Global Service sector data shows mixed picture

With Chinese, UK and US service sector data disappointing, and a mixed picture from the European figures, investors took a cautious stance ahead of a busy schedule of economic news. Among other events, the US Federal Reserve releases its latest minutes, non-farm payroll numbers are out on Friday while the Bank of England and European Central Bank hold their latest scheduled meetings. William Nicholls, a dealer at Capital Spreads, said:

"This week we have the Federal Reserve Open Market Committee minutes, ECB rates, BOE rates, and non-farm payrolls, as well as the start of the US earnings season. In particular, the FOMC on Wednesday night and non-farm number on Friday should get markets moving and speculating on future tapering – which is bound to be a major theme in 2014 again

.

So overall, the final scores were:

• The FTSE 100 finished virtually unchanged at 6730.73, up 0.06 points

• Germany's Dax was down 0.08% at 9428.00

• France's Cac closed 0.47% lower at4227.54

• Italy's FTSE MIB ended up 0.63% at 19,233.74

• Spain's Ibex added 0.92% to 9888.5 after better than expected service sector data from the country

Source: theguardian

Two big tech trends kick off Consumer Electronics Show

 Judging by what is on display at CES Unveiled, the gadgets of the future are designed to help you live a healthier life, and to more closely connect homes with the people living in them.

The 2014 International CES, formerly known as the Consumer Electronics Show, gets underway this week.

It's traditionally known as an event that previews the next wave of electronics we can expect to see in stores and online.

This year, the press preview show was awash with gadgets that you can wear and gizmos that improve what's going on in your home.

Move over, temperature dial. You've now been replaced by an Android interface.

Appliance-maker Dacor showed off a new stove that features an Android-powered touchscreen, which controls the oven.

Rather than expose an iPad to the perils of cooking, the appliance lets you control it remotely (preheat from the office before you get home) and pull up recipes to follow along while right in the kitchen.

"We're trying to accommodate the way people are cooking, not change it," says Dacor's Michael West.

It doesn't come cheap. The 48-inch model costs a cool $12,000, and will be available this summer.

While Honeywell is showing off a voice-activated Internet-connected thermostat, Allure Energy is featuring a thermostat that connects with the phones of you and your family to determine when it should start warming up or cooling down a home based on the location of residents.

For example, as you leave work and get closer to home, it'll warm up. If the kids come home from school early, it'll adjust the temperature accordingly.

Allure's vice-president Jim Mills says smart scheduling in motion sensors found in other thermostats can't compare to a system like this, since it can adapt based on when people are home -- or getting near it.

Time to get fit

While most wearable fitness devices (many of which are watches) require you to sync them with a phone or tablet before determining how (in)active you are, Wellograph's main selling feature is that it can figure this all out on its own.

"Here it is, right there," says creator Nick Warnock. "There's no need to plug it in."

The watch instantly shows basic infographics that reveal your level of physical activity at any point throughout the day, and how much activity you still need to squeeze in to stay -- as the computer determines -- "healthy."

The relatively stylish watch features a sapphire steel aluminum construction that appears to withstand a fair amount of abuse from a sharp metal blade.

Available in April, the Wellograph is, however, on the pricey side at $320.

As well, Canadians will soon be able to buy a special activewear hat that can flag sports-related brain injuries as soon as they happen.

Reebok's $150 CheckLight hat features a slim sensor band that slips inside, meaning an athlete can wear it under a helmet.

It measures both rotational and impact forces, setting off a small yellow light for moderate hits or a red light for severe blows.

The goal is to visibly show athletes, teammates, trainers and parents whether a hit to the head needs medical attention. Over time, it can even count the number of head injuries sustained by the wearer.

Paul Litchfield, vice-president of Reebok's Advanced Concepts Group, says a Canadian launch will happen "super soon," though no exact date was revealed.

Source:bnn.ca

FM: Abe shut door on dialogue with China

China’s Foreign Ministry has brushed aside the latest offer by Japanese Prime Minister Shinzo Abe to meet Chinese leaders.

Foreign Ministry spokeswoman Hua Chunying said Abe has played a double game in relations with China since he took office. She said Abe has taken a series of actions that damaged bilateral relations and offended the Chinese people.

She said Abe went further this time by visiting the Yasukuni Shrine, which includes Class-A war criminals, despite strong opposition from China. The spokeswoman said Abe claims to value relations with China, but his actions show otherwise, and he has shut the door on dialogue.

She urged Abe to reflect deeply on the history of aggression and colonialism by Japanese militarists and take concrete actions to improve relations with its neighbors.

Source:  CCTV

Global Services Sector Data Show Sluggish Growth

   

Europe: December services purchasing managers’ survey results from data provider Markit were generally weaker than in November, and if it weren’t for an impressive resurgence in Spain, the overall euro-zone services sector would barely have registered an expansion. The combined index for the currency area came in at 51.0, just one point above the expansion/contraction cutoff mark of 50. That was down from 51.2 in November and in line with forecasts. Spain’s index jumped to 54.2 from 51.5 in the prior month, but France’s dropped to 47.8, which was slightly better than forecasts for 47.4 but still at its lowest level in seven months. Italy’s rose from 47.2 to 47.9 but fell short of a consensus forecast for 48.5. Germany’s services sector continued to expand, but its index softened from 55.7 to 53.5 and fell below the consensus estimate of 54.0. The U.K index dropped also.

 It hit 58.8, against expectations for there to have been no change from the 60.0 level it posted in November.

For the euro zone as a whole, this data series shows domestic demand remains subdued–manufactured exports are a primary growth driver for the time being. By contrast, the U.K.’s still very strong services PMI numbers show the country’s booming housing market continues to support consumption demand, which is flowing through to services. 

CHINA:  HSBC’s services purchasing managers index fell to 50.9 in December from 52.5 in November.

It is the first time since April months that all four China PMIs declined–including official surveys on manufacturing and services, and private counterparts from HSBC. That squares with economist expectations that China’s growth slowed to 7.6% on-year in the final quarter of 2013, from 7.8% in the third quarter. One reason for the slowdown may lie in tighter credit, which reached crisis levels in June and has remained relatively tight since, highlighted by another spike in interbank interest rates ahead of the year-end. That also could help explain why small and medium-sized businesses fared worst in the various PMIs. On the positive side, the surveys suggest China’s services sector is doing better than its manufacturing, which fits with government efforts to rebalance the economy toward domestic consumption.

INDIA: India’s services sector contracted for a sixth straight month, the longest period of contraction in activity since the global financial crisis. The HSBC Service Sector Business Activity Index, prepared by Markit, fell to 46.7 in December from 47.2 in November

Source: WSJ

US ISM Service Index slows unexpectedly

ISM Non-Mfg Index

Released On 1/6/2014 10:00:00 AM For Dec, 2013 Prior Consensus Consensus Range Actual Composite Index - Level 53.9  54.8  53.9  to 55.1  53.0

Highlights New orders moved suddenly into reverse for ISM's non-manufacturing sample, pulling down the index by 9 tenths to 53.0. New orders, the leading indicator in this report, fell to 49.4 from 56.4 in November. This is the first sub-50 reading for new orders, which had been especially strong through much of the second half of last year, since July 2009. But coincidental and lagging indications are positive including a steady reading for business activity and a big bounce back for employment, up 3.3 points to 55.8. Other readings include a second straight contraction for backlog orders, a slight rise for input price pressures, and a slowing in export orders. Today's employment reading may lift expectations for Friday's employment report but otherwise the report hints at an early 2014 slowdown for the economy.

Market Consensus before announcement The composite index from the ISM non-manufacturing survey indicated a slowing in this sector, posting in November at 59.3, compared to 55.4 the prior month. Still, growth is positive. But monthly growth in new orders remained very solid, at 56.4 for only a small dip from October. Strength in orders points to strength in general activity in the months ahead.

Source: Bloomberg

Former Google China Head John Liu Joins Qihoo 360

John Liu, former vice president at Google Inc. and head of Google China, has joined Qihoo 360 as Chief Business Officer.

Dr. Liu left Google China in July 2013 after six-year stay there. He was the successor to the former Google China chief Kaifu Lee, founder of VC firm Innovation Works.

Qihoo 360 is the rising star and Baidu’s largest competitor in China’s search market. The company claimed more than 20% of market sharebwithin one and half year since launch.

After Qihoo tookoverNetease's Youdao search, andtheemergence of Tencent's Soso And Sohu's Sogou , Qihoo 360, Baidu and Sogou+Soso had a combined 96% market as of December 2013, according to online data service CNZZ.

Google China only had a 1.65% market share then.

Source: Technode

Economist Jim O'Neil : Meet the Mint Countries

In 2001 the world began talking about the Bric countries - Brazil, Russia, India and China - as potential powerhouses of the world economy. The term was coined by economist Jim O'Neill, who has now identified the "Mint" countries - Mexico, Indonesia, Nigeria and Turkey - as emerging economic giants. Here he explains why.

So what is it about the so-called Mint countries that makes them so special? Why these four countries?

A friend who has followed the Bric story noted sardonically that they are probably "fresher" than the Brics. What they really share beyond having a lot of people, is that at least for the next 20 years, they have really good "inner" demographics - they are all going to see a rise in the number of people eligible to work relative to those not working.

This is the envy of many developed countries but also two of the Bric countries, China and Russia. So, if Mexico, Indonesia, Nigeria and Turkey get their act together, some of them could match Chinese-style double-digit rates between 2003 and 2008.

Something else three of them share, which Mexican Foreign Minister Jose Antonio Meade Kuribrena pointed out to me, is that they all have geographical positions that should be an advantage as patterns of world trade change.

For example, Mexico is next door to the US, but also Latin America. Indonesia is in the heart of South-east Asia but also has deep connections with China.

And as we all know, Turkey is in both the West and East. Nigeria is not really similar in this regard for now, partly because of Africa's lack of development, but it could be in the future if African countries stop fighting and trade with each other.

This might in fact be the basis for the Mint countries developing their own economic-political club just as the Bric countries did - one of the biggest surprises of the whole Bric thing for me. I can smell the possibility of a Mint club already.

Economically three of them - Mexico, Indonesia and Nigeria - are commodity producers and only Turkey isn't. This contrasts with the Bric countries where two - Brazil and Russia - are commodity producers and the other two - China and India - aren't.

In terms of wealth, Mexico and Turkey are at about the same level, earning annually about $10,000 (£6,100) per head. This compares with $3,500 (£2,100) per head in Indonesia and $1,500 (£900) per head in Nigeria, which is on a par with India. They are a bit behind Russia - $14,000 (£8,500) per head - and Brazil on $11,300 (£6,800), but still a bit ahead of China - $6,000 (£3,600).

Source:  bbc,uk.

Chinese Stocks Drop for Third Straight Session

   According to a report from The Wall Street Journal, "Chinese stocks are off to a bleak start in 2014, falling for the third straight session Monday and wiping out gains built up late last year in a burst of investor euphoria for the country's reform plans".

"The Hang Seng China Enterprises  Index, which tracks mainland shares listed in Hong Kong, fell 1.4% Monday, touching levels not seen since stocks surged in the wake of China's Third Plenum , a November meeting of top Communist Party leaders that produced a reform course for the country that was more ambitious than expected. In the mainland market—which is largely closed to outside investors and showed a more muted reaction to the country's reform measures--the Shanghai Composite fell 1.8% Monday".

Strategists said a year-end cash crunch on the mainland—the latest in a series of squeezes since June—as well as slowing activity in China's manufacturing and service sectors last month was responsible for the selling. Investors are also girding for a series of important data points on China's economy to be released this week, including trade data and inflation figures.

"The market is reflecting the reality that growth is going to be slower this year," said Erwin Sanft, head of Hong Kong and China equities strategy for Standard Chartered in Hong Kong. "The positive parts of the reform package are going to be felt incrementally over the next few years, whereas the impact on growth is immediate."

Sentiment on Chinese stocks sharply improved in the final weeks of 2013 after Communist Party leaders said they would reform the country's state-owned enterprises, open up its capital markets and loosen its one-child policy, among other plans. Investment banks, such as Goldman Sachs Group Inc., took a more bullish stance on the country in response, advising investors to increase their allocation of Chinese stocks. Monday, GS addressed its upgrade in a note to clients.

"Admittedly, our upgrade has been challenged by several recent developments," the firm wrote, noting the year-end cash crunch and weaker manufacturing and service-sector data last week.

"We stand by our view that the fundamental and reform-driven upside in China continues to look attractive, although these developments have tempered, but not overturned, our tactical return expectations for China," the firm said.

LME data for Monday 6th January 2014

London Metal Exchange				Price          Change     %
Aluminium Alloy Cash Unofficial $/m tonne			Mon 12:05	1820.00	+40.00		+2.3
Aluminium Alloy 3mo Unofficial $/m tonne			Mon 12:05	1835.00	+20.00		+1.1
Primary Aluminium Cash Unofficial $/m tonne			Mon 12:05	1738.00	-0.25		-0.0
Primary Aluminium 3mo Unofficial $/m tonne			Mon 12:05	1803.00	+30.75		+1.7
Copper Cash Unofficial $/m tonne			Mon 12:05	7335.00	-0.25		-0.0
Copper 3mo Unofficial $/m tonne			Fri 20:35	7315.00	0.00		0.0
Lead Cash Unofficial $/m tonne			Mon 12:05	2168.00	+0.50		+0.0
Lead 3mo Unofficial $/m tonne			Mon 12:05	2176.00	-0.25		-0.0
N. American Special Alum Alloy Cash Unofficial $/m tonne			Mon 12:05	1820.00	+2.50		+0.1
N. American Special Alum Alloy 3mo Unofficial $/m tonne			Mon 12:05	1840.00	-25.00		-1.3
Nickel Cash Unofficial $/m tonne			Mon 12:05	13860.00	-5.00		-0.0
Nickel 3mo Unofficial $/m tonne			Fri 20:35	13920.00	0.00		0.0
Tin Cash Unofficial $/m tonne			Mon 12:05	21595.00	+17.50		+0.1
Tin 3mo Unofficial $/m tonne			Mon 12:05	21500.00	-2.50		-0.0
Zinc Cash Unofficial $/m tonne			Mon 12:05	2044.00	-0.25		-0.0
Zinc 3mo Unofficial $/m tonne			Mon 12:05	2026.00	+0.25		+0.0

ASIA: STOCKS SLIDE AS CHINESE SERVICE ACTIVITY SLOWS

Asian stocks slumped as China's service activity fell in December to the slowest in four months. 

A report from the Beijing-based National Bureau of Statistics and the China Federation of Logistics and Purchasing showed today that the purchasing managers' index for the non-manufacturing industries dropped to 54.6 from 56 in November. A figure above 50 indicates expansion.

The data comes a day after two separate reports pointed to a deceleration in China's manufacturing sector, raising concerns that the world's second largest economy might be weakening. 

Hong Kong's Hang Seng index finished 2.24% lower, while the Shanghai Composite dropped 1.24% following the reports. 

"Although both PMI manufacturing and services remain above the expansion zone, markets are worried that a loss of momentum in the Chinese economy could leave the emerging markets area feeling more vulnerable as the Fed in the US kicks off tapering," according to Ishaq Siddiqi, Market Strategist at ETX Capital. 

Federal Reserve Chairman Ben Beranke is due to speak later today which might provide clues as to whether the US central bank will announce a further tapering this month.

Source: LiveCharts

Wall St. Week Ahead: Investors to watch Fed minutes, jobs

Investors in U.S. stocks will look to Washington this week, awaiting key jobs data and minutes from the Federal Reserve's most recent meeting, when the central bank decided to cut its unprecedented monetary stimulus.

Minutes from the December 17-18 meeting, after which the central bank announced its plan to reduce monthly asset purchases by $10 billion to $75 billion, could give further insight into the reasons behind the decision and offer clues about how quickly the Fed will wind down the stimulus. The minutes will be released on Wednesday.

Stocks rallied following the Fed's decision because it confirmed to many that the U.S. economy was on firmer footing and ended uncertainty over when the central bank would finally reduce its stimulus, which was the driver of the S&P 500's gain of nearly 30 percent last year.

Recent data, including Thursday's factory activity report, confirmed underlying strength in the economy, suggesting the Fed was justified in its move.

But investors will be anxious to see whether that strength also is evident in the December U.S. nonfarm payrolls report, due on Friday. The Fed has tied its policy in part to jobs data. In its December announcement, the Fed said it "likely will be appropriate" to keep overnight rates near zero "well past the time" that the U.S. jobless rate falls below 6.5 percent.

"The expectation is, we're going to hear things are good. Otherwise, why would they have tapered?" said Rex Macey, chief investment officer of Wilmington Trust Investment Advisors, based in Wilmington, Delaware.

U.S. employers are expected to have added 197,000 jobs in December, down slightly from the 203,000 jobs added in November, according to economists polled by Reuters. The U.S. unemployment rate is expected to remain at a five-year low of 7.0 percent.

The Fed's decision to trim its stimulus in December came as a surprise to many investors, who had expected the Fed to delay such a decision until early in 2014.

Signs of weakness in economic data could suggest that the Fed acted too soon and give investors reasons to sell, especially as last year's huge rally left investors braced for a period of consolidation.

Source: Reuters

Dollar edges up after Bernanke's optimism on U.S. economy

The dollar held steady in early Asian trading on Monday, supported by an upbeat outlook on the U.S. economy by outgoing Federal Reserve Chairman Ben Bernanke that fanned expectations of more stimulus reduction from the U.S. central bank.

Many market participants in Tokyo returned from the New Year holiday on Monday, to find that the yen slumped to a fresh five-year nadir of 105.45 yen against the dollar on Thursday, before retracing slightly. On Monday, the dollar was buying 104.89 yen, up about 0.1 percent on the day.

The dollar index, which tracks the greenback against a basket of six major currencies, rose about 0.1 percent to 80.860

Bernanke, who will leave the helm of the Fed at the end of this month, heightened market expectations that the central bank will continue to scale back its bond purchases in 2014, although he tempered his rosy assessment by repeating that the overall recovery "remains incomplete.

Still, his comments pushed the yield on benchmark 10-year U.S. Treasuries up to 3 percent, which increased the greenback's appeal and gave investors no incentive to further pare their yen-short positions.

"Market positioning is still extreme, suggesting a vulnerability in the market," strategists at Brown Brothers Harriman said in a note to clients.

"However, with Fed tapering and U.S. rates firm, many look for the yen to weaken sharply this year. This will likely encourage dollar buying on pullbacks," they said.

Richmond Federal Reserve President Jeffrey Lacker also lent some luster to the dollar, telling an event in Baltimore he expects the Fed might raise short-term interest rates from zero in early 2015 and perhaps sooner if the economy strengthens more than forecast this year.

The first full trading week of the year could offer investors some more clues about the dollar's direction in the months ahead.

The minutes of the U.S. Federal Reserve's December policy meeting will be released on Wednesday. Central bank policy makers decided at that meeting that they would begin to pare stimulus, and cut asset purchases by $10 billion to $75 billion a month. The minutes could hint at the timing and pace of any further reductions to the Fed's stimulus.

Source: Reuters

Hagel seeks Japan's improved ties with neighbors

U.S. Defense Secretary Chuck Hagel Saturday called on Japan to improve relations with its Asian neighbors.

Hagel made the request during telephone talks with Japanese Defense Minister Itsunori Onodera.

Hagel "underscored the importance of Japan taking steps to improve relations with its neighbors," Defense Department spokesman John Kirby said in a readout of the talks.

Source:  Jiji Press

China: Easing factory activity weighs on services, retail industry stands out.

Non manufacturing PMI dipped slightly in December, but continues to expand.

Falling temperature seems to have chilled China’s economic growth approaching year-end. The country’s non-manufacturing purchasing managers index is down to 54.6 last month, a touch lower from the figure in November.

While a reading above 50 shows expansion, experts acknowledge that the ease in industrial production has spilled over into the non-manufacturing areas.

"The decline is mainly due to slowing factory churn-out last month, dragging down those serving the manufacturing industry. Of course, the seasonal factor also played a role." said Cai Jin, Deputy Director, China Federation of Logistics & Purchasing.

Figures released earlier this week showed a slack in China’s manufacturing activity last month. Yet not everything shrinks in winter time. Consumption-led practices, for instance, provide a major push behind the service industry growth.

"Modern service industry, such as software, information technology, and retails all remain at high levels, with their readings near 60. Generally speaking, business activity index of the non-manufacturing sector is still fairly high." said Meng Qingxin, Director, Dept. of Services Survey Center, NBS.

Analysts also point out that new orders index remains the same as in November, providing a sound base for the industry going forward. 

Asian shares fall after China's Services PMI data

Asian shares fell to a two-week low on Monday after growth in China's services sector slowed sharply last month, raising concerns about the pace of recovery in the world's second-largest economy, while safe-haven gold climbed.

The dollar hovered near a four-week high, supported by an upbeat outlook for the U.S. economy from Federal Reserve Chairman Ben Bernanke that fanned expectations of faster stimulus reduction by the U.S. central bank.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.7 percent, reaching a two-week low and adding to a 1.1 percent drop on Friday. The index lost 1.7 percent last year, sharply underperforming U.S., Japanese and European stocks.

China's CSI300 index  sagged 2.5 percent, hitting a five-month low after the HSBC/Markit services sector Purchasing Managers' Index fell to 50.9 in December from 52.5 in the previous month, with new business expansion the slowest in six months.

The Chinese index is down 4.2 percent since the start of the year, adding to last year's 7.6 percent decline.

"What have been the principal sort of driver of the market since the beginning of the new year has been a disappointment of the Chinese PMI data," Guy Stear, Asian credit and equity strategist at Societe Generale in Hong Kong, referring to the manufacturing PMI released last week.

"The focal point of the Asian markets is more on Chinese growth and on Chinese political situation and how it's going to pan out this year, rather than worrying about how tapering will affect Asia specifically," he added.

The Thai baht fell a near four-year low of 33.09 per dollar and Thai stocks .SETI dropped 1.4 percent, hitting a 16-month trough driven by heightened political uncertainties ahead of next month's general election.

In terms of valuations, Thai equities were relatively expensive, with its 12-month forward price-to-earnings of 11.9, slightly ahead of a five-year average of 11.4 and the MSCI Asia-Pacific ex-Japan's 11.7, according to Thomson Reuters Datastream.

Japan's Nikkei share average .N225 stumbled 2.2 percent in the first trading day of 2014. The benchmark jumped 57 percent last year to mark its best annual rise since 1972 on the back of massive fiscal and monetary stimulus.

As Japanese equities took a beating, the yen got some respite against the dollar, up 0.5 percent at 104.29 yen, not far from a two-week high of 104.08 yen touched last Friday.

Against a basket of major currencies, the dollar .DXY added 0.1 percent to near a four-week high set on Friday, helped by Bernanke's comments.

Bernanke, who steps down as head of the Fed at month's end, gave an upbeat assessment of the U.S. economy in coming quarters, but he tempered the good news in housing, finance and fiscal policies by repeating that the overall recovery "clearly remains incomplete".

Source: reuters

Abe gives New Year speech to constituents

Prime Minister Shinzo Abe says he hopes to overcome any difficulties this year and likened it to a good horse jumping over obstacles.

Abe made the remark to his constituents in the city of Shimonoseki, Yamaguchi Prefecture, on Saturday.2014 is the Year of the Horse, one of the 12 animals in the Chinese zodiac.
He said more than one year has passed since he took office with the goal of leading Japan into a recovery.
He said the people of Japan are showing more confidence after years of a deflationary economy and negative growth. But he said the crucial moment will soon come.
Abe said the consumption tax will rise from the current 5 percent to 8 percent in April.

Source: NewsOnJapan

Lottery companies cash in as China raises bet on punters

   Investors in Chinese online lottery platform 500.com Ltd have found their own winning ticket: the stock has nearly tripled from its $13 initial public offering price in the six weeks since its New York Stock Exchange debut.

500.com, the only Chinese lottery firm so far listed in the United States, is among a handful of listed companies that stand to benefit as China whittles down thousands of private lottery operators to a handful of licensed and regulated firms serving more than 400 million punters, say industry experts.

"Over the next five years it is very clear that the Chinese market will continue to grow very quickly and the government regulatory regime will become more open and transparent," said Zhengming Pan, chief financial officer at 500.com.

Spurred by rising disposable income, a strong appetite for gambling and more sophisticated games, China's lottery market has boomed with customers splurging some $23 billion in 2012, compared to $37 billion by punters in the world's biggest lottery market in the United States.

With 20 percent growth rates projected for the next three years, China is expected to overtake the United States and leap into the top spot by 2015. The U.S. lottery market is expected to show single digit growth during the same period.

Sales revenue generated by the lottery industry in the United States was $71 billion in 2012 compared with $43 billion in China, according to data from China's Ministry of Finance and the U.S.-based North American Association of State and Provincial Lotteries.

With just 7-8 percent of Chinese adults buying lottery tickets compared to 70-80 percent of adults in the wider Asia Pacific region, the government is keen to lure more punters with improved payouts, new products and wider distribution channels, industry executives say.

"The Chinese government wants to consolidate the current lottery market, making it easier to control and regulate," said Hoffman Ma, deputy chairman of Success Universe Group Ltd, a leisure and gaming company authorized to provide sports lottery sales agency services in three provinces.

"They are seeking operators with stable platforms and want to ensure that all bets that come through will pay tax."

Unlike the United States and Europe, where prizes can climb into the hundreds of millions of dollars, China caps jackpots at 10 million yuan ($1.65 million). Tickets sell for 2 yuan to 200 yuan, with proceeds supporting sports and welfare charities.

NEW RULES

Lottery products are typically sold through authorized stations throughout the country in the form of physical tickets. These range from dedicated lottery stores to counters in supermarkets, post offices and gas stations.

Beijing is expected to announce new rules in 2014 that will clarify and detail legislation in the fast growing industry. New license approvals are likely to be issued within the next two years, say industry experts, but specifics remain unclear.

Companies like Okooo.com, the web platform of lottery terminal provider REXlot Holdings Ltd, which have a solid reputation, technological capabilities and government background could win new licenses, said research house Cinda International.

Okooo.com processed lottery orders worth 6 billion yuan in 2012, and became the exclusive partner of state-backed media website People.cn Co. Ltd in August.

Just a few years ago, China's lottery market consisted largely of traditional paper lotto tickets. Now, single match games, where players bet on the results of basketball or football, video lottery terminals and scratch games, are more common. Internet and telephone became legal lottery channels at the end of 2012, but online tickets still have to be backed by paper stubs until an actual online market is created.

The Chinese government has so far contained casino gambling to Macau, in part because of social concerns. Officials consider the lottery system more sanitized, with fewer negative effects on local citizens, said Chen Haiping, a professor at Beijing Normal University's lottery research centre.

"It is not realistic to completely ban all forms of gambling. If the government opens gambling, they face ethical issues but if they do not, neighboring countries will continue to attract Chinese tourists to gamble and from the government's point of view that is a loss of state income," said Chen.

Hong Kong-listed AGTech Holdings Ltd won government approval to launch its virtual sports games in some provinces and is expected to roll out games like the Grand Prix-based Lucky Racing Gaming and football game Electronic Ball Lottery nationally in 2014.

These games are aimed at middle-to upper-income Chinese rather than lower income workers who account for the bulk of lottery purchasers. AG Tech's share price has surged some 205 percent over the past year.

John Sun, AGTech's chairman and chief executive, expects the industry to become more open in the next five years with new products and channels. He remains concerned, however, that the industry needs a strong gaming commission or regulator to set standards and monitor operators.

"In the gaming industry, integrity is the most critical foundation," he said. "If you don't have good compliance or a good check and balance, the degree of credibility is a big issue."

Source: reuters