Re: BRIC-a-BRAC: Sid Harth
bademiyansubhanallah
Welcome from the United Kingdom
The United Kingdom is honoured to chair the Group of Twenty in 2009.
Since 1999, the G-20 has contributed to strengthen the international
financial architecture and to foster sustainable economic growth and
development. The G-20 now has a crucial role in driving forward work
between advanced and emerging economies to tackle the international
financial and economic crisis, restore worldwide financial stability,
lead the international economic recovery and secure a sustainable
future for all countries.
The financial markets and the world economy continue to face serious
global challenges and the severity of the crisis and ongoing
uncertainties demonstrate the need for urgent action. During the
United Kingdoms Chair, the immediate priority will be to gain further
agreements for a concerted, co-ordinated international response.
The G-20 will need to send a strong signal that it is prepared to take
whatever further actions are necessary to stabilise the financial
system and to provide further macroeconomic support. At the same time,
the G-20 must commit to maintaining open trade and investment, to
avoid a retreat to protectionism, and direct necessary additional
support to emerging markets and developing countries.
The G-20 should also lay the foundations to move beyond the crisis to
a sustainable recovery. In 2009, it will be important to understand
the roots of the international financial crisis and identify the
lessons that we can learn to ensure that a crisis of this kind does
not happen again. The G-20 should develop proposals that will restore
global growth in the medium term, including the unwinding of emergency
measures taken in response to the crisis.
In addition, we should also make progress on long-term issues such as
climate change and international development.
In line with usual practice, the organisation of the G-20 events
during the year will be shared between the Ministry of Finance and the
Central Bank. We are looking forward to working closely and drawing on
the valuable experience of our Troika colleagues, Brazil and South
Korea, and the other G-20 members.
http://www.g20.org/pub_communiques.aspx
http://www.g20.org/Documents/FM__CBG_Comm_-_Final.pdf
http://www.g20.org/Documents/FM__CBG_Declaration_-_Final.pdf
http://www.g20.org/Documents/20090905_G20_progress_update_London_Fin_Mins_final.pdf
http://www.g20.org/Documents/final-communique.pdf
http://www.g20.org/Documents/Fin_Deps_Fin_Reg_Annex_020409_-_1615_final.pdf
http://www.g20.org/Documents/Fin_Deps_IFI_Annex_Draft_02_04_09_-__1615_Clean.pdf
http://www.g20.org/Documents/FINAL_Annex_on_Action_Plan.pdf
http://www.g20.org/Documents/2009_communique_horsham_uk.pdf
http://www.g20.org/Documents/2009_communique_annex_horsham_uk.pdf
http://www.g20.org/Documents/g20_washington_actionplan_progress_140309.pdf
http://www.g20.org/Documents/g20_summit_declaration.pdf
http://www.g20.org/Documents/2008_communique_saopaulo_brazil.pdf
http://www.g20.org/Documents/2007_communiqu_kleinmond_capetown_southafrica.pdf
http://www.g20.org/Documents/2006_australia.pdf
http://www.g20.org/Documents/2005_china.pdf
http://www.g20.org/Documents/2004_germany.pdf
http://www.g20.org/Documents/2003_mexico.pdf
http://www.g20.org/Documents/2002_india.pdf
http://www.g20.org/Documents/2001_canada.pdf
http://www.g20.org/Documents/2000_canada.pdf
http://www.g20.org/Documents/1999_germany.pdf
...and I am Sid Harth
bademiyansubhanallah
http://www.pittsburghsummit.gov/about/index.htm
The Pittsburgh Summit 2009
About the SummitThe Group of Twenty (G-20) was formally established
in 1999 to bring together major industrialized and developing
economies to discuss key issues in the global economy.
The members of the G-20 are the finance ministers and central bank
governors of 19 countries: Argentina, Australia, Brazil, Canada,
China, France, Germany, India, Indonesia, Italy, Japan, Mexico,
Russia, Saudi Arabia, South Africa, South Korea, Turkey, the U.K. and
the U.S., as well as the European Union, represented by the rotating
council presidency and the European Central Bank.
In November 2008, as a response to the global economic crisis, the
G-20 held its first Leaders meeting, the Washington Summit on
Financial Markets and the Global Economy. The heads of state and
government were joined by the Secretary-General of the United Nations,
the President of the World Bank, the Managing Director of the
International Monetary Fund, and the Chairperson of the Financial
Stability Forum (reconstituted at the London Summit as the Financial
Stability Board).
At the Washington Summit, the Leaders committed to an Action Plan
which was reviewed and renewed at the London Summit held in April
2009. The G-20 Finance Ministers were tasked from the Washington
summit to take forward work in the following five areas: strengthening
transparency and accountability; enhancing sound regulation; promoting
integrity in financial markets; reinforcing international cooperation;
and reforming the international financial institutions.
The London Summit built on the work in those areas, as Leaders reached
agreement on six pledges: to restore confidence, growth, and jobs; to
repair the financial system to restore lending; to strengthen
financial regulation to rebuild trust; to fund and reform our
international financial institutions to overcome this crisis and
prevent future ones; to promote global trade and investment and reject
protectionism; and to build an inclusive, green, and sustainable
recovery.
In London, the Leaders also called for another meeting to be held
before the end of 2009. After consultation with his G-20 counterparts,
President Obama agreed to host the next meeting in September and chose
Pittsburgh, Pennsylvania, as the site. With governments and
international organizations now hard at work to reach the objectives
set out at the Washington and London Summits, the meeting in
Pittsburgh will give Leaders the opportunity to take stock of the
progress made and discuss further actions to assure a sound recovery
from the global economic and financial crisis.
http://www.pittsburghsummit.gov/resources/125137.htm
The Pittsburgh Summit 2009
20 Summit on Financial Markets and the World Economy
Washington, DC
November 15, 2008
Action Plan to implement principles for reform
This Action Plan sets forth a comprehensive work plan to implement the
five agreed principles for reform. Our finance ministers will work to
ensure that the taskings set forth in this Action Plan are fully and
vigorously implemented. They are responsible for the development and
implementation of these recommendations drawing on the ongoing work of
relevant bodies, including the International Monetary Fund (IMF), an
expanded Financial Stability Forum (FSF), and standard setting bodies.
Strengthening transparency and accountability
Immediate actions by March 31, 2009
•The key global accounting standards bodies should work to enhance
guidance for valuation of securities, also taking into account the
valuation of complex, illiquid products, especially during times of
stress.
•Accounting standard setters should significantly advance their work
to address weaknesses in accounting and disclosure standards for off-
balance sheet vehicles.
•Regulators and accounting standard setters should enhance the
required
disclosure of complex financial instruments by firms to market
participants.
•With a view toward promoting financial stability, the governance of
the international accounting standard setting body should be further
enhanced, including by undertaking a review of its membership, in
particular in order to ensure transparency, accountability, and an
appropriate relationship between this independent body and the
relevant authorities.
•Private sector bodies that have already developed best practices for
private pools of capital and/or hedge funds should bring forward
proposals for a set of unified best practices. Finance Ministers
should assess the adequacy of these proposals, drawing upon the
analysis of regulators, the expanded FSF, and other relevant bodies.
Medium-term actions
•The key global accounting standards bodies should work intensively
toward the objective of creating a single high-quality global
standard.
•Regulators, supervisors, and accounting standard setters, as
appropriate, should work with each other and the private sector on an
ongoing basis to ensure consistent application and enforcement of high-
quality accounting standards.
•Financial institutions should provide enhanced risk disclosures in
their reporting and disclose all losses on an ongoing basis,
consistent with international best practice, as appropriate.
Regulators should work to ensure that a financial institution’
financial statements include a complete, accurate, and timely picture
of the firm’s activities (including off-balance sheet activities) and
are reported on a consistent and regular basis.
Enhancing sound regulation
Regulatory regimes
Immediate actions by March 31, 2009
•The IMF, expanded FSF, and other regulators and bodies should develop
recommendations to mitigate pro-cyclicality, including the review of
how valuation and leverage, bank capital, executive compensation, and
provisioning practices may exacerbate cyclical trends.
Medium-term actions
•To the extent countries or regions have not already done so, each
country or region pledges to review and report on the structure and
principles of its regulatory system to ensure it is compatible with a
modern and increasingly globalized financial system. To this end, all
G-20 members commit to undertake a Financial Sector Assessment Program
(FSAP) report and support the transparent assessments of countries’
national regulatory systems.
•The appropriate bodies should review the differentiated nature of
regulation in the banking, securities, and insurance sectors and
provide a report outlining the issue and making recommendations on
needed improvements. A review of the scope of financial regulation,
with a special emphasis on institutions, instruments, and markets that
are currently unregulated, along with ensuring that all systemically-
important institutions are appropriately regulated, should also be
undertaken.
•National and regional authorities should review resolution regimes
and bankruptcy laws in light of recent experience to ensure that they
permit an orderly wind-down of large complex cross-border financial
institutions.
•Definitions of capital should be harmonized in order to achieve
consistent measures of capital and capital adequacy.
Prudential Oversight
Immediate actions by March 31, 2009
•Regulators should take steps to ensure that credit rating agencies
meet the highest standards of the international organization of
securities regulators and that they avoid conflicts of interest,
provide greater disclosure to investors and to issuers, and
differentiate ratings for complex products. This will help ensure that
credit rating agencies have the right incentives and appropriate
oversight to enable them to perform their important role in providing
unbiased information and assessments to markets.
•The international organization of securities regulators should review
credit rating agencies’ adoption of the standards and mechanisms for
monitoring compliance.
•Authorities should ensure that financial institutions maintain
adequate capital in amounts necessary to sustain confidence.
International standard setters should set out strengthened capital
requirements for banks’ structured credit and securitization
activities.
•Supervisors and regulators, building on the imminent launch of
central counterparty services for credit default swaps (CDS) in some
countries, should: speed efforts to reduce the systemic risks of CDS
and over-the-counter (OTC) derivatives transactions; insist that
market participants support exchange traded or electronic trading
platforms for CDS contracts; expand OTC derivatives market
transparency; and ensure that the infrastructure for OTC derivatives
can support growing volumes.
Medium-term actions
•Credit Ratings Agencies that provide public ratings should be
registered.
•Supervisors and central banks should develop robust and
internationally consistent approaches for liquidity supervision of,
and central bank liquidity operations for, cross-border banks.
Risk Management
Immediate actions by March 31, 2009
•Regulators should develop enhanced guidance to strengthen banks’ risk
management practices, in line with international best practices, and
should encourage financial firms to re-examine their internal controls
and implement strengthened policies for sound risk management.
•Regulators should develop and implement procedures to ensure that
financial firms implement policies to better manage liquidity risk,
including by creating strong liquidity cushions.
•Supervisors should ensure that financial firms develop processes that
provide for timely and comprehensive measurement of risk
concentrations and large counterparty risk positions across products
and geographies.
•Firms should reassess their risk management models to guard against
stress and report to supervisors on their efforts.
•The Basel Committee should study the need for and help develop firms’
new stress testing models, as appropriate.
•Financial institutions should have clear internal incentives to
promote stability, and action needs to be taken, through voluntary
effort or regulatory action, to avoid compensation schemes which
reward excessive short-term returns or risk taking.
•Banks should exercise effective risk management and due diligence
over structured products and securitization.
Medium-term actions
•International standard setting bodies, working with a broad range of
economies and other appropriate bodies, should ensure that regulatory
policy makers are aware and able to respond rapidly to evolution and
innovation in financial markets and products.
•Authorities should monitor substantial changes in asset prices and
their implications for the macroeconomy and the financial system.
Promoting integrity in financial markets
Immediate actions by March 31, 2009
•Our national and regional authorities should work together to enhance
regulatory cooperation between jurisdictions on a regional and
international level.
•National and regional authorities should work to promote information
sharing about domestic and cross-border threats to market stability
and ensure that national (or regional, where applicable) legal
provisions are adequate to address these threats.
•National and regional authorities should also review business conduct
rules to protect markets and investors, especially against market
manipulation and fraud and strengthen their cross-border cooperation
to protect the international financial system from illicit actors. In
case of misconduct, there should be an appropriate sanctions regime.
Medium-term actions
•National and regional authorities should implement national and
international measures that protect the global financial system from
uncooperative and non-transparent jurisdictions that pose risks of
illicit financial activity.
•The Financial Action Task Force should continue its important work
against money laundering and terrorist financing, and we support the
efforts of the World Bank - UN Stolen Asset Recovery (StAR)
Initiative.
•Tax authorities, drawing upon the work of relevant bodies such as the
Organization for Economic Cooperation and Development (OECD), should
continue efforts to promote tax information exchange. Lack of
transparency and a failure to exchange tax information should be
vigorously addressed.
Reinforcing international cooperation
Immediate actions by March 31, 2009
•Supervisors should collaborate to establish supervisory colleges for
all major cross-border financial institutions, as part of efforts to
strengthen the surveillance of cross-border firms. Major global banks
should meet regularly with their supervisory college for comprehensive
discussions of the firm’s activities and assessment of the risks it
faces.
•Regulators should take all steps necessary to strengthen cross-border
crisis management arrangements, including on cooperation and
communication with each other and with appropriate authorities, and
develop comprehensive contact lists and conduct simulation exercises,
as appropriate.
Medium-term actions
•Authorities, drawing especially on the work of regulators, should
collect information on areas where convergence in regulatory practices
such as accounting standards, auditing, and deposit insurance is
making progress, is in need of accelerated progress, or where there
may be potential for progress.
•Authorities should ensure that temporary measures to restore
stability and confidence have minimal distortions and are unwound in a
timely, well-sequenced and coordinated manner.
Reforming international financial institutions
Immediate actions by March 31, 2009
•The FSF should expand to a broader membership of emerging economies.
•The IMF, with its focus on surveillance, and the expanded FSF, with
its focus on standard setting, should strengthen their collaboration,
enhancing efforts to better integrate regulatory and supervisory
responses into the macro-prudential policy framework and conduct early
warning exercises.
•The IMF, given its universal membership and core macro-financial
expertise, should, in close coordination with the FSF and others, take
a leading role in drawing lessons from the current crisis, consistent
with its mandate.
•We should review the adequacy of the resources of the IMF, the World
Bank Group and other multilateral development banks and stand ready to
increase them where necessary. The IFIs should also continue to review
and adapt their lending instruments to adequately meet their members’
needs and revise their lending role in the light of the ongoing
financial crisis.
•We should explore ways to restore emerging and developing countries’
access to credit and resume private capital flows which are critical
for sustainable growth and development, including ongoing
infrastructure investment.
•In cases where severe market disruptions have limited access to the
necessary financing for counter-cyclical fiscal policies, multilateral
development banks must ensure arrangements are in place to support, as
needed, those countries with a good track record and sound policies.
Medium-term actions
•We underscored that the Bretton Woods Institutions must be
comprehensively reformed so that they can more adequately reflect
changing economic weights in the world economy and be more responsive
to future challenges. Emerging and developing economies should have
greater voice and representation in these institutions.
•The IMF should conduct vigorous and even-handed surveillance reviews
of all countries, as well as giving greater attention to their
financial sectors and better integrating the reviews with the joint
IMF/World Bank financial sector assessment programs. On this basis,
the role of the IMF in providing macro-financial policy advice would
be strengthened.
•Advanced economies, the IMF, and other international organizations
should provide capacity-building programs for emerging market
economies and developing countries on the formulation and the
implementation of new major regulations, consistent with international
standards.
http://www.pittsburghsummit.gov/resources/125136.htm
The Pittsburgh Summit 2009
20 Summit on Financial Markets and the World Economy
Washington, DC
November 15, 2008
1. We, the Leaders of the Group of Twenty, held an initial meeting in
Washington on November 15, 2008, amid serious challenges to the world
economy and financial markets. We are determined to enhance our
cooperation and work together to restore global growth and achieve
needed reforms in the world’s financial systems.
2. Over the past months our countries have taken urgent and
exceptional measures to support the global economy and stabilize
financial markets. These efforts must continue. At the same time, we
must lay the foundation for reform to help to ensure that a global
crisis, such as this one, does not happen again. Our work will be
guided by a shared belief that market principles, open trade and
investment regimes, and effectively regulated financial markets foster
the dynamism, innovation, and entrepreneurship that are essential for
economic growth, employment, and poverty reduction.
Root causes of the current crisis
3. During a period of strong global growth, growing capital flows, and
prolonged stability earlier this decade, market participants sought
higher yields without an adequate appreciation of the risks and failed
to exercise proper due diligence. At the same time, weak underwriting
standards, unsound risk management practices, increasingly complex and
opaque financial products, and consequent excessive leverage combined
to create vulnerabilities in the system. Policy-makers, regulators and
supervisors, in some advanced countries, did not adequately appreciate
and address the risks building up in financial markets, keep pace with
financial innovation, or take into account the systemic ramifications
of domestic regulatory actions.
4. Major underlying factors to the current situation were, among
others, inconsistent and insufficiently coordinated macroeconomic
policies, inadequate structural reforms, which led to unsustainable
global macroeconomic outcomes. These developments, together,
contributed to excesses and ultimately resulted in severe market
disruption.
Actions taken and to be taken
5. We have taken strong and significant actions to date to stimulate
our economies, provide liquidity, strengthen the capital of financial
institutions, protect savings and deposits, address regulatory
deficiencies, unfreeze credit markets, and are working to ensure that
international financial institutions (IFIs) can provide critical
support for the global economy.
6. But more needs to be done to stabilize financial markets and
support economic growth. Economic momentum is slowing substantially in
major economies and the global outlook has weakened. Many emerging
market economies, which helped sustain the world economy this decade,
are still experiencing good growth but increasingly are being
adversely impacted by the worldwide slowdown.
7. Against this background of deteriorating economic conditions
worldwide, we agreed that a broader policy response is needed, based
on closer macroeconomic cooperation, to restore growth, avoid negative
spillovers and support emerging market economies and developing
countries. As immediate steps to achieve these objectives, as well as
to address longer-term challenges, we will:
•Continue our vigorous efforts and take whatever further actions are
necessary to stabilize the financial system.
•Recognize the importance of monetary policy support, as deemed
appropriate to domestic conditions.
Use fiscal measures to stimulate domestic demand to rapid effect, as
appropriate, while maintaining a policy framework conducive to fiscal
sustainability.
•Help emerging and developing economies gain access to finance in
current difficult financial conditions, including through liquidity
facilities and program support. We stress the International Monetary
Fund’s (IMF) important role in crisis response, welcome its new short-
term liquidity facility, and urge the ongoing review of its
instruments and facilities to ensure flexibility.
•Encourage the World Bank and other multilateral development banks
(MDBs) to use their full capacity in support of their development
agenda, and we welcome the recent introduction of new facilities by
the World Bank in the areas of infrastructure and trade finance.
•Ensure that the IMF, World Bank and other MDBs have sufficient
resources to continue playing their role in overcoming the crisis.
Common principles for reform of financial markets
8. In addition to the actions taken above, we will implement reforms
that will strengthen financial markets and regulatory regimes so as to
avoid future crises. Regulation is first and foremost the
responsibility of national regulators who constitute the first line of
defense against market instability. However, our financial markets are
global in scope, therefore, intensified international cooperation
among regulators and strengthening of international standards, where
necessary, and their consistent implementation is necessary to protect
against adverse cross-border, regional and global developments
affecting international financial stability. Regulators must ensure
that their actions support market discipline, avoid potentially
adverse impacts on other countries, including regulatory arbitrage,
and support competition, dynamism and innovation in the marketplace.
Financial institutions must also bear their responsibility for the
turmoil and should do their part to overcome it including by
recognizing losses, improving disclosure and strengthening their
governance and risk management practices.
9. We commit to implementing policies consistent with the following
common principles for reform.
•Strengthening transparency and accountability: We will strengthen
financial market transparency, including by enhancing required
disclosure on complex financial products and ensuring complete and
accurate disclosure by firms of their financial conditions. Incentives
should be aligned to avoid excessive risk-taking.
•Enhancing sound regulation: We pledge to strengthen our regulatory
regimes, prudential oversight, and risk management, and ensure that
all financial markets, products and participants are regulated or
subject to oversight, as appropriate to their circumstances. We will
exercise strong oversight over credit rating agencies, consistent with
the agreed and strengthened international code of conduct. We will
also make regulatory regimes more effective over the economic cycle,
while ensuring that regulation is efficient, does not stifle
innovation, and encourages expanded trade in financial products and
services. We commit to transparent assessments of our national
regulatory systems.
•Promoting integrity in financial markets: We commit to protect the
integrity of the world’s financial markets by bolstering investor and
consumer protection, avoiding conflicts of interest, preventing
illegal market manipulation, fraudulent activities and abuse, and
protecting against illicit finance risks arising from non-cooperative
jurisdictions. We will also promote information sharing, including
with respect to jurisdictions that have yet to commit to international
standards with respect to bank secrecy and transparency.
•Reinforcing international cooperation: We call upon our national and
regional regulators to formulate their regulations and other measures
in a consistent manner. Regulators should enhance their coordination
and cooperation across all segments of financial markets, including
with respect to cross-border capital flows. Regulators and other
relevant authorities as a matter of priority should strengthen
cooperation on crisis prevention, management, and resolution.
•Reforming International Financial Institutions: We are committed to
advancing the reform of the Bretton Woods Institutions so that they
can more adequately reflect changing economic weights in the world
economy in order to increase their legitimacy and effectiveness. In
this respect, emerging and developing economies, including the poorest
countries, should have greater voice and representation. The Financial
Stability Forum (FSF) must expand urgently to a broader membership of
emerging economies, and other major standard setting bodies should
promptly review their membership. The IMF, in collaboration with the
expanded FSF and other bodies, should work to better identify
vulnerabilities, anticipate potential stresses, and act swiftly to
play a key role in crisis response.
Tasking of ministers and experts
10. We are committed to taking rapid action to implement these
principles. We instruct our Finance Ministers, as coordinated by their
2009 G-20 leadership (Brazil, UK, Republic of Korea), to initiate
processes and a timeline to do so. An initial list of specific
measures is set forth in the attached Action Plan, including high
priority actions to be completed prior to March 31, 2009.
In consultation with other economies and existing bodies, drawing upon
the recommendations of such eminent independent experts as they may
appoint, we request our Finance Ministers to formulate additional
recommendations, including in the following specific areas:
•Mitigating against pro-cyclicality in regulatory policy;
•Reviewing and aligning global accounting standards, particularly for
complex securities in times of stress;
•Strengthening the resilience and transparency of credit derivatives
markets and reducing their systemic risks, including by improving the
infrastructure of over-the-counter markets;
•Reviewing compensation practices as they relate to incentives for
risk taking and innovation;
•Reviewing the mandates, governance, and resource requirements of the
IFIs; and
•Defining the scope of systemically important institutions and
determining their appropriate regulation or oversight.
11. In view of the role of the G-20 in financial systems reform, we
will meet again by April 30, 2009, to review the implementation of the
principles and decisions agreed today.
Commitment to an Open Global Economy
12. We recognize that these reforms will only be successful if
grounded in a commitment to free market principles, including the rule
of law, respect for private property, open trade and investment,
competitive markets, and efficient, effectively regulated financial
systems. These principles are essential to economic growth and
prosperity and have lifted millions out of poverty, and have
significantly raised the global standard of living.
Recognizing the necessity to improve financial sector regulation, we
must avoid over-regulation that would hamper economic growth and
exacerbate the contraction of capital flows, including to developing
countries.
13. We underscore the critical importance of rejecting protectionism
and not turning inward in times of financial uncertainty. In this
regard, within the next 12 months, we will refrain from raising new
barriers to investment or to trade in goods and services, imposing new
export restrictions, or implementing World Trade Organization (WTO)
inconsistent measures to stimulate exports. Further, we shall strive
to reach agreement this year on modalities that leads to a successful
conclusion to the WTO’s Doha Development Agenda with an ambitious and
balanced outcome. We instruct our Trade Ministers to achieve this
objective and stand ready to assist directly, as necessary. We also
agree that our countries have the largest stake in the global trading
system and therefore each must make the positive contributions
necessary to achieve such an outcome.
14. We are mindful of the impact of the current crisis on developing
countries, particularly the most vulnerable. We reaffirm the
importance of the Millennium Development Goals, the development
assistance commitments we have made, and urge both developed and
emerging economies to undertake commitments consistent with their
capacities and roles in the global economy. In this regard, we
reaffirm the development principles agreed at the 2002 United Nations
Conference on Financing for Development in Monterrey, Mexico, which
emphasized country ownership and mobilizing all sources of financing
for development.
15. We remain committed to addressing other critical challenges such
as energy security and climate change, food security, the rule of law,
and the fight against terrorism, poverty and disease.
16. As we move forward, we are confident that through continued
partnership, cooperation, and multilateralism, we will overcome the
challenges before us and restore stability and prosperity to the world
economy.
http://www.pittsburghsummit.gov/resources/125131.htm
The Pittsburgh Summit 2009
Communiqué: Global Plan for Recovery and ReformG-20 Summit
London, England
April 2, 2009
1. We, the Leaders of the Group of Twenty, met in London on 2 April
2009.
2. We face the greatest challenge to the world economy in modern
times; a crisis which has deepened since we last met, which affects
the lives of women, men, and children in every country, and which all
countries must join together to resolve. A global crisis requires a
global solution.
3. We start from the belief that prosperity is indivisible; that
growth, to be sustained, has to be shared; and that our global plan
for recovery must have at its heart the needs and jobs of hard-working
families, not just in developed countries but in emerging markets and
the poorest countries of the world too; and must reflect the
interests, not just of today’s population, but of future generations
too. We believe that the only sure foundation for sustainable
globalisation and rising prosperity for all is an open world economy
based on market principles, effective regulation, and strong global
institutions.
4. We have today therefore pledged to do whatever is necessary to:
•restore confidence, growth, and jobs;
•repair the financial system to restore lending;
•strengthen financial regulation to rebuild trust;
•fund and reform our international financial institutions to overcome
this crisis and prevent future ones;
•promote global trade and investment and reject protectionism, to
underpin prosperity; and
•build an inclusive, green, and sustainable recovery.
By acting together to fulfil these pledges we will bring the world
economy out of recession and prevent a crisis like this from recurring
in the future.
5. The agreements we have reached today, to treble resources available
to the IMF to $750 billion, to support a new SDR allocation of $250
billion, to support at least $100 billion of additional lending by the
MDBs, to ensure $250 billion of support for trade finance, and to use
the additional resources from agreed IMF gold sales for concessional
finance for the poorest countries, constitute an additional $1.1
trillion programme of support to restore credit, growth and jobs in
the world economy. Together with the measures we have each taken
nationally, this constitutes a global plan for recovery on an
unprecedented scale.
Restoring growth and jobs
6. We are undertaking an unprecedented and concerted fiscal expansion,
which will save or create millions of jobs which would otherwise have
been destroyed, and that will, by the end of next year, amount to $5
trillion, raise output by 4 per cent, and accelerate the transition to
a green economy. We are committed to deliver the scale of sustained
fiscal effort necessary to restore growth.
7. Our central banks have also taken exceptional action. Interest
rates have been cut aggressively in most countries, and our central
banks have pledged to maintain expansionary policies for as long as
needed and to use the full range of monetary policy instruments,
including unconventional instruments, consistent with price stability.
8. Our actions to restore growth cannot be effective until we restore
domestic lending and international capital flows. We have provided
significant and comprehensive support to our banking systems to
provide liquidity, recapitalise financial institutions, and address
decisively the problem of impaired assets. We are committed to take
all necessary actions to restore the normal flow of credit through the
financial system and ensure the soundness of systemically important
institutions, implementing our policies in line with the agreed G20
framework for restoring lending and repairing the financial sector.
9. Taken together, these actions will constitute the largest fiscal
and monetary stimulus and the most comprehensive support programme for
the financial sector in modern times. Acting together strengthens the
impact and the exceptional policy actions announced so far must be
implemented without delay. Today, we have further agreed over $1
trillion of additional resources for the world economy through our
international financial institutions and trade finance.
10. Last month the IMF estimated that world growth in real terms would
resume and rise to over 2 percent by the end of 2010. We are confident
that the actions we have agreed today, and our unshakeable commitment
to work together to restore growth and jobs, while preserving long-
term fiscal sustainability, will accelerate the return to trend
growth. We commit today to taking whatever action is necessary to
secure that outcome, and we call on the IMF to assess regularly the
actions taken and the global actions required.
11. We are resolved to ensure long-term fiscal sustainability and
price stability and will put in place credible exit strategies from
the measures that need to be taken now to support the financial sector
and restore global demand. We are convinced that by implementing our
agreed policies we will limit the longer-term costs to our economies,
thereby reducing the scale of the fiscal consolidation necessary over
the longer term.
12. We will conduct all our economic policies cooperatively and
responsibly with regard to the impact on other countries and will
refrain from competitive devaluation of our currencies and promote a
stable and well-functioning international monetary system. We will
support, now and in the future, to candid, even-handed, and
independent IMF surveillance of our economies and financial sectors,
of the impact of our policies on others, and of risks facing the
global economy.
Strengthening financial supervision and regulation
13. Major failures in the financial sector and in financial regulation
and supervision were fundamental causes of the crisis. Confidence will
not be restored until we rebuild trust in our financial system. We
will take action to build a stronger, more globally consistent,
supervisory and regulatory framework for the future financial sector,
which will support sustainable global growth and serve the needs of
business and citizens.
14. We each agree to ensure our domestic regulatory systems are
strong. But we also agree to establish the much greater consistency
and systematic cooperation between countries, and the framework of
internationally agreed high standards, that a global financial system
requires. Strengthened regulation and supervision must promote
propriety, integrity and transparency; guard against risk across the
financial system; dampen rather than amplify the financial and
economic cycle; reduce reliance on inappropriately risky sources of
financing; and discourage excessive risk-taking. Regulators and
supervisors must protect consumers and investors, support market
discipline, avoid adverse impacts on other countries, reduce the scope
for regulatory arbitrage, support competition and dynamism, and keep
pace with innovation in the marketplace.
15. To this end we are implementing the Action Plan agreed at our last
meeting, as set out in the attached progress report. We have today
also issued a Declaration, Strengthening the Financial System. In
particular we agree:
•to establish a new Financial Stability Board (FSB) with a
strengthened mandate, as a successor to the Financial Stability Forum
(FSF), including all G20 countries, FSF members, Spain, and the
European Commission;
•that the FSB should collaborate with the IMF to provide early warning
of macroeconomic and financial risks and the actions needed to address
them;
•to reshape our regulatory systems so that our authorities are able to
identify and take account of macro-prudential risks;
•to extend regulation and oversight to all systemically important
financial institutions, instruments and markets. This will include,
for the first time, systemically important hedge funds;
•to endorse and implement the FSF’s tough new principles on pay and
compensation and to support sustainable compensation schemes and the
corporate social responsibility of all firms;
•to take action, once recovery is assured, to improve the quality,
quantity, and international consistency of capital in the banking
system. In future, regulation must prevent excessive leverage and
require buffers of resources to be built up in good times;
•to take action against non-cooperative jurisdictions, including tax
havens. We stand ready to deploy sanctions to protect our public
finances and financial systems. The era of banking secrecy is over. We
note that the OECD has today published a list of countries assessed by
the Global Forum against the international standard for exchange of
tax information;
•to call on the accounting standard setters to work urgently with
supervisors and regulators to improve standards on valuation and
provisioning and achieve a single set of high-quality global
accounting standards; and
•to extend regulatory oversight and registration to Credit Rating
Agencies to ensure they meet the international code of good practice,
particularly to prevent unacceptable conflicts of interest.
16. We instruct our Finance Ministers to complete the implementation
of these decisions in line with the timetable set out in the Action
Plan. We have asked the FSB and the IMF to monitor progress, working
with the Financial Action Taskforce and other relevant bodies, and to
provide a report to the next meeting of our Finance Ministers in
Scotland in November.
Strengthening our global financial institutions
17. Emerging markets and developing countries, which have been the
engine of recent world growth, are also now facing challenges which
are adding to the current downturn in the global economy. It is
imperative for global confidence and economic recovery that capital
continues to flow to them. This will require a substantial
strengthening of the international financial institutions,
particularly the IMF. We have therefore agreed today to make available
an additional $850 billion of resources through the global financial
institutions to support growth in emerging market and developing
countries by helping to finance counter-cyclical spending, bank
recapitalisation, infrastructure, trade finance, balance of payments
support, debt rollover, and social support. To this end:
•we have agreed to increase the resources available to the IMF through
immediate financing from members of $250 billion, subsequently
incorporated into an expanded and more flexible New Arrangements to
Borrow, increased by up to $500 billion, and to consider market
borrowing if necessary; and
•we support a substantial increase in lending of at least $100 billion
by the Multilateral Development Banks (MDBs), including to low income
countries, and ensure that all MDBs, including have the appropriate
capital.
18. It is essential that these resources can be used effectively and
flexibly to support growth. We welcome in this respect the progress
made by the IMF with its new Flexible Credit Line (FCL) and its
reformed lending and conditionality framework which will enable the
IMF to ensure that its facilities address effectively the underlying
causes of countries’ balance of payments financing needs, particularly
the withdrawal of external capital flows to the banking and corporate
sectors. We support Mexico’s decision to seek an FCL arrangement.
19. We have agreed to support a general SDR allocation which will
inject $250 billion into the world economy and increase global
liquidity, and urgent ratification of the Fourth Amendment.
20. In order for our financial institutions to help manage the crisis
and prevent future crises we must strengthen their longer term
relevance, effectiveness and legitimacy. So alongside the significant
increase in resources agreed today we are determined to reform and
modernise the international financial institutions to ensure they can
assist members and shareholders effectively in the new challenges they
face. We will reform their mandates, scope and governance to reflect
changes in the world economy and the new challenges of globalisation,
and that emerging and developing economies, including the poorest,
must have greater voice and representation. This must be accompanied
by action to increase the credibility and accountability of the
institutions through better strategic oversight and decision making.
To this end:
•we commit to implementing the package of IMF quota and voice reforms
agreed in April 2008 and call on the IMF to complete the next review
of quotas by January 2011;
•we agree that, alongside this, consideration should be given to
greater involvement of the Fund’s Governors in providing strategic
direction to the IMF and increasing its accountability;
•we commit to implementing the World Bank reforms agreed in October
2008. We look forward to further recommendations, at the next
meetings, on voice and representation reforms on an accelerated
timescale, to be agreed by the 2010 Spring Meetings;
•we agree that the heads and senior leadership of the international
financial institutions should be appointed through an open,
transparent, and merit-based selection process; and
•building on the current reviews of the IMF and World Bank we asked
the Chairman, working with the G20 Finance Ministers, to consult
widely in an inclusive process and report back to the next meeting
with proposals for further reforms to improve the responsiveness and
adaptability of the IFIs.
21. In addition to reforming our international financial institutions
for the new challenges of globalisation we agreed on the desirability
of a new global consensus on the key values and principles that will
promote sustainable economic activity. We support discussion on such a
charter for sustainable economic activity with a view to further
discussion at our next meeting. We take note of the work started in
other fora in this regard and look forward to further discussion of
this charter for sustainable economic activity.
Resisting protectionism and promoting global trade and investment
22. World trade growth has underpinned rising prosperity for half a
century. But it is now falling for the first time in 25 years. Falling
demand is exacerbated by growing protectionist pressures and a
withdrawal of trade credit. Reinvigorating world trade and investment
is essential for restoring global growth. We will not repeat the
historic mistakes of protectionism of previous eras. To this end:
•we reaffirm the commitment made in Washington: to refrain from
raising new barriers to investment or to trade in goods and services,
imposing new export restrictions, or implementing World Trade
Organisation (WTO) inconsistent measures to stimulate exports. In
addition we will rectify promptly any such measures. We extend this
pledge to the end of 2010;
•we will minimise any negative impact on trade and investment of our
domestic policy actions including fiscal policy and action in support
of the financial sector. We will not retreat into financial
protectionism, particularly measures that constrain worldwide capital
flows, especially to developing countries;
•we will notify promptly the WTO of any such measures and we call on
the WTO, together with other international bodies, within their
respective mandates, to monitor and report publicly on our adherence
to these undertakings on a quarterly basis;
•we will take, at the same time, whatever steps we can to promote and
facilitate trade and investment; and
•we will ensure availability of at least $250 billion over the next
two years to support trade finance through our export credit and
investment agencies and through the MDBs. We also ask our regulators
to make use of available flexibility in capital requirements for trade
finance.
23. We remain committed to reaching an ambitious and balanced
conclusion to the Doha Development Round, which is urgently needed.
This could boost the global economy by at least $150 billion per
annum. To achieve this we are committed to building on the progress
already made, including with regard to modalities.
24. We will give renewed focus and political attention to this
critical issue in the coming period and will use our continuing work
and all international meetings that are relevant to drive progress.
Ensuring a fair and sustainable recovery for all
25. We are determined not only to restore growth but to lay the
foundation for a fair and sustainable world economy. We recognise that
the current crisis has a disproportionate impact on the vulnerable in
the poorest countries and recognise our collective responsibility to
mitigate the social impact of the crisis to minimise long-lasting
damage to global potential. To this end:
•we reaffirm our historic commitment to meeting the Millennium
Development Goals and to achieving our respective ODA pledges,
including commitments on Aid for Trade, debt relief, and the
Gleneagles commitments, especially to sub-Saharan Africa;
•the actions and decisions we have taken today will provide $50
billion to support social protection, boost trade and safeguard
development in low income countries, as part of the significant
increase in crisis support for these and other developing countries
and emerging markets;
•we are making available resources for social protection for the
poorest countries, including through investing in long-term food
security and through voluntary bilateral contributions to the World
Bank’s Vulnerability Framework, including the Infrastructure Crisis
Facility, and the Rapid Social Response Fund;
•we have committed, consistent with the new income model, that
additional resources from agreed sales of IMF gold will be used,
together with surplus income, to provide $6 billion additional
concessional and flexible finance for the poorest countries over the
next 2 to 3 years. We call on the IMF to come forward with concrete
proposals at the Spring Meetings;
•we have agreed to review the flexibility of the Debt Sustainability
Framework and call on the IMF and World Bank to report to the IMFC and
Development Committee at the Annual Meetings; and
•we call on the UN, working with other global institutions, to
establish an effective mechanism to monitor the impact of the crisis
on the poorest and most vulnerable.
26. We recognise the human dimension to the crisis. We commit to
support those affected by the crisis by creating employment
opportunities and through income support measures. We will build a
fair and family-friendly labour market for both women and men. We
therefore welcome the reports of the London Jobs Conference and the
Rome Social Summit and the key principles they proposed. We will
support employment by stimulating growth, investing in education and
training, and through active labour market policies, focusing on the
most vulnerable. We call upon the ILO, working with other relevant
organisations, to assess the actions taken and those required for the
future.
27. We agreed to make the best possible use of investment funded by
fiscal stimulus programmes towards the goal of building a resilient,
sustainable, and green recovery. We will make the transition towards
clean, innovative, resource efficient, low carbon technologies and
infrastructure. We encourage the MDBs to contribute fully to the
achievement of this objective. We will identify and work together on
further measures to build sustainable economies.
28. We reaffirm our commitment to address the threat of irreversible
climate change, based on the principle of common but differentiated
responsibilities, and to reach agreement at the UN Climate Change
conference in Copenhagen in December 2009.
Delivering our commitments
29. We have committed ourselves to work together with urgency and
determination to translate these words into action. We agreed to meet
again before the end of this year to review progress on our
commitments.
bademiyansubhanallah
What is the G-20
The Group of Twenty (G-20) Finance Ministers and Central Bank
Governors was established in 1999 to bring together systemically
important industrialized and developing economies to discuss key
issues in the global economy. The inaugural meeting of the G-20 took
place in Berlin, on December 1516, 1999, hosted by German and Canadian
finance ministers.
Mandate
The G-20 is an informal forum that promotes open and constructive
discussion between industrial and emerging-market countries on key
issues related to global economic stability. By contributing to the
strengthening of the international financial architecture and
providing opportunities for dialogue on national policies,
international co-operation, and international financial institutions,
the G-20 helps to support growth and development across the globe.
Origins
The G-20 was created as a response both to the financial crises of the
late 1990s and to a growing recognition that key emerging-market
countries were not adequately included in the core of global economic
discussion and governance. Prior to the G-20 creation, similar
groupings to promote dialogue and analysis had been established at the
initiative of the G-7. The G-22 met at Washington D.C. in April and
October 1998. Its aim was to involve non-G-7 countries in the
resolution of global aspects of the financial crisis then affecting
emerging-market countries. Two subsequent meetings comprising a larger
group of participants (G-33) held in March and April 1999 discussed
reforms of the global economy and the international financial system.
The proposals made by the G-22 and the G-33 to reduce the world
economy's susceptibility to crises showed the potential benefits of a
regular international consultative forum embracing the emerging-market
countries. Such a regular dialogue with a constant set of partners was
institutionalized by the creation of the G-20 in 1999.
Membership
The G-20 is made up of the finance ministers and central bank
governors of 19 countries:
Argentina
Australia
Brazil
Canada
China
France
Germany
India
Indonesia
Italy
Japan
Mexico
Russia
Saudi Arabia
South Africa
South Korea
Turkey
United Kingdom
United States of America
The European Union, who is represented by the rotating Council
presidency and the European Central Bank, is the 20th member of the
G-20. To ensure global economic fora and institutions work together,
the Managing Director of the International Monetary Fund (IMF) and the
President of the World Bank, plus the chairs of the International
Monetary and Financial Committee and Development Committee of the IMF
and World Bank, also participate in G-20 meetings on an ex-officio
basis. The G-20 thus brings together important industrial and emerging-
market countries from all regions of the world. Together, member
countries represent around 90 per cent of global gross national
product, 80 per cent of world trade (including EU intra-trade) as well
as two-thirds of the world's population. The G-20's economic weight
and broad membership gives it a high degree of legitimacy and
influence over the management of the global economy and financial
system.
Achievements The G-20 has progressed a range of issues since 1999,
including agreement about policies for growth, reducing abuse of the
financial system, dealing with financial crises and combating
terrorist financing. The G-20 also aims to foster the adoption of
internationally recognized standards through the example set by its
members in areas such as the transparency of fiscal policy and
combating money laundering and the financing of terrorism. In 2004,
G-20 countries committed to new higher standards of transparency and
exchange of information on tax matters. This aims to combat abuses of
the financial system and illicit activities including tax evasion.
The G-20 also plays a signficant role in matters concerned with the
reform of the international financial architecture.
The G-20 has also aimed to develop a common view among members on
issues related to further development of the global economic and
financial system and held an extraordinary meeting in the margins of
the 2008 IMF and World Bank annual meetings in recognition of the
current economic situation. At this meeting, in accordance with the
G-20s core mission to promote open and constructive exchanges between
advanced and emerging-market countries on key issues related to global
economic stability and growth, the Ministers and Governors discussed
the present financial market crisis and its implications for the world
economy. They stressed their resolve to work together to overcome the
financial turmoil and to deepen cooperation to improve the regulation,
supervision and the overall functioning of the worlds financial
markets.
Chair
Unlike international institutions such as the Organization for
Economic Co-operation and Development (OECD), IMF or World Bank, the
G-20 (like the G-7) has no permanent staff of its own. The G-20 chair
rotates between members, and is selected from a different regional
grouping of countries each year. In 2009 the G-20 chair is the United
Kingdom, and in 2010 it will be South Korea. The chair is part of a
revolving three-member management Troika of past, present and future
chairs. The incumbent chair establishes a temporary secretariat for
the duration of its term, which coordinates the group's work and
organizes its meetings. The role of the Troika is to ensure continuity
in the G-20's work and management across host years.
Former G-20 Chairs
1999-2001 Canada
2002 India
2003 Mexico
2004 Germany
2005 China
2006 Australia
2007 South Africa
2008 Brazil
Meetings and activities
It is normal practice for the G-20 finance ministers and central bank
governors to meet once a year. The last meeting of ministers and
governors was held in São Paulo, Brazil on 8-9 November 2008. The
ministers' and governors' meeting is usually preceded by two deputies'
meetings and extensive technical work. This technical work takes the
form of workshops, reports and case studies on specific subjects, that
aim to provide ministers and governors with contemporary analysis and
insights, to better inform their consideration of policy challenges
and options.
Towards the end of 2008 Leaders of the G-20 Countries meet in
Washington. See the Declaration and action plan from the Washington
Summit (PDF 72KB) . This meeting remitted follow up work to Finance
Ministers. In addition to their November meeting in order to take
forward this work in advance of the Leaders summit in London on 2nd
April Finance Ministers and Central Bank Governors will also meet in
March 2009. A deputies meeting will be held in February 2009 to
prepare for the Ministers meeting.
G-20 Events
Deputies Meeting 1st February 2009
Officials Workshop Financing for Climate Change 13th & 14th February
2009
Deputies Meeting 13th March 2009
Finance Ministers and Central Bank Governors Meeting 14th March 2009
Officials Workshop on Global Economy 25th 26th May 2009
Deputies Meeting 27th & 28th June 2009
Officials Workshop on Sustainable Financing for Development July 2009
Deputies Meeting 3rd & 4th September 2009
Finance Ministers and Central Bank Governors Meeting 4th & 5th
September 2009
Finance Ministers and Central Bank Governors Meeting 6th & 7th
November 2009
Interaction with other international organizations
The G-20 cooperates closely with various other major international
organizations and fora, as the potential to develop common positions
on complex issues among G-20 members can add political momentum to
decision-making in other bodies. The participation of the President of
the World Bank, the Managing Director of the IMF and the chairs of the
International Monetary and Financial Committee and the Development
Committee in the G-20 meetings ensures that the G-20 process is well
integrated with the activities of the Bretton Woods Institutions. The
G-20 also works with, and encourages, other international groups and
organizations, such as the Financial Stability Forum, in progressing
international and domestic economic policy reforms. In addition,
experts from private-sector institutions and non-government
organisations are invited to G-20 meetings on an ad hoc basis in order
to exploit synergies in analyzing selected topics and avoid overlap.
External communication
The country currently chairing the G-20 posts details of the group's
meetings and work program on a dedicated website. Although
participation in the meetings is reserved for members, the public is
informed about what was discussed and agreed immediately after the
meeting of ministers and governors has ended. After each meeting of
ministers and governors, the G-20 publishes a communiqué which records
the agreements reached and measures outlined. Material on the forward
work program is also made public.
bademiyansubhanallah
Thousands join London G-20 protestStory Highlights
20,000 people expected at Put People First march ahead of G-20 summit
Police say protest expected to be peaceful
Authorities have warned of unprecedented demonstrations in week ahead
Read VIDEO
LONDON, England (CNN) -- Thousands of people have converged in the
center of London for the first major protest ahead of next week's G-20
summit.
Up to 20,000 people are expected to join Saturday's protests in
London.
Despite fears of violence in coming days that have prompted a major
security operation in the British capital, Saturday's demonstration
has so far been peaceful.
As many as 20,000 people were expected at the Put People First march,
organized by trade unions but backed by some 120 other groups
including environmentalists, church groups, and political campaigners.
Authorities are bracing for possible violence as anti-capitalist and
environmental protesters to converge on the Bank of England next
Wednesday -- April 1 -- for a "mass street party" dubbed "Financial
Fools Day."
Protesters gathering on Saturday were calling for jobs, fair
distribution of wealth, and a low-carbon future.
They carried banners and posters reading "Climate Emergency," "Gaza:
End the Blockade," "Planet Before Profit," "We Won't Pay for Their
Crisis," and "Jobs not Bombs."
Some groups turned out to march in bright-colored rain ponchos or hard
hats.
The day began with a church service in central London. The Salvation
Army, which helped organize the service, said it was a "perfect
opportunity to ask the G-20 to consider the world's most vulnerable
people."
Those at the service sang "We are blessed to bless a world in pieces."
They asked for freedom from debt and justice to profit, the Salvation
Army said.
After gathering along the Thames River and marching along its banks,
marchers moved past Trafalgar Square to Hyde Park for a mass rally in
the afternoon. Speakers at the rally include trade union bosses,
environmentalists, and global justice campaigners, along with
musicians and a comedian, according to march organizers.
Jake Corn, from Cambridge, told the UK's Press Association he was
taking part to show support for a more sustainable future.
"We feel this is an important moment with the G-20 coming here," Corn
said.
"We want to get our message across to as many people as possible."
Watch scenes from march, interviews with protesters »
Italian trade unionist Nicoli Nicolosi told PA he had travelled from
Rome to take part. He said: "We are here to try and make a better
world and protest against the G-20."
The G-20 summit next Thursday brings together leaders and financial
chiefs from the top 20 industrialized and emerging economies, along
with leaders from non-G-20 nations.
Hundreds of other officials will also be there, including the heads of
the International Monetary Fund and the World Bank.
chhotemianinshallah
Posted: Sun, Sep 20 2009. 9:44 PM IST
Columns
G-20, India and its global ambitions
From India’s point of view there is one additional factor underlying
G-20 is a key to its long cherished ambitions for a more dominant role
at the global level
Capital Calculus | Anil Padmanabhan
Later this week Prime Minister Manmohan Singh will join the heads of
19 other countries and a regional grouping to participate in the
deliberations of the so-called Group of Twenty (G-20) countries, in
Pittsburgh, US. From all available indications, the meeting will be
much more than just a tête-à-tête.
The outcome of the deliberations will, to a large extent, not only
determine whether these countries, with diverse interests and economic
stature, can continue to think as a collective, but will also set the
contours of the ongoing global negotiations to hammer out new trade
and climate deals. The latter has a sense of immediacy since the date
for the climate change discussions have been set for early December in
Copenhagen and at the moment the key interlocutors are merely
posturing.
From India’s point of view there is one additional factor underlying
G-20—it is a key to its long cherished ambitions for a more dominant
role at the global level. G-20 is the first forum of which India has
been an active and key participant from the very beginning, having for
long been used to looking from the outside into the inside when it
came to a seat on the high table in key multilateral forums such as
the United Nations Security Council and regional trade groupings.
The G-20 forum of finance ministers and central bank governors was
established in 1999 with the intent of creating a regular dialogue
with a constant set of influential partners. These are a mix of
developed countries and emerging economies, such as Brazil, China and
India. On an ex-officio basis, the head of the International Monetary
Fund as well as the World Bank also participate in the deliberations.
The clout of this group comes from the fact that together they account
for around 90% of global gross national product, 80% of world trade
and two-thirds of the world’s population.
The legitimacy of the body has grown exponentially in the wake of the
unprecedented economic crisis triggered by the financial sector
meltdown. And since India and China, which account for about $4
trillion of global economic output, escaped relatively unscathed from
the crisis, their status at the high table got a leg-up.
However, with growing evidence that the worst is behind the world—and
some quarters assiduously promoting the “green shoots” argument—there
are growing concerns that most members of G-20 would retreat to a
business-as-usual stance. If indeed this does happen then it will be a
return to status quo, something that is strategically not appealing to
India—especially since it is still in the waiting list for other
groupings, with key insiders such as China strongly opposing its
entry.
As a result, India has a vested interest in keeping the grouping
alive. But it should be careful about what it wishes for or at least
guard against being led into a trap. Especially since the developed
world’s desire to keep the grouping alive is premised on entirely
different reasons, most of which are not altruistic. The developed
countries, unlike in the past, haven’t had it easy at either the
United Nations Framework Convention on Climate Change (UNFCC) talks or
the World Trade Organization (WTO) negotiations. The moral hazard of
bulldozing their point of view is far less at G-20 as opposed to other
multilateral forums, which have a large number of impoverished
countries on board.
A visiting dignitary from the older and powerful block of Group of
Seven (G-7) countries recently disclosed that most developed countries
were keen to continue with the G-20 formulation. It is not surprising,
therefore, that there are efforts to load the G-20 agenda with fresh
items such as trade and climate change. Once these countries arrive at
a broad understanding, it will become infinitely easier to thrash out
a consensus at WTO and UNFCC.
That is precisely why India has to be careful. Being part of the high
table comes at a price—other members will not take kindly to
obstructionist tactics. It is easier for it to be isolated and it will
not have the leverage of the poor countries to use to its advantage.
Neither will the camaraderie of developing nations hold true at G-20.
This is all the more true because the Chinese, who have already spun
an alliance of convenience with the US, have the cunning habit of
running with the hares and hunting with the hounds. (See what China is
doing to India in its own backyard in the subcontinent by increasing
its naval presence in the Indian Ocean, steadily striking commercial
and political deals with Sri Lanka and Nepal to add to its already
established equations with a dangerous and near basketcase neighbour
such as Pakistan.)
Not surprising, therefore, that India has been assiduously going in
for an image makeover in the last few months. By hosting a mini-
ministerial of WTO this month, it signalled that it was not
obstructing more forward movement on trade negotiations. Similarly, it
unilaterally announced its intent to put in place emission standards
even while it argued that it was not altering its negotiating stance,
suggesting in the process that its principle was not a fig leaf to shy
away from commitments to curb global warming.
On the face of it, therefore, the government seems to have a game
plan. But like they say all plans are good till the battle begins.
Anil Padmanabhan is a deputy managing editor of Mint and writes every
week on the intersection of politics and economics. Comments are
welcome at capital...@livemint.com
Sid Harth
India, China most optimistic about economic recovery: EIU
Press Trust Of India / Mumbai September 29, 2009, 19:22 IST
Executives in India and China are the most optimistic about
sustainability of economic recovery, with six out of ten people
reposing their faith on the turnaround in the economy, says a survey.
"Companies in Asia are ambivalent about the apparent economic recovery
and India and China are the bright spots, where six out of ten believe
the recovery underway in their country is sustainable," the Economist
Intelligence Unit said in a report.
Across Asia, about one-third of respondents believe they are seeing a
sustainable rebound in their country. A sizable 27 per cent do not
even think there is a recovery, as per the report titled 'From
hindsight to foresight: Improving business transparency in the wake of
the financial crisis'.
However, Japanese executives were the most pessimistic, as 44 per cent
of respondents there have an opinion that the recovery will falter,
while another 44 per cent say there is no recovery in the country at
all.
The survey was conducted across 258 senior executives from Asia, in
the months of June and July 2009.
Faced with the ripples of the global economic downturn, executives in
Asia are focusing towards streamlining their internal operations in
order rather than investing in new markets or hiring new staff.
"Businesses should aim to take advantage of the downturn by acquiring
quality talent and assets, improving focus on innovation, reinventing
business models and looking for new markets," Economist Intelligence
Unit director of research Manoj Vohra said.
Half of the respondents said that their priority would be to
streamline existing operations and systems, only 24 per cent are
willing to hire new staff and only 31 per cent of respondents are
likely to make an acquisition over the next 12 months.
The survey further said that a majority of respondents are optimistic
that the changes they are making now would result in big gains when
the recession ends.
Seven out of ten respondents see a rise in revenues, 63 per cent
predict improvements in operational efficiency, and 59 per cent expect
increased market share.
They also believe that the various initiatives will improve risk
management capabilities (55 per cent) and transparency and reporting
(54 per cent), the report said.
Sid Harth
connect rural India and have all Panchayats connected with broadband'
Leslie D'monte & Kirtika Suneja / New Delhi July 7, 2009, 12:33 IST
One of the few young members of the UPA government, Sachin Pilot --
Minister of State for the Department of Information Technology (DIT)
-- has taken charge of this portfolio at a time when there are great
expectations from the information, communications and technology (ICT)
industry. In a chat with Leslie D’monte and Kirtika Suneja, the young
minister broadly outlines his vision for the industry even as he's
learning the ropes.
Edited excerpts:
How do you go about the task of sharing responsibilities in this
ministry?
A Raja oversees everything as cabinet minister. Gurudas Kamat is a
senior member and looks after telecom and I oversee IT along with
Project Arrow, the flagship programme of the postal department. So,
it's a team which requires collective effort.
So what's your vision for the IT sector?
IT refers to taking technology to untouched areas and making it
palatable to all. So, people across regions should have access to
technology-enabled quality services. We must make an effort to make
the life of the common man easy and less cumbersome. Though the
economic slowdown in many countries has impacted the Indian IT
industry, IT can still be a tool to combat that. The IT sector is
still employing people, and that is helpful.
Our aim is to connect rural India and, in three years, to have all
Panchayats connected by broadband besides achieving a rural density of
40 per cent (today it's just around 4-5 per cent). My idea of IT is
that a common man should be able to pay his bills and access his
records, among other things. The concept of IT should not remain
elitist or urbane.
How do you plan to go about this task?
There is a digital divide in our country and through the efforts of
the Centre for Development of Advanced Computing (CDAC), we are trying
to brigde it by making IT more accessible and amiable to localised
societies. For instance, our language initiative for making available
free software will end this year when these softwares will be availabe
in our 22 official languages. The rollout of 100,000 Common Service
Centres (CSCs) by next year is another initiative.
Till now, 40,000 CSCs have already been rolled out. Another initiative
relates to the interlinking of research and educational institutes
through the National e Governance Plan (NeGP). These are backed by the
government and are part of the objective to have all stakeholders on
board. These services make the entire process transparent and the life
of the poorest man better. However, the support of the state
governments is important here.
The CSC initiative is a Public Private Partnership (PPP) one and
requires local entrepreneurs. So local entrepreneurship gets a boost.
For instance, there are popular services that were not envisioned
before. The government provides the logistics support and bandwidth
for these projects but it's the entrepreneur who is finally
responsible for running the CSCs. We have discovered that most of
those who run the CSCs are local graduates besides small firms that
have take the task of running these centres.
But you surely need broadband for such services. Why is the government
slow in responding?
Yes. You surely need good highways for passenger traffic to move
smoothly. The rollout of broadband services can happen in 6-9 months
keeping in mind the interest of all stakeholders. This has to be quick
else most agendas will face some problems. Also, we have to make sure
that there is healthy competition and the government is having
deliberations on this.
But delays can affect India's status as an IT superpower...
I agree. India has talented human resources and that makes it a
superpower. However, more than being called a superpower, we must also
remain a superpower. With the (US and UK) protectionist policies, we
need to remain competitive by moving away from commoditisation of
services by offering services that the others can’t. This can happen
by more innovation and training.
Another way of remaining competitive is by having a large portfolio of
export destinations. We are looking at other markets like East Asia,
Japan, China, Africa and Europe. The government is fully committed to
ensure a conducive environment for investments, job creation and
growth as IT comprises around 5.8 per cent of GDP.
And what about the hardware industry which lags the software sector?
True. The hardware industry gives more opportunities for employment of
semi-skilled people. Hence, our focus is on creating a larger hardware
industry. We are on the job.
On the semiconductor policy front, have we given up on the idea of
having fab plants?
Not at all. The market conditions are important for this and we are
actively looking at the policy to encourage players in this space. The
global slowdown did affect the decisions of certain players as far as
investments, which are very high, are concerned. But I see matters
improving. Moreover, we have the technical expertise, so we will
surely look at India having semiconductor fabs. If Taiwan and China
can have these fabs, why not India?
Is the DIT pushing for an extension of the tax holiday under the STPI
scheme?
The STPI was a fruitful and successful initiative and the government
will ensure that growth takes place. It will provide all the
legislative and regulatory support to ensure growth.
Where does the domestic market feature in this scheme of things?
The domestic market is at $12.5 billion while the exports are $48
billion. Requirements at the domestic level are different from those
at the global level.
What are the other issues that you plan to tackle?
The Universal Service Obligation (USO) Fund is huge and can be
deployed at in many places like hilly areas and places where the
market couldn’t suffice. The roadmap for this is there but there are
delivery problems. Otherwise, there were issues in the border areas
for telecommunications but now, we have deployed towers on the border
areas of Kashmir and the North East till 500 metres.
The draft rules of the IT Act smack of internet censorship that may
not be all that desirable...
We are working on the draft rules and there will be a comprehensive
legislation to explain the law and best practices of foreign
countries. The laws are exhaustive and dynamic so that they can
incorporate the latest technological changes. It covers areas like the
security of strategic data, cyberterrorism and online fraud. Of
course, we are always open to feedback.
chhotemianinshallah
China faces 'big' uncertainties: World Bank chief
29 Sep 2009, 0321 hrs IST, AGENCIES
WASHINGTON: China faces major uncertainties even though it rebounded
strongly from the latest financial crisis aided by its huge treasure
chest, 10 most trade-friendly economies
World Bank President Robert Zoellick said on Monday.
"China's future is not yet determined," he said even though the Asian
giant effectively pump primed its huge economy and used various
monetary polices to weather the crisis that plunged the world into
recession.
Noting that China's rapid recovery was fuelled by an expansion of
credit, he said "this flood is now easing, and authorities are likely
to limit it further for fear of effects on asset prices, asset
quality, and eventually general inflation."
Credit expanded at a red hot pace of 26 percent of China's gross
domestic product (GDP) in the first eight months of 2009 and last
month, the stock market slumped partly due to concerns that banks had
been ordered to rein in aggressive lending.
"China still faces big uncertainties in 2010," Zoellick told a
Washington forum of the Johns Hopkins University.
He said Chinese leaders recognized the risks of the continued
dependence of China and other emerging economies on export-led
growth.
"It will not be easy for China to shift to increasing reliance on
domestic demand, especially to greater consumption that could help
balance world growth while contributing to China's goal of a more
'harmonious society,'" he said.
Zoellick cited China's protected service sector, including financial
services, saying it "limits opportunities for entrepreneurs and
increases in productivity."
But he pointed out that China's rapid recovery, on the back of more
than two trillion dollars of reserves -- the world's largest -- had
assisted other nations, underscoring its growing influence.
China also holds more than 800 billion dollars in US Treasury bond
investments.
The country's leaders have expressed concern over the status of the
dollar as a key reserve currency as the greenback weakened on mostly
ballooning deficits and debt.
Zoellick said China was moving towards gradual internationalization of
its yuan currency by making it easier for trading partners to do
business in it, for example, through currency swaps.
"We are likely to see this shift in the world of investment as well:
for the first time this month, China issued sovereign bonds in
Renminbi (yuan) to offshore investors," he said.
China on Monday launched the sale of six billion yuan (879 million
dollars) in government bonds in Hong Kong, the Chinese finance
ministry said, marking the first such offer outside the mainland.
China also recently announced that foreign companies will be able to
list their stocks in China, a step toward making Shanghai an
international financial center.
"As a major importer of commodities, one can imagine new benchmark
indices established at Shanghai or other Chinese ports, eventually in
Renminbi," he said.
But Zoellick felt Chinese leaders would be "cautious" as most of them
want to retain the control that came from a closed capital account.
"Financial and banking markets are likely to continue to be subject to
various tools of intervention and control," he said.
"Yet I expect China will be inevitably drawn outward. Over 10 to 20
years, the Renminbi will evolve into a force in financial markets.
chhotemianinshallah
China's 60th anniversary stirs pride, also unease
1 Oct 2009, 1316 hrs IST, AGENCIES
BEIJING: China celebrated its rise to a world power over 60 years of
Communist rule Thursday, staging its biggest-ever parade of military
hardware with over 100,000 marching masses in a display that stirred
patriotism and some unease.
Police blocked off a wide area around central Beijing's Tiananmen
Square for the 60th anniversary of the People's Republic. People were
told to stay away and watch the events on television, though that did
not dampen a festive air as residents gathered in homes and alleys.
President Hu Jintao, dressed in a gray Mao tunic instead of the
business suit he usually wears, reviewed the thousands of troops and
hundreds of tanks and other weaponry, shouting ``Hello, comrades''
while riding in an open-top, domestically made Red Flag limousine.
During the two-hour-plus festivities, more than 100 helicopters,
communication airships and Chinese-made fighter jets flew over the
city in formation.
After the armaments, 60 floats celebrating last year's Beijing
Olympics, China's manned space program and other symbols of progress
rolled by as tens of thousands of students flipped colored cards in
unison to make pictures of lucky symbols and spell out political
slogans.
The events were meant to underscore what Hu called the ``great
rejuvenation of the Chinese nation.''
We ``have triumphed over all sorts of difficulties and setbacks and
risks to gain the great achievements evident to the world,'' Hu later
said standing atop Tiananmen gate in a speech that referred to his
Communist Party predecessors and China's success. ``Today, a socialist
China geared toward modernization, the world and the future towers
majestically in the East.''
The feel-good, if heavily scripted moment tapped into Chinese pride
surrounding the country's turnaround from the war-battered,
impoverished state the communists took over on Oct. 1, 1949 to the
dynamic, third-largest world economy of today.
``This shows the world that we are now strong, not only in living
standards but that our military power has also improved,'' said Peng
Jinzhi, a 79-year-old retired hairdresser who was listening to the
parade on the radio in an alley north of Tiananmen.
The buoyant mood glossed over the country's gut-wrenching twists _ the
ruinous campaigns of revolutionary leader Mao Zedong that left tens of
millions dead _ as well as its current challenges: a widening gap
between rich and poor, rampant corruption, severe pollution and ethnic
uprisings in the western areas of Tibet and Xinjiang.
Security in Beijing has been intensifying for weeks over worries that
protests, which are common in China, or an overexuberant crowd might
mar the ceremonies. Parts of central Beijing were sealed off and
businesses were told to shut down beginning Tuesday. Flights in and
out of Beijing's international airport were suspended Thursday
morning. An intensive cloud-seeding operation helped clear away the
smog that had shrouded Beijing for two days.
``How many hundreds of millions are being spent on the National Day
troop review? Can you tell the taxpayers?'' prolific blogger Li
Huizhi, a small businessman in southern Guangzhou city, wrote on his
popular blog Sunday. ``Aren't the possibly tens of billions in money
spent perhaps a bit of a disservice to the people? Because in today's
China, there are countless places more in need of this money.''
Explanations vary for why such elaborate festivities are being staged.
Sixty is an auspicious number that plays well with Chinese who say it
traditionally represents the full life of a person. The country's
leadership has avoided mention of anything to do with superstition,
though.
The government has customarily held military parades on 10th
anniversaries. With China riding high in the world and feeling good
about itself after the Beijing Olympics, the 60th was the Hu
leadership's chance to score popularity points.
Early this year, before China's economy rebounded from the global
downturn, authorities promised only a modest celebration in keeping
with the gloomy times.
The parade is now billed by state media as China's largest-ever
display of weaponry, reminiscent of the Soviet Union, and came with
the mass synchronized performances usually associated with North
Korea. Alongside the 80,000 card-flippers, another 100,000 civilians
accompanied the floats, many of them with kitschy displays of
computers and signs of industry. Floats carried huge portraits of the
communist pantheon: Mao, reform architect Deng Xiaoping and even Hu _
an unexpected appearance for a normally reserved leadership.
Some 5,000 goose-stepping troops who rehearsed for as long as a year
accompanied the armaments _ new unmanned aerial drones, amphibious
fighting vehicles and new DH-10 land-based anti-ship cruise missiles.
``I wonder what Chinese leaders are thinking? For more than 15 years
they have been denouncing those who call China's rise a threat. Now
they put on this display of military hardware, with goose-stepping
soldiers to match. Aren't they confirming the China Threat?'' said
Minxin Pei, a professor of government at Claremont McKenna College in
California.
The People's Liberation Army in its newspaper early this year said the
event's meaning was clear: ``This military parade is a comprehensive
display of the Party's ability to rule and of the overall might of the
nation.''
Geremie Barme, a China scholar at Australian National University who
has studied past National Day parades, said the displays are typically
aimed at the domestic audience _ Communist Party officials and
ordinary Chinese. ``It is meant to educate, excite, unite and
entertain. If a tad of 'shock and awe' is delivered around the world,
all well and good,'' he said.
bademiyansubhanallah
Obama puts Russia on threat list_ Cold war is back?
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chhotemianinshallah
Jason Bush
October 2nd, 2009
Russia’s pensions timebomb
This week, Russia submitted its annual budget for next year to
parliament. Although finances are tight, there’s one group of Russians
that has reason to celebrate. Pensioners are set to receive a dramatic
50 percent increase in the average pension, which will rise to around
$280 a month by end-2010, on top of a 25 percent increase this year.
While welcome news for the elderly, who have long scraped by on tiny
pensions, the generous hikes will only serve to exacerbate a looming
problem. Russia already faces a gaping hole in its pensions budget,
and this is set to mushroom alarmingly.
Next year, Russia’s State Pensions Fund will officially run a deficit
of some $40 billion (2.4 percent of GDP), but the Fund’s actual drain
on the budget will be more than double that (5.3 percent of GDP),
because many categories of expenditure are not included when
calculating the deficit.
Longer-term, the outlook is even more alarming. Russia’s population is
shrinking, so there are fewer young people joining the workforce than
retirees leaving it. The ratio of workers to pensioners is expected to
decline from 1.7:1 today to 1:1 by 2030. The rising pensions burden
means that the years of healthy Russian government finances may
already be history. In a recent report, investment bank Merrill Lynch
predicted that “a chronic budget deficit,” averaging 3-4 percent of
GDP, would remain for the next decade.
The only long-term solution is radical reform of the pensions system.
If Russians could be encouraged to save more in privately-managed
pensions funds, that would take some of the pressure off the
overstretched state budget. The development of private funds would
also perform another vital function: providing stable long-term
funding for Russia’s fragile capital markets.
The good news is that Russia’s policy-makers have long acknowledged
these arguments, and pension reform is once again coming under the
political spotlight. The bad news is that, as is often the case in
Russia, translating theory into practice is a lot easier said than
done.
The irony of the present debate is that Russia has already tried once
before to carry out a radical pension reform. In 2002 it introduced
the so-called “three-pillar” model, based on Chilean experience,
whereby the state pension is supplemented by privately-managed funds,
both mandatory and voluntary. But the reform can only be described as
a disappointing flop.
To date, private pensions funds have only accumulated around $25
billion — a drop in the ocean compared to future pension liabilities.
Only around 5 percent of Russians who had the option have chosen to
transfer part of their mandatory pension contributions to private
management.
The problems are partly cultural: Russians traditionally distrust
financial institutions and are reluctant to make long-term savings.
But the disappointing results also reflect a lack of supporting
measures, which suggests a lack of political will.
Very little has been done to promote the reform, or explain its
advantages to the Russian public. Meanwhile private asset managers
complain that the regulatory framework makes it too difficult to build
a profitable business. For example, fees are capped at 15 percent of
annual investment income (on average the figure is closer to 40
percent in the West ). Anybody who opts to transfer their mandatory
pension contributions to private management faces an average
bureaucratic delay of 18 months, according to the Association of
European Businesses in Moscow.
Major international providers of financial services, whose presence
would add credibility to the reform, are also deterred from entering
Russia by restrictions such as 25 percent cap on foreign capital in
the insurance sector. The majority of Russia’s 169 non-state pension
funds are instead tiny local players that don’t inspire public trust.
A recent poll showed that 41 percent of Russians believe that private
pension funds are “thieves”.
It’s encouraging that Russia’s politicians are at least talking about
kick-starting the stalled reform. The trouble is, when Prime Minister
Putin refers to “pension reform”, he most often seems to mean the
hugely popular (or populist?) hikes in the state pension, which only
add to the underlying problem. Without measures to boost the ailing
private pensions industry, Russia will eventually have good cause to
rue its recent generosity.
chhotemianinshallah
Now raising intellectual capital
13:18 September 21st, 2009
Why Russia needs America
Posted by: Jason Bush
In the wake of President Obama’s decision to scrap the U.S. missile
defence shield in eastern Europe, many are pondering Russia’s
response. The relationship will remain in the spotlight this week,
when President Medvedev heads to the U.S. for the G20 summit. Although
the precise nature of Russia’s reaction remains to be seen, it has a
big incentive to improve relations. It badly needs American investment
and co-operation to help solve serious economic problems at home.
Critics of Obama’s decision worry that it will “embolden” Russia,
causing more aggressive behaviour abroad. Yet they forget that the
Bush administration’s antagonistic policies failed to provide security
to Russia’s neighbours. These policies didn’t prevent Russia’s war
with Georgia, the repeated gas disputes with Ukraine, and a serious
cooling of relations with countries such as Poland. Far from being
restrained, Russia’s confrontational attitude had a lot to do with its
perception that the U.S. was busy encircling the country with missile
bases and alliances.
The critics also imply that Russia is preoccupied with external
expansion, but that hardly seems appropriate today. Russia’s GDP is
set to plummet by 8 percent this year. Russian analysts estimate that
the country needs up to $2 trillion to renovate its dangerously
clapped-out infrastructure. In major industrial cities, Russia’s
dilapidated factories are mulling huge job losses. For the foreseeable
future, Russia’s leaders are likely to be preoccupied with thorny
domestic problems.
Faced with such daunting challenges, it’s entirely logical that both
Medvedev and Putin say they are keen to kick-start American trade and
investment. Responding to Obama’s decision — which he described as
“brave and correct” — Putin immediately linked it to economic issues.
He called for the U.S. to back Russia’s entry into the World Trade
Organisation (WTO), and scrap Soviet-era trade restrictions against
Russian companies, especially those that regulate technology transfer
to Russia.
On the same day, at an investment summit in Sochi, Putin held well-
publicized meetings with the CEOs of General Electric, Morgan Stanley
and Texas Pacific Group — all major U.S. companies. When it comes to
the economic sectors that Russia says it is most eager to develop,
American investment will be especially crucial. The crisis has
underscored the need for Russia to wean itself off dependence on
natural resources, and develop new high-technology sectors, such as IT
and nanotechnology, where U.S. companies are at the cutting edge.
This means that the U.S. still has plenty of bargaining chips left as
it seeks to gain Russia’s cooperation on global issues. The bigger
problem could be persuading U.S. investors to come. No matter how much
Russia’s leaders appear to welcome foreign investment, there remain
huge obstacles, including corruption and bureaucracy, which they seem
largely powerless to deal with.
Nor does the tentative thaw mean an end to diplomatic tensions.
Russia’s relations with its immediate neighbours may well remain
stormy, potentially causing renewed strains with Washington. Still,
it’s hard to argue that by extending his olive branch to Russia, Obama
increases the likelihood of such upsets. The evidence of the last few
years implies just the opposite. The frostier Russia’s relations have
been with the U.S., the more determined Russia has been to resist U.S.
encroachment in nearby countries, increasing regional tensions.
Now, Obama’s gesture has opened up the possibility of a fresh start,
creating prospects for mutually beneficial economic cooperation. The
Russians would be foolish not to jump at that opportunity.
September 24th, 2009
9:52 pm GMT
Let’s remember…..Russia invaded Poland with the Nazi’s. Let’s remember
that and if we ignored the Soviet Union…it may have been from these
“compulsions:”. And just as a side note…how many of his own people did
Stalin kill?
- Posted by 300grm
September 24th, 2009
9:40 pm GMT
It’s hard to change your ways when everyone involved grew up in the
Cold War.
- Posted by Matt K
September 23rd, 2009
12:23 pm GMT
Dear friend, good and an interesting article from you. Whatever you
said is partially true. Please go back to second world war history,How
Russia,U.K.and America had joined as a powerful allies for elimination
of Hitler!s world occupations.
America and U.K.had ignored Russia in the initial stages of world war
second, then due to compulsions, they have included Russia into their
allies.
Then, power of influences have changed and indirectly shared by
stronger economic,social and political set up. I do not think
that,Russia wants America for greater extents. Of course,Russia is
facing some domestic economic pressures on account of poor patronage
to modern IT and latest communication sectors. Russia has huge energy
resources,some disciplined labor power,and America have tremendous
advantages in IT and Communication latest updates.
Now,American President wants to try of his new,latest approaches for
world burning problems with Russia and other super powers. This is
like barter system in old schools of thought,mutual understanding and
mutual cooperation in modern school words for both either maintaining
or enlarging or for world eyes.
- Posted by krishnamurthi ramachandran
September 22nd, 2009
9:27 pm GMT
I don’t beleive that the US changed their strategy (by deciding
against the old system and putting a mobile system in place) with much
of a thought to the Russians except maybe what their reaction would
be. They changed the strategy to better address what needed to be done
against rogue missiles.
The fact the Russians like the idea is a side-effect.
Even if the US were to disappear into a black hole, the remaining NATO
members would remain the most powerful military block in the world.
Russia, with a large shared border with China to stare at and internal
problems galore does not seem an aggressive threat - though it
certainly seems to defend its assumed interests aggressively.
Ongoing border and business issues with former members of the old
Soviet Empire are my prediction.
The best the Russian military could do in a large conflict is to hold
together long enough to fling catastrophic missile damamge on its
enemies before collapsing… and who wants to have a lose-lose war
unless you have to?
- Posted by corvus
September 22nd, 2009
5:58 pm GMT
I am also Alex and lived in Russia 35 years and also against my will.
Spent 11 years trying to leave the country, hated its politics and
hated when they won’t allow me to leave.
BUT.
1. That does not make me a blind. I distinguish between my personal
attitude toward the country and my ability to see how the West
stupidly breaks its own promises and pushed Russia back toward the its
authoritarian past. I blame Daddy Bush, because in early 1990-ies when
Russia was well on the way out of its past he made the country suffer
economically and basically wanted to show the Slavs their place… I
think his Germanic roots and the fact that Bush family had major stake
in Nazi economy that was destroyed by Russian military at th eend of
WW2 played major role in the emotional make up of such decision on his
part, but I have no proof to that.
Russia is a land power, not sea power like England and the US, it is
not surrounded by a natural barrier against invasion like sea powers
and naturally has a completely different attitude toward the security
of its borders. That is their biggst concern, was is and always will
be, as log as dichotomy between land powers and sea powers exist.
With Gorbachev trusting Reagan and his promises not to bring NATO
closer to Russian borders a new situation was created where Russians
dropped their suspicions and opened up almost overnight. But the West
stupidly broke its promise for a quick political gain and Russia’s
worst nightmare having NATO right on its borders did happen. So, do
not blame them for rebuilding their defensive and oversuspicious
stance.
They are 100% justified not to trust the West - you hear it from me, a
man spent good part of his life fighting and hating commies and who
was arrested in 1980 for sending Reagan a congratulatory telegramm
from Main Post office in Leningrad (now Saint Petersburg).
Alex Chaihorsky (my real name)
Reno, Nevada.
- Posted by Alex Chaihorsky
September 22nd, 2009
11:20 am GMT
I have a question in return: when did Russia ever receive anything in
return for its services to US foreign policy? USA and NATO behave like
the alpha male who jealously guards its entitlement to the best bits
and pieces, and meets any challenge to its position with aggression.
Let’s not fool ourselves: Russia does not need anybody when it manages
to get organized.
From times immemorial the Germanic nations - these days called “The
West” and the Slavic nations are hereditary arch foes. Synergy between
the two antagonists simply does not exist. Which does not imply that
trade relationship are impossible. In fact, Russia has always been a
reliable supplier - even in dire times and shortly before one of the
Germanic nations launched an attack. There are plenty examples in
history. I hate to say, that for Russia any alliance with any Germanic
nation forebodes a new war. If it keeps its defenses up - it is the
only thing that makes sense. Temptations to conquer Russia’s natural
resources are simply too big.
- Posted by cloggy
September 22nd, 2009
8:48 am GMT
It is good to see participation from other continents. If Russia is
allowed into NATO, it would not be NATO anymore. We are already living
in World War 3: terrorism, rebels, warlords and gangsters.
Is Russia really not part of the WTO ? That would be odd.
- Posted by Casper Lab
September 22nd, 2009
7:55 am GMT
I understand the russians. their situation repeats everywhere in the
world these days. The recession left us lots of half-broken companies
and bad-payers. The already problematic corruption in business is
increasing. You can’t trust anyone!
I invite you to register in http://www.company-info.biz where
companies from all around the world are trying to create a more
transparent B2B environment by ranking each other according to their
liability, respect for payments, common business experiences, and so
on. I think it’s a good way to promote fair companies and unmask bad
payers, and make your business known at the same time.
- Posted by Lidiana Moldovan
September 22nd, 2009
2:26 am GMT
The Soviet Union may have collapsed.
But the same people are still in charge of Russia. The same government
forces control the economy. The same nationalism is portrayed by the
media. The same cult of personality is held by a ‘fearless leader’.
Reporters still fall out of buldings. And the same old ‘threat
diplomacy’ which started back in 1950 is used today.
Those who think Russia should be in NATO have completely lost the
point. NATO was created to protect Europe from Russia and it’s allies.
And this is why NATO still exists today.
Of course, there is little chance that Russia and NATO will duke it
out in Europe. Instead, the battles are subtle. Like Russian anti-air
missiles and nuclear material heading to Iran. Or armed terror groups
somehow getting their hands on a cashe of sophisticated anti-tank
missiles. And of course, the ever present VETO vote in the security
council which protects Iran and North Korea from global action.
Georgia was the wake-up call. When Russia just happened to have a
whole army on Georgia’s border, ready to respond within 24 hours of
initial Georgian movement.
Make no mistake, Russia is not a friend. Any cooperation between it
and the West is simply a frosty charade, put on to keep people from
thinking the cold war is back.
- Posted by Anon
September 22nd, 2009
12:45 am GMT
I agree with Dr. Gonzo.. having been in the US military establishment
for about 20 yrs, I have to admit that bringing or at least the offer
of allowing Russia admittance to NATO would definitely be something to
see.
If Russia completed the process of gaining admittance to NATO, that
would certainly shift power in the world. Of course it would also
lessen the power that the US would be able to wield within NATO and
the US defense crazies would never stand for it. They need someone to
make the US general population fear out of stupidity. They have had
over 40 years to try to prove that the Russian people are ‘bogey
men’.
The Russian people are no more ‘bogey men’ than Americans are ‘bogey
men’ to Russians.
But… hey, if politicians would stop telling everyone that someone
hates them, politicians would have to do teh really hard work… like
fixing the things that have broken down in this country for the past
40 or so years.
And, everyone knows how AMericans never want to fix something or
repair something, but we sure as hell can give our money away for war
in a ‘new york minute’ and send an new generation of young Americans
off to die in stupid wars like we have done in both ‘gulf offenses’.
yeah, I called offenses, not wars because it’s a siumple fact of US
law that ONLY the US congress can declare WAR. our pres can call it
whatever he wants to call it but it’s still war and the last 3 wars we
havent gotten anything good from it.
- Posted by acer18
September 21st, 2009
9:59 pm GMT
The author’s argument that the Russian Government needs American help
to help the Russian People live better sounds hilarious if you have
ever lived in Russia. The only thing the Russian Government cares
about is the Russian Government. The Russian Government has killed
more Russian People than all external forces combined, but always
manages to direct the anger of the mobs at a mythical monster which is
currently called the “American Jews who rule the world”. Diplomacy my
foot.
- Posted by Dr Chernobyl
September 21st, 2009
9:37 pm GMT
It is funny to read about Russia needing American or foreign
investment for development. The economies of all the countries of the
world are suffocating from overcapacity and consumer demand is not
coming back any time soon, so what is anybody going to develop and
invest into? US does not need more development and neither does Russia
or Japan for that matter. We need to deflate.
- Posted by Sammy
September 21st, 2009
9:36 pm GMT
Alex’s view is completely outdated. 33 years ago that might have been
the case.
Things in the world have change a bit since then. Nations to be feared
have changed.
- Posted by Alfonso
September 21st, 2009
9:30 pm GMT I
second Alex and Nina.
Author is so naive in his analisis and lack of udersanding of Russian
history and mentality.
I would recommend watching/reading some Russian language media for
start.
- Posted by PwlM
September 21st, 2009
9:12 pm GMT I
second Alex.
- Posted by Nina
September 21st, 2009
8:48 pm GMT
The article seems to confuse technology investment and technology
products. Today, there are plenty of places where Russia can source
technology products besides the U.S., such as Europe or several
countries in APAC. This is an easy one because Russia has plenty of
cash. In terms of technology investment, Russia needs make its
corporate law enforceable so that long-term investments can be
protected. This type of change cannot be ‘imported’ - it has to come
from within.
- Posted by Sergei
September 21st, 2009
8:18 pm GMT
Russia has the best refinery gas in the world and provide to the whole
of european union. USA is only loser with bernard madoff and allen
standford
- Posted by Hilbar Choen
September 21st, 2009
8:16 pm GMT
Naive author could spend some quality time learning Russian history
before appealing to cooperation with that country. Nothing has and
nothing will ever change for the country brilliantly called once an
Evil Empire. Just give them the technology they want and help them
revive their economy - in no time half of the Europe will be under
their boot again. I know what I am talking about - I lived there for
33 years (against my will).
- Posted by Alex
September 21st, 2009
8:13 pm GMT
Russia don’t need USA, because them reach their economy growht bases
in the socialism
- Posted by Eric Patton
September 21st, 2009
7:57 pm GMT
surely its America who needs Russia? after all, they purchase large
percentages of US debt, not vice versa…if Russia decided tomorrow that
they wanted it back, it would be America not Russia on the ‘under-dog’
bench.
- Posted by Rob
September 21st, 2009
7:56 pm GMT
Keep your friends close … and your enemies closer. Want to stop Iran
from developing a nuke, want to get Korea to behave for once; invite
into the fold. Economic imperialism is more cost effective and more
persuasive then any threats we might make. And lets be honest, the US
is not about to engage in a 3rd war.
- Posted by Juls
September 21st, 2009
7:25 pm GMT
We are missing the point here about Russia (I’d still like to call
them the Soviets, but they are not.)
They have a big missile pointed towards them in the way of NATO.
That’s what scares them. Though not many in the present government
over there are old enough, there is still the stigma of WW2 hanging
over their head; how a small nation like Germany, properly motivated,
really decimated their country. Which was the reason Stalin took so
many buffer nations (the Balkans, East Germany, etc.) They lost 20
million people in that conflict and messed up their economy big time.
How can they not be wary?
Then here comes the West, after the Cold War, and sets up a missile
shield that they probably think is offensive. Do they believe us? Did
they believe Adolph back in 1940?
The Russians are not a threat anymore. At least not in Cold War way.
We have way more to worry about the Chinese, the Iranians, Korea and
the like. Mind you, they are bankrupt and corrupt, but they sure as
hell don’t want to lock it up with the West.
Why not invite them into NATO? What would tickle them more and put
them at ease than that? It would also open up their borders more and
any weirdness they might be contemplating would be easier to identify.
Putting the Russians in NATO would be a big threat to Iran, Pakistan
and the Chinese. It would scare the hell out of me!
I believe this is where we must go. But it seems our industrial-
defense companies still expect us to see a boogie man in the Russians.
We wouldn’t have to spend billions of dollars on their hardware, and
they’d have to sell something else to someone else.
Dr. Gonzo
- Posted by Dr. Gonzo
September 21st, 2009
7:23 pm GMT
Russia has a long and storied history of doing the things foolish.
- Posted by Rick Wood
chhotemianinshallah
China’s September Car Sales Rise 84%, Top 1 Million (Update3)
By Bloomberg News
Oct. 13 (Bloomberg) -- China’s monthly passenger-car sales passed 1
million units for the first time, signaling that the government may
ease stimulus measures in the world’s largest auto market so far this
year.
September sales of cars, sport-utility vehicles and multipurpose
vehicles climbed 84 percent to 1.015 million, the China Association of
Automobile Manufacturers said in an e- mailed statement today. Overall
vehicle sales, including trucks and busses, rose 78 percent to 1.33
million units.
General Motors Co. Chief Executive Officer Fritz Henderson said today
that China’s auto sales will continue growing at “a very significant
pace” as the nation’s recovering economy spurs demand. The pace of
growth may prompt the government to halt tax cuts and subsidies to
prevent overcapacity.
“It may end them to prevent the industry from growing too quickly,”
said Chen Liang, Nanjing-based analyst of Huatai Securities Co. The
government is “probably worried that strong auto demand would put
pressure on energy and raw-material supplies.”
The government cut vehicle taxes and introduced auto subsidies in
rural areas earlier this year after demand plunged on the global
recession. Industrywide car sales have now risen more than 35 percent
for six straight months, including a 90 percent jump in August.
GM Sales Double
GM, the largest overseas automaker in China, more than doubled
September sales from a year earlier to 181,148 vehicles. In the first
nine months, it sold 1.29 million, surpassing the tally for the whole
of 2008.
“I don’t think for a second that it’s a blip,” Henderson told
reporters today in Shanghai, referring to the overall market growth.
“China will continue to grow at a very significant pace.”
Bayerische Motoren Werke AG’s sales in China rose 32 percent to 62,394
during January-September, with the BMW brand’s deliveries reaching
59,400 and the Mini division’s sales reaching 2,934, according to a
company statement. China is now BMW’s biggest market after Germany,
the U.S. and the U.K., it added.
A credit boom and a 4 trillion-yuan ($586 billion) stimulus package
helped China’s economy grow at a 7.9 percent annual rate in the second
quarter. The country will stick to a “moderately loose” monetary
policy and guide reasonable loan growth to further cement its economic
recovery, the People’s Bank of China said in a Sept. 29 statement. It
will also continue to implement stimulus measures to boost domestic
demand, the bank said.
Full-year vehicle sales may rise 28 percent to 12 million, based on a
forecast made by Chen Bin, chief director of the industry coordination
department at the National Development and Reform Commission, last
month.
Chen also said that carmakers should “keep their heads” to prevent
overcapacity as it was unclear whether growth was sustainable in the
longer term.
For the first nine months, China’s passenger-vehicle sales rose 42
percent to 7.2 million units, while industrywide vehicle sales rose 34
percent to 9.7 million. By contrast, U.S. sales fell 27 percent to 7.8
million vehicles.
Last Updated: October 13, 2009 07:32 EDT
Sid Harth
Sponsored Link:
7 Reasons China Will Lead the Global Economic Recovery
By Sid Riggs
Contributing Editor
Money Morning
The recent 21% tumble in the Chinese markets had investors around the
world bailing out of China as fast as they could. But, this sell-off
actually created one of the biggest buying opportunities of a
lifetime. Here’s why China is poised to take off – and how to cash in
as China leads the global economic recovery.
August 2009 was one of the worst months ever for the Chinese stock
market, with stocks dipping 21%. But the major sell-off wasn’t based
on any fundamental news – it was a case of frightened investors
worried that China is the next bubble.
The truth is, China’s fundamentals are sound. Chinese consumers are
accelerating their purchases, exports are growing and Chinese GDP is
on track to grow 7.9% by year-end. This is no bubble – Chinese stocks
don’t have anywhere to go but up.
Don’t let western bias fool you. It is not the U.S. that will lead the
global recovery – it is China and other emerging economies.
China’s markets are for real – and so are the returns. Over the last
five years, China’s markets have returned over 100% – even after the
massive sell-off caused by the global financial meltdown. Over the
same time period the S&P has actually lost money.
This is just the beginning. This report will show you seven reasons
the Chinese economy has nowhere to go but up – and how to profit.
1. Incredible GPD Growth Driving Returns
On July 15, 2009, China’s National Statistics Bureau affirmed what
we’ve expected all along. China’s 2nd quarter GDP came in at an
impressive 7.9%. Recently, HSBC China economist Qu Hongbin went a step
further, forecasting that the Chinese economy will grow 8.1% this year
and expand to 9.5% in 2010. The increasing GDP numbers reflect that
China’s recovery is much broader and more robust than most western
analysts originally gave the red dragon credit for. This impressive
growth comes not only from China’s massive $586 billion fiscal
stimulus package, but from strong growth in consumer demand.
2. China Can Stimulate Its Economy Without Going into Debt
While the U.S. has had to print trillions of dollars to attempt to
stimulate its economy, China’s story is much different. With $2.3
trillion dollars in reserves, China has been able to strategically
stimulate their economy -without having to deficit-spend to do it.
Even though the $586 billion Chinese stimulus package passed in
November 2008 represents a whopping 16% of the country’s GDP, China
hasn’t had to go into debt or print money like the U.S. did. This
gives China an incredible opportunity to shore up the economy without
damaging its future economic prospects.
3. China is Funding Global Growth
When the International Monetary Fund (IMF) announced they were
considering issuing $50 billion in bonds to better finance aid to
countries struck by the global financial crisis, they turned to China
to purchase them. How times have changed. Two decades ago, the IMF
would have been calling the U.S. to help fund the recovery. But with
the U.S. economy crippled, China is the only industrial economy in the
world that has enough reserves to actually do anything. Of course,
China’s willingness to assist the IMF is both humanitarian and
shrewd. As IMF Managing Director Dominique Strauss-Kahn said, “The
crisis is certainly an opportunity to reshuffle the IMF’s governance,
to see the new balance of powers in the world.” Clearly, China’s
extensive reserves give the country the opportunity to exert its power
over the entire new world economy.
4. China is Moving the World Away from the U.S. Dollar
Not only is China taking advantage of its economic strength to gain
leverage in the IMF, it is also pushing for a move away from the U.S.
Dollar as the world reserve currency. As the largest holder of U.S.
dollar reserves in the world, China has a lot of reasons to be
concerned with the value of the U.S. dollar. Chinese officials are
watching very closely as Washington desperately spends to resuscitate
the U.S. economy. In an effort to diversify away from the U.S. dollar,
China has been buying gold, oil, and other dollar denominated
commodities necessary for its growth. If the value of the U.S. dollar
declines, the value of China’s new assets will increase. In one easy
step, China has not only helped its strategic growth, but it also
created a hedge against Washington’s shenanigans.
5. China is Creating a Marketplace for its Currency
Since December 2008, China’s central bank has signed bilateral
currency swap agreements with six different countries – including
Argentina, South Korea and Indonesia – worth $95 billion dollars. The
countries that participate in these swap agreements can use Chinese
yuan to buy goods and services in China. With these agreements, China
has created a market for its currency without ever having to put it
into the open market. China will likely continue to extend these swap
agreements with as many countries as it can, until one day the world
wakes up and realizes China has created a global marketplace for its
currency without playing by the rules.
6. China Has Room to Grow
While we in the West grapple to keep up our inflated standard of
living, China still has plenty of room to grow. Annual per-capita
income in China is only $6,000 – compared with $47,000 in the U.S.
The sheer size of China (1.3 billion people) and its increasing
prosperity is an enormous force that can’t be ignored. Remember,
China is not some backward third world economy. It is currently the
third largest economy in the world. China’s economy will surpass that
of the United States by 2035 and be twice its size by mid-century,
according to the Carnegie Endowment for International Peace.
7. Global GDP Growth is Shifting East
As the global markets begin to mend themselves we will see global GDP
share move from the west to Asia – led by China. The U.S., Canada, and
Europe will only account for 49.4% of global economic output in ‘09,
according to the Center for Economics and Business Research. Not only
that, Western economies will decline to just 45% of global economic
activity by 2012 – far ahead of the original estimates that predicted
the West wouldn’t fall below 50% until 2015.
As China’s share of global GDP rises, so does its share of the global
markets. From the end of 2003 to the end of July 2009, the NYSE’s
share of global market cap shrunk 29%, according to the World
Federation of Stock Exchanges. Over the same time, the Shanghai Stock
Exchange increased its share of global market cap by 636%. In
addition, by 2020 – just 11 years from now – China’s share of global
consumption will be equal to that of the United States. That’s what
happens when you introduce a prosperous economy to a population of 1.3
billion people.
How to Invest in China:
Not all Chinese companies are created equal, so we prefer using ETF’s
to play the entire trend instead of choosing any individual
companies. Remember, the ride won’t be straight up – China will have
hiccups. But, we are staring at the leading edge of the investing
opportunity of a lifetime and you don’t want to be left on the
sidelines.
One of the most popular ways to invest in China is through iShares
FTSE/Xinhua China 25 Index (FXI), but I prefer PowerShares Golden
Dragon Halter USX China (PGJ). PGJ has a more broadly diversified
portfolio of companies and sectors, with no more than 28% of the
entire holdings in any one sector, and no more than 5.46% of the
entire holdings to any one company. FXI on the other hand, has
concentrated 51% of their entire holdings in the financial sector, and
as much as 9.3% of the entire holdings in one company (China
Construction Bank Corporation). That may prove be to genius over time,
but as a measure of the entire Chinese market, we feel PGJ offers
better diversification.
If you like income, take a look at Templeton Dragon Fund Inc. (TDF)
which is yielding 6.8%. Managed by legendary emerging markets fund
manager Mark Mobias, TDF is a closed end fund focusing mainly on China
(58.4% of holdings), but also on neighboring Hong Kong and Taiwan
(29.9% and 11.4% of holding respectively).
If you have the stomach for more a little more risk, look at Claymore/
AlphaShares China Small Cap (HAO). The name “small cap” may be a
little misleading. This fund is more of a blend between mid-cap and
small-cap stocks. The fund is very well diversified between the
different critical sectors in China and no single company represents
more than 2.6% of the entire funds holdings.
Sid Harth
China Surprisingly Strong GDP Growth 7.9%
Posted by: Frederik Balfour on July 16
China’s GDP growth clocked an impressive 7.9% in the second quarter,
surpassing economists expectations about the Chinese economic
recovery. There is even now talk of a V-shaped recovery, which just a
few months ago looked at best like a U-shaped rebound after 6.1%
growth in the first quarter, the worst performance in a decade. No
doubt the latest economic good news published by China’s National
Statistics Bureau on July 15 will lead to yet another flurry of GDP
upward revisions of China’s growth path.
HSBC China economist Qu Hongbin wasted no time in upgrading his
figures: he reckons the Chinese economy will grow 8.1% this year and
GDP expansion will accelerate to 9.5% in 2010. Previously he called
for 7.8% and 8.1% in 2009 and 2010. His bullish upgrade for next year
suggests the Chinese recovery will be far broader and deeper than most
expected, evidence that growth will be sustained not just by the
massive $586 billion fiscal stimulus package, but by strong growth in
consumer demand.
Jing Ulrich, chairman and managing director of China Equities at JP
Morgan (JPM) said in a note to clients today that “Despite the global
economic downturn, China’s economic recovery will continue in the
second half on the strength of the government’s fiscal stimulus and
loose monetary policy. Recovering property investment and buoyant
consumer spending suggest that these policies are proving effective at
bolstering domestic demand at a time when exports remain structurally
fragile.”
Officially, the Chinese government is still forecasting 8% growth for
2009, down from last year’s 10.6%, but still a remarkably strong
performance given the plunge in exports, a key growth driver in the
past. But there’s mounting evidence that China’s long cherished goal
of on the back of local consumption. Take the auto market. At the
beginning of the year the industry association was predicting a
contraction in auto sales on the back of an anemic (for China) 6.7%
growth last year. Instead, the China Association of Automobile
Manufacturers on July 7 reported a whopping 17.7% increase in sales to
6.1 million vehicles, and is predicting this year’s sales could even
top 12 million. For instance, General Motors sales through its joint
ventures rose 38% in the first half to 814,442 vehicles.
The strength of the property sector has been another big surprise.
Property sales were up 53% in the first six months from a year
earlier, according to a survey commissioned by the statistics bureau
and published in the China Information News, while nationwide prices
averaged across 70 cities climbed year on year in June. This masks the
fact that in second and third cities prices have been strengthening
much more. Property normally accounts for about 25% of fixed asset
investment in China and is a key form of wealth holding for most
Chinese. Optimism about housing prices will translate into greater
consumer confidence.
However China’s stimulus efforts still carry risks. New lending was up
a whopping 201% during the first half of more than $1 trillion, equal
to nearly one quarter of GDP, part of the reason why the Shanghai
stock market is up nearly 75% this year. Easy money means some
marginal investment projects that commence when interest rates are low
may run into difficulties down the road when monetary policy tightens.
TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/14956.1284812340
Reader Comments
Cooked economic data
July 16, 2009 07:53 AM
Do you know that the numbers are cooked? Electicity use droped 4%!
While industrial production rose 5% and GDP 6%. Do you belive the
stats!
gabe, san diego
July 16, 2009 05:22 PM
back to selling cheap, defective trinkets to the world! go China!
Grast
July 16, 2009 09:18 PM
If you talk with some economists or ordinary people in private, you
may find it is difficult to believe the data is true. Even under the
high-growth, the risk is high since the GDP is driven bu bubble, but
the economy is not improving. To make things worse, the people's
consumption is beginning to decline.
LI
July 16, 2009 09:51 PM
Please ignore any positive economic news from China and everyone here
will happily live ever after because:
Chinese government data: 11% GDP growth in 2008. Response: Oh it's
overheating.
Chinese government data: 6.1% GDP growth in 1Q 2009. Response: Oh it's
collapsing.
Chinese government data: 7.9% GDP growth in 2Q 2009. Response: Oh it's
faking.
md3
July 16, 2009 11:06 PM
Are you guys tired of saying 'fake growth data' from China? It has
been going on since the year 2000. If China really had been faking the
data, where the huge foreign exchange reserve would come from?
you know what
July 16, 2009 11:50 PM
expanding domestic demand together with balancing domestic development
and opening wider to the outside world really worked！just the macro-
control ways.
T-Bird
July 17, 2009 02:01 AM
As an ordinary Chinese, I deeply doubt the figure. My salary is the
same as last year, and I have been spending less during this recession
time. Price of everything is going up, gas,food,transportation, etc,
and the country is charging more tax than before, so are the banks.
Some doemestic bank just increses some service fee by 100%, can you
believe that? No? But it's 200% ture. After all, having less or same
amount of money, paying more tax, spending less, all these mean the
life is not getting better, people are not getting richer. So what
does GDP growth mean? I don't know, but who cares.
RodgerRafter
July 17, 2009 02:55 AM
Funny how so many people just don't want to believe that China is
doing well.
Go to China and you'll see that it is an amazing country with an
extremely optimistic and hard working workforce. Take a close look at
what the Government is actually doing and you'll realize that they are
taking all the right steps to turn the global economic slowdown into
an opportunity to make Chinese industry even stronger and more
competitive. All the while, the government remains focused on
maintaining full employment and improving the people's quality of
life.
Then invest in Chinese companies because it's the only way you'll make
a decent return. US policy makers continue to sell us out to the big
banks and just about anything you invest in here is either overpriced
or will lose ground to inflation.
Joe
July 17, 2009 03:17 AM
I see a lot of sour grapes.
Frank
July 17, 2009 07:08 AM
WHY IT WORKS!?
China has a very different system than US. Chinese government has huge
power to create business, such as, lower auto purchase tax; lower
lending requirement from 30%-40% down payment to 20%; start many new
infrastructures, such as, railroad, highway, airports, etc. The
government can act in weeks. But, in US, government doesn't have such
power, and economic policy has to be passed by the congress then take
effect in a year. Even a good policy, you may not see it soon.
Frank
July 17, 2009 07:10 AM
WHY IT WORKS!?
China has a very different system than US. Chinese government has huge
power to create business, such as, lower auto purchase tax; lower
lending requirement from 30%-40% down payment to 20%; start many new
infrastructures, such as, railroad, highway, airports, etc. The
government can act in weeks. But, in US, government doesn't have such
power, and economic policy has to be passed by the congress then take
effect in a year. Even a good policy, you may not see it soon.
stupid american
July 17, 2009 08:18 AM
watch the data your broken GM's revived by China. let's see your auto
icon how misery in US. no one want to buy these craps. so you
amercicans invented massive cheating financial tool to grab money of
world. play with sword, die by sword. we all see your mess situation,
which will continue.... for long long time.
shunsui kyouraku
July 17, 2009 11:17 AM
7.9 still it is a very conservative number. i guess 9 is the true
figure. we all know that china never show their true prowess. remember
that sun tzu is a Chinese and his work is embedded to their economic
policy.
Dietrich
July 17, 2009 12:43 PM
COOKED DATA? How about the AAA rated financial toxic products being
criminally sold worldwide from the land of rising bailouts. How about
international speculative attacks on other currencies around the world
being launched from the same crime scene called Wall Street. The
biggest heist ever. Jesse James blesses America and its coalition.
Morr
July 17, 2009 12:53 PM
" Live by the swords , die by the swords " Enjoy the video and learn
the lesson: http://www.youtube.com/watch?v=Q6l1rwQJjYg
Jeff
July 17, 2009 08:18 PM
China selling cheap things is true dun blame ppl simply for saying it.
accept it.
however one also has to realize why China can get rich by selling
cheap stuff is becoz in this world there are more poor ppl than rich
ppl. this poor ppl including the middle class with alot of commitment.
this including everyone.
if you want this issue to go away let see if your almighty country can
have the power to bring all of humanity to rich class level. then
china will change, china always change as according to how the world
change.
can you?, again we cannot as in the end we are all human that lives
within and limit our selves to the concept of yin and yang. :)
Shunjing
July 20, 2009 09:03 PM
The only way US knows how to compete is through threats , intimidation
and espionage. They sell lies and toxic stuffs. Chinese can blame
corrupt officials. Who can the Americans blame.
Shunjing
July 20, 2009 09:08 PM
The only way US knows how to compete is through threats , intimidation
and espionage. They sell lies and toxic stuffs. Chinese can blame
corrupt officials. Who can the Americans blame.
T Bird
July 21, 2009 02:04 AM
In China, rich people are getting even richer, and poor are getting
even poorer . Price of house is skyrocketing because rich ones are
trying to by a second house, and the stock marketing is doing well
becoz this where the stimulus money actually goes. For 95% of people,
life is not getting better.
C. H. Ng
July 21, 2009 03:11 AM
Sure...the rich people are getting richer and the poor are getting
poorer. This is not only happening in China but everywhere in this
world. But to claim that 95% of the Chinese people are not having
better lives, I do not agreed with you, Mr or Ms T Bird.
I have been to China many times over the past several years and the
latest was only last week. I was at the northern cities of Changchun
and Tianjin where at shopping malls and eatery joints, I can see many
were packed with people shopping & eating. At niche shops where
branded goods such as LV & Gucci bags are being sold at several
thousand yuan, customers were just buying & paying like nobody's
business. Normal meals at restaurants for 4 persons easily cost well
over one to two hundred yuan. And mind you, you need to queue to be
seated.
From what I can see, I would put the figure as around 60% and not 95%
as you claimed, @T Bird.
T Bird
July 21, 2009 09:44 PM
Hi C.H.Ng, if you are comparing data of 10 ,or maybe even 5 years ago
to now, no doubt that you are right.I personally earn about twice as
much as I did 5 years ago. But what I am talking about is the most
recent two years, since when the economic crisis happened. In the town
where I work, about 3 or 4 hotels have shut down their business, and
another 3 new hotels have been completed from a construction
standpoint, for more than 1 year, but still haven't open yet. And the
small car service company for my company, which used to have 7 or 8
cars, now only has 3. These are real data I can see and sense, and
that is why I don't understand the 8.1 GDP growht.
C. H. Ng
July 22, 2009 05:07 AM
Wow..at least you are earning twice as much as you did 5 years ago.
Over here I don't think many of us can earn 50% more than we did
during this 5 years period, if we are to take into consideration of
the miserable 3% to 5% average yearly salary increment.
Therefore Mr T Bird, you shouldn't be complaining here in the first
place. In fact I would say you are lucky your government is very
proactive in redressing the economic situation in your country. And
also doing it in the right & forceful manner. Just look at other
countries or just my country for the matter. We are now feeling the
pinch of a slowing economy which I think we would not be able to
recover maybe until 2nd half of next year. I am in the construction
industry and should know better as this industry supports many other
industries down the line. Currently you can see not much activities
going on here unlike what I can see while I was in China last week.
So bear with it, my friend, your government is leading your country in
the right direction.
T Bird
July 22, 2009 08:48 PM
You are right, to some extent. I am trying to vent, while seeing so
much corruption happen every day, and every time when some government
related case happens, you will see some ridiculous but some how
creative explanation from them,and it be comes hot topic on the
internet. And that is one of the main reason that so many of us don't
trust the data from government. But I have to admit that generally
China is going in the right direction. One major reason: we export
goods at a lower price, and salary here is much lower than US and
Europe. Under this circumstances,it's hard for China to not grow.
PS: It's just reported the industry electricity usage of the 1st half
of this year is 5.9% lower than the same period of last year. Again,
that make it more difficult to understand the 8.1% growth.
China Rock
July 29, 2009 06:22 PM
Yes, we know the whole world hates China. We love our country. China
was invaded by Japan, Russia and other Civilized countries, Red China
never lost 1 inch of land. No foreign countries can put their troop on
our land, no foreign countries can set up colonial ruling in our
cities. we have human rights problem, but we are working on it. That
is still better than be murmured by foreign soldiers. Our laws are not
perfect, but it is still better than "no Chinese and dog allowed"
colonies set up by foreign countries in our land. That's the biggest
achievement for us just to become a country with self-sovereignty!
Sid Harth
News : International Last Updated: Apr 24, 2009 - 5:31:05 PM
China’s economy will surpass the US by 2035 and be twice as large as
the US by midcentury
By Finfacts Team
Jul 9, 2008 - 3:02:44 PM
Shanghai - the commercial capital of China
China’s economy will surpass that of the United States by 2035 and be
twice its size by midcentury, a new report by Albert Keidel of the
Carnegie Endowment for International Peace, concludes. China’s rapid
growth is driven by domestic demand—not exports—and will sustain high
single-digit growth rates well into this century.
In China’s Economic Rise—Fact and Fiction, Keidel examines China’s
likely economic trajectory and its implications for global commercial,
institutional, and military leadership.
Key Conclusions:
Potential stumbling blocks to sustained Chinese growth—export
concerns, domestic economic instability, inequality and poverty,
pollution, social unrest, or even corruption and slow political reform—
are unlikely to undermine China’s long-term success.
China’s financial system, rather than a shortcoming that compromises
growth potential, is one of the strengths of what the report calls
“China’s money-making machine,” in part because of its ability to
support the financing of infrastructure and other public investments
necessary for sustained rapid growth.
A Chinese economy that eclipses the U.S. by midcentury has both
commercial and potential military implications. China will be the
preeminent world commercial influence. China’s military capabilities
are a small fraction of the United States’ today, so there is time to
prepare for a very different world in fifty years, says the report.
American policy makers should take this opportunity to enact wide-
ranging domestic reforms and rethink their concepts of global
order.
“China’s economic performance clearly is no flash in the pan. Its
growth this decade has averaged more than 10 percent a year and is
still going strong in the first half of 2008. Because its success in
recent decades has not been export-led but driven by domestic demand,
its rapid growth can continue well into the twenty-first century,
unfettered by world market limitation. China’s likely continued
success will eventually bring an end to America’s global economic
preeminence, requiring strategic reassessment by all major economies—
especially the United States, the European Union, Japan, and even
China itself."
The World Bank said last December that China remains is the world's
second-biggest economy.
Keidel, says the rise of China to the world's biggest economy will
happen regardless of the method of calculation.
Under current market-based estimates, China's gross domestic product
is about $3 trillion compared to $14 trillion for the US. Based on
purchasing power parity (PPP) measure used by the World Bank and
others to correct low labour-cost distortions, he said China's GDP is
roughly half of that of the US but, in terms of per capita gross
domestic product, it is only 9.8 per cent of the size of the US.
Keidel's calculations suggest that using the PPP method, China will
catch up with the US as an economic power by 2020, with an equivalent
GDP of $18 trillion. Based on the more commonly accepted market
method, the turning point will come by 2035. By 2050, he estimated
Chinese GDP at some $82 trillion compared with $44 trillion for the
US.
However, the Chinese standard of living will remain lower - with per
capita GDP in China between half and two-thirds the level of that in
the US in 2050, according to the report. Keidel said poverty will
remain a significant problem in China for decades despite
considerable progress.
Sid Harth
News : International Last Updated: Oct 14, 2009 - 11:13:20 AM
China reports decline in exports/imports slowed sharply in September
By Finfacts Team
Oct 14, 2009 - 8:57:22 AM
Chinese Premier Wen Jiabao (c) chairs the eighth prime ministers'
meeting of the Shanghai Cooperation Organization member states at the
Great Hall of the People in Beijing, Wednesday, Oct. 14, 2009. Photo:
Xinhua
China on Wednesday signalled an acceleration in its economic recovery
with data showing that the fall in exports and imports slows sharply
in September. However, as importers were told that there would be no
shipments in the first two weeks of October because of the National
Day holidays, that factor may have also had an impact.
The September trade figures were also boosted by a larger number of
working days compared with the same month last year.
The General Administration of Customs announced in Beijing that
exports had fallen by 15.2 per cent in September compared to the same
month last year, against a 23.4 per cent decline in August.
The total value of imports and exports for September was US$218.94
billion, down 10.1 per cent from the same month last year, but an
increase of 14.2 per cent from August.
Imports amounted to $103.01 billion down by 3.5% from September last
year and up 17% from August.
Exports in September while falling 15.2 per cent from the same month
last year to $115.93 billion, they were up 11.8 per cent from
August.
For the first three quarters, China's foreign trade was down by 20.9
per cent from the same period last year to $1.56 trillion.
Exports dropped by 21.3 per cent from the same period last year to
$846.65 billion. Imports were $711.17 billion, representing a decrease
of 20.4 per cent from the same period last year.
The total trade surplus was $135.48 billion from January to September,
a decrease of 26 per cent from the same period last year.
In the first three quarters, the European Union remained China's
leading trade partner, with a total trade volume of $260.05 billion, a
fall of 19.4 per cent over the same period last year.
The trade volume between China and the United States, China's second
largest trade partner, dropped 15.8 per cent from a year earlier to
$211.88 billion.
bademiyansubhanallah
China Is Close to Oil Deal in Gulf of Mexico
Published: October 16, 2009
HOUSTON — Trying to acquire a foothold in the American oil patch, a
Chinese company is closing in on a deal to buy stakes in a few
drilling leases in the Gulf of Mexico from a Norwegian company, an
executive close to the talks said.
Go to Blog » The prospective purchase would not do much to quench
China’s huge and growing thirst for energy, which makes it the second-
leading consumer of oil after the United States. But such an oil
acquisition would be symbolically important as the first by China in
the United States, coming four years after the Chinese company’s $18.5
billion bid for the American oil company Unocal collapsed under
pressure from Congress.
Executives at StatoilHydro, the Norwegian national oil company, would
neither confirm nor deny their negotiations with the Chinese, which
were first reported Friday by Dow Jones Newswires. Officials of the
state-owned Chinese company, best known by its acronym Cnooc, were not
available for comment.
But the negotiations between the companies are at an advanced stage,
and a formal announcement could be made in soon, according to the
executive close to the talks, who said it was company policy not to
discuss the negotiations. The executive cautioned that the talks were
at a delicate stage.
The deal would only include around 20 of StatoilHydro’s 451 leases in
the Gulf of Mexico. But oil analysts said they saw symbolism in the
move, particularly when Chinese companies are striving to acquire much
larger oil reserves in Africa and Latin America.
“By dipping their toe, they are attempting to see if it’s politically
safe to get into our waters,” said Larry Goldstein, a director of the
Energy Policy Research Foundation. “There’s still a hangover from
Unocal.”
With an expanding economy and a car fleet mushrooming with its middle
class, China has been searching far and wide for oil reserves. In
recent years China has formed alliances and joint ventures in
Venezuela, Russia and Brazil to produce oil, and Chinese companies are
competing to obtain large-scale contracts for exploration and
development of fields in Nigeria and elsewhere in Africa.
Cnooc has increased its capital expenditures for exploration,
development and production from $3.8 billion in 2007 to $5.7 billion
in 2008 to a planned $6.8 billion this year, according to the
company’s 2009 strategy preview report.
Several large American oil companies, including Chevron,
ConocoPhillips and Devon Energy, have wide-ranging investments in
China, from exploration and production offshore to marketing fuels and
lubricants to Chinese consumers.
But China has had a rocky time investing in the United States energy
patch. Cnooc, China National Offshore Oil Corporation, tried to make a
$18.5 billion offer to buy Unocal Corporation in 2005. The Bush
administration did not oppose it, but an array of powerful Democratic
and Republican members of Congress strongly objected on national
security grounds.
The purchase of a small stake in the Gulf from a Norwegian company is
not likely to produce as large a reaction, especially when the Obama
administration is trying to strengthen economic ties with the Chinese.
China National Petroleum Corporation held talks in March with Chevron
to buy a minority interest in the Big Foot oil field in the Gulf of
Mexico, but the Chinese company dropped out of the talks, apparently
unhappy with the terms the American company offered.
The Gulf of Mexico accounts for about a quarter of the nation’s oil
production, and its deepwater potential makes it the most exciting
arena for oil exploration in the United States. Foreign oil companies
like BP, Shell, StatoilHydro and the Brazilian company Petrobras have
been investing heavily in the area.
Areas in the Middle East and Africa have more oil, but they can be
challenging to explore because of political upheaval and because oil-
rich countries are reluctant to cede control of their resources.
Amy Myers Jaffe, an energy specialist at Rice University, said it made
sense for the Chinese to enter a partnership with a more experienced
Western oil company in the Gulf to learn the advanced seismic and
drilling technologies required to work in deep waters. She predicted
little or no political opposition.
“It’s completely unthreatening,” she said. “There is no reason why any
American should be concerned about a Chinese company taking a small
stake in the Gulf of Mexico.”
bademiyansubhanallah
Yuan Forwards Post Biggest Weekly Gain in Six Months on Exports
By Bloomberg News
Oct. 16 (Bloomberg) -- China’s yuan forwards had the biggest weekly
gain in more than six months on speculation the central bank will
allow appreciation as exports and inflation pick up.
The U.S. Treasury Department yesterday criticized China for the “lack
of flexibility” in the yuan and a buildup of foreign-exchange
reserves, while stopping short of branding the nation a currency
manipulator. China’s exports declined 15.2 percent in September from a
year earlier, the least in nine months, the government reported this
week.
“Given the recovering Chinese economy and the return of inflation,
China will need to allow the currency to appreciate,” said Nizam
Idris, a strategist at UBS AG in Singapore. The yuan will probably
appreciate 5 percent to 6.5 against the dollar in 2010, he said.
Twelve-month non-deliverable forwards rose 0.3 percent to 6.6205 per
dollar as of 5:30 p.m. in Shanghai. The contracts rose 0.94 percent
this week, the biggest increase since March. Forwards are agreements
to buy and sell assets at current prices for delivery at a specified
time and date. Non-deliverable contracts are settled in dollars.
In the spot market, the currency was at 6.8268 from 6.8287 yesterday,
according to the China Foreign Exchange Trade System. The People’s
Bank of China halted gains against the U.S. dollar from July 2008 to
protect exporters after a 21 percent appreciation in the previous
three years.
Reserves
“The recent lack of flexibility of the renminbi exchange rate and
China’s renewed accumulation of foreign-exchange reserves risk
unwinding some of the progress made in reducing imbalances,” the U.S.
Treasury said in its semiannual report to Congress. The yuan is a
denomination of the renminbi.
China’s foreign-exchange reserves, the world’s largest, surged to a
record $2.27 trillion at the end of September.
“China’s exchange-rate policy will be based on internal fundamentals,”
said Fang Ming, an analyst in Beijing at Bank of China Ltd., the
nation’s largest foreign-currency trader. “It’s too early to talk
about appreciation when the crisis hasn’t ended yet.” The yuan will be
little changed over the next 12 months, he said.
A Bloomberg News survey shows consumer prices declined 0.8 percent in
September from a year earlier, the smallest since the current run of
declines began in February. The statistics bureau is scheduled to
release the data on Oct. 22.
Chinese banks extended 516.7 billion yuan ($75.7 billion) of loans
last month, a second monthly increase, the central bank said on Oct.
14.
Loan Growth
“Massive loans will go back into positive inflation,” said Chris
Ruffle, who helps oversee $3.5 billion as co-chairman of Martin Currie
Investment Management Ltd.’s China unit in Shanghai. “Bankers will be
able to justify to the politicians to resume renminbi appreciation,
pushing up the reserve ratio and interest rates.” He said the yuan may
appreciate 5 percent next year.
Government bonds declined this week on concern the central bank will
allow yields on so-called sterilization bills to rise to curb growth
in money supply and bank loans. M2, the broadest measure of money
supply, increased a record 29.3 percent in September from a year
earlier, the central bank said.
The People’s Bank of China drained 73 billion yuan from the money
market in open-market operations this week, after net injections in
the previous six weeks, data compiled by Bloomberg show. The monetary
authority kept the yield on one-year and three-month bills unchanged
for a seventh week at 1.7605 percent and 1.328 percent, respectively.
Bonds Slide
“People are betting that the PBOC may take some action soon in the
open-market after loan growth last month exceeded expectations,” said
Jiang Chao, a fixed-income analyst at Guotai Junan Securities Co. in
Shanghai, China’s largest brokerage by revenue. “The one-year PBOC
bills are traded at higher yields than that in the auction.”
The yield on the 3.44 percent note due September 2019 climbed 18 basis
points to 3.78 percent this week. The price of the security dropped
1.47 per 100 yuan face amount to 97.21, according to the National
Interbank Funding Center. A basis point is 0.01 percentage point.
--Judy Chen, Belinda Cao. With assistance from Chua Kong Ho in
Shanghai. Editors: Shanthy Nambiar, James Regan
To contact Bloomberg News staff for this story: Judy Chen in Shanghai
at +86-21-6104-7047 or Xch...@bloomberg.net; Belinda Cao in Beijing
at +86-10-6649-7570 or lc...@bloomberg.net.
Last Updated: October 16, 2009 05:56 EDT
bademiyansubhanallah
China’s Economic Recovery Drives Up Home Prices (Correct)
By Bloomberg News
Oct. 15 (Bloomberg) -- China’s home prices rose at the fastest pace in
a year in September and inflows of foreign direct investment quickened
as a recovery gathered pace in the world’s third-biggest economy.
Home prices in 70 cities climbed 2.8 percent from a year earlier, the
National Bureau of Statistics said on its Web site today. Foreign
direct investment jumped 18.9 percent to $7.9 billion, the Ministry of
Commerce said at a briefing in Beijing.
China may report next week that its economic growth accelerated to 8.9
percent in the third quarter, a Bloomberg News survey of economists
shows. A record 8.67 trillion yuan ($1.27 trillion) of new loans this
year, reported by the central bank yesterday, has added to the risk
that the rebound is at the cost of asset bubbles, bad loans and
resurgent inflation.
“There’s been a very impressive acceleration of growth,” said Dariusz
Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong
Kong. “Policy makers will gradually begin to be more concerned about
asset-price inflation and the overall inflation outlook.”
China may raise interest rates and banks’ reserve requirements in the
first quarter of 2010, Kowalczyk said.
The Shanghai Composite Index rose 0.3 percent as of 1:06 p.m. local
time, taking this year’s gain to 63.8 percent.
Export Decline
Export declines slowed in September and the nation’s foreign-currency
reserves swelled to a record $2.273 trillion, reports showed
yesterday. China’s accelerating economic growth and expectations for
the yuan to rise are encouraging investment from abroad.
“Foreign investment may remain at a relatively high level in the
coming months as China’s recovery continues to lure investors,” said
Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai.
Foreign investment started to rise in August after falling all year.
For the first nine months, direct investment from abroad declined 14.3
percent to $63.8 billion from a year earlier, the commerce ministry
said today.
In the house price data, the southern export hub of Shenzhen led the
gains, with an 11.1 percent increase in September from a year
earlier.
Home sales jumped 73.4 percent in the first nine months of 2009 from a
year earlier to 2.75 trillion yuan, the statistics bureau said.
Investment in property development accelerated to growth of 17.7
percent.
--Li Yanping, Paul Panckhurst, Chia-Peck Wong. Editors: Paul
Panckhurst, John McCluskey.
To contact Bloomberg News staff for this story: Li Yanping in Beijing
at +86-10-6649-7568 or yl...@bloomberg.net
Last Updated: October 15, 2009 21:31 EDT
bademiyansubhanallah
China Reports Second 2009 Monthly Budget Deficit in September
By Bloomberg News
Oct. 16 (Bloomberg) -- China, which forecast a 950 billion yuan ($139
billion) budget deficit this year, reported a 97 billion yuan gap in
September, only the second monthly shortfall this year, figures from
the Ministry of Finance show.
Fiscal revenue rose 33 percent in September from a year earlier, the
second-fastest pace this year, to 561 billion yuan due to accelerating
economic growth and increases in fuel and tobacco taxes, the Ministry
of Finance said on its Web site today. Expenditure rose 32.9 percent,
the biggest growth this year, to 658 billion yuan.
The ministry last reported a deficit in March, of 60.5 billion yuan.
The surplus for the first nine months of the year was 632 billion
yuan, Ministry of Finance data showed today.
Fiscal spending in the first nine months of the year surged 24 percent
to 4.52 trillion yuan as the government implemented its 4 trillion
yuan stimulus package to sustain growth amid slumping exports. Revenue
growth lagged behind, rising 5.3 percent to 5.15 trillion, as income
from import tariffs dropped and the government boosted tax subsidies
for car and home appliance purchases.
In September, central government spending increased by 46 percent to
144 billion yuan and local government spending rose by 29.6 percent to
513 billion yuan, today’s statement from the ministry showed.
The Ministry of Finance said this week it will let local governments
use land-sale proceeds to fund stimulus projects because many regions
were finding it difficult to secure money amid the economic slowdown,
the official China Daily newspaper said today.
The ministry has issued 200 billion yuan of bonds on behalf of
provincial governments to help them fund their share of the fiscal
stimulus, completing the sale on Sept. 4.
For Related News and Information: Top China news: TOP CHINA <GO> China
economy news: NI CHECO <GO> Finance ministry news: MOFZ CH <Equity> CN
<GO>
Last Updated: October 16, 2009 00:43 EDT
bademiyansubhanallah
U.S. Criticizes China for Lack of Yuan ‘Flexibility’ (Update3)
By Rebecca Christie
Oct. 16 (Bloomberg) -- The U.S. Treasury Department criticized China
for the “lack of flexibility” of the yuan and a buildup of foreign-
exchange reserves while stopping short of branding the nation a
manipulator of its currency.
“The recent lack of flexibility of the renminbi exchange rate and
China’s renewed accumulation of foreign-exchange reserves risk
unwinding some of the progress made in reducing imbalances,” the
Treasury said in a semiannual report to Congress, using another name
for the yuan.
The report released yesterday, which found that no major U.S. trading
partner illegally manipulated its currency in the first half of 2009,
comes after Group of 20 leaders adopted a “framework” for sustaining
global growth and reducing lopsided flows of trade and investment. The
framework could see China boosting domestic demand, the U.S. saving
more and Europe increasing investment.
“Both the rigidity of the renminbi and the reacceleration of reserve
accumulation are serious concerns which should be corrected to help
ensure a stronger, more balanced global economy consistent with the
G-20 framework,” the report said. “The Treasury remains of the view
that the renminbi is undervalued.”
A Chinese central bank spokesman declined to comment today. No comment
was immediately available from China’s Foreign Ministry.
‘Structural Imbalances’
The American Chamber of Commerce in China said today that both the
U.S. and Chinese economies have “structural imbalances,” which
President Barack Obama should discuss when visiting China next month.
The yuan’s value is “not a major cause of the U.S. trade deficit with
China,” the chamber said in an e-mailed statement.
China would risk instability by letting the yuan appreciate
excessively, Yolanda Fernandez Lommen, chief China economist for the
Asian Development Bank said in a phone interview in Beijing.
“We should not push hard for China to appreciate the currency too
fast,” said Lommen. “We don’t want to see China, the third largest
economy in the world, unstable. We don’t want to see 20 percent of the
world’s population in an unstable environment.”
The yuan closed at 6.8268 against the dollar in Shanghai from 6.8287
yesterday. Yuan forwards had the biggest weekly gain in more than six
months on speculation the central bank will allow appreciation as
exports and inflation pick up. Policy makers halted gains versus the
dollar in July last year.
Swelling Currency Reserves
China’s foreign-exchange reserves, the world’s biggest, surged in the
third quarter as an economic recovery attracted speculative capital
and a weak dollar boosted valuations of its yen and euro assets.
The holdings climbed about $141 billion to a record $2.273 trillion,
the People’s Bank of China said this week. That was less than the
unprecedented $178 billion gain in the second quarter.
The Obama administration wants China to “pursue policies that permit
greater flexibility of the exchange rate and lead to more sustainable
and balanced economic growth,” the Treasury report said. The U.S. will
continue to push China to allow the yuan to appreciate in two-way
meetings and through meetings of officials from the Group of 20
nations.
‘Strong Dollar’
People’s Bank of China officials have called this year for an
alternative to the dollar as a global reserve currency. At the same
time, the issue hasn’t been a central point of debate at recent
international summits like a meeting of Group of 20 leaders in
Pittsburgh last month.
Geithner this year has reiterated the U.S. commitment to a “strong
dollar,” and a “special responsibility” to make sure the currency
maintains its leading role in the global financial system.
“Both the U.S. and China have backed away from their more strident
foreign-exchange positions,” said Marc Chandler, global head of
currency strategy at Brown Brothers Harriman & Co. in New York.
“The U.S. is no longer using nearly every international forum to push
for Chinese reforms,” he said. “For its part, China has not pressed
with the PBOC musings about the need to replace the dollar.”
Under a 1988 law, the Treasury is required to report to Congress twice
a year on international economic conditions and exchange-rate
policies. The Treasury is required to enter direct talks with a
country deemed to be manipulating its currency, and also seek redress
through the International Monetary Fund. The last time a country was
branded as a manipulator was China, in 1994.
Yesterday’s report also said that “there are clear signs that the
economy is stabilizing” and notes improvement in financial markets and
economic growth. Still, “the global economic recovery remains
incomplete,” it said.
To contact the reporter on this story: Rebecca Christie in Washington
at rchri...@bloomberg.net
Last Updated: October 16, 2009 06:01 EDT
bademiyansubhanallah
China Swaps Show Bond Upgrade That’s No ‘Slam-Dunk’ (Update2)
By Wes Goodman and Lilian Karunungan
Oct. 16 (Bloomberg) -- Investors are signaling China’s debt rating is
too low for an economy set to overtake Japan as the second biggest,
driving up returns on government and corporate securities.
Contracts to insure China’s bonds are less expensive than those for
Greece, Ireland, Spain and Italy -- each deemed at least as safe by
Moody’s Investors Service, Standard & Poor’s or Fitch Ratings, after
being pricier in 2008. They also are cheaper than all but four of 39
emerging-market credit-default swaps tracked by Bloomberg, including
Israel and Abu Dhabi, which have the same or higher international-debt
ratings.
A JPMorgan Chase & Co. index of dollar-denominated Chinese government
and corporate debt is up 27 percent this year after posting its best
three quarters since the measure was created in 2005, as China’s $3.9
trillion economy led the recovery from a global recession. Germany’s
Union Investment and Japan’s Mitsubishi UFJ Asset Management Co.,
which together manage more than $280 billion, are betting on China
government notes while Western Asset Management in the U.S. is buying
debt sold by property developers and gas utilities.
“China is the biggest winner to come out of the financial crisis,”
said Sergey Dergachev, who works on emerging markets for Union
Investment in Frankfurt, which oversees about $230 billion in assets
as Germany’s third-biggest money manager. “It will probably be
upgraded next year.”
Lower Premium
It costs 67 basis points, or $67,000 a year to protect $10 million of
China’s bonds, 21 points more than for Japan’s debt, which is rated
two levels higher. That premium is down from this year’s 69-point
average and about the smallest since January 2008.
China’s 4.25 percent euro bonds due in 2014 have returned 12 percent
this year, the most since they were sold in 2004. They gained 5.1
percent in all of 2008 and 7.2 percent in 2005, the best full year so
far, data compiled by Bloomberg show.
Demand for the bonds has narrowed the spread to Italy’s bonds to 27
basis points, or 0.27 percentage point, from 1.76 percentage points in
October, the month after the collapse of Lehman Brothers Holdings Inc.
prompted investors to dump emerging-market debt. Dergachev bought the
bonds about six months ago and predicts the yield will fall below
Italy’s.
Investors would earn 4 percent should demand increase enough to lower
the current 3.14 percent yield by 27 basis points in a year, data
compiled by Bloomberg show. By comparison, investors have lost 3.1
percent on U.S. Treasuries so far in 2009, Merrill Lynch & Co. indexes
show.
Reserves
China has the world’s largest currency reserves at $2.27 trillion and
debt equal to 20 percent of gross domestic product, compared with 219
percent for Japan and 116 percent for Italy. The three main ratings
companies say China’s record increase in lending and reliance on
government spending to drive growth offset those advantages.
“It’s not as obvious as it may seem to some investors that China is a
slam-dunk, double-A country,” said Thomas Byrne, a Singapore-based
senior vice president at Moody’s, which rates the country A1, four
levels below its top Aaa. “Their banks have injected so much credit in
a short time,” he said in an Oct. 12 phone interview.
Ratings companies say China’s economic growth masks weaknesses because
it has been sustained by a $586 billion government stimulus package
and record new loans this year of $1.3 trillion. The country’s GDP
will expand 9 percent in 2010, versus 1.7 percent for Japan, the
Washington-based International Monetary Fund predicts. China’s economy
will grow to $5.3 trillion, surpassing Japan’s output of $4.7
trillion, IMF figures show.
‘Weakness Lurking’
Moody’s is evaluating whether there is “weakness lurking in the
banking sector” after the lending jump, Byrne said. Kim Eng Tan, an
S&P analyst in Singapore, said China’s stimulus may spur an increase
in local-government debt.
“China’s reported financial attributes do appear strong,” he wrote in
an e-mailed response to questions. “However, these have to be balanced
against less obvious but important weaknesses.”
Fitch isn’t “contemplating” an upgrade until the nation’s exports
recover, James McCormack, the head of sovereign debt ratings for Asia
and the Pacific in Hong Kong, said in an interview. Exports fell at
the slowest pace in nine months in September, dropping 15.2 percent
from a year earlier to $115.9 billion, according to the customs
bureau.
‘Good News’
“A lot of the good news supporting China is pretty much all priced
in,” said Kenneth Akintewe, who helps manage $138 billion at Aberdeen
Asset Management Plc in Singapore. “The eternal question now is: How
much further can it go?”
Aberdeen said the best opportunities are in China’s local- currency
debt market, which the company is awaiting a license to access.
“China is talking about more currency flexibility, but talk is one
thing, and it would be nice to see some more meaningful action,” he
said.
Speculation about an upgrade comes as China starts to open its local-
currency debt market to global investors.
The government has five bonds denominated in dollars, one in euros and
one in yen. Five of the six for which Bloomberg has data have produced
profits this year for an average return of 2.7 percent, with three
outpacing 2008’s performance.
The nation’s overseas bonds total $4.3 billion, less than a fifth of
the Philippine government’s $22 billion in outstanding foreign
securities. Including corporate bonds, China has $43.5 billion of
international debt as of June, according to the Bank for International
Settlements in Basel, Switzerland.
Foreign Investors
As of September, 78 foreign entities, including UBS AG and Morgan
Stanley, were permitted to invest another $15.7 billion in local-
currency debt and stocks, according to China’s State Administration of
Foreign Exchange data. China has said it plans to increase that to $30
billion with additional investment licenses.
The government denies foreigners access to the rest of its yuan-
denominated bonds, which totaled the equivalent of $1.35 trillion in
March, almost double 2006’s year-end sum, BIS figures show.
China plans to complete its first auction of yuan bonds in Hong Kong
this month, to raise the equivalent of $880 million. Demand has been
“quite strong,” said Tse Kwok Leung, head of the economic research
division at Bank of China Ltd.’s Hong Kong branch. Bank of China, the
nation’s third-largest lender, and mainland financial companies also
have sold the equivalent of $4.7 billion in local-currency bonds in
Hong Kong since July 2007.
Lower Costs
China’s foreign-currency debt was upgraded to its current levels of A1
by Moody’s in July 2007, A+ by Fitch in November 2007 and A+ by S&P in
July 2008. Japan is rated Aa2, AA and AA, respectively.
Since China’s last upgrade, the cost of insuring its bonds has fallen
from as high as 2.90 percentage points in October to today’s 0.68
point, the sharpest drop since the contract started trading in 2003.
Initially created to protect against defaults, swaps also are used to
speculate on credit quality.
DBS Asset Management, a unit of Singapore’s largest bank, said state-
owned banks’ dollar debt is worth buying, including China Development
Bank’s 4.75 percent note due in 2014, which yields 3.70 percent
according to data compiled by Bloomberg. It also recommends seeking
access to yuan bonds to profit from exchange-rate appreciation.
Currency Bets
“This year it has been fairly straightforward to make money from
dollar credits,” said Desmond Soon, who helps manage about $21 billion
at DBS Asset in Singapore. “Next year, the story will be migration
towards currency bets.”
The median forecast in a Bloomberg survey of 18 currency strategists
predicts the yuan will climb 3 percent to 6.63 by the end of 2010.
Demand for Chinese bonds will surge as the government opens the local
market to overseas investors, said Hideo Shimomura, who helps oversee
$55 billion as chief fund investor at Mitsubishi UFJ Asset in Tokyo,
part of Japan’s largest bank. It now holds only Chinese and Hong Kong
bonds denominated in U.S. and Hong Kong dollars.
“People will rush into the market because the currency might
strengthen,” Shimomura said. “China is becoming almost the same as
industrialized countries, so the rating must be upgraded.”
Upgrade Prospects
Rajeev De Mello, the head of Asian bonds in Singapore for Western
Asset, is buying corporate debt to bet that China will sustain growth.
He has bonds of Xinao Gas Holdings Ltd., the gas distributor partly
owned by the World Bank, and Sino-Forest Corp., which operates forest
plantations in nine Chinese provinces.
“The nation is definitely on track for an upgrade,” said De Mello,
whose company oversees $513 billion of debt. “The government is
pushing growth. That means a bigger infrastructure buildup.”
He also holds the debt of Agile Property Holdings Ltd., a Hong Kong-
traded developer of real estate in China, and Galaxy Entertainment
Group Ltd., which owns the StarWorld Hotel and Casino in Macau.
“The market for dollar corporate bonds is a very active, and we’ve
seen trading volume up a lot this year,” said Doris Chen, a credit
analyst in Hong Kong at SJS Markets Ltd., a brokerage based in the
city that specializes in high-yield Asian debt. “There is still a
strong interest.”
To contact the reporter on this story: Wes Goodman in Singapore at
wgoo...@bloomberg.net; Lilian Karunungan in Singapore at at
lkaru...@bloomberg.net.
Last Updated: October 16, 2009 02:19 EDT
bademiyansubhanallah
Big Gains by Yuan Could Destabilize China, ADB Economist Says
By Bloomberg News
Oct. 16 (Bloomberg) -- China would risk instability by letting the
yuan appreciate excessively, the Asian Development Bank cautioned
after the U.S. Treasury Department criticized the currency’s lack of
flexibility.
“We should not push hard for China to appreciate the currency too
fast,” Yolanda Fernandez Lommen, chief China economist for the ADB,
said in a phone interview in Beijing today. “We don’t want to see
China, the third largest economy in the world, unstable. We don’t want
to see 20 percent of the world’s population in an unstable
environment.”
The rigidity of China’s currency and an acceleration in the nation’s
buildup of foreign-exchange reserves should be “corrected” to help
ensure a stronger, more balanced global economy, the Treasury
Department said in a semiannual report to Congress. China’s Commerce
Ministry said yesterday that the nation would stick to a “gradual”
approach on currency reform, moving at its own pace.
The Manila-based ADB makes loans to underdeveloped countries to
promote social and economic growth.
“We were so worried when exports started to decline in China and some
of the export-related factories in coastal areas started to close down
and unemployment and migrant workers became an issue,” Lommen said.
“And we were so concerned all over the world that China might collapse
because exports were fading.”
China’s yuan has held steady against the dollar since July 2008,
helping exporters as the financial crisis slashed demand, after a 21
percent appreciation in the previous three years. Foreign-currency
reserves swelled to a record $2.273 trillion in the third quarter, a
report showed this week.
“It’s not in the interest of anyone that China collapses and a not
careful, a wide, appreciation of the currency will affect badly the
economy,” Lommen said. “It’s something that has to be done slowly.”
To contact the reporters on this story: Kevin Hamlin in Beijing at
kha...@bloomberg.net
Last Updated: October 16, 2009 05:36 EDT
chhotemianinshallah
EVENT: The Road to Copenhagen: Perspectives on Brazil, China and India
Posted on October 19, 2009 by Brazil Institute
The Brazil Institute, Woodrow Wilson International Center for
Scholars,
Environmental Defense Fund and Ronald Reagan International Trade
Center
Invite you to a panel discussion on
The Road to Copenhagen:
Perspectives on Brazil, China and India
Monday, October 26th – 3:30 to 5:30 PM,
Ronald Reagan International Convention Center
Pavilion Room, 2nd floor
Please find directions to the venue at the end of this post
RSVP to amanda...@wilsoncenter.org
Simultaneous translation will be provided
Featuring
Speakers: Marina Silva, Senator for the Brazilian Amazon state of
Acre; Kenneth G. Lieberthal, Director, John L. Thornton China Center,
Brookings Institute; Raymond E. Vickery Jr., Senior Vice-President,
Albright Stonebridge Group.
Moderators: Paulo Sotero, Director, Brazil Institute, Woodrow Wilson
Center; Stephan Schwartzman, Director for Tropical Forest Policy,
Environmental Defense Fund.
As we approach the December 2009 United Nations Framework Convention
on Climate Change conference in Copenhagen, the newly industrializing
countries of Brazil, China and India debate internally what efforts
they are prepared to make to curb the increase of their carbon
emissions. Home of the world’s largest forest, Brazil resists
internationally-established mandatory emissions cuts but is committed
to drastically reduce deforestation, its principal source of carbon
emissions. Hungry for energy to fuel its expanding economy, China,
the largest carbon emitting country, has recently emerged as a leader
in technologies for a lower carbon economy, including cleaner-burning
coal. And India, whose emissions are still among the lowest in the
world, but with a fast expanding economy and the desire to bring
energy to its growing population, works to position itself as a “deal
maker, not a deal breaker” in Copenhagen.
The evolving domestic debates and international posture of these three
emerging powers on climate change will be the subject a conference
jointly sponsored by the Brazil Institute of the Woodrow Wilson
International Center for Scholars, the Environmental Defense Fund, and
the Ronald Reagan International Trade Center. Marina Silva, a leader
of the Brazilian environmental movement and former Minister of
Environment of Brazil, recently left the Workers Party and is seen as
a potential Green Party candidate for the Brazilian presidential
elections of 2010. Kenneth G. Lieberthal, preeminent China scholar,
served as Special Assistant to the President for National Security
Affairs and senior director for Asia on the National Security Council
from August 1998 to October 2000. Raymond E. Vickery Jr. is widely
known for his work promoting U.S.-India economic cooperation and
served as Assistant Secretary of Commerce for Trade Development, where
he launched the U.S.-India Commercial Alliance. He is a former Wilson
Center Public Policy Scholar.
This event will take place at Pavilion Room of the Ronald Reagan
International Trade Center.
FIND MAP FOR PAVILION ROOM HERE
If taking Metro
Go to Federal Triangle on the Orange/Blue line. Walk straight ahead
once exiting the station. Go up the escalators to the Ronald Reagan
Plaza. You will see Aria Restaurant to your right. Walk straight ahead
through the Plaza and on the other side you see a building entrance.
Enter the building there; clear security. Walk down the hall make a
right then proceed down the hall to the business office on your left.
There is a sign on the corner that indicates where the elevator is to
your left. Take it to 2nd floor.
bademiyansubhanallah
Brazil Struggles to Reach Consensus in Preparation for Copenhagen
Climate Meeting
Posted on October 15, 2009 by Brazil Institute
Vannildo Mendes-O Estado de São Paulo, 10/14/09
The Minister of Justice, Tarso Genro, commented this Wednesday on the
current struggle in the Brazilian government between “developers” and
“environmentalists.” Genro sided with Brazil’s Minister of
Environment, Carlos Minc. In an interview, Genro said that he approved
Minc’s goals to reduce deforestation by 80% by 2020 and stabilize the
levels of carbon emission: “They [the goals] are reasonable and they
have my support. I think that this is the destiny of humanity – a
development model with sustainability. I am a man of sustainable
development.”
In a long meeting, last Tuesday, President Lula, Minc, and Chief of
Staff Dilma Rousseff could not reach an agreement about the position
Brazil’s should adopt in upcoming climate negotiations in Copenhagen
this December. The main point of disagreement rested in estimating the
projection of economic growth. Minc adapted his goals expecting 4% of
economic growth per year; Dilma disagreed and demanded that the goals
of carbon reduction take into account growth rates of 5% or 6%.
quarta-feira, 14 de outubro de 2009, 13:14
Tarso apoia metas de Minc para preservação do meio ambiente
Ministro considerou 'positiva' a polêmica dentro do governo, porque
reflete debate que existe na sociedade
Vannildo Mendes, da Agência Estado
BRASÍLIA - O ministro da Justiça, Tarso Genro, comentou nesta quarta-
feira a queda-de-braço que travam, dentro do governo,
"desenvolvimentistas" e "ambientalistas", tomou o partido do ministro
do Meio Ambiente, Carlos Minc. Em entrevista no Ministério da Justiça,
Genro aprovou as metas formuladas pelo ministro do Meio Ambiente de
redução do desmatamento em 80% até 2020 e congelamento das emissões de
gás carbônico nos padrões de 2005: "São razoáveis e têm o meu apoio.
Eu acho que esse é o destino da humanidade - um desenvolvimento com
sustentabilidade. Sou um homem do desenvolvimento sustentável."
Em demorada reunião, na última terça-feira, com o presidente Lula,
Minc e a ministra-chefe da Casa Civil, Dilma Rousseff, não conseguiram
chegar a um consenso sobre a posição que o Brasil deverá apresentar,
em dezembro, na reunião mundial de Copenhague (Dinamarca) sobre
mudanças climáticas. O ponto principal de divergência foi a projeção
de crescimento da economia. Minc traçou suas metas para um cenário no
qual a economia cresceria 4% ao ano; Dilma discordou e exigiu que as
metas de redução das emissões de gases poluentes levassem em conta uma
previsão de crescimento de 5% a 6% da economia.
Tarso Genro, anunciou que, como ministro da Justiça, continuará dando
força à Polícia Federal no combate ao desmatamento e a outros crimes
ambientais. "Vou dar força a esse polo de atuação e mobilizar a
Polícia Federal, a Polícia Rodoviária Federal e a Força Nacional de
Segurança Pública nessa tarefa.".
O ministro considerou "positiva" a polêmica dentro do governo, porque,
no seu entender, reflete um debate que existe na própria sociedade. "O
importante é que estamos no bom caminho nessa questão", disse Genro,
referindo-se à política do governo brasileiro de equilibrar
desenvolvimento e sustentabilidade.
Ele fez uma ressalva: "De outra parte, nós não podemos ter uma visão
idealista no sentido de defender o improvável, como, por exemplo,
marcar data para o desmatamento zero. Aí, seria uma
irresponsabilidade, uma promessa para não ser cumprida."
O ministro da Justiça disse também, referindo-se ao embate dentro do
governo: "Sempre que a coisa empata, quem arbitra é o presidente Lula,
a quem nós todos estamos subordinados." Genro deu as declarações após
empossar os novos integrantes do Conselho Nacional de Segurança
Pública (Conasp).
chhotemianinshallah
Prediction: China Accelerates Beyond Lucky 8%
Vivian Wai-yin Kwok, 10.20.09, 06:13 AM EDT
China is expected to announce a nearly 9% GDP growth figure on
Thursday.
HONG KONG -- Prior to an official announcement of China's economic
growth figures on Thursday, central government leaders, state media,
economists, and even stock investors, all expect the figures to show
that the Chinese economy has expanded nearly 9% in the third quarter.
Speaking at a business summit in Nanning, a southern city in China,
Vice Premier Li Keqiang said that the Chinese economy had been growing
faster every month and the overall recovery had been improving, Xinhua
News reported Tuesday.
Other state-owned media are busy this week reporting the
positiveoutlooks of various Chinese officials. Li's comment, the most
optimistic from Beijing's leaders, further convinced investors that
the Chinese economy had fully bounced back from the global financial
crisis.
The news lifted the Shanghai Composite Index by 1.5% to 3,084.45 as
Chinese investors have been paying close attention to the words which
Chinese leaders used to describe the economy. Li's positive speech,
without any cautions that the recovery might stimulate inflation,
convinced market observers that the central government will not
tighten its monetary policy or rein in its fiscal stimulus in the
short run.
China's National Bureau of Statistics will release the country's third-
quarter gross domestic product and other economic indicators on
Thursday.
BOA Merrill Lynch expects the results to show that China has grown
9.2% in the third quarter on yearly basis, up from 7.9% in 2Q09.
"Fixed investment should stay elevated, given sustained momentum in
the property sector and infrastructure investment. Retail sales,
underpinned in part by robust auto sales, could edge up to 15.5% year
to year from 15.4% in August," BOA Merrill Lynch said in a research
report, adding that the upcoming data should support its view that
China's economic recovery continues to solidify, despite the drag from
a still-contracting export sector.
Economists polled by Reuters expect annual GDP growth to have
accelerated to 8.9 % in the third quarter, its fastest in four
quarters.
Zhao Jinping, a researcher with the Development Researcher Centre
under the State Council, and Wang Tongsan, a senior economist with the
Chinese Academy of Social Sciences, as well as several government
researchers, told various state media that China's GDP might have
risen by nearly or even more than 9% in the third quarter from a year
earlier.
In a research note released Tuesday, Macquarie Group has revised up
its real GDP forecasts for China to 10.3% in 2010 from 8.9%
previously. "This is a result of the recovery in the global trade
cycle, and surging liquidity flows," the research report said.
Thomson Reuters contributed to this article.
chhotemianinshallah
The Economy’s 90/10 Rule
Posted: October 20, 2009 at 5:07 am
Economists spend nearly all of their time now trying to figure out
whether the recovery will stay on course and if GDP in the US will
recover at 4% or 5% rate next year. They reason that if things go that
well then business activity will provide employment for those without
jobs and that rising IRS receipts from enterprises and individuals
will begin to re-pay the deficit.
Most experts can give a long list of critical indicators and data that
will guide any predictions of how the economy will perform over the
next several quarters. Housing and consumer spending are on most
lists. So are earnings and industrial output.
This list of data that is tracked for most forecasts is long and
complex, as are the models used to interpret them.
There are only two essential figures that will decide in large part
whether the economy will continue to recover or not. One is whether
unemployment will go over 10% and stay there for two quarters and the
other is whether crude will rise above $90 and stay there for the same
period. The period in both cases is the first two quarters of next
year.
The majority of economists still believe that the recovery that is
beginning now is a “jobless recovery” like the two before it. The idea
is nonsense. Neither of the previous two recessions or any of those
before them in the period since WWII has been as harsh or as long as
this one. Consistently high unemployment is not the only problem. The
fact that there are so few open jobs compound the negative effects of
joblessness tremendously. Corporations are in no rush to get back into
the hiring business and small companies, pressed for cash and new
customers, are even less likely to add jobs.
It is nearly forgotten that oil was $147 just last July. The price
collapsed with the economy. The relatively brief stay that crude had
above $100 did cause havoc in major sectors of international business
including airlines, autos, and petrochemicals. There is no way to tell
how badly these industries and others would have been damaged if crude
had stayed historically high for a much longer stretch of time. The
airline business would have been ruined. Most industries that rely on
fuel or oil-based chemicals would have done very badly and probably
have faced staggering losses.
The consumer would have been even worse off, in most cases, if oil
stayed well above $100. Two income households with two commuting
adults could easily have faced an extra $300 or $400 in gas bills at
$3.50 a gallon. That is enough to wipe out the discretionary income in
most households. In case either of those working adults lost his or
her job, a family would probably face the loss of a home. The costs of
a number of other essentials from heating oil to petro-based consumer
goods would be passed on to consumers. The effects are incalculable
but the extent of the damage would be beyond what many households
could handle and remain solvent.
Last summer showed that both businesses and consumers can hold on for
a while if crude prices are extraordinarily high, but a protracted
period of two quarter or longer would be much different.
Crude prices have hit $80. Analysts believe that demand in most major
nations, particularly China and the US, the two largest consuming
countries, will rise with the economy. China’s economy may continue to
expand at an impressive rate even if GDP in America stagnates. Crude
supply does not show any sign of increasing now or early next year.
OPEC has not indicated that it will move its production targets at
all. Cartel members probably see some benefit, even if it is only
short term, to crude oil prices that are closer to $100 than they are
to $50. OPEC certainly did little to relieve the pressure on oil
consuming economies when prices spiked up in July.
It is nearly certain that the economy in both America and abroad
cannot whether long periods of high unemployment and high energy
price. Some experts would argue that rising unemployment cuts crude
demand. That is only true if the US is looked at in isolation. Oil
supply and demand only rely modestly on American consumption now. The
number of large oil consuming and producing nations is higher than
they have ever been. The life of crude oil prices no longer goes hand-
in-hand with US business activity.
The odds of a new recession in America are astronomically high if oil
trades above $90 and unemployment stays above 10% for any period of
time.
Douglas A. McIntyre
bademiyansubhanallah
Niall Ferguson: The Dollar Is Finished And The Chinese Are Dumping It
Joe Weisenthal|Oct. 20, 2009, 2:50 PM | 5,646 |48
Economic historian Niall Ferguson warns that China's love affair with
the dollar is fading faster than anyone realizes.
TechTicker: "The idea they don't have anywhere else to go or would
shoot themselves in the foot if there were a steep decline in the
dollar or appreciation of their currency reassures many people in
Washington ‘we can relax'," he says. "An appreciation of the renminbi
may reduce value of their international reserves but increases the
value of every other asset the Chinese own," most notably the
commodity assets they have been buying all over the world.
China's "current strategy is to diversify out of dollars and into
commodities," Ferguson says. Furthermore, China's recent pact with
Brazil to conduct trade in their local currencies is a "sign of the
times."
Perhaps most importantly, China's massive stimulus program is helping
to generate internal consumption in the People's Republic, meaning
local manufacturers are less dependent on exports. Because of the
"rapid growth" of Chinese domestic consumption, Ferguson predicts
China's international trade surplus could be gone by next year.
bademiyansubhanallah
China Trade Rebounds In September
Vincent Fernando|Oct. 14, 2009, 8:31 AM | 159 |
China's trade is rebounding and there could be more to it than simply
a "China bubble". The country's exports are being fuelled by
international demand, with Europe, the U.S., and Japan as the
country's top three export destinations.
September exports beat expectations by falling 20.1% year over year on
a seasonally-adjusted basis, yet rising 6.3% month on month at the
same time. Fourth quarter figures are expected to show year on year
growth due to an easier comparison with last year's downturn.
China's trade strength says good things about inventory build in
developed economies.
Caijing: The export recovery is being propelled by the need for
developing countries to restock depleted inventories, as well as
Christmas orders, Long Guoqiang, an economist at the Development
Research Center of the State Council, told Caijing on Oct. 14.
The restocking cycle is likely to run into the fourth quarter, while
Christmas orders generally peak in August and September, Long said.
The New York Times provides an excellent visualization of the trade
situation, which is now starting to rebound given the September
decline was lower than data through June, and since in the fourth
quarter China is expected to report export growth.
bademiyansubhanallah
http://www.bloomberg.com/apps/news?pid=20601086&sid=aex4NXE25Y0E
Brazil to Impose Tax on Foreign Inflows, Mantega Says (Update3)
By Adriana Brasileiro and Andre Soliani
Oct. 19 (Bloomberg) -- Brazil will impose taxes on purchases by
foreign investors of real-denominated, fixed-income securities and on
purchases of stocks, Finance Minister Guido Mantega said.
The measures are being taken “to avoid an excess speculation in the
stock market and in capital markets,” Mantega told reporters in Sao
Paulo.
The real has gained 35 percent since the beginning of the year, the
best performer amid the 16 most traded currencies tracked by
Bloomberg. The currency has gained 5.3 percent in the past month.
The central bank started purchasing dollars on May 8 in a bid to
temper the real gains. The currency weakened 0.5 percent to 1.7177 per
U.S. dollar at 4:28 p.m. New York time.
Earlier today, the Brazilian real was cut to “underweight” from
“overweight” in RBC Capital Markets’ model portfolio on concern the
government would impose new taxes.
Today’s announcement reverses last year’s decision to end such taxes.
In October 2008, President Luiz Inacio Lula da Silva eliminated a tax,
known locally as IOF, of 1.5 percent on foreign investments in certain
financial products and of 0.38 percent on foreign-currency loans.
“Excess global liquidity could lead to an over-appreciation of the
real,” Mantega said. That would threaten to hurt the country’s
exporters and further fuel demand for imports.
Foreign investor will pay a 2 percent tax when they enter the country
to buy stocks or fixed-income securities.
In the short term, the measure may help keep the real above 1.7 per
U.S. dollar, said Antonio Madeira, chief economist at MCM Consultores
Associados Ltd. As the market creates new investment strategies to
bypass the tax, the impact in the currency market will be lost, he
said.
Mantega said the measures may not lead the real to weaken, but are
designed to slow its appreciation and prevent the creation of bubbles
in Brazilian markets. “These are to prevent excesses,” he said.
Latin America’s biggest economy has rebounded from its first recession
since 2003, powered by local demand. Industrial production expanded in
the past eight months, companies resumed hiring and retail sales have
returned to pre-crisis levels.
Gross domestic product, after contracting in the last quarter of 2008
and first quarter this year, expanded 1.9 percent in the April-June
period from the previous quarter, beating analyst expectations for a
1.7 percent rise. Mantega has said the economy can grow 5 percent next
year.
Brazilian central bank President Henrique Meirelles said in an
interview last week that emerging-market currencies that have been
appreciating as economies recover from a global recession may become
volatile as markets overprice assets.
‘Unnecessary Volatility’
Central banks need to “alert investors and markets of the risks of
exaggeration in the formation of prices, which can lead to future
corrections and create unnecessary volatility,” Meirelles said in the
interview in New York.
The real’s gain this year is the largest among the world’s 16 most-
traded currencies. The Bovespa stock index rose 1.9 percent today and
is up 80 percent this year.
The currency is gaining even as the central bank buys dollars daily in
a bid to stem the advance.
Brazil’s international reserves have risen by $26.1 billion this year
to $232.2 billion on Oct. 16, according to data compiled by the
central bank.
Analysts estimate the real will end the year at 1.75, according to the
median of 20 forecasts compiled by Bloomberg.
Brazilian economists raised their year-end forecast for the real to
1.7 from 1.76, according to a weekly central bank survey of about 100
analysts published today.
“We don’t want short-term speculation, we don’t want exaggerations,”
Mantega said.
To contact the reporters on this story: Adriana Brasileiro in Rio de
Janeiro at abras...@bloomberg.net; Andre Soliani in Brasilia at
asol...@bloomberg.net
Last Updated: October 19, 2009 17:59 EDT
bademiyansubhanallah
Meirelles May Keep Brazil Rate at Record 8.75% to Gauge Rebound
By Joshua Goodman and Andre Soliani
Oct. 21 (Bloomberg) -- Brazil’s central bank will probably keep the
benchmark interest rate unchanged at a record low today as it gauges
the strength of the economic rebound before unwinding stimulus
measures.
Policy makers will leave the benchmark rate at 8.75 percent, according
to all 42 analysts surveyed by Bloomberg. After five straight cuts
this year, the eight-member board led by bank President Henrique
Meirelles paused in September, saying the current Selic rate was
“consistent” with a non- inflationary recovery.
Investors are betting that policy makers will have to raise rates
early next year as the labor market improves and growth forecasts
trend higher. For now, annual inflation remains under control, having
fallen for the seventh straight month in September to 4.34 percent.
That should ease pressure on Meirelles to begin raising rates before
deciding whether to leave his post in March to seek elected office.
“There’s been an undeniable improvement in the growth outlook and that
will force the central bank to bring hikes forward by a few meetings,”
said Neil Shearing, emerging market analyst for Capital Economics Ltd.
in London. “For the next six to nine months though the outlook should
be neutral.”
Shearing this week increased his forecast for growth in Brazil next
year to 5 percent from a previous forecast of 3 percent, after the
economy added enough jobs in the first nine months of the year to
erase the nearly 800,000 layoffs incurred during the global financial
crisis.
Recovery Bets
Rising employment and stronger domestic demand led the International
Monetary Fund and analysts including Itau Unibanco Holding SA to
revise their growth forecasts. Analysts covering Latin America’s
biggest economy expect gross domestic product to expand 4.8 percent
next year, according to an Oct. 16 central bank survey. In July, they
were forecasting 3.5 percent.
Brazil emerged from its first recession since 2003 in the second
quarter, as GDP expanded a faster-than-expected 1.9 percent in the
April-June period from the previous quarter. Finance Minister Guido
Mantega said 2010 growth may reach 5 percent.
As growth accelerates, investors are upping their bets that the
central bank will have to raise rates sooner even as inflation is
forecast to remain below the government’s 4.5 percent target until at
least 2011, according to the same central bank survey.
The central bank will lift the interest rates to 9.02 percent by
January, according to estimates based on overnight interest rate-
futures contracts.
‘Excessively Cautious’
The yield on the interest rate future contract for January 2011
delivery has risen 21 basis points since the beginning of the month to
10.44 percent. A basis point equals 0.01 percentage point.
“The market is being excessively cautious,” said Roberto Padovani,
chief strategist at Banco WestLB in Sao Paulo. “The correct stance,
which the central bank will take, is to wait for more information
before telegraphing its next move.”
After slashing the Selic rate 5 percentage points since January,
Padovani expects the central bank to begin slowly raising rates in the
second quarter back to their neutral long- term level of about 10
percent.
The nascent recovery in Latin America’s biggest economy still faces
potential threats, said Shearing. Most important, he said, is the
possibility that the global rebound that has pushed up prices for
Brazil’s commodity exports and led to a return of capital inflows may
peter out in 2010.
Today’s meeting will be the first since Meirelles last month joined
the Brazilian Democratic Movement Party in his home state of Goias.
Succession, Unwinding
Shearing said that the increasing likelihood that Meirelles will step
down before April to run for elected office should not have any
immediate impact on monetary policy. The bigger issue, he says, is who
President Luiz Inacio Lula da Silva will name as his replacement.
JPMorgan Chase & Co expects Meirelles to start raising interest rates
in January to tame inflation expectations as Brazil approaches October
2010 presidential elections.
Morgan Stanley said Oct. 19 that with fiscal policy likely to remain
expansionary during the election cycle, rate increases could begin
“sooner rather than later.”
Brazil won’t be the first emerging market to lift rates next year as
faster economic growth and higher commodity prices stoke inflation,
Nick Chamie, head of emerging markets research at RBC Capital Markets,
said in an Oct. 19 report.
“It is time to position for the partial unwinding of monetary stimulus
in emerging markets,” Chamie said.
He expects China, India, Indonesia and South Korea to raise interest
rates in the first quarter of next year. Brazil, Chile, Mexico and
Colombia would push up borrowing costs in the second quarter.
To contact the reporter on this story: Joshua Goodman at
jgood...@bloomberg.net; Andre Soliani in Brasilia at
asol...@bloomberg.net
Last Updated: October 20, 2009 23:00 EDT
bademiyansubhanallah
BM&FBovespa to Propose Alternatives to ‘Faulty’ Investment Tax
By Paulo Winterstein
Oct. 21 (Bloomberg) -- BM&FBovespa SA, Latin America’s biggest
exchange, plans to press the Brazilian government for alternative ways
to curb gains in the currency as a tax on investments sent stocks to
the biggest drop in four months.
The benchmark Bovespa index tumbled 2.9 percent yesterday after
Finance Minister Guido Mantega announced a 2 percent tax on foreign
purchases of fixed-income securities and equities. The levy, higher
than a 1.5 percent tax scrapped a year ago that didn’t cover stocks,
will hurt Brazilian investors and small- and medium-sized companies,
according to Carlos Kawall, chief financial officer of Sao Paulo-based
BM&FBovespa.
“We need to do everything we can from now on, talking to the
government, getting support from everyone who sees that this is
something that is definitely faulty and could be altered,” Kawall, a
former Treasury Secretary who served under Mantega in 2006, said
during a conference call yesterday.
International investors, who account for about a third of
BM&FBovespa’s stock trading, will likely buy American depositary
receipts, punishing smaller Brazilian companies who can’t afford the
costs of listing overseas, Kawall said. The fact that money raised
through ADRs is seen as direct investment and isn’t taxed, while local
capital raising will be subject to the levy, is one of the
“inconsistencies” in the regulation, he said.
Mantega said Oct. 19 that the measure seeks to curb gains in the real,
which has strengthened the most of any major currency this year on the
back of higher commodity prices, a credit rating upgrade from Moody’s
Investors Service and forecasts for faster economic growth.
Reducing Efficiency
The tax will reduce the efficiency of Brazil’s capital markets and
“divert” money needed to finance the country’s economic growth,
according to a statement yesterday signed by BM&FBovespa and groups
representing Brazil’s pension funds, publicly traded companies and
investment banking industry.
“So who gets hurt? We get hurt and that’s what markets are suggesting
today,” Kawall said on yesterday’s call. “Local small- and medium-cap
companies get hurt because they cannot deal with the cost of issuing
ADRs. The local investor gets hurt because they might have less
liquidity here over time if this measure prevails.”
Small-Cap Drop
The BM&FBovespa Small Cap Index tumbled 3.4 percent yesterday, the
most since March. The real slid 2.1 percent to 1.7547 per dollar, the
lowest in two weeks. BM&FBovespa plunged the most since June 22,
falling 8.4 percent to 12.41 reais.
The iShares MSCI Brazil Index, a U.S. exchange-traded fund tracking
the country’s stocks, plunged 3.8 percent. It was little changed in
New York after-hours trading yesterday.
The Finance Ministry hasn’t been contacted by BM&FBovespa, a
spokeswoman said from Brasilia. She declined to comment until the
ministry was contacted by the exchange.
The tax will likely have a negative effect on the exchange’s average
daily trading volume, or ADTV, according to Jorg Friedemann, a Bank of
America Corp. analyst in Sao Paulo.
It is “difficult to quantify impacts,” Friedemann wrote in a note to
clients dated Oct. 19. “We note that in April 2008, one month after
the implementation of the same tax over fixed income securities, ADTV
of the derivatives segment declined 11 percent.”
Last year’s drop in trading volume was more a result of investor risk-
aversion after the collapse of Bear Stearns Co. than the effects of
the financial tax, Kawall said on the call. Bear Stearns was forced to
submit to an acquisition at a fraction of its market value in March
2008 after customers and lenders fled on speculation of a cash
shortage.
The tax likely won’t hurt 2010 trading volume, which should expand 32
percent compared with 2009, Federico Rey Marino, a Buenos Aires-based
analyst with Raymond James & Associates Inc., wrote in a note dated
yesterday.
About one-third of revenue from stock trades and 20 percent of revenue
from mercantile and derivatives trading come from international
investors, Kawall said. Volume will continue to grow this year, he
said, declining to give specific estimates.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo
at pwinte...@bloomberg.net.
Last Updated: October 20, 2009 22:00 EDT
bademiyansubhanallah
Real’s Strength May Challenge Brazil Through 2011, Moody’s Says
By Camila Fontana
Oct. 20 (Bloomberg) -- Brazil may have difficulty stemming the real’s
appreciation through 2011, said Mauro Leos, a credit officer for Latin
America at Moody’s Investors Service.
The real’s 31 percent rise against the U.S. dollar in 2009 prompted
the government to announce yesterday a 2 percent tax on foreign
purchases of fixed-income securities and stocks starting today.
“It will be very difficult for authorities to contain the pressure,”
Leos said in an interview today in Sao Paulo. “There will be
implications on foreign exchange in 2010, possibly 2011.”
Finance Minister Guido Mantega said yesterday the measure seeks to
curb gains in the real, which has strengthened the most of any major
currency this year, helped by higher commodity prices, a credit rating
upgrade from Moody’s and forecasts for faster economic growth. A
stronger currency makes the country’s exports more expensive in dollar
terms.
Brazil’s credit rating was raised to investment grade by Moody’s on
Sep. 22, after Latin America’s largest economy built record foreign
reserves and averted a prolonged recession amid the global financial
crisis.
Leos says faster economic growth and investment inflows will create
“temptation” for the government, which can lead to “unwillingness to
make fiscal adjustments.” The fiscal response to high growth is a
major consideration for credit ratings, he said.
Brazilians will elect a new president in the end of 2010. “The
investment grade does not depend on who is going to be the next
president.” Leos said. “But we need to see the fiscal priorities of
the new government.” He said he doesn’t anticipate any rating action
by Moody’s towards Brazil until the first half of 2011.
To contact the reporter on this story: Camila Fontana Correa in Sao
Paulo at cfon...@bloomberg.net.
Last Updated: October 20, 2009 12:03 EDT
bademiyansubhanallah
Lula’s Party Takes ‘Big Step’ to Win PMDB’s Support for 2010
By Andre Soliani
Oct. 20 (Bloomberg) -- Brazil’s largest political party and President
Luiz Inacio Lula da Silva’s Workers’ Party took a “big step” toward an
alliance for the 2010 presidential election, the head of Brazil’s
lower chamber Michel Temer said.
Brazil’s Democratic Movement Party, known as the PMDB, and the
Workers’ Party plan to present a single presidential ticket in 2010 as
part of an accord reached today, Temer said. Under the preliminary
agreement, the Workers’ Party would choose the presidential candidate
and the PMDB would pick the running mate, Temer said after dinning
with Lula and leaders of both parties.
A coalition with the PMDB in the presidential elections would boost
the chances of Cabinet Chief Dilma Rousseff, Lula’s likely choice to
succeed him. She fell to third place in a survey of voter preferences
published Sept. 22.
“We took a big step today toward a solid commitment” to run with a
single ticket in 2010, said Temer, a PMDB lawmaker. The preliminary
agreement will need approval of party officials to move forward.
The PMDB’s backing will give Lula’s candidate more TV time because in
Brazil broadcast time is assigned based on the number of lawmakers
parties have in Congress, said Carlos Lopes, a political analyst at
Brasilia-based SantaFe Ideias Consultoria.
“The PMDB can bring votes -- they have the biggest number of mayors,
governors and lawmakers in Brazil,” Lopes said. “The party is able to
deliver its message to the farthest places in Brazil.”
Sao Paulo state Governor Jose Serra leads the presidential race,
according to the Sept. 22 Ibope poll, while lawmaker Ciro Gomes is in
second place. Serra would get 34 percent of votes in a runoff
election, whereas Gomes would have 17 percent and Rousseff would get
15 percent of the votes. In June, Serra had 38 percent of votes,
Rousseff had 18 percent and Gomes had 12 percent.
Ibope surveyed 2002 Brazilians aged 16 or older, in 142
municipalities, on Sept. 11 and Sept. 14. The survey was commissioned
by the National Industry Confederation and has a margin of error of 2
percentage points.
To contact the reporter on this story: Andre Soliani Costa in Brasilia
at asol...@bloomberg.net
Last Updated: October 20, 2009 21:46 EDT
bademiyansubhanallah
Sesa to More Than Triple Ore Output on China Demand (Update1)
By Debarati Roy
Oct. 21 (Bloomberg) -- Sesa Goa Ltd., India’s biggest iron- ore
exporter, will more than triple production because of a rebound in
prices and demand from China and diversify into making steel, Managing
Director P. Mukherjee said.
Output will be increased to 50 million metric tons from the current 15
million tons in the next two to three years, P. Mukherjee said in an
interview. The Goa-based company is increasing production at its
existing mines and looking to acquire reserves in India and overseas,
he said.
China, the world’s biggest consumer of iron ore, may buy 20 percent
more than forecast next year, the Canberra-based Australian Bureau of
Agricultural and Resource Economics said on Sept. 22. China may import
637 million tons of ore in 2010, compared with a June prediction of
529 million tons.
“The market is stabilizing,” Mukherjee said late yesterday, after the
company announced a 51 percent drop in second-quarter profit. Prices,
which fell to an average $50 a ton in the quarter from $95 a year ago,
are improving, he said.
Sesa shares fell as much as 8.9 percent to 316.60 rupees and traded at
329.55 rupees as of 10:05 a.m. in Mumbai. The stock has more than
quadrupled this year, compared with a 78 percent gain in the benchmark
Sensitive Index.
Steel Slabs
Sesa Goa has shortlisted some locations to set up a 1 million ton
plant to produce steel slabs in the eastern state of Jharkhand,
Mukherjee said, without giving investment and time details. Steel
slabs are made into steel plates and strips.
Profit declined to 1.66 billion rupees ($36 million) in the three
months ended Sept. 30 from 3.37 billion rupees a year earlier, Sesa
Goa said in yesterday’s statement. Revenue fell 32 percent to 6.32
billion rupees, while volume sales rose 17 percent, Mukherjee said.
Iron-ore swaps for settlement this month traded at $85.25 a ton
yesterday, according to SGX AsiaClear over-the-counter prices from
Singapore Exchange Ltd.
China’s steelmakers are buying more iron ore, their main raw material,
as the government implements a $586 billion stimulus spending. The
economy is forecast to expand 8.2 percent this year, compared with a
March estimate of 7 percent, the Asian Development Bank said last
month, easing concern that the nation may slow raw-material imports.
The Baltic Dry Index, a measure of shipping costs for commodities,
rose on rising shipments of iron ore to China. The index tracking
transport costs on international trade routes gained 66 points, or 2.4
percent, to 2,832 points on Oct. 20, according to the Baltic Exchange.
Charter rates for capesize ships, most commonly used to haul iron ore,
added 5.4 percent to $44,268 a day.
To contact the reporter on this story: Debarati Roy in Mumbai at
dr...@bloomberg.net.
Last Updated: October 21, 2009 01:18 EDT
bademiyansubhanallah
Asian Stocks Fall on Earnings, Crude-Oil Prices; Dollar Rises
By Masaki Kondo and Patrick Rial
Oct. 21 (Bloomberg) -- Asian stocks fell for the first time in three
days, led by technology and material shares, as China Mobile Ltd. and
China Telecom Corp.’s profit disappointed some investors and oil
prices dropped. The dollar rose.
China Mobile, the world’s biggest phone carrier by market value, and
China Telecom, the nation’s biggest fixed-line phone carrier, lost at
least 1.4 percent in Hong Kong. Cnooc Ltd., China’s largest offshore
oil producer, fell 1.8 percent as the Wall Street Journal reported the
company’s nine-month profit slumped. Samsung Electronics Co. retreated
2.3 percent in Seoul after AT&T Inc. sued the company and other liquid-
crystal- display makers for collusion to fix prices.
The MSCI Asia Pacific Index lost 0.3 percent to 120.84 as of 3:43 p.m.
Tokyo time. The gauge has surged 71 percent from a five-year low on
March 9 amid signs the global economy is rebounding from the worst
slowdown since World War II. The index sank by a record 43 percent in
2008.
“Investors haven’t forgotten the nightmare we had last year and are
quick to sell when they get anxious,” said Kiyoshi Ishigane, a
strategist at Mitsubishi UFJ Asset Management Co., which oversees
about $56 billion in Tokyo. “Company profits are gradually returning,
but we need to discern whether the stock price already reflects the
improvement or not.”
Japan’s Nikkei 225 Stock Average was little changed, while the Hang
Seng Index dropped 0.4 percent in Hong Kong. South Korea’s Kospi Index
declined 0.3 percent as Samsung SDI Co., the world’s second-largest
maker of lithium-ion rechargeable batteries, slumped 3.9 percent on
brokerage downgrades.
Toshiba Recommendation
Among stocks that rose today, Toshiba Corp., the world’s No. 2 maker
of flash-memory chips, gained 4 percent in Tokyo after CLSA Ltd.
recommended the shares. Japan Airlines Corp., Asia’s biggest carrier,
jumped 6.8 percent after the Nikkei newspaper said a government panel
proposed more funding.
Futures on the Standard & Poor’s 500 Index dipped 0.1 percent. The
gauge sank 0.6 percent yesterday after a Commerce Department report
showed housing starts rose 0.5 percent in September, missing
economists’ estimates.
The dollar strengthened amid lower demand for higher- yielding assets.
The dollar traded at $1.4936 per euro from $1.4945 in New York
yesterday, when it touched $1.4994, the weakest level since August
2008. The yield on 10-year Treasuries fell one basis point to 3.33
percent.
China Mobile fell 1.4 percent to HK$77.65 in Hong Kong. Third-quarter
net income rose 2.6 percent to 28.6 billion yuan ($4.2 billion),
compared with the 29 billion yuan anticipated by analysts in a
Bloomberg News survey.
China Mobile Profit
“It will be very tough for people to get very excited about this set
of results,” said Wendy Liu, who rates China Mobile shares “hold” at
Royal Bank of Scotland Group Plc in Hong Kong. “Is a 2 percent
increase that much different from a 2 percent decline? It will be
tough for people to say they have turned around a corner.”
China Telecom fell 2.1 percent to HK$3.74 after its third- quarter net
income tumbled 47 percent to 2.98 billion yuan, missing the 3.16
billion yuan expected by analysts.
Cnooc lost 1.8 percent to HK$12.24 as crude oil futures in New York
declined 0.6 percent to $78.65 a barrel in after-hours trading. The
company’s nine-month pretax profit fell 46 percent from a year earlier
on lower oil prices, the Wall Street Journal reported. Oil futures are
at about half the intraday record of $147.27 reached in July 2008.
Sumitomo Metal Mining Co., Japan’s largest nickel producer, dropped
1.6 percent to 1,561 yen. The London Metals Index, a measure of six
metals including copper and nickel, fell 1 percent yesterday,
retreating from a two-month high.
Liquid Crystal Display
Samsung, the world’s biggest maker of liquid-crystal displays, lost
2.3 percent to 735,000 won. LG Display Co. dropped 0.5 percent to
32,750 won, while Taiwan’s AU Optronics Corp. slid 2 percent to NT
$32.05.
AT&T, the biggest U.S. phone carrier, filed a complaint in federal
court, claiming the companies were among those that “formed an
international cartel illegally to restrict competition” in the LCD
market in the U.S.
“The material impact on the panel stocks may be limited, since the
lawsuit can drag on for several years,” said Bevan Yeh, who helps
manage about $1.2 billion at Prudential Financial Securities
Investment Trust Enterprise in Taipei. “It’s inevitable that there
will be some knee-jerk reaction.”
Better-than-estimated economic and earnings figures have driven the
MSCI Asia Pacific Index’s seven-month rally. Stocks in the gauge are
priced at 23 times estimated earnings, compared with an average of 18
times in the past three years.
Central Bank Action
This month, reports showed the U.S. service industries grew for the
first time in a year and an export decline slowed in China. Amid signs
the global economy is strengthening, Australia’s central bank
unexpectedly raised its benchmark rate on Oct. 6 and has signaled
further increases in coming months.
The U.S. housing report from yesterday helped drag down Nissan Motor
Co., which counts North America as its biggest market, by 1 percent to
666 yen. Advantest Corp., the world’s biggest maker of memory-chip
testers, sank 1.6 percent to 2,405 yen. James Hardie Industries NV,
the biggest seller of home siding in the U.S., lost 0.7 percent to A
$7.52 in Sydney.
In Seoul, Samsung SDI fell 3.9 percent to 137,000 won. Daishin
Securities Co. and Meritz Securities Co. downgraded the stock even
after the company reported a 48 percent surge in third-quarter
earnings.
Toshiba gained 4 percent to 546 yen in Tokyo. CLSA raised its
investment rating on the stock to “buy” from “underperform,” citing
rebounding demand for flash memory.
Japan Airlines jumped 6.8 percent to 126 yen, the sharpest gain in the
Nikkei 225. A government panel recommended the airline receive 300
billion yen ($3.3 billion) in private and public funds, more than an
earlier proposal for 150 billion yen, the Nikkei newspaper reported.
To contact the reporter for this story: Masaki Kondo in Tokyo at
mko...@bloomberg.net; Patrick Rial in Tokyo at pr...@bloomberg.net.
Last Updated: October 21, 2009 03:06 EDT
bademiyansubhanallah
bademiyansubhanallah
Yuan Forwards Retreat as Gains Judged Excessive; Bonds Advance
By Bloomberg News
Oct. 21 (Bloomberg) -- China’s yuan forwards dropped for the first
time in seven days as some investors judged excessive the gains that
yesterday drove the 12-month contract to its highest level in more
than a year. Government bonds advanced.
The contract declined the most since June as a technical indicator
suggested a change of direction was likely and Brazil announced new
taxes on foreign investors’ purchases of the nation’s stocks and
bonds, cooling demand for emerging-market assets. Bets on renewed yuan
appreciation were stepped up since the start of last week after a
report showed a slump in China’s exports moderated in September.
“The dollar-yuan forwards rebounded sharply overnight, partly because
of some profit-taking positions after a lot of selling in the previous
week,” said Patrick Bennett, a Hong Kong-based foreign-exchange
strategist at Societe Generale SA. “We’ve seen some profit-taking
across all emerging markets after Brazil announced a tax on foreign
capital inflows.”
Twelve-month non-deliverable yuan forwards slid 0.36 percent to 6.6015
per dollar as of 11:53 a.m. in Shanghai, implying appreciation of 3.4
percent from the yuan’s exchange rate of 6.8272. The contract touched
6.5440 yesterday the strongest level since Aug. 1, 2008.
The 14-day relative strength index for the contract has been below 30
for more than a week, a threshold that signals to some investors that
gains have been too rapid and a reversal of direction is probable.
Faster Growth
Expectations for yuan appreciation may recede further in the coming
week should China’s economic growth for the third quarter fall short
of market estimates, Bennett said. A government report tomorrow will
show gross domestic product rose 9 percent from a year earlier in the
third quarter, the biggest increase since the same period of 2008,
according to the median forecast of economists surveyed by Bloomberg.
China’s exports fell 15.2 percent last month, the smallest drop in
nine months, the customs bureau reported on Oct. 14.
Government bonds advanced today after the finance ministry sold seven-
year bonds at a lower yield than was forecast by analysts and
traders.
The ministry sold at least 26 billion yuan ($3.8 billion) of the notes
at an average yield of 3.4 percent, two basis points less than the
median estimate in a Bloomberg News survey of 12 finance companies.
“The auction results fell below our forecast a bit, which reflected
investors’ demand for medium-term debt was fairly strong,” said Huang
Yanhong, a bond analyst at Bank of Nanjing Co., a Chinese lender
partly owned by BNP Paribas SA.
The yield on the 2.71 percent note due November 2015 dropped three
basis points to 3.41 percent, and the price of the security rose 0.16
per 100 yuan face amount to 96.20, according to the National Interbank
Funding Center.
--Belinda Cao. Editors: James Regan, Sandy Hendry
To contact Bloomberg News staff for this story: Belinda Cao in Beijing
at +86-10-6649-7570 or lc...@bloomberg.net
Last Updated: October 21, 2009 00:13 EDT
chhotemianinshallah
Associated Press
China shares fall ahead of 3Q growth figures
Associated Press, 10.21.09, 06:17 AM EDT
SHANGHAI --
Chinese shares fell Wednesday ahead of reports on the economy's third
quarter performance after hitting a two-month high a day earlier.
The benchmark Shanghai Composite Index lost 13.86 points, or 0.5
percent, to 3,070.59. The Shenzhen Composite Index for China's second
exchange shed 0.4 percent to 1,069.56.
Upbeat forecasts for third quarter economic data, due Thursday, helped
push share prices higher in recent days. But investors were cautious
ahead of the announcement, which is expected to show China's economy
expanded by nearly 9 percent in July-September.
"The fluctuation in the market showed investors are growing hesitant.
Maybe their appetite has been too high and actual growth might not be
as great as expected," said Huang Xiangbin, an analyst for Cinda
Securities in Beijing.
Resource shares led the decline after oil prices retreated below $80
per barrel in Asia. PetroChina Ltd., Asia's largest oil and gas
producer, lost 0.8 percent to 13.69 yuan and China Petroleum &
Chemical Corp. was down 0.6 percent to 12.10 yuan.
China Shenhua Energy Ltd., the country's biggest coal producer,
dropped 0.6 percent to 36.08 yuan, and Yanzhou Coal Mining Co. fell
2.5 percent to 18.97 yuan.
But financials and real estate heavyweights gained.
Industrial & Commercial Bank of China Ltd., China's biggest commercial
lender, edged up 0.6 percent to 5.14 yuan, while Bank of China Ltd.
added 0.2 percent to 4.12 yuan
China Vanke Ltd., the country's biggest developer, rose 1 percent to
12.53 yuan, and China Merchants Property Dev. Co. jumped 1.2 percent
to 18.90 yuan.
In currency markets, the yuan strengthened to 6.8273 to the U.S.
dollar, up from Tuesday's close of 6.8309.
Copyright 2009 Associated Press. All rights reserved. This material
may not be published broadcast, rewritten, or redistributed
chhotemianinshallah
Thomson Reuters
China says economy has 'consolidated', outperformed
10.21.09, 07:17 AM EDT
BEIJING, Oct 21 (Reuters) - The Chinese economy performed more
strongly than expected in the first nine months of the year, the State
Council, or cabinet, said on Wednesday.
A statement issued after a regular meeting said the economic recovery
had been 'consolidated'.
That marks a departure from the language used in recent months by the
cabinet, which stressed that the economy was not yet on a solid
footing.
With the economy perking up, it was important to attach policy
priority to managing inflation expectations in coming months as well
as securing stable and quite fast economic growth, the statement
said.
China releases third-quarter GDP data on Thursday at 0200 GMT.
(Reporting by Zhou Xin and Simon Rabinovitch; Editing by Alan
Wheatley)
(If you have a query or comment on this story, send an email to
news.feed...@thomsonreuters.com)
COPYRIGHT
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including by framing or similar means, is expressly prohibited without
the prior written consent of Thomson Reuters.
Neither the Subscriber nor Thomson Reuters warrants the completeness
or accuracy of the Service or the suitability of the Service as a
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taken in reliance thereon.
chhotemianinshallah
China economic growth accelerates
Investment in factories has risen
China has said it is on track to hit its growth target of 8% this
year, after the economy grew 8.9% from a year ago in the third
quarter.
The figure is up from the 7.9% rate seen in the previous quarter and
is the country's fastest GDP growth since the third quarter of last
year.
Separate reports show that industrial production and retail sales also
accelerated in September.
The economy grew by 7.7% in the nine months to September.
Retail sales growth was 15.1% in the first three quarters of the year,
the National Statistics Bureau said.
China's car market has become the world's largest, with sales up 34%
to 9.66 million vehicles in the first nine months of the year.
Government investment
At the end of 2008 the Chinese government announced a 4 trillion yuan
($586bn; £354bn) stimulus plan involving increased spending on
infrastructure, such as rail and roads, to boost the domestic economy
as exports slumped.
Latest figures show that investment, accounting for nearly 88% of GDP
growth earlier this year, is playing a vital role in China's growth.
Investment in factories, construction and other fixed assets rose by
one-third in the first nine months of the year to a record 15.5tn
yuan.
But factory owners say that in many cases, while the volume of goods
they are producing has risen, the prices customers are prepared to pay
for them are lower than before the financial crisis.
Unemployment is still high in many areas, and some factory workers are
reported to be working shorter hours and earning less.
The next challenge for policy makers is to begin to withdraw elements
of the stimulus plan, and to reduce the huge outflows of credit the
country's state owned banks have issued, without damaging economic
recovery.
As the stimulus is withdrawn, the hope is that demand from the private
sector, from consumer spending and eventually from renewed demand for
China's exports, will keep the country's growth rate stable.
bademiyansubhanallah
China May Pare Stimulus to Control Inflation as Growth Picks Up
By Bloomberg News
Oct. 23 (Bloomberg) -- Chinese officials may be preparing to reduce
monetary stimulus that propelled growth to 8.9 percent in the third
quarter and led the world out of recession.
The economic expansion the government reported yesterday exceeded the
7.9 percent gain in the previous three months and pushed stocks lower
around the world on concern the central bank may tighten monetary
policy. On the eve of the release, the cabinet signaled that inflation
concern will play a greater role in setting policy.
China’s government may set a lower loan target for 2010 after new
lending reached a record $1.27 trillion in the first nine months of
2009, UBS AG said. Policy makers may raise interest rates in the first
quarter of next year, before the U.S., Japan and euro area, according
to ING Groep NV.
“Monetary stimulus is becoming unnecessary,” said Kevin Lai, a Daiwa
Institute of Research economist in Hong Kong. “The risk is that this
aggressive monetary expansion will spill into stocks and property,
creating a bubble and making a hard landing for the economy more
likely.”
China may raise banks’ reserve requirements, or the proportion of
deposits that lenders are required to set aside as reserves, as early
as the end of December, according to Lai and analysts at UBS and
Credit Suisse Group AG. Currently, the ratio for the nation’s biggest
banks is 15.5 percent, down from last year’s high of 17.5 percent.
The People’s Bank of China may begin boosting rates in the first
quarter of 2010, Lai said. The benchmark one-year lending rate is at a
five-year low of 5.31 percent.
Stocks Drop
The MSCI Asia Pacific stock index fell 1 percent yesterday to 119.31,
and China’s Shanghai Composite gauge slid 0.6 percent. In Europe, the
Dow Jones Stoxx 600 benchmark was down 1.5 percent as of 4:15 p.m. in
Frankfurt yesterday.
China’s State Council said Oct. 21 that policy focus in coming months
will need to “balance” the need to aid growth with “the need to better
manage inflationary expectations.” That was a shift from a statement
in June that didn’t mention price pressures.
Central bank Governor Zhou Xiaochuan said this month that China’s
“moderately loose” monetary policy, adopted to combat the impact of
the global recession, was exceptional and probably unprecedented for
the nation.
“Even after the Asia financial crisis, when we adopted proactive
fiscal policies, we maintained a prudent monetary policy stance,” Zhou
said at a lecture in Beijing, referring to the 1997-1998 turmoil. “As
a transitional economy with rapid growth, China’s monetary policy
should always lean towards relatively tight.”
Currency Outlook
Besides pressing banks to lend, China has countered an 11- month slide
in exports by rolling out a two-year $586 billion stimulus package and
preventing the yuan from appreciating against the dollar, to aid
exporters.
Barclays Capital analysts said yesterday that currency appreciation
may play a role in policy tightening next year as the government tries
to control inflation.
Contracts based on the yuan’s value in a year imply an appreciation of
China’s currency of 2.8 percent, compared with 0.5 percent two months
ago. Twelve-month non-deliverable forwards touched 6.5440 per dollar
on Oct. 20, the highest level since August 2008.
Yesterday’s data showed industrial production climbed in September by
the fastest pace in more than a year as tax cuts and subsidies spurred
record vehicle sales in the nation for General Motors Co. and
Volkswagen AG. Retail sales recorded the biggest year-on-year increase
since December, excluding seasonal distortions.
Growth Composition
For the first nine months of 2009, the economy grew 7.7 percent, with
domestic demand accounting for all of the advance. Consumption,
including household spending, contributed 4 percentage points and
investment added 7.3 percentage points. Trade shaved off 3.6
percentage points from the total.
The government may limit new lending to 7 trillion yuan for all of
2010, compared with 8.67 trillion yuan already this year, said Wang
Tao, an economist at UBS in Beijing.
The 68 percent gain in the Shanghai Composite Index this year and an
11 percent jump in property prices in the southern city of Shenzhen in
September from a year earlier highlight the risk of asset-price
bubbles.
Qin Xiao, chairman of China Merchants Bank Co., said this week that
it’s “urgent” for the central bank to tighten policy to avert bubbles,
in comments published in the Financial Times.
Estimates Raised
Royal Bank of Scotland Group Plc raised yesterday its forecast for
China’s economic growth this year to 8.5 percent from 8 percent and
UBS, Barclays Capital, Credit Suisse and HSBC Holdings Plc also
increased estimates.
The acceleration in China’s growth affirmed it as the world’s fastest
growing major economy. The U.S. Commerce Department is projected to
report next week that American gross domestic product rose at an
annual rate of 3.1 percent in the third quarter from the previous
three months.
Policy makers in the U.S. and Europe have given no sign they are yet
ready to raise rates. The Federal Reserve said last month it aims to
keep the benchmark rate near zero “for an extended period.” European
Central Bank Governing Council member Axel Weber said yesterday there
is “surely no need to rush for the exit” of monetary stimulus.
China’s acceleration will help pull along the Asian region and benefit
the emerging-market currencies, according to Sebastien Barbe, head of
emerging markets research and strategy at Calyon, the investment-
banking unit of Credit Agricole SA.
“The strong numbers are good news for China and also for the rest of
Asia, as China’s demand fuels the rebound of regional trade,” Barbe
said in a note to clients yesterday.
To contact the Bloomberg News staff on this story: Kevin Hamlin in
Beijing at kha...@bloomberg.net; Li Yanping in Beijing at
yl...@bloomberg.net
Last Updated: October 22, 2009 12:01 EDT
bademiyansubhanallah
Who Believes China’s ‘Bernie Madoff’ Data?
By Barry Ritholtz - October 22nd, 2009, 9:15AM
I don’t want to spend too much time on this, but I have to laugh every
quarter when we get economic data out of China.
China’s economy expanded at the fastest pace in a year as stimulus
spending and record lending growth helped the nation lead the world
out of recession. Gross domestic product rose 8.9 percent in the third
quarter from a year earlier, the statistics bureau said in Beijing
today. The median of 34 estimates in a Bloomberg News survey was for a
9 percent gain. Separate reports showed industrial production and
retail sales accelerated in September.
The dollar headed higher and Asian stocks dropped on concern that the
acceleration in China’s growth will spur policy makers to consider
withdrawing record fiscal and monetary stimulus in coming quarters.
Qin Xiao, chairman of China Merchants Bank Co., this week said it’s
“urgent” for the central bank to tighten policy to avert asset-price
bubbles.
I look askance at the US economic data — skewed, massaged, modeled to
within an inch of its life. But its mostly transparent, with the
statisticians readily available for further discussion.
The Chinese data looks to me as if it is issued by edict — they are
non-transparent, well managed, and remarkably consistent over time.
I wonder if Beijing’s accountant is an 80-year-old with offices in New
City and Florida . . .
Source:
China’s Economy Grows 8.9%, Fastest Pace in a Year
Kevin Hamlin; Li Yanping
Bloomberg, Oct. 22 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aktHmtKQaKO8
bademiyansubhanallah
News Tidbits: China China Economic Growth Accelerates
China says that it is on track to hit its growth target of 8% this
year, after the economy grew 8.9% from a year ago in the third
quarter. The figure is up from the 7.9% rate seen in the previous
quarter and is the country's fastest GDP growth since the third
quarter of last year (hat tip: BreakingNewz). Separate reports show
that industrial production and retail sales also accelerated in
September. Retail sales growth was 15.1% in the first three quarters
of the year, the National Statistics Bureau said. China's car market
has become the world's largest, with sales up 34% to 9.66 million
vehicles in the first nine months of the year. At the end of 2008 the
Chinese government announced a 4 trillion yuan (US$586 billion)
stimulus plan involving increased spending on infrastructure, such as
rail and roads, to boost the domestic economy as exports slumped.
Latest figures show that investment, accounting for nearly 88% of GDP
growth earlier this year, is playing a vital role in China's growth.
Investment in factories, construction and other fixed assets rose by
one-third in the first nine months of the year to a record 15.5tn
yuan. However, unemployment is still high in many areas, and some
factory workers are reported to be working shorter hours and earning
less.
China's Push For Oil In Gulf Of Mexico Puts U.S. In Awkward Spot
A Chinese company's gambit to drill for oil in U.S. territory
demonstrates China's determination to lock up the raw materials it
needs to sustain its rapid growth, wherever those resources lie (hat
tip: BlackElectorate.com). The state-owned China National Offshore Oil
Corp. is negotiating the purchase of leases owned by the Norwegian
StatoilHydro in U.S. waters in the Gulf of Mexico, the source of about
a quarter of U.S. crude oil production. China's push to enter U.S.
turf comes four years after CNOOC's $18.5-billion bid to buy Unocal
Corp. was scuttled by Congress on national security grounds. Whether
CNOOC's second attempt to lock up U.S. petroleum assets will trigger a
similar political backlash remains to be seen. The U.S. could also
find it difficult to rebuff China when it has long welcomed other
foreign investment in the gulf. In addition to StatoilHydro, foreign
oil companies with stakes include Spain's Repsol, France's Total,
Brazil's Petrobras, British oil giant BP and the Dutch-British
multinational Shell. The U.S. risks undercutting its foreign policy
goals as well. Concern is growing over China's aggressive investment
in oil-rich nations with anti-U.S. regimes, including Iran and Sudan.
Denying China a shot at drilling in U.S. waters would only encourage
China to make deals in volatile regions given that new oil reserves in
stable, democratic nations are getting harder to find. China, the
world's third-largest economy, is the world's second-largest consumer
of oil.
bademiyansubhanallah
The China Growth Story Doesn't Stop
By: Wall Street Window Friday, October 23, 2009 10:13 AM
China's economy is growing vigorously and at rates which are still
impressive even in today's down global economy. At one point, during
the Chairman Mao years, the Chinese economy was considered a basket
case. Economic liberalization over the last couple of decades,
however, has unleashed an appetite on the part of the country in terms
of imports and exports that a significant.
Chinese leadership maintains that the country's national economy is
growing at ever faster rates with each passing month, and there isn't
much evidence out there that they're not correct. China also seems to
be on the brink of passing Japan as the world's second-largest
economy, maybe by the year' end.
Gross domestic product or GDP in China increased by 7. 1% in the first
half of the year. This is quite impressive, given that every other
national economy around the world was really hit hard when the
economic downturn began to set in. Of the top 10 national economies,
China's is the only one to actually show an improvement in 2009.
Many economists and financial experts believe that the strength of the
Chinese economy will lead the rest of the world's markets out of the
current slump. For China, it's important that this occur, as there are
several economies -- especially that of the United States -- that
China needs in order to sell its services and manufactured goods.
Realizing this, both China and the United States have sought to work
closely together in order to stabilize economic and strategic actions
that will hopefully have the effect of improving and creating growth
in the US sector. Americans are the largest consumers of Chinese
goods, so it's important to the Chinese government that this effect
manifests itself soon.
Just about every China watcher these days states that the country is
going to a lot of trouble to be a responsible partner in terms of
global economic activities. This is quite different from the days when
Chairman Mao ran the country with an iron fist. Additionally, the
Chinese economic stimulus program ran by the government has proven to
be a great success, highlighting how effective a stimulus can be when
done properly
...and I am Sid Harth
chhotemianinshallah
In Depth October 22, 2009, 5:00PM EST
China's Economy: Behind All the Hype
Despite an impressive rebound, an innovation shortfall may hobble
sustainable growth
Brian Stauffer
By Dexter Roberts and Pete Engardio
This Issue
November 2, 2009
At the parade marking the 60th anniversary of the People's Republic of
China, tanks and missiles trundled past the Forbidden City and down
Beijing's Chang'an Avenue. Battalions of soldiers goose-stepped in
perfect unison. Overhead, fighter jets soared in tight formation.
But close on the heels of this military extravaganza came floats
highlighting a less bellicose side of China, what the leadership calls
"indigenous innovation." On one, a 10-foot-high microscope, giant test
tubes filled with blue liquid, and a white telescope signified China's
scientific and technological achievements. Another featured a replica
of a bullet train and a passenger jet to represent China's ambitions
in transportation. A green-energy float was studded with windmills and
oil rigs and flanked by hundreds of red-helmeted energy-industry
workers, each carrying a solar panel.
From a rostrum perched above the giant portrait of Mao Zedong at the
Gate of Heavenly Peace, President Hu Jintao watched over the
proceedings. "The Chinese people have stood up," Hu declared, quoting
Mao, who uttered those words at that very spot 60 years ago. The
country, Hu added, is "full of confidence in the bright prospects of
the great rejuvenation of the nation."
VINDICATION, FOR NOW
That sense of triumph permeates China these days. The mainland's quick
rebound from the worldwide financial meltdown seems to have vindicated
its brand of state-led capitalism. As the West struggles to recover,
China is on track for 8% growth this year and is about to overtake
Japan as the world's No. 2 economy and Germany as the No. 1 exporter.
Now the mainland is charging ahead in new industries, unveiling
homegrown airliners, electric cars, and high-speed trains.
But delve beneath the muscular statistics and hype about advances in
strategic industries, and China doesn't seem so prepared to catapult
into a role of global economic leadership. Experts familiar with
highly touted Chinese achievements such as commercial jets and high-
speed trains say the technologies that underpin them were largely
developed elsewhere. There is no Chinese Sony, Toyota, or Samsung on
the horizon. While Beijing's $586 billion stimulus package and a 150%
increase in bank lending have spurred impressive growth, "the
question," says Morgan Stanley (MS) Asia Chairman Stephen S. Roach,
"is the quality of that growth."
By Beijing's own admission, the economic model that has powered China
for three decades can no longer be counted on to move it forward. The
mainland has prospered largely through construction and by exporting
all manner of consumer goods churned out in low-wage factories;
workers parked their savings in state-run banks, which then loaned the
money to companies to make more stuff. But technology and managerial
knowhow came mostly from multinationals, and the costs—pollution,
decaying social services, and a yawning gap between the urban rich and
rural poor—were largely ignored. Though that model has fueled
phenomenal growth, Hu and others now call it "unbalanced" and
"unsustainable."
So in recent years, Beijing has been heralding a new economic vision.
The key elements: Grimy factories will give way to renewable-energy
industries and a growing service sector; Chinese consumers, rather
than stretched Americans and Europeans, will underpin demand; and
instead of churning out me-too goods for little profit, Chinese
companies are supposed to create innovative products based on home-
grown technologies.
As President Barack Obama prepares for his first state visit to the
mainland on Nov. 15 though, some economists are taking a skeptical
look at China's evolution. While Beijing has honored many of the
market-opening commitments it made to join the World Trade
Organization in 2001, promised reforms such as allowing greater
foreign investment in telecommunications and financial services have
stalled. Over the past three years a steady stream of directives
flowing from a raft of ministries and the National Development &
Reform Commission—successor to the old central planning agency—have
tightened the state's grip on the economy. In June, for example, the
commission ordered that wherever possible only goods made by Chinese-
owned companies be used in any project funded by the government.
The state's comeback is easy to spot. The vast majority of new loans
are now going to government-controlled enterprises, for instance,
while less than 20% end up at small and midsize firms, which tend to
be private, Standard Chartered Bank estimates. And in strategic
industries from wind turbines to nuclear power generators, Beijing is
favoring its national champions and trying to whittle down the role of
foreign companies. "They are rolling up the red carpet," says Joerg
Wuttke, president of the European Chamber in China, which recently
released a 584-page white paper arguing that China has hit the brakes
on opening its economy. Says a U.S. trade official: "China's focus
seems to have shifted from accelerating market reforms toward a more
state-controlled model. It is very worrying."
Besides aggravating trade frictions, the Communist Party's renewed
penchant for control could undermine China's competitiveness overseas.
Clamping down on the ability of foreigners to do business in China
would make life easier for Chinese companies at home; the downside is
that it would let them avoid honing the skills needed to succeed
outside the mainland. And funneling funds to state companies and
connected insiders leaves creative entrepreneurs starved for capital.
"The government wants to stimulate innovation and job creation but is
doing the opposite," says economist Xu Xiaonian at the China Europe
International Business School in Shanghai.
There are already signs that Beijing's policies are undermining the
transition to a more balanced economy that might propel growth around
the world. Over the past decade, consumer spending—what should be the
mainstay of a new Chinese economy—has slumped from 45% of gross
domestic product to 35% and now stands at about half the U.S. level. A
full 88% of this year's GDP growth, Morgan Stanley's Roach estimates,
will come from the usual source: fixed-asset investment in
infrastructure, real estate, and yet more production lines. In the
past two years, Chinese steel capacity has swelled by a third, and the
mainland's idle capacity this year will nearly equal the combined
steel output of the U.S. and Japan. "If anything, we are seeing a
retreat to the old formula of support for large-scale manufacturing
and exports," says David Hoffman, China managing director for the
Conference Board, a business group.
For a glimpse of what may lie ahead if China fails to transform its
economy, head to the southern city of Dongguan. The thousands of
factories in the Pearl River Delta industrial hub churn out
televisions, furniture, toys, and a seemingly infinite number of other
products for consumers worldwide. But with China's exports down 15% in
September—the 11th consecutive month of decline—Dongguan is reeling.
In the Changping district, once dubbed "little Hong Kong," shuttered
factories are overgrown with weeds. The karaoke bars and restaurants,
which once catered to the thousands of Hong Kong and Taiwanese
managers who have fled, are quiet. Sure, the economy of Guangdong
Province is on track for 9% growth this year, but that's due mainly to
massive government spending on public works, such as an airport
expansion and a nuclear power station. "What Guangdong is facing, all
of China is facing," says Wang Yiyang, vice-director of Guangdong's
development research center, an arm of the provincial government. "We
have to find new sources of competitiveness."
In response, Guangdong is launching a crash restructuring that the
provincial Party boss calls "emptying the cage and changing the
birds." Dongguan and eight other Delta cities are moving low-wage
factories into new industrial zones 50 miles or more to the north in
poorer parts of the province. Greener industries, such as
biopharmaceuticals, renewable energy, and information technology, are
to replace them. But hopes for a surge in foreign investment have been
dashed by the global recession. So Guangdong is courting state-owned
companies from elsewhere in China and pressing local enterprises to
become more innovative.
In pockets across the country, officials have made far more progress
toward the new economic vision. China is aggressively promoting wind
power, greener solid-state lighting, and high-speed trains. Shanghai,
Beijing, and dozens of other cities are building vast subway networks
to complement the highways already in place. To persuade citizens to
spend more and save less, Beijing is expanding public health care and
subsidizing small cars and electric appliances. Millions of small
private companies have sprouted, and hulking state industries that
provided cradle-to-grave benefits have been downsized. Cities and
provinces are boosting research spending, retraining workers, and
courting investment in new industries such as biotechnology, which is
attracting top Chinese scientists from the U.S. "China's growth seems
unstoppable," says Rao Yi, a former Northwestern University
neuroscientist and now dean of Beijing University's life-sciences
school.
NO INCUBATOR OF INNOVATION
China has a long way to go, though, in innovation. The mainland has
dramatically boosted research spending and boasts the world's biggest
pool of science and engineering graduates. But aside from Internet
games, the country creates few breakthrough products, due in no small
measure to the perennial problem of rampant counterfeiting. China last
year exported $416 billion worth of high-tech goods. But subtract the
mainland operations of Taiwanese contract manufacturers and the likes
of Nokia (NOK), Samsung, and Hewlett-Packard (HPQ), and China is an
electronics lightweight. Beyond Tsingtao beer and low-end Haier
refrigerators, "China has zilch brand presence in the U.S.," says
Kenneth J. DeWoskin, director of the China Research & Insight Center
at Deloitte & Touche. Instead, most mainland companies mine existing
technologies and compete on high volume and low cost in commodity
goods.
Take cars. For decades, Beijing has sought to shore up the industry.
But Volkswagen (VLKAY), Toyota, Buick, and other foreign brands
dominate in midsize sedans and SUVs. Domestic carmakers such as BYD
Auto, Geely, and Chery have thrived by developing subcompacts that
sell for as little as $4,400. They're now China's great hope in
electrics and hybrids. Beijing, meanwhile, is ramping up support. To
meet a goal of producing 500,000 such vehicles by 2011, the Science &
Technology Ministry plans to put 60,000 electric buses and taxis on
the streets and offer subsidies to buyers in 13 cities.
BYD Auto has generated the most buzz. The Shenzhen company this year
expects to sell 400,000 cars, and its parent is one of the world's
largest producers of lithium-ion batteries for mobile phones, PCs, and
other gadgets. Next year it plans a U.S. launch for the e6, a five-
seat electric plug-in with a claimed range of 249 miles. BYD's stock
has rocketed so high that fabled investor Warren E. Buffett's 10%
stake already has earned him a paper profit of more than $1 billion.
BYD vows to be China's largest carmaker by 2015 and overtake Toyota as
the world's leading brand by 2025, producing 10 million vehicles a year
—half of them for export.
BYD has a long way to go. This year it will be lucky to match its 2008
export record of 8,000 cars, all sold in Russia and developing nations
from Africa to Latin America. It says it has delivered only about 100
of its $22,000 F3DM plug-in hybrids in China this year—far from its
sales target of 4,000. BYD's biggest advantage? It's not design,
cutting-edge technology, or state-of-the-art manufacturing. Instead,
it's a fairly conventional battery that BYD manages to produce
cheaply. "Making affordable products is key for the development of the
electric vehicle industry," says Henry Z. Li, BYD's general manager
for international sales. BYD declined a request to tour its factories,
but visitors to the company's plants say its batteries and electric
motors are hand-assembled by long lines of blue-uniformed workers
rather than the robots that have become standard in most of the
industry. Whether BYD or other Chinese carmakers are anywhere near
meeting European and U.S. safety regulations is another question. "In
mature markets the barriers are very clear and standards very high,"
says Yale Zhang, China director for auto consultancy CSM Worldwide.
WESTERN TECHNOLOGY INSIDE
Disassemble other widely hailed successes of indigenous innovation,
and there is little Chinese about them. Beijing has long craved its
own commercial aircraft industry, and its first offering—a 90-seat
commuter jet dubbed the ARJ21—is to hit the market next year. Next up
is the C919, a midrange plane with up to 190 seats that state-owned
Commercial Aircraft Corp. of China (Comac) unveiled on Sept. 9. The
airliner, scheduled for delivery in 2016, is intended as a direct
challenge to Boeing (BA) and Airbus.
Western experts familiar with Comac's planes say they're based on
older jets designed by McDonnell Douglas two decades ago, before the
U.S. company was acquired by Boeing. The avionics, engine, and other
key systems on the ARJ21, meanwhile, come from Western suppliers such
as Honeywell (HON), General Electric (GE), and Rockwell Collins (COL).
"China wants to be self-sufficient, producing everything itself," says
Nathan K. Smith, aerospace analyst at market research firm Frost &
Sullivan.
"But it simply doesn't have the capabilities to develop these aircraft
without Western technology." The prospect of Comac competing with
Boeing and Airbus outside China even two decades from now, says Smith,
"is a long shot." Comac declined interview requests.
Some Chinese industrial policies have flopped. Beijing has long viewed
semiconductor manufacturing as a key industry, for example, and eight
new silicon wafer plants—some heavily subsidized—have been built just
since 2005. The aim was to start out competing as low-cost contract
manufacturers for foreign chip design firms. But China's wafer
factories rely on technologies that are at least two generations
behind those of Taiwan, the U.S., Japan, and South Korea, and few have
ever been profitable. At the nadir of the recession last winter, 60%
of China's capacity sat idle. But with next-generation wafer plants
costing $3 billion and up, a major shakeout looms, says Len Jelinek,
semiconductor analyst for market research firm iSuppli. "Most Chinese
companies don't have the technology and the money to invest in
research and development to stay in the game," he says.
Of course, China has plenty of smart entrepreneurs who are steering
their companies in new directions. They're tapping the mainland's
engineering talent, stressing design, and reorienting old-line
manufacturing operations to unearth new opportunities. Guangzhou's
Devotion group typifies the shift. The 17-year-old company's primary
business—making huge diesel-fired boilers for factories and big
buildings—has been hit by the slowdown, rising fuel costs, and growing
government efforts to reduce air pollution. Sales plunged 45% in the
first half, and its Singapore-listed shares trade below their 2003
offering price.
So Devotion has shifted its focus to biofuels and the boilers that
burn them. Outside its headquarters are piles of broken wooden
pallets, containers filled with corn and rice husks, a patch of
elephant grass (a fuel source that can grow 10 feet high in a few
weeks), and a hulking refinery that turns such materials into biogas,
oil, and flammable pellets. Devotion offers to install boilers for
free and says it makes its money on long-term contracts to sell the
biofuels. The company says it now has 30 biofuel customers and aims to
triple sales, to $600 million, within five years, with most of the
increase coming from new-energy products and services. But with diesel
boilers accounting for 90% of sales, it will have to ride out tough
times. The biofuel business "is still small," concedes Devotion's
burly president, Ma Ge.
Given China's many signs of progress, it's easy to forget that it
remains an underdeveloped economy facing huge challenges. Yes, it has
an immense, youthful population, gifted entrepreneurs and scientists,
ambitious officials—and lots of money. So it's likely Beijing will
someday get the formula right. But China's economic reforms are now
three decades in the making. That's several years longer than Mao
Zedong and his loyalists spent imposing their extreme brand of
socialism. "Japan and South Korea took 30 years to make a similar
transformation" to an economy driven by innovation, consumer spending,
and services, says Guangdong Academy of Social Sciences economist Ding
Li. "Our expectations can't be too high." But expectations of China's
arrival as a superpower already are high both at home and abroad. The
longer Beijing waits to update its tired growth formula, the longer it
will take for China to fulfill that destiny.
2bed
Oct 24, 2009 7:16 AM GMT
(part 2) As a professional free journalist you must report everything
independently. Not only the first half! It is like a sport reporter
just comment the first half of a soccer match, without reporting the
second half and then saying the end result just based on the first
half of the match. For the people who do not have the chance to see
the second half night celebration of China's 60th anniversary, but are
interested, see the pictures on: http://www.skyscrapercity.com/showthread.php?t=614103&page=20
Link to this comment
2bed
Oct 24, 2009 7:09 AM GMT
It is funny why all the free media in the US, England, Germany, The
Netherlands, Belgium etc. just report the day parade celebration of
China's 60th anniversary. In my opinion it is just a formal first part
of the celebration. Many journalists just based on that to make a
quick conclusion on China's progress and its way how to celebrate.
HOWEVER, I have never read or see fully reports of the same free media
in all these countries about China's 60th anniversary second part
almost 2 hours long night celebration. In the more informal night
celebration you can really see the more creative, modern sight of
MODERN China. It perfect combines the biggest ever '3D' firework show
with a lot of songs and dance. It even exceeds by far the Beijing
Olympics opening ceremony. The climax was that President Hu and
premier Wen dancing together with the children and performers. Now I
am thinking: 1) are the western media really so 'free' in reporting
events, or 2) don't they have time and interest, or 3) are they just
selective on reporting news, only the negative things about China is
news, positive is propagande, or 4) they are afraid of China's
progress so they keep silence.
Link to this comment
Asian Beach
Oct 24, 2009 5:36 AM GMT
http://coolstuff.floristone.com/china-beach.html
Link to this comment
Chinese eat aborted babies
Oct 24, 2009 5:11 AM GMT
The Seoul Times confirmed that news with several vivid and appalling
pictures of human embryos fetuses being made into a soup for human
consumption. http://theseoultimes.com/ST/?url=/ST/db/read.php?idx=7333
Link to this comment
peace
Oct 24, 2009 4:54 AM GMT
Why the western medias never and want to report that don't want to
repeat what Chines leaders said for years in United Nations that the
China will not use the nuke first and will not use nuke to non-nuke
nations ???
Link to this comment
@Westerners
Oct 24, 2009 4:02 AM GMT
Terrorists are religious people who want to live a simple existence.
Terrorists are people who don't want modern technology to destroy the
earth by consuming natural resources at an alarming rate. Guess what?
The true terrorists to mother earth are Modern humans who are causing
global warming and speeding of the process of decay of nature.
Link to this comment
@hanyu choi
Oct 24, 2009 3:41 AM GMT
Parts of China was colonized..but not the whole country like
India.,that is besides the point..the point is Western colonization
had a tremendous impact on the downfall of imperial China. I still
can't believe the galls of Westerners killing innocent lives in the
middle east and yet lectures China about tibet in Asia.
Link to this comment
hanyu choi
Oct 24, 2009 3:30 AM GMT
Unlike India, China was never colonized by western powers.Althogh
Hong Kong, Macao,Shanghai,Qingdao, and a few other places were ruled
by western countries. All these were city-sized places.
Link to this comment
hanyu choi
Oct 24, 2009 3:16 AM GMT
Contrary to the popular belief that China depends on export,about 93%
0f China's gdp comes from domestic economy( infrastructure spending
+real estate construction+consumer spending)as of now. Export provides
only 7% of China's ecomomy.According to ANDY ROTHMAN, a chief
economist for CLSA OF HONG KONG,China can grow 6-9% a year without
help from export.Anybody who doubts this should read this week's
NEWSWEEK article nameed,6 MYTHS ABOUT CHIMA'S ECONOMY.
Link to this comment
@mulli
Oct 24, 2009 3:06 AM GMT
There shouldn't be ignorant humans like mulli exist on earth. You
should worry about Americans losing jobs overseas instead of worrying
about China starving. The biggest reason China starved was Western
colinization f*cked up the country..Westerners owe China an apology
instead of lecturing China about what is right or wrong.
mulli
Oct 24, 2009 2:09 AM GMT
How in the hell can China grow, when nobody is buying any thing. Also
there will be anarchy in this country, and when that happens, look out
India, Russia, and Japan they have 1.3 billion souls looking for food,
energy, etc...
Link to this comment
Simon
Oct 24, 2009 1:50 AM GMT
The biggest obstacle to growth in China and India is deep rooted
CORRUPTION. Their leaders and people do not even realize that
corruption is an impediment for long term progress. It is just as
simple as that. Everything else then becomes a non-issue.
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Rick
Oct 24, 2009 1:10 AM GMT
All, I think everyone can agree no matter what your backgrd knowledge
is on China there are some 'truism'. Here are some of them: 1) there
are alot of nations out there that would like to have grown at a rate
close to China's. 2) a nation with 1.3B pop will certainly encounter
potholes & bumps along the way to industrialization/modernization. 3)
even if China does NOT become #1 power in the world in 20-30 yrs she
will most likely be a huge force globally. 4) China's efforts with
80-90% of population being peasants/farmers still pretty awe
inspiring. Uneducated people tend to hold back their nation until they
are gone. 5) Please take that Chinese students are placing themselves
in the Top 10 in Math, Physics, computer Olympiads.
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hanyu choi
Oct 24, 2009 12:05 AM GMT
TO: JAMES, As I can see clearly that America is suffering from a near
fatal disfunctional democracy.Because special interest groupes
hijacked the political process for their own self-interest at the
expense of the general good of the country.You can talk about all the
freedom you want, while America as a nation gets poorer each year vis-
a-vis China in relative terms. GREAT BRITAIN was a very free country
at the beginning of the 20th century. But she was suffering from a
malfunctioning parliamentary democracy. Eventually power and wealth
passed to America.In my opinion, a great nation is not decided not by
how much freedom an individial has, but by an individual's willingness
to sacrifice his freedoms for the collective wellbeing of a country.
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2bed
Oct 23, 2009 10:53 PM GMT
I think the author is really desperate seeing China's economy still
growing, while the 'innovative' western economies all performing
relatively bad. As long as China's economy grows there is technical
progress. BTW any big city in China is more modern than the big cities
here in Europe.
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James
Oct 23, 2009 10:48 PM GMT
China indeed has advantage in central government control of
development. Imagine the efficiency of China 9 engineers/technocratsin
the central committee vs. US almost ~500 lawyers in congress in
deciding how and where to invest in the country future. However,
Americans' freedom and one law for all culture are the real asset that
China can't never surpass to become a great nation.
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wow
Oct 23, 2009 10:01 PM GMT
It is fun. every one pay attention about china. I think China is
inded become great nation.
Link to this comment
hanyu choi
Oct 23, 2009 9:08 PM GMT
I have a suggetion for you. Before you lol again, Why don't you read
this week's NEWSWEEK article named, 6 MYTHS ABOUT CHINA'S ECONOMY. One
of the myths was about China's export.If you read the article. It mght
increase your knowledge about Chhnna's export.
Link to this comment
hanyu choi Says
Oct 23, 2009 8:42 PM GMT
China has never depended on export for it's economic
growth.!!!!!!!!!!! LoL :)
Link to this comment
hanyu choi
Oct 23, 2009 8:17 PM GMT
To Karl: China has never depended on export for it's economic growth.
This year, exports are only 7% of China's gdp and last year it was
about 18% gdp. China's economy has always been domestically-driven.
Right now fixed asset invesment(infrastrutre spendlng+real estate
construction,about 53% gdp) and domestic consumer spending(about 40%
of gdp).Let's say China exports a 100 dollar cell phone to America. In
order to make the cell phone,China must buy 40 dollars worth of parts
from South Korea and another 30 doallars worth of parts from Taiwan.
After paying for the parts from these countries, China only gets 30
dollars out of the 100 dollars. So if Americans do not buy the cell
phone, it will hurt South Korea and Taiwan more than China. Only 18%
of China.s exports go to America,and about 20% go to EU. Most of
China's exports go to other Asian countries. This is why China's
ecomomy is doing well in spite of a steep downfall in exports. The
idea that China depends on exports for it's economic growth is the
most outrageous misconseption Americans have about China. By the way
my figures for the cell phone are not exact ones.
Karl
Oct 23, 2009 6:54 PM GMT
I believe that China's growth will stall in the months & years ahead
because it relies so heavily on America. The American consumer will
continue to lose purchasing power due to the economic climate, &
declining home values which attributed to much of the purchasing done
by Americans in the last 20 years. India might be a more stable
economy than China in the years ahead. Japan, America, & all of Europe
will struggle the most in the years to come. China will most likely
see a big slowdown soon. India is poised to become the superpower in
the years ahead, as long as FRAUD & CORRUPTION don't become the
backbone of its economy, as we saw in the USA over the past 2
decades.
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Ben Gee
Oct 23, 2009 6:48 PM GMT
People expect too much from China will probably be disappointed.
China had only 30 years of industrialization. When you compare China
to US, Europe,or Japan, China is 20-30 years behind.However, if you
compare China to India, middle east, or South America,that would be a
better comparison. Feeding 1.3 billion people in China is already a
miracle. Do not expect China to save the world, not yet. May be in
30-40 years.
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FriendofIndia
Oct 23, 2009 6:39 PM GMT
It is amusing, and surprising. It turns out that the World's
innovation super power is actually, India! In fact, virtually
everything the super power is India. We invented religion, by which
everyone in the world lives. We invented the caste system that puts
all the bankers at the top, and all the Joes at the bottom that was
adopted by all the super-power wannabes like the USA and the UK. We
invented the No 0 by which today virtually everyone counts, just
imaging that you cannot count today, let alone fly that satellite into
the sky. We invented outsourcing, I need to treat carefully here
because of the Bobs, Dantes and Joes are still teething about that.
Sigh, you can see everyday we come up with new inventions and they are
enthusiastically adopted by other peoples and countries, and we are
definitely no hype.
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hanyu choi
Oct 23, 2009 6:33 PM GMT
Only fools believe in Marxim now, which is one of the many half-baked
ideas that came out of the WEST.Chinese abandoned that b.s. 30 years
ago. As I said bfore, freedom has very little to do with innovation or
creativity. A lot of innovative technologies came out Nazi Germany
such as jet aircraft. We all know that The Nazies were very opressive.
Soviet Union was very innovative in weapons technology which was as
good as that of America. Galelio was very innovative and creative in
spite of the repressive Catholic Church. The ancient and medieval
China was not exactly a poster child for ideal democracy. But a lot of
inventions came out of China.
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jcage
Oct 23, 2009 6:14 PM GMT
I hope that Bloomberg fired most of BusinessWeek Asian crew since
their quality reporting leave much to be desired. They were caught
surprised that China economy humming and thriving after the market
melt down seen after Lehman Brother bankruptcy! Dexter and company
were expecting China to crash if one follow all their writing
throughout the year! The quality of Asian reporting by Dexter and
company extremely low! Please inform Bloomber to get these clown fired
after the merger!
Link to this comment
@Dexter Roberts and Pete Engardio
Oct 23, 2009 6:04 PM GMT
"The 19th century belonged to England, the 20th century belonged to
the U.S., and the 21st century belongs to China. Invest accordingly."
-- Warren Buffett Dexter Roberts and Pete Engardio = shortsighted
idiots.
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Brett
Oct 23, 2009 3:53 PM GMT
To be innovative & creative a country needs a leisure class, when
people don't need to worry about daily grinds thats when creativity
happened. China is not there yet, hopefully it will come soon. Mexico
was going to replaced china in the 1990, when Fortune magazine wrote
articles about how difficult to communicate with the Chinese, cultural
differences, shorter distance to central America. Well what happen.
All these nonsense about how Chinese lacks innovation. I still
remember how the west was bashing Japan in the past.
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Brett
Oct 23, 2009 3:45 PM GMT
Let face it, it is not fashionable to write how well China is doing,
most people don't want to believe let alone discuss it. The fact is no
one can predict ones future let alone a country, I always think
economic forecasts are for investment institutions only, when they
made bad investments the resulting answer to an irate investor is
always: just following those expert forecasts. What China accomplished
in the past 30 years is astounding, very few country achieved it. One
of the reason I think is the revamping of the Chinese class system.
business people was always view as a lower class, no self respected
individual would aspired to be in business. Artisan, administrator,
even farmer is what a talented person aim for. Now the perception has
changed, a talented individual no longer feel uncomfortable to be in
business. Making money is glorious, these serge of energy has
transformed China's development.
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terrence
Oct 23, 2009 3:23 PM GMT
For the past 20 years their growth has been based on products
invented in the US. They will have to learn market research from the
Japanese.
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jambo
Oct 23, 2009 3:17 PM GMT
Ancient China invented many, many things. Current China, because of
it's govt, are limiting free thinking, and as a result, there will be
less innovation coming out of there. I work with my Shanghai co-
workers and speak to them aboust such things, and we all agree that
while the economy booms, there is also a self censorship. Even emails
are written in a covert way to cover sensitive topics, just in case
someone is listening. It's this fear that prevents real innovation. To
innovate, u have to thinking waaaay outside the box, but that isn't
happening much there.
gabe, san diego
Oct 23, 2009 3:16 PM GMT
BW always glorifies China and hypes it up while knowcking down the
US. Perhaps BW should move its headquarters to China!
Link to this comment
@Jan
Oct 23, 2009 2:34 PM GMT
You are deadly right, socialism and Communism were all coming from
West, Mark and Engels
Link to this comment
biman
Oct 23, 2009 1:37 PM GMT
we should all be happy if china prosper. because when china pprosper,
more then one billion people will be better off and thats a large
number of total world population.
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hanyu choi
Oct 23, 2009 1:23 PM GMT
To JAN: The only reason I mentioned WIKIPEDEA WAS that I did not want
to tax your brain.Since you have a low opinion of WIKIPEDEA, why don't
you read JOSEPH NEEDHAM'S SCIENCE AND CIVILIZATION IN CHINA.I will
tell you a few little everyday items which are also Chinese
inventions: printed books,newspaper, toothbrush,wallpaper,paper money,
fork, folding umberella, and many more. See, you are much more
influenced by Chinese than you think.Read the book, before you open
your mouth and to psychoanalize a total stranger.
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Henry L.
Oct 23, 2009 12:58 PM GMT
I think at the end China will excell in some areas and fail in
others. It's just sad to constantly read the demise of China for the
last 20 years and even though they were proven wrong again and again.
Like any counry, there are bad things as well as good things about
China and it would be great if there is one journalist who just give
those insignts and report them in an unbias way.
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hanyu choi
Oct 23, 2009 12:23 PM GMT
According to August 26, 2007 issue of THE BOSTON GLOBE, America was
the counterfeit capital of the world in the 19th century. When Charls
DICKENS visited Boston in 1842, he was very upset, because he saw a
lot of pirated copies of his novels.Also Americans were good at making
cheap knockoffs then slapping foreign labels. Not only that, Americans
were infamous for making unsafe and dangerous foods.Candy was found to
contain arsenic,milk was watered down then bulked up with chalk and
sheep's brains.Sugar was mixed with plaster of Paris.Pickles contained
copper sulphate,custard powders contained traces lead.American food
produers made sausages with pork from pigs died of tb. Americans also
exported pork contaminated with cholera. These were some of the things
Americans made, sold, exported.So America remained as an outlaw nation
throughout the 19th century.
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Henry L.
Oct 23, 2009 11:57 AM GMT
To those who proclaim the fall of the WEST. You are wrong. Likewise,
those claiming the fall of China. You are wrong. Both will eventually
co-exist overtime. Everytime a country is rising, you'll get doubt and
jealousy. It's the stages you go thru till at the end. Acceptance.
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Jan
Oct 23, 2009 11:41 AM GMT
Wikipedia? Where anyone can edit? THATS your source? What a joke.
Your inferiority complex before the mighty west is on full display! Do
you realize that even the political ideas upon which China is
ostensibly organized (socialism/communism) come from the west? LOL!
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hanyu choi
Oct 23, 2009 11:21 AM GMT
Without such Chinese inventions as gunpowder,compass, paper, priting
(both block printing and movable type) gun, canon( all these can be
verified with WIKIPEDEA) and of course Indian(Arabic) numerals and
also the birth of modern science in Islamic civilization, there would
have been no overseas colonial expansion, no renaissance, no
scientific revolution for Europe.
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hanyu choi
Oct 23, 2009 10:52 AM GMT
According to the British biochemist and eminent sinologist JOSEPH
NEEDHAM who wrote the SCIENCE AND CIVILIZATION IN CHINA. From 6th
century to 18th century, there were only 2 original and truly European
inventions: 1.water pump 2.crankshaft.All the other so-called European
invintions were nothing more than improvements on Chinese, Arabic and
Indian inventions and ideas.It makes me laugh just thinking about that
Europeans invented only those 2 things in 1200 years.I am very
impressed with such European "creativity" Also westerners have a bad
habit of taking credit for other people's inventions or ideas.
According to NEEDHAM and WIKIPEDEA, the movable type was invented in
China about 400 years before Gutenberg. Also the metal movable type
was developed in Korea 200 years before Gutenberg. Modern science was
born in the Islamic Civilization in 11th century not in Europe. If
anybody doubt this, please consult WIKIPEDEA under the heading of
Islamic science.Ibn al Haytham is called the first scientist in the
human history. There was no such thing as European or western science.
Bill Casey
Oct 23, 2009 10:25 AM GMT
China�??s September data suggest that the long-term overcapacity
problem is only intensifying reports the following China watching
website run by a western a professor at Peking University�??s Guanghua
School of Management. His site is banned inside China;
http://mpettis.com/2009/10/china%E2%80%99s-september-data-suggest-that-the-long-term-overcapacity-problem-is-only-intensifying/
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Bill Casey
Oct 23, 2009 10:18 AM GMT
XY; western nations are 'jealous' of the fact that 4/5 of Chinas 1.3
BILLION people remain peasant farmers? The fist pumping nationalism
emanating from China is a psychological reaction to a stinging sense
of being 'humiliated' by western nations in spite of thinking of
themselves as the 'middle kingdom' - as in middle of the universe.
This talk of Chinas rise to #1 being 'inevitable' is also symptomatic
of the 'middle kingdom' mentality. The reality is an oil shock,
brought about by wars, could easily derail Chinas 'inevitable' rise -
not to mention pandemics or myriad other scenarios. Most likely,
Chinas will fail in her efforts to switch from western demand for its
goods to domestic demand - and the resulting unemployment will send
China reeling into social chaos. Remember that 4/5 of Chinas 1.3
billion people remain peasant farmers...
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XY
Oct 23, 2009 9:25 AM GMT
I will bet the USA on attracting howls of disbelief that the outcomes
of the 2nd economic census show that the size of Chinese economy has
again been under-reported by several percentage points, mainly as a
result of under-estimating the contribution to GDP of the service
sector. :-)
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hanyu choi
Oct 23, 2009 9:16 AM GMT
Let'look at the American K-12 School education.In 4 words,it's very
bad. Even after graduatng from high school, a lot of kids still lack
basic reading and math skills. and SAT scores get lower every year.
and lack of discipline.And some say American kids are full of
creattivity, my foot. What you have is a total chaos in the
classrooms. In some American school districts even pay their students
to come to school. Somebody please explane to me what is going on
here? In North Asia students are not only know their things but also
are very creative. I know that because i was once one of them.
According to many stastics,Japan is one of the most creative and
innovative countries the in the world. The CHINA'S school system is
very slmilar to that of Japan. I don't see any creativity problem in
china,
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XY
Oct 23, 2009 9:16 AM GMT
Never trust a word of what the western media write about China. China
must be doing a great job to attract such jealousy and attention.
China should simply stick to what it has been doing in the last 30
years. China shall prevail. It is only a matter of time. The decline
of the western world has clearly been written on the wall. Only
brainwashed dunderheads fail to see it. Have a good day guys!
Link to this comment
2Bob
Oct 23, 2009 8:37 AM GMT
"We Chinese will ALWAYS support our ancestral homeland no matter what
idiots like these say about our beloved motherland" @DEATH to
capitalism and christianity, One knows your statement to be true just
by witnessing the number of Chinese employees charged or convicted of
either espionage or stealing information from the companies at which
they work.
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hanyu choi
Oct 23, 2009 8:17 AM GMT
According to the British financial magazine,ECONOMIST, it is indeed
true that some Chinese local governments inflate their numbers and the
central government knows about it. so the national government
discounts some of their numbers.The magazine also said the national
governments statistics are by and large accurate.Now let's talk about
American credit ratings agencies misbehabior in which the agencies
gave grossly inflated ratings to the undeserving mortgage- backed
securities creating the financial crisis we are in now. According to
Vivek Wadhwa a Visiting schlar at UC-BERKLEY, It is also indeed true
that vocatinal school graduates are counted as engeneers in China.
Even if we discount all the vocatinal graduates, China still graduate
more engeneers than America, specially at the graduate level which is
what really count.
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jcage
Oct 23, 2009 8:13 AM GMT
Here is the link that discuss propaganda used in the USA to convince
American public opinion! http://www.nakedcapitalism.com/2009/10/guest-post-herding-the-sheep.html
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jcage
Oct 23, 2009 8:11 AM GMT
True, the Independent discusses allegations of American propaganda
(but that�??s a British paper, doesn�??t count). And (ho hum) one of
the premier writers on journalism says the U.S. has used widespread
propaganda. And (are we still talking about this?) an expert on
propaganda testified under oath during trial that the CIA employs
THOUSANDS of reporters and OWNS its own media organizations (the
expert has an impressive background). And (I can�??t believe we�??re
still talking about this) while the U.S. government has repeatedly
claimed that it was launching propaganda programs solely at foreign
enemies, it has actually used them against American citizens. For
example: * In 2002, the Pentagon announced that it was considering
spreading false propaganda in the foreign press. However, the military
has spread propaganda within the U.S. in an operation so aggressive
that one participant, a military analyst, called it �??psyops on
steroids�?? * Raw Story confirmed yesterday the use of propaganda on
Americans Continuation of propaganda in the USA. * The U.S. government
long ago announced its intention to �??fight the net�??.
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jcage
Oct 23, 2009 8:07 AM GMT
There are people paid to propagate propaganda so there are those paid
shill to bad mouth countries like China
http://www.nakedcapitalism.com/2009/10/guest-post-herding-the-sheep.html
But that�??s not propaganda . . . its just positive thinking, right?
The Other Guy And the whole word propaganda is a Nazi, communist kind
of thing which has no place in the same sentence as America. Right?
Granted, famed Watergate reporter Carl Bernstein says the CIA has
already bought and paid for many successful journalists. And sure, the
New York Times discusses in a matter-of-fact way the use of mainstream
writers by the CIA to spread messages. True, a 4-part BBC documentary
called the �??Century of the Self�?? shows that an American �??
Freud�??s nephew, Edward Bernays �?? created the modern field of
manipulation of public perceptions, and the U.S. government has
extensively used his techniques (but the BBC isn�??t American, so it
doesn�??t count).
Paul
Oct 23, 2009 8:05 AM GMT
The author simply forgot that China is still a developing country.
There is no doubt that innovation is still lagging and that will
hamper growth once China's per capita income approaches developed
country levels. But China is still a long way from that level and
still have many years of growth ahead by simply playing catchup than
inventing. Japan, Korea and Taiwan weren't that innovative when their
per capita income were only at $3,000. Developing countries with
higher per capita income than China today such as Mexico, Turkey,
Brazil, Malaysia aren't any more innovative than China either.
Link to this comment
hanyu choi
Oct 23, 2009 6:37 AM GMT
I made a typing error. It should be "by the middle of this century"
not" by the middle of this country".
Link to this comment
John Wayne
Oct 23, 2009 6:35 AM GMT
Indias reported growth rates of 5.3% are bogus as well;
http://timesofindia.indiatimes.com/Business/India-Business/File-GDP-growth-closer-to-35-than-53/articleshow/4313352.cms
Link to this comment
John Wayne
Oct 23, 2009 6:32 AM GMT
Chinas reported growth rates are bogus to top it all off. 'How China
cooks its books'; http://www.nakedcapitalism.com/2009/09/how-china-cooks-its-books.html
Link to this comment
hanyu choi
Oct 23, 2009 6:22 AM GMT
Freedom has very little to do with innovation. A lot of innovations
came out of the genocidal Nazi Germany such as developement of the jet
aircraft and Germans almost beat Americans in making the atomic bomb.
Soviet Union was very innovative in weapons techmology which was as
good as that of America. How about Galelio? He invented many things in
spite of the very repepressive Cathoric Church at the time.Basically
innovation depends on 3 factors; 1. national willpower 2. a lot of
money 3. a lot of trained people such as scientists and
engeneers.China has all three. That is why I Think she will be the
technological superoower by the middle of this country. I think
America is a great country. But America has one big problem,a
disfunctional democracy, as a result of abusive special interset
groupes which omly care about their own self- interest at the expense
of the national wellfare.
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Dave K
Oct 23, 2009 6:01 AM GMT
"The mainland has dramatically boosted research spending and boasts
the world's biggest pool of science and engineering graduates." As
usual, people spout this falsehood without checking facts. China
considers people like TV and refrigerator repairmen as engineers. In
the rest of the world, we call them repairmen. So no, China does not
have the largest pool of engineers. How about someone do some homework
first before repeating myths?
Link to this comment
Steven
Oct 23, 2009 5:46 AM GMT
In many western reports: China has been collapsing for 60 years,
China's financial system has been crapppy for 30 years. China's growth
has been depending on US for 30 years. But the world economical crysis
caused by US proved many things different.
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Shortsighted fools
Oct 23, 2009 5:11 AM GMT
It is simply astounding what China has accomplished in the last 30
years. No other country in history has been able to achieve what China
achieved, and they did it with 1.3 Billion people!!! The US government
could barely even get anything done anymore with only 300 million!
England has all of 57 million and they are already way passed their
expiration date. Only fools will continue to underestimate the will
and might of the Chinese people!
Link to this comment
Black Cat
Oct 23, 2009 4:37 AM GMT
I am old enough to remember how "Made in Japan" signified cheap junk.
Then the Japanese started producing automobiles and exporting them to
America. Everybody knows how that turned out. China is currently in
the economic stage where Japan was when it started exporting cars to
America. It won't be long before we see innovative products based on
Chinese research and development that astound the world. Developing
countries have to learn to walk before they can run. It seems the
authors of this article have not taken this into consideration.
Link to this comment
DEATH to capitalism and christianity
Oct 23, 2009 4:24 AM GMT
I only read the first two lines of the article and I was already
disgusted by the stupidity of the writers. Just watch China or dont.
We Chinese will ALWAYS support our ancestral homeland no matter what
idiots like these say about our beloved motherland. Ans....we will
continue to watch the "western" countries stumble over themselves and
laugh.
passerby
Oct 23, 2009 4:19 AM GMT
A not so bad article I think. But even it holds many facts, it makes
the same mistake as many previous analyses which underestimated the
adaptability of China's economy. While the author complains about the
unfriendly market for multinational companies, he tries hard to tell
us that China is heavily dependent on the technologies of them. Seems
the article was written by more than one writers but with a bad
editor.
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Newbie
Oct 23, 2009 4:10 AM GMT
The authors use 'western' benchmarks and standards to make a
judgement. While the article is about China, it applies to India as
well. Hence if an Indian or a Chinese movie does not win Oscar, the
verdict is it is not good. Who really cares about 'western' awards. If
a person is not from Harvard she is no good (is what the authors are
saying). Harvard is a business school of the past. It is no secret
that China and India are poised to become the economies of the future.
There is no way one can learn how to do business in these to countries
by sitting in Harvard. The person has to be on ground. This is where
Indian and Chinese b-schools will have an advantage. Who really cares
whether somebody measures up to American standards. Large countries
will establish their own standards, instead of following others'. Are
we not glad that Toyota did NOT follow American auto manufacturing
standards? Dexter and Pete have made a fool of themselves.
Link to this comment
American Counterfeit?
Oct 23, 2009 3:27 AM GMT
The fact that you use Nobels and Euro-league schools as a gauge of
innovation shows how disconnected you are from reality. Innovation
cannot be decreed from the commanding heights. Freedom to think and
dream leads to innovation.
Link to this comment
cRXB
Oct 23, 2009 3:23 AM GMT
Here again, Another China-baSHING OR RIDICLING b.s.
Link to this comment
hanyu choi
Oct 23, 2009 2:59 AM GMT
Harvard, Yale,Princeton, were not in the same league as
Oxford,Cambridge in the 19th century. Hey Mao's Assasin, you have a
very scary name. Is that your real name? Oh! I'm very scared.
Link to this comment
Mao's Assasin
Oct 23, 2009 2:34 AM GMT
Not a single world class college in America between 1901 and 1925?
How many beers have you had? Lest we forget Harvard, Yale, Princeton,
Brown etc...etc...etc.. Worship the Panda now, pay the bai mu later..
Link to this comment
hanyu choi
Oct 23, 2009 2:23 AM GMT
Between 1901 and 1925, there were only 2 American Nobel prize winners
in sciences and none in medicine. During the same time period, there
was not a single worid-class college in America. But America became
the technological superoower in the 1930s, after more than 100 years
copying European goods and later innovating on her own. Read the
August 26, 2007 issue of THE BOSTON GLOBE. It will tell you how
pitiful America was, when it came to innovation.
Link to this comment
America counterfeit?
Oct 23, 2009 2:13 AM GMT
Really? Maybe you should drink the Mao-aide. Let us see: Thomas
Edison, counterfeiter? George Westinghouse, Counterfeiter? Here is an
additional list for your reading pleasure: http://en.wikipedia.org/wiki/Category:American_inventors
Link to this comment
hanyu choi
Oct 23, 2009 1:47 AM GMT
In 19th century,America was the counterfeit capital of the world.It
copied many European inventions without regard to intellctual property
rights.In the 1950s and the 60s Japan was the biggest copycat. You
guys sound like sour grapes.
Link to this comment
James
Oct 23, 2009 1:43 AM GMT
It's really amazing how everytime there is an article about China
people start talking nonsense. For all of the westerners and Chinese
who are attacking each other's national pride and claiming China is
going be invincible or they can only make toys and trinkets give
yourself a reality check. China has HUGE potential and an equally HUGE
set of problems to deal with. This is a very unsurprising reality. The
interesting part will be watching how the problems are addressed and
how much of the potential will be realized. Absolutes are nonsense.
cup
Oct 23, 2009 1:40 AM GMT
Reading this paper by Roberts leads me to believe that it's not an
accident that BusinessWeek is in the bankrupcy process or being bought
out. The China Hype, as authors try to dismiss, has been growing in
~10% for over thirty years, this fact alone should make serious
writers to pause for some critical thinking. In terms of economic
development and innovation, writers like this paper's ( obviously no
clue to how economy and innovation works)often confuse ideaology with
fundamentals of economics and innovation theories. As BusinessWeek's
Asia News Editor and China Bereau Chief, Roberts should update his
China knowledge and let go of his ideaology glass. It's far better to
bring Amrican readers with thoughtful writings than dismissing
everything as hype.
Link to this comment
China Conglomerates
Oct 23, 2009 1:22 AM GMT
China is trying to emulate Korea, Japan in developing their own mega
conglomerates, i.e. Samsung, Hyundai. They don't want to end up like
Singapore with not a single home-grown company noteworthy enough to
speak of and have to depend on the whims and fancies of foreign
investors who come and go as they like.
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john
Oct 23, 2009 12:24 AM GMT
chinese lack innovations? i'm yawning! with pockets loaded with
cashes they can buy innovations! american, please... don't be so
egoistic about being innovative...most people who are working in your
labs are foreign born. you are buying their talents. the chinese can
do the same.
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Paul Stewart
Oct 22, 2009 11:46 PM GMT
I find it funny to see the discounting of China. It is just a failure
to understand success. This is what it must have sounded like in the
British Empire during the rise of America, while the Empire was
falling all around....
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CHINA WILL WIN
Oct 22, 2009 11:13 PM GMT
China will eventually win. The US is asleep at the wheel catering to
china following the rules of free trade while china does not.
Eventually the US will become a third rate nation.
Link to this comment
cjohnthan
Oct 22, 2009 10:55 PM GMT
>I support the governments effort to ensure China can compete in
every industry across the globe. i feel so sad about this reality, usa
as well as European countries, don't want to see china to be a
democratic country, they see china gov as their manager cheap labor
for them. on the other side, in china, there is a few privileged
groups who only care to keep their privileges. yes they want to
chinese ordinary people to earn reputation for them by devoting their
lives to compete with foreign counterpart. actually, without a good,
effective, functional governmental system, this country is and will
always a bubble. to put it like that, without a monitoring scheme,
every system will be as weak as a bubble in this era.
Link to this comment
Taishan
Oct 22, 2009 10:34 PM GMT
To Dexter Roberts (continued): significant government involvement up
front. A company like COMAC, if it were required to raise its own
capital, would need $30 billion from investors to build the factories
and hire engineers to develop a totally new airplane. Investors,
instead, would be tempted to play the market driving up the price of
beer companies, tea shop chains, etc. They would not want to invest in
an aerospace company that has no track record and unlikelihood of ever
seeing a return on investment (on the first airplane, that is). I'm
not suggesting central planning is something China should stay with
indefinitely. But I am saying, for China to tap into the many
industries that are monopolized by the developed world, China needs
the government, pure and simple. The last thing I want to see is China
become a nation of economic bubbles that ultimately do nothing more
than compete with Mazatlan or Cancun, Mexico catering to foreign
tourists. China needs to cut into every industry held by the developed
world if it is to raise the standard of living of its population. And
I support the governments effort to ensure China can compete in every
industry across the globe.
Link to this comment
Taishan
Oct 22, 2009 10:23 PM GMT
To Dexter Roberts: Actually, I have confidence in the Chinese
governments method of slow transition to private. Contrary to popular
belief, not everything is made in China. There are many industries,
such as you mentioned, aerospace, where China doesn't have a strong
foot hold. And these industries, such as engine manufacturing, have
sub-suppliers, that have huge profit margins unbeknownst to most
people. Yet, the economy of scale of these Western or developed
countries are so large, it would be difficult for a country like China
to break into (even with their cheaper labor). Out there in the
Western world, are jewels of industries that many wouldn't want the
Chinese to tap into. In a world where profit is the driver on why
people invest, it is tempting for people (Chinese included) to plow
their money into the stock market, creating a bubble that ultimately
don't produce anything (e.g., the US housing market), except a bubble.
Government efforts, I firmly believe, is necessary for China's current
stage of developent. I could be wrong, but I find it difficult to
believe, that China's solely private enterprise could develop a
commercially viable jet engine by 2020 without
Sid Harth
China's Economy: Not Yet Mission Accomplished
By Austin Ramzy / Beijing Friday, Oct. 23, 2009
A window displaying women's clothing in the Bund area of Shanghai,
China
M.Scott Brauer / Invision Images / Aurora Photos
Since the global financial crisis hit last year, Chinese officials
have been firm about the need to maintain about 8% economic growth to
ensure stability. Before the last office door swung shut at Lehman
Brothers in New York, Beijing was planning how to get there,
eventually unleashing a massive $586 billion stimulus package in the
spring and freeing up lending to allow billions more to slosh into the
economy. With this week's announcement that GDP had expanded by 8.9%
in the third quarter, China is well on its way to reaching its target
for the year. That will make China the first major economy to emerge
from the slowdown. But it is far too soon for the country's economic
mandarins to hang a "Mission Accomplished" banner.
"While we have avoided the worst recession since the Great Depression,
we are probably heading for another asset bubble and more financial
turbulence," Qin Xiao, chairman of China Merchants Group, wrote in
Thursday's Financial Times. Qin said he didn't think "a quick, steep
bounce driven by fiscal fixed investment is a good thing for China,"
adding that the current loose monetary policy should shift to neutral.
On Thursday, Hong Kong's Hang Seng Index dropped by 0.5% and the
Shanghai Composite Index fell 0.6% on concerns that China would begin
to tighten monetary policy in response to fears of expanding bubbles
in real estate and financial markets.
(See pictures of China's infrastructure boom.)
But economists said the country is likely to keep its foot on the gas
to ensure the recovery doesn't falter. On Wednesday, the State
Council, China's cabinet, said it would focus on achieving a balance
between promoting growth, rebalancing the economy and "managing
inflation expectations." Nomura economist Mingchun Sun argues that
because the State Council's statement emphasized "expectations,"
rather than inflation itself, the government doesn't believe inflation
is a major risk and will maintain a loose monetary policy in the near
future.
Despite China's strong rebound this year, Chinese officials remain
cautious. On Sept. 11 Premier Wen Jiabao said "the stabilization and
recovery of the Chinese economy is not yet steady, solid and
balanced." China's stimulus package — the equivalent of 14% of GDP —
focused on large infrastructure projects, work often done by large
state-owned construction firms. Similarly, the lending spree was
primarily directed at state-owned enterprises that offer banks an
implicit guarantee that the government will cover outstanding debts.
The downturn in exports mainly hurt small- and medium-sized firms in
the south, which are usually private owned. The result is that while
profits are climbing for large, state-owned firms, the private sector
is lagging. "The biggest challenge for the authorities is that the
private sector has yet to fully recover. This makes it difficult to
tighten early," Ben Simpfendorfer, a Hong Kong-based China economist
for RBS, wrote in a research note. "It also funnels money into equity
and housing rather than the real economy. The temptation will be to
leave policy too loose, for too long, resulting in another asset price
bubble."
China has subsidized purchases for some goods including small
passenger cars and household appliances, which has led to a boom in
spending in certain sectors. Passenger vehicle sales climbed 84% last
month, and China is expected to surpass the U.S. as the largest car
market this year. Consumers have also bought hundreds of thousands of
refrigerators, washing machines and other appliances under a
government promotion this year.
(See pictures of the best-selling cars in China.)
But while sales have climbed, economists say the government has yet to
push through the sort of reforms that would make consumer spending a
solid economic pillar. Chinese are still among the world's biggest
savers, in part because of the lack of good public systems for
retirement pensions and health insurance. "Most economists think
they've overdone investment and underdone consumption and spending for
social welfare," says Stephen Green, the Shanghai-based head of
research for Standard Chartered Bank. "There will be a price to pay.
No one knows how big that will be. The bet is they'll grow through it.
That's the bet they're taking."
chhotemianinshallah
Time not ripe for withdrawal of stimulus package: PM
25 Oct 2009, 1551 hrs IST, PTI
HUA HIN(THAILAND): Prime Minister Manmohan Singh on Sunday said time
is not ripe for withdrawal of stimulus packages given by the
government to bail out economy from the impact of the global financial
meltdown.
"Time not ripe for withdrawal of stimulus packages", he told reporters
here after conclusion of twin summits of ASEAN and East Asian leaders.
Singh said that the issue of stimulus package was discussed at the
ASEAN meeting and the global leaders were for a balanced approach.
But he parried questions on interest rates and RBI's upcoming monetary
policy saying it is the "preserve" of the Reserve bank of India.
The Reserve Bank is slated to announce the quarterly review of the
monetary policy on October 27. He said RBI is an independent body and
he would not like to comment.
Replying to another question he said that India and ASEAN had agreed
to expedite trade agreement in services as part of efforts to broad
base the Free Trade agreement.
The government has provided several stimulus packages since the
collapse of Lehman Brothers in September last year to boost the
economy.
Earlier in the day, Singh said that everybody should learn lessons
from the global economic crisis.
"We must learn lessons from the global economic crisis. One of these
is the need to ensure coordination in our growth policies. The other
is to keep the real economy strong and sound," he said.
Sid Harth
U.S. dollar in decline
Despite fiscal mess, greenback unlikely to collapse
From The Economist
Sun. Oct 25 - 4:46 AM
Concerns worldwide about the dollar’s slide have escalated to the
point where currency markets are beginning to wonder when governments
might try to do something about it. (AP)
ONE OF THE FEW calamities that has not befallen the world economy
during the past two years is a dollar crash. During the bubble era
that preceded it, many fretted that foreigners, tiring of the United
States’ gaping external deficits, would send the greenback slumping
and interest rates soaring.
In fact, the opposite occurred.
The crisis began within the U.S., and the deeper it became, the more
the dollar strengthened as fearful investors sought safety in Treasury
bills. Between September 2008 (when Lehman Brothers failed) and March
2009 (when U.S. stock markets hit bottom), the dollar rose by almost
13 per cent on a trade-weighted basis.
That history is worth bearing in mind when assessing the latest bout
of fretfulness about the dollar’s future.
For the past six months, the greenback has been sinking steadily,
hitting a 14-month low against a basket of leading currencies and
$1.50 to the euro this week.
The slide has unnerved policymakers in economies whose currencies are
rising, notably Brazil, where a two per cent tax on foreign capital
inflows has been imposed.
Coupled with the extraordinary looseness of American policy, the weak
dollar has also revived fears of a currency crash. With the budget
deficit in double digits and the Federal Reserve’s balance-sheet
swollen, dollar bears are once again forecasting that the slide could
become a rout and spell the end of the United States’ status as the
world’s reserve currency.
This dollar declinism is overblown. It exaggerates the scale of the
slide and misunderstands its cause. Much of the recent weakness simply
reverses the earlier safe-haven flight to dollars, a sign of
investors’ optimism about riskier assets rather than their fears about
U.S. currency.
On a trade-weighted basis the dollar today is close to where it was
before Lehman failed. Yields on Treasuries have not risen and spreads
on riskier dollar assets continue to shrink.
If investors were growing leerier of dollars, the opposite should have
occurred.
Furthermore, a weaker dollar is what you would expect, given the
relative cyclical weakness of the U.S. economy.
Thanks to the hangover from its financial crisis, the United States’
recovery will be slower than that of other economies, especially
emerging ones. That suggests U.S. monetary policy will stay looser for
longer, pushing the dollar down.
A weaker dollar should also assist global economic rebalancing by
helping to reorient the U.S. economy toward exports.
So in general, it should help rather than hinder the global recovery.
That does not mean the worriers’ fears are baseless.
Three dangers remain. First, the dollar’s decline is distorted. The
world’s most buoyant big economy, China, has kept its currency tied
firmly to the greenback. This is stalling the adjustment of China’s
economy, fueling dangerous domestic asset bubbles and placing an
unnecessary burden on other, more flexible currencies.
Second, U.S. fiscal and monetary policies are unsustainable. The
public-debt burden is set to double and, on today’s policies, will
still be rising in a decade’s time.
Third, the financial crisis has accelerated the relative shift of
economic heft away from the U.S. — which will hasten the eventual
erosion of the dollar’s dominance.
Even so, this is unlikely to provoke a sudden crisis. Although the
United States’ fiscal mess will last for years, it is not acute.
Inflation will not soar suddenly. With neither the euro nor the yuan
yet ready to usurp it, the dollar will not quickly lose its reserve-
currency status. The lesson of the past year is that it is still a
currency to flee to, not from. None of this absolves American
policymakers from hard choices. But a dangerous collapse in the
greenback is unlikely.
bademiyansubhanallah
Attack on private sector threatens China's growth
Michael Sainsbury, China Corresponndent | October 26, 2009
PRIVATE enterprise is under attack in China. It was sidelined in the
country's massive stimulus package. The small and medium-sized
businesses that largely make up the sector are struggling to get bank
loans, and the latest threat is an effective renationalisation by the
government. The weakening of private enterprise, or its capture by the
Communist Party, threatens China's economic growth and even the
country itself.
The stimulus package, which economists estimate to be 15-17 per cent
of its gross domestic product, has achieved a sharp turnaround in GDP
growth. Figures last week showed that third-quarter GDP growth was 7.9
per cent, up from a 17-year low of 6.1 per cent in March. But 95 per
cent of the infrastructure-focused package has benefited the state-
owned enterprises. There are 141 of these at central government level
and each of China's 31 provinces has its own.
The State Council, which runs the government, recognises at least part
of the problem and unveiled a package of 29 initiatives to help the
private sector in August. And China's small businesses have done
themselves no favours, sometimes disappearing into thin air when
things turn sour, leaving banks with bad debts. There is no system for
proving creditworthiness in China. To counter this, small businesses
pay a premium to insurance companies to have their bank loans insured.
But these insurers are often operated by the banks themselves and the
system has had limited success.
Pervasive corruption is another problem. During the leadership of
Jiang Zemin, the Communist Party actively encouraged business people
to become members, a major change in strategy.
Zhou Ruijin, former deputy editor of the Communist Party's official
People's Daily recently took aim at "special interest groups"
threatening growth and stability.
"With the launch of the market economy in the 1990s, and amid the push
for reforming production factors, official-business collusion for
profit has become especially common in the real estate, mining,
finance and energy sectors," Zhou wrote in Caijing magazine.
"Since 2000, some state monopolies and a few big private enterprises
with official backgrounds began seeking -- with abandon -- excessive
profit and even illegal returns. They took advantage of the protective
umbrella of public power. In the process, the government trespassed
into private territory and muffled ordinary, private business."
Academic Liu Yejin agrees.
"There is now an assertion that the interest groups have hijacked the
government, with many excuses like 'the security of national economy',
and 'reducing production accidents'. And the government has common
interest with them too," he says. "But such common interests are for
the short term, not for the long run."
The other threat to the private sector is the trend towards
renationalisation of assets. While this has also happened in the
Western banking sector, after the global financial meltdown, the
intention is to reprivatise as soon as practical.
In China it's going the other way. There are attempts to consolidate a
wide range of sectors, creating bigger state-owned companies that
officials hope will be more efficient and able to compete globally.
But China's increasingly elite state-owned sector enjoys the advantage
of price controls, allowing its closed sectors to take monopoly rents.
The bigger they get, the less efficient the economy becomes.
Besides the headline sectors of coal and steel, SOEs are buying a lot
of land. The People's Liberation Army already owns one of China's
largest real estate companies.
Still, there is logic in consolidation. China has said it wants three
or four big companies to dominate some sectors and seven to 10 in
others. This matches the world's largest mature private market, the
US.
"Government control goes against the logic of a smoothly running
market economy and as such is arbitrary," says academic Mo Zhihong.
"The renationalisation won't be stopped until there are bad results
occurring, or strong resistance from the society."
Professor Feng thinks SOEs should withdraw from the control of holding
companies and list them on the stockmarket.
"They should hand over more profit to the people, or to the
government, while government reduces the same amount of tax from the
public."
Royal Bank of Scotland economist Ben Simpfendorfer thinks the
privatisation of SOEs is at least a decade away, and if the government
retains more than 51 per cent of the companies after listing, then it
will still have effective control and they will still be beholden to
the whims of the Communist Party. But doing this could create another
set of problems.
"In 2005, the State Council published a directive for encouraging and
supporting private business and other non-public sectors of the
economy," Zhou wrote in Caijing.
"The directive -- 36 Policies for the Non-Public Economy -- promised
to open all competitive industries to private capital. Industries that
were open or would be opened to foreign capital also would be
accessible to domestic private business, while non-public sector
capital would be allowed into those industries and sectors under state
monopolies. Four full years have passed. Yet those policies remain
largely on paper."
So powerful is the nexus between the party, the government and the
SOEs that the public sector has become the most attractive career path
for China's best and brightest university graduates. This robs the
country of clever young entrepreneurs -- the people who fuelled
China's double-digit growth boom through the 1990s.
Still, some clouds have silver linings. The current downturn is
creating a fresh opportunity.
Internet entrepreneur Diane Wang, who runs a website where
international firms can order and buy goods from Chinese companies, is
sponsoring courses at two universities aimed at giving students
practical online business experience. "This will help create an
entrepreneurial mindset," she says, adding this is critical for
China's future as a creator of new products and services.
If China wants to fulfil its dream of moving from being the world's
factory and return to being the clever, innovative country that
invented gunpowder and gave the world pasta, it needs more, not less,
private enterprise in all its industries.
bademiyansubhanallah
Oil falls below $80 on economic recovery concerns
Mon Oct 26, 2009 3:29am EDT
Asian shares uneven; China article trips dollar Dollar falls to 14-
month low vs euro on China report Earnings, data to determine rally's
fate More Business & Investing News... By Fayen Wong
PERTH (Reuters) - Oil fell for the third day to below $80 a barrel on
Monday, as investors continued to take profit from last week's one-
year high on renewed concerns about the strength of the global
economy.
Weak U.S. industrial sector earnings last week pushed down stock
markets and underscored concerns about the pace of the U.S. economic
recovery and its impact on energy demand.
U.S. crude for December delivery fell 51 cents to $79.98 by 0706 GMT
(3:06 a.m. EDT), after having earlier fallen as low as $79.57.
London Brent crude fell 41 cents to $78.51.
"Asian speculators are cutting their positions after the fall on Wall
Street last week. But a rebound in the Dow Jones futures this morning
has helped limit the drop in oil prices," said Ryuichi Sato, an
analyst at Mizuho Corporate Bank.
"The market is cautious about pushing oil prices higher because the
demand fundamentals are still weak and the world economy is still
fragile."
Comments from producer group OPEC last week that it would raise output
targets at a December meeting has also cast a pall on the oil market,
analysts said.
Stock bulls may hit the pause button again this week if a wave of
earnings due from marquee names such as Exxon Mobil and a slew of
economic data offer no new incentives to extend Wall Street's seven-
month rally.
Even though the profits that have come in so far have proven to be
surprisingly strong, U.S. stocks have made very little headway, as
investors search for more definitive signs the economic recovery is
gaining strength.
The dollar fell to a 14-month low against the euro on Monday as a
Chinese report saying Beijing should increase its holdings of euros
and yen in its foreign reserves led investors to sell the greenback.
China was again the bright spot for the global economic outlook,
following comments by Vice Premier Li Keqiang that the country's
economic recovery has consolidated after having performed better than
expected, while Vice Finance Minister Wang Jun said China's economic
growth is likely to accelerate this quarter.
Its strong economic growth was reflected in a 12.5 percent year on
year jump in implied oil demand, the sixth rise in a row and first
double-digit growth since August 2006.
Money managers hiked net long crude oil positions on the New York
Mercantile Exchange in the week to October 20, the Commodity Futures
Trading Commission said in a report on Friday.
Open interest positions remained bulked at the NYMEX December crude
oil $85 and $90 call options, according to Reuters data on Friday,
after crude futures prices moved above $80 a barrel this week.
© Thomson Reuters 2009 All rights reserved
bademiyansubhanallah
China's economic recovery 'consolidated': VP
(AFP) – 3 hours ago
BEIJING — China's vice premier Li Keqiang said Monday the country's
economic recovery has firmed up and was "better than expected", after
data showed that third quarter growth accelerated to 8.9 percent.
"Currently the momentum of China's economic recovery has been
consolidated and economic development was better than expected at the
beginning of the year," Li said at an international tax conference in
Beijing.
"China has the confidence, conditions and ability to achieve the full
year goal of social and economic development," Li said, referring to
Beijing's target of eight percent growth for 2009.
The world's third largest economy had expanded by 7.9 percent in the
second quarter and 6.1 percent in the first three months of the year
-- the slowest rate in more than a decade due to the impact of the
global financial crisis.
Li said the government would maintain an active fiscal policy and
moderately loose monetary policy while increasing the "flexibility and
sustainability of the policies". He did not elaborate on what
"flexibility" would entail.
However he warned that the foundation for a global economic recovery
was not yet firm as many uncertainties remained, ranging from
shrinking international trade to high unemployment rates worldwide.
Li also called on the international community to oppose trade
protectionism, which he said "hinders recovery".
At the same conference, vice finance minister Wang Jun told reporters
that fiscal revenue would pick up in the fourth quarter.
"Because of the weak base over the last fourth quarter and as China's
economy grows, I believe fourth-quarter fiscal revenue will improve
further," Wang said.
China swung to a fiscal deficit of 96.8 billion yuan (14.18 billion
dollars) in September, according to the finance ministry's website.
Fiscal revenue rose 33 percent on-year to 560.9 billion yuan last
month, while fiscal spending was up 32.9 percent at 657.7 billion
yuan.
Copyright © 2009 AFP. All rights reserved
A power plant emits steam in Beijing, China where the contry vice
premier has said its economic recovery has firmed up
bademiyansubhanallah
Official: China's economy doing better than expected but looser
lending policies to continue
Associated Press
10/26/09 12:10 AM EDT
BEIJING — China's recovery is stronger than expected but Beijing will
continue its looser lending policies to support growth, a top official
said Monday.
"The economic development situation of the Chinese economy is better
than expected," Vice Premier Li Keqiang said in a speech at a business
conference.
China's third-quarter economic growth accelerated to 8.9 percent, up
from the previous quarter's 7.9 percent. The government says full-year
growth should easily surpass its 8 percent official target.
Still, Li said, "We will continue the proactive fiscal policy and
moderately relaxed monetary policy to maintain the continuity and
stability of the macroeconomy."
China's economy has rebounded quickly from the global economic crisis,
driven by the government's 4 trillion yuan ($586 billion) stimulus and
a surge in lending by the state-owned banking industry.
The biggest improvements have been in state-dominated industries such
as construction, steel and cement, but private sector activity is
rising. Consumer spending and other domestic consumption accounted for
one-third of the latest quarter's growth.
"Domestic demand has already become an important driving force for
china's economic recovery," Li said.
Soaring bank lending has prompted concern about wasteful
overinvestment by industry and concern that too much money is flowing
into stock and real estate speculation. The government has imposed
investment curbs in some areas and says it wants to promote new
industries.
Associated Press researcher Bonnie Cao contributed to this report.
bademiyansubhanallah
Insights Regarding Future World Oil Production Based on ASPO Denver
Presentations
Posted by Rembrandt on October 26, 2009 - 1:27am in The Oil Drum:
Europe
Topic: Demand/Consumption
"Peak oil can be a very tricky topic, the way I talk about it and deal
with it at the end of the day is: We need to revolutionize the way we
consume and produce energy... We need to really be the leaders in
saying: the future for our children and our grandchildren as far as
energy consumption and as far as production, it looks like this" with
those words Colorado Governor Bill Ritter started his closing speech
at the ASPO conference in Denver that took place from 10 to 12 October
2009.
Telling our children and grandchildren where they will draw their
heat, electricity and liquid fuels from was not a topic of discussion
in Denver. Nonetheless, much information was conveyed on the
relationship between the economics crisis and the future of oil. This
post is an attempt to summarize the main points on oil and the economy
from the conference presentations--concluding that there are three
distinct future trajectories as we go forward.
At the Denver conference, world oil production was discussed from both
the supply side (what flow rate can be reached) and the demand side
(how much can the economy afford). It is really the combination of the
two that is important--so I bring together both in this post.
Oil - the supply side - what flow rate can we reach?
An overview of the future of oil at the conference was given by Ray
Leonard of Hyperdynamics Corporation (PDF) and Chris Skrebowksi of
Peak Oil Consulting (PDF). Ray Leonard who has extensive experience as
former Vice President of Yukos in Russia and Kuwait Energy Company in
Kuwait, showed that conceptually dividing the world of oil into 3
segments makes sense:
- OPEC controlling 73.9% of world reserves and 44.9% of
worldproduction
- The Former Soviet Union (FSU) controlling 12.7% of world reserves
and 15.6% of world production
- The Rest of World controlling 13.4% of reserves and 39.5% of
production.
This distinction makes sense from a political perspective, as OPEC and
the FSU operate under much different political and economic
circumstances than the Rest of the World. Ray Leonard estimates that
Russian production could theoretically increase by another 4 million b/
d with new field developments but that this is unlikely to happen due
to the Russian tax system and Russian firms lacking the necessary
capital. OPEC is in a similar situation of not being able to expand
production due to a lack of capital as International Oil Companies are
barred from investing in secondary and tertiary recovery. In Ray
Leonard's words: "Limitation on production level for OPEC is mostly
due to politics, lack of motivation, investment level and type of
crude; NOT shortage of reserves." OPEC could hence be increasing
production greatly by implementing secondary and tertiary production
techniques such as water injection but this possibility is nigh
impossible in his view. The division Ray Leonard made between these
regions was neatly depicted by Chris Skrebowski in a chart reproduced
here.
Figure 1 - Overview of Reserves and Production in three different
regions of the world from Peak Oil Consulting
Ray Leonard showed that production in the Rest of the World peaked in
2002 and by 2008 declined by 7%. With OPEC and Russia unable to
increase production significantly due to politics and economics, we
are nearing World Peak Oil Production. "Production peak of ultra deep
water fields will allow 'peak' to be a 'plateau' in the coming decade,
followed by a sharp fall" according to Leonard. Unconventional
production is not set to change this situation, as his expectation is
that the contribution of this category of oil will be less than 3
million barrels per day in the short to middle term.
The specific path of future oil production was projected by Chris
Skrebowksi using the oil megaprojects approach, wherein all the large
fields expected to come on-stream in the next seven years are
tabulated and compared with decline rates in current fields. In this
approach, only the supply side is taken into account and the demand
side is ignored. From that perspective according to Chris Skrebowksi
the current plateau will continue until around 2014 when the decline
sets in, shown in figure 2 below.
Figure 2 - Update from Peak Oil Consulting on megaprojects flows in
dark blue versus net production when offsetting an annual decline of
4.5%, from Peak Oil Consulting
A similar approach was presented by myself in the first update of a
new project where I showed a continued plateau with potentially a
small increase before the decline starts around 2014. This date is
based upon an analysis using a database of individual projects and the
assumption that the decline rate will accelerate from 4.5% to 6.5%.
The difference between my analysis and Skrebowski's is that I use a
more severe decline rate and also include many more projects. There
are around 600 fields in my database versus around 250 in Chris
Skrebowski's, because he did not include smaller fields, hence the
term megaprojects. A post on this is in the works with publication due
in November here at The Oil Drum.
Figure 3 - Update from Rembrandt Koppelaar on oil production to 2030
including current fields, discoveries, new fields projects, enhanced
oil recovery, natural gas liquids and unconventional oil.
Interestingly another speaker at the conference, Douglas Westwood,
presented a similar scenario with a plateau continuing until around
2014, after which the decline sets in:
Figure 4 - Liquid Fuels production scenario from Douglas Westwood to
2025 including onshore, offshore, oilsands, oil shales, Gas-to-
liquids, coal-to-liquids and biofuels.
Such analyses however do not include demand side effects and are
therefore limited in portraying an accurate picture of the future. A
major factor that was discussed extensively at the conference was
fortunately the interplay between supply, demand and prices.
From oil supply analysis to demand analysis - three future
trajectories
Steven Kopits from Douglas-Westwood (PDF presentation not available)
kicked off the discussion on the role of demand and prices in oil
supply by showing that growth in the world economy did not stop
despite a lack of growth in oil supply since the fourth quarter of
2004. "Oil supply stopped responding, GDP growth still went up, oil
prices rose, and that put us [the United States economy] in a
recession, and that's why I argue that this is the first Peak Oil
recession," according to Kopits. Based on this reasoning, future oil
prices will be determined by how quickly demand will again hit oil
capacity limits. Kopits thinks that this could happen quite soon, as
he foresees huge growth levels in China. The country is expected to
overtake the US in oil consumption by 2018, at 21 million barrels of
production per day. The general pattern that he presented is that
emerging economies will overtake supply from the developed economies
of the world. Oil consumption in the latter will be driven down by
high prices resulting in increased fuel efficiency and the development
of large scale alternatives. "Belt tightening is expected to happen"
says Kopits. So in one future possibility a 'bullish path' emerges
where the pattern we just saw happening repeats itself, emerging
economies grow, prices rise and developed economies have to give way
and are forced to use less oil. The big question in this future is the
amount of growth in emerging economies, most notably China. Allen
Stevens, of Stifel-Nicolaus (PDF) showed an interesting graph in his
presentation comparing per capita consumption in various countries,
showing the huge gap between oil consumption in emerging and developed
economies.
Figure 5 - Per capita oil consumption in USA, Japan, South Korea, Hong
Kong, China and India, chart from Stifel-Nicolaus
The view that Chinese demand will move up so quickly was contested by
Michael Rodgers of PFC Energy (PDF) who gave an outlook on future oil
& gas production and consumption in China (PDF). Based on their model
that included eight categories of oil demand, energy efficiency, solid
but slowing GDP growth patterns, and a similar car trajectory as in
developed countries, Chinese oil demand was foreseen to hit 11 million
b/d by 2015 and slightly more than 12 million b/d by 2020, shown in
the figure below.
Figure 6 - Chinese oil demand by end use from 1990 to 2030, chart from
PFC Energy
This slower growth was also portrayed in Dave Cohen of ASPO-USA
(presentation found here (PDF). Cohen showed a second type of future
with a more protracted economic downturn--either a very long slow
recovery with many up and down patterns or a more L shaped depression
similar to the great depression of the 1930s. The underlying mechanism
for this pattern would be the inter-linkage between the Chinese and
United States economy. It is clear that Americans must repair their
balance sheets and are in deep debt trouble, but also the Chinese
economy is not faring so well according to Dave Cohen. He showed that
China's GDP numbers are inflated because of the way output is
calculated, and that recent GDP growth in China is (almost) entirely
due to a huge internal governmental stimulus which is not a
sustainable economic investment pattern. "The Chinese, traditionally a
nation of savers, needs to build up their domestic demand. This
requires steady “organic” year-over-year growth over the next decade
or longer. Otherwise, the economy overheats and you get mis-allocation
of resources (capital) and bubbles (like now)," according to Cohen. He
concludes that China will not provide the consumption engine the world
economy needs for sustained growth as their economy and domestic
demand is too small, and because of these factors, that Chinese oil
demand will not grow in the future at the levels seen pre-2008. The
implication of these factors is that there will be a much slower
return to high oil prices and several cycles of contraction before the
world's balance sheets are again at a reasonable level.
Figure 7 - China's GDP and lending, chart from Dave Cohen of ASPO USA
A third possible future which looks at the financial system as the
driver of our current situation was shown by Nate Hagens of The Oil
Drum (PDF1), (PDF2). Hagens disagrees with Kopits in calling this the
first peakoil recession: "I do not think peak oil caused this
financial crisis; peak oil is one of many symptoms of an exponential
growth based system running into finite limits." Due to continued
exponential growth in our financial system that was not based on
accumulating sufficient resources, we have accumulated so much debt
that this can no longer be paid off under any scenario. "We have an
amazing overshoot of debt, by my calculations the total amount of
debt, not derivatives but total debt, is between 230 and 290 trillion
dollars...That's beyond the ability to pay back...Basically we have
overextended the relationship between debt and real assets." according
to Hagens. He showed the amount of debt accumulation in the United
States shown in figure 8 below, but it isn't just the United States.
"The whole world is around 300% to 400% in debt relative to GDP."
Figure 8 - Debt accumulation, chart shown by Nate Hagens made by
Hannes Kunz of the IIER
As money is a claim on future resources, and these resources cannot be
forthcoming due to limits of growth, a debt deflationary spiral will
ensue, resulting in a downward trajectory of GDP, causing a decline in
resource prices that results in further underinvestment in resource
production. As the world comes out of this deflationary cycle, the
physical resource basis for renewed growth will have degraded
significantly, higher prices will kick-in again and GDP will be
affected. There was no comment on how long this reinforcing cycle
would continue or where it would end. Under this scenario we would
have already reached peak prices according to Nate Hagens because the
future economy can sustain only much lower prices due to the erosion
of resource capital. Conceptually this trajectory is shown in figure
9.
Figure 9 - Conceptual development of GDP and energy prices, chart
shown by Nate Hagens
Synopsis - uncertainty over our future path
Although supply side analyses show that oil supply can remain on a
plateau until around 2014 and would decline relatively slowly
afterwards, the picture may change significantly because of the
current disconnect between levels of debt in most economies of the
world and the physical resource base. Several future scenarios could
emerge as a result of this situation. In one future scenario we will
witness continued high oil prices as emerging economies are able to
sustain renewed strong growth and thereby outbid developed countries
with respect to future oil consumption. The resulting decline in
consumption in OECD countries will be relatively smooth as high prices
induce massive investment in energy efficiency and alternative fuels.
This assumes that such fast growth is possible on the existing
physical resource basis and that the current debt situation can be
managed in some way. In a second future scenario, we see a much slower
growth scenario in emerging economies as they too suffer from
overhanging debt and are too interlinked with developed countries to
be able to sustain high growth levels. The future will in that case be
more like a U shaped or even great depression like L shaped situation;
oil (and resource) price cycles will occur with high price volatility
and a lack of sustained investment. We can muddle through, but at
significant reduction in GDP as huge shocks ripple through the system,
and also huge risk of political and geopolitical cascades. In a third
scenario, the debt situation has become too big to solve globally, and
we enter a deflationary self-reinforcing spiral. GDP will spiral
downward, resulting in much less investment in the physical base of
our economies. In this scenario, even when the economy recovers,
resource scarcity kicks in due to a serious lack of investment, and
GDP again declines under the pressure of very high prices.
As to which of these futures (or variants) will occur, I have not made
sufficient analysis to offer an opinion, but I am sure that
collectively there is sufficient knowledge to point to which direction
is most probable.
Thanks to ASPO-USA
I want to expressly thank ASPO-USA for organizing this great
conference in Denver which has brought me many useful insights in the
relationship between oil and our economy.
3 comments on Insights Regarding Future World Oil Production Based on
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oiltrader888 on October 26, 2009 - 2:32am What is interesting to
me is that America has over 2-trillion barrels of oil in its Utah oil
sands and Colorado oil shale -- yet all official U.S. government
figures plot a very slow and relatively insignificant addition of this
oil to the national oil mix.
The oil industry and government officials seem to blindly accept that
the only way to extract oil from oil sands and oil shale is to heat
it, to boil out the heavy oil so it starts to flow. Obviously, by
using heat, there are unintended environmental consequences that only
Canada has been willing to accept - the consumption of huge amounts of
riverwater, burning of half the natural gas in the North country,
emission of more green house gases than an oil refinery and the
creation of effluent waste tailing ponds that pollute the groundwater.
But now in the 21st Century, using American ingenuity and geochemical
science -- there is a new, improved, zero-discharge, environmentally-
friendly way to extract oil from rocks -- using a tested, demonstrated
and proven technology: EncapSol solvent.
Check out these videos to see the potential future of clean oil
production -- this technology obsoletes all the government and
industry projections based on the inferior heat-based technologies
with all their negatives...
www.EncapSol.com/media -- to see oil sands dissolved cleanly in ice
water... and
www.EncapSol.com/tar-sands-and-oil-shale-extraction/ -- to see scaled-
up equipment proven to extract oil from tar sands / oil shale without
emitting any pollution or consuming any water or natural gas.
With its delivered production cost of <$33 a barrel -- I believe
EncapSol may be the one true game-changing technology that can help
America produce the 10-million barrels a day that it would need to
totally replace oil imports within the next decade.
And by what I saw in the videos -- EncapSol may also be a better EOR
method to employ than CO2 or steam-injection to dislodge and recover
the stranded, immobile oil that water-flooding fails to free.
Log in or register to leave a comment andyh on October 26, 2009 -
3:17am Rembrandt - a wonderful summation which will take me a while
to digest, many thanks.
Log in or register to leave a comment memmel on October 26, 2009 -
3:34am I like Chris Graph.
I'll go through my interpetation of the world using this graph.
For the Non-OPEC non FSU case.
Production 33.5 mbd or 12GB a year.
Reserves 175 GB.
At a constant production rate then the reserves would be empty in 14
years or a 7% depletion rate.
Next assume that a lot of the remaining reserves are not going to be
produced at this high production rate.
Say 50% will be at a lower rate. This puts you at a 14% depletion rate
for the "fast oil" or your out in 7 years.
Next of course I think this is itself no longer true since we are
declining already i.e the fast oil is much closer to gone or these
numbers where true about ten years ago not today. So the fast oil is
closer to zero.
Next assume the world actually produces the same way from its reserves
as the better documented Non-OPEC Non-FSU
Using this chart and adjusting the reserves to match output gives.
OPEC 182 Bnb
Non-Opec Non-FSU 175 Bnb
FSU 66.5
For a total of 432.
And as I said this number is dated i.e it was true ten years ago
effectively non of the oil produced in the last ten years has been
removed from reserve claims.
At 30GB a year globally then you run out in 14 years.
Assuming production rates decline rapidly say 70% of the way through
the 432GB of fast oil suggest you decline about 10 years after you
maximize your depletion rate.
Now this is really rough obviously regardless assuming a 10% depletion
rate and using this sort of argument that everyone is producing oil
the same way therefore the supporting reserve levels are the same then
noting that they haven't changed much in years despite the high
depletion rate and low new discovery rate.
You get the same answer. And no reason to believe the 175GB number for
Non-OPEC Non-FSU has not been inflated some its almost certainly high
not low.
And I am disregarding a lot of oil thats probably real and booked as
reserves right now but this is oil that is expensive or slow to
produce are generally both and the production rate for this oil will
be low. Notice I completely ignore tar sand production as being
irrelevant to our future. It literally does not matter if oil
production falls 50% over a span of a few years the tar is not going
to save the day.
In any case its not that hard to pull my scary scenario out of the
graph all your really doing is assuming OPEC is lying and same for the
FSU countries and to much smaller extent even the Non-OPEC Non-FSU
group.
I think the graph should be renamed the stack of lies :)
Whats funny is simply assuming everyone is actually about the same and
the Non-OPEC Non-FSU is close to reliable makes the situation
interesting and thats not a bad assumption to make at all.
It alone is sufficient to decide no way can the world produce at its
current levels for much longer and probably it will decline rapidly.
Then all you do is recognize that if thats true these numbers are time
shiftied i.e given what happened in 2008 you know the "decline" is in
the past.
chhotemianinshallah
China’s Sept. Coal Imports Rise as Economy Recovers (Update2)
By Bloomberg News
Oct. 26 (Bloomberg) -- China, the world’s largest coal user and
producer, increased imports of the fuel in September to meet rising
domestic consumption following an economic recovery.
Purchases rose 7 percent to 12.55 million metric tons last month from
August and were more than triple what the country imported a year
earlier, according to data from the customs office in Beijing today.
“The economy is improving, electricity demand is improving and so
domestic demand for coal is bouncing back,” said Li Dagang, a coal
analyst at Essence Securities Co. in Shanghai.
China’s demand for coal, used to generate 80 percent of the nation’s
power, is rising amid government stimulus spending that drove third-
quarter gross domestic product growth to its fastest pace in a year.
Net coal imports rose 7 percent to 10.53 million tons in September
from a month earlier as exports reached 2.02 million tons, according
to today’s data. Imports had declined in July from a month earlier
after the country re-opened small mines to meet rising demand spurred
by the economic recovery.
Net exports of diesel fell to 168,386 tons last month from 215,000
tons in August, according to the customs data. China has been a net
exporter of diesel since December after a slower economy curbed
consumption. Exports declined 26 percent to 293,759 tons from a month
earlier while imports dropped 30 percent to 125,373 tons.
China’s gasoline exports fell to 505,505 tons from 518,538 tons in
August. The nation didn’t import the motor fuel last month.
Record LNG
Liquefied natural gas imports climbed to a record 788,514 tons last
month. Imports of the fuel, used mainly to generate electricity, more
than doubled from a year earlier, today’s customs data showed.
China bought 495,243 tons of LNG from Australia, 126,679 tons from
Indonesia, 104,396 tons from Malaysia and 62,197 tons from Nigeria.
Imports had reached 668,232 tons in July, when demand rose during the
summer consumption.
Crude oil imports fell to 17.2 million tons from August’s 18.47
million tons, confirming preliminary data released on Oct. 14. Net
crude oil imports last month fell to 16.81 million tons, according to
the data.
To contact the reporter on this story: Baizhen Chua in Beijing at
bch...@bloomberg.net
Last Updated: October 25, 2009 23:10 EDT
bademiyansubhanallah
China's Vice Premier Li Keqiang says country's economic growth will
speed up
The pace of China's economic growth should speed up this quarter, but
the Government will keep its fiscal stimulus and loose monetary policy
in place, officials said.
By Angela Monaghan
Published: 5:58PM GMT 26 Oct 2009
Although China's rate of growth has slowed considerably in the face
of the global crisis, it has avoided sinking into recession Photo:
EPA
Li Keqiang, China's Vice Premier, said the economy was performing
better than expected and that a robust recovery was under way.
"The pace of growth is quickening quarter by quarter. China is
confident and is capable of achieving its full-year economic targets,"
he said. China has set itself a target of 8pc growth this year, and is
expected to meet that after bouncing back more quickly than expected.
America's QE exit strategy will have a global impactHe added however
that as obstacles remained, the Government would continue with its
"active fiscal and appropriately loose monetary policies".
Although China's rate of growth has slowed considerably in the face of
the global crisis, it has avoided sinking into recession. The economy
expanded by 8.9pc in the third quarter of this year, compared with the
same quarter a year ago. It followed 7.9pc gross domestic product
(GDP) growth in the second quarter.
Before the comments from China's Vice Premier, some economists felt
that positive news and rhetoric from China could signal an intention
from the Government to start unwinding loose policies. The Government
has injected a 4 trillion yuan (£358bn) stimulus package to boost the
economy during the global downturn.
"We...expect that the Chinese monetary stimulus will be gradually
removed as the global economy shows reassuring signs," economists at
Barclays Capital said in a note.
Geoff Lewis, head of investment services at JP Morgan Asset
Management, said Chinese economic growth now looked to be on a
sustainable path.
"To overwork a phrase that one no longer hears in a US context, the
Chinese economy has entered a "Goldilocks" growth phase where the
porridge/congee is neither too hot nor too cold, but is at just the
right temperature," he said.
"Besides the third quarter GDP release, the evidence from other key
economic indicators is that China's economy is back on a strong,
sustainable growth path that looks set to extend through next year
into 2011 and beyond," Mr Lewis said.
He cited a better-than-expected trade performance in September, with
exports up 9.3pc and imports up 12.8pc over the month, robust retail
sales, strong auto sales, recovery in the property market, and strong
figures from the manufacturing sector as positive signs for the
Chinese economy.
"China should end the year strongly," said economists at Barclays
Capital. "We have raised our forecast for 2009 GDP growth to 8.6pc
from 8.3pc but still expect some moderation in growth in coming
quarters."
chhotemianinshallah
Roach Says Credit Suisse, UBS Wrong on China Stimulus (Update1)
By Sophie Leung and Bernard Lo
Oct. 27 (Bloomberg) -- Stephen Roach, chairman of Morgan Stanley Asia,
said investors are wrong to bet that China will restrain its
unprecedented stimulus after the economy accelerated in the third
quarter.
“The Chinese really are fixated on one thing and one thing alone which
is social stability -- they don’t want to take a risk of another
negative growth surprise” slowdown, Roach said in an interview today
on Bloomberg Television in Hong Kong.
Roach’s view contradicts that of analysts at Credit Suisse AG and UBS
AG, who are among those predicting that China’s authorities will raise
banks’ cash reserve requirements as soon as by the end of December.
Government figures last week showed gross domestic product increased
8.9 percent in the third quarter from a year before, the fastest pace
in a year.
As the impact of the current stimulus wears off, China’s economy is at
risk of a renewed slowdown, according to Roach. To combat the weakest
expansion rate in a decade, policy makers enacted a two-year $586
billion stimulus package, and reduced the benchmark one-year lending
rate to a five-year low. The efforts kicked off a record $1.27
trillion boom in new loans.
China may “go back to the well with bank-funded infrastructure-led
spending programs” in the middle of next year, Roach said today. “I
don’t think that’s feasible over the near term given their concerns
about economic growth,” he said when asked about the prospects of the
People’s Bank of China raising interest rates in coming months.
Yuan Convertibility
Roach also predicted that China will “ultimately” allow the yuan to be
freely convertible to other currencies. While Chinese officials,
including PBOC Governor Zhou Xiaochuan, have called this year for an
alternative to the dollar as the world’s main reserve currency, they
maintain controls on the yuan that prevent it for now from becoming a
competitor.
The Morgan Stanley official added that the Hong Kong dollar’s peg to
the U.S. currency “will relax” after China makes the yuan convertible.
The unpegging of the Hong Kong dollar is out of the question for now,
he said.
Russian Finance Minister Alexei Kudrin said on Oct. 24 that the yuan
could become a global reserve currency in about 10 years should China
make it convertible. A change in Chinese policy would make the yuan a
“notable and weighty” reserve unit, Kudrin said in an interview on
state-run Vesti television channel.
Contrast With Goldman
Roach’s view about the risk of the expansion weakening next year also
contrasts with that of Goldman Sachs Group Inc. analysts.
“We do not share the view of some skeptics that China’s growth is
mostly reliant on government-led investment activities and therefore
when those stimuli eventually fade, we will experience a ‘double-dip’
in growth,” Goldman Sachs economists Yu Song and Helen Qiao wrote in
an Oct. 22 note to clients.
The Goldman analysts added that “while not denying the importance of
those government-led investments at the initial stage of the stimulus,
we believe the recovery has been increasingly driven by stronger
consumption, non-government investments and even exports.”
To contact the reporter on this story: Sophie Leung in Hong Kong at
sleu...@bloomberg.net
Last Updated: October 27, 2009 00:36 EDT
bademiyansubhanallah
FORTUNE MAGAZINE Fortune Investor Daily
Forget China, Brazil's a cheaper investment
(Fortune Magazine) -- Brazil has a lot of reasons to celebrate these
days. It recently won the competition to host the 2016 Olympics in Rio
de Janeiro, as well as the 2014 World Cup.
Its once-troubled economy has bounced back from the global financial
crisis more quickly than many, and its government debt earned an
investment-grade rating from Moody's in September. Unemployment is
down from its March peak, wages are up, and the Bovespa index, which
tracks the country's biggest stocks, has climbed 77% so far this
year.
Much like China, Brazil recovered quickly because of its fast-growing
domestic economy. In fact, while investors tend to think of Brazil as
a net supplier of food and fuel to the rest of the world, exports
actually account for less than a quarter of the country's GDP.
"Its economy is insulated and domestic-driven," says Pedro Martins, a
Bank of America Merrill Lynch Latin America analyst, who is based in
So Paulo.
The key point for investors is that Brazilian stocks are still cheaper
than those of other powerhouses like China and India. On average, they
are trading at 12.9 times next year's estimated earnings, compared
with China's 19.1 and India's 18.4, according to Martins. (The S&P
500's forward price/earnings ratio is 18.)
0:00 /04:39' Break up the banks'
To be sure, the country still struggles with income inequity and
political risks, including the upcoming presidential election. But
Martins believes the ascendant middle class will be a boon to domestic
sectors like banks, infrastructure, and consumer staples.
And while Brazil's economy will expand by 3.5% next year, according to
International Monetary Fund estimates, Martins believes that many
Brazilian companies will do much better, averaging 26% earnings
growth.
U.S. investors can buy shares of Brazilian companies through emerging-
markets funds like BlackRock Latin America (MDLTX), which has returned
32% annually over the past five years, or the Market Vectors Brazil
Small-Cap ETF (BRF), which invests in 56 small-cap stocks.
They can also choose from the many stocks that trade as ADRs in the
U.S. For example, Itau Unibanco (ITUB), Brazil's biggest bank, is on
Bank of America Merrill Lynch's list of recommended equities. "Because
of the rise of the Brazilian real, banks are looking attractive," says
Martins. "We expect loan growth to hit 20% next year."
As the Brazilian population amasses more spending power, consumer
staples stocks like AmBev (ABV), a brewer partly owned by Anheuser-
Busch InBev (BUD), stand to benefit.
"They have a huge market share in Brazil, which is a great place for
selling beer," says Jim Moffett, manager of the $4.6 billion Scout
International fund. Despite AmBev's impressive growth potential --
analysts expect it to boost profits by 14% annually over the next five
to seven years -- it's trading at a discount to brewers like Heineken
and SABMiller.
Fortune has on numerous occasions recommended Petrobras (PBR), the
Brazilian oil behemoth (for the record, we still like the stock, which
is trading at 10 times trailing earnings). A lesser-known stock with a
related focus is Ultrapar Holdings (UGP), the fuel distributor that
transports Petrobras's gas to retail outlets. Auro Rozenbaum, an
analyst at Brazil's Bradesco Corretora, is partial to Ultrapar because
of its stable margins and highly efficient operations.
Domestic consumption may be leading Brazil's recovery, but exports
aren't far behind. Unlike China, whose shipments of manufactured goods
will be slow to return to pre-crisis levels, Brazil ought to
experience resurgence in demand for its natural resources. Pedro
Herrera, an analyst at HSBC, likes the country's agribusiness sector
because it profits from both domestic and global growth.
Two of Herrera's favorites are Cosan (CZZ), which sells sugar and
ethanol, and Brasil Foods (PDA), a meat processor. Herrera says Cosan
will experience growth in both divisions -- sugar abroad, ethanol at
home -- as well as from newer ventures like logistics.
Brasil Foods, which was formed by the merger of rivals Perdigo and
Sadia, is a "poultry powerhouse" that sells mainly processed foods in
Brazil and raw meat to regions like Europe. Herrera thinks the
company's global reach will pay off: "The recovery around the world
will be a driver for growth."
Brazilian mining giant Vale (VALE) is already riding the wave of
recovery -- Brazil's iron ore exports have jumped, largely because of
China's appetite for steel. Dalhman Rose analyst Anthony Rizzuto says
that despite headwinds from a strong real, Vale, which is trading at
13 times trailing earnings, compared with an industry average of 15,
will continue to achieve high margins thanks to its rich resources and
low production costs.
He also forecasts an Olympic-size boost in domestic demand. "The
government is going to embark on major infrastructure programs," he
says. "Vale is uniquely positioned to benefit from that."
bademiyansubhanallah
It's China's world. (We just live in it)
(Fortune Magazine) -- You wouldn't think the men who run the oil-rich
country of Nigeria would have much spring in their step these days.
The nation is plagued by a never-ending guerrilla war, one that has
trimmed the country's oil production to two-thirds of its potential
capacity.
But now Nigeria is in the process of renewing production licenses for
some of its most prolific offshore fields, and there's a new player in
town making the traditional oil powers from the West (Royal Dutch
Shell (RDSA), Exxon Mobil (XOM, Fortune 500), Total (TOT)) very
nervous -- and the Nigerian government very happy.
CNOOC (CEO), one of China's three largest oil companies, is trying to
pick off some of the licenses; indeed, the Beijing-based company wants
to secure no less than one-sixth of the African nation's production.
And CNOOC, apparently, isn't screwing around.
Tanimu Yakubu, an economic adviser to the Nigerian President, recently
told the Financial Times that the Chinese company is "really offering
multiples of what the existing producers are pledging [for licenses]."
Then he added giddily: "We love this kind of competition."
China's acquisitions
Oil in Nigeria (and the Congo and Brazil and Kazakhstan and ...).
Natural gas in Iran. Iron ore in Australia. China's hunt for natural
resources around the globe, which began in earnest earlier this
decade, has intensified as never before.
In September alone, China's sovereign wealth fund, the China
Investment Corp. (CIC), shelled out nearly $1 billion to buy an 11%
stake in JSC KazMunaiGas Exploration Production, a Kazakhstan oil and
gas company. Just a week earlier CIC paid $850 million to acquire
14.9% of Noble Group, the Hong Kong commodity-trading powerhouse.
Earlier this summer the China Development Bank lent Petrobras, the
Brazilian national oil company, $10 billion to help fund exploration
in deep waters off Brazil.
So far this decade China has spent an estimated $115 billion on
foreign acquisitions. Now that the nation is sitting on massive
foreign-exchange wealth ($2.1 trillion and counting), it is eager to
find something (anything!) to invest in besides U.S. Treasury debt.
0:00 /3:58U.S. - China trade tenses up
In 2008, China's investments abroad doubled from $25 billion to $50
billion. Yes, China still lags the U.S., which, as the world's largest
exporter of capital, invested $318 billion abroad last year. Yet in
many ways, China has only begun. And it won't stop anytime soon.
Though still focused mainly on the natural resources that power its
economy, China is now, slowly but surely, broadening its foreign-
investment horizons. Both the government and private firms are
beginning to look beyond the developing world for assets.
Already the Chinese have bought stakes in foreign banks, utilities,
and semiconductor companies. This is a hugely consequential step, both
for China and for the global economy.
In the first decade of the 21st century, China established itself as
the world's workshop. The next decade (if things go right) could see
China emerge as the world's leading exporter of capital.
As Daniel Rosen, the coauthor of a recent study on China's foreign
investment and a principal at the Rhodium Group, a New York City
consultancy, puts it, "Increasing foreign direct investment is the
next critical step in China's integration into the global economy."
How critical? China's recycling of the dollars it earns via its trade
surpluses is a key part of the "rebalancing" of China's economy that
everyone knows needs to occur. China saves too much, consumes too
little, and has been overly reliant on exports to fuel its economic
growth.
The current binge of growth at home -- nearly 8% in the first half of
2009 -- has been driven by a huge upsurge in credit growth from state-
owned banks, as well as massive government stimulus spending. Neither
is sustainable, and indeed, policymakers in China have already begun
to rein in the surge in bank lending.
Make no mistake, the way Beijing has generated growth in 2009, however
impressive it may look from afar, will prove to be an aberration. Once
this period of crisis passes, China has no choice but to confront the
necessity to drive up household incomes and private consumption.
This macroeconomic adjustment will, among other things, require a
stronger renminbi to boost the Chinese consumer's purchasing power. A
more valuable currency will also make foreign assets cheaper for
acquisitions, driving microeconomic decisions at the company level.
From factory to owner
The implications for Chinese companies are huge. Becoming the world's
factory has pretty much taken China's economy as far as it can.
As consultant Rosen puts it, "For a lot of Chinese companies, domestic
economies of scale are now maxed out." China's corporate sector does
not need to invest in and run factories that sell sneakers for Nike or
toys for Mattel or auto parts for Magna. Chinese companies need to
become Nike, Mattel, and Magna. They need, in consultant-speak, to
move up the value chain.
Another reason the Chinese are buying stakes in foreign companies --
or buying them outright -- is that so few domestic companies have
experience operating in the U.S. or Europe. Everything -- from the
regulatory and legal environments to auditing and consumer safety
standards -- is alien to the Chinese.
Arguably the most painless mode of entry for them is outright
acquisition. That's what Chinese computer maker Lenovo did when it
bought IBM's PC business in 2005 -- one of the few high-profile
acquisitions of a U.S. business by a mainland company. Lenovo had a
dominant position in PCs at home but little presence abroad. The
acquisition changed that instantly. Lenovo has since worked hard to
maintain the image of a global, as opposed to a Chinese, company.
This process, which China has called its "going out" strategy, will
not happen overnight. But make no mistake, it is gaining momentum.
Take Geely, for example, an ambitious, privately owned automaker based
in Hangzhou, a city just south of Shanghai. Its CEO, Gui Shengyue,
said last month that the company was interested in buying Volvo's car
business from Ford (F, Fortune 500). A deal may or may not happen (of
late Volvo's management has been throwing cold water on the idea). But
the interest shown by a credible Chinese company in wanting to buy a
big, established brand abroad should not be ignored. It's a signpost
to the future.
Real estate fever
A big part of that future will involve China investing in financial
assets and real estate. Look only at the number of trips that the
world's leading hedge fund managers have been making to Beijing this
year. They go for the same reason Willie Sutton robbed banks, but they
arrive at the headquarters of CIC as supplicants on bended knee,
desperate for investable capital in the one place in the world where
that is very much in surplus.
CIC has $300 billion of the nation's money to invest, and it has now
begun doling out dollops of it to a variety of Western investment
managers because it has nowhere near the capacity to run that kind of
money by itself. So in September it gave $1 billion to Oaktree Capital
Management, the L.A. firm that specializes in buying distressed debt
securities (an area that yielded huge returns in the past year).
Analysts expect an additional $2 billion to go to Western hedge funds
and money-management companies in the next few months -- and that
represents only a sliver of CIC's forthcoming investments.
J.P. Morgan & Co. in Hong Kong estimates that Beijing's sovereign
wealth fund will invest $50 billion in the coming year. CIC officials
have had recent discussions with several private equity managers --
including BlackRock (BLK, Fortune 500) and Lone Star -- about
investing in U.S. real estate. "Mortgage-backed debt as well as
outright purchases of buildings," says one banker with knowledge of
the talks. "You name it, it's on the table."
Investment advisers who have talked with CIC's top management have
said that they are acutely aware of what one investment banker calls
"the Japanese precedent." In the late '80s and early '90s Japanese
companies splurged on trophy properties, including Rockefeller Center,
and wildly overpaid for many of them.
CIC itself, in one of its first investments, bought a 9.9% stake in
the Blackstone Group (BX) just before the company's $31-a-share IPO --
and just before the market crashed. (Blackstone now trades at $13.60.)
"They are being very careful and very disciplined in their approach to
potential real estate investments," says one Western banker in talks
with CIC.
The Chinese have already learned from bitter experience that
investment abroad is not always win-win. Far from it, in fact. Their
first whiff of that reality came in 2005, when CNOOC tried to buy
Unocal, the Los Angeles-based oil company, and was rebuffed. The
effort triggered opposition in Washington -- some congressmen
questioned the wisdom of letting a big American oil company get taken
over by a partially state-owned company from a country that, while not
an enemy of the U.S., is not an ally either.
As China's state-owned companies increase their foreign investments,
expect repeats of the Unocal case. Australia's foreign investment
review board recently recommended that no foreign company be allowed
more than a 15% stake in any of the country's natural resources
companies. That decision, coming in the wake of China's state-owned
aluminum company's failed effort to acquire nearly 20% of mining giant
Rio Tinto (RTP), is aimed squarely at Beijing.
At a time when trade tensions with Beijing are rising in the wake of
President Obama's decision to slap tariffs on Chinese-made tires, the
cry of the trade hawks is easy to anticipate: Chinese state-owned
companies can buy our assets here, but can we turn around and buy a
state-owned company in China?
The answer is no, but that doesn't mean the U.S. should not take
China's money. Washington needs to set clear guidelines for Chinese
investment. Are all U.S.-based energy companies off-limits? Or only
some? Or none? Says Rosen: "I expect China will play by the rules --
provided it knows what the rules are."
Let's hope he's right. Because the Chinese have more dollars than they
know what to do with, and economies benefit when both goods and
capital flow freely across borders. The U.S. ought to set aside its
current economic insecurity and answer a simple question correctly: If
the Chinese want to park more of their money in American assets
(besides Treasury bills), why wouldn't we open our pockets and take
it?
First Published: October 8, 2009: 8:59 AM ET
bademiyansubhanallah
China buys the world
Chinese businesses, their coffers overflowing with state money, have
been doing progressively bigger and bolder deals.
1 of 8 Money machine
• It's China's world. (We just live in it)
• U.S. - China trade tenses up
Thanks to the export of cheap products, like these Limited t-shirts
being made in this factory in Lesotho, China has amassed some $2
trillion in foreign reserves.
To rebalance its economy and to fuel growth beyond light
manufacturing, China plans to invest some of that cash abroad in
industries ranging from finance to autos to semiconductors.
By Maha Atal, reporter
bademiyansubhanallah
SPECIAL FEATURE 50 Most Powerful Women in Business
Indra Nooyi is the queen of pop
The No. 1 Most Powerful Woman, PepsiCo CEO Indra Nooyi, talks about a
recent trip to China, the "age of thrift," and why operating
experience is overrated.
By Patricia Sellers, editor at large
Last Updated: September 10, 2009: 2:14 PM ET
Indra Nooyi, chairman and CEO of PepsiCo
(Fortune Magazine) -- How has the global downturn impacted Pepsi's
strategy?
The age of thrift is here. You have to do innovation at both ends --
premium innovation and innovation for the value consumer.
Are you managing differently now?
Being visible is incredibly important. People need to know that the
CEO cares about them and has a realistic vision for the world. I've
been traveling as much as I can and doing as many videos as I can.
Is there a quality that a strong manager has to have today?
Adaptability. You have to be willing to think destructively. You have
to be able to say, "There's a great model in Brazil. Who cares that I
didn't develop it? Let me lift and shift."
In June you spent 10 days in China. What did you learn?
The Chinese are very comfortable about themselves and China's place in
the world scene. I spent some time at a university for traditional
Chinese medicine. There's a resurgence of people eating according to
traditional Chinese medicine. So our challenge is, How do you marry
traditional Chinese medicine with PepsiCo's products?
0:00 /5:08Leading PepsiCo in tough times
What do you think of the worries about too much stimulus -- a bubble
in China?
We should worry about it in the West rather than worry about China.
They take long-term strategic planning to a new level.
I was in a city in Inner Mongolia -- Baotou, a city of 2.5 million
people. For China that's a small city. The city had four-lane
highways, beautifully laid-out streets, modern buildings, modern
supermarkets. I didn't expect to see this at the edge of a desert in
Inner Mongolia.
Rather than say, "Go to the frontier and settle down," the Chinese
government says, "We'll settle the frontier for you. Come and join
us."
Why are you investing $1 billion in Russia?
Because the oil price bubble gave them a lot of wealth and the Russian
consumer still has a lot of money to spend. But China and Russia are
very interesting contrasts. In China any amount of investment is not
enough. In Russia you've got to think, Are we overinvesting?
Your two predecessors atop the Most Powerful Women list are going into
politics -- former eBay CEO Meg Whitman is running for governor of
California. And it looks as if former Hewlett-Packard CEO Carly
Fiorina plans to run for the Senate.
More power to them! They can take the spotlight. I'm not that deft a
politician. Give me a thorny issue. I'll go work on that issue to get
to the right answer. Then [someone else] can decide how to spin it.
Before you became CEO, Fortune wrote that Indra Nooyi would probably
never get the top job because she'd never held an operating position.
What did you think of that?
The most overrated skill is "running a business." To me, the single
most important skill needed for any CEO today is strategic acuity.
[Former PepsiCo CEO ] Roger Enrico believed that.
When I was going to run the European business in 1996, he said, "I'm
pulling that. You're going to stay back." I said, "Why? I put my kids
in school. I rented a house. Why do you want me to stay back here?" He
said, "I can get operating executives to run a P&L. But I cannot find
people to help me reconceptualize PepsiCo (PEP, Fortune 500)." That's
the skill in shortest supply.
First Published: September 10, 2009: 9:11 AM ET
bademiyansubhanallah
For Mr. BRIC, nations meeting a milestone
Goldman Sachs chief economist Jim O'Neill coined the term, but
couldn't have imagined its impact.
By Beth Kowitt, reporter
June 17, 2009: 2:52 PM ET
NEW YORK (Fortune) -- For the first time, Brazil, Russia, India, and
China -- dubbed the BRIC nations -- held a summit this week to discuss
the global economy and their role in it.
But the gathering in Russia might never have happened if Jim O'Neill,
Goldman Sachs chief economist, hadn't created the acronym in a 2001
paper exploring the countries' impact as emerging economic
powerhouses. Fortune talked with O'Neill about the idea's evolution,
its ever-increasing relevancy, and what it's like to be Mr. BRIC.
Following are excerpts of the conversation.
How did BRIC come about?
I'd been co-head of economic research at Goldman Sachs (GS, Fortune
500), but after 2001, my fellow co-head left to become chairman of the
BBC, so I had to run the department on my own. Goldman Sachs quite
rightly puts an enormous amount of importance on this job. I thought,
"Oh, my God -- I've got to put my own imprint on this department for
the future."
I was searching for a theme and a new idea. So the specific thing that
really led to [BRIC] was 9/11. Around the horror of that event, the
underlying message was that globalization was going to continue and
thrive. It was going to have to be on a more complex basis, and it
wouldn't effectively be about the Americanization of the world --
because that was how it seemed to be in the eyes of many. Even though
9/11 wasn't a direct sign of this, it crystallized the thought in my
head. In November of that year, I wrote a paper called "Building
Better Global Economic BRICs." It showed you couldn't run the world
properly without having these guys more involved.
Did you think it would have this impact?
Not this impact. It's transformed my own life. The impact really
started to grow two years later, when we did our first piece looking
at what the world could look like by 2050, which picked up on the
theme of my earlier paper. We showed that some time between then and
2050, specifically 2037, the combined GDP of those four countries
could become bigger than the G7. After that, interest from the
international corporate community absolutely exploded, and it's been
crazy ever since.
When did it break out of the corporate world into the mainstream
lexicon?
It started post-2003. It's just grown and grown. These days, obviously
on a day like this, I'm sort of proud in a strange way that these guys
are meeting together. People think that my job now is being Mr. BRIC.
I must get invited to go and speak at things around the world anywhere
from one to eight times a day.
0:00 /1:04Asian economies bounce back?
Why did you group these countries together?
The common thing is that all four have a lot of people, with Russia
being the smallest at 140 million. Because of globalization, my basic
tenet was that if these countries embrace productivity changes that go
with global trade and globalization, given that they have such a large
number of people, they're likely to become big. That was the simple
premise.
Are there any countries that you think should be added?
We've studied that in some detail a number of times. I created a
phrase after it called the Next Eleven. It's a phrase to describe the
11 developing countries with the largest populations after the four
BRICs. We did it purely to see what their BRIC potential was. Mexico
and Indonesia could possibly get close to the size of Russia in the
future, but nobody else could get close to it and probably not those
two either.
Should any be dropped?
It's very popular these days for people to say we should drop the "R."
But Russia, over the seven and half years since we've had the phrase,
has actually grown more than we assumed. The only one that hasn't is
Brazil. The idea that we should forget Russia because it had a crisis
in the last year, that's like saying the United States should be
dropped from the G7 because it had a crisis. It's kind of crazy.
Do you think BRIC is more or less relevant today when we talk about
these countries?
[More so,] witnessed by the fact that they've chosen to actually get
together. Collectively, they're 15% of global GDP, and China's about
to overtake Japan. Brazil and Russia have overtaken Canada, and
India's soon going to do so. You can't think about the world without
thinking about all its bricks, and these four are part of it. We
radically need overhaul of the IMF, the G7, the G8, to give these guys
a much bigger say in the running of the world. If they don't get it,
this meeting will be the beginning of many.
Did the BRICs resist being grouped?
They've all been in their own way extremely flattered. I've met many
senior people in all these countries as a result of it, and they're
all delighted that we chose to put them on the global map in this way.
Do you think the terminology is the impetus behind the meeting?
Bizarrely as it sounds, I've not really thought about it, but I guess
it must be. Without it, why would these guys have gotten together? It
sounds slightly scary in saying it to you, but I guess it must be,
really.
Did you play around with it a little? We could have had CRIB.
[Goldman chairman and CEO] Lloyd Blankfein occasionally jokes to me
that I should have called it CRIB. I said I never thought of that, but
even in hindsight I don't think I should have given it any
consideration because it would have implied that they were just
babies.
bademiyansubhanallah
Global breakdown: Winners and losers
From Moscow to Mumbai, investors and consumers are feeling Wall
Street's pain.
By Peter Gumbel, Europe editor
September 30, 2008: 5:17 AM ET
(Fortune Magazine) -- So much for the theory of "decoupling," the
hopeful notion held just a few weeks ago that the rest of the world
was robust enough to ride out a U.S. domestic crisis.
If the world has learned anything from the American banking meltdown,
it is that chaos on Wall Street hits every part of the globe: Witness
would-be oligarchs in Russia scrambling to cover margin calls,
policyholders in Singapore queued up at offices of American
International Assurance (as AIG (AIG, Fortune 500) is known in Asia)
to close investment accounts, and - mon Dieu! - a new poll showing
three-quarters of the French public, usually unmoved by events on Wall
Street, worried that the financial shakeout will hurt them too.
Of course, the crisis isn't affecting all countries or even all
economic sectors equally, and it isn't clear how this latest case of
financial contagion will play out. But here are some early takeaways
from around the globe.
Financial services are great, until they cause catastrophe. London,
long locked in a contest with Manhattan for the title of world
financial capital, risks being hit as hard as New York because its
economy is just as dependent on financial services. "We're in for a
difficult time," says British real estate mogul Vincent Tchenguiz, who
predicts a five- to seven-year pullback in his business.
The biggest international loser to date is Moscow, where billionaire
wannabes leveraged themselves up to their fur hats in international-
bond and syndicated-loan markets, pledging stock as collateral. The
Russian stock market shut down for almost three days when the
cascading margin calls crashed prices. At the same time, some of the
nation's 1,200 banks are tottering.
This is the moment of truth for banks around the world. Analysts have
predicted international banking consolidation for years, but now it's
really happening. Noel Gordon of Accenture in London expects a flurry
of banking marriages over the next 18 months.
Commercial banks in the strongest position include Britain's HSBC
(HBC), Spain's Santander (STD), France's BNP, Italy's Unicredit, and
Britain's Lloyds TSB (LYG), which snapped up its struggling rival HBOS
just days after Lehman Brothers failed. In the past month alone, two
big mergers have been announced in Germany, and Bank of China bought a
20% stake in the private-banking arm of the fabled Rothschild family,
Cie Financière Edmond de Rothschild.
Whether any of those commercial banks buy up local or regional
investment banks (à la Bank of America (BAC, Fortune 500) and Merrill
Lynch) remains to be seen, but certainly "the survivors of this
cyclone," opines Rothschild CEO Michel Cicurel, "will emerge
strengthened."
A roaring economy isn't a perfect defense, but it sure helps. The
stock and bond markets of some of the world's fastest-growing
economies have been hit especially hard by the crisis: China's
Shanghai Stock Exchange is down 50% this year. The Brazilian bond
market has taken a pounding, and, as we've already noted, Russia
shuttered its stock exchange altogether.
Yet all those countries continue to grow: China's economy is on track
to expand by about 9%, Brazil just raised its growth forecasts for
2009, and even Russia should manage 7% growth in 2007, thanks to
continuing torrid demand for its biggest resources, oil and gas.
That growth won't offset the slowdown in the U.S. and Western Europe,
but it perhaps can keep the world from going into a complete tailspin.
Besides, the newly minted middle classes in emerging countries will be
looking for safe places to invest their money (especially if they've
pulled out of AIG), creating opportunity for the survivors of the
crisis.
bademiyansubhanallah
Chinese Vice Premier: China's economy better than expected
2009-10-26 19:17 BJT
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Chinese Vice premier Li Keqiang says the country's economic recovery
has strengthened and is better than expected. But he has also warned
about the weak foundations for a global recovery, and criticized
protectionism.
Li Keqiang echoed market expectations after previously released third
quarter economic figures showed growth has accelerated to 8.9 percent.
Li Keqiang, Chinese Vice premier, said, "The momentum of China's
economic recovery has been consolidated and economic development is
better than expected at the beginning of the year."
China set its annual GDP growth rate target at 8 percent but the
international community feared it was out of reach as the rest of the
world struggled with recession. China's first quarter growth slowed to
6.1 percent. But the second and the third quarters saw a 7.9 and 8.9
percent increase. The last quarter is expected to hit more than 9
percent as the record 4 trillion yuan stimulus package continues to
have an impact on domestic investment and consumption. But the Vice
Premier warns of economic uncertainties and criticized trade
protectionism.
Li Keqiang said, "Trade protectionism is obviously on the rise. The
phenomenon of using tariffs to raise the threshold for market access
is growing. This will hinder the world economic recovery and harms the
relationship between countries. This is something that hurts others
and does not benefit them and we will never do that."
Li Keqiang, Chinese Vice premier
bademiyansubhanallah
China to beat India in gold consumption
2009-10-27 15:50:00
Futures on Your MobileLog on to Bazaar BhaavGet Futures PricesExchange
Spot RatesBEIJING (Commodity Online): Chinese are not only buying
diamonds nowadays, they are equally interested in gold jewellery.
And this increased love of Chinese for gold may cause a huge rise in
gold jewellery sales in China. According to market analysts, middle-
class buyers in China, the second-biggest gold user, drove a 16 per
cent gain in gold and silver jewellery sales in the first nine months.
China’s economy grew 8.9 per cent in the third quarter, the fastest
pace in a year, and the World Gold Council said in July that the
nation may pass India as the biggest consumer. Bullion is on course
for its ninth annual gain after the dollar weakened and demand for
gold as a store of value increased.
The Chinese have only started to buy gold as an investment product,
and there’s huge room for this sector as the middle class grows.
China’s household savings reached 26 trillion yuan ($3.8 trillion)
this year. Gold and other jewellery sales in China are forecast to
reach 260 billion yuan this year, only 1 per cent of the total
household savings.
Sales in India have been poor during the holiday season amid record
prices and the nation’s imports will decline. Sales in India during
the Diwali week peaked to 56 tonnes.
Sales in China will also be boosted by demand for wedding jewellery.
bademiyansubhanallah
Supply chain 2015 - the blurring of operational supply chain planning
and execution
Published October 27th, 2009 by Trevor Miles
Dan Gilmour of Supply Chain Digest in his newsletter for Oct 22, 2009
published a list of “things” that will change in supply chains by
2015. There were a number of things that Dan identified that really
boil down to the blurring of operational supply chain planning and
execution. We have been seeing this trend for some time, driven by
the volatility of demand and outsourcing, which in turn drive the need
for greater responsiveness. My full response to Dan’s article is
below. I would welcome your comments.
Great article, Dan.
I liked your identification of the drivers, and wished that there had
been more prediction of what the consequences would be. For example,
how will companies reconfigure their supply chain? In this particular
case, I think we only have to look at Apple and Cisco to see some
direction. Both of them outsource virtually all their production. And
of course Apple, as you state in your article, is at the forefront of
the “digitization” of the supply chain.
What really fascinates me is the rise of the brand owners in China and
India. I saw an article today in McKinsey Quarterly that China’s
economy grew 8.9% in Q3 this year. Even in the boom period before
2000, growth rates in the US fell short of this number. Of course,
this is even more startling when comparing the growth rate in China
over a similar period.
I think we are missing the effect this will have on the Western brand
owners such as Apple. It might seem counter-intuitive given Apple’s
record quarter and I have no idea of the product strategy, but I
wonder how much they are designing products for the Western world and
how much they are assuming the Eastern consumer needs are the same.
As you correctly point out, there will be huge impacts on “product
design, pricing, logistics and much more.” I am fascinated by the
growth of Eastern brand owners such as Acer, Lenovo, and Huawei. We
have weathered the storm of the Japanese companies in the 1980’s –
Sony, Toshiba, Toyota, Matsushita, … but those were different economic
times when those companies were designing products for a western
market.
I am not yet convinced that Western brand owners are paying sufficient
attention to the needs of Eastern markets. These have been very
Western focused, but I suspect as the pride in their countries
economic performance grows, so will their confidence and demand for
products to meet their specific needs.
We have a number of customers who are the forefront of the blurring of
operational supply chain planning and execution. Of the 10 things you
identify, I think this is a consequence of many of the others. And you
are correct, this blurring is reaching up into tactical planning too
with more and more companies running S&OP on an as-needed basis.
The factors you identify, specifically reduced inventory levels and
pervasive visibility, are driving this blurring. We all know that
inventory has been used as a buffer between the demand and supply
chains. Reduced inventory levels require a much more agile supply
chain that is very responsive to change. And of course the supply
chains need to be reconfigured to be more responsive.
Dashboards are of course a necessary precursor to understanding
whether or not one is on-track to meet future objectives and any
deviations need to be addressed before they become “actuals” and
appear in a scorecard.
Once again, thanks you for a great article.
bademiyansubhanallah
HK, Shanghai shares fall on interest rate concerns
Wed Oct 28, 2009 1:45am EDT
Market News Asia shares dip, Aussie dollar retreats on rate talk Oil
rises toward $80 on economic recovery signs | Video Nikkei slips as
tech shares sold, Honda gains More Business & Investing News...
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* China, HK shares fall on concern over higher interest rates * Wynn
Macau slumps on downbeat outlook of parent * Air China advances after
returning to profit (Updates to midday) By Jun Ebias and Claire Zhang
HONG KONG/SHANGHAI, Oct 28 (Reuters) - Shares in Hong Kong and China
fell on Wednesday, as property counters eased on concern about a
possible shift toward a tighter monetary policy by Beijing as the
economic recovery gains momentum. The benchmark Hang Seng Index fell
1.66 percent or 368.64 points to 21,800.95 on Wednesday morning.
Turnover was HK$40.00 billion ($5.2 billion), versus midday Tuesday's
HK$42.84 billion.
"The Hong Kong stock market is running out of steam and that's
encouraging investors to take profit," said Andy Lam, a strategist at
Harris Fraser (International). "From last week, we do see the market
getting a bit overbought." Hong Kong stocks rallied to their highest
in 14 months on Friday. Wynn Macau (1128.HK) tumbled 8.26 percent
after its parent, Wynn Resorts (WYNN.O), gave a downbeat outlook,
causing its share to drop 10 percent in the United States.
[ID:nN23120887] Aluminum Corp of China (2600.HK) was down 2.55
percent. The aluminium maker returned to profit in July-September
after three quarterly losses, but its net profit of 21.27 million yuan
($3.11 million) in the third quarter was down 88 percent from a
restated profit a year earlier. [ID:nHKG177802] China Shipping
Container Lines (2866.HK) fell 2.97 percent. The company posted a 1.94
billion yuan ($284.1 million) loss for the third quarter ended
September. ZTE Corp (0763.HK) slumped 3.85 percent. China's No.2
telecommunications equipment maker posted a 58.2 percent rise in
profit, beating a consensus forecast, as domestic providers build new
3G networks. [ID:nPEK245247] The China Enterprise Index .HSCE of top
locally listed mainland Chinese stocks was down 2.04 percent at
12,876.84. Bucking the downward trend, mainland airlines gained after
posting profits in the third quarter. Air China (0753.HK) rose 1.16
percent, after the mainland carrier's earnings returned to the black
in the third quarter,
with a boost from fuel-hedging gains and a strong rebound in domestic
air travel. [ID:nSHA270125] China Southern Air (1055.HK) advanced 1.67
percent. Ping An Insurance (2318.HK) declined 2.45 percent. The
mainland insurer returned to a quarterly profit in July-September but
warned that low interest rates and stock volatility could weigh on
profit in the final quarter. [ID:nPEK271534] Hong Kong developers
extended their declines on concerns the government may impose more
measures to curb a faster climb in property prices. New World
Development (0017.HK) fell 4.45 percent and Sino Land (0083.HK) was
4.12 percent lower. The Hong Kong Monetary Authority on Friday said it
would
implement measures to slow a surge in luxury property prices,
including capping mortgage loan values. [ID:nHKG305705] China Shenhua
Energy (1088.HK) shed 2.06 percent, even after
reporting a 12 percent rise in profit. [ID:nHKG254113] In Shanghai,
China Shenhua (601088.SS), the world's most valuable
coal producer, slipped 0.52 percent to 34.61 yuan. SHANGHAI SLIPS The
Shanghai Composite Index .SSEC ended Wednesday morning at 2,988.952
points, after posting its biggest one-day loss in five weeks on
Tuesday. Losing Shanghai A shares outnumbered gainers by 636 to 239,
while turnover shrank to 60 billion yuan ($8.8 billion) from Tuesday
morning's 70 billion yuan. The market is also eyeing the pending start
of trade this Friday on ChiNext, a Nasdaq-style second board for start-
ups,
where an initial 28 companies are to debut in the first batch. "The
index may fluctuate around the key 3,000-point level in
the short term, with some money maybe looking at Friday's listing of
start-up shares, but economic recovery is on track and this may offer
support," said Chen Jinren, senior analyst at Huatai Securities in
Jiangsu. The official China Securities Journal cited the Beijing-based
Unirule Institute of Economics as saying that China's economy would
grow by 8.2 percent in 2009, while the CPI would fall 0.1 percent for
the same period. But the improving economic outlook has also left
investors wary about a gradual exit from the government's loose
monetary policy. Property sector heavyweight China Vanke (000002.SZ)
was down 2.34 percent at 11.70 yuan, while Wuhan Steel (600005.SS)
lost 2.82 percent to 7.24 yuan.
(Editing by Chris Lewis)
bademiyansubhanallah
A Theory of Non-Relativity
By Scott Sumner|Oct 27, 2009, 3:50 PM|Author's Website
Yesterday’s online version of The Economist, also known as known as
Free Exchange, did a nice piece on my recent China post. They
contrasted my views with those of Paul Krugman, and also asked a few
questions. Here I’ll try to respond to those questions, but first
I’ll clarify exactly where Krugman and I differ.
First some areas where we agree. Both Krugman and I see the biggest
macro problem over the past 14 months as being the sharp fall in
aggregate demand over most of the world. We are both strong
supporters of additional stimulus; indeed we are both among the
diminishing band of economists who still favor additional stimulus.
We both strongly oppose monetary tightening by the Fed, ECB, and BOJ.
But there are also some key differences, which may have indirectly
contributed to our opposing views on the Chinese Rmb. In the US I
favor additional monetary stimulus and oppose fiscal stimulus.
Krugman is not opposed to additional monetary stimulus, but doubts the
effectiveness of such actions when the policy rate is near the zero
bound.
There is pretty general agreement that central banks have almost
unlimited ability to depreciate their currency. And most major
central banks (including the Fed and the People’s Bank of China) have
the resources necessary to sharply increase their nominal exchange
rates, if they so desire. So I agree that the Chinese government
could appreciate the yuan in nominal terms. Let’s put off the issue
of saving rates and current account deficits for the moment, and grant
Krugman’s assumption that the PBOC could also appreciate the real
Chinese exchange rate, at least for a considerable period of time.
The question is whether it would be wise. I think it would be bad for
China, and bad for the world.
However, my reasons are not what you might expect, as I look at the
issue from a money/macro perspective, not a trade perspective. If the
Fed were to adopt a much more aggressively expansionary monetary
policy, and if this led to a higher value of the Chinese yuan, I’d be
in favor. So why does it matter how the Chinese currency appreciates,
as long as it appreciates? Because an exchange rate is merely the
relative value of two currencies, it tells us nothing about the
absolute value of those currencies in terms of goods and services,
which is much more important. If the Fed adopted a much more
expansionary monetary policy, and if the PBOC kept its policy stance
the same, then world monetary policy would become more expansionary,
and world aggregate demand would increase. That would help everyone.
I’m going to go out on a limb and suggest that Paul Krugman very
likely agrees with the preceding analysis, at least at a technical
level. So why is he calling on the PBOC to appreciate the yuan
against the dollar (a tight money policy), rather than call on the Fed
to depreciate the dollar against the yuan. I think there are at least
4 explanations he might give:
[Update: A commenter named 'original anon' pointed out the preceding
was misleading; the yuan rate is determined by the Chinese
government. I should have said "rather than call on the Fed to try to
depreciate the dollar with a more expansionary policy."]
1. Krugman might argue that we have already depreciated the dollar
(against the euro and yen) and the Chinese have refused to play ball.
Rather than keep their exchange rate stable against a basket of
currencies, they have let it fall by tying it to the falling dollar.
And I am sympathetic to this argument. But the bottom line is that no
matter how weak the dollar looks, it is not as weak as it needs to be
in absolute terms, i.e. against goods and services. Expected growth
in prices and NGDP (my preferred indicator) is still too low. So yes,
the yuan is weak against the euro and yen, but the currency it is
stable against (the dollar) is itself too strong.
2. Krugman might argue: “Yes, it would be better to depreciate the
dollar by making US monetary policy more expansionary, but at the zero
rate bound that is not possible.” (Or perhaps he’d argue that it is
theoretically possible but would require extreme and risky
unconventional policy steps that the Fed is too conservative to
take.) Much of this blog has been devoted to refuting that argument.
I think the Fed could stop paying interest on reserves, perhaps even
impose an interest penalty on excess reserves. And they could engage
in quantitative easing (something they have not done during 2009,
despite reports to the contrary.) And by far the most important and
powerful step would be to set an explicit nominal target, a trajectory
for the price level or NGDP to grow over time.
3. Krugman might argue that because the Chinese economy is growing
vigorously they don’t need any more stimulus, and they are stealing
jobs from the rest of the world with a low yuan policy. There might
be a bit of truth to this argument, but I would argue the net effect
of their action is much more likely to be positive. A strong Chinese
economy boosts world AD. Furthermore, other countries are free to
adjust their currencies appropriately. The South Koreans responded to
the Chinese policy by letting the won depreciate during the crisis.
(Don’t ask me about the BOJ, I have not understood one thing they’ve
done since 1993.) You might wonder whether this could lead to a
currency war, each country trying to depreciate its currency against
the others. Maybe, but that is precisely what you’d like to see
happen in a world economy where AD has collapsed because conservative
central bankers don’t understand that their policies drive the
expected rate of growth in nominal GDP. Or perhaps I should say they
don’t understand that this well established proposition applies not
just in normal times, but also during financial crises. Obviously
competitive devaluations could get out of control, leading to excess
demand. But I’m with Krugman on this issue, the threat to the world
economy for the next few years is too little AD, not too much. And
the markets seem to agree. Not just the equity markets, which clearly
favor monetary ease, but the indexed bond market, which shows very low
inflation expectations over the next two years. (BTW, if you think
only a slightly nutty economist could recommend a round of competitive
devaluations, consider this post by the respected Barry Eichengreen.)
4. Krugman might argue that the Chinese could insulate their domestic
economy from the impact of a yuan appreciation. They could appreciate
the yuan without tightening domestic monetary policy. After all, they
still have strong currency controls. But these controls are not as
strong as they seem. In the late 1990s they were not able to prevent
yuan overvaluation from causing Chinese deflation, and in the period
leading up to 2005 they were not able to prevent inflows of hot money
from driving inflation and asset prices higher. I am not convinced
the Chinese government has firm control over their real exchange rate,
no matter how powerful it may look to outsiders. Admittedly, their
foreign exchange reserves have reached formidable levels. But they
are holding these reserves for a reason, and I wouldn’t expect them to
easily give them up. I am most concerned by the possibility that the
Chinese government would try to offset a high yuan policy with a
policy of easy credit from state-owned banks—which lend almost
exclusively to the relative inefficient SOEs. We have already seen a
disturbing shift in the Chinese economy, as the export sector
(comprised on smaller private firms) has recently shrunk, and instead
the government has forced banks to massively expand their lending to
SOEs. A policy of currency appreciation combined with increased
lending from state banks to SOEs would further set back Chinese market
reforms.
So far I have focused on only one issue, an issue where Krugman ’s
goals are similar to my own—the need for more stimulus, more aggregate
demand. But Krugman also raised a separate and much different issue,
the so-called “imbalances” in the world economy—imbalances that were
supposedly exposed by the recent crisis. I just don’t buy this
argument. I’d like nothing more than to go back to the ‘imbalances”
of mid-2008; with oil at $140 a barrel, the world economy strong, US
unemployment in the mid-5% range, and a huge US current account
deficit.
If we do return to prosperity over the next few years, would it be a
bad thing if the US current account deficit rose back up to 5% of
GDP? I don’t see why. Or perhaps it would be more accurate to say
that I don’t think either monetary policy, or exchange rate policy
should try to “fix” this so-call imbalance. I would favor a fiscal
tax/spending system that was much more pro-saving, something along the
lines of Singapore, but that is a different debate.
When I lived in Australia in 1991 it was in a severe recession. The
Aussies I talked to were pessimistic about their future, and pointed
to their big current account deficit. I didn’t see any problem with a
current account deficit. Since 1991 Australia has had arguably the
best macroeconomic performance of any major developed economy. They
are the only major developed economy to have had had zero recessions
during this period (we’ve had two.) And yet they have continued to
run huge CA deficits year after year, roughly comparable to the US as
a share of their economy. Why did they get off so lightly in this
crisis if a big CA deficit is the root cause of our problems? When
will they have their day of reckoning? I doubt they will ever have a
“day of reckoning;” the Australian CA deficit reflects differential
patterns of saving and investment between Australia, whose population
is growing fast through immigration, and countries like Japan, which
has a declining population. Some might argue that there is one big
difference between Australia and the US; the Aussies generally don’t
run large budget deficits. Maybe so, but I don’t think Krugman would
want to make this argument, as he thinks the US budget deficit is
currently much too small.
Krugman strongly disagrees with those (like me) who believe it is more
useful to think of savings/investment patterns driving the current
account, rather than exchange rates. I wouldn’t deny that in the
short run the Chinese government could stop accumulating assets and
let the yuan appreciate. And this decline in government saving might
reduce the CA deficit in the short run, although history shows that CA
deficits often stubbornly refuse to respond to exchange rate fixes.
But if these current account “imbalances” are a problem, they are a
long term problem, not a cyclical problem. And there is little
evidence that fiddling with the nominal exchange rate can influence
the long run real exchange rate. If political pressure forced the
Chinese government to appreciate the yuan in nominal terms, the
gesture would be gradually eroded by offsetting deflation (just as in
the late 1990s), as there are very strong reasons for the high savings
rates of both the Chinese government and private sector.
Now let’s look at the questions from The Economist:
This is a very interesting take and worth considering. I have some
questions, though. First, would appreciation of the renminbi against
the dollar constitute general appreciation? There are other currencies
in the world. The Wall Street Journal notes that RMB depreciation
thanks to its dollar peg has meant appreciation of other Asian
currencies, many of which are floating (or “floating”), against the
RMB. (The Economist makes a similar point in the latest print
edition.) In other words, how does the current world compare with one
in which China allows its currency to float against the dollar but
also targets a level of nominal GDP around 10% and adjusts monetary
policy accordingly? Exchange rate policy may be a form of monetary
policy, but that doesn’t mean it’s the optimal form of monetary
policy.
Unless I am mistaken, most of the other Asian currencies have
depreciated since mid-2008. The obvious exception is Japan. It is
true that there has been some recent appreciation with the strong
recovery in Asia (helped by their earlier depreciation), but I think
that is appropriate given the recent differences in the relative
performances of the US and the Asian economies (ex-Japan.) It is
interesting to compare Japan and South Korea, two relatively developed
economies that both export capital goods to China. Because the Korean
won depreciated during the crisis last year, Korean NGDP hit an all
time high in the 2nd quarter of 2009 (and I believe was also extremely
strong in the 3rd quarter, just announced.) At the same time the BOJ
allowed the yen to appreciate sharply, and as a result its NGDP was 8%
below its 2008 peak by 2009:2. That’s nominal GDP, in case someone
wants to look for “real factors” as an explanation. Now I obviously
would not argue that there is anything like a perfect correlation
between changes in exchange rates and changes in NGDP. In fact, real
exchange rates more often appreciate in booming economies. But Japan
and Korea faced essentially the same external shock on 2008, and I
think the vast difference in their NGDP growth rates since is at least
partly due to the very different exchange rate policies, which in this
particular case do reflect different monetary policies. I’m not
certain whether a stronger RMB would lead other Asian countries to
appreciate their currencies. But if it did so, it would magnify the
contractionary impact of the Chinese action on world AD. And there is
obviously some tendency for countries to respond to exchange rate
policies of their larger neighbors.
Secondly, Mr Sumner suggests that China’s high savings rate is behind
its current account surplus, rather than currency policy. Mr Krugman
offers some thoughts on the matter here. I don’t know that this is
much of a reason to favour or disfavour exchange rate adjustments.
I answered this question in my previous discussion. To reiterate, I
don’t see CA imbalances as being a “problem” (although they may be
symptomatic of deeper problems in the economy.) If Krugman is right
that they represent a long term threat to the health of the world
economy, then long term structural changes (i.e. encouraging savings
in the US) are more likely to be effective than a policy of
manipulating the nominal exchange rate. Monetary policy has little
impact on long term real exchange rates.
Is it right to credit China’s currency policy with cutting off the
possibility of a deep recession? Mr Sumner has generally argued that
monetary policy has been too tight, and as China’s dollar peg looks to
him like a particularly substantial effort at monetary easing, it’s
logical that he would conclude that the peg has been the decisive
factor. I’m not sure most economists would agree. And again, is it the
case that the current world is preferable to an alternative one, in
which the Chinese allow their currency to float but also pursue a much
more aggressive monetary policy?
I’d break this question down into two pieces. Did the recovery in
China that began in March dramatically reduce the chance of a deep
depression? I am convinced that it did. Not only did US equity
markets begin to rally at that time, but the Asian markets often
seemed to be leading the way. There were occasions in the spring
where positive stories out of Asia seemed to be the only positive news
impacting US markets. The harder question is what caused the Chinese
recovery. I suppose at first glance the most visible Chinese stimulus
was not its exchange rate policy, but rather its fiscal/monetary
stimulus package, which largely consisted of loosening regulations on
lending by state-owned banks. This boosted the real estate market,
and spending on government infrastructure such as high speed rail
projects has also increased impressively. This could be viewed as a
point in Krugman’s favor. But people underestimate the impact of
monetary/exchange rate policies, because the effects often work in
unexpected ways. I mentioned in the earlier post that the US dollar
devaluation had a very powerful effect on US real and nominal GDP
after March 1933. But none of this increase was attributable to
changes in trade flows. Instead all of it occurred as rising
inflation expectations drove up asset prices and increased domestic
aggregate demand. Krugman has written approvingly of a 2008 AER paper
by Eggertsson that made this argument. Note that the rapid recovery
in the spring of 1933 occurred before any significant fiscal stimulus
had occurred. And finally, weekly changes in the WPI and the Dow
during 1933 were strongly correlated with dollar depreciation against
gold. If China had appreciated its currency this year then
deflationary expectations in China might have become entrenched,
threatening industries that are seemingly unrelated to trade, such as
housing construction.
In the Krugman post linked two paragraphs above, the author notes that
for America to return to full employment and reduce its trade deficit
necessarily requires that either America experience deflation, other
countries experience inflation, or the dollar depreciate. Mr Krugman
says that central banks abroad will not allow inflation and deflation
is very painful, so for adjustment to take place exchange rates must
change. Another way of putting this might be to say that since central
banks won’t allow inflation, the only way to get enough of a monetary
policy boost to do any good is for a large economy to allow its
currency to depreciate. Perhaps that is what Mr Sumner is saying.
Again, I don’t think exchange rate manipulation can solve these long
run problems. If we get more pro-saving policies in the US, that
should lead to the appropriate adjustments in real exchange rates over
time. If all countries target inflation at 2%, then those adjustments
will occur through nominal exchange rate changes. If countries fix
their currency to the dollar, then the adjustment will occur through
higher inflation in places like China. In the long run there is
really no other way to address this problem. The final two sentences
inappropriately mix up two issues. I am saying that we need more
aggregate demand, and thus more inflation. Indeed people often forget
that inflation is one of the objectives of both monetary and fiscal
stimulus. So currency depreciation is only appropriate if required to
get inflation expectations over the next two years up close to 2%.
(Currently the two year inflation forecasts in both the futures and
TIPS markets are well below 1%.) In my view it is the Fed, not the
Treasury, which determines the fate of the dollar. So if the Fed is
opposed to boosting inflation up to 2%, then there is not much the
Treasury can do in terms of ‘talking down the dollar.” The Fed ought
to be in favor of more stimulus, and indeed some FOMC members have
said this. But others have recently sent out hawkish signals, so
policy is hopelessly non-transparent. Would the Fed like to raise 2-
year inflation expectations up from 1/2 % to 2%? I haven’t the
faintest idea. And that’s not good.
Mr Krugman implicitly argues that a recovery which allows imbalances
to persist is no recovery at all. Mr Sumner obviously thinks that
exchange rate levels are irrelevant to imbalances. And I suppose I’m
struggling to square the two views.
That’s not quite my view. I do think that currency manipulation can
have a short run impact on trade imbalances. But that is not the
problem that Krugman was addressing. Long run changes in savings and
investment can lead to changes in the current account, which will
generally require an adjustment in the real exchange rate. So I would
never claim that exchange rates are irrelevant, just that they are not
an effective policy tool for solving real problems.
Photo: stan
bademiyansubhanallah
Please China, Keep “Beggaring Your Neighbors”
By Scott Sumner|Oct 25, 2009, 9:45 PM|Author's Website
The best thing that happened to the world economy in 1933 was that FDR
sharply devalued the dollar against gold. Prices and output started
rising rapidly, and the US began to suck in a lot more imports from
the rest of the world. Our trade surplus got smaller. Even better,
this policy inspired other countries to devalue as well. Paul Krugman
knows all this, and often cites FDR’s actions with approval.
The best thing that happened to the world economy this year, indeed
just about the only good thing, was the V-shaped recovery in Asia,
almost certainly led by China. This recovery was aided by the Chinese
government’s decision to stop appreciating its currency. The Asian
growth spurt was also a major factor behind the recovery in the US,
which began in asset markets in March and spread to the real economy a
few months ago (although we need a much faster recovery.) Paul
Krugman does not seem to know this, indeed he is now arguing that the
Chinese need to reverse the very policies that provided green shoots
to the world economy in the dark days last winter. Here is what
Krugman has to say:
Although there has been a lot of doomsaying about the falling dollar,
that decline is actually both natural and desirable. America needs a
weaker dollar to help reduce its trade deficit, and it’s getting that
weaker dollar as nervous investors, who flocked into the presumed
safety of U.S. debt at the peak of the crisis, have started putting
their money to work elsewhere.
But China has been keeping its currency pegged to the dollar — which
means that a country with a huge trade surplus and a rapidly
recovering economy, a country whose currency should be rising in
value, is in effect engineering a large devaluation instead.
And that’s a particularly bad thing to do at a time when the world
economy remains deeply depressed due to inadequate overall demand. By
pursuing a weak-currency policy, China is siphoning some of that
inadequate demand away from other nations, which is hurting growth
almost everywhere. The biggest victims, by the way, are probably
workers in other poor countries. In normal times, I’d be among the
first to reject claims that China is stealing other peoples’ jobs, but
right now it’s the simple truth.
Do you see where Krugman goes wrong? He is mixing up two very
different issues. One is the question of international payments
accounts, which is a zero sum game. The other is the broader macro
problem of a depressed world economy, which is anything but a zero sum
game. Krugman is a very skilled macroeconomist, and it is rare to see
him make this error. A cynic might argue it shows the increasing
extent to which the General Theory is affecting on his analytical
skills. But first we need to consider what is really going on here.
In 1933 FDR was not trying to depreciate the dollar against other
currencies, he was trying to depreciate it against goods and
services. Krugman and I agree that we should be trying to do the same
today. But if the Chinese were to appreciate their currency they
would be imposing deflationary monetary policy on their economy.
Krugman might reply that China is not an open market and that the
Chinese could sterilize any impact and thus prevent a deflationary
shock to their economy. But is that really true? When the real
Chinese exchange rate appreciated in the late 1990s (due to the SE
Asian crisis, and the fact that the yuan was pegged to a strengthening
dollar) China experienced a very unwelcome period of deflation, which
slowed real growth quite sharply (and probably more than the official
statistics showed.) They didn’t seem able to prevent this impact,
despite the fact that they have exchange controls. After China joined
the WTO in 2002 their economy took off, and by 2005 inflation was
becoming such an acute problem (due to the Balassa-Samuelson effect
combined with the dollar peg) that China decided to strongly
appreciate the yuan. It was their only option for preventing a return
to the high inflation of the early 1990s.
It is a mistake to think about exchange rate policy as trade policy,
it is fundamentally a form of monetary policy. China’s current
account surplus is driven by its high saving rate, and changing the
nominal exchange rate won’t have any significant effect as long as the
savings rate remains high. In fairness to Krugman, he might argue
that part of that saving is Chinese government accumulation of foreign
assets, and that he has in mind both a much stronger yuan and less
government saving. But even if this were done the impact on the world
economy would be trivial compared to the effect of monetary policies
on aggregate demand.
When you think about exchange rates from a trade perspective, they
seem like a zero sum game. If the dollar goes up the yuan goes down,
and vice versa. But from a monetary perspective things look much
different. It is possible for both the yuan and the dollar to
simultaneously appreciate, or depreciate, against goods and services.
For any given US monetary policy, a decision to appreciate the yuan is
a decision to tighten monetary policy in a country whose PPP economy
is $8 trillion dollars, and that means tighter monetary policy at the
world level, and lower world aggregate demand.
A recent post by David Beckworth addressed an interesting “problem”
facing countries trying to back out of the extremely loose monetary
policies that have been adopted by almost all central banks. If they
do so by raising interest rates then they risk an appreciation of
their currencies, which could in turn depress their already weak
economies. So is this a problem? Go back and look again at what I
just wrote. Do you see the error that I (purposely) made? I said
money is loose all over the world. But of course it isn’t—rather
nominal rates are low. In fact, money is too tight almost
everywhere. We need central banks to set higher NGDP growth targets
(or inflation targets.) In my next post I plan to say good things
about Krugman’s recent strong opposition to any move toward tighter
money in the US. In fact I’d go further; tighter money would be a
mistake almost anywhere in the world. So here is how I interpret the
dilemma noted by Beckworth. US policy is still far too tight for
reasons discussed in this post by Bill Woolsey; we are far below the
NGDP trend line, even using a 3% trend. If other countries try to
tighten a bit and their currencies appreciate, that is the forex
market’s way of telling those governments: “You are making a mistake,
2% interest rates might seem an expansionary policy, but given the
current position of the equilibrium Wicksellian real interest rate
they are actually much too contractionary for your economy.”
Not only should China be trying to depreciate its currency, but almost
all countries should be trying to do so—against goods and services.
Fortunately, as Krugman points out the Chinese don’t have to do very
much. Because of their rapid productivity growth, even holding their
exchange rate steady is equivalent to depreciation in terms of its
impact on aggregate demand. This is why China recovered first, and as
it sucked in imports of commodities this demand shock started to
spread beyond its borders. Forget about trade balances; look at
commodity prices. China stopped the world spiral into deflation, and
began raising the Wicksellian equilibrium interest rate after March
2009. It turned expectations around. That made US monetary policy
slightly more expansionary, even at the zero bound, and began shifting
expectations here as well. When China started to recover the tail
risk of a deep world depression was essentially chopped off.
[Yes, China is now recovering briskly, so maybe a higher yuan would be
appropriate at some point. But neither inflation nor NGDP growth is
particularly high in China, and their export industries are still
extremely depressed. It is up to the Chinese to decide when a
stronger yuan would be appropriate to prevent excessive nominal
spending. (And of course the bigger problem is how to transition to
more activity in the countryside and private sector, and less in the
bloated urban SOEs.)]
Because the growth that comes from rising AD strikes our intuition as
a sort of “something for nothing” process, we are especially likely to
fall into the mistake of thinking in zero sum game terms whenever
examining international economic linkages. Common sense suggests that
a low yuan cannot help both China and the rest of the world. One
country’s trade balance improvement is offset by another’s
deterioration. But when you remember that an exchange rate is also a
price of money and that the price of money affects both domestic and
world AD, things look much different. If during normal times the US
suddenly adopted an ultra-tight monetary policy, then the US dollar
would appreciate and we’d go into a deep recession. But the rest of
the world wouldn’t boom, they’d also suffer an economic slowdown
despite the fact that their currencies depreciated against the
dollar. Indeed this is roughly what happened between the US and
Europe last July through November, when the dollar was appreciating
against the euro and US monetary policy had become highly
deflationary. Just one more example of “the money illusion.” Krugman
usually has razor sharp analytical skills; it is unusual for him to
miss this point.
As Barry Eichengreen pointed out a few months ago, a series of
competitive devaluations might be just what the world needs. (Just as
it was exactly what the world needed in the 1930s.)
bademiyansubhanallah
Chinese railways and speculating pig farmers
October 26th, 2009 by Michael Pettis
This weeks’ entry is fairly miscellaneous, a consequence both of the
amount and variety of news coming out of China and my own hectic
schedule, which prevents me from dealing with all of these issues in a
more unified way. Between lots of investor meetings and finishing up
a number of writing commitments, I am preparing next week to go to New
York and Washington for ten days.
As an aside, the timing of my trip was determined by an East Coast
tour, centered on New York, which my music label, Maybe Mars, is
arranging for some of the best Beijing musicians, including the
surreal folk singer Xiao He, one of the most astonishing and creative
musicians I have ever worked with. For those of my regular readers
based in or near New York who may be interested in checking out the
Beijing new-music scene, I strongly recommend that you keep an eye out
for the shows, beginning November 5 and running through the end of the
month. These guys are really good and I expect a great reaction from
the New York music community.
But back to more mundane stuff. Last week’s excellent economic
numbers once again reinforced everyone’s existing prejudices. I
discussed why in a September 11 entry in response to similar numbers
last month. Those who believe that the stimulus package has
essentially resolved China’s plight and eliminated its vulnerability
to export demand saw the 8.9% year-on-year GDP growth rate (at the
lower end of a narrow range of expectations) as proof that Chinese
growth has solidly recovered. Andy Rothman at CLSA in a research
report released the following day had this interpretation:
Other than GDP coming in just under 9%, no surprises, and we agree
with the NBS spokesman, who this morning said ‘the overall situation
of the national economy was good.’ We maintain our forecast of about
8% GDP growth for this year, and 8-9% for 2010 (closer to 9% if you
expect a US/EU recovery to generate a bit of a net exports boost for
China).
He then went on to say something that puzzled me:
The fact that China’s GDP grew by 7.7% in the first nine months of the
year while exports were still extremely weak (the trade surplus was US
$ 135.5bn, down by US$ 45.5bn YoY) illustrates that the mainland
economy is not export-led. Net exports delivered a -47% contribution
to GDP growth in the first three quarters, while final consumption
accounted for 52% of growth and investment 95%.
I think almost by definition if the decline in exports had such a
terrible impact on the growth rate, China must be heavily export
dependent, and it was only the impact of a massive stimulus that
permitted such high growth rates – in fact the IMF actually claims
that 60% of Chinese growth in the past decade was explained by exports
and investment in the tradable goods sector. China, it seems to me,
is heavily export dependent, and it is only the massive, and
temporary, impact of the stimulus that keeps growth up.
Infrastructure spending
Although Rothman is considered to be one of the most bullish analysts
on China’s medium-term prospects, he hasn’t come close to expressing
the cheerleading sentiments of Fareed Zakaria, who seems to have very
little doubt or worry about China’s economic trajectory. In an
article in two weeks ago in Newsweek he wrote:
The great surprise of 2009 has been the resilience of the big emerging
markets—India, China, Indonesia—whose economies have stayed vibrant.
But one country has not just survived but thrived: China. The Chinese
economy will grow at 8.5 percent this year, exports have rebounded to
where they were in early 2008, foreign-exchange reserves have hit an
all-time high of $2.3 trillion, and Beijing’s stimulus package has
launched the next great phase of infrastructure building in the
country.
Much of this has been driven by remarkably effective government
policies. Charles Kaye, CEO of the global private-equity firm Warburg
Pincus, lived in Hong Kong for years. After his last trip to China a
few months ago he said to me, “All other governments have responded to
this crisis defensively, protecting their weak spots. China has used
it to move aggressively forward.” It is fair to say that the winner of
the global economic crisis is Beijing.
I am not sure China hasn’t done the same thing – protecting its own
weak spots – since both the Chinese stimulus and the US stimulus
essentially went to exacerbating the sources of each country’s
domestic balance, US excess consumption and Chinese excess investment,
but at any rate there is a 500-year or longer tradition in the West
that when we write about China we are really using a mythical China to
write about our own societies. I think Zakaria’s article may be an
example. He goes on to say:
And look at the nature of China’s stimulus. Most of U.S. government
spending is directed at consumption—in the form of subsidies, wages,
health benefits, etc. The bulk of China’s stimulus is going toward
investment for future growth: infrastructure and new technologies.
Having built 21st-century infrastructure for its first-tier cities in
the last decade, Beijing will now build similar facilities for the
second tier.
China will spend $200 billion on railways in the next two years, much
of it for high-speed rail. The Beijing-Shanghai line will cut travel
times between those two cities from 10 hours to four. The United
States, by contrast, has designated less than $20 billion, to be
spread out over more than a dozen projects, thus guaranteeing their
failure. It’s not just rail, of course. China will add 44,000 miles of
new roads and 100 new airports in the next decade. And then there is
shipping, where China has become the global leader. Two out of the
world’s three largest ports are Shanghai and Hong Kong.
Although Zakaria’s main point may be to insist that the US is failing
sufficiently to upgrade its infrastructure (a point with which I and
many other people would heartily agree), the idea that therefore, and
in contrast, China’s infrastructure spending is a good idea may be
very mistaken. I think China probably already has the best
infrastructure in the world for its level of development, and it is
not clear that spending a fortune upgrading it makes economic sense,
unless you assume that every country at any low level of development
has a near-infinite capacity to upgrade infrastructure. In that
light, there is an interesting article in today’s South China Morning
Post on this very subject.
China’s high-speed rail network will overtake Europe as the world’s
biggest by 2012, posing a threat to the country’s troubled airline
industry.
The cheaper tickets and often quicker journeys to be offered by high-
speed trains are expected to substantially cut the market share of
domestic carriers that already face bruising competition from airline
rivals. Although still in its infancy, the mainland’s high-speed rail
system will account for most of the world’s fast tracks by 2020 as
Beijing accelerates a mammoth transport infrastructure programme.
Faster, faster, faster
It is easy to get excited by this building program, but are those high-
speed rails, which may be fast, exciting and fun to ride, economically
justified? Even if they were justified in the US or Europe, where the
economic value of every hour saved is many times the value in China,
they are probably not justified in China. After all an American might
gladly pay $100 a month to cut his daily commuting time by one hour,
but for most households in Beijing or Shanghai this would be the
equivalent of paying one-third to one-fifth of their income – probably
not worth it. And note that I am not even mentioning one of the sub-
stories in this article – that China’s airline industry may be
seriously hurt by the high-speed rails even as China is splurging on a
massive airport investment program.
So does it matter if we waste a little money? Of course it does.
Remember that if the total economic benefits are less than the cost of
the investment, we can’t simply assume away the difference. We need
to figure out who will pay, and it shouldn’t come as a huge surprise
if Chinese households ultimately pay for this waste, as they always
have, through all the “normal” channels – sluggish wage growth, very
low returns on their savings, indirect taxes on income and
consumption, and so on. If they do pay, not only will this make it
very hard for them to sustain the consumption splurge that we are all
demanding of them, but it represents a transfer of resources from
those that must pay for the railway to those that most often use it –
all Chinese must pay for benefits that accrue mostly to the wealthier
segments of China’s wealthiest cities.
This is a large part why many analysts are not impressed by China’s
investment-driven growth. Not only is much of it explicitly aimed at
increasing production, much of the rest of it is implicitly likely to
reduce consumption. Those of us with a pessimistic outlook of course
read last week’s data release differently than do those who see the
numbers as evidence that the stimulus is “working”. For example in my
last two posts I discuss the risks of inventory build-up, and the
increasing sense I am getting that a lot of what I expected to show up
as inventory build-up may be happening outside corporate balance
sheets. In that light reader Pangea Joel left a comment on my last
post that alerted me to this very interesting and very apposite
article on Bloomberg:
Private investors in China, the world’s largest metals user, have
stockpiled “substantial” quantities of copper as the government ramps
up stimulus spending to spur the economy, according to Sucden
Financial Ltd. Pig farmers and other speculators may have amassed
more than 50,000 metric tons, Jeremy Goldwyn, who oversees business
development in Asia for London-based Sucden, wrote in an e- mailed
report after a visit to China. That’s about half the level of
inventories tallied by the Shanghai Futures Exchange, which stood last
week at a two-year high of 97,396 tons.
Sucden’s estimate underscores the difficulty analysts face in gauging
metals demand in China amid increased speculation by retail investors,
whose holdings remain outside the reporting framework undertaken by
exchanges. Private investors in China also had as much as 20,000 tons
of nickel, Goldwyn wrote. “People who have nothing at all to do with
the copper trade have been buying copper as a store of value, much
like they would with gold,” said Jiang Mingjun, an analyst at Shanghai
Oriental Futures Co.
…“Private stockpiles, built by many including the much- vaunted, pig-
farming speculators, have clearly absorbed substantial quantities of
metal,” Sucden’s Goldwyn said. “Much of this metal will remain out of
the normal market place.” Scotia Capital Inc. analyst Liu Na
highlighted the role of Chinese pig farmers and other private
speculators in the metals markets in an Aug. 17 note that cited
reports from state-owned China Central Television. These speculators
may become “quick sellers” if sentiment turned, Liu said in that note.
To be sure, Sucden’s Goldwyn wrote that the stockpiles of copper and
nickel held by farmers and others in China may “not be ‘dumped’ back
in the foreseeable future as some have recently suggested, wherever
prices go.” Goldwyn didn’t give a reason. The metals holdings by pig-
farmer investors and other private speculators give “the impression
that there is strong demand in China,” said Jiang at Shanghai
Oriental. “But it is actually those who take a pessimistic view of the
economy and are looking to preserve their wealth who are buying.”
Caution at the banks
This is something that we are all going to have to keep an eye on – an
awful lot of investment has become inventory accumulation and
speculative stock-piling, and this automatically increase volatility
since in any downturn de-stocking exacerbates the slowdown. Meanwhile
it is not as if analysts inside China are as bubbly as those outside
China. Last week one of China’s most senior bankers gave pretty
strong warnings about the impact of excessive credit expansion.
According to an article in last week’s Financial Times:
China needs an “urgent” tightening of monetary policy to prevent the
huge stimulus measures introduced this year from inflating stock and
property bubbles, one of the country’s leading bankers has warned.
Qin Xiao – chairman of China Merchants Bank, the country’s sixth-
biggest – says in Thursday’s Financial Times that the government
should not be afraid of a “moderate slowdown” in the economy.
“Monetary policy must not neglect asset-price movements,” he writes.
“Therefore it is urgent that China shifts from a loose monetary policy
stance to a neutral one.” Mr Qin’s unusually frank warning comes
ahead of the publication on Thursday of third-quarter gross domestic
product figures that are expected to underline the rapid recovery in
China’s economy, with analysts forecasting growth of nearly 9 per cent
compared to last year.
This was followed by a statement by Liu Mingkang, chairman of the
China Banking Regulatory Commission. Here is Bloomberg’s take on a
statement he delivered last week on the CBRC’s website:
China urged its banks to lend “reasonably” this quarter, after a surge
in credit increased risks in the nation’s banking system. The China
Banking Regulatory Commission will closely monitor the impact of
global capital flows and domestic policy adjustments on liquidity in
the banking system, Chairman Liu Mingkang said in a statement on the
regulator’s Web site today. The CBRC will ensure that “ample liquidity
is always maintained,” he said.
…Commercial lenders’ bad-loan ratio dropped by 0.76 percentage point
from end of last year to 1.66 percent as of Sept. 30, as non-
performing loans declined by 55.8 billion yuan to 504.5 billion yuan,
Liu said today. The decline masks growing risks in banks’ loan books,
he said. “Behind the ‘double-dip’ in non-performing loan data, credit
risks under the rapid lending growth are accumulating,” Liu told a
CBRC meeting in Beijing. The risks “need high attention and should be
effectively dissolved.”
While I am on the subject, on Saturday I was discussing with Logan
Wright, who co-teaches the PBoC Shadow Committee seminar I run at
Peking University, the loan numbers for September. Net new lending
last month was RMB 517 billion, which when corrected for the RMB 352
billion reduction in discounted bills and a RMB 211 billion increase
in short-term loans represented a very strong increase of medium- and
long-term lending of RMB 657 billion.
Logan told me that of the new lending number, the Big Four banks and
the largest national banks only accounted for around RMB 125 billion
(RMB 110 billion and RMB 15 billion respectively). They also
accounted for most of the run-off in discounted bills.
This means that most of the new lending, especially the net increase
in risk, took place elsewhere. Where? Mostly, it seems, in the
smaller city banks and cooperatives. Since these are the banks most
directly under the control of the city and local governments, it seems
that these are at the forefront of the fiscal and credit expansion –
in line with some of the other stories I have been relaying about the
difficulty local governments have been having in financing their share
of the fiscal expansion.
College blues
I am just guessing, of course, but I wonder if in the next few years
as the growth benefits of the fiscal stimulus package wears out we
might not see a rapid consolidation in the banking industry as the
healthier (less sickly?) large banks are “encouraged” to absorb the
smaller banks, struggling with the legacies of the loan boom. I think
there is already some sense of that process occurring among the
leadership, although in general I don’t get the impression that anyone
in a senior position has a clear sense of what China’s exit strategy
is likely to be. In fact the impression I get is that leaders are
basically responding to day-to-day changes without any clear sense of
what is likely to happen next. That is not necessarily a bad thing,
of course, but I suggest that foreign analysts who speak feverishly of
a great master plan to protect China from the consequences of the
crisis may be a little overexcited.
Thee final points. First, there was an interesting article last week
in Asia Times on rising graduate unemployment which, as regular
readers know, was a problem even before the crisis hit and which is
becoming more serious:
An explosive report released by the Chinese Academy of Social Sciences
(CASS) in September said earnings of graduates were now at par and
even lower than those of migrant laborers. The news came as a blow to
many high-aspiring parents and youngsters in a country that has for
centuries prided itself on cultivating elite Confucian intelligentsia.
“What is the point of putting so much effort and time into getting a
university degree if at the end all you get is the salary of a migrant
worker?” said Wang Lefu, who studied business management. “One needn’t
have bothered with exams and all the bureaucracy.”
…For China the global economic crisis has exacerbated a serious
unemployment crisis that has been many years in the making and that
few believe will disappear with the first signs of global recovery.
China’s official unemployment rate stands at about 4%. Yet a large
group of laborers – the communist state’s 150 million migrant laborers
or floating population, as they are sometimes termed here – is not
taken into account when unemployment figures are calculated.
When the global financial crisis hit last year – diminishing trade
flows and reducing manufacturing orders for China’s factories to a
dribble – some 20 million migrants were estimated to have lost their
jobs and returned home. The pressure of resolving unemployment tension
in the countryside this year has been made even more difficult for
Beijing by its difficulties in finding jobs for the country’s surging
numbers of university graduates.
Some 6.1 million graduates entered the job market this summer, 540,000
more than last year. In 2008 the employment rate for graduates was
less than 70%. This year nearly two million of graduates, many of them
postgraduate diploma holders, are expected to be left without job
placements.
University education is one of the most widely-accepted, and only,
forms of upward social mobility in China, so it is a worrying thing
that the benefits of college education are seriously undermined.
Second, currency intervention is back in the news, but this time among
Asian countries worried about intra-regional currency fluctuations.
Although the biggest story is the decline in trade deficits and the
impact that must have on the aggregate of trade surpluses, an almost-
equally important story must be the maneuvering among trade surplus
countries to increase or protect their share of the trade deficits.
This maneuvering necessarily includes rival currency-management
strategies. Here is the Financial Times on the subject:
China, Japan and other east Asian countries must have “serious” talks
on currency co-operation to prevent a recurrence of violent
fluctuations that have raised trade tensions in the region, said the
president of the Asian Development Bank on Sunday. Haruhiko Kuroda
said currency movements threatened the growth of trade between Asian
countries, widely regarded as a key way of reducing the region’s
reliance on exports to the US and Europe.
…The yen has strengthened to near-record levels against the US dollar
since the beginning of the global financial crisis. Many other Asian
currencies initially depreciated against the dollar and yen but later
strengthened against the weakening dollar and the renminbi. Traders
say Thailand, Malaysia and Singapore are among east Asian countries
that have intervened in currency markets recently to try to slow the
appreciation of their currencies.
And third, I spend a lot of time talking to large hedge funds and
institutional investors – with at least three or four one-on-one
meetings a week – on China and market conditions. It worries me that
recently I have heard investors say many times, generally very
sophisticated investors, that we are clearly in a bubble and the best
strategy is to ride it out as long as we can. This has almost become
one of the mantras of sophisticated investors – the less
sophisticated, I guess, assuming that the crisis is safely behind us.
It worries me because of course we can’t all collectively ride the
bubble and bail out before everyone else does. I wonder if this means
that an awful lot of the big funds can be expected to rush to the
doors at the same time when things turn bleak. If so, of course, that
means we are likely to see both the upside and the downside market
risks increase. Several of my fund management friends have insisted
the problem has to do with the nature of hedge fund compensation.
Most of the hedge funds were hurt pretty badly in the financial
crisis, but a very large number of them were very pleasantly surprised
by how quickly they’ve been able to make back a substantial share of
their losses.
This means that recovering the high-water mark, which many thought
would take years, has suddenly become a lot easier, and many expect
that if the markets go on as they have been doing for another year or
so they’ll be back in business (that is, able to charge performance
fees once again). This may create a natural, albeit dangerous,
incentive to take big risks on the likelihood of a rapid recovery.
China’s September data suggest that the long-term overcapacity problem
is only intensifying October 16th, 2009 by Michael Pettis | 59
Comments | Filed in Banks, Consumption and production, Fiscal
stimulus, NPLs, Trade protection
The release of September trade data earlier this week was pretty
interesting, although because of two or three extra working days last
month, plus the very big holiday at the beginning of October which
might have pushed activity into September, some of the comparisons are
misleading. Exports were down 15.2% year-on-year, better than the
expected 20-21%. Imports were down 3.5%, much better than the
expected 15%. Month-on-month figures showed a rise in both imports
and exports.
So much ink has been spilled in discussing these numbers that I won’t
try to summarize, but it is worth noting that for many analysts the
numbers were a very positive surprise. Typical was this Reuters
report reprinted in the New York Times:
China reported surprisingly strong trade figures on Wednesday,
providing fresh evidence that the world’s third-largest economy is
firmly on the path to recovery and that global demand is improving
too.
…Brian Jackson, an economist at Royal Bank of Canada in Hong Kong,
said the slower pace of decline was good news for China’s recovery
because growth this year has depended too much on the government’s 4
trillion yuan ($585 billion) stimulus package.
But even in this article there were hints that the numbers, especially
the import numbers, might not be as positive as expected.
Commodities were a driving force behind the sharp improvement in
imports. China bought a record 64.55 million tons of iron ore in
September, up 30 percent from August; imports of copper rose 23
percent.
Merrill Lynch’s October 14 research report puts it this way:
“Commodity import growth was stunning.” Andrew Batson in an article
in today’s Wall Street Journal explains why the high commodity share
of imports might not be as positive an indicator of surging demand as
the headline numbers suggest:
A pickup in China’s metal imports in September is stoking debate about
how much of the nation’s commodity intake this year is driven by
demand and how much is stockpiling that will soon end.
…The trade figures issued Wednesday showed China’s imports of copper
rebounding from July and August slowdowns to post a 87% rise from a
year earlier. Iron-ore imports also hit a monthly record, at 64.55
million tons in September, up 65% from a year earlier. The gains in
imports defied many forecasts that purchases would slow after China
took advantage of low prices early this year to build up stocks of
many commodities. The data could be a signal that underlying demand
for raw materials is stronger than first thought.
I read the data differently – not so much as evidence that demand is
stronger then we thought but rather that real imports are weaker than
we thought. According to the October 14 research report by Mark
Williams, of Capital Economics, “We do not expect the trend to last.
China’s recovery is being driven by investment, but the recent pace of
commodity import growth has been much faster than justified by the
rise in current demand. Inventories of many metals have more than
doubled since the start of the year (copper inventories are up 500%).”
I think I agree with Mark. I already discussed in last week’s entry
the recent conversations I have had with chemical and steel analysts
and investors who were puzzled by their inability to match China’s
imports with any reasonable estimate of the end use of these
products. One place where we might see the discrepancy is in a rise
in inventories, but although these have been rising, they haven’t been
rising fast enough to account for the differences.
Are investors stockpiling?
It seems that there may be another explanation, and that is
stockpiling by private investors. From what I am being told, it seems
that a number of wealthy Chinese investors have been speculating
directly in commodities, and so some of this inventory buildup is
occurring not at the company level but at the investor level. The
Wall Street Journal article mentions this possibility:
Copper stockpiles also have increased. Royal Bank of Scotland analysts
estimate that as much as 900,000 metric tons of unreported copper
stocks have built up in China this year. There has been some official
purchasing by the State Reserves Bureau, but also a lot of private
traders buying imported copper because it could be resold for a higher
price domestically.
I have no information about how these positions might be financed, if
this is true, but I would worry if they were debt financed, and I
would worry even more if corporations were financing them indirectly
by lending to principles. Shang Ning, the very smart secretary of the
PBoC Shadow Committee seminar I run at Peking University, has been
trying to figure out ways of indirectly measuring this kind of
stockpiling, but frankly we don’t as of yet have any very good ideas.
Clearly a lot of policymakers are worried about excess commodity
stockpiles. Earlier this week Bloomberg reported on plans to curb
steel production.
China, the world’s largest steel producer, is working on plans to curb
excess capacity as the nation faces “severe oversupply,” according to
the nation’s third-largest mill. The government may have detailed
plans on how to close obsolete mills, advance mergers and reduce the
number of iron ore importers by the end of the year, Deng Qilin, the
general manager of Wuhan Iron & Steel Group, said in an interview.
…“The government will impose strict measures to effectively close
outdated mills and boost consolidation,” Deng, also the chairman of
the China Iron and Steel Association, said while attending the World
Steel Association annual meeting in Beijing yesterday. “We bigger
players will surely benefit from such a move.”
There is more than just steel. An article in yesterday’s Xinhua
reports the following:
The National Development and Reform Commission (NDRC) will mainly
redress production overcapacity in six sectors, said Chen Bin,
director of the Department of Industry of the NDRC, Thursday. The six
sectors include steel, cement, plate glass, coal-chemical industry,
polycrystalline silicon and windpower equipment.
The NDRC also warns of obvious production overcapacity in sectors like
electrolytic aluminum, ship manufacturing and soybean oil extraction,
said Chen during an on-line interview on www.gov.cn., the website of
China’s central government. He said China would fight serious
overcapacity in sectors like steel industry and offer guidance for new-
born industries like windpower equipment to avoid low level repetitive
construction.
China has achieved preliminary progresses in fighting the global
economic downturn, but the foundation for economic recovery is not
stable yet and overcapacity might lead to bankruptcy, unemployment and
bad bank loans if it was not checked in time, he said.
Industrial policies create overcapacity
I agree with the last paragraph, but otherwise I am pretty skeptical
about the fight against overcapacity. According to my model of
China’s overcapacity problem, the source of the imbalance is a set of
industrial policies that systematically shift income from households
to producers, and as long as these policies continue there is little
chance of resolving the problem of excess production. I have a
longish piece coming out next month as a Carnegie Brief on the
Carnegie Endowment website, in which I discuss this as part of a
discussion about why I expect a rising US savings rate to lead almost
inexorably to trade tensions. Here is the relevant section from the
first draft:
Although China is still a very poor country, there is no question that
Chinese household income has grown substantially over the past few
decades, but it has not grown nearly as quickly as GDP. While China’s
GDP grew at 11-12% over the 2002-2007 period, for example, MIT
economist Yasheng Huang estimates that household income grew at a much
lower 9%. If we were able to adjust Huang’s measure to take into
account changes in other forms of household wealth – which are
described below – growth in household income would have been even
lower. This is why consumption has declined as a share of national
income, and why China’s total production has exceeded its total
consumption by a large and growing amount. This is at the root of
China’s high savings rate.
Why haven’t Chinese households maintained their share of national
income? Largely because the rise in household income was constrained,
especially in the last decade, by industrial polices which were aimed
at turbo-charging economic growth. These policies systematically
forced households implicitly and explicitly to subsidize otherwise-
unprofitable investment in infrastructure and manufacturing. Although
these policies powered employment and manufacturing growth, they also
led to wide and divergent growth rates between production and
consumption. These policies included:
•
◦An undervalued currency, which reduces real household wages by
raising the cost of imports while subsidizing producers in the
tradable goods sector.
◦Excessively low interest rates, which force households, who are
mostly depositors, to subsidize the borrowing costs of borrowers, who
are mostly manufacturers and include very few households, service
industry companies or other net consumers.
◦A large spread between the deposit rate and the lending rate, which
forces households to pay for the recapitalization of banks suffering
from non-performing loans made to large manufacturers and state-owned
enterprises.
◦Sluggish wage growth, perhaps caused in part by restrictions on the
ability of workers to organize, which directly subsidizes employers at
the cost of households.
◦Unraveling social safety nets and weak environmental restrictions,
which effectively allow corporations to pass on the social cost to
workers and households.
◦Other direct manufacturing subsidies, including controlled land and
energy prices, which are also indirectly paid for by households
By transferring wealth from households to boost the profitability of
producers, China’s ability to grow consumption in line with growth in
the nation’s GDP was severely hampered. Of course the gap between
production and consumption is the savings rate, and as production
surged relative to consumption, a necessary corollary was a rising
Chinese savings rate.
The basic problem, then, is that there are very powerful policies that
force a discrepancy in production and consumption growth, and the only
way to eliminate overcapacity is by reversing these policies. I am
not sure that attempting to address overcapacity by administrative
means can succeed, and certainly the track record of other efforts
over the past year to address the imbalance doesn’t suggest otherwise.
The trade impact
In the steel sector here is one consequence of the continued surge in
production, according to an article in this week’s Financial Times:
The unexpectedly swift recovery in China’s steel production has
sparked fears that a glut of exports could puncture steel prices as
the global industry struggles to emerge from the economic downturn,
rival steelmakers have warned. SK Roongta, chairman of the Steel
Authority of India Ltd (Sail), said Chinese over-production was “a
point of concern” for the world’s steel producers.
During the past year, producer margins have come under severe strain
from falls in prices and high input costs. Global output fell more
than 20 per cent in the first half of 2009. The head of India’s
largest state-owned steel group said that Chinese production
accelerated 15 per cent in the past quarter, beating forecasts of just
reaching double-digit growth.
“We believed that China would grow, but the growth in the past three
to four months has certainly been a surprise. I’m not sure this level
can be sustained,” he said. “The magnitude of the growth is a
surprise; not the growth per se.”
Meanwhile on Tuesday in the New York Times the always-perceptive David
Barboza spells out very explicitly the implications in a much-
discussed article titled “In Recession, China Solidifies its Lead in
Global Trade”:
With the global recession making consumers and businesses more price-
conscious, China is grabbing market share from its export competitors,
solidifying a dominance in world trade that many economists say could
last long after any economic recovery.
…China is winning a larger piece of a shrinking pie. Although world
trade declined this year because of the recession, consumers are
demanding lower-priced goods and Beijing, determined to keep its
export machine humming, is finding a way to deliver. The country’s
factories are aggressively reducing prices — allowing China to gain
ground in old markets and make inroads in new ones.
There are lots of reasons given for why China is able to increase its
market share so dramatically, but there is little doubt in my mind
that this process will cause rancor and increasing hostility,
especially among trade competitors, and the focus will be on policies
that continue to subsidize manufacturers. Barboza goes on to say:
One reason is the ability of Chinese manufacturers to quickly slash
prices by reducing wages and other costs in production zones that
often rely on migrant workers. Factory managers here say American
buyers are demanding they do just that.
…Because China produces a diversified portfolio of low-priced and
essential items, analysts say the country’s exports can hold up
relatively well in a recession. Few other countries can match what
has come to be called the “China Price.”
“China has a huge advantage,” says Nicholas R. Lardy, an economist at
the Peterson Institute for International Economics in Washington.
“They can adjust to market changes very rapidly. They have flexibility
in their labor markets. And as consumers trade down the quality
ladder, China can benefit.”
The expiration of textile quotas in large parts of the world this year
has also allowed China to increase its market penetration. But
equally important are government policies that support this country’s
export sector — from Beijing keeping its currency weak against the
dollar to its determination to subsidize exporters through tax credits
and billions of dollars in low-interest loans from state-run banks.
Although the “wage flexibility” enjoyed by Chinese corporations may
seem like a huge advantage, remember my earlier comments about how
sluggish household income growth relative to GDP growth is the source
of the overcapacity problem (consumption is likely to grow as fast as
household income grows). If I am right, it means that measures that
can improve China’s export competitiveness are not good for the
rebalancing effort if they exacerbate, rather than reverse, the
process of transferring income from households to corporations. Lower
wages, of course, do just that, and so they cannot be a solution to
China’s underlying overcapacity problem except to the extent that they
allow China to expel trade competitors. This is not a permanent
solution by any means, especially in a world of rising trade tensions.
New loans still soaring
There are two pieces of related recent news. The first, released on
the same date as the trade data, was the PBoC announcement of new
loans for the month of September. According to an article Wednesday
in Xinhua:
China’s new yuan-denominated loans in September rose to 516.7 billion
yuan (75.68 billion U.S. dollars) from August’s 410.4 billion yuan,
the People’s Bank of China, the central bank, said Wednesday. New
yuan-denominated loans in the first nine months stood at 8.67 trillion
yuan, 5.19 trillion yuan more than the same period last year.
China’s foreign exchange reserve hit a new high of 2.2726 trillion
U.S. dollars at the end of September, according to the central bank.
China’s monthly new loans had slowed from June’s high of 1.53 trillion
yuan to 355.9 billion yuan in July as a result of bank contracting
credit and the central bank’s open market operations. The figure rose
to 410.4 billion yuan in August and then to September’s 516.7 billion
yuan.
The broad measure of money supply, M2, which covers cash in
circulation and all deposits, was up 29.31 percent from a year earlier
to 58.54 trillion yuan at the end of September. The narrow measure
of money supply, M1 (cash in circulation plus current corporate
deposits), was up 29.51 percent to 20.17 trillion yuan.
I think most people were surprised by the September net new loan
number, expecting something in the RMB 450 billion range (last
September total new lending was RMB 378 billion). Although the
current new lending of RMB 517 billion is much lower than the
astonishing RMB 963 billion monthly average this year, when you
include the net paydown of bill financing in September of RMB 353
billion, the total new medium and long-term financing in September was
actually RMB 870 billion. This suggests that in fact September
lending was equal to this year’s monthly average (especially if you
think of the explosion in bill financing early this year as a form of
“anticipated” lending).
Regular readers of my blog will know that I have no doubt that this
kind of loan expansion can only make the overcapacity problem worse,
since either it directly boosts current or future production, or, by
leading to a rise in NPLs that will ultimately be paid for by Chinese
households, it constrains future consumption growth. Interestingly
enough, according to an analysis in Caijing, the share of new loans
from the Big 4 was only 21%. This is down substantially from 40% in
August, 47% in July, and a whopping 70% in the first six months of
2009.
What gives? For one thing, it means that most of the decline in
lending from the insane levels of the first half of the year is
explained by the decline in lending among the Big 4. It is not so
much that new lending is being pushed downward, since the smaller
banks are increasing their lending at roughly the same rate as they
have all year.
Chen Shanshan, an analyst at Bocom International Holdings, said large
commercial banks scaled their lending after regulators tightened
credit controls at the start of the third quarter. Also, medium-sized
banks saw their lending capabilities restrained by the tighter
regulatory controls on capital requirements, he said.
“Banks are now actively selling loans,” and mostly selling them
packaged as syndicated loans, an executive with a large commercial
bank told Caijing.
I am not sure from this whether they are selling down to other banks
or to investor groups. Any color from any of my readers would be much
appreciated. As an aside on the reserve numbers, I haven’t done the
numbers yet, and I have not had a chance to discuss this with Medley’s
Logan Wright, but my initial back-of-the-envelope calculation suggests
that hot money inflows may have moderated but are still positive.
The second piece of related news was the release yesterday by the US
Treasury Department of its semi-annual report on exchange rate
policies. “Both the rigidity of the renminbi and the reacceleration
of reserve accumulation are serious concerns which should be corrected
to help ensure a stronger, more balanced global economy consistent
with the G-20 framework,” the report said. “The Treasury remains of
the view that the renminbi is undervalued.”
While the People’s Daily headline today was “U.S. says China not
currency manipulator”, and most of the focus of the article was
positive (although it did acknowledge that “it also alleged that the
Chinese currency renminbi’s exchange rate showed a ‘lack of
flexibility’ in recent period”), the Financial Times article was a
little more nuanced:
The Obama administration said on Thursday that it had “serious
concerns” about the value of the renminbi, but stopped short of
accusing China of manipulating its currency in a closely watched
report to Congress.
The Treasury toughened its language on China in its semi-annual report
on exchange rate policies. While acknowledging that Beijing had been
important in steadying the global economy, it said recent moves to
accumulate more foreign exchange reserves “risk unwinding some of the
progress made in reducing imbalances”.
But the Treasury did not say China was manipulating its currency, in
spite of pressure from US labour groups and scores of legislators who
argue that the undervalued renminbi makes China’s exports unfairly
cheap . Pressure has built this year as manufacturers suffer huge job
losses and the US unemployment rate creeps towards 10 per cent .
I am willing to bet that over the next year or two the language gets
tougher, not easier.
Finally, I saw the following very interesting article on today’s
Bloomberg:
China’s Ministry of Finance is, for the first time, allowing local
governments to use the proceeds of land sales to fund stimulus
projects, the China Daily reported, citing a ministry circular. Local
governments are required by the end of this month to have provided
1.18 trillion yuan ($173 billion) out of the 4 trillion yuan stimulus
plan announced by Premier Wen Jiabao in November, the English-language
paper said. Many local governments are finding it difficult to secure
funds for projects because of the economic slowdown, the newspaper
said.
22 Responses to “Chinese railways and speculating pig farmers”
Richard Howard | 26/10/09 With regard to your point about the smaller
banks and credit co-ops picking up the ball on new lending, you might
find this article from Caijing interesting:
http://english.caijing.com.cn/2009-10-21/110288100.html
Also i was wondering whether you had a view as to how robust the NPL
assesment really is in Chinese banks – is it remotely comparable to
those of other large economies?
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Till Wollheim | 26/10/09 Can we get the interview with the FAZ
(„Wetten auf Chinas Exportwirtschaft sind riskant“)in English – or had
it been given in German?
Sincerely
Till
CCT | 26/10/09 Michael,
Your analysis of currency and international trade patterns have always
been fascinating. Even if I struggle to accept all of their
conclusions at times, your well-reasoned arguments are certainly
enlightening.
On the other hand, your analysis of Chinese domestic investment
(specifically infrastructure construction) seems very haphazard… a lot
of hand-wavy statements without rigorous discussion. In this article,
for example, you quickly jump to the conclusion that reducing travel
times from Beijing to Shanghai from 10 to 4 hours is “inefficient”
without much evidence one way or the other. My reading is that your
fundamental dogma is that China’s development level is low, and
therefore this infrastructure development is unnecessary.
The Chinese argument, which I’ve heard time and time again, is that
infrastructure construction is a necessary condition of further
development… not the byproduct of existing development. That’s not to
say infrastructure construction is in and of itself “sufficient” for
development… if you plopped a few thousand km of high speed rail in
sub-Saharan Africa, there’s little reason to think economic
development would improve.
But in China’s case, I do buy the argument that there is tremendous
opportunity behind infrastructure improvement. There are many possible
scenarios where this improvement will materialize itself, beyond
“reducing commute times”.
For starters, I’d propose that it will make labor migration much
easier. The vast, vast majority of Chinese, even in front-line urban
cities, still live/work in the city or province of their birth. (The
only exception that comes to mind is probably Shenzhen.) Make high-
speed rail more convenient, reduce the cost of travel, and you’ll make
it much more likely that an engineer from Zhejiang will look
nationally for a job… rather than only their home-town and/or their
college towns.
I’d also argue that these new “super-city” unions (Beijing/Tianjin,
Shanghai/Nanjing) will boost suburban development. High-speed rail
means urbanites will have the option to move into suburban communities
while still commuting to work.
Again, I don’t pretend that this is a comprehensive overview of the
issue, and I’m sure you could provide a much better treatment of the
issue. Here’s hoping that you tackle the matter more seriously.
Nemo Incognito | 26/10/09 Michael, one thing one of your graduate
students might want to do is look at how much turnover correlates to
market cap in the CSI 300 over time and how that in turn can be a good
instrumental variable to predict increases in volatility – it
generally is a good indicator of bubble behavior (ie, people saying
“there’s no value here I’ll just buy the index and go with the flow”).
Its seldom a good sign and last I checked it had picked up again
markedly which makes the idea that you can get out a little less
plausible. Needless to saying having caught the bounce I have been
lightening up. This stuff plus Copenhagen in December does not bode
well for the blue sky crowd.
Wallace Butterfinger | 26/10/09 If we look at the dismal PPI numbers
and nominal GDP growth (nominal income flows will eventually repay the
nominal leveraging up of the Chinese economy), the bullish sentiment
appears to be misplaced to me. Money is not very moving very much,
despite the strong real growth figures. Slow credit and output growth,
and the loop of cash/liquidity circulating in the economy slows down
some more during 2010 under some reasonable assumptions. On the
private income front, the idea that wages are sticky downward does not
seem to apply to China, and it also appears to be the case that
emplyment demand is not bouncing back nearly enough with the growth
rebound. Private income has to take a hit at some point, and this
would not appear to be beneficial for structural changes. In short,
the stimulus has stimulated, and this is well and good. But what comes
next? In a credible way?
Michael Pettis | 26/10/09 CCT, here is Patrick Chovanec’s ruminations
on the topic of investment. It is true that my criticism of China’s
infrastructure investment is fuzzy, but that is simply because we will
only be able to judge it in retrospect. My main purpose is to suggest
that given the place from which China has started (highest investment
rate probably in recorded history, the world’s best infrastructure for
its level of development, a history of waste and misallocated capital
on a very large scale), it is in my opinion unreasonable to assume
that the massive recent increase in infrastructure investment,
contracting 20 years of plans into five years of spending, as Chovanec
mentions, coupled with a very clear indication that risks will be
socialized and discipline relaxed, will result in economically useful
and viable investment. It is far safer to assume that much of this
will be wasted and so will act as a drag on future consumption.
Of course I can’t prove it, just as no one can prove otherwise, and we
will only know in a few years, but my instinct makes me very
skeptical. Anyway see Patrick’s excellent musings below.
China’s Economy: All GDP Is Not Created Equal
Patrick Chovanec
Last week was full of good news for the Chinese economy, at least
according to official statistics. On Thursday, the government reported
that China’s GDP grew at an annualized rate of 8.9% in the 3rd
Quarter, putting it on track to top the “magic” 8% figure for the year
as a whole. Another report, that same day, said that industrial
production had expanded 13.9% in September, compared to the year
before, while retail sales had grown 15.5% — both on an upward track
from previous months. Profits at State-Owned Enterprises (SOEs) jumped
13% in September from a year earlier, the first increase in 13 months.
Prominent articles in the New York Times and Wall Street
Journaltrumpeted the strength of China’s recovery.
So am I convinced? Not entirely. I’m not really a pessimist by nature,
and I’d be only too happy to learn that things are looking up. But my
main concern lies in a concept I’d like to introduce called “quality
of GDP.”
If you Google the phrase “quality of GDP” on the Internet, you’ll find
a variety of articles relating to the reliability of the way GDP
statistics are gathered in different countries. Several insightful
commentators have raised concerns in recent months about how reliable
and accurate China’s official GDP numbers actually are, but that’s not
the argument I’m making here. My concern is how even true-blue GDP
figures can sometimes paint a misleading picture of the real health of
an economy.
When smart analysts look at companies, they don’t just look at the
announced profit figure and accept it at face value. Even if they have
no reason to doubt the accounting, they try to apply a concept called
“quality of earnings” to get a better sense of how the company is
really doing.
Frequently, reported earnings include gains or losses on one-time
events like the sale of business unit or a change in accounting
methods. Other times, the value of a company’s foreign-denominated
assets may rise or fall with a temporary fluctuation in exchange
rates.
These factors may obscure the company’s underlying performance, and
give a misleading impression of how it may continue to perform in the
future. In some instances, a company may even adopt policies – such as
special rebates on durables goods — that boost revenue today at the
cost of future sales. A good analyst will figure out how to separate
the wheat from the chaff, and produce an adjusted earnings figure that
better captures how the business is performing on an ongoing basis.
There’s no tried-and-true method, however; for arriving at the right
answer; it’s all a question of applying experience and judgment to
evaluate what’s really going on.
Back in March, I was asked on Chinese TV whether I thought China could
achieve its target of 8% GDP growth for 2008. I said I didn’t see any
reason why it couldn’t. All the government had to do was take all the
laid off migrant workers and hire them to dig a hole in the ground one
day and fill it up the next. Since the total would be added to
National Income, the government could simply pay them enough to hit
whatever GDP target it had in mind. The more important question, I
said, is whether China is preparing itself for the next phase of
economic growth. Focusing exclusively on GDP, as a number, is a
distraction.
The example I gave may have been a little bit extreme, but it gets at
an interesting and important point. GDP tells you how much the economy
is producing; it doesn’t tell you whether that production is actually
creating real value or not. In a free market, where people are making
voluntary exchanges based on supply and demand, presumably it is,
otherwise they would behave differently (unless, of course, there are
major externalities that market prices aren’t taking into account, see
Stiglitz, below). But when the State is either directing economic
activity without regard to prices, or when it is artificially
influencing the conditions of supply and demand in a way that distorts
prices, the conclusion doesn’t necessarily follow. Production may
actually consume more value than it creates, destroying wealth, or
divert resources from more productive pursuits, yet in the short term,
still count positively towards GDP.
This notion actually struck me back in high school, when we were
studying Keynes. We learned, as every economics student does, that GDP
= Consumption (C) + Investment (I) + Government Spending (G) + Net
Exports. Keynes noted that, in times of economic recession, the
government could spend, and if it taxed or borrowed from people with a
higher propensity to save than consume, the increase in G would
outweigh the decrease in C.
But what, I asked, if the government simply went out and bought 10
trillion paper clips that nobody needed at $10 a piece? The funds
would have to come from people who otherwise would have bought
products they actually wanted and/or saved to invest in businesses
that produce goods that meet real needs. True, the increase in G might
exceed the decrease in C, raising GDP. In fact, the more the
government paid for each paper clip, the better. But we’d all be left
with a ton of useful paper clips instead of the things we really
wanted to improve our lives. GDP would rise, but our quality of life
would fall.
The same reasoning can be applied to a war economy that produces
tanks, planes, and ships that blow each other up. U.S. GDP surged
during World War II, but don’t kid yourself: real wealth was being
destroyed and/or supplanted.
Nobel Prize-winning economist Joseph Stiglitz recently published an
article called “GDP Fetishism” which also discussed the shortcomings
of GDP, although he approaches the issue from the opposite point of
view that I do. Stiglitz emphasizes that in cases like environmental
pollution, where the true costs are not reflected by the market, GDP
understates the benefits of government action.
Curbing production, he argues, in pursuit of some less tangible
benefit (like cleaner air, or greater social equality) might actually
improve quality of life. What I’m more concerned about — particularly
in regards to China — is something Stiglitz mentions only in passing,
the fact that GDP may overstate the real benefit of government
spending or policies designed to artificially stimulate economic
growth.
The “resilience” of the Chinese economy right now is based, at least
in part, on several factors that I find cause for concern:
* acceleration of a 20-year pipeline of infrastructure projects into a
5-year time horizon, including many seemingly redundant projects or
vanity projects, or ones where the returns are far from clear (such as
the construction of entirely new cities to replace perfectly good old
ones);
* reconstruction in the aftermath of the Sichuan earthquake (which
needs to be done, but is actually the replacement of destroyed value,
not — as growth figures imply — a form of genuine economic expansion;
otherwise you could tear down the whole country just to rebuilt it and
call it “growth”);
* construction of large-scale luxury condo developments that go
entirely unoccupied and serve merely as investment vehicles, on the
expectation of future appreciation;
* easy state-provided credit that has kept businesses — many of them
poorly run and financed — from exiting sectors (such as steel) that
have chronic excess capacity;
* misdirection of business loans into stock market and real estate
speculation, fueling bubbles in both markets
* direct investment by government ministries in order to speculate in
— and thereby prop up – the real estate market, on the misconception
that a rising real estate market is a “driver” of growth (rather than
a result of real demand for more and better usable space driven by
business expansion and rising living standards);
* the possibility of “channel stuffing,” where wholesalers and
retailers are forced to build up unsold inventories to keep factories
(particularly state-owned factories) running. Ironically, this shows
up in China’s official statistics as “retail sales” because in China,
retail sales are counted when the manufacturer ships, not when the
products is sold to a consumer.
I’m not saying everything about the Chinese economy is bad, although
it might sound like that. There’s actually plenty that’s good.
My main concern is that by pretending everything is wonderful, and
brushing the real problems under the rug, China is missing a critical
opportunity. Unlike India, which is struggling to revitalize its
infrastructure, China already has the whole “building for the future”
thing down pat. Bigger airports, taller skyscrapers, and more highways
might be good, but they’re not the challenge China faces.
Developing a vibrant service sector, improving quality and safety in
manufacturing, building recognized and well-respected brands,
developing more efficient and transparent capital markets, providing a
social safety net that lubricates labor markets and liberates savings,
moving towards full convertibility of the Renminbi, learning how to
manage and grow businesses in political and social environments beyond
China’s borders — these are the challenges China must master to take
its economy to the next level. But I don’t see anything in the “8%
growth” story that is moving China in that direction. It’s more (a lot
more) of the same, and more of the same just won’t do. Count me as
someone who still needs to be convinced on the “quality” of China’s
current GDP figures.
The point here isn’t to pick apart China. It would be silly to say
that all construction or infrastructure development in China is
wasteful; it’s not. And the same (or similar) criticisms could just as
easily apply to the U.S., Europe, or any other country. The real point
is that — whatever economy we’re talking about — all GDP is not
created equal, and we need to be asking deeper questions about whether
an economy is creating wealth, not just maximizing output. To speak of
“quality of earnings” (for a company) or “quality of GDP” (for an
economy) is simply a reminder that numbers never speak for themselves.
We need to understand the reality behind the numbers.
http://seekingalpha.com/article/168796-china-s-economy-all-gdp-is-not-created-equal
Michael Pettis | 26/10/09 Richard, I have met many people, Chinese
and foreign, involved in the credit process of large Chinese banks who
have also had experience with large foreign banks. Every single one of
them without exception has told me that the treatment of NPLs here is
very lax and is likely significantly to underestimate NPLs. This is a
pretty widely held belief, so I think it pays to be very skeptical
abotu the quality of the NPL data.
Til, I think this is the link. It is only in German.
http://www.fazfinance.net/Aktuell/Wirtschaft-und-Konjunktur/Wetten-auf-Chinas-Exportwirtschaft-sind-riskant-5640.html
Jeff | 27/10/09 I think the question for high speed rail is whether
this is an appropriate investment for China at this point in its
development.
The country has severe rail capacity problems (try to get a passenger
ticket more than 5 days in advance of travel). HSR systems require
their own tracks. Why not add more conventional rail and rolling
stock? Conventional assets also have the flexibility of being able to
move freight as well as people. Doesn’t that have a higher social
return than the high speed investment? However, it’s not sexy, not
state of the art. What government official wants to cut a ribbon on a
covered hopper car when they could drink champagne on a maglev?
You can ride the HSR from Beijing to Tianjin for less tha $5 US, a fee
which doesn’t come close to covering capital costs and yet, is still
too expensive for the 70% of the population that is not rich or middle
class.
Links 10/27/09 « naked capitalism | 27/10/09 [...] Chinese railways
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George Robertson | 27/10/09 Jane Jacobs came to mind as I consider
China – her opus “Cities and the Wealth of Nations”. This is a triumph
of clear pragmatic powerful and naive thinking ability to cut to the
essence of economic puzzles. She was pointing out in the 80s, at the
height of “theory Z” blather, that Japan was suffering horrendous
“transactions of decline” as the managed yen was not allowing internal
adjustments necessary to maintain growth. She also applied the same
logic to USSR. In both cases, despite few if any economists sharing
her views (almost all economists choose to ignore her as she is an
autodidact), her prediction of demise of both countries in terms of
how they were managing their economy was spot on.
I wonder what Jacobs would make of China now? Again a managed currency
which cloaks any adverse developments internally, opaque data, and a
lack of markets to provide the Hayek like feedback to indicate
possible problems. I think she would come to the same conclusion as to
China’s fate as she had to USSR and Japan. Jacobs was scathing –
usually implicitly – on mercantilism.
George Robertson | 27/10/09 (By the way – and not to show my own ego
as I do not think I am part of the crowd – this blog is like Gibbon’s
Decline and Fall: the main body of work is terrific but the fun is in
the footnotes (in this case the comments). Very interesting dynamic of
those who drop by and comment at this blogsite.)
Judy Yeo | 27/10/09 Wow, Mr Pettis, you weren’t kidding about the
varied points part.
Just some thoughts about some points you made:
1) Speculators , pig farmers or not tend to move in a mob like fashion
and that is why volatility is always multiplied whjen they are in the
game – it’s interesting though what they think their exit strategy is
– what are they going to do with those stockpiles when the tide
turns ?
2) Interesting, maybe even ironic that a China Merchants guy should be
saying that – weren’t they the final recapitalisation project
completed in the year? The word foreboding comes to mind – then again,
if they sre as competent at loan syndication as they think they are …
the world is in for a nasty shock in the not too distant future.
3) Overcapacity is a problem but is there a realistic alternative?
What else could they really do with the “stimulus package” that isn’t
going to strike the public as wasteful? Frankly, not really a fan of
the idea that China has sufficient infrastructure or that of a high
standard -it’s more of where that infrastructure is clustered that is
the problem . Of course channelling that money into education,
healthcare and agriculture/the environment would be sensible but would
nebver quite produce the stimulus effect required . As for the
unemployment situation , it’s a sad fact but because of rhe sheer
population size and the drive towards higher education that situation
is one many countries are or will be facing along with China – what
politicians are often unwilling to admit openly is that the present
economy means a large less educated workforce is pushed into the base
of the pyramid with the more educated pushed into the narrower apex
and at some point the 2 levels will compress with some of the apex
squeezed into the latter or into no man’s land. Remember hearing a
discussion of this topic on the radio whilst stuck in traffic in a
chinese city – they were discussing the phenomenon of greater numbers
of chinese students doing postgrad studies to avoid entering the job
market and how a masters grad knelt and begged a potential employer to
employ him.
4) The asset bubbles have been appearing everywhere – courtesy of the
“stimulus” packages and apparently this is the quick answer our
governments have to the question of how to clear the mess of the
credit crisis – beggars belief ! It’s a bit like watching a poker game
where no one has a winning hand but no one wants to fold ‘cos everyone
hopes to ride on momentum and bluff to win the pool.Wonder how many
hedge fund managers are putting their short strategies in place – just
in case the unthinkable “w” appears in that bathroom mirror brought to
you by the financial authorities that be. Was feeling like an outdated
grizzly till that FT article …
Have a great fortnight Mr Pettis!
Tuesday Morning « the news links | 27/10/09 [...] Chinese railways and
speculating pig farmers – China Financial Markets [...]
Bob_in_MA | 27/10/09 On the subject of NPLs, Calculated Risk has a
post up with a chart of the Freddie Mac single family delinquency rate
since January 2005. The nadir was March-May 2007, even as subprime was
blowing up. You can see how things went from there.
http://www.calculatedriskblog.com/2009/10/freddie-mac-delinquency-rate-rises-to.html
NPLs provided no clue as to how bad the lending was at the time.
Having a low number of NPLs may just mean the bubble in lending is
still growing.
In regards to bubble expectations, Jeremy Grantham, a pretty
conservative value investor, has a new letter out where he sees
bubbles building but feels he should chase them for a while:
“…I believe we are well on the way to my emerging emerging bubble …
For once in my miserable life, I would like to participate in a bubble
if only for a little piece of it instead of getting out two years too
soon. Riding a bubble up is a guilty pleasure totally denied to value
managers who typically pay a high price to the God of Investment
Discipline (Thor?) for being so painfully early. I think the first 15
percentage points over fair value would satisfy me. If I’m right, the
first 15% will be a small fraction of the eventual bubble premium.”
http://www.gmo.com/websitecontent/JGLetter_ALL_3Q09.pdf
Not only does everyone seem to believe in the bubble, even very
conservative people think they can master the timing… pretty bizarre.
Dean Jackson | 27/10/09 CCT
Here’s another take on the quality of Chinese investment. Pivot
Capital wrote a piece on China last summer and I wish I could post the
chart. Using IMF data they essentially compared how much incremental
GDP growth a country experiences per unit of investment. In Germany
(1951-60), Japan (1961-70), Korea (1981-90), China (1981-90 & 1991-00)
the requirement was $3 of investment for an incremental $ of output,
less/plus. China(2001-08)approached $4 of investment for each
incremental unit of GDP. Their estimate for 2009 approached $7 of
investment per incremental unit of GDP. Essential, the marginal return
on investment in China is declining rapidly and it seems doubtful that
it is because they have exhausted all the opportunities. It is because
it is being directed in haste to the wrong opportunities.
Figigi | 27/10/09 Dear Michael Pettis,
Can you please explain what’s the deal with those pig farmers? You
gotta. Please! Please! Please! I am utterly unclued about the
seemingly preeminent role of Chinese pig farmers in internal commodity
markets. Why pig farmers? Why not … chicken farmers?
Please, do kindly enlighten us. Many thanks in advance
CCT | 27/10/09 Michael,
The key underlying assertion I’d challenge is your statement that
there is “a history of waste and misallocated capital on a very large
scale”.
There’s an awful lot of anecdotal evidence thrown around of wasteful
construction, but I’m sure you’d agree anecdotes aren’t necessarily
convincing. After all, I have plenty of anecdotes going the other
direction.
15 years ago, there was overwhelming criticism of Beijing’s capital
airport construction project… not to mention the 3rd ring road
construction projects. And in the early years after their completion,
both were relatively empty and led to many similar predictions of
excess capacity, wasteful spending, etc. I can’t imagine Beijing today
if the capital airport didn’t exist (or half its present size), and/ I
certainly can’t imagine Beijing proper not extending past the 3rd ring
road.
I personally believe the huge upsurge in vehicle purchases this year
are coming about partly *because* of the huge investment in
infrastructure. If roads/per capita was 50% less, there would be far
fewer buyers.
And what about the ultimate “white elephant” infrastructure project in
the Three Gorges Dam? There was much hand-wringing that the
electricity it was generating couldn’t possibly cover the cost of its
construction… and anyone who’s looked at the numbers recently would
realize that won’t be a problem.
Some of these projects might have extended payback schedules of 10-20
years, but that doesn’t necessarily mean the ROIs are poor, or that
the use of this capital was economically inefficient.
Bottom line, I’m not looking to compare anecdotes of fully filled
apartment buildings (many of those) versus empty apartment buildings
(some of those too). But has anyone in the academic community done
some rigorous accounting for the “quality” of past infrastructure
investment on the mainland?
adam | 27/10/09 Will you be attending all of the shows in nyc?
I’ll try to get to the Santos Party and Columbia U shows. Hopefully
you can sign my copy of The Volatility Machine.
WPS | 27/10/09 Till, Just copy the URL to the German article into
http://www.babelfish.com on-line translator and you will get an
amusing, but more or less understandable English translation.
chhotemianinshallah
One Economy and Why the World's Prosperity Depends on It
Asia Society presents economist and author Zachary Karabell in
conversation with James Flanigan.
10/29/2009 7:45AM - 9:00AM
Los Angeles Public Library
Address: 630 W. Fifth Street
Cost: There is no charge for ASSC members and friends that have RSVP'd
in advance.
Website: www.asiasocietysocal.org/index.php?id=651
Author and economic and political analyst Zachary Karabell was once
deemed by the World Economic Forum as a "Global Leader for Tomorrow."
He is the President of River Twice Research and the Senior Advisor for
Business for Social Responsibility. Previously, he served as Executive
Vice President, Head of Marketing and Chief Economist at New York-
based investment firm Fred Alger Management. He is also a regular
commentator on CNBC, and a contributor to Newsweek, The Wall Street
Journal, The Los Angeles Times, The New York Times, Foreign Affairs,
and The Washington Post.
In his newest book, SUPERFUSION: How China and America Became One
Economy and Why the World's Prosperity Depends on It, Karabell
explores the vital and unique relationship between two of the most
powerful economies in the world today - China and America - and how
they are upending conventional wisdom and reshaping the global system.
Karabell traces the twenty-year history that began with the
suppression of the protests in Tiananmen Square in 1989. The Chinese
leadership adopted a policy of aggressive economic reform and courted
U.S. companies and expertise. He shows how U.S. corporations such as
Kentucky Fried Chicken, Proctor & Gamble, Avon, Nike, General
Electric, Siemens, and IBM are integral to the Chinese economy and how
their investments in China helped create a new international system of
trade, production and capital flows. In the meantime, China has moved
beyond being a poor country that produces cheap retail goods consumed
by the U.S. and Europe.
RSVP by Wednesday, October 28, 2009 to Ted Habte-Gabr at
t...@druckerbusinessforum.org.
Sponsor(s): Drucker Business Forum, Asia Society Southern California,
and KPCC
The USCI calendar is provided as a public service for those interested
in U.S. – China relations and developments in China. For non-USC
events, please check with event sponsors for additional event
details.
Sid Harth
Pressure on China
By Ian Swanson - 10/28/09 07:18 AM ET
Rep. Tim Ryan (D-Ohio) and other members of Congress are pressing the
administration to take a firmer stand with China on its currency
policies.
Ryan said he was disappointed with the recent determination by the
Treasury Department that China is not manipulating its currency. This
is the second time Obama’s Treasury has made the finding.
“It was a ridiculous analysis when Bush did it and it’s even more
ridiculous now,” Ryan said in an interview. He’s circulating a letter
to other members of Congress reflecting their disappointment.
Ryan’s legislation punishing China for devaluing its currency has
gained little momentum in this Congress, even though criticism of
China’s currency policy has increased in recent weeks.
China pegs the value of its currency to the dollar, meaning both have
lost value during the dollar’s drop over the past several months.
This has led to new charges that China’s policy is undermining the
world economy. Ryan worries about cheap imports from China, driven
down by the value of China’s currency.
Steel companies have asked Obama administration officials to raise the
issue during Cabinet-level trade and commerce talks with China that
begin Wednesday in Hangzhou.
And in a move that Ryan believes will bolster the cause, Nobel Prize-
winning economist Paul Krugman criticized Treasury’s recent report.
Krugman wrote in his New York Times column that China was stealing
jobs from other countries and that its policy was particularly
indefensible as its economy grows amid a worldwide recession.
Lobbyists backing Ryan’s bill say they haven’t undertaken a hard push
for it given the crowded congressional agenda. In that environment,
the Fair Currency Coalition decided “it didn’t make sense to push
hard,” said Charlie Blum, the group’s executive director.
Ryan said the healthcare debate has made it difficult to move forward,
but he expects more attention to be paid to the issue as soon as
healthcare is finished.
He also thinks it will be easier to move the legislation forward as
the economy shows signs of improving. The Commerce Department on
Thursday is expected to report that the economy grew in the third
quarter.
Sid Harth
Doing what China won’t,HONG KONG
Published on October 28, 2009 by brooks | This story has been viewed
13 times
By Jake van der Kamp FT
However complex the workings of the Hong Kong economy, the mainspring
that drives the mechanism is simple enough. It prospers by doing what
China could, but – wisely or foolishly – will not do.
The pattern was established from the outset. In 1839, China banned
opium traders from its coasts after a rise in drug addiction. Britain
then seized Hong Kong for the purpose of drug trafficking along those
coasts. Hong Kong would do what China had determined not to.
This beginning also introduced another aspect of the set-up. The
authorities are not always diligent in rooting out dubious practices
when commerce is concerned.
The mainspring has not always been able to drive the mechanism at its
full potential. Hong Kong has few opportunities to exploit when
China’s economy is allowed to operate on market principles.
At such times, it has generally been Shanghai that dominated, while
Hong Kong reverted to being a racetrack funded by dockyard work and
Pearl River transhipment.
But in 1949 the mainspring was released to work at full strength.
While the rest of the world moved to an era of expanded trade and
technology transfers, China looked inward with Communist party rule
and missed an opportunity that it would only begin to seize again 30
years later.
Hong Kong’s transition to an industrial trading economy during this
period was made possible only because it was a model that China
shunned.
It was at first done with the simplest manufactured goods sold to the
least demanding of markets, Africa, and then a rapid move up the
quality ladder, most notably in the garment industry, to that most
demanding of markets, the US.
The relationship was so unusual that less than 0.5 per cent of Hong
Kong’s domestic exports went to China in the 1970s. Yet annual growth
for the decade ran at more than 9 per cent. Doing what China would not
do suited Hong Kong superbly.
Then, in the 1980s, everything changed again.
China awoke, its borders opened, and the people who had made Hong Kong
an industrial success moved their manufacturing across that border so
fast that whole districts changed from hives of activity to wasteland.
China was obviously better suited to export manufacturing. It always
had been. China’s leaders just had not realised it.
What was Hong Kong to do next? Once more, it turned to doing what
China would not.
The Beijing authorities heartily approved of becoming an industrial
powerhouse but frowned on the financial arrangements this entailed. To
this day, the capital account on the balance of payments remains
closed, interest rates remain mandated by policy objectives and the
currency is carefully managed.
But industry does not flourish if its financial roots are missing.
Into the void stepped Hong Kong, with banking, accounting, insurance,
investment and trade services. Since 1980, service exports have risen
25-fold to HK$720bn (US$93bn) a year, almost 45 per cent of gross
domestic product.
City governments in China, particularly Shanghai’s, naturally view
this with envy and also want to become service centres.
The only requirements they seem to recognise, however, are glass,
steel and concrete for the office buildings. Hong Kong’s crucial
strengths of the rule of law, preservation of civil liberties and open
financial markets mystify them.
Hong Kong’s service industries only boom because China’s leaders have
not grasped the nettle and made the necessary reforms. A truly open
capital account is many years away. It threatens notions about the
role of government that have evolved over millennia.
If it did happen, Hong Kong’s economy would probably adapt and come to
rely more on fashion and the arts.
In the arts, particularly, Hong Kong is likely to have an advantage,
as freedom of expression is likely to be one the last liberties fully
granted in China. The mainspring of the mechanism would remain
unchanged.
The only other activity likely to become prominent is that of
government officials fretting and wringing their hands about where
Hong Kong will go next. The keepers of the mainspring have little
faith in it workings.
Jake van der Kamp is a Hong Kong-based columnist, author and investor
Sid Harth
China’s Economy: Not Yet Mission Accomplished
Published on October 27, 2009 by brooks | This story has been viewed
13 times
Since the global financial crisis hit last year, Chinese officials
have been firm about the need to maintain about 8% economic growth to
ensure stability. Before the last office door swung shut at Lehman
Brothers in New York, Beijing was planning how to get there,
eventually unleashing a massive $586 billion stimulus package in the
spring and freeing up lending to allow billions more to slosh into the
economy. With this week’s announcement that GDP had expanded by 8.9%
in the third quarter, China is well on its way to reaching its target
for the year. That will make China the first major economy to emerge
from the slowdown. But it is far too soon for the country’s economic
mandarins to hang a “Mission Accomplished” banner.
“While we have avoided the worst recession since the Great Depression,
we are probably heading for another asset bubble and more financial
turbulence,” Qin Xiao, chairman of China Merchants Group, wrote in
Thursday’s Financial Times. Qin said he didn’t think “a quick, steep
bounce driven by fiscal fixed investment is a good thing for China,”
adding that the current loose monetary policy should shift to neutral.
On Thursday, Hong Kong’s Hang Seng Index dropped by 0.5% and the
Shanghai Composite Index fell 0.6% on concerns that China would begin
to tighten monetary policy in response to fears of expanding bubbles
in real estate and financial markets.
But economists said the country is likely to keep its foot on the gas
to ensure the recovery doesn’t falter. On Wednesday, the State
Council, China’s cabinet, said it would focus on achieving a balance
between promoting growth, rebalancing the economy and “managing
inflation expectations.” Nomura economist Mingchun Sun argues that
because the State Council’s statement emphasized “expectations,”
rather than inflation itself, the government doesn’t believe inflation
is a major risk and will maintain a loose monetary policy in the near
future.
Despite China’s strong rebound this year, Chinese officials remain
cautious. On Sept. 11 Premier Wen Jiabao said “the stabilization and
recovery of the Chinese economy is not yet steady, solid and
balanced.” China’s stimulus package — the equivalent of 14% of GDP —
focused on large infrastructure projects, work often done by large
state-owned construction firms. Similarly, the lending spree was
primarily directed at state-owned enterprises that offer banks an
implicit guarantee that the government will cover outstanding debts.
The downturn in exports mainly hurt small- and medium-sized firms in
the south, which are usually private owned. The result is that while
profits are climbing for large, state-owned firms, the private sector
is lagging. “The biggest challenge for the authorities is that the
private sector has yet to fully recover. This makes it difficult to
tighten early,” Ben Simpfendorfer, a Hong Kong-based China economist
for RBS, wrote in a research note. “It also funnels money into equity
and housing rather than the real economy. The temptation will be to
leave policy too loose, for too long, resulting in another asset price
bubble.”
China has subsidized purchases for some goods including small
passenger cars and household appliances, which has led to a boom in
spending in certain sectors. Passenger vehicle sales climbed 84% last
month, and China is expected to surpass the U.S. as the largest car
market this year. Consumers have also bought hundreds of thousands of
refrigerators, washing machines and other appliances under a
government promotion this year.
But while sales have climbed, economists say the government has yet to
push through the sort of reforms that would make consumer spending a
solid economic pillar. Chinese are still among the world’s biggest
savers, in part because of the lack of good public systems for
retirement pensions and health insurance. “Most economists think
they’ve overdone investment and underdone consumption and spending for
social welfare,” says Stephen Green, the Shanghai-based head of
research for Standard Chartered Bank. “There will be a price to pay.
No one knows how big that will be. The bet is they’ll grow through it.
That’s the bet they’re taking.”
Sid Harth
Oil price rise to help speed up GCC recovery
Jack Perkowski Founder and CEO, JFP Holdings. (SUPPLIED)
By
Reena Amos Dyes on Wednesday, October 28, 2009
As great business minds of the world got together in the emirate for
the Leaders in Dubai Forum, the mood regarding the GCC was upbeat and
one of China's most successful entrepreneurs expected GCC states to
come out of the recession faster than any other country. Jack
Perkowski, Founder, CEO, JFP Holdings, a keynote speaker at the forum,
told Emirates Business: "The GCC states will come out of the crisis
faster than the rest of the world as the increase in oil price and
demand will have a major impact on their economies. We've already seen
a substantial rise in oil price in the past few months."
How real are the green shoots of recovery?
China has already come out of the recession and is now on the upswing.
China will probably go back to an eight per cent growth rate before
the year end and maybe even higher at 9 to 10 per cent in 2010. The US
too has bottomed out. But the US is not going to see the kind of
return to growth it saw two years ago. For them it's going to be a
flatter, slower recovery because a lot of the US economy was built on
high degrees of leverage, both on the consumer side and the corporate
side. A lot of these instruments of leverage have disappeared in the
wake of this economic meltdown. So it will not be easy for them to
leverage the economy to the same degree as before and grow faster.
Europe is trailing the US and Japan is facing one of its toughest
times with a drop in the GDP in the first quarter.
What about the GCC's pace of recovery?
The GCC states – to a large extent dependent on prices, volume and
demand for oil – will come out of the crisis faster than anyone as the
demand for oil and the expectation of demand will increase the prices
of oil. We have already seen a substantial increase in oil prices and
we are also seeing an increase in demand from China. For example, car
sales in China in April-May were up 20 per cent as compared to the
same period last year. Apart from that the increase in the price of
oil signals there has been a pick up in demand for oil or at least
hopes of a rise in demand for oil, which indicates the economies of
the countries across the world have at least stabilised and maybe we
are through the worst of it.
What lessons should the world and GCC learn from this recession?
The economic recession and the financial crisis are inextricably
linked. The financial system, particularly in the US, got way ahead of
itself in terms of complexities. People were creating derivatives and
new instruments and no one really understood how these instruments
would trade. So we need to understand better how this financial system
works, what instruments are being created and there have to be more
effective regulations. The countries that were dependant on the West
should now spend more time and effort developing their internal
economies.
The GCC should use its immense reserves to stimulate and diversify its
economy so that it is less susceptible to big swings of oil prices. It
should also put in place stimulus packages targeted at infrastructure
projects or other projects that improve productivity, inject
investment into the economy and create demand. For example, China is
making a big effort to get additional financing to small- and medium-
size enterprises because in any economy it is the SMEs that increase
employment.
Also, they need to think how they can overcome or reduce volatility in
oil prices. If I were a country that was so dependent on oil I would
be thinking if there was some way to have a more stable oil price.
This would be in the long-term interest of both oil-producing and oil-
consuming countries. There are no magic solutions to this but it is
something that everyone should be paying attention to.
Will China overtake the US as the world's biggest economy? If yes,
when?
Assuming that China grows at a rate of eight per cent per year and the
US at three per cent, the cross over will be 30 years from today.
China's economy still has 50 per cent of its employment in
agriculture. It is when an economy moves to 20 per cent employment in
agriculture, that it is considered industrialised, so for China there
is still a lot of room for growth. China is planning to put capital
and technology behind these agricultural resources, which will spur
economic growth and creative business ideas.
PROFILE: Jack Perkowski Founder and CEO, JFP Holdings
A graduate of Yale and Harvard Business School, Perkowski spent 18
years on Wall Street, rising to the post of the Head of Investment
Banking at PaineWebber. After that Perkowski spent three years looking
for opportunities in Asia and China, leading to the founding in 1994
of Asimco Technologies. He served as Chairman and CEO of Asimco for 15
years, building it into an important player in China's automotive
components industry. In January, Jack left Asimco to establish JFP
Holdings, a merchant banking firm focusing on China. He has authored
Managing the Dragon: How I'm Building a Billion Dollar Business in
China, as well as numerous articles on China.
bademiyansubhanallah
IMF raises forecasts for Asia's economic growth
By JEREMIAH MARQUEZ , 10.29.09, 01:34 AM EDT
HONG KONG -- Asian economies from China to India will grow faster than
expected through next year, far outpacing recoveries in the West,
thanks to aggressive government stimulus spending and a pickup in
global trade, the International Monetary Fund said Thursday.
But the region's rapid expansion will remain below the levels seen in
the decade before the economic crisis as consumers in the U.S. and
other large industrialized nations curtail their spending on Asian-
made electronics, cars and other goods in the face of rising
unemployment and other legacies of the downturn, the fund said in a
report.
"Asia has not decoupled from the rest of the world," the IMF said,
wading into a broader debate over whether the region's prospects hinge
on the West. "In fact, Asia's fortunes remain closely tied to that of
the global economy."
The fund raised its forecast for Asia, saying the broader regional
economy that spans countries from New Zealand to India would grow 2.75
percent in 2009 and 5.75 percent in 2010. That's still below the
average of 6.7 percent over the past decade. Both projections were
about 1.5 percentage points stronger than those estimated by the fund
in May.
Economies in the seven leading developed countries, meanwhile, were
seen as shriveling by about 2.5 percent this year and growing only
1.25 percent next year.
Asian countries have been leading a recovery in the world economy,
with growth accelerating since governments across the region loosened
monetary policies and unleashed a torrent of spending to help shelter
their companies and consumers from the drop-off in global trade and
finance.
China's economy, the world's third largest, expanded at an 8.9 percent
pace in the third quarter on the back of lavish government stimulus
and bank lending. In South Korea, the economy grew last quarter at its
fastest rate in over seven years.
Looking ahead, China was expected to outperform, its economy growing
8.5 percent in 2009 and 9 percent in 2010, the IMF said. Japan, the
world's No. 2 economy, was set to contract 5.5 percent this year
before turning around next year to grow 1.75 percent.
With only about half the region's stimulus carried out so far,
government measures will continue to buoy local economies over the
next several quarters, the IMF said.
Once the effects of these measures fade, however, Asia will ultimately
need to find ways to make up for weaker demand in the West by
increasing its local private consumption with the help of a broader
social safety net and other reforms, the IMF said.
Over the longer run, the fund said Asian countries will have to let
their currencies appreciate. China, for example, has long held down
its currency, a practice that boosts demand for exports but which
analysts say has contributed to economic imbalances that hinder
broader and sustainable growth in the region.
Copyright 2009 Associated Press. All rights reserved. This material
may not be published broadcast, rewritten, or redistributed
bademiyansubhanallah
Reuters Columnists
Wei Gu« Previous ColumnNext Column »October 28th, 2009
Winning the copyright battle in China
When it comes to protecting intellectual property in China, the United
States often feels that its pleas are falling on deaf ears. Its best
hope is that China recognizes that copyright protection is in its own
interests. To achieve that, Washington needs to push for changes from
within.
After a fruitless decade of lobbying China on intellectual property,
Washington has
reached for the microphone. This week, the U.S. Chamber of Commerce
launched a high-profile international forum on intellectual property
in Guangzhou, capital of Guangdong Province and best known as both
China’s manufacturing hub and the global centre for intellectual
property theft.
Guangdong understands it cannot hold on to both titles forever. Its
reforming leader Wang Yang has vowed to build an innovative Guangdong,
but he and his deputies understandably do not want to be criticized in
public. The U.S. delegation included high-ranking officials such as
Commerce Secretary Gary Locke, but the very man they hoped to engage
with didn’t show up.
Foreign pressure can help, but changes rarely happen in public. First,
both parties need to agree on what they are trying to achieve. As a
manufacturer for the rest of the world, China has historically seen
little upside in protecting copyright. The United States needs to
convince Beijing that, if it wants to develop its own products, then
protecting copyright is important.
Huawei Technologies, the telecom equipment maker based in Guangdong,
could be a good partner in this. In 2003, Cisco sued Huawei for
copyright violations, but dropped the suit after Huawei agreed to stop
selling some products. Now, Huawei has emerged as a strong protector
of copyright. Last year the company filed the largest number of
patents in the world.
Song Liuping, Huawei’s chief legal officer, advocates increasing the
penalty for IP theft, a view shared by Americans. But he thinks the
problem is not the lack of an adequate legal system or even lax
enforcement, but the absence of a culture in China that values
designs, patents, and copyrights.
China is likely to act when it feels others are trampling on its
rights. A Chinese group recently complained that Google’s planned
online library of digitised books might
violate Chinese authors’ copyrights. The more China feels that its own
interests are at stake, the more serious it will get. When every new
movie or software program can be copied for nothing, it is impossible
to develop a film business or software industry.
It is better to back Chinese movie stars and technology entrepreneurs
rather than American politicians to drive this message home in China.
chhotemianinshallah
China - the world’s fastest-growing major economy - has recently
emerged as a major player in global economic governance, and not
without some controversy.
The country’s newly prominent role on the world stage was the topic of
much discussion and debate among a group of experts who gathered for a
conference in Geneva earlier this week.
Discussions at the ‘Bridges China Dialogue’, held on 26 and 27 October
in Geneva ran the gamut from climate change and eco-tourism to
investment and currency valuation to protectionism and the WTO’s Doha
Round of world trade talks. The meeting brought together a mix of
government officials, academics, and private sector leaders, who
debated and delved into technical discussions at the two-day meeting.
WTO Director-General Pascal Lamy gave the keynote address on Monday
afternoon.
(The conference was sponsored in part by the International Centre for
Trade and Sustainable Development (ICTSD), a Geneva-based independent
global think tank and the publisher of Bridges Weekly.)
Economic growth
The Chinese economy, now the fourth-biggest in the world (after the
EU, the US and Japan), is expected to grow by 8 percent this year.
Meanwhile, the economy of the United States continued to shrink
through the second quarter of this year, although some early estimates
suggest it may have begun growing in the third quarter, which ended at
the end of last month. Economists predict that
Chinese exports will register a year-on-year drop of between 16 and 20
percent for 2009, said Yutai Zhang, the head of China’s Development
Research Centre. But overseas shipments will bounce back in 2010, he
added, noting that current models predict an uptick of between 8 and
10 percent for next year. China recently surpassed the United States
to become the world’s second-largest exporter, after Germany. Some
early estimates predict that the Asian Giant may even outpace Germany
in exports of goods and services after the final numbers for 2009 are
tallied; at the mid-year mark, the two countries were nearly equal,
according to figures from the WTO.
A renewed demand for Chinese goods is already being felt in some
manufacturing regions of China, Zhang told the meeting. Factories in
some parts of the country are even struggling to recruit enough
workers, especially skilled workers, to respond to the volume of new
orders, Zhang said.
But China is importing too, and Chinese demand for goods from abroad
is having significant impacts on other regions of the world, experts
at the meeting said. Booming demand from within China is driving
growth in African economies, said Martyn Davies, the executive
director of the Centre for Chinese Studies at South Africa’s
Stellenbosch University. Africa provides roughly a quarter of all of
China’s foreign energy supplies, he said, noting that the Afro-Sino
trade relationship was bolstered by African leaders’ strong political
support for Chinese investment. The economies of all African countries
- except South Africa, the continent’s richest nation - will grow this
year, thanks in part to demand from the Chinese, Davies said.
In Africa and beyond, China is looking to boost its cross-border
commerce with the world’s poorest nations. One fifth of all goods
exported by least developed countries end up in China, said Chinese
WTO ambassador Sun Zhenyu. That trade relationship should continue to
grow as Beijing expands duty-free and quota-free access to goods from
LDCs, Sun added.
Pressure to further open Chinese economy
A Monday afternoon session witnessed a mild confrontation between the
Chinese and European ambassadors to the WTO.
European ambassador Eckart Guth kicked off the session on global
economic governance with a charge that Chinese policies have driven
away European investors. Beijing does not do enough to protect
intellectual property rights, Guth argued, adding that the country has
erected unfair barriers to foreign investment and that its government
procurement policies wrongly discriminate against foreign firms.
But China’s ambassador Sun countered that European and other foreign
investors do not seem to have been scared away, noting that the
country attracted US$ 90 billion in overseas investment last year.
China was required to take drastic, and sometimes painful, measures to
open its economy before it joined the WTO in 2001, Sun noted, adding
that the international community should not forget how far the country
has already come. China is getting there, he said, and in the meantime
other countries should be patient.
But such a shift in attitude among Beijing’s major trading partners
seems far from imminent. China is now the most popular target of other
countries’ retaliatory trade measures, such as anti-dumping duties and
safeguard measures, noted Simon Evenett, the co-founder of the website
Global Trade Alert, which tracks protectionist policies that
governments have implemented amid the ongoing economic downturn. That
trend is likely to continue, Evenett added, even as the global economy
gets back on its feet.
More information
The Global Trade Alert website is available here: http://www.globaltradealert.org/
A publication of the full proceedings of the meeting will be available
on the Bridges China website in November.
ICTSD reporting.
Sid Harth
India Inflation Accelerates, Vindicating Policy Exit (Update1)
Kartik Goyal
Oct. 29 (Bloomberg) -- India’s wholesale prices increased the most
since May, highlighting the inflation risks that prompted the central
bank this week to begin withdrawing record monetary stimulus.
The benchmark wholesale-price index rose 1.51 percent in the week to
Oct. 17 from a year earlier, after gaining 1.21 percent in the
previous week, the Commerce Ministry said in New Delhi today. That was
less than the 1.59 percent median forecast in a Bloomberg News survey
of 19 economists.
Governor Duvvuri Subbarao last night called inflation a “regressive
tax” on the poor, a day after the Reserve Bank of India ordered
lenders to set aside more cash in government bonds. Norway’s Norges
Bank yesterday joined Australia’s central bank in raising borrowing
costs this month as policy makers around the world prepare to combat
rising prices and asset bubbles.
A “recovery in growth” and faster inflation will force India to also
raise its benchmark interest rates starting January, said Chetan Ahya,
an economist at Morgan Stanley in Singapore. “We see this increase in
policy rates as a move toward normalization rather than tightening
that hurts growth.”
The yield on the 6.9 percent note due July 2019 was held at 7.23
percent as of 11:41 a.m. in Mumbai, from before the report, according
to the central bank’s trading system.
Subbarao this week increased the statutory liquidity ratio to 25
percent from 24 percent and raised the central bank’s inflation
forecast for the year through March to 6.5 percent from 5 percent.
‘Calibrated Way’
The Reserve Bank kept its benchmark interest rates unchanged, even as
Subbarao said the central bank would need to exit its accommodative
policy settings in a “calibrated way” to ensure “that while the
recovery process is not hampered, inflation expectations remain
anchored.”
The central bank will “keep a vigil on the trends in inflation and be
prepared to respond swiftly and effectively through policy adjustments
to stabilize inflation expectations,” Subbarao said in his Oct. 27
statement.
Indian stocks declined for a fourth day on concern that corporate
profits may suffer as policy makers withdraw stimulus. The Bombay
Stock Exchange’s Sensitive Index, or Sensex, fell 1.1 percent to
16,102.08.
Wholesale prices in India have risen for seven straight weeks after
declining for three months. Consumer price inflation is running above
10 percent.
Potatoes, Onions
Consumer prices paid by farm workers jumped 13.19 percent in September
from a year earlier and those paid by industrial workers climbed 11.72
percent in August. Food prices are rising as the weakest monsoon rains
since 1972 hurt farm output, causing shortages.
Potato prices increased 97.7 percent and onion prices climbed 45
percent in the week to Oct. 17 from a year earlier, today’s report
showed. Costs of lentils rose 22.9 percent, sugar gained 45.7 percent
and milk increased 10 percent. Costs of gasoline, edible oils and
metals declined.
India uses wholesale price data as its key inflation gauge as its
consumer price indexes are calculated on the basis of costs to
particular segments of the nation’s workers and don’t capture the
aggregate price picture.
The threat of faster inflation is prompting other central banks to
start winding back monetary stimulus initiated to protect their
economies from the worst global recession since the 1930s.
Australia, Norway
The Norges Bank yesterday cited higher-than-expected inflation in
pushing Norway’s benchmark rate up a quarter point to 1.5 percent and
signaling steeper increases than it previously forecast.
The Reserve Bank of Australia on Oct. 6 became the first Group of 20
nation to raise interest rates since the start of the global financial
crisis more than a year ago, increasing its overnight cash rate target
to 3.25 percent from 3 percent.
South Korea’s central bank Governor Lee Seong Tae on Oct. 23 said
keeping borrowing costs at a record low may not be healthy, after
gross domestic product grew in the third quarter at the fastest pace
in seven years.
India’s wholesale-price index published today may be revised in two
months, after the government receives additional data. The ministry
revised the rate for the week ended Aug. 22 to a rise of 0.17 percent
from a decline of 0.21 percent.
To contact the reporter on this story: Kartik Goyal in New Delhi at
kgo...@bloomberg.net
Last Updated: October 29, 2009 03:26 EDT
Sid Harth
Reliance Profit Falls for Fourth Quarter on Refining (Update1)
Rakteem Katakey and Natalie Obiko Pearson
Oct. 29 (Bloomberg) -- Reliance Industries Ltd., the explorer battling
a lawsuit over natural gas sales, reported a lower profit, joining BP
Plc and PetroChina Co. as earnings from refining tumbled following
crude’s fall from a record.
Net income in the three months ended Sept. 30 fell 6.55 percent to
38.5 billion rupees ($815 million), or 23.40 rupees a share, from 41.2
billion rupees, or 27 rupees, a year earlier, the Mumbai-based company
said in a statement today. The median estimate of 15 analysts in a
Bloomberg survey was a profit of 40 billion rupees. Net revenue rose
4.8 percent to 468.5 billion rupees.
Weak global demand for fuels squeezed profit margins for refiners from
ConocoPhillips to SK Energy Co. as crude in New York averaged $68.24 a
barrel in the quarter, down 42 percent from a year earlier. Reliance,
controlled by Mukesh Ambani, the world’s seventh-richest man, sells
fuels in the U.S. and Europe and is investing in India’s biggest gas
field to reduce dependence on refining oil.
“Refining continues to be under pressure,” Saeed Jaffery, a Mumbai-
based analyst with Ambit Capital Ltd., said before the earnings were
announced. “That is going to create pressure” as refining constitutes
about 35 percent of earnings before interest, tax, depreciation and
amortization.
Global refining margins declined to $3.42 a barrel in the three months
ended September compared with $6.20 a barrel a year earlier, according
to BP Plc data.
Gas Sales
Lower refining profit was offset by earnings from the sale of gas from
the KG-D6 field, which started production in April. Output will
increase to about 60 million cubic meters a day by December from about
40 million cubic meters currently, R.S. Pandey, the senior-most
bureaucrat in India’s oil ministry, said Oct. 27.
The explorer has invested $5.8 billion of a planned $8.8 billion in
the KG-D6 gas field off India’s east coast, P.M.S Prasad, president of
the company’s oil and gas business, said last month.
Reliance is fighting a case in India’s Supreme Court, seeking to
overturn a lower-court order to supply gas to a company owned by
Mukesh’s younger brother Anil Ambani at 44 percent less than a price
set by the government in 2007. Reliance could lose as much as $600
million a year in earnings before interest, tax, depreciation and
amortization if it loses the case, according to Moody’s Investors
Services.
New Capacity
Reliance shares have climbed 62 percent this year, lagging behind the
66 percent increase in the benchmark Sensitive Index of the Bombay
Stock Exchange. The shares fell 1.7 percent to 1,999.40 rupees in
Mumbai trading. The company announced its earnings after market
hours.
Profitability has declined also as refiners add capacity. About 6
million barrels a day will come on stream globally by 2015, creating a
surplus of as much as 5 million barrels a day by 2012, the
Organization of Petroleum Exporting Countries said July 8 in its World
Oil Outlook report.
“Refining margins being subdued going forward, Reliance needs to ramp
up gas production,” Deepak Pareek, a Mumbai-based analyst with Angel
Broking Ltd. said before the earnings. “They could be under pressure
in the next quarter as well.”
PetroChina, the world’s second-most valuable company, yesterday
reported a 24 percent drop in profit in the three months ended Sept.
30. Earnings at ConocoPhillips slumped 71 percent in the same period,
while BP, Europe’s second-largest oil company, said Oct. 27 profit
excluding one-time items and inventory changes fell 47 percent.
SK Energy, the biggest South Korean fuel producer, said yesterday
third-quarter profit fell 46 percent.
To contact the reporters on this story: Rakteem Katakey in New Delhi
at rkat...@bloomberg.net; Natalie Obiko Pearson in Mumbai at
npea...@bloomberg.net.
Last Updated: October 29, 2009 08:01 EDT
Sid Harth
Mahindra Triples Profit on Auto Sales; Shares Rise (Update1)
By Vipin V. Nair
Oct. 29 (Bloomberg) -- Mahindra & Mahindra Ltd., India’s largest maker
of sport-utility vehicles and tractors, almost tripled second-quarter
profit, beating expectations, as lower borrowing costs spurred auto
sales.
Net income in the three months ended in September rose to 7.03 billion
rupees ($148 million) from 2.47 billion rupees a year earlier, the
Mumbai-based company said in a statement today. That beat the 4.14
billion rupees median estimate in a Bloomberg survey of seven
analysts. Sales climbed 35 percent to 44.65 billion rupees.
Mahindra’s sales of Scorpio SUVs and other models gained 15 percent,
helped by cheaper loans and higher spending by the government. With
interest rates set to rise, retaining profit and growth rates will be
a challenge for Indian automakers, said Vaishali Jajoo, a Mumbai-
analyst at Angel Broking Ltd.
“Going forward, volume growth will depend on how substantial the
interest-rate increases will be,” she said. “Margins will get impacted
as commodity prices are rising and that is a concern.”
Shares of Mahindra rose as much as 3.6 percent to 923.4 rupees and
changed hands at 915 rupees at 2:26 p.m. in Mumbai. The stock has more
than tripled so far this year and is the second best performer in the
30-stock benchmark Sensitive Index.
Mahindra’s sales of cars, trucks and three-wheeled auto rickshaws rose
to 72,660 units in the quarter. Sales of tractors rose 41 percent to
28,770.
To contact the reporter on this story: Vipin V. Nair in Mumbai at
vna...@bloomberg.net.
Last Updated: October 29, 2009 05:18 EDT
Sid Harth
India’s Gold Imports Drop for Sixth Month, Traders’ Group Says
By Thomas Kutty Abraham
Oct. 29 (Bloomberg) -- Gold imports by India, the world’s biggest
buyer, probably fell for the sixth month in October as record prices
curbed demand from jewelers, a traders’ group said.
Purchases this month are 27 tons compared with 44 tons a year earlier,
Suresh Hundia, president of the Bombay Bullion Association Ltd., said,
citing preliminary data.
“Retail demand was absent except during Diwali festival because of
high prices,” he said in a phone interview. “The price will have to
fall significantly for demand to revive.”
Gold reached a record $1,070.80 an ounce on Oct. 14 as a weaker dollar
increased the metal’s appeal as an alternative investment. The metal
has gained 17 percent this year.
India’s imports may be 40 percent less than last year’s purchase of
420 tons, Hundia said.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai
at tabr...@bloomberg.net
Last Updated: October 29, 2009 05:56 EDT
Sid Harth
India Rupee Rises, Ending 3-Day Slide, as Exporters Sell Dollar
By Anil Varma
Oct. 29 (Bloomberg) -- India’s rupee rose, snapping a three-day
decline, on speculation some exporters converted their foreign-
currency earnings to take advantage of the local currency’s recent
slide.
Companies with overseas earnings may have increased dollar sales after
the rupee fell to lowest level in more than three weeks earlier today.
The currency also gained on speculation rising corporate earnings will
attract more foreign investment into the South Asian nation’s stock
market.
“Exporters came in and sold the dollar heavily, as expected, after the
rupee fell sharply this week,” said Sudarshan Bhatt, chief currency
trader at state-owned Corporation Bank in Mumbai.
The rupee climbed 0.3 percent to 47.205 per dollar as of the 5 p.m.
close in Mumbai, extending a gain this month to 1.9 percent, according
to data compiled by Bloomberg. It fell to 47.6450 earlier, the weakest
level since Oct. 5. The currency may rise to 46.90 this week, Bhatt
said.
Offshore contracts indicate bets the rupee will trade at 47.28 to the
dollar in a month, compared with expectations of 47.46 yesterday.
Forwards are agreements in which assets are bought and sold at current
prices for future delivery. Non- deliverable contracts are settled in
dollars rather than the local currency.
Mahindra & Mahindra Ltd., India’s largest maker of sport- utility
vehicles and tractors, almost tripled second-quarter profit, beating
expectations, according to a company statement in Mumbai today. Oil &
Natural Gas Corp., the nation’s biggest explorer, increased profit 5.8
percent, beating estimates.
The rupee weakened earlier as the Bombay Stock Exchange Sensitive
Index slid 1.4 percent, taking its loss this week to 4.3 percent. The
MSCI Asia-Pacific Index of regional shares lost 1.4 percent. A U.S.
Commerce Department report issued yesterday showed new-home sales
declined, a day after separate data flagged a drop in consumer
confidence in the world’s largest economy.
To contact the reporters on this story: Anil Varma in Mumbai at
ava...@bloomberg.net.
Last Updated: October 29, 2009 08:17 EDT
bademiyansubhanallah
Associated Press
China's small-company stock market starts trading
Associated Press, 10.30.09, 01:18 AM EDT
HONG KONG -- A new Chinese stock exchange meant to nurture small and
high-tech enterprises, modeled on the U.S.-based Nasdaq market,
started trading Friday and all 28 listed companies soared in price.
Huayi Brothers Media Corp., one of China's top movie studios, soared
210 percent by midday on the ChiNext exchange in the southern city of
Shenzhen. Other companies rose by at least 119 percent.
The new board is intended to help smaller Chinese companies in a
financial system that has long favored big, state-owned companies.
Huayi Brothers and most of the other companies on the new exchange are
privately owned, while China's main exchanges in Shanghai and Shenzhen
are dominated by government enterprises.
The communist government has talked for more than a decade about
creating a Nasdaq-style market to promote technology and other new
industries, but its launch was repeatedly delayed.
Beijing hopes the new exchange will "channel resources into
competitive emerging industries to nurture new economic growth," the
chairman of the China Securities Regulatory Commission, Shang Fulin,
said last week.
Six companies on ChiNext are in biotech or pharmaceuticals and others
are in information technology, energy efficiency, telecoms, medical
equipment and electronics.
The exchange "will help to upgrade industries, serving as a window for
the world to know more about the Chinese economy," said Peng Yunliang,
an analyst for Shanghai Securities.
The size of share offerings on ChiNext was small compared with the
multibillion-dollar initial public offerings on the main boards in
Shanghai and Shenzhen, but analysts said investors would welcome the
new opportunities.
Some investors worried ahead of ChiNext's launch that the flood of new
shares might depress other stock prices as money moved to the
exchange. But the benchmark Shanghai Composite Index was up 2.1
percent at midday.
Associated Press researcher Bonnie Cao in Beijing contributed to this
report.
Copyright 2009 Associated Press. All rights reserved. This material
may not be published broadcast, rewritten, or redistributed
...and I am Sid Harth
bademiyansubhanallah
Reuters
China Money: IRS curve may flatten on possible policy shift
10.29.09, 10:27 PM EDT
CHINA-MARKETS/DEBT:
By Karen Yeung
SHANGHAI, Oct 30 (Reuters) - China's onshore interest rate swap curve
may finally be on the verge of flattening after a spectacular
steepening since late last year, as the central bank shifts to an
unwinding of its ultra-loose monetary policy.
The spread between the one- and 10-year IRS ballooned 227 basis points
to a multi-year high of 219 bps on Oct. 16 from October of last year
when the curve was inverted.
Extremely loose money market liquidity, the result of a drastic easing
of monetary policy spurred by the global financial crisis, kept short-
term rates low while expectations for a strong economic recovery and
inflation boosted the long end.
But some traders and analysts have recently begun to think that the
long end, which has already factored in about two interest rate hikes,
has little room to rise further while the short end remains depressed
by abnormally loose liquidity and has much greater potential to return
to more normal levels.
"The curve has to flatten back because of tighter liquidity. It's just
too steep now by historical standards," said Ye Yuzhang, IRS trader at
Industrial Bank.
The State Council, or China's cabinet, said last week that the
economic recovery had been "consolidated" and there was a need to
manage inflation expectations, marking a clear shift of rhetoric after
previously insisting that China's economy was not yet back on a solid
footing.
But it also said it needed to ensure growth was sustainable, rendering
it unlikely that a shift in policy would be so aggressive as to brake
economic growth prematurely.
MILD UNWINDING
In a research note on Thursday, China Investment Capital Corp said
China would focus more on administrative measures than on monetary
policies to fight inflation, such as slower approvals of new
investment projects, price controls in selected sectors, subsidies to
grain and pig production, and a suspension of utility reforms that
would raise tariffs.
Shi Lei, analyst at Bank of China, agrees, predicting only modest
tightening moves over the next several quarters compared with the
rapid loosening late last year.
He forecasts one reserve ratio hike next year in the first quarter,
two hikes to the key lending and deposit rates from the second quarter
and a rise in the auction yield on one-year central bank bills by 30
basis points by the first quarter. During September and December last
year, the one-year lending rate was cut by 216 bps and one-year
deposit rate was slashed by 189 bps.
Such measures would not offer much impetus for a further rise in long-
term IRS from currently high levels, but many traders still consider
short-term IRS too low.
"The seven-day repo rate may rise to 1.6 percent by the end of the
year and 2 percent at the end of the second quarter, boosting short-
term IRS," Shi said. The seven-day repo rate, at 1.3808 percent as of
0150 GMT, is used in the floating leg of interest-rate swaps.
Much of the upward pressure on money market rates could come from the
central bank, which is expected to boost bill yields and money market
drains in its open market operations to mop up excess liquidity,
generated in part by capital inflows from overseas speculators who
expect China's currency to appreciate and its asset prices to rise.
The central bank has been conducting huge net drains from the market,
at a combined 366 billion yuan in the last three weeks.
Short-term rates will also be lifted by the handful of interest rate
and reserve ratio hikes that are already largely factored into the
long end.
But Shenyin & Wanguo Securities said the central bank's focus on using
sales of three-month bills rather than one-year bills to drain funds
from the market in its open market operations signalled that it was
unlikely to resume three-year bill sales, limiting rises at the longer
end of the curve.
Traders expect the one-/10-year spread, now at 207 bps and confined
mostly within a range between 180 and 219 bps since August, to narrow
about 40 bps as liquidity tightens in coming months.
"When the curve flattens as the central bank tightens liquidity, it
could happen very fast," said an IRS trader at a European bank in
Shanghai, who thinks the one-/five-year spread, now at about 150 bps,
may narrow by as much as 50 bps in coming months. (Editing by Edmund
Klamann & Kazunori Takada)
Copyright 2009 Reuters,
bademiyansubhanallah
China and U.S. move to defuse trade rowBy Geoff Dyer, The Financial
Times
October 30, 2009 -- Updated 0112 GMT (0912 HKT)
Trade talks in China
China and the US resolved several thorny trade disputes on Thursday
even as Beijing confirmed it was investigating potential dumping of US-
made cars in the Chinese market.
At a high-level meeting of officials from both countries in the
eastern Chinese city of Hangzhou, China said it would allow US pork
imports and relax restrictions on wind power components and government
procurement rules.
Thursday's meeting comes three weeks before the first visit to China
of President Barack Obama and against a backdrop persistent trade
tensions, concerns about the strength of the US economy and renewed
criticism of China's currency policy.
Last month Mr Obama imposed a 35 per cent duty on imports of Chinese
tyres and Beijing responded by launching anti-dumping investigations
into US imports of auto parts and poultry.
Chen Deming, China's commerce minister, said on Thursday that Beijing
would investigate imports of US-made cars to China as a result of the
huge state financial aid that Washington had given this year to
General Motors, Ford and Chrysler.
However, lawyers said the new cars investigation was mostly symbolic
given the modest size of the imports at about 40,000 vehicles a year.
GM said it had sold 13,859 imported cars in China so far this year,
compared to total sales in China of 1.29m vehicles in the first nine
months of the year.
Mr Chen said Washington acknowledged that placing curbs on Chinese
imports was not the best way to deal with China's large trade surplus.
"The two [countries] have agreed that the solution to the trade gap
between the United States and China is not to restrict imports from
China but to promote balance," he said.
The minister added that the US had agreed to set up a joint working
group to analyse the issue of awarding "market economy status" to
China, a perennial demand from Beijing in bilateral talks that would
make it harder for the US to accuse China of dumping.
Chinese officials said Beijing would lift a ban on imports of pork
from the US which had been in place since the outbreak of swine flu in
the spring, although they did not say when imports would start.
"I hope pork imports can resume quickly but I also hope that the US
will follow Chinese requirements to credibly ensure the quality,
safety and health of pork imports to China," said Sun Zhengcai,
China's agriculture minister.
Zhang Guobao, head of the National Energy Administration, said China
would remove its local content requirement in tenders for wind power
equipment, potentially giving US companies better access to China's
booming wind power market.
Ron Kirk, the US trade representative, said China had agreed to treat
joint venture companies involving the two countries as local
businesses in government procurement contracts, which he said was one
of the priorities of US businesses in this round of talks.
China would also submit an offer to join the World Trade
Organisation's government procurement agreement by 2010, Mr Kirk said.
© The Financial Times Limited 2009
bademiyansubhanallah
OCTOBER 30, 2009.
Emerging-Market Rally Spurs Unease
Text .By LARRY LIGHT
Agence France-Presse/Getty Images
Traders in emerging markets have been busy this year amid a broad
rally. Above, traders in Brazil's stock-index futures pit in March.
.Doubts are growing that emerging markets' spectacular ascent this
year will continue.
The MSCI Emerging Markets Index, which had climbed 63% this year in
U.S. currency terms as of Thursday, has slid over the past two weeks.
After muscular performances from the Chinese, Indian and Brazilian
exchanges, they have suffered downdrafts lately.
Cash has poured into emerging markets this year. Through September,
investors stashed $52.6 billion into emerging-markets funds. That is
close to the record level for all of 2007, according to Emerging
Portfolio Fund Research Inc.
But the emerging-market run-up is starting to produce unease, and dips
like the Shanghai Composite's 2.3% decline Thursday may be a portent.
"Emerging-market euphoria has a tendency to get out of hand," says
Benjamin Segal, manager of Neuberger Berman International Fund, which
invests both in developed and emerging markets.
View Full Image
Bloomberg News
Brokers and their families at the Bombay Stock Exchange this month.
.On Thursday, the MSCI Emerging Markets Index closed at 921, up 0.5%
for the day, after losing 3.2% on Wednesday. Thursday, as the U.S.
market rebounded on strong economic growth, emerging markets regained
some of their losses. The Brazilian stock exchange, for example, rose
5.9% Thursday and is up nearly 70% year-to-date.
But emerging markets could be headed for a more serious downturn no
matter how economies fare in developed countries. If growth flags in
the U.S. and Europe, exporters like China or Brazil will be hurt. Many
emerging markets are big commodity exporters. If the world economy
slows, commodity prices will tumble.
On the other hand, if the U.S. economy comes roaring back to life, the
Federal Reserve will eventually lift interest rates. That, in turn,
could push the dollar up and make investments in emerging markets less
appealing.
For now, the greatest source of the unease is simply that emerging-
market gains have been so outsize. The run-up in emerging markets is
around four times that of the Standard & Poor's 500-stock index, which
has gained 18% this year.
.Overseas valuations also are lofty. While the S&P 500 trades at 23
times trailing earnings, China's Shanghai Composite is at 32 times
earnings. South Korea's is at 35 times earnings and Indonesia's at 29
times.
Historically, emerging stocks have swung from boom to bust. This
year's 63% boost in the emerging-markets index was preceded by a 54%
slide last year, a more painful downdraft than the S&P's 37%. In the
last bull market, from 2002 to 2008, Latin American exchanges had 10
corrections of more than 10%, with a 17.5% average, says Geoffrey
Dennis, Citigroup's equity strategist for the region.
AFP/Getty Images
Chinese investors stand by an electronic board showing stock index
figures at a trading house in Shanghai. The Shanghai Composite is at
32 times earnings.
.The biggest ride of volatility for the emerging group came in the
late 1980s and early 1990s, when their index vaulted almost sixfold.
That heady gain ended in 1994, when the Federal Reserve raised
interest rates. Emerging stocks moved sideways for a while, then
crashed 58% in 1997-98 amid turmoil in debt-laden Southeast Asia and
Russia.
Certainly, emerging countries' economic fundamentals have improved
markedly since those days, and most market strategists expect them to
prosper long-term.
"Their growth is high enough that they should be the place to be long-
term," says Keith Walter, senior portfolio manager at Artio Global
Investors Inc., who is making a big bet on South America.
Emerging economies were hurt much less by the recession, and many are
moving up at full throttle. China, for instance, reported an 8.9%
economic growth rate in the third quarter. Still, while China has
boosted domestic consumption, its economy remains heavily dependent on
exports. Its $116 billion total exports in September were appreciably
below the $134 billion monthly average in mid-2008, before the
financial crisis exploded.
Reuters
Brokers monitor share prices at the Jakarta Stock Exchange earlier
this year. Indonesia's benchmark index is up 73% so far in 2009.
.In Brazil, meanwhile, the government is worried that its rising
currency will throw a wrench in its export machine. The Brazilian real
has surged 34% against the dollar this year, largely because of a
torrent of foreign investments. The Brazilian government recently
imposed a 2% tax on foreign investments in an effort to restrain the
real's rise.
In developed markets, banks and miners led Europe higher Thursday, as
the U.S. economy returned to growth in the third quarter. Closing
before the U.S. data, Asian markets fell, with Japan's benchmark
retreating below 10000.
The pan-European Dow Jones Stoxx 600 index rose 1.9% to 241.73.
In LONDON, FTSE 100 rose 1.1% to 5137.72. Miners Xstrata and
Antofagasta rose 7.4% and 4.3%, respectively. Lloyds Banking Group
added 7.5% as investors cheered the possibility that it won't have to
participate in the U.K.'s asset-protection program and that the
European Commission won't require material asset sales.
In FRANKFURT, the DAX index gained 1.7% to 5587.45. Deutsche Bank rose
5.6%. It said third-quarter sales and trading revenue was €3.1
billion.
Early Friday, Asian markets rose following the encouraging U.S.
session. Japan was up 1.2%, Australia rose 1.2% and South Korea gained
0.4% as Samsung Electronics added 2% on better-than-expected quarterly
results.
In TOKYO Thursday, the Nikkei Stock Average of 225 companies on
Thursday shed 1.8% to 9891.10. NEC Electronics fell 8.3% after its net
loss for the latest quarter widened from a year ago.
Write to Larry Light at larry...@wsj.com
bademiyansubhanallah
China Warns of World Slump If Stimulus Withdrawn (Update2)
By Bloomberg News
Oct. 31 (Bloomberg) -- Chinese Commerce Minister Chen Deming warned
against withdrawing economic stimulus measures, citing the risk of
another world slump.
“There are increasing signs that the global economy is heading in a
positive direction, but there are still many uncertainties,” Chen said
at a forum in Shanghai today. If countries “withdraw the stimulus
measures now, the global economy will plunge.”
Billionaire investor George Soros said yesterday that the global
economy’s recovery from its worst crisis in 70 years may “run out of
steam” and another recession may follow in 2010 or 2011. U.S. stocks
tumbled yesterday as declines in consumer confidence and spending and
the threatened bankruptcy of commercial lender CIT Group Inc.
underscored the risk of a slump.
“For the world as a whole, it’s premature to think about exiting
stimulus,” Nobel Prize-winning economist Joseph Stiglitz said at the
economic conference in Shanghai today.
While the worst of the crisis is over, challenges include high
unemployment, weak investment and consumption, rising commodity costs
and fluctuating currencies, Chen said. It will be difficult for
consumption to return to pre-crisis levels, he added.
Around the world, central banks are paring emergency measures taken at
the height of the financial crisis.
Japan, Australia
Japan’s central bank said Oct. 30 that it will stop buying corporate
debt at the end of the year. Australia this month became the first
Group of 20 nation to raise rates since the height of the crisis and
Norway’s central bank followed.
In the U.S., the economy grew in the third quarter for the first time
in more than a year, propelled by emergency programs to boost buying
of cars and homes, according to Commerce Department figures released
Oct. 29. Gross domestic product expanded at a 3.5 percent annual
pace.
In a speech today, Stiglitz said that “when we look at if workers can
get jobs, if they can work full time, if businesses are able to sell
goods they produce, in those terms, we are nowhere near the end of
recession” in the U.S.
The nation’s unemployment rate reached a 26-year high of 9.8 percent
in September and economists project it will exceed 10 percent by early
2010.
Talking to reporters, Stiglitz said the economic data would be
“miserable” without the effect of stimulus measures.
China’s Pledge
In China, the State Council pledged Oct. 21 to continue monetary and
fiscal stimulus even after the economy exceeded officials’
expectations for the first nine months of the year. Growth is likely
to top the government’s 8 percent target for 2009, the central bank
said yesterday.
Chen acknowledged the “dilemma” that global stimulus measures may
cause long-term problems by swelling government debt and stoking
inflation. Nations’ efforts to protect their own economies are also
fueling protectionism in trade, he said.
Investment to create jobs may also intensify overcapacity problems in
industry, the official added.
Stiglitz said emerging economies including China need to guard against
“bubbles” caused by the surge in liquidity as governments try to
stimulate growth.
--Li Yanping, Judy Chen. Editors: Paul Panckhurst, Alex Devine.
To contact Bloomberg News staff for this story: Li Yanping in Beijing
at +86-10-6649-7568 or yl...@bloomberg.net
Last Updated: October 31, 2009 01:39 EDT
bademiyansubhanallah
China Sees Rocky Export Rebound, Shrinking Surplus
October 31, 2009
BEIJING/SHANGHAI (Reuters) - China's exports face a "hard and
tortuous" path to recovery as uncertainties dog the global economy's
gradual return to health, with this year's trade surplus set to shrink
from last year's record, the Commerce Ministry said.
Commerce Minister Chen Deming told a conference on Saturday that
China's trade surplus was expected to fall to $180 billion to $190
billion this year from last year's record $295.5 billion.
The surplus was $136.4 billion in the first nine months of the year.
With China's economic recovery relying heavily on government spending
to boost domestic demand, imports have seen greater improvement than
exports in recent months.
Exports in September were 15.2 percent below their level a year
earlier, beating forecasts of a 21 percent fall, although the
government expects a double-digit fall for all of 2009.
In a statement released late on Friday on the ministry's website
(www.mofcom.gov.cn), it said the full-year fall in exports compared
with the previous year should be less than 20 percent.
"In 2010, the world economy will hopefully see a gradual recovery, and
the environment for Chinese trade will gradually improve," it said.
"But as there is not yet sufficient strength in the global economic
recovery, many problems and contradictions have yet to be basically
resolved. The recovery will be hard and tortuous, and it will be hard
to see an obvious recovery in international demand in the short term."
Net exports shaved 3.6 percentage points off headline GDP growth of
8.9 percent in the third quarter as Chinese manufacturers continued to
reel from a slump in global trade.
Protectionism in these straightened times was a particular worry, as
was increasing competition, the ministry said.
"At present some nations are conducting probes into Chinese goods,
which is causing yet further obstruction for a recovery in Chinese
exports," it said.
A U.S. trade panel on Friday approved the eighth government
investigation this year into charges of unfair Chinese pricing
practices in a case in which U.S. companies want a nearly 100 percent
duty or more on $382 million of imported steel pipes.
Still, there were signs for optimism, the ministry added.
The government was continuing to provide help to exporters in the form
of export tax rebates, and numerous new markets awaited Chinese firms.
"There is a bright future for developing trade with newly emerging
markets," it said.
(Reporting by Ben Blanchard in Beijing and Fang Yan in Shanghai;
Editing by Nick Macfie)
Copyright 2009 Reuters News Service. All rights reserved. This
material may not be published, broadcast, rewritten, or redistributed.
bademiyansubhanallah
China Manufacturing Expands at Faster Pace, PMI Shows (Update2)
By Bloomberg News
Nov. 1 (Bloomberg) -- China’s manufacturing expanded at the fastest
pace in 18 months and a government researcher said economic growth
will accelerate this quarter.
The Purchasing Managers’ Index rose to a seasonally adjusted 55.2 in
October from 54.3 in September, the Federation of Logistics and
Purchasing said today in an e-mailed statement in Beijing. An index of
export orders climbed to 54.5 from 53.3.
Premier Wen Jiabao’s $586 billion stimulus plan and unprecedented
growth in new loans are sustaining China’s rebound amid signs that
exports may start to recover as the global slump eases. The world’s
third-biggest economy may expand at a 9.5 percent annual pace this
quarter, Zhang Liqun, of the State Council Development and Research
Center, said in the statement.
“China’s recovery has been impressive, but has been heavily reliant on
government-directed investment,” said Brian Jackson, Hong Kong-based
strategist for emerging markets at Royal Bank of Canada. “External
demand will provide an additional source of support for growth in the
months ahead,” he said, adding that the government may “start
tightening policy from early 2010.”
The latest PMI number was higher than the median estimate of 54.7 in a
Bloomberg News survey of 10 economists. A reading above 50 indicates
an expansion. Today’s figure compares with a record-low 38.8 in
November last year, when recessions in the U.S., Europe and Japan sent
export orders plunging.
Global Risks
China’s cabinet pledged Oct. 21 to continue monetary and fiscal
stimulus even after growth exceeded officials’ expectations for the
first nine months of the year. Commerce Minister Chen Deming warned
yesterday that the global economy may “plunge” if nations withdraw
support measures too quickly.
A jump in the import index to 52.8 from 50.7 “shows an acceleration of
domestic demand,” Zhang said.
An output index rose to 59.3 in October from 58 in September and a
measure of new orders climbed to 58.5 from 56.8. An index of
employment dropped to 52.4 from 53.2.
Surging auto sales, driven by tax cuts and subsidies, are boosting
manufacturing. Passenger-car purchases exceeded 1 million for the
first time in September as General Motors Co., the largest overseas
automaker in China, reported that sales doubled.
China will sustain its economic rebound this quarter and growth is
likely to top the government’s 8 percent target for 2009, the central
bank said Oct. 30.
Biggest Winner
Policy makers need to “manage inflation expectations,” curb excess
capacity and encourage sustainable lending growth, the central bank
said in its report on the third-quarter economy.
Billionaire investor George Soros said Oct. 30 in Budapest that China
will be the “greatest winner” from the global financial crisis, with
the U.S. losing the most, leading to a shift in their positions that
exceeds expectations. Nobel Prize- winning economist Joseph Stiglitz
said yesterday that emerging economies including China need to guard
against “bubbles” caused by the surge in liquidity as governments
around the world try to stimulate growth.
The manufacturing index, released by the logistics federation and the
Beijing-based National Bureau of Statistics, is based on replies to
questionnaires sent to purchasing executives at more than 730
companies in 20 industries. It was instituted in January 2005.
For Related News and Information: Most-read stories on China: MNI
CHINA 1W <GO> Most-read China economy stories: TNI CHECO MOSTREAD BN
<GO> For top economic news: TOP ECO <GO> For top China news: TOP CHINA
<GO> Credit crunch page: WCC <GO> Government relief programs: GGRP
<GO>
Last Updated: October 31, 2009 22:35 EDT
chhotemianinshallah
China's economic recovery broadens
By Kathrin Hille, The Financial Times
China's manufacturing sector grew last month at the fastest pace since
April 2008, according to the country's official purchasing managers'
index released on Sunday.
Analysts said the survey results confirmed that the country's economic
recovery was broadening as recovering export demand and consumption
joined government stimulus as drivers of growth.
The China Federation of Logistics and Purchasing said its index rose
to 55.2 from 54.3 a month earlier, the eighth straight monthly reading
above 50, the threshold marking economic growth.
The index had dropped to 38.8 last November but moved back into
positive territory in March this year.
The reading for new export orders rose to 54.5 from 53.3 in September,
and imports, which had lagged the overall index in showing recovery,
jumped to 52.8 from 50.7 a month earlier.
Zhang Liqun, an economist at a think tank under the State Council,
China's cabinet, said the broad recovery in demand reflected in these
readings was an indication that economic growth would accelerate. "The
growth rate in the fourth quarter is likely to be 9.5 per cent," he
said.
The government has said that gross domestic product increased by 8.9
per cent in the third quarter and 7.9 per cent in the second.
The survey's October results looked particularly strong compared with
past readings for the same month. "Although the official PMI is
supposed to be seasonally adjusted already, it still exhibits a clear
and strong seasonal pattern," said Yu Song and Helen Qiao, economists
at Goldman Sachs, in a note to clients. "Since the start of the series
in 2005, its October readings were 1.0 per cent, 2.3 per cent, 2.9 per
cent, and 6.6 per cent lower than September readings in 2005, 2006,
2007 and 2008 respectively."
Jing Ulrich, chairman of China equities and commodities at JP Morgan,
said the recovery in demand would help offset a possible slowdown in
government spending. "While public investment may moderate in the
months ahead, private real estate investment, consumer spending and
export demand should drive growth in the coming months," she said.
Ms Ulrich pointed to the dominant role construction plays in the
Chinese economy and said a sharp rebound in new housing construction
starts in September boded well for the months ahead.
"The improvement in China's trade outlook should alleviate problems
with overcapacity in some manufacturing industries and reduce the
importance of government-backed investment in the next several
quarters," she added.
© The Financial Times Limited 2009
...and I am Sid Harth
chhotemianinshallah
Oil prices boosted by Chinese manufacturing data
(AFP) – 2 hours ago
LONDON — World oil prices rallied on Monday, partly boosted by
positive manufacturing data from China, which is the world's second
biggest energy consuming nation after the United States.
New York's main contract, light sweet crude for December delivery
gained 1.03 dollars to 78.03 dollars a barrel.
Brent North Sea crude for December delivery was 1.22 dollars higher at
76.42 dollars per barrel.
"Robust economic data from China is lending support today," said
Commerzbank analyst Carsten Fritsch.
The HSBC China Manufacturing PMI, or purchasing managers index, was
revealed Monday to have risen to an 18-month high of 55.4 in October
from 55.0 in September.
A reading above 50 means the sector is expanding, while a reading
below 50 indicates an overall decline.
A separate official Chinese PMI, compiled by the National Bureau of
Statistics, showed manufacturing activity rose to 55.2 in October --
the highest since May 2008 -- from 54.3 in September.
Oil prices also found fresh support by a drop in the value of the US
dollar.
The US unit fell against the euro on Monday amid fresh worries about
the US financial sector following the bankruptcy of US bank CIT Group
over the weekend, traders said.
The weaker greenback makes dollar-priced oil cheaper for buyers using
stronger currencies and therefore tends to stimulate oil demand and
prices.
In late morning London deals, the European single currency rose to
1.4772 dollars from 1.4715 dollars late on Friday.
Traders meanwhile assessed the global economic outlook in the wake of
the CIT bankruptcy.
While data released last Thursday showed the United States has emerged
from a prolonged recession, consumer spending, which accounts for two-
thirds of the nation's economic activity, fell in September.
"I think the reality is that the economic signals out there have been
mixed," said Victor Shum, a Singapore-based analyst with energy
consultancy Purvin and Gertz.
"Last week there was positive US (gross domestic product) but consumer
spending was quite negative."
Shum added that "even though there are signs of economic recovery, the
recovery appears to be on a shaky ground and also somewhat uncertain."
The US said Friday consumer spending in the world's biggest economy
and energy user fell for the first time in five months in September.
A day earlier, the Commerce Department said the US economy grew at a
seasonally adjusted 3.5 percent in the September quarter from the
previous three months.
It was the biggest growth in two years as the country emerged from a
brutal recession that started in December 2007.
Copyright © 2009 AFP. All rights reserved.
chhotemianinshallah
China’s manufacturing expands at faster pace, HSBC PMI Shows
By: -
Bloomberg News
November 1, 2009
Workers operate the assembly line at the Changan Ford Mazda Plant in
Nanjing, China, on Thursday, July 9, 2009. Photographer: Qilai Shen/
Bloomberg News (Bloomberg)
China’s manufacturing expanded at the fastest pace in 18 months in
October, a purchasing managers’ index released by HSBC Holdings Plc
showed.
The index rose to a seasonally adjusted 55.4 from 55 in September,
HSBC said in an e-mailed statement today. A reading above 50 indicates
an expansion.
A government-backed purchasing managers’ index, released yesterday,
also showed the quickest growth since April 2008 as an unprecedented
$1.27 trillion of new loans this year powered a recovery. Stronger
growth and rising consumer prices will likely prompt the central bank
to tighten monetary policy from the second quarter of 2009, Goldman
Sachs Group Inc. said Oct. 29.
“The ongoing strong recovery in the manufacturing sector should gain
further momentum in the coming months,” said Qu Hongbin, chief China
economist at HSBC in Hong Kong.
The world’s third-biggest economy may grow 9.5 percent this quarter
from a year earlier, Zhang Liqun, an economist at the State Council
Development and Research Center, said yesterday. That would be the
third straight acceleration and the biggest gain since the second
quarter of 2008.
Surging auto sales, driven by tax cuts and subsidies, are boosting
manufacturing. Passenger-car purchases exceeded 1 million for the
first time in September as General Motors Co., the largest overseas
automaker in China, reported that sales doubled.
China’s cabinet pledged Oct. 21 to continue monetary and fiscal
stimulus even after growth exceeded officials’ expectations for the
first nine months of the year.
“We are fully aware that the economic recovery is not yet solid due to
multiple uncertainties at home and abroad,” Li Dongrong, an assistant
governor at the central bank, said in Kuwait yesterday. “China’s
economy is at a critical juncture of stabilization and recovery.”
Commerce Minister Chen Deming warned Oct. 31 that the global economy
may “plunge” if nations withdraw support measures too quickly.
The HSBC index, based on a survey of purchasing executives in more
than 400 manufacturing companies, is released by HSBC and Markit
Economics.
chhotemianinshallah
NYMEX-Crude seesaws as China data support
Mon Nov 2, 2009 9:57am EST
NEW YORK, Nov 2 (Reuters) - U.S. crude oil futures were little
changed in seesaw trading on Monday, supported by data showing China's
economy continues to churn even as the oil market remained wary after
Friday's disappointing reports on consumers in the United States.
HSBC's China Purchasing Managers' Index rose to an 18-month high in
October of 55.4 from 55.0 in September. [ID:nSEO80466] "This suggested
that domestic demand was growing rapidly which augers
well for energy demand growth in the world's second largest consumer
of oil," said Mike Fitzpatrick, vice president at MF Global in New
York. The dollar fell against the euro as improving manufacturing data
in China and Europe and rising U.S. stock futures ahead of the open
eroded the greenback's safe-haven appeal. [USD/] On Friday, a report
showed U.S. consumer spending fell in September for the first time in
five months. [ID:nN30482062] Also out on Friday, the Reuters/
University of Michigan Surveys of Consumers showed U.S. consumer
sentiment slipped in October,
[ID:nN30349339] PRICES * On the New York Mercantile Exchange at 9:50
a.m. EST (1450 GMT),
December crude CLZ9 was unchanged at $77 a barrel, trading from $76.56
to
$78.25. * In London, December Brent crude LCOZ9 rose 23 cents, or 0.31
percent, to $75.43 a barrel, trading from $74.98 to $76.63. * NYMEX
December RBOB RBZ9 fell 0.59 cents, or 0.3 percent, to
$1.9536 a gallon, trading from $1.9481 to $1.9858. * NYMEX December
heating oil HOZ9 fell 0.18 cents, or 0.09 percent,
to $2.0034 a gallon, trading from $1.9995 to $2.0435. * NYMEX November
refined products contracts expired on Friday. November
RBOB expired at $1.9432 a gallon, down 7.58 cents, or 3.75 percent on
the
day. November heating oil HOX9 went off the board at $1.9811 a gallon,
down 7.31 cents, or 3.56 percent on the day. * The December/December
RBOB crack spread <0#RB-CL=R> was at $5.00
after ending at $5.30 on Friday. The December/December heating oil
crack
spread <0#CL-HO=R> was at $7.17 after ending at $7.22 on Friday. * The
spread between the current front month and the five-year forward
crude contract CLc61 was at $12.84, based on the December 2014
contract
Friday settlement at $89.84, unchanged from where the spread ended
Friday. TECHNICALS NYMEX crude 10-day/20-day moving average:
$79.23/$76.73 Technical support/resistance: NYMEX crude: $75.19/$78.50
NYMEX heating oil: $1.9641/$2.4634 NYMEX RBOB: $1.9163/$2.0027 For a
full report on technicals, click on [ID:nL2366076] MARKET NEWS *
Russia remains the world's top oil producer, posting a new
post-Soviet high of more than 10 million barrels per day of crude in
October, Energy Ministry data said. [ID:nL2259138] * OPEC oil
production fell in October, according to industry sources
surveyed by Reuters. It would be the first decline since April and was
on
lower output from Saudi Arabia, Iraq and Nigeria. [ID:nL2341166] *
Iran wants more talks on a U.N.-drafted nuclear deal because it needs
guarantees it will receive reactor fuel, a senior official said.
[ID:nL2374481] * The euro zone manufacturing sector expanded for the
first time in 17
months in October. a survey showed. [ID:nL2308693]
(Reporting by Robert Gibbons; Editing by John Picinich)
bademiyansubhanallah
China's Economy Powering Syphilis Spread
By Laura MacInnis
November 3, 2009
GENEVA (Reuters) - China is experiencing an epidemic of syphilis, a
sexually transmitted disease that the country virtually wiped out in
the 1960s, a senior public health official was quoted as saying on
Tuesday.
In the WHO Bulletin, a journal produced by the World Health
Organization, Xiang-Sheng Chen of China's Center for Disease Control
and Prevention said mass migration of rural workers to Chinese cities
has been a major factor in the viral spread.
While China nearly eradicated syphilis "through a powerful campaign of
propaganda, mass screening, closing brothels and providing free
treatment for sex workers," the expert said "the epidemic has re-
emerged since the economic boom of the 1980s."
"The areas with higher syphilis prevalence are usually places where
the economy is booming but where there is also greater economic
inequality, such as the south-eastern coastal areas," Chen said.
The Chinese CDC's deputy director for sexually transmitted disease
control said there were 278,215 officially reported syphilis
infections in 2008, triple the number from 2004 and a tenfold increase
over the past decade.
"On average, syphilis cases are increasing by 30 percent a year across
the nation," he said.
MIGRANT WORKERS
Much of the rise has come from unsafe practices of migrant workers,
including men who left their wives back in their home villages and
solicit sex from prostitutes who do not use condoms, Chen said.
Fears of stigma and a lack of privacy have also kept many patients
from going to seek treatment for syphilis and other sexual infections
which can make people more likely to catch and spread HIV/AIDS,
according to the Chinese expert.
There are no national statistics on how many people in China have both
HIV and syphilis.
Globally, the WHO estimates that there are at least 340 million new
cases of curable sexually transmitted infections -- such as syphilis,
gonorrhea, chlamydia and trichomoniasis -- every year among people
aged 15 to 49.
Infection with sexually transmitted infections can cause acute
symptoms, chronic infections and delayed consequences including
infertility, ectopic pregnancy and cervical cancer.
Michel Sidibe, the head of the U.N. program UNAIDS, and his colleague
Kent Buse appealed in a separate WHO Bulletin article on Tuesday for
more collaboration between work on HIV/AIDS and sexually transmitted
infection worldwide.
Pregnant women and their partners should be offered HIV screening as
well as services to prevent sexual infections as part of their regular
treatment, they recommended, saying: "The moment is right to take the
AIDS response out of isolation."
Copyright 2009 Reuters News Service. All rights reserved. This
material may not be published, broadcast, rewritten, or redistributed.
...and I am Sid Harth
bademiyansubhanallah
Could China's Economic Policies Trigger Another Crisis?
By Bill Powell / Shanghai Tuesday, Nov. 03, 2009
Traffic piles into the streets as seen through a bus window on April
1, 2008 in Beijing, China
Jeff Hutchens / Reportage by Getty Images
Just before the global financial crisis exploded, the conference halls
in China were alive with the rhetoric of economic reform. Hardly a
week went by without some think tank or ministry in Beijing toasting
the 30th anniversary of China's great opening to the world and
outlining what the next phase of China's historic development would
entail. At a time when experts and policymakers everywhere were
decrying "global economic imbalances," China would do its bit to
rectify them.
That meant attacking the problem at the root. Just as the U.S. saved
too little while consuming too much, China saved too much and consumed
too little. The result was a lopsided international trade scorecard.
China ran huge current account surpluses — peaking at 10% of GDP in
the first half of 2008 — and as a result accumulated a massive load of
foreign exchange, which it turned around and loaned, mostly, to the
U.S. Government, which enabled Americans to go on borrowing and
spending. China, policymakers said, intended to break this unhealthy
cycle.
(See pictures of the making of modern China.)
Then a not so funny thing happened on the way to rebalancing: the
worst crisis since the Great Depression. The Chinese response to sharp
declines in manufacturing and exports has been cheered for its
effectiveness. Government stimulus spending and loose credit powered
the country's economy to an 8.9% growth rate in the third quarter, and
the most recent Purchasing Manager's Index (PMI), a widely watched
gauge of economic sentiment released on Oct. 30, rose for the eighth
straight month. It now shows "sustained expansion in industrial
activity," says Jing Ulrich, managing director at JP Morgan in Hong
Kong. At the same time, the U.S.-China economic relationship is not as
lopsided as it was a year ago, at least by some measures. The U.S.
savings rate has increased to about 4% of GDP (from zero at the
recession's onset), and China's current account surplus has fallen
from 10% to about 6.5% of GDP. Both are improving for the same reason:
shell-shocked consumers in the U.S., where the unemployment rate is
9.8% and rising, have snapped their wallets shut. Now that it's
pouring, they have started saving for a rainy day.
It's the Chinese side of the equation, many economists believe, that
remains unaddressed. Far from making the promised progress on needed
structural reforms, China has either stood pat in the past year, or
arguably regressed in terms of taking steps that would reorient its
economy toward consumption and away from savings and investment.
One obvious example, which will be front and center when U.S.
President Barack Obama makes his first visit to China on Nov. 15, is
the exchange rate of Beijing's currency, the renminbi (RMB). After
allowing it to rise against the dollar by about 15% earlier this
decade, China has since the onset of the crisis kept the RMB's value
tightly pegged at about 6.8 to $1. Economists differ on how greatly
undervalued the RMB is. The International Monetary Fund and World Bank
contend it's about 15-25% below where it would be if it were allowed
to float freely. But virtually all agree that it needs to move higher,
both for China's sake, and the sake of its trading partners. An
undervalued currency reduces real household income in China by raising
the cost of imports while subsidizing Chinese producers who sell their
products overseas. As the dollar has declined in value in the last
year, so has the RMB — making Chinese goods cheaper in the
international marketplace. In other words, China's peg has helped it
maintain its share of global export markets at the expense of other
countries who let their currencies float. That's exactly the opposite
of what needs to happen if rebalancing is to occur.
(See pictures of the best-selling cars in China.)
Ominously for Beijing, the value of the RMB may be one of the few
things the fractious American political class seems to agree on.
Recently, Paul Krugman, the Nobel Prize-winning economist and
columnist for the New York Times — and a steadfast Obama cheerleader —
wrote a column ripping Beijing for its "outrageous" currency policy.
He was followed late last week by Martin Feldstein, a former chief
economic adviser to Ronald Reagan, who made a similar argument in the
pages of the Financial Times. Both noted that the RMB-dollar peg is
badly hurting economies in Europe and East Asia, and that if Obama
raises this issue in Beijing (as he surely will) he'll have a lot of
tacit backing from a lot of precincts.
Does Beijing care? In its response to the financial crisis — the depth
of which absolutely stunned Chinese policymakers — China desperately
pushed every familiar button to keep its economy from succumbing the
way the developed world's did. It has thrown buckets of practically
free money at state-owned banks, which in turn loaned it out to mostly
state-owned companies in a wide range of industries. Banks also loaned
money to real estate developers, who have added inventory to what were
already overbuilt residential and commercial markets in several major
Chinese cities. And now the government has turned around and
acknowledged that the mind-bending surge in bank lending — by June of
this year total lending exceeded the amount for all of 2008 — has done
nothing to rebalance China's economy between consumer and producer. In
fact it's done the opposite: late last month National Development and
Reform Commission, an important policymaking body, conceded it must
start implementing rules aimed at reducing overcapacity in several key
industries including steel and petrochemicals.
It isn't just indiscriminate bank lending that has retarded moves
toward rebalancing. Outright government subsidies to businesses have
increased in the past 12 months. Everything from bicycle makers to
textile producers to chemical companies have seen their export
subsidies rise because their markets worldwide were shriveling, and a
panicky Beijing was spooked by the prospect of massive unemployment if
factories shut down. "By transferring wealth from households to boost
the profitability of producers, China's ability to grow consumption in
line with growth of the nation's GDP is severely hampered," says
Michael Pettis, a finance professor at Peking University's Guanghua
School of Management. Indeed, although China is also subsidizing some
consumer purchases and retail sales in China were up about 15% in the
first nine months of 2009, consumption as a percentage of GDP remains
today about where it was a year ago: at about a third of China's
economy.
U.S. Federal Reserve Chairman Ben Bernanke has long let it be known
that he thinks the imbalances between the U.S. and China contributed
to the financial breakdown of the global economy. China's excess
savings were sloshing around and needed a home, and profligate America
was more than willing to borrow that savings. On Oct. 19, Bernanke
gave a speech in which he argued that while personal savings in the
U.S. is now rising, the government had to get its own accounts in
better order. He then noted, pointedly: "policies that artificially
enhance incentives for domestic savings and the production of export
goods" have got to go in order "to reduce the risks of [future]
financial instability."
That message was aimed at Beijing. It's one that will be reinforced
when Obama arrives in China in two weeks. The only question is, will
anyone in the Chinese leadership — who may believe the headlines about
what economic magicians they've been for the last year — be
listening?
bademiyansubhanallah
November 3, 2009, 1:33 AM ET.
Goldman’s BRICs Built On C(hina).
Jim O’Neill, global chief economist for Goldman Sachs, is now famous –
or maybe infamous – for creating the acronym BRIC. It stands for
Brazil, Russia, India and China, four large emerging markets that he
argued would be playing an increasingly central role in the world
economy (read some of his BRIC-themed research here).
Whether O’Neill picked the right four developing countries is still
debated. Indonesia, the world’s fourth-most populous nation and
Southeast Asia’s largest economy, has come through the crisis in
better shape than Russia, for instance (although Russia remains
larger). With President Susilo Bambang Yudhoyono promising economic
reforms that could lift Indonesia’s long-term growth rate, there have
recently been some calls for a new acronym that would have two Is.
But the part of BRIC that O’Neill thinks he got unquestionably right
is the C.
“Eight years after we first wrote about BRICs – this month is the
anniversary – in fact here we are with China about to become bigger
than Japan, and we can seriously entertain that China could become as
big as the U.S.,” he said at a presentation in Beijing Monday.
“Specifically, we think it could happen in 18 years, in 2027.”
In fact, it seems that the C in BRIC has pretty much outweighed the
other three letters – perhaps calling into question whether China
really needs to be grouped with these other countries at all.
“The C in BRIC has been much bigger than the B, I or R,” he said. “The
Chinese contribution to global demand has been bigger than the euro
area, and bigger than the other three BRICs put together.”
To illustrate that, O’Neill said he had calculated that, over the past
nine years, “the increase in China’s GDP has been the same as creating
two new Indias, or equivalent to creating a new Italy.”
Goldman forecasts that China’s GDP will reach $21 trillion in 2027, of
which consumption will contribute about $10 trillion. By comparison,
annual consumer spending in China is now about $1.5 trillion.
“People who say the Chinese consumer cannot replace the U.S. consumer
are wrong,” O’Neill said (for an example of this argument, see here).
“They are confused about the difference between the level and the rate
of change. Chinese consumption is $1.5 trillion and the U.S. is $9.5
trillion to $10 trillion. But the rate of change is key.”
He also defended Goldman’s projection that China will within a couple
of decades become the world’s largest economy, which has been
criticized as an unrealistic extrapolation of recent rapid growth
rates. (China now has the world’s third-largest annual gross domestic
product, calculated in U.S. dollars at market exchange rates.)
“We have never said that it will happen, only that it could happen,”
he said, noting that Goldman’s projections for China assume a
relatively low growth rate of 7.7% over the next decade. “We may be
economists, but we are not entirely stupid.”
–Andrew Batson
bademiyansubhanallah
China's "little India"
Wuxi is ready to become a 'little India'
Quote:
Wuxi, a picturesque city that lies along the Taihu Lake resort, is
planning to build a "little India" in years to come.
Wuxi is traditionally a manufacturing city. But with more focus on
environmental protection, especially after a serious blue-green algae
outbreak in Taihu Lake that triggered a clean water crisis in
mid-2007, city leaders started to study how to transform the city's
development.
Wuxi decided to replace manufacturing with the service outsourcing
industry, which has far less pollution and consumes much less energy.
According to its ambitious development plan, the city is expected to
attract $30 billion to $40 billion in service outsourcing business and
help create service outsourcing jobs for 1 million people by 2020 -
equivalent to that of India as a whole in 2007.
The advancement of the service outsourcing industry cannot survive
without a large talent pool.
But the city three years ago learned that fewer than 2,000 students in
the city were studying software and information technology fields.
As a result, Wuxi established a goal to build a total area of 6
million sq m for software service outsourcing within three years, and
encouraged enterprises to cultivate and import skilled workers.
These policies were well received. In 2008, Wuxi's service outsourcing
business accounted for 39.2 percent of companies in Jiangsu province,
and the city employed 28.5 percent of Jiangsu province's service
industry employees, according to Fang Wei, deputy mayor of Wuxi.
Growing jobs
This year, the Wuxi government launched a new program to train
university graduates. Outsourcing companies will receive a rebate of
4,000 yuan ($586) for hiring a graduate, and every graduate of the
training program will receive 1,000 yuan as a subsidy.
The city's financial sector is also actively providing financial
support to enterprises in the service outsourcing industry.
In February, Wuxi became one of 20 cities approved by the General
Office of the State Council to build a service outsourcing
demonstration city.
In June, 15 banks provided a credit line of more than 4 billion yuan
for the city's 115 service outsourcing enterprises.
The local government joined India's National Institute of Information
Technologies (NIIT), the world's second-largest educational
institution, to establish the NIIT (China) Outsourcing College in Wuxi
as a training base for the city's outsourcing businesses.
While the domestic macro-economy continues to be affected by the
global financial crisis, outsourcing is maintaining robust growth in
Wuxi.
The city signed $1.14 billion in contracts from January to July, up
110 percent year-on-year.
Experts estimated that by 2010, there will be as many as 100
international service outsourcing and software exports enterprises
with annual export values of as much as $30 million.
So far, Wuxi has attracted 22 investment projects from leading
multinational service outsourcing corporations and 50 domestic
industry heavyweights. Half of China's top 10 industry heavyweights
have established headquarters in Wuxi.
But Fang is looking at bigger goals. "Wuxi is on its way to becoming a
'little India'," he said.
After India matured as the world's largest service-outsourcing base,
many East Asian countries - including the Philippines, Singapore and
Vietnam - began competing for more market share.
"Enterprises from the Chinese mainland haven't had much advantage in
competing with these countries, but the cooperation across the Straits
should bring some opportunities," said Zhou Ming, deputy director of
the China Council for International Investment Promotion (CCIIP).
The service sector accounts for more than 70 percent of the island
province's total GDP.
Zhou said Taiwan's industrial development experience, technology and
branding, along with a massive market and substantial human resources
on the Chinese mainland, will greatly enhance the international
competitiveness of both regions.
In spite of the financial crisis, the global service outsourcing
industry posted a growth rate of 6.3 percent in 2008 - a strong
performance in comparison to the world's average GDP of 2.5 percent.
Many developing countries see the outsourcing industry as an
opportunity to survive the international economic downturn, experts
said.
Wuxi is ready to become a 'little India'
First a copy of Rolls Royce, then a copy of Bajaj Pulsar, then a fake
copy of Indian drugs, and now a copy of Bangalore.
The list goes on....
bademiyansubhanallah
Monday, November 2, 2009
China: Caution May Be Warranted | Japan: Real Troubles
As I have repeatedly noted, China has been blowing a bubble with easy
credit. MarketWatch's Craig Stephen warns investors to be wary of a
potential correction, at least in some sectors:
Policy tightening could soon become the dominant market theme, meaning
it's time for a rethink. After recent rate hikes in Australia and
Norway, tightening is back on the agenda in many countries, including
China. And with the U.S. just clocking up 3.5% annualized GDP growth
for the third quarter, dollar bears will have something to think
about.
Nomura says its time to get a little more defensive in the face of
what they call a "cappuccino recovery" - one-third espresso, one-third
milk and one-third froth.
They argue investors face a dilemma on how to discriminate between
genuine and sustainable areas of economic growth and the sharp rise in
asset prices, often aided by excess liquidity.
The Nomura analysts advise switching out of high beta regional
exchanges, which was a recent call.
This change is worth paying attention to, as Nomura's strategists were
among the first to link quantitative easing to raising the risk
profile of investors and lifting equity markets early this year.
Exchanges and brokerages have been some of the big winners of
resuscitated financial markets, while in China, banks and insurers
have been a great play on the huge money-supply expansion. Last Friday
we saw China's new GEM market launched, with all stocks more than
doubling in intraday trading -- will this be a new high-water mark?
Another area where asset prices may have peaked is property...
Runaway prices are not foremost on officials' minds, rather the
possibility of a reversal. According to a story in the South China
Morning Post quoting an unnamed official, there are no plans to
introduce substantial measures to control the surge in the property
market. Instead, it said, the government is more worried about a sharp
fall in property prices.
Perhaps investors should take note. In Hong Kong, the government
effectively controls the price of land. Moreover, property and banking
stocks make up more than half of the Hang Seng Index.
If loose money conditions that have been so good to financial and
property assets do reverse, Nomura suggests a good place to be
positioned is in the under-performing telecom sector, which looks
attractive on a yield basis...
Another area that offers similar attributes to those of telecoms and
is likely to see continued strong growth is the China Internet sector.
A new report from Macquarie on China Internet leader Tencent orecasts
growth will remain robust. One statistic that caught my eye was that
its QQ instant-messaging services now caters to 448 million active
accounts. Tencent is expanding its range of services to this massive
user base and is consolidating its first-mover advantage.
In case you haven't been keeping up with Japan, Ambrose-Evans
Pritchard does a great job of summing up that nation's dire financial
circumstances:
Japan is drifting helplessly towards a dramatic fiscal crisis...
The rocketing cost of insuring against the bankruptcy of the Japanese
state is telling us that the model has smashed into the buffers.
Credit default swaps (CDS) on five-year Japanese debt have risen from
35 to 63 basis points since early September. Japan has suddenly
decoupled from Germany (21), France (22), the US (22), and even
Britain (47)...
"Markets are worried that Japan is going to hit a brick wall: the sums
are gargantuan," said Albert Edwards, a Japan-veteran at Société
Générale.
Simon Johnson, former chief economist of the International Monetary
Fund (IMF), told the US Congress last week that the debt path was out
of control and raised "a real risk that Japan could end up in a major
default"...
"Can these benign conditions be expected to continue in the face of
even-larger increases in public debt? Going forward, the markets
capacity to absorb debt is likely to diminish as population ageing
reduces saving," said the IMF.
The savings rate has crashed from 15pc in 1990 to near 2pc today, half
America's rate. Japan's $1.5 trillion state pension fund (the world's
biggest) has become a net seller of government bonds this year, as it
must to meet pay-out obligations. The demographic crunch has hit. The
workforce been contracting since 2005.
Japan Post Bank is balking at further additions to its $1.7 trillion
holdings of state debt. The pillars of the government debt market are
crumbling. Little wonder that the Ministry of Finance has begun
advertising bonds in Tokyo taxis, featuring Koyuki from The Last
Samurai. If Japan's bond rates rise to global levels of 3pc to 4pc,
interest costs will shatter state finances.
No one knows exactly when a country tips into a debt compound trap.
But Japan must be close, even allowing for the fact that liabilities
of the state Loan Programme (FILP) have fallen by 40pc of GDP since
2000.
"The debt situation is irrecoverable," said Carl Weinberg from High
Frequency Economics. "I don't see any orderly way out of this. They
will not be able to fund their deficit. There will be a fiscal
shutdown, a pension haircut, and bank failures that will rock the
world. It is criminally negligent that rating agencies are not blowing
the whistle on this."
Mr Hatoyama inherited a country that was already hurtling into
sovereign "Chapter 11". The Great Recession has eaten up 27pc in tax
revenues. Industrial output is down 19pc, even after the summer
rebound; exports are down 31pc; the economy is 10pc smaller today in
"nominal" terms than a year ago – and nominal is what matters for
debt.
Tokyo's price index fell 2.4pc in October, the deepest deflation in
modern Japanese history. Real interest rates have risen 300 basis
points in a year. It reads like a page from Irving Fisher's 1933
paper, Debt Deflation Causes of Great Depressions...
"This is incredibly dangerous," said Russell Jones from the RBC
Capital Markets. "The rate of deflation is shocking. The debt dynamics
are horrible and there is the risk of a downward spiral."
We're not talking about Iceland or Latvia here. Japan is the world's
second biggest economy. If Japan tanked, it would dramatically affect
the world economy.
For more on Japan's lousy age demographics, see this.
Note: I am not an investment advisor and this should not be taken as
investment advice.
1 comments:
Tom Hickey said...
We are a long way from the edge of the woods yet in the unwinding of
this credit cycle. The Fed and US government are (rightly)
congratulating themselves on avoiding financial Armageddon last year
when the credit system froze. But since then, very little delevering
has taken place and other bubbles have been blown in high risk areas
owing to moral hazard. Regular explosions are still detonating in the
financial sector, with bank failures rising every Friday without an
end in sight and big players are still blowing up (CIT).
The question is, what and where is the next Lehman? It's not
necessarily going to be in the US and Japan is a good candidate. Many
people are also looking to Eastern Europe as the likely implosion
point, threatening EU finances.
A real problem lies in the neoliberal meme of "fiscal responsibility."
Governments and CB's are under pressure to end stimulus and raise
rates to "prevent inflation from developing" when the world is still
facing debt deflation, real economies are stagnant, the global output
gap huge, and social unrest is stirring. Tightening anytime soon would
be fatal. This is going to test the EU's Economic and Monetary Union
(EMU), for example.
All its going to take is one butterfly flapping its wings to set the
process in motion again.
November 2, 2009 12:47 PM