Fights occasionally
break out as people struggle to make their way
onto and off trains at rush hour.
Despite the fare increase, the Beijing government
will still finance 50 percent of subway operation
costs and 62 percent of bus operation costs, state
media has reported.
Reuters