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(MENAFN) Chinese Anta Sports Products Ltd reported a 12 percent increase in profits to USD274.64 million for the year 2011, Reuters reported. The results came in line with market expectations, …

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China’s ANTA Sports reports USD274.6m profit in 2011

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(MENAFN) World’s largest retail chain Wal-Mart Stores Inc will buy out a majority stake in Chinese e-commerce firm Yihaodian in a bid to tap new revenue sources to stay ahead of rising competition …

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Wal-Mart to acquire 51% stake in China’s Yihaodian

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Asian Activities Report for February 8, 2012: Great Wall Computer (SHE:000066) Partners with Satcon (NASDAQ:SATC) in Chinese Solar Projects

February 7, 2012

http://www.abnnewswire.net/rss2/menafn/abn_menafn_en.asp Great Wall Computer Company Limited (SHE:000066), a Chinese electronics contract manufacturer, has agreed to form a strategic sales and …

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China’s change: Sweet and sour

January 29, 2012

(MENAFN – Khaleej Times) This year China faces its first leadership change in a decade. Maintaining a dynamic economy is, of course, a key aim of the Chinese Communist Party. But politics are tense, …

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Papa Johns Receipt Calls Customers OUTRAGEOUS Racial Slur

January 7, 2012

Minhee Cho went to Papa John’s for some fast food goodness. Little did she know, she would get it served with a side of racism. At around 12:30 p.m. today, Papa John’s customer Minhee Cho tweeted a photo of a receipt she received at a Papa John’s restaurant in uptown, New York City. In it, under the customer’s name section, the restaurant employee who rang up the order used the racial slur “lady chinky eyes” to describe her. PHOTO: Cho posted the photo to her Twitter page, where it was quickly retweeted by hundreds of people. By 3 p.m., the photo had been viewed over 25,000 times. When The Huffington Post reached the Papa John’s in question for comment, the assistant manager — who only gave her first name as Marjani — said she was unaware of the incident. “I apologize,” she said in a phone interview. “I’m sure they didn’t mean any harm but some people will take it offensive.” She added that she “had an idea of who it was,” based on the time of the receipt. Marjani went on to say that this was the kind of behavior that would result in disciplinary action, but declined to go into further detail on what she planned to do. Papa John’s has yet to respond to the incident in a statement or its Facebook and Twitter accounts, but with such a PR disaster on their hands, they most likely will soon.

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Jeffrey Hayzlett: Marketing Predictions for 2012

January 2, 2012

Business leaders and employees know when their old ways of doing business must change or their business will die; they need to step out of their old ways of marketing and start to act like an agent of change. For 2012, here are my predictions of what will change in the marketing world. You can either choose to adapt, or die. 1. Mobile, Mobile, Mobile Throughout 2011, you heard me saying “mobile, mobile, mobile”. In 2012, I predict the mobile wallet will be the next big thing. With more and more online companies like eBay, Amazon, PayPal, using the mobile device as a platform to make instant online purchases, we’re now seeing technology built into smartphones that allows customers to swipe their phones rather than their credit cards at retail outlets. Banks are really taking advantage of this technology and offering their customers a new level of service. This is a space marketers need to not only be aware of, but be involved in. 2. Social – Crowdsourcing vs. Friendsourcing Crowdsourcing is a cool tool for spot surveys, quick answers, and general engagement, but friendsourcing is about trust: reaching out your most valued advisers — the people you really know — and finding out what they think. These people can be your close friends, colleagues, or mentors. However, they can also be your brand ambassadors–the social media friends and followers you’ve built those relationships of trust with over your social media network. 3. On-Line Qualitative Market Research 2012 will be an exciting year for the research industry. It is clear that the shift to on-line qualitative research has begun and likely to accelerate in the coming year. The need for deeper and richer insights to support making better marketing and business decisions is critical. Companies must be prepared to act fast. This category is rapidly growing and the corporate researchers that make the move will be best positioned to be the winners in this new game. It is a business imperative in my opinion. Jeffrey Hayzlett is a Bestselling Author, Maverick Marketer and Sometime Cowboy. Purchase his new book, Running the Gauntlet , here .

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The Global Economy Depends On China’s Rural Population

December 31, 2011

Two weeks ago peasants in Wukan, a fishing village in the prosperous southern Chinese province of Guangdong, took over their village, throwing out local leaders. Because of long unanswered grievances, they risked their lives, barricading roads into the village and facing down the police. Their central concern was the sale of collectively owned village land to property developers, which has impoverished most residents while enriching their leaders.

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Chinese Currency Reaches All-Time High

December 26, 2011

SHANGHAI (Reuters) – The yuan closed up against the dollar on Monday after hitting an all-time high in intraday trading, guided by a stronger mid-point by the People’s Bank of China, and looks set for an over-4-percent appreciation for 2011, traders said. The yuan is expected to remain stable or rise slightly in the last week of the year to close 2011 near 6.30 versus the dollar, in line with market expectations. The currency is likely to continue to appreciate next year as China continues to post big trade surpluses despite a slowdown in exports and amid pressure from the United States to let the yuan rise to balance bilateral trade, traders said. But the yuan’s appreciation is likely to slow to around 3 percent in 2012, with much of the rise seen in the second half of next year as China may keep the yuan relatively stable in the first half to assess the impact of the euro zone crisis, they said. “The PBOC has recently set a slew of strong mid-points and pumped dollars into the market via state banks, giving the market a clear signal that the government won’t let the yuan depreciate,” said a trader at a major Chinese bank in Shanghai. “But the central bank appears not in a hurry to let the yuan appreciate amid global economic uncertainties resulting from the euro zone debt crisis. So the yuan is likely to move largely sideways in coming months.” Spot yuan closed at 6.3198 against the dollar, up from Friday’s close of 6.3364, after hitting an all-time high of 6.3160. Its previous peak was 6.3294 hit on December 16. The PBOC set the dollar/yuan mid-point at 6.3167 on Monday, stronger than Friday’s 6.3209 and near the record-high fixing of 6.3165 on November 4. FIGHTING SPECULATORS The yuan has appreciated 4.27 percent so far this year, with most of the gain being recorded in the first 10 months of the year as China tries to rebalance trade and use the currency to help fight high inflation. While the government has recently halted yuan appreciation amid slowing exports, it also seems to be wary of a weaker yuan that may lead to capital outflows. Some overseas investors appear to have been shorting the yuan in recent months amid signs that China’s growth is slowing under the double weight of a global slowdown and the country’s monetary tightening policy in place since October last year. The PBOC, in addition to using strong mid-points to signal government intentions to keep the yuan stable, has also acted to inject dollars into the market via state-owned banks whenever there are signs that the yuan is set to weaken sharply. The yuan has thus been effectively kept in a range of 6.3 to 6.4 against the dollar since early November — a trend traders say they believe to continue well into 2012. In contrast, offshore benchmark one-year non-deliverable forwards (NDFs) have largely been forecasting a yuan depreciation in a year’s time since late September, reversing a general trend of predicting an appreciation since the yuan’s revaluation in July 2005. One-year NDFs fell slightly to 6.3790 on Monday against 6.3810 at the close on Friday, implying that the yuan will depreciate 0.97 percent in 12 months from Modnay’s PBOC mid-point, compared with a 1.01 percent fall implied on Friday. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Chinese, Japanese leaders unveil deals tighten finance ties

December 26, 2011

(MENAFN – Qatar News Agency) Chinese and Japanese leaders have unveiled initiatives to tighten financial links between the two countries in measures that could expand use of China”s tightly …

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Tea Party Message Fits Yoga Company’s Bottom-Line

November 18, 2011

Would you like a free dose of right-wing philosophy with your $98 yoga pants? Lululemon Atheletica (LULU) built its brand by selling pricey workout clothes to affluent women who may view yoga more as trendy exercise than meditative experience. This week, the Toronto-based company came under fire for holiday tote bags that promote a Tea Party-esque message taken from Ayn Rand’s controversial novel “Atlas Shrugged.” The bags, which read “Who is John Galt?” — a phrase from “Atlas Shrugged” — offended those who disagree with Rand’s theories on unregulated capitalism and selfishness as a virtue. “This is really disturbing,” a commentator named Sarah wrote on Lululemon’s blog . “I’m fairly shocked to hear that lululemon and Ron Paul draw their inspiration from the same author.” Others were less than surprised — Lululemon is a large, publicly-traded company, after all, not an ashram in the Himalayas. “It’s not a very yogic message,” Alex Johnson, a teacher at the nonprofit Dirt Cheap Yoga in Dallas, told The Huffington Post. “But there’s a lot of non yogic stuff that goes on in the yoga community. Who needs to spend $90 on a pair of pants?” A Lululemon spokesperson told The Huffington Post that it had chosen to “include these statements [on tote bags] to create conversation among our guests.” “You might be wondering why a company that makes yoga clothing has chosen a legendary literary character’s name to adorn the side of our bags,” Lululemon’s blog explains . The book is a favorite of founder Chip Wilson, and had a “great impact on his quest to elevate the world from mediocrity to greatness [emphasis theirs].” For every negative comment on the Lululemon blog, there are at least two fans commending the company. “AMAZING post!” wrote Anil Singh. “Lulu – you make me feel like I can do anything (and I actually can!). THANK YOU!” Meanwhile, the company’s bottom line is growing as fast as a yoga-quitter’s rear. Founded in 1998 in Vancouver, Canada, the company raised $327.6 million in its 2007 Initial Public Offering. In Q2 of 2011, it earned $212.32 million in revenue, up from $152.21 million in the same period in 2010. It also opened 21 new stores that year, bringing the number of locations up to 151 nationwide. Free (Market) Yoga Like Forever 21 — which prints the phrase “John 3:16,” a biblical verse, on the bottom of every shopping bag — Lululemon has put quirky phrases on its tote bags before , supposedly as a way to communicate company values. Previous messages included “Nature wants us to be mediocre,” “The conscious mind can only hold one thought at a time,” and “Children are the orgasm of life.” “They put shocking statements on their bags so people pay attention and buy their products,” said Johnson, the yoga instructor. “So far, it has worked for them very well.” Some think that this time the company has gone too far in aligning itself with a message that is not only attention-grabbing, but alienating. “This polarizes people,” explained Donna Sturgess, president of Buyology Inc., a branding consultancy firm. “[Who is John Galt?] is a sophisticated question. A lot of people don’t know what it means or haven’t read Ayn Rand since college.” Some of those who actually do get the reference are often turned off by it, whether they agree or disagree. “If you do yoga for calming and peace this is an agitating question,” she said. Indeed, the quote may be so un-zen that some customers will no longer patronize stores. “Maybe the next Lululemon bags can sport a quote from L. Ron Hubbard and a reference to one of his ‘legendary literary characters,’” wrote Susie. “I think I’ll shop elsewhere.”

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Company Announces Major Decision In Controversial Pipeline Saga

November 14, 2011

LINCOLN, Neb. — TransCanada will move the route of its planned oil pipeline out of the environmentally sensitive Sandhills area of Nebraska, two company officials announced Monday night. Speaking at a news conference at the Nebraska Capitol, the officials said TransCanada would agree to the new route, a move the company previously said wasn’t possible, as part of an effort to push through the proposed $7 billion project. They expressed confidence the project would ultimately be approved. Alex Pourbaix, TransCanada’s president for energy and oil pipelines, said rerouting the line would likely require 30 to 40 additional miles. “We’re confident that collaborating with the state of Nebraska will make this process much easier,” Pourbaix said. The announcement follows the federal government’s decision last week to delay a decision on a federal permit for the project until it studies new potential routes that avoid the Sandhills area and the Ogallala aquifer. The proposed pipeline would carry crude oil from Canada to Texas Gulf Coast refineries. Debate over the pipeline has drawn national attention focused largely on Nebraska, because the pipeline would cross the Sandhills – an expanse of grass-strewn, loose-soil hills – and part of the Ogallala aquifer, which supplies water to Nebraska and parts of seven other states. Nebraska Gov. Dave Heineman called a special legislative session to seek a legal and constitutional solution to the pipeline debate. But the session’s stated goal – to enact oil pipeline legislation – has lacked a clear consensus about what, if anything, state officials ought to do. Environmentalists and some Nebraska landowners fear the pipeline would disrupt the region’s loose soil for decades, harm wildlife, and contaminate the aquifer. Business and labor groups who support the project say the criticism is overblown, and based more on opposition to oil than the project itself. They say the project will create construction jobs, although the exact number is disputed.

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IMF Head Warns Of ‘Lost Decade’

November 9, 2011

BEIJING (AP) — The head of the International Monetary Fund warned Wednesday the global economy faces the risk of a “lost decade” of little or no growth and Asia should be on guard to deal with a downturn. Without bold, coordinated action, the world might face worsening financial instability and a possible collapse of demand, said Christine Lagarde, on her first visit to Beijing since becoming IMF managing director in July. “Ultimately, we could run the risk of what some commentators are already calling a lost decade,” she told reporters. Asian economies are relatively strong but need to be “prepared for any storm,” said the former French finance minister. She said Asian governments that have tightened monetary policy to fight inflation should “pause a little bit.” “Asia is not immune. Let’s make no mistake,” Lagarde said. Last month, the Washington-based IMF trimmed its forecast for Asia’s growth this year to an average of 6.3 per cent from its previous outlook of 7 per cent, citing Europe’s debt crisis and a possible U.S. slowdown. After a strong start to the year, Asian growth slowed because of sluggish demand from advanced economies and Japan’s March tsunami, which disrupted industrial production and exports across the region.

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Ian Fletcher: Romney’s Emerging Strategy: Blame China

October 16, 2011

I’ve just seen one of Mitt Romney’s new campaign commercials, here , or watch it below. Romney’s emerging economic strategy is clear: blame China . Not only does this get the heat off of GOP-linked (yes, I know) constituencies like Wall Street, it also skewers the administration, which has played appeaser to Beijing. Some might call this a cynical case of scapegoating. Comparisons to the old red scare and yellow peril will doubtless be forthcoming. But this raises an interesting question: Is scapegoating still scapegoating when the scapegoat is guilty? The Chinese economic threat is hardly imaginary, unless one still believes in the Pollyanna “free” (as if!) trade economic fantasies of the U.S. Chamber of Commerce, the Cato Institute, and the Wall Street Journal . I wrote before about what Romney and the Republican establishment may be up to here : pivoting to economic nationalism as the only rightist economic ideology that is still viable in this country. On some level, I think that this establishment knows that it’s either that or be swept away in some leftist deluge, even if not an immediate one. As I noted in this article and this one, the datapoints on Romney’s true intentions are unclear. But the picture does seem to be firming a little, as the more he stays on this trope, the harder it will be to walk away from it if elected.

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Companies With The Most Valuable Brands

September 10, 2011

At the same time the U.S. economy teeters on the edge of recession, public perception of even the most well-known brands is deteriorating. The combined value of the world’s 100 most valuable brands has already fallen by 2.4 percent since January, according to a yearly list made by Brand-Finance plc , a brand valuation consulting firm. Among all brands, it’s the banks that experienced particularly hard hits, especially Bank of America and Wells Fargo, the report finds. Not so for tech companies. Those brands remain strong, and none more than Apple and Google. An August poll by Gallup found that Americans better regard the computer industry than any other sector of the economy. Apple had a particularly strong year, leapfrogging Microsoft in brand value and putting itself within striking distance of Google, whose brand currently has the highest value of any company. And while Google continues to enjoy its status as the U.S. company with the best reputation — that also according to a survey last May by Harris Interactive — Apple is doing just fine for themselves. In August, the company that brought the iPhone to the world became the most valuable U.S. company by market cap. Here are the 10 global companies with the most valuable brands, according to Brand-Finance Global 100:

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World Markets Savaged By U.S. Recession Fears

September 5, 2011

BANGKOK — Asian markets opened lower Tuesday after fears of a worsening global economy sparked a session of free-falling losses in Europe. Oil prices fell to below $84 a barrel in Asia as investor fears of a recession in developed countries sent equities and commodities lower. The dollar was higher against the euro but lower against the yen. Japan’s Nikkei 225 index dropped 1.2 percent to 8,676.12. Hong Kong’s Hang Seng index was 1 percent down at 19,420.47. Australia’s S&P ASX 200 lost 1.1 percent to 4,095.50. South Korea’s Kospi index was 0.6 percent down at 1,774.73. The slump in Asia comes a day after European shares booked sharp losses. Britain’s FTSE 100 closed the day down 3.6 percent to 5,102.58. Germany’s DAX tumbled a massive 5.3 percent to 5,246.18, and France’s CAC-40 plummeted 4.7 percent to 2,999.54. A wave of negative sentiment was unleashed Friday by a government report that said the U.S. economy failed to add any new jobs in August. That caused European and Asian stock markets to sink sharply Monday. The August jobs figure was far below economists’ already tepid expectations for 93,000 new U.S. jobs and renewed concerns that the U.S. recovery is not only slowing but actually unwinding. U.S. hiring figures for June and July were also revised lower, adding to the gloom. The unemployment crisis has prompted President Barack Obama to schedule a major speech Thursday night to propose steps to stimulate hiring. The health of the U.S. economy is crucial for the wider world because consumer spending there accounts for a fifth of global economic activity. The U.S. imports huge amounts from Japan and China and is closely linked at all levels with the European market. Traders are hoping for signs that the Federal Reserve might take action at its September meeting to support the economy – perhaps a third round of bond purchases, dubbed quantitative easing III or QE3. Wall Street, which was closed Monday due to the Labor Day holiday, was bracing for losses Tuesday. Benchmark oil for October delivery was down $2.47 to $83.98 in electronic trading on the New York Mercantile Exchange. Crude last settled at $86.45 on Friday because U.S. markets were closed Monday for the holiday. In London, Brent crude for October delivery was steady at $110.08 on the ICE Futures exchange. In currencies, the euro weakened to $1.4074 Tuesday from $1.4187 in New York late Friday as worries mounted about Greece’s ability to meet requirements set by international lenders to stave off a massive default on the country’s debts. The dollar weakened to 76.82 yen from 76.87 yen. Last month, the dollar fell under 76 yen, which was a new post-World War II high for the Japanese currency.

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Tom Doctoroff: Food in China: Survival and Success

September 1, 2011

China’s relationship with food is a window into basic instincts. The country’s cuisine is a manifestation of a civilization that has never taken survival for granted. An understanding of what and how Chinese want to eat is a quick way to know China. With the ever popular dim sum of Guangdong province literally meaning “touch the heart,” it’s fair to say that food is a window into the Han soul. In most categories, local brands including Mengniu, Yili (both dairy companies) and COFCO (everything from chocolate to pork) rule the roost. Although Chinese cravings differ to those of Westerners — noodles, not burgers, are comfort food — it is a myth that people reject foreign food brands simply because they are foreign. Western marketers were slow to enter China and made huge mistakes. Kellogg, for example, launched cold cereal, an alien category, at prohibitively high prices. Since then, many others have made significant progress. From Kraft to Nestle and Dove to Coca-Cola, brands have tailored products to suit Chinese tastes. Recent successes — Lipton milk tea, Danone fortified calcium biscuits, Pizza Hut’s seafood lover’s pizza -0 are testaments to the power of empathetic insight. Yum! Brands’ KFC menu localization has been particularly impressive. Hot wings and chicken burgers are the biggest sellers, but the menu also includes products like Beijing Chicken Roll, Golden Butterfly Shrimp, Four Seasons Fresh Vegetable Salads, Fragrant Mushroom Rice and Tomato Egg Drop Soup. The following are a few basic principles of marketing food in China. Delicious balance. Chinese cuisine is tremendously varied — Shanghai food is sweet and oily, while Sichuan dishes are hot and spicy — but the balance of yin (cooling) and yang (heating) is important everywhere. From stir-fried beef with broccoli to sweet and sour pork, dishes should be “harmonious.” Yin foods, not necessarily low in temperature, include toast, bean sprouts, cabbage, carrots, cucumber, duck, tofu, watercress and water. Yang foods include bamboo, beef, chicken, eggs, ginger, glutinous rice, mushrooms and sesame oil. China will never be a coffee culture because beverages should be cooling, but Nestle three-in-one coffee is a hit because sweetness balances bitterness. Illness is perceived to spring from yin and yang imbalance. “Heat patterns” (e.g. headaches, bleeding) are remedied with cooling foods while excessive yin (e.g. runny noses, night sweats) are cured with heating foods. Chinese aren’t lactose intolerant, but dairy products, including ice cream, are perceived to be “damp.” Even today, milk sales increase if accompanied by something “dry” like bits of wheat. Safety: Never assumed. Counter-intuitively, international brands are preferred to local brands, assuming compatibility with local taste and acceptable price. This is because Chinese never take safety for granted. Prior to the 2009 tainted milk scandal, local dairy brands were known for purity. But dairy manufacturers, in cahoots with local officials, abused this trust by adulterating products with illegal ingredients. That’s why all leading brands of infant formula are foreign, despite price premiums of up to four hundred percent. That’s also why endorsement from central government organizations — such as national dental and medical associations — are highly sought after for any item that goes inside the body, from toothpaste to orange juice. Protection is king. Chinese fear invasive elements, hence the appeal of germ-kill products in many categories including soap (Safeguard), toothpaste (Colgate, Crest, Zhonghua), mouthwash (Listerine), air conditioners (Midea) and even dishwashers (Little Swan). It is, therefore, not surprising that foods that promote “immunity” are embraced. Infant formula, again, is a case in point. Every brand must demonstrate resistance to disease before moving on to performance benefits. Physical transformation, on the other hand, has less appeal. “Bigger, stronger, taller” babies are not objects of admiration; every mother wants her child to be “perfectly normal.” Emotion protection is important too. Breakfasts are warm and soft, nourishing hugs moms give families before they dive into a cold world — the Chinese don’t “crunch” before noon, so cold cereal will always be niche. Special K would be most effectively positioned as a woman’s energy bar. Advancement always. Once physical safety is a given, food becomes a weapon in the game of life. First, most nutritional benefits ladder up to academic excellence. Energy is closely linked to intelligence or, more specifically, concentration and quick-witted resourcefulness. Calcium strengthens both bones and brains. In a dog-eat-dog society, a sharp mind, not a buff physique, is the difference between success and failure. Second, convenient foods are means to an end. They provide the “fuel”needed start every day with a kick, so every indulgent food must also be “good for you,” a sugar-coated pill. Third, transformation benefits have growing appeal for the mature market. Dietary supplements, particularly in first tier cities, help the older man perform on the basketball court and at the office. Osteoporosis scare mongering is old school. In the hyper competitive business world, the comfort of food lubricates trust and transactional gain. Partnerships are tested in Chinese restaurants at round tables in private rooms. Dishes are meticulously choreographed. Proper seating must be respected, with the guest of honor placed directly opposite the door, flanked by his hosts. Serving oneself prematurely is faux pas. Leaving before the fruit comes is bad. Familiarity at home. A glance through any city’s expat guide gives an impression Chinese are culinary adventurers. Shanghai’s restaurant scene rivals any American or European city. Mexican, tapas, Japanese, Western brunches, Asian-French fusion, Johnny Walker parties, glamour clubs, wine bars… the list is endless. But, deep down, the Chinese are restrained about foreign food or new tastes. Inside the home, a refuge from the outside kaleidoscope, they are loath to experiment. Pizza Hut will receive delivery orders for office parties, but rarely for consumption at home. Despite Starbucks, roast and ground coffee is not purchased in supermarkets. Italian restaurants are ubiquitous in all major cities, but few enjoy pasta with the family. In public, anything goes. People pay a premium to project internationalism, hence Haagen-Dazs’ success as an ice cream parlor but failure as an overpriced in-home treat. With professional acquaintances, the world is a stage.

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Gilbert B. Kaplan: President Obama, Enact a Jobs Program Based on Real Trade Reform

August 31, 2011

Press reports make clear that the president and the White House staff are working non-stop to put together a jobs program to announce on Labor Day. Obviously a good thing to do, given that unemployment appears to be stuck permanently above 9%. At that level, and with other financial indicators tanking, President Obama may soon find his name among the 9.1% unemployed. If the president wants to find a place to create jobs, he needs to look hard at what has happened to the manufacturing sector since 2000 and figure out a way to start turning that around. At the end of the year 2000, we had 17,263,000 manufacturing jobs in this country. Today we have about 11,745,000, an astounding drop of 32% in a little over ten years, in the most important job generator in the economy. In addition to these 5,518,000 manufacturing jobs lost, it is universally recognized that manufacturing jobs have a multiplier effect. For every manufacturing job there are at least 2 or 3 additional jobs created, in services around the plants and in manufacturing communities, in R & D and finance, in transportation, in wholesale and retail trade, and in government. Let’s assume it’s just two additional jobs. That means the 5.5 million manufacturing jobs we have lost have resulted in total job loss of 16.5 million. Given that the total number of unemployed in the economy as of the end of July (according to the Bureau of Labor Statistics) was 13.9 million people, it is clear that these manufacturing job losses are having an astounding effect. So what should the president do about it? The simple fact is that the majority of these manufacturing jobs are now overseas, as a result of our failure to enforce our trade laws or to adopt creative, new solutions to the trade problems we face. During the 2000-2010 period, our trade deficit in manufactured goods increased by almost 30%, roughly parallel to the loss in manufacturing jobs. Our trade deficit just in advanced technology products increased to $81 billion, from a surplus of $5.3 billion in 2000. Our trade deficit with China increased from $84 billion to $273 billion. For those who say that the issue is lower wages in China, Vietnam or elsewhere, that’s simply not true. Almost nothing we make in the U.S. or made in the year 2000, has a wage component of more than 10% of the cost of production, a cost that is readily off-set by the cost of shipping products from distant shores. The real problem is unfair trade practices by our trading partners and our foolish and destructive refusal to take actions to remedy these practices. We have to adopt new trade strategies on manufacturing if we want to create good jobs in this country. To do that, I hope the president will announce the following trade actions in his jobs speech next week: Immediately off-set currency undervaluation by the Chinese, or at least instruct the Department of Commerce to self-initiate countervailing duty cases on the undervaluation. A few weeks ago, Fred Bergsten, President of the Peterson Institute of International Economics called the sustained currency undervaluation by the Chinese “by far the largest protectionist measure adopted by any country since the Second World War — and probably in all of history.” Yet the president just stands idly by. As to other subsidies which have caused U. S. industries to move off-shore or have created unfair advantages causing U. S. industries to cut back or close plants, the president should instruct the United States Trade Representative and the Secretary of Commerce to create an unfair trade strike force that would immediately initiate anti-subsidy cases against any government that gives subsidies to its industries that cause harm to U. S. competitors. These subsidies include programs like free land, below-market interest loans, grants to build greenfield factories, free energy and tax breaks — all actions that are endemic in China and our other trading competitors. We should expect our government to act against these economic security and job base threats the same way they act against national security threats. The third major disadvantage U. S. manufacturers have is that, in every other country when manufacturers export, their VAT (value added taxes) are rebated. As a result they get a 5-17% cost and price advantage on every export sale. This is supercharging the export proclivities of every other country in the world. Because of a peculiarity we wrongfully agreed to in the international trade regime decades ago, when U. S. manufacturers export their goods, the U. S. cannot rebate the income taxes they have paid. Our manufacturers are undercut and forced out of the globalized market. The president should immediately propose a system of trade zones where manufacturers will pay a VAT tax in lieu of an income tax, and then rebate the VAT tax on goods which are exported — equalizing competition with China, Japan, the EU and the rest of our trading competitors. All over this country, plants remain closed down and workers are moving down the food chain, suffering from the enormous loss of manufacturing jobs, and from the disappearance of related jobs in their manufacturing communities. We are a great country but we cannot sustain a 32% drop in a very high paying sector of our economy — manufacturing including advanced manufacturing — and expect to remain so. Without dealing with the trade issues, there is no way to address this decline. The above steps will quickly begin the turnaround. As an added bonus, this is not a big new spending program, which would likely hit a road block in the House. President Obama, take the leap!

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Charles Gasparino: Who Is the Best Person to Run Bank of America?

August 30, 2011

If the saga of Bank of America, the country’s largest and most troubled bank, were to be made into a movie, its title would have to be “The Dumbest Men in the Room,” with a starring cast that features its half-witted chief executive officer Brian Moynihan and his equally half-witted board of directors. All of which wouldn’t be so bad if Moynihan and his brain-dead board weren’t running a bank with more than $2 trillion in assets and $1 trillion in customer deposits that the federal government (meaning taxpayers) might have to cover some day if Bank of America hits the skids just as it did during the financial crisis of 2008, and as it almost did in the last couple weeks. Just to recap: BofA’s share price was heading to zero as investors came to believe that all the bailout money, the billions upon billions of guarantees and zero-percent borrowing rates the government handed the bank over the past two years wasn’t working. That’s because on top of everything else, the big bank was facing a new potentially, more devastating liability: untold billions of dollars in losses tied to the sale of faulty mortgages by its Countrywide Financial unit, and Moynihan’s inability to come up with a plan to deal with the problem. The run of the stock appears to have ended last Friday when Warren Buffett pumped $5 billion into BofA in one of the most one-sided deals the market has ever seen (I don’t even need to say who got the short end of this stick), and the company began unloading prime assets like a piece of its stake in the China Construction Bank raising billions of dollars more. Investors seem to be getting comfortable that the worse is over for BofA and that Moynihan is starting to get his act together. The bank’s stock price is no longer heading toward penny-stock territory (shares are now trading at around $8 today), and market talk about another round of government bailouts has ceased, at least for the moment Will it last? Buffett says he thinks so and he’s been saying a lot of nice things about the bank and Moynihan since he announced his big investment. But Buffett’s show support should be seen for what it is: a bribe. Under the terms of the deal, he has already made more than $500 million, with many more hundreds of millions to come. His investment isn’t even a week old. For that reason, investors should remain wary that the biggest bank in the country won’t at some point become the nation’s biggest banking catastrophe. While BofA may be in a better financial position than it was before the 2008 financial crisis (it would be difficult to be any worse), or before Buffett came to the rescue, it’s far from a healthy situation. And one more thing: the bank is being led by possibly the most unqualified CEO in all of corporate America. I say this not because I dislike Moynihan; I’ve met him and he’s seems like a nice enough guy. Some smart people on Wall Street hold him in high regard for basically the same thing; if there is a CEO in financial business who wants to do the right thing, they say it’s probably Brian Moynihan. But desire aside, Moynihan has been nothing short of a klutz as a leader. Part of his problem is that he’s a lawyer by training and lawyers make lousy CEOs (remember Chuck Prince’s messy tenure at Citigroup). But at least Prince proved to be a decent lawyer who fought his way up the corporate ladder to replace Sandy Weill as Citi’s chief executive. The best you can say about Moynihan is that he got the job by default. Before he became CEO, Moynihan was a regarded as B-player at best by his colleagues. He held a variety of jobs inside Bank of America’s vast bureaucracy and failed to stand out at any of them. He was mediocrity personified. Moynihan he did have one thing going for him: he was part of a group of executives who remained at BofA after it purchased Fleet Financial in 2004 where he served as general counsel. And his Fleet lineage helped him when it mattered most. Ken Lewis, under investigation for his financial-crisis purchase of the troubled Merrill Lynch brokerage firm, had resigned. A boardroom showdown over Lewis’s successor ensued with some members wanting an outside candidate and others looking to promote one of Lewis’s cronies. At the time, Moynihan’s name was barely on the long list of candidates. But several former Fleet board members remained on the BofA board, and capitalized on the general dysfunction to promote one of their own. With that, a man least likely to succeed as a CEO became the head of the nation’s largest bank. Moynihan took over in January 2010 and began screwing up from the start. He assured investors that the feds gave BofA the green light to raise its dividend when no green light had been given because the bank’s post-crisis finances weren’t strong enough. Despite mounting evidence that BofA faces a crisis of large magnitude stemming from Countrywide, Moynihan has inexplicable downplayed the bank’s exposure right up to the moment the bank was about to announce its intention to shell out its first mutli-billion settlement to investors holding soured mortgages. In fact, Moynihan has had nearly two years to prepare for the onslaught of Countrywide related claims — one even came from his business partner, Larry Fink, the CEO of Blackrock that BofA had held a huge stake in. Yet when the trouble began earlier in the year, Moynihan didn’t have a clue about how to proceed. “He seemed lost,” one investor who met with Moynihan about the liabilities told the Fox Business Network. What’s even worse, he seems to have learned almost nothing from recent history of financial firms and their top executive assuring everything of OK when it really isn’t. Though people who know Moynihan swear he’s honest, he’s been coming across as CEO in the mold of Dick Fuld and Alan Schwartz — the guys who ran Lehman Brothers and Bear Stearns into the ground but not before assuring the markets that their firms were fine before they imploded. Moynihan’s BofA isn’t quite the house of cards of either Bear or Lehman, but he seems to be relying on the Fuld/Schwartz handbook of dissembling when he should be telling the truth. During the recent run on the stock, Moynihan and his PR staff were absurdly spinning that BofA was in absolutely no need of additional capital, downplaying reports, including an early one by the Fox Business Network on August 4, that the bank was looking to cash out of at least part of its stake in the China Construction bank. But between Buffett and the sale of the China Construction stake BofA has raised close to $13 billion in additional capital. The BofA flacks are saying that the moves won’t “dilute” shareholders and place more downward pressure of BofA shares since the bank isn’t selling new stock to come up with the money. But one of the reasons why the Buffett deal is so one-sided is because BofA basically handed the Oracle of Omaha the right to purchase some 700 million shares anytime over the next 10 years — or 7% of all outstanding BofA stock — in what will be the mother of all dilutions once that nice old man from Omaha decides to cash in his chips. Despite all of this, Moynihan’s in-house defenders will tell you that their man is working day and night to fix the bank and repair something he had very little to do with, namely Countrywide. That’s a bit closer to reality since it was his predecessor Lewis on a pre-crisis buying spree to make BofA the world’s largest bank, who snapped up Countrywide in early 2008. But Moynihan wasn’t exactly an innocent bystander in terms of Countrywide. In all those Countrywide-related meetings when he worked as part of Lewis’s management team, did Moynihan even once raise his hand and object to the purchase? The answer from what I understand is no. For all of this experience, of course, Moynihan might be the best person to run BofA for some of the more brain-dead members of the bank’s board, but investors should be demanding something better. So should taxpayers, because if Moynihan fails to fix the problems at Bank of America, they will be paying the ultimate price in the form of another massive government bailout. And all because Brian Moynihan used to work at Fleet.

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Michele Nash-Hoff: Will You Follow the Herd or Be a Leader?

August 30, 2011

When I succumbed to peer pressure as a teenager and asked my mother if I could do something that “everyone else was doing,” her refrain would be “don’t be a sheep and follow the crowd; be a leader.” The management of American manufacturing companies should have followed my mother’s advice of being a leader in their industry instead of following the “herd mentality” of outsourcing their manufacturing offshore to China to the detriment of the overall American manufacturing industry and the United States’ position as the world’s pre-eminent country. A new report by the Boston Consulting Group, ” Made in America, Again — Why Manufacturing Will Return to the U.S. , reveals that “China’s overwhelming manufacturing cost advantage over the U. S. is shrinking fast.” The authors, Harold L. Sirkin, Michael Zinser, and Douglas Hohner, conclude that within five years, “rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America.” Their report substantiates the Total Cost of Ownership worksheet calculator that Harry Moser, founder of the Reshoring Initiative , has developed and is teaching to managers of American manufacturers that want to be leaders in bringing manufacturing back to the United States. The Boston Consulting Group makes the same recommendation as Moser: conduct a rigorous, part-by-part, product-by-product analysis to fully account for total costs rather than just factory wages. In doing so, they may discover that manufacturing in the U.S. is a more attractive option, especially for products sold in the U.S. market. For products with high labor content that are destined for mainly Asian markets, manufacturing in China will remain the best choice because of economies of scale or technology. They key idea is to recognize that China is no longer the default option to lower costs and increase profitability. What is the basis for authors’ conclusion that manufacturing will return to the United States? They say the key reasons for the shift are the following: • Wage and benefits have increased 15 to 20 percent per year at the average Chinese factory, which will slash China’s low-cost advantage over the U. S. from 55 percent today down to 39 percent by 2015, when adjusted for the higher productivity of U. S. workers. • When the Total Cost of Ownership factors such as transportation, duties, supply chain risks, cost of inventory, and other costs are calculated, the cost savings of manufacturing in China rather than some U. S. states will become minimal within five years. • “Automation and other measures to improve productivity in China won’t be enough to preserve the country’s cost advantage. Indeed, they will undercut the primary attraction of outsourcing to China – access to low-cost labor.” • Demand of goods in Asia will increase rapidly due to rising income level so multinational companies are likely to devote more of their capacity in China to serving the Asian market and bring some production back to the U. S. to service the North American market. • “Manufacturing of some goods will shift from China to nations with lower labor costs, such as Vietnam, Indonesia, and Mexico.” However, this will be limited by the supply of skilled workers, inadequate infrastructure, supply networks, as well as by political and intellectual property risks, corruption, and the risk to personal safety in those countries. The BCG report presents an interesting perspective on the decline and forecast renaissance of American manufacturing. They acknowledge the effect of Japan and the “Asian Tigers of Korea and Taiwan had on the shrinking of the American manufacturing industry, in which the U. S. share of the world’s manufacturing dropped from the high of around 40 percent in the early 1950s down to less than 20 percent today. However, they point out that “U. S. industry and the economy responded with surprising flexibility to reemerge more competitive and productive than ever” by the late 1990s. They opine that the “U.S. manufacturing sector is today in the midst of a similar process of readjustment in response to perhaps its greatest competitive threat ever — the rise of China.” As proof, they state that the “output of manufacturing is almost two and a half times its 1972 level in constant dollars, even though employment has dropped by 33 percent…the value of U. S. manufacturing has increased by one-third, to $1.65 trillion, from 1997 to 2008─before the onset of the recession─thanks to the strongest productivity growth in the industrial world.” The authors conclude that within five years, “the total cost of production for many products will be only about 10 to 15 percent less in Chinese coastal cities than in some parts of the U. S. where factories are likely to be built,” such as South Carolina, Alabama, and Tennessee. When you add in the other factors of Total Cost of Ownership, the cost gap will be minimal. Although some production is moving to Chinese cities in interior provinces to reduce costs, these regions lack the abundance of skilled workers, supply networks, and efficient transportation infrastructure of the coastal cities. “As a result, they expect companies to begin building more capacity in the U. S. to supply North America.” A few of their examples are: • NCR moved production of its ATM’s to a plant in Columbus, Georgia, that will employ 870 people by 2014. • The Coleman Company is moving production of its 16-quart wheeled plastic cooler from China to Wichita, Kansas. • Sleek Audio has moved production of its high-end headphones from Chinese suppliers to its plant in Manatee County, Florida. • Peerless Industries will consolidate all manufacturing of audio-visual mounting systems in Illinois, moving work from China in order to achieve cost efficiencies, shorter lead times, and local control over manufacturing processes. These examples corroborate what I’ve been seeing and wrote about in my book and subsequent blog articles about companies in the San Diego region. For example, at a TechAmerica Operations Roundtable event last April, Luke Faulstick, COO of DJO Global said that they have brought back the manufacturing of their cold therapy unit from China, their printed circuit boards to a supplier in South Dakota, their textile manufacturing to North Carolina, and their screw machined parts to Texas. He recommended that any company on the “lean” journey should rethink their outsourcing offshore. The BCG report goes into quite a bit of detail about the factors that are starting to dramatically shift the manufacturing cost equation in favor of the U. S. A key factor is that China’s average wages have become more volatile. In 2010, “the giant contract manufacturer Foxconn International, which employs 920,000 people in China alone, doubled wages” after a string of worker suicides. They assert that rising Chinese productivity will be insufficient to offset these wages increases because output will increase at only half the pace of the rise in wages. Even though Chinese wages will still be much lower in 2015, labor content is only part of the cost of making a part so the savings could shrink to as low as 10 percent when other costs are included. The price of labor is increasing so rapidly that manufacturers are automating their plants in China to reduce the labor content, but as the labor content is reduced, it reduces the advantage of keeping manufacturing in China for the low labor rates. Another factor is the increasing cost of land in China for building factories. For example, industrial land costs average $10.22 per square foot, but ranges up to $21 per square foot in Shenzhen. In contrast, industrial land in Alabama ranges from $1.86 to $7.3 per square foot and $1.30 to $4.65 in Tennessee and North Carolina. Other low-cost nations won’t be able to absorb all of the high labor content manufacturing moving from China because China has the highest proportion of able-bodied adults in the workforce (84 percent), and 28 percent of those workers are employed by industry. The estimated 215 million industrial workers in China are 58 percent more than the industrial workforce of all of Southeast Asia and India combined. The authors predict that “instead of pulling out of China, most multinational companies will orient more of their production to serve China and the rest of a growing Asia… The shifting cost structure between China and the U. S. will present more manufacturing and sourcing options. U.S. manufacturers should undertake a thorough analysis of their global supply networks, factoring in worker productivity, transit costs, time-to-market considerations, logistical risks, energy costs, as well as other hidden costs of sourcing offshore. The question is: Are you going to be one of the leaders in bringing manufacturing back to the U.S. or are you going to follow the “herd mentality” by continuing to outsource manufacturing in China?

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China’s Yuan Advances to 6.3896 Against US Dollar

August 25, 2011

(MENAFN – Qatar News Agency) The Chinese currency Renminbi, or the yuan, gained 91 basis points to a record high of 6.3896 per US dollar on Wednesday, according to the China Foreign Exchange Trading …

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Ian Fletcher: Enough Already With the Macho Dollar

August 19, 2011

I recently had an e-mail exchange with an extremely distinguished conservative commentator — a familiar name to most — who was worrying that the dollar isn’t getting the “respect” it used to. This is, of course, largely true. But it also embodies an absolutely terrible way of thinking about our economic troubles that really has to stop. What my interlocutor wanted, as a lot of people (and not only on the right!) seem to want, was a “strong” dollar. A strong dollar, like a strong defense or strong democratic institutions, sounds like just a naturally good thing. It sounds like something every American should want — so long, of course, as they’re not some sort of pinko-commie-freak socialist who secretly doesn’t want America to succeed. But they’re wrong. A strong dollar is an unwise goal. Why? Begin by remembering that the word “strong,” when applied to currencies, is only a metaphor. The dollar is never literally “strong” like an army or even a cup of coffee is. What it is, is expensive or cheap, like any other thing that is bought and sold. Therefore the dollar needs to be dispassionately evaluated for the costs and benefits of any particular price it bears, not misunderstood as a totem of national vitality. Remember, for one thing, that a “weak” currency can, paradoxically, confer national advantage. Germany, Japan and China all have undervalued currencies right now — and all three are making out like bandits from this fact. They’re laughing, all the way to the bank, much too hard to care whether anyone “respects” their currency. And they’re quite happy to let Uncle Sam, eternal sucker of the global trading system, pursue that objective, because it helps them keep their currencies down. Now that we’ve gotten the misleading metaphor out of the way, we can start asking the real question: should we want a high or a low dollar? This question is obfuscated by those who would prefer that the public regard the matter as much too arcane for mere voters to worry about. (Better to let our trusty friends in the financial markets and the Treasury Department take care of it.) But it is really no different than any other question about the price of a thing: whether you want the price to be high or low depends upon whether you’re buying or selling . If you’re buying, you obviously want the price to be low, and if you’re selling, you want it to be high. Because we, as Americans, both buy and sell things with dollars all the time, the right price of dollars is going to be a compromise between these two needs. If the dollar is too cheap, then imports — starting with oil — will be too expensive. This will lower our living standards and cause inflation. Conversely, if it is too expensive, then imports will be too cheap and our exports will price themselves out of world markets. We will import too much, running up a trade deficit and destroying jobs. As a result, there’s nothing intrinsically good about a “strong” dollar. (Or a weak dollar, for that matter.) What’s good for us is having an appropriate price for the dollar. Pace a billion complexities, it is, roughly, the price that balances our trade so that we run neither a deficit nor a surplus. One can perhaps argue for an artificially cheap dollar so the U.S. can run a trade surplus which will create jobs and start paying back our vast accumulated foreign indebtedness. The problem here is, against whom would we run it? We’re such a big economy that a trade surplus big enough to be meaningful for us won’t disappear in the rounding errors of the world economy. If such a surplus ever happens, it will be a big factor globally. But the other big economic powers are (unlike us) wise to this game and probably won’t allow their markets to be flooded with our goods the way we allow our markets to be flooded with theirs. So balanced trade is probably the best we can hope for. The price of the dollar isn’t the only thing that determines this — tariffs, other trade barriers, and controls on international flows of capital also have their effect — but it’s certainly the biggest lever within convenient reach. There are other problems with pining for a macho dollar. For one thing, one can’t demand a strong dollar and simultaneously condemn Chinese currency manipulation. China artificially lowers the yuan-dollar exchange rate, making its currency cheaper in dollars and ours more expensive in yuan, in order to boost its exports and suppress its imports. As many people have argued, this is unfair to American producers. That’s why there’s a bill pending in Congress with 189 co-sponsors to retaliate against China for doing this. Trouble is, if you want a strong dollar, then you should be down on your knees thanking Beijing for its currency manipulation, as that is precisely what this manipulation delivers. Ultimately, it’s not the dollar that’s the object of anyone’s respect. It’s the strength of the American economy as a whole. If our economy is sound, respect will flow as a matter of course, regardless of exchange rates. The world is dazzled to some extent by the symbols and totems of power, but in the long run, real power always wins out. That’s what we should be caring about.

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Charles Kolb: American Jobs and Chinese Freedom

August 11, 2011

Many economists have concluded that solid economic recovery around the world requires fixing the “fiscal imbalances” that have characterized much of the last decade. Those “fiscal imbalances” were, perhaps, direct enablers — if not a cause of — the global economic downturn that began nearly three years ago. By “fiscal imbalances,” economists mean the trade and savings/spending patterns characterized in part by export-driven growth in China accompanied by huge current account surpluses, a corresponding trade deficit in the U.S., and an extended period of relatively low interest rates in the U.S. These low borrowing costs fueled the housing bubble and enabled U.S. consumers to buy billions of dollars of low-cost Chinese goods, often to the detriment of U.S. manufacturers. China, in turn, used its substantial trade surplus and dollar holdings to underwrite U.S. borrowing to finance our growing national debt. Chinese consumers save nearly 50 percent of their income. American consumers, who until recently drove 70 percent of U.S. GDP, saved virtually nothing. Now, given the ravages of the Great Recession, the U.S. personal savings rate has suddenly risen to 5.4 percent , but consumer spending still lags. One reason for the sluggish consumer spending has been the fact that American households are still “deleveraging,” working off the enormous debts they accumulated during the “bubble” years. To do this, they have to save more and spend less. This rebalancing act also calls for the Chinese to save less and spend more. There are clear limits to China’s ability to sustain its export-driven growth model — a model that increasingly shortchanges Chinese domestic consumption, while artificially constraining the value of China’s currency, the renminbi. President Obama and Treasury Secretary Geithner have repeatedly urged Chinese leaders to allow the renminbi’s value to rise. Doing so, of course, should slow China’s export-driven growth, as the cost to U.S. and other global consumers of Chinese-made goods increases. China responds, by lecturing U.S. leaders about our unsustainable federal budget deficits and growing international debt, our severely weakened manufacturing sector, and by claiming that the second round of quantitative easing by the Federal Reserve amounted to the U.S. manipulating its own currency by weakening the dollar. The major issue worrying all Americans now is our “jobless” recovery. With unemployment at 9.2 percent, it would help our jobs picture if U.S. consumers would buy more U.S.-made goods. Doing so will reduce our trade deficit and strengthen what is left of the U.S. manufacturing base. One way to achieve the required re-balancing, of course, is through unilateral protectionist measures, such as tariffs and quotas imposed by government, or through prolonged litigation in forums such as the World Trade Organization. We have known for centuries, however, that protectionist trade barriers reduce economic growth, impose additional costs to consumers, and contract, rather than expand, world trade and income. They must be avoided at all costs. Government-to-government talks have gone nowhere. A more sensible and direct approach, which can complement government talks, is to turn loose the power of American consumers who can immediately, and voluntarily, decide for a period of time to stop buying Chinese-made goods. They can do so to send the Chinese a message (on economics as well as on human rights and Internet freedom) and to help rebuild American manufacturers. Doing so would also benefit China by adding further pressure on the Chinese government to stimulate Chinese internal aggregate demand and wean itself away from its export-driven model. One major U.S. retailer reportedly has some 6,000 suppliers, 5,000 of which are Chinese. If the goods of these Chinese suppliers start backing up on the shelves of that retailer’s stores and warehouses, the company might have to seek other suppliers — perhaps even American ones. But doesn’t this approach risk Chinese retaliation by not purchasing U.S. Treasuries and thereby no longer underwriting U.S. debt and deficits? At some point, if the U.S. budget deficit is not improved, this event will happen anyway, as investors fear that the dollar will drop in value or inflation will suddenly accelerate. Either consequence lessens the value of China’s investment in U.S. Treasury bills. The Chinese leaders are not stupid, and we can expect them to take steps to avoid losing the value of their “investment” in the U.S. And if China were to do so — or begin diversifying its asset portfolio somewhat — that would also be good for the United States, as we need to wean ourselves away from China’s easy money. Today’s fiscal imbalances cannot continue, and they won’t. The reality is that both China and the United States have some bitter pills to swallow. Political leaders in both countries are often reluctant to level with the public, but it is better to begin the treatment sooner, rather than later. Neither country will benefit from a trade war, and both countries will benefit from “rebalancing” their economies. Consumers in both countries can hasten this process. We should welcome China as a competitor — and as a friend. Both of our economies need to be strong and will benefit from more balanced trade patterns. At the same time, we should not be shy about taking steps to put our own economic house in order while nudging them to do so as well. America needs more jobs at home, and China needs more freedom, both economic and political. On my first visit to China a few years ago, I recall sitting in a small, provincial airport waiting for my ride to the hotel. A young Chinese man — probably around 22 or 23 — sat next to me, and asked if we could chat. His English was good, but I could not understand one particular word. After asking him to repeat it three times, he finally took out pen and paper and wrote: “freedom.” I said, “Yes. Freedom.” And then he said, “Your country very good. My country not so good.” I looked directly at him and smiled: “Yes, but your country is getting better.” American consumers can help their fellow citizens and our friends in China in their purchasing decisions. A former American president once urged all Americans to “go shopping.” When we do, we should try whenever possible to buy American. ________________________________________________________________________ Charles Kolb served in the first Bush White House from 1990-1992 and as General Counsel of United Way of America from 1992-1997. He is now President of the Committee for Economic Development in Washington, D.C. The views in this article are solely the author’s.

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Daniel Wagner: Investors Still Think They Can Fly

August 5, 2011

In March 2006, 18 months before the recession erupted, I published an op-ed in the International Herald Tribune entitled “Investor Beware”, in which I noted that: “Borrow and spend fiscal policies are very much in vogue among governments and consumers, the global housing bubble has reached unprecedented proportions, and many of the world’s stock markets are so hyper-inflated that investors seem to have forgotten the basic law of physics – that what goes up must come down. This investor ‘frenzy’ is occurring on the heels of some of the largest corporate bankruptcies and financial boondoggles in history and indicates that investors appear not to have learned much in the process. Investors appear to believe that, for some reason, the age of globalization has made the prospect of a global economic meltdown remote, and that the global economy will recover from whatever may be thrown its way. Their thinking is that since the world’s economies are so closely linked together, they will all somehow swim, not sink, when the next major shock to the system occurs. The more logical conclusion, however, is that globalization has made all the world’s economies more vulnerable to collective shock. Unlike the past, those shocks can be more severe because of the economic linkages and because of new threats to the system with unpredictable consequences. Yet the capital markets are humming as if there were no tomorrow and investors seem impervious to the risks that are now ever present in the global economic system. Some governments have made their fiscal quagmire worse by piling more debt on the national books and continuing to spend recklessly, while doing little or nothing meaningful to increase national revenues. Governments, investors and lenders continue to build the house of cards, with little apparent regard for the long-term consequences or concern for the many risks that could cause its collapse at any time. Here we are, more than five years later, in the third year of what is becoming the ‘perpetual’ Great Recession, and these words could easily have been written today for the first time. As the latest global stock market meltdown proceeds apace, it indeed appears that after all we have been through over the past three years, incredibly, governments, investors, and lenders have learned very little. Unfortunately, human nature, short memories, and greed all continue to coalesce to ensure that history will indeed continue to repeat itself. The passage of the U.S. government’s debt deal last week was the product of absolute political paralysis in Washington, it really achieved very little, and the markets know it. What is going on in Washington is a pathetic display of entrenched interests and the utter failure of the democratic process to function effectively in a time of crisis. If you ask me, we should throw them all out and start over, requiring each new member of Congress to sign an oath acknowledging that he/she actually understands why they were sent to Washington and making their pay contingent upon getting the job done! Yesterday’s declaration by ECB President Trichet that the Bank would offer European governments unlimited liquidity at fixed interest rates for the next six months was the ultimate confirmation that in fact, the ECB has lost control and is powerless to contain the freefall in Europe. It is difficult to understand why the ECB is now buying Portuguese and Irish bonds instead of those of Italy and Spain – which are the current source of concern, are not part of an existing bailout plan, and may still be salvageable. The Chinese government looks like the bastion of fiscal conservatism and effectiveness compared to the performance of the U.S. and European governments – and it has looked that way since the Great Recession began! Maybe the Chinese would agree to send delegations to Washington and the capitals of Europe for some training! I would like to be able to state that I am optimistic that there is going to be a happy ending to this debacle, but, being a realist and having a tendency to speak the truth, just the opposite appears to be the case. Since: So few lessons appear to have been learned by western governments, investors, and lenders, Fragile, ineffective and vulnerable fiscal band aids have been placed over the gushing wound that is the global economy, without a realistic alternative, and We continue to keep piling more debt on this house of cards some of us have deluded ourselves into believing is actually a recovery, I would have to say there is a 70 percent chance of a double dip recession as bad or worse than what we just went through, and it has already begun. Daniel Wagner is CEO of Country Risk Solutions, a political risk consulting firm based in Connecticut, and senior adviser to the PRS Group.

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Pluton Resources Limited (ASX:PLV) Signed Term Sheet with Chinese Strategic Investor and JV partner for Irvine Island

August 4, 2011

http://www.abnnewswire.net/rss2/menafn/abn_menafn_en.asp Pluton Resources Limited (ASX:PLV) announces that it has entered into a binding term sheet with Timone, a company owned by private Chinese …

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Obama Weekly Address: ‘There Is Very Little Time’

July 30, 2011

WASHINGTON — Claiming that the two parties aren’t that far apart, President Barack Obama is urging Democratic and Republican lawmakers to reach a deal quickly to keep the government from defaulting on payments to veterans, Social Security recipients and others. “There is very little time” he said Saturday in his weekly radio and Internet address. The Republican-controlled House on Friday passed a bill aimed at avoiding a debt default, voting 218-210 almost entirely along party lines. It pairs an immediate $900 billion increase in U.S. borrowing authority, needed for the government to keep paying all its bills, with $917 billion in federal spending cuts. But Democrats strongly oppose a provision that says Congress must approve a balanced-budget amendment to the Constitution and send it to the states for ratification before any additional increases in borrowing authority are granted. In the Republican radio address, Arizona Sen. Jon Kyl said it’s important for the country to avoid debt default, but said Democrats need to work more closely with Republicans. “Republicans have tried to work with Democrats to avoid this result and put our country on a better path, but we need them to work with us,” Kyl said. “Unfortunately, after weeks of negotiations, it became clear that Democrats in Washington did not view this crisis as an opportunity to rein in spending,” he said. “Instead, they saw it as an opportunity to impose huge tax increases on American families and small businesses.” Obama insists that borrowing authority extend through 2013, beyond next year’s presidential campaign. The Democratic-controlled Senate, with help from some Republicans, quickly rejected the House bill on Friday. Majority Leader Harry Reid, D-Nev., had an alternative measure to cut spending by $2.4 trillion and raise the debt limit by an equal amount, enough to meet Obama’s demand that there not be another vote on government borrowing next year. That defeat could set the stage for weekend negotiations on a compromise measure suitable to both houses of Congress. Obama said that compromise is needed by a Tuesday deadline – or else the government will begin running out of money. “Look, the parties are not that far apart here,” Obama said Saturday, claiming “rough agreement” between them on spending cuts and a process for overhauling the tax code and costly federal benefit programs. “There are plenty ways out of this mess. But there is very little time.” “We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, bills like Social Security checks, veterans’ benefits and contracts we’ve signed with thousands of American businesses,” Obama said. The president also offered praise for congressional Democrats and some Senate Republicans who “have been listening and have shown themselves willing to make compromises to solve this crisis.” He singled out House Republicans in calling on all lawmakers to show “the same kind of responsibility that the American people show every day” by paying their bills and keeping their houses in order. “The time for putting party first is over,” Obama said. “The time for compromise on behalf of the American people is now.” ___ Online: Array Array

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William L. McComb: Want to Boost the US Economy? Get Serious About Tourism

July 29, 2011

As we all think–with increasing urgency–about how to best stimulate growth and ramp up employment for the US economy, we might just be missing a huge opportunity that is staring us in the face. Bill Marriott Jr., Chairman and CEO of Marriott International , made the point recently and with great clarity: Tourism creates jobs. Right now, the tourism industry generates $134 billion in annual revenue and directly supports an estimated 1.8 million US jobs. From retail to hotels to entertainment to restaurants, whether it’s Liz Claiborne Inc., The Ritz Carlton or a Broadway Theater, we all depend on the purchasing power of tourists. So the question is: What’s the best way to grow tourism in the US, a country with wonders from sea to shining sea? The solution is one part getting our rules and regulations right, one part tapping into good old fashioned American razzmatazz, updated for the 21st century. First, as Bill Marriott pointed out, the federal government needs to adjust its visa policies to make visiting the U.S. easier. If we don’t, we stand to lose out big. According to a recent study , international travelers visiting the U.S. spend an average of $4,000 per person on hotels, restaurants, domestic travel, shopping, and entertainment. And travelers from certain regions spend even more. Tourists from Brazil, for example, spend more per capita than any other country, yet only four consular offices exist to approve Brazilian visas. Believe it or not, that means would-be tourists can wait over 140 days for their visa . Modifying this process will both open the floodgates for new visitors, and create thousands of jobs. The second part of the solution is the razzmatazz, now called marketing. Each and every day, thanks to the lack of a vigorous “Visit America” campaign, our tourism industry is missing opportunities to nab travelers and increase share. Again, like a smart business, we need to focus on where the growth is. Namely, in China and South America, where there are increasing numbers of consumers with disposable income, e.g., potential tourists! The good news is that the tools we need to reach and attract these visitors are already at our disposal, and, in fact, our “Visit America” campaign could be ramped up at relatively low cost. The European Travel Council, for example, recently ran a Facebook contest that encouraged travelers to post photos of themselves in locations throughout Europe. The winner received a free trip to one of three European destinations. Or take VisitBritain, which enlisted internationally-known celebrities like Dev Patel, Judi Dench, and Jamie Oliver to create TV ads and short films (which were also disseminated online) as part of a £100 million campaign to attract younger Asian tourists. The U.K. is also leveraging key events, such as the Summer Olympics , using social media to further drive visitor interest. A successful marketing strategy for the US cannot rely on a “One Size Fits All” tactic – we are too big and too broad, with something for everyone. But that’s also our competitive advantage – we have the ability to meet the needs of almost any visitor. Effective campaigns will have to understand the tastes and needs of each audience, whether Chinese, Brazilian, Indian or European–andcommunicate unique American experiences most likely to attract them. We have one of the most beautiful, exciting and dynamic countries in the world, and we know targeted marketing through social and traditional media is an effective way to drive tourism. So what’s stopping us? Now is the time. We could all use the boost.

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John Kerry: China ‘Laughing All The Way To The Bank’ Over Prospect Of U.S. Credit Downgrade

July 28, 2011

The global impact of the American debt crisis – and the likelihood of permanent damage to American interests – are already visible to Senator John Kerry (D-MA) from his perch as chairman of the Senate Foreign Relations Committee. Indeed he is not only seeing but hearing those effects. “The Chinese are laughing all the way to the bank,” said the former Democratic presidential nominee, because a downgrading of US Treasury securities will mean enormous and completely unnecessary increases in our interest payments to the nation’s largest creditor — and our most important competitor in the international arena.

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India Weddings Faulted For Prodigious Food Waste

July 21, 2011

NEW DELHI — When the daughter of businessman Mohammed Sultan got married recently, guests were treated to a lavish 30-course meal served in super-sized silver platters. The Kashmiri feast, prepared by an army of chefs, included more than 20 meat and kebab dishes rich with spices to go with the saffron-flavored rice and naan breads. Hours later, after the more than 500 guests had eaten their fill, the leftovers were dumped by the cartload at a nearby garbage site. As the ranks of India’s wealthy surge with rapid economic growth, many families are staging extravagant displays of food at their children’s weddings to show off their newfound affluence. The prodigious waste that follows has horrified many in a nation where food prices are skyrocketing and tens of millions of young children are malnourished. At the recent wedding of the son of a ruling party leader, more than a 100 dishes representing Thai, Chinese, Mediterranean and Indian cuisines were served to over 30,000 guests. About 20 percent would’ve been thrown away. India’s Food Minister K.V. Thomas wants to curtail what has become known as the Big Fat Indian Wedding. He says about one-fifth of the food served at weddings and social gatherings is discarded. “It’s a criminal waste,” Thomas told The Associated Press. The tons of food wasted at social gatherings across the country each day contrasts sharply with the food shortages, often bordering on chronic starvation, faced by millions of poor Indians. Like elsewhere in Asia, food prices in India are rising fast – by 8.4 percent in June alone – as demand outstrips production. And the burden is falling disproportionately on the poor. Experts say the jump in prices for staples to record highs over the past few months has pushed another 64 million Asians into poverty. According to the food minister, around 100,000 weddings and social events are held in India every day. He says food wasted each day at weddings and family functions in Mumbai alone would be enough to feed the city’s vast slum population. The International Food Policy Research Institute ranks India 67 out of 84 countries in its 2010 global hunger index, a survey of the prevalence of child malnutrition, child mortality and the proportion of people who are calorie deficient. A committee Thomas established toyed with restricting the number of guests at weddings and the number of dishes that could be served. But the idea was quickly shot down by critics who said it would simply give corrupt inspectors another reason to solicit bribes. Instead, the committee has decided on a public awareness campaign through the media and outreach to schools and social organizations to spread the word that less is more when it comes to weddings. If the awareness campaign fails to make a dent, Thomas said he would consider resurrecting the guest limit proposal. It would not be the first time. In the early 1960s, in the aftermath of a brief border war with the Chinese, food shortages led the government to impose a ‘Guest Control Order’ limiting the number of wedding guests. The restrictions were short-lived, although it did focus public opinion on adopting a measure of frugality. Today, austerity is far from the minds of India’s wealthy, who fly in orchids from Thailand to decorate overstuffed buffet tables. “It’s my only daughter’s wedding. I don’t want to stint on anything. And certainly not on food,” said Alka Gupta, a businesswoman, as she studied a sheaf of menus from wedding caterers while planning her daughter’s December marriage. “My husband and I have worked hard all these years. Now we want a spectacular celebration to invite all our friends,” she said. Sociologist Abhilasha Kumari says that for the burgeoning middle classes, making a spectacle of weddings has become quite the accepted norm. Bollywood, India’s Hindi language film industry, has done much to popularize the theme of the big Indian wedding, says Kumari. “Conspicuous consumption is no longer viewed with distaste as it once was under India’s earlier socialist ethos,” she said. “It’s a new India where there are new value systems. Over-consumption is the norm.” The mere idea of scaled down celebrations has, not surprisingly, prompted a host of objections from businesses who bank on big weddings. Cutting down on the number of dishes may not be an easy task, says Nitin Luthra, a leading New Delhi caterer who has organized some of Delhi’s most spectacular weddings. “People have begun demanding exotic cuisines. What they want is a memorable evening for everyone who attends the wedding,” Luthra said. Wedding planners scoffed at the idea of a cap on wedding guests as a measure to curb food shortages. “It’s a knee jerk reaction, a populist measure,” says Ashish Abrol, a former IBM executive who in 2010 set up a wedding planning firm, Big Indian Wedding. “It would be an utter failure since it’s impossible to implement. The net result would be more corruption,” Abrol said. Suresh Misra at the Indian Institute of Public Administration, a New Delhi-based think tank, agrees that legislation to end the waste may not be “feasible or workable.” “It is true that we cannot force people to cut back on wasteful displays of food and spending, but if we get people thinking about the enormous amounts of food that’s wasted, that itself would be a step forward,” says Misra, who is a member of Thomas’ committee. But efforts to pick up the leftovers and distribute them to the poor have not taken off due to lack of infrastructure. Also, many Indians are reluctant to eat leftovers, partly because food spoils quickly in the country’s hot climate. Before cracking down on weddings, the government plans to cut back on its own excesses. Prime Minister Manmohan Singh’s office has sent out letters to government departments urging austerity at seminars and conferences. And in what could prove to be a landmark initiative, the government has prepared a draft law that would make access to food a basic right of every citizen. Under the proposed law, almost 70 percent of the population would be entitled to subsidized food. Rising food costs, coupled with steep increases this year in the price of cooking gas and gasoline, have led poor families to pare food budgets. But there are no such concerns for India’s moneyed elite. Gupta, the businesswoman, says for the affluent classes, rising prices are not the overriding concern when planning a wedding. “I would like to scale down things, but feel helpless. There are so many expectations riding on the children’s marriage. Very often it’s not in our hands,” she said. “If we resort to a scaled down wedding, it could send the wrong signal to our business associates.” Another problem is that most Indians don’t take the R.S.V.P. seriously. Wedding planners and caterers have to be prepared for huge turnouts at wedding parties, with the danger that the food may run out. If attendance is lower than expected, that extra food is scrapped. “You have no idea how many will turn up at the wedding reception, and have to plan for both contingencies,” said Gupta. “We would lose face, and it would look so bad, if the food ran out.” ____ Associated Press writer Aijaz Hussain in Srinagar, India contributed to this story.

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U.S. Credit Downgrade Could Spark ‘Turmoil’

July 14, 2011

Major credit rating agencies have called the reliability of American government debt into question, warning that they could issue a punishing series of downgrades if Congress does not increase borrowing authority by early August. A downgrade of U.S. credit, unthinkable not long ago, is now a real possibility. Even a brief debt default would prompt Moody’s Investors Service to dock the government’s sterling rating, the agency said Wednesday in a release. Another warning, issued privately to lawmakers by Standard & Poor’s and reported widely , was perhaps even more chilling: Even if the government stays current on its debt payments but halts spending on other items due to the lack of a timely debt deal, the agency might issue a downgrade. It’s a prospect that has left economists and financial executives wringing their hands, sketching out scenarios that involve widespread panic, a freeze in markets and even a return to a 2008-style recession. The pronouncements of credit rating agencies, despite their battered reputations in the wake of the housing boom and bust, influence global markets on a daily basis. If the United States government, whose creditworthiness has long been the lynchpin of the global financial system, gets its rating downgraded, the consequences could be disastrous, experts said. “Forget a recovery in housing,” said Nariman Behravesh, chief economist of the economic research firm IHS Global Insight. “You’d get a sell-off probably in U.S. bonds. It’s not a trivial matter. That would then influence corporate borrowing costs, it would influence consumer borrowing costs, it would influence mortgage rates.” Washington lawmakers remain locked in a debate over the terms of a debt ceiling increase, with Republicans insisting they will not vote to give the government more borrowing authority unless their demands for deficit-reduction are satisfied. Democrats and top economic officials, including Federal Reserve Chairman Ben Bernanke , have criticized that approach, arguing that it is irresponsible to threaten the full faith and credit of the U.S. as a means to trim the nation’s budget. If Congress does not raise the limit by Aug. 2, the nation will be forced to abruptly freeze spending, which could prompt a default, the Treasury has said. “We have no way to give Congress more time to solve this problem,” Treasury Secretary Tim Geithner said in remarks Thursday. Following through on a pledge it made in early June, Moody’s placed the triple-A bond rating of the U.S. government “on review for possible downgrade” Wednesday, saying the probability of a default is no longer “de minimis.” With negotiations seeming to grow only more contentious, the nation might not be able to do something as simple as pay its bills, thereby tarnishing its top rating. A downgrade, which would imply that U.S. debt is no longer “risk-free,” would likely send interest rates soaring as yields on Treasury securities would rise, economists said. That could freeze the flow of cash through the economy, as borrowing would likely be constrained. Worse, it’s not just the U.S. government’s rating that would be downgraded. The ratings of thousands of borrowers are tied to the federal government’s rating. Bonds issued by U.S. municipalities, the mortgage giants Fannie Mae and Freddie Mac and even by the governments of Israel and Egypt could have their ratings threatened, Moody’s said. Moody’s would dock the ratings of at least 7,000 municipal credits if it slashes the U.S. government’s grade, Bloomberg News reported . “There is madness in Washington,” David Kotok, chairman and chief investment officer of Cumberland Advisors, said in a recent note. “These fools and idiots we elect to represent us passed the programs and budgets that spent the money. The controversy over future spending has nothing to do with the existing debt ceiling.” Economists expressed exasperation at what some have called an “artificial” or “self-created” crisis. Although Moody’s noted in its report that it was concerned about the absence of a long-term plan to reduce the federal deficit, the more pressing need — the one that could prompt a downgrade if not done on time — is raising the debt ceiling, the agency said. “At this point, what we’re waiting to see is an actual raising of the debt limit, regardless of how they get there,” Steven Hess, lead U.S. analyst at Moody’s, told the Wall Street Journal . Despite the ongoing drama, Treasury securities seem to be hardly affected. Yields on 10-year U.S. debt are around 2.9 percent, roughly equal to the lowest value this year, which was reached in late June, according to Bloomberg data . An array of worrisome macroeconomic risks, including the sovereign debt crisis in Europe, has investors taking refuge in U.S. government debt, pushing down yields and increasing the value of their investments. “Despite everything that’s happened in Washington in the last day or two, most investors still think a settlement is coming and default will be avoided,” said John Richards, head of strategy at Royal Bank of Scotland in the Americas. But some investors are betting on default. The price of insurance contracts on U.S. debt rose nearly 8 percent on Thursday, reflecting an increased demand for those derivatives, the Wall Street Journal reported . Some economists said a U.S. sovereign downgrade ultimately would not cripple the economy, as markets would adjust. There’s no equivalent to Treasury securities, which serve a central role in the world’s economy, said Kevin Logan, chief U.S. economist at HSBC. For that reason, investors would eventually learn to live with a lower rating, Logan said. But in the short term at least, a downgrade could still cause disruptions, he said. Some entities are required to hold highly-rated securities, often to comply with regulations. “If the triple-A government debt is suddenly double-A one day to the next, what does the entity do?” he asked. “Sell all it has? And if it does, what does that do to interest rates on all that debt?” “It could create turmoil,” he said, “as everyone tries to figure out what’s the correct pricing for all this stuff.”

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Don Tapscott: Business Models for Five Industries in Crisis

July 12, 2011

In our 2006 book Wikinomics , Anthony D. Williams and I looked at dozens of companies that have used the Internet to transform their business models and achieve tremendous success. However, in the five years since the book’s publication, we’ve noticed something striking: the rate of business model innovation has not accelerated. Yes, some individual companies have achieved competitive advantage by exploiting the web and networked business models. But overall the gains have been modest. We’re beginning to understand the reason. Increasingly it’s becoming difficult or even impossible for companies to achieve breakthrough success without changing their entire industry’s modus operandi. From the many examples, let’s look at five: 1. Pharmaceuticals Can’t Fix What Ails Them One by One Pharmaceutical companies are about to drop off what’s called “the patent cliff”. They will lose 25-40 percent of their revenue in the next two years as the patents for many blockbuster drugs expire. There is little individual companies can do to recover from this crisis and instead need an industry wide solution. The global biomedical community is generating about 25 new medicines per year, but only a handful of these are “pioneer drugs” rather than “follow-on drugs”-variants, formulations or combinations of existing therapies. Despite increased research spending the impact on the number of new medicines approved is negligible. Pioneer drugs address societal needs but also their discovery will allow pharmaceutical companies to grow because consumers are willing to pay for such innovation. It is in everyone’s interest that those involved in the quest for pioneer drugs share rather than hoard information. Unfortunately, the current structure of drug research encourages the industry to protect its ideas and material with intellectual property rights or restrictive collaboration agreements. The public sector too has been encouraged to secure intellectual property on early-stage discoveries. Nor is the clinical trial process as open as it could be. The outcomes of these trials, particularly if they fail, are not published until several years after the termination of the projects, if at all. A corollary is that the pharmaceutical industry is downsizing research and focusing on less risky activities. Instead, the industry should share some of its clinical trial data, such as results from failed trials or from control groups. “This will not undermine the competitive advantage of companies,” says former Merck executive Stephen Friend, now a champion of the open source biology movement: “It will enable it, by changing the basis on which companies compete and setting a platform for a sustainable industry.” 2. Rethinking the Music Recording Industry Used properly, the Internet could deepen the bond between musicians and their fans. Instead, the music recording industry has become the poster child of failed digital opportunities. Instead of clinging to late-20th-century distribution technologies, like the digital disk and the downloaded file, the music business should move into the 21st century with a revamped business model that converts music from a product to a service. All music labels and performers should put their music into a commons in the cloud. Instead of purchasing tunes, listeners would pay a small fee-say $4 per month-for access to all the songs in the world. Recordings would be streamed to them via the Internet to any appliance of their choosing — such as their laptop, mobile device, car, or home stereo. Artists would be compensated based on how many times their music had been streamed. The system would immediately eliminate “illegal downloading” because the problem of copyright protection would vanish. There are companies like Spotify that are attempting to provide such a service, but the record labels have resisted putting all their music in an exchange whereby they and artists get compensated each time a song is streamed. With a restructured music industry, companies would have an incentive to nurture new artists. Tapscott’s discussion of Banking, Sustainable Manufacturing and Transforming Healthcare is continued at Wall Street Journal’s The Source . Don Tapscott is the author of14 books, including (with Anthony D.Williams) MacroWikinomics: Rebooting Business and the World. He is an Adjunct Professor at the Rotman School of Management, University of Toronto. Twitter: @dtapscott. Join Tapscott for a live Q and A at 11 am ET Tuesday.

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Paper Says China Has Legal, Moral Right To Curb ‘Rare Earth’

July 7, 2011

BEIJING (Reuters) – China is well within its rights, legally and morally, to limit rare earth exports, argued an article in Chinese state media on Thursday, days after the World Trade Organization ruled against China on its curbs of raw materials exports. The People’s Daily, the mouthpiece of China’s ruling Communist Party, said claims by countries that China’s export curbs on the minerals threatened their economic and national security were “groundless.” “It’s not that other countries don’t have their own supplies, it is just that they have hidden them away,” it said. “China’s handling does not violate international rules and is not contrary to its WTO accession promises,” the paper said. The WTO ruled on Tuesday that China had violated its rules when it curbed exports of coveted raw materials such as bauxite, coke and magnesium used in the production of steel, electronics and medicines. That ruling, initiated by complaints filed by the United States, the European Union and Mexico in 2009, was seen as a possible precedent for a future case on China’s rare earth export quotas. In its ruling, the WTO panel said China’s domestic policies fell short of demonstrating that its export duties on raw materials were to curtail pollution or conserve exhaustible natural resources — reasons also offered for its rare earth quotas. China is widely expected to appeal the ruling. It has taken steps to consolidate and rein in its polluting rare earths industry, which may bolster its case should rare earth quotas be the target of a similar WTO challenge. The central government slashed rare earth export quotas by 35 percent for the first half of 2011, building on previous quota cuts. That move choked off global supplies, boosted prices and angered China’s trading partners. China produces 97 percent of the world’s supplies of rare earths, a group of 17 minerals used in electronics and defense and renewable energy industries. Aside from reiterating China’s stance, the report cited experts who highlighted United Nations declarations on sovereignty over resources and WTO rules that would allow China to make exceptions with its rare earth quotas under trade law. “Western countries cite WTO clauses to criticize China … but there are always exceptions to the WTO legal provisions,” the paper quoted prominent Tsinghua University scholar Zhou Shijian as saying. “For example, article 20 of the General Agreement on Tariffs and Trade expressly stipulates that contracted parties may, for certain special purposes, limit imports and exports,” the paper said. The WTO did not permit those general exceptions on the raw materials decision. (Reporting by Michael Martina; Editing by Sugita Katyal) Copyright 2011 Thomson Reuters. Click for Restrictions

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Paul Sylvester: Big Infrastructure Projects Have High Risks but High Rewards

July 7, 2011

Commentators in the United States often lament the country’s seeming loss of will to take on the kinds of big infrastructure projects that made the nation great in the first place; founding the Tennessee Valley Authority in the 1930s to provide electricity and economic development to Tennessee and six neighboring states; providing long distance road travel throughout the lower 48 states by constructing the Interstate Highway System beginning in 1950s; and, of course, landing men on the Moon in the Apollo program of the 1960s, which spurred scientific and technological innovations that continue to today, just to name a few. China meanwhile seems to be getting on with the business of building a 21st century country. A new, $5 billion US, 2,525 kilometer (1,575 mile) railway between Beijing and Hong Kong was completed in 1997, and there are plans to spend $100 billion US to lay down tracks for a 12,000 kilometer (7,500 mile) high-speed railroad, running trains at speeds up to 300 kilometers (185 miles) per hour. The Three Gorges Dam is the world’s largest and costliest ( estimated at $30 billion US or more) hydro power project ever undertaken, with a capacity to produce of 18,000 megawatts of electricity. The reality of a non-democratic country boldly building big things intended to service a large modern state challenges the paradigm taught for decades that only democracies can produce such successes. It is with this background that news reached us on Canada Day (July 1) that the Innu Nation of Labrador ratified the New Dawn Agreement , marking another step toward the start of the Lower Churchill Project, a hydroelectric development that will transmit electrical power from Labrador, across the Strait of Belle Isle, down to the island of Newfoundland, and then across the Cabot Strait into Nova Scotia, with the possibility of exporting excess power to the rest of the Maritimes and New England. It is an audacious plan undertaken by two Canadian provinces, Newfoundland and Labrador and Nova Scotia, with a combined population of only about 1.5 million people. It should remind us that the ability to tackle big infrastructure projects is still alive in North America, and inspire us to embrace similar projects elsewhere. The project in Atlantic Canada is estimated to cost between $6-$9 billion CAD (the Canadian and US dollars are approximately at parity at present) for construction of a 824-megawatt generating facility at Muskrat Falls on the lower Churchill River in Labrador; a 1,100-kilometer (680 mile) transmission link to the island of Newfoundland, including 30 kilometers (19 miles) of submarine cable; a maritime link to Nova Scotia including 180 kilometers (112 miles) of submarine cable; and other transmission infrastructure. The New Dawn Agreement includes provisions for native peoples in Labrador to receive a royalty of five per cent of net project revenue and payments of $2 million CAD per year until the project first begins generating commercial power, expected to be in 2017. Forty per cent of the electricity output will be sold to customers in Newfoundland, replacing the current oil-burning facility that generates electricity on the island; 20 per cent will provided to Nova Scotia customers, representing almost 10 per cent of the province’s domestic needs; and the remaining 40 per cent will be available for sales to other parts of the Maritimes or in the United States. There is an option to expand the development significantly later, by building a 2,250-megawatt hydroelectric plant at Gull Island, further upstream on the lower Churchill River. The project is not without its challenges or critics. Taxpayers in Newfoundland and Labrador will be burdened with the capital costs of the development and electricity prices for customers will inevitably increase. Even Nalcor Energy , the provincial crown corporation power utility responsible for the project in Newfoundland and Labrador estimates that customers in the province will pay about 15 cents per kilowatt hour for electricity in 2017 compared to about 10 per cent today. Some have argued that the total project costs are likely to be closer to $15 billion CAD so the costs to taxpayers may be much more than those predicted now. The project is already behind schedule and it is unclear if power will really begin flowing by 2017. Some have doubted that markers for electricity generated by the project will exist in New England and other eastern U.S. states in the coming decades if local sources of energy continue to be available, particularly natural gas hosted by shale rocks, which seems much more abundant than was thought even just a few years ago. While many of these concerns may be true, what many miss is that big infrastructure projects are, by their very nature, high risk, high reward enterprises. One does not go into them lightly but, at the same time, one should not let their uncertainties provide cover for a lack of courage to take them on. Intangibles play a role in predicting the future. In this case, hydroelectric power generation has a small carbon footprint compared to many other energy sources, and it is very possible that in the years to come, this source of energy will become highly valued in a world struggling mightily to reduce greenhouse warming. This is not to say that damming rivers and flooding lands does not have adverse environmental impacts and perhaps other technologies such as wind and solar power seen as even more “environmentally-friendly” will be more appropriate for some regions than hydroelectric plants. Which leads to the final point — debating when and where to tackle big infrastructure projects, and which ones, is still an advantage held by democracies.

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U.S. Banks Finally Increasing Lending In Good Sign For Investors

July 6, 2011

Major U.S. banks appear to be finally opening the lending spigot. Second-quarter earnings reports due this month are likely to reveal a slight reversal of the long-term shrinkage in bank loan books, one of several positive signs for investors, bank analysts said. A number of other long-term clouds over the weakened banking sector may be clearing. Credit quality is on the mend, signaling that many large banks will bolster their bottom lines with money that had been reserved to cover losses on bad loans. And Bank of America’s startling $8.5 billion settlement with mortgage bond investors last week adds clarity and may spur rival banks to clear up their own legal liabilities from home loans. Another big question mark — how much banks will be hurt by a new law limiting debit card fees — was answered last week when regulators finalized rules that were not as ferocious as initially proposed. “We’re chipping away at the problems here,” said analyst Jason Goldberg of Barclays Capital. The earnings reports begin on July 14 with JPMorgan Chase & Co. Danger Signs Banks, of course, are far from being in the clear. Weak fixed-income trading and market volatility are believed to have weighed heavily on the biggest banks in the second quarter, while their net interest revenue continues to be pummeled by low interest rates. And low rates are expected to continue for the indefinite future. A growing loan book, however, could cover a multitude of woes. The Federal Reserve said last week that loans and leases in bank credit grew about 1 percent on an annual basis in both April and May, with the biggest growth — over 11 percent each month on an annual basis — coming from commercial and industrial loans. Real estate lending is still shrinking, and consumer lending, while stabilizing, is still tepid. Consumer lending grew just 0.1 percent on an annual basis in the second quarter, primarily from increases in credit cards and other revolving loans. “Banks are beginning to lend again and that’s a good sign,” said Timothy Ghriskey, co-founder of Solaris Group, which owns bank stocks. “There are a lot of issues out there that still have a potential impact on future earnings. This is going to take years.” Large banks are starting to loosen their standards for credit card applications, according to a Fed survey of senior bank loan officers in April. JPMorgan Chase, widely considered the strongest of the top three U.S. banks, is expected to report a second-quarter profit of about $1.22 per share, up from $1.09 a year earlier, according to Thomson Reuters I/B/E/S. Citigroup will be next to report, on July 15, and is expected to post a profit of 97 cents per share. A year earlier it earned 90 cents, adjusted for 1-for-10 reverse stock split in May. Bank of America’s mortgage settlement will likely bring it to a quarterly loss of $8.6 billion to $9.1 billion, or 88 cents to 93 cents per share. It reports on July 19. Regional banks such as US Bancorp and BB&T could be the biggest beneficiaries of loan growth since they won’t have large trading businesses offsetting increased lending fees. Even Regions Financial , the only one of the 19 largest U.S. banks that has not yet repaid the government bailout it received during the financial crisis, is expected to see its loss shrink to 1 cent per share. It lost $335 million, or 28 cents per share, in the comparable 2010 period. Kitchen-Sink Quarter Investors breathed sighs of relief last week over two costly developments that answered questions long weighing on the banking sector. BofA complemented the$8.5 billion settlement of mortgage repurchase claims from institutional investors with notice that it would take an additional $11.9 billion of charges for other mortgage settlements, and write down the value of its 2008 purchase of Countrywide Financial, among other items. The settlement put a ceiling on what other banks, including JPMorgan Chase and Wells Fargo & Co , could be expected to pay to resolve their own legal issues, investors said. “Everyone can assume that Countrywide was as bad as it got … that’s the worst-case scenario,” said Nuveen Investments analyst Alan Villalon. On the same day that BofA announced its settlement, the Fed unveiled final guidelines for its long-debated crackdown on fees that banks can charge merchants who accept debit cards. The rules on the “swipe” fees, mandated by the 2010 Dodd-Frank financial reform law, are expected to shave $9.4 billion from an estimated $23 billion of annual debit card processing revenues in the banking industry, according to CardHub.com. That’s far better than the $14 billion hit that many analysts had forecast. New capital surcharges from bank regulators, announced last month, also resolved some questions about global regulatory requirements banks will have to meet. On top of a base of 7 percent risk-based capital that banks must set aside, the biggest banks will have to add as much as an additional 2.5 percent, depending on size and risk. “That’s been the largest overhang on these stocks, just the unknowns that are out there,” said Jason Ware, equity analyst at Salt Lake City-based Albion Financial Group. “On the debit card fees, the banks got a gift. With the capital guidelines, we’re starting to get some numbers we can use.” Large banks are starting to loosen their standards for credit card applications, according to the April Fed survey. Undervalued? The main thing going for bank stocks today is that they have been beaten down to cheap valuations, according to some analysts. Large banks on average are trading at about 1.25 times tangible book value, according to Nuveen’s Villalon, while Citigroup and Bank of America are closer to a multiple of 0.85. JPMorgan Chase is trading at about 1.33 times tangible book, he said. As Ghriskey notes, however, uncertainty about the economy and regulatory developments still loom over bank stocks. Trust banks such as Bank of New York Mellon , State Street and Northern Trust , which avoided many of the credit issues weighing on their competitors, are grappling with the same pesky issues that have dogged them for several quarters: low interest rates and few remaining opportunities to trim expenses. State Street and BNY Mellon also have an overhang of lawsuits accusing them of overcharging pension funds on currency trading. In coming years, analysts expect trust banks will have to adjust pricing for a number of products they sell, with currency trading likely taking in less money. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Standard & Poor’s: California Credit Rating At ‘Crossroad’

June 21, 2011

SAN FRANCISCO – California’s credit rating is at a “crossroad,” Standard & Poor’s Ratings Services said on Tuesday, noting concerns about the state’s cash and budget politics as the new fiscal year approaches. The rating agency is particularly concerned about how the state’s testy budget politics could impede its ability to issue short-term debt. S&P said in a report that it sees California’s ‘A-/Negative’ rating at a “crossroad … In our view, the budget process is significant in California’s credit profile because if a budget is not adopted in time for the state to issue its revenue anticipation notes (RANs) before its cash runs low, the state’s basic operating liquidity can become inadequate.” S&P added that “beyond near-term financial liquidity, we believe budget politics in California already impede the state’s long-term credit quality as well.” The course of California’s budget politics are uncertain as the fiscal year beginning on July looms. Democrats who control California’s legislature last Wednesday approved a budget to close a deficit of about $10 billion on their own. The next day Governor Jerry Brown, a Democrat, vetoed it, criticizing its “legally questionable maneuvers, costly borrowing and unrealistic savings.” S&P said in its report that it favors Brown’s budget proposal, although it has concerns about his plan for a statewide vote on extending temporary tax increases, which he first wants lawmakers to approve. S&P said that “enactment of a budget with structural attributes similar to those in the governor’s revised budget proposal could lead us to revise the state’s rating outlook to stable from negative. Moreover, it could potentially lead us to raise the rating depending upon how much we viewed such a budget as improving the state’s fiscal structure.” The rating agency said it would consider revising its outlook for California to stable from negative if state leaders agree to one-time solutions “to the extent it allows the state to proceed with its regularly planned cash flow borrowing.” “We would be more likely to revise the state’s rating outlook to stable if the state enacted the budget expeditiously and avoided entering a deficient cash situation,” S&P said. “By relying heavily on one-time measures, this budget path would be unlikely to benefit the state’s long-term credit quality, in our view.” If there is a protracted budget battle, which has been routine in recent years, California may need to take “extraordinary cash management measures,” S&P noted. California temporarily issued IOUs when it was running low on cash during a budget stalemate in 2009. The move allowed the state to maintain cash for its priorities payments, including payments to it bondholders. A lengthy budget impasse extending into the new year may result in a “patchwork” budget similar to one Brown vetoed, which “may lead us to lower the state’s long-term rating depending upon the severity and duration of the cash crisis that we believe could precede it.” (Editing by James Dalgleish) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Sino-Forest’s Largest Stakeholder Bails Out

June 21, 2011

THE CANADIAN PRESS — TORONTO – Sino-Forest’s largest shareholder, Paulson & Co., is reportedly selling off its investment in China forestry company Sino-Forest Corp. (TSX:TRE). Billionaire hedge fund manager John Paulson is the largest shareholder in the company with a 14.13 per cent stake. Shares in Sino-Forest have collapsed in the wake of claims by short seller Muddy Waters Research that it fraudulently exaggerated the size of its assets. Sino-Forest fought back Monday against the allegations by releasing a trove of files documenting much of its holdings and what it has in the bank. But in a statement issued Monday, John Paulson says “due to uncertainty over Sino-Forest’s public disclosures and financial statements, we have sold our stock.” The company, which trades on the TSX but operates in China, is one of Canada’s largest forestry companies by stock value. Sino-Forest shares, which traded for more than $18 last week before the commentary by short seller Muddy Waters Research, were up sharply Monday. The stock closed up 87 cents at $6.10 on the Toronto Stock Exchange at midday, adding back more than $200 million to the company’s market value. Sino-Forest said it has hired an independent law firm to address the allegations and planned to ask securities regulators in Canada and other jurisdictions to investigate trading by Muddy Waters. “The company believes Muddy Waters’ report to be inaccurate, spurious and defamatory,” the company said in a statement. “Muddy Waters’ self-interest is transparent: to make money from the fall in Sino-Forest’s share price on the back of a decline that it itself precipitated.”

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Chinese Foreign Minister: European Recovery Of ‘Crucial Importance For China’

June 17, 2011

BEIJING — China registered new concern Friday over the fate of its top trading partner, the embattled eurozone, saying the ability of stricken countries to overcome their financial woes is of “crucial importance.” China’s support in terms of buying European debt and promoting imports is beneficial to both sides, Vice Foreign Minister Fu Ying told reporters at a briefing ahead of Premier Wen Jiabao’s visit next week to Hungary, Britain and Germany. But she expressed some anxiety over the fate of the eurozone. Greece is at risk of defaulting on its debt even after a massive bailout, and European leaders fear the country’s problems could hurt other struggling economies that use the euro, including bailed-out Ireland and Portugal. “Whether some European countries can overcome their difficulties and recover from the crisis is of crucial importance for China,” Fu said. “Therefore since the advent of the financial crisis, China has on one hand been trying to stimulate our economy and overcome the impact of the crisis, while on the other hand provided support to European countries in their efforts to overcome the financial crisis,” she said. China has supported highly indebted European countries, offering last year to buy Greece’s debt and reportedly pledging to buy $4 billion in Portuguese government debt. While China has been quiet on how much money it will actually invest, the pledges from Beijing have temporarily taken some pressure off European debt markets. No agenda has been announced for Wen’s visit, although the European debt crisis is expected to be a major topic of discussion. Top on the list could be Greece, where rioters have clashed with police in Athens over proposed austerity measures and coalition talks between Greece’s government and opposition parties have collapsed, renewing fears of a government debt default.

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China: GOP Lawmakers Are ‘Playing With Fire’ By Contemplating Default

June 8, 2011

Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday. The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday. But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn. Li Daokui, an adviser to the People’s Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action. “I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire.” China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, U.S. data shows, so its concerns carry considerable weight in Washington. “I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar’s value,” Li said. Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The U.S. Treasury Department has said it will run out of borrowing room by August 2. If the United States cannot make interest payments on its debt, the Obama administration has warned of “catastrophic” consequences that could push the still-fragile economy back into recession. “It has dire implications for the economy at a time when the macro data is softening,” said Ben Westmore, a commodities economist at National Australia Bank. “It’s just a horrible idea,” he said. Financial markets are following the U.S. debate but see little risk of a default. U.S. Treasury prices were firm in Europe on Wednesday, supported by a flight to their perceived safety on the back of the Greek debt crisis and worries about a slowdown in U.S. economic growth. Marc Ostwald, a strategist with Monument Securities in London, said markets were working on the assumption that the U.S. debt story “will go away.” But nervousness would grow if a resolution was not reached in the next five to six weeks. ‘WOULDN’T HAPPEN’ The Republicans’ theory is that bondholders would accept a brief delay in interest payments if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on. But interviews with government officials and investors show they consider a default such a grim — and remote — possibility that it was nearly impossible to imagine. “How can the U.S. be allowed to default?” said an official at India’s central bank. “We don’t think this is a possibility because this could then create huge panic globally.” Indian officials say they have little choice but to buy U.S. Treasury debt because it is still among the world’s safest and most liquid investments. It held $39.8 billion in U.S. Treasuries as of March, U.S. data shows. The officials declined to be identified because they are not authorized to speak to the media. Oman is concerned about the impact of a default on the currency reserves of the sultanate and its Gulf neighbors. “Our economies are substantially tied up with the U.S. financial developments,” said a senior central bank official, who spoke on condition of anonymity. “It just wouldn’t happen,” said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. “They would pay their Treasury bills first instead of other bills. It’s as simple as that.” Monument’s Ostwald called the default scenario “frightening” and said bondholders’ patience would wear thin if lawmakers persisted in pitching this strategy in the coming weeks. “This isn’t a debate, this is like a Mexican standoff and that is where the problem lies,” he said. Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, a government think tank, smelled some political wrangling behind the U.S. debt debate as the 2012 presidential election draws nearer and said Republicans “want to make things difficult for Obama.” But with time running short before the U.S. Treasury exhausts its borrowing room, Yuan said default was a real risk. “The possibility is quite high to see a default of the U.S. debt, which would harm many countries in the world, and China in particular,” he said. (Reporting by Kevin Lim and Jong Woo Cheon in Singapore, Suvashree Dey Choudhury in Mumbai, Aileen Wang and Kevin Yao in Beijing, Abhijit Neogy in Delhi, Marius Zaharia in London and Umesh Desai in Hong Kong; Editing by Dean Yates and Neil Fullick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Gemma Godfrey: Russian Investment Opportunities: The Drivers and the Hidden Gems

May 31, 2011

From the world’s best performing index in the first three months of this year, to a laggard this quarter, the Russian index has offered dramatic returns as well as downside risk. What has driven investor sentiment and what are many investors missing? The World Leader Slips to World Laggard Russia’s RTS Index was the world’s best performing index in the first three months of this year but has now fallen by around 11% in value so far this quarter (Source: Bloomberg). Moves in this market are often attributed to sentiment over the oil price due to the significant revenues generated by the country exporting this commodity. Therefore speculation over economic growth (read: oil demand) is highly influential. This year has been no different. Turmoil in the Middle East can be attributed as one of the main drivers of a strong rally in oil in the first quarter and concerns over economic growth has caused a reversal since that time. However, is this too simplistic a view and aren’t there other factors to which an investor in Russia should be paying attention? Beyond Oil It is clear to see why investors place so much emphasis on the oil price as a dictator of Russia’s financial health. Supplying some 11.4% of the world’s oil supply last year, Russia is the ” biggest single source outside the OPEC cartel .” Although official figures calculate its contribution to Russia’s GDP at 9% , it is important to be aware that speculation over tax avoidance suggests the value may be nearer to 25% . Nevertheless, what is often overlooked is the specific oil price factored into their budget. For this year, a price above $75 /barrel will produce a deficit reduction. With Brent currently standing at $115 /barrel, a fall in the Russian Index in reaction to a fall in the oil price to anything above $75/barrel may be missing the point. Boosting Ties with Iraq With Russian oil fields maturing and production growth resting heavily on foreign investment , the country is looking externally for new sources. Iraq offers potential opportunities and TNK-BP , Russia’s 3rd largest oil producer and BP Plc’s 50-50 joint venture, isn’t holding back. The relationship between the two countries dates back many years and in 2008 Russia wrote off most of their $12.9bn debt mainly generated pre-gulf war from the Saddam Hussein government purchases of Soviet weapons . Interestingly, last October the Russian President, Dmitry Medvedev announced his country was ready to strengthen co-operation with Iraq, the same month TNK-BP gained the right to bid for 3 natural gas areas in the region, Mediating the Exit of Qaddafi Within the political arena, Russia has been just as active. In addition to fighting for a stronger developing market influence at the IMF, Russia has offered its services to facilitate the exit of Qaddafi from rule in Libya. This is the first time it has shown support for the NATO-led military campaign after abstaining from UN Security council vote in March which authorised the intervention and accusing NATO of violating the resolution by backing anti-Qaddafi rebels and causing civilian casualties from air raids. Due to the belief that Qaddafi has ” forfeited legitimacy “, they are willing to negotiate his fate with members of his entourage. Evidence of the country’s powerful network, the value of their political clout has been highlighted. Driving the Agriculture Market Back to commodities but from a different angle, the Russian weather is an influencer to watch for investing in the agriculture markets. Fine weather has prompted an upward revision of Russian grain production with the Federal Hydrometerological Center reporting the warmer weather has improved the prospects for crops. This has led to speculation that Russia’s ban on grain exports may be lifted on 1 July . Wheat future prices saw double digit losses. The Chinese Buyer One particular potential buyer of Russia’s resources is China, state media reported last Monday. China Investment Corp (CIC), the country’s $300bn sovereign wealth fund, was set up in 2007 to invest some of the country’s massive foreign exchange reserves. With the world’s largest foreign capital resource, at $3.0tn , they are keen to find better sources of return and commodities to fuel their rapid economic growth. G-8 Bullishness Boosting Appetite for Risk Despite these many factors which may influence Russia’s outlook, financially, economically and politically; its index continues to exhibit a strong correlation to the oil price. This week we’ve seen oil (and Russian equities) respond positively to the declaration by the Group of Eight that the global recovery is strengthening . But to differentiate between short-term over-reaction and more logical fundamental moves, being aware of all the issues will equip you with the insight to navigate this volatile but potentially profitable market.

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NZ company fined for violating Chinese Fair Trade Act

May 30, 2011

NZ company fined for violating Chinese Fair Trade Act

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University of Pennsylvania Announces Partnership with Chinese Academy of Sciences

May 30, 2011

University of Pennsylvania Announces Partnership with Chinese Academy of Sciences

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CNPV Announces First Chinese PV Company to Have Triple Management Accreditation From TUV Rheinland Upon Receipt of OHSAS Approval

May 30, 2011

CNPV Announces First Chinese PV Company to Have Triple Management Accreditation From TUV Rheinland Upon Receipt of OHSAS Approval

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Video: Chinese Go Under the Knife Seeking a `Prosperous Nose’: Video

May 27, 2011

May 27 (Bloomberg) — Bloomberg’s Rosalind Chin reports from Shenzhen, China, on rising demand for plastic surgery in the country. The popularity of cosmetic surgery underlines how much China has changed since 1979, when former leader Deng Xiaoping ditched predecessor Mao Zedong’s hard-line communism, opened the nation’s doors to the world and introduced pro-market policies. Then, most Chinese struggled for conformity rather than beauty. (Source: Bloomberg)

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As France’s Lagarde Launches IMF Bid, China, Criticism Surfaces

May 25, 2011

PARIS/WASHINGTON (Jean-Baptiste Vey and Lesley Wroughton) – France’s Christine Lagarde has entered the race to head the IMF despite anger in big emerging economies over Europe’s “obsolete” lock on the job. France’s finance minister announced her candidacy on Wednesday, the eve of a G8 summit, after securing the unanimous backing of the 27-nation European Union and, diplomats said, support from the United States and China. “It is an immense challenge which I approach with humility and in the hope of achieving the broadest possible consensus,” Lagarde told a Paris news conference. The 55-year-old former corporate lawyer, who speaks fluent English, has won plaudits for her deft chairing of the G20 finance ministers and communications skills. But unlike Dominique Strauss-Kahn, who resigned last week after being charged with attempted rape, she is not an economist and may struggle to match his thought leadership over the management of the world economy. Brazil, Russia, India, China and South Africa criticized EU officials in a joint statement for suggesting the next International Monetary Fund head should be a European, a convention that dates back to the founding of the global lender at the end of the Second World War. However, the countries known as the BRICs failed to unite behind a common alternative candidate, leaving the way clear for Lagarde unless she slips on a pending French legal case. Diplomats said the complaint was mostly aimed at securing a commitment from developed countries that nationality will no longer be a covert criterion for selecting future IMF chiefs. In a nod to the emerging nations’ concerns, Lagarde said she would work for “greater representativity and greater flexibility” at the IMF if elected. BRICS AGGRIEVED In the first joint statement issued by their directors at the Fund, the BRICs said the choice of who heads the IMF should be based on competence, not nationality. They called for “abandoning the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe.” Lagarde said she was running as a candidate to serve all IMF members, not just Europe, although she noted her experience and good relations with European officials would be an advantage in steering the IMF’s role in the bloc’s debt crisis. “Being European shouldn’t be a plus, but it shouldn’t be a minus either,” Lagarde said. Hours before the statement was issued in Washington, France’s government said China would back Lagarde. The Chinese Foreign Ministry declined comment. Some emerging market government officials say privately that although they are fed up with advanced economies controlling the selection process, they are not in a position to put forward a challenger who could stand up to Lagarde. Mexico has nominated its central bank chief for the job and he said some countries had welcomed his decision to run. South Africa and Kazakhstan may put forward their own candidates. Under a long-standing agreement between the United States and Europe, the top job at the IMF goes to a European while an American leads its sister organization, the World Bank. The United States also fills the number two position at the IMF. European diplomats said Washington had asked the French government about the legal case hanging over Lagarde, in which she faces accusations of abusing her authority. The Court of Justice of the Republic, a special court created to try ministers for alleged offences committed while in office, is examining the procedure followed in awarding the 285 million euro settlement to Bernard Tapie, a convicted ex-minister who backed Sarkozy’s 2007 election campaign. French officials have told other governments privately the case will not be a show-stopper, the diplomats said. Lagarde said her conscience was clear. “I have every confidence in this procedure because my conscience is perfectly clear,” she said. “I acted in the interest of the state and in respect of the law.” U.S. BACKS EUROPEAN The EU and the United States, which sources in Washington have said will back a European, have enough joint voting power to decide who leads the IMF. Securing support from some emerging economies would defuse a potentially bitter row over the decision though. In April 2009, the Group of 20 leading nations endorsed “an open, transparent and merit-based selection process” for heads of the global institutions. France, which presides over the G20 this year, has made an effort to work with Beijing on key issues for developing nations like global monetary reform and commodity market speculation. Last week, the head of China’s central bank, Zhou Xiaochuan, said the IMF’s leadership should reflect the growing stature of emerging economies. But he stopped short of saying its new boss should be from an emerging economy. Wu Qing, a researcher with the Development Research Center government think tank in Beijing, said it was plausible that China would support Lagarde as there weren’t many qualified candidates from China or Asia in general. The IMF’s board will draw up a shortlist of three candidates and has a June 30 deadline for picking a successor. (Additional reporting by Julien Toyer in Paris, Jiang Yan in Beijing, Leigh Jones and Michelle Nichols in New York; Writing by Emily Kaiser and Paul Taylor) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Ian Fletcher: How China Stiffs Its Own Creditors

May 23, 2011

I examined in a previous article the ethical case for America repudiating its financial obligations to China. While considering this tempting possibility–which makes for a better bargaining position if nothing else–we should recall the fact that China has, in fact, repudiated its own financial obligations to other nations. The key here is that the formerly (and still nominally) communist government in Beijing refused, upon taking control of the country in 1949, to honor the debts incurred by the previous government, the Nationalists of Chiang Kai-shek. That previous government, like all governments, had a substantial public debt, and just like the U.S. today, much of it was owed to foreigners. The amount at stake? As these unpaid obligations have been accumulating for over sixty years now, it is now estimated to come to about $260 billion, mostly bonds. ( Source ) This repudiation didn’t exactly come as a surprise. At the time, the new government was sincerely communist, and these debts were regarded as the debts of an evil capitalist regime. Furthermore, they were owed to evil capitalists abroad, and if refusing to pay them caused financial hardship or chaos overseas, so much the better. Unfortunately, international law doesn’t work that way. If nations were permitted to repudiate their debts due to ideological differences with the previous government, we could wipe out our national debt every time Republicans replaced Democrats in Washington, or vice versa. Indeed, this is why debts are considered “national” debts in the first place: they are obligations of the nation itself, not of any particular group of politicians who happen to be ruling it at a given moment. The flip side of this principle is, of course, that not only liabilities but also assets carry over from one regime to the next. This includes everything from the typewriters in the nation’s embassy in Ruritania to the national territory itself. (And, of course, it includes the money owed to the nation by foreigners.) Beijing should remember that its claim to the territories of Tibet and Taiwan are based (however dubiously in Tibet’s case) upon historical claims predating the Communists’ seizure of power. But are those who repudiate history entitled to base claims upon it? Hmm… No nation is entitled to have things both ways. Either the People’s Republic of China is the successor state to Nationalist China, in which case it must honor the latter’s debts, or it isn’t, in which case it is not the legitimate government of the country, and we might as well go back to the curious era (1949-71) in which we regarded Taipei as the legitimate government of all China. China is not, of course, the only nation to have welched on its international debts. Russia did it in 1917, Cuba in 1961, and North Korea in 1964. Conversely, any number of nations have gone through wrenching ideological transitions without repudiating their debts. For example, South Africa’s government continues to honor the debts incurred by the apartheid state that preceded it. When the communist government of Russia fell in 1991, there followed a flurry of claims on its successor, which were worked out in various (not entirely satisfactory) ways. There were partial settlements of some of China’s foreign debts in 1979, but this did not include the aforementioned $260 in bonds. In 1987, the British did a deal with China concerning their share of the outstanding obligations, but this deal did not cover non-UK citizens. But in 2006, the Chinese Ministry of Finance formally informed the U.S. government that it was not willing to repay the rest of China’s outstanding obligations. China’s debt repudiation has not, as one might imagine, receded into ancient history. On July 17, 2008, the Subcommittee on Terrorism, Nonproliferation and Trade of the House Committee on Foreign Relations held hearings on the matter. So it remains a quiet but live issue. Bondholders seem to have long memories. Distressingly, there is also another very contemporary angle to this issue. The very same credit ratings agencies that approved billions of bad mortgage securities stand accused of complicity in China’s attempt to run from its financial past. There is a formal legal complaint outstanding with the U.S. Department of Justice antitrust division (viewable here ) accusing these agencies of colluding with each other and Beijing to do this. The significance for the present day is that they stand accused of overstating the reliability of contemporary Chinese debt by, among other things, ignoring the government’s past unreliability. (As we saw in the Asian Crisis of 1998, these agencies are quite capable of mis-rating governments.) Given the scale of sovereign borrowing by the world’s second-largest economy, this may not remain an abstract problem forever.

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Tom Doctoroff: Car Crazy China: Where Ego and Anxiety Collide

May 20, 2011

Who could have imagined? Ten years ago, the only automobiles seen on the streets of coastal cities were non-descript black sedans and shoddy Volkswagen Jetta taxis. Today, China’s highways are overflowing with cars of every shape, size and color. While foreign brands still dominate the market — with many produced on the mainland — local manufacturers such as Geely are coming on strong, particularly in lower-tier markets. Throughout the Middle Kingdom, approximately 20 million passenger cars are sold every year. In Beijing, one household out of three has bought an automobile. Auto ownership, perhaps not unexpectedly but still remarkably, has become a rite of passage into the hallowed ranks of the middle class. Although a home mortgage is still the sine qua non of landing a wife, Chinese men face a new imperative: you can’t say you’ve made it unless you have a car. (A slick smartphone – hello, iPhone! — ranks third on the list of “badged necessities.”) China: Not Car Friendly? The ardor of China’s love affair with cars was not statistically ordained. In many respects, the country is not car-friendly. Ultra-aggressive Kamikaze drivers are a pervasive menace. Import tariffs are prohibitive. By developed market standards, incomes are pinched; buyers spend approximately 120% of (declared) yearly income on their first vehicle, versus ratios of 30%-40% in the West. (Most enter the market when salary passes the 10,000 RMB-per-month threshold, or approximately $45,000 per year on a purchase power parity basis.) In Tier I cities, plate fees cost an additional $5,000. Cars are not a necessity; in a land of single children, there are no soccer moms. The subway and pubic transportation system is increasingly robust; Shanghai’s metro is now the most expansive in the world. And, what’s more, maintaining a car is a hassle. Parking spaces are far and few in between. Highways are choked with bumper-to-bumper traffic. Even car washes are rare. Still, people buy. The question is, “Why?” Status is King. Why else? Status. China’s “unifying conflict,” the tension between upward ambition and hierarchical regimentation, mandates members of the new elite proclaim their position on a ladder of success. Cars are ideal “status projectors,” given their large out-of-pocket expense and inherent conspicuity. (More subtly, the driving experience — a surge of forward momentum — delivers an elusive sense of “control.”) In a country obsessed with “face,” the currency of forward advancement, cars are also “investments” in the future. They generate respect. They open doors. The need to project king-of-the-jungle authority explains why auto benefits are “externalized”; cars are positioned, directly or indirectly, as vessels of professional progression. The visceral thrill of sports cars is a secondary urge. Mazda’s “Zoom Zoom!” campaign has been adulterated to incorporate public admiration cues. Even BMW, known in the West as a “driving machine,” has fused Western “internal satisfaction” with a quintessentially Chinese “more room to grow” payoff. Audi 8 appeals to men who are “masters” of the commercial landscape or “connoisseurs” of true quality. Even lower-priced cars resort to identity affirmation or social standing reinforcement. Ford Focus appeals to post-80s types who were “born bold, born sexy.” Volkswagen Passat employs spokesman Jiang Wen, an iconic film director, who declares, “The powerful can change a generation.” The instinct to project status also accounts for some of the market’s more peculiar characteristics. Cars here are huge. SUVs such as Honda’s CRV, BMW’s X3 and X5, and Audi’s Q5 and Q7 are popular despite high price and lack of interest in off-road adventurism. “Three box” models (i.e., sedans) outsell sporty “two box” formats. Roomy back seats are de rigeur for aspiring CEOs who must, one day, hire a chauffeur. Online “car clubs” — sites on which legions of men wax poetic about “mechanical second wives” – pervade cyberspace. (According to CIC, China’s leading digital tracker, the auto category is the leading source of internet “buzz.”) To boot, the primacy of status projection explains the dearth of drive-through fast food joints, fixation with vehicle personalization, a surfeit of gaudy decals, “lucky man” license plate numbers and tchotchke zoos on dashboards. Buyer Anxiety. Yes, in China, cars and identity are inextricable. But marketers must avoid monomaniacal status-driven sells. Middle class buying instincts are polarized between bold ego magnification and insecure protection. For every RMB “invested” in advancement, two are put aside for rainy days. Disposable income is constrained, in absolute terms, by low wages. Gun-shy spending and sky-high savings rates are reinforced by: a tattered welfare net; a health care system driven by red envelops slipped in pockets of underpaid doctors; exorbitant education fees; real estate that, relative to income, is amongst the most expensive in the world; an overregulated financial-services market that precludes rational return; and a political system in which economic interests remain neither protected nor represented. Across China’s Darwinian economic landscape, the outlay required for a car is, to say the least, a very risky proposition. How to Reassure. Auto manufacturers must root brands in projective and protective benefits. The dealership experience, in particular, is critical in addressing both needs. Regarding the former, the sales force must treat prospective customers as visiting royalty. Premiums should be offered as testaments of appreciation; vintage red wines and Mont Blanc pens scream “respect.” Wives and children who accompany fathers to showrooms must be pampered as queens and princelings. Status fixation, however, is often trumped by anxiety. To mitigate last-minute jitters, marketers must make buyers feel secure. Here are a few ways of closing the deal: First, present the brand as global leader with unmatched scale , a critical reassurance point for first-time buyers and consumers in non-coastal cities. Name plates should be “stretched” across price tiers to brand heft. (Warning: care must be taken to avoid image degradation of premium lines, usually via skillful deployment of sub-brands. Buick’s efforts in this respect have been masterful, as have Audi’s.) Heritage claims buttress perceptions of scale, as do frequent mid-cycle innovations and product upgrades. Second, focus on fuel efficiency and safety standards as tactical — not primary — messages. Ford’s Mondeo Eco-boost hits the sweet spot of desire by seamlessly fusing engine power with impressive mileage claims. Dealership agents should be guardian angels, obsessed with the safety of papa bear’s cherished dumplings. On-site brochures must highlight anti-skid brake systems, whiplash-resistant airbags, any features linked to “control of the road.” Third, service guarantees must be iron clad, presented as a gold-plated certificate of reassurance. Throughout an extended warranty period (and beyond), dealerships should promise 48-hour repairs. Supply chains and inventories must be reconfigured to minimize shortage of parts, all of which must be available within 24 hours. More ambitiously, in geographies requiring long travel to service centers, parts can be “brought to the driver.” In conclusion, the Middle Kingdom auto market is booming. For China’s ambitious middle class, big cars and big egos go hand in hand. However, given the insecurity of a skittish new elite, brands must both project status and protect interests, both physical and economic. This pivot requires flexibility and focus.

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Robert Teitelman: The Economist Joins the Tech Bubble Herd

May 18, 2011

The construction of a new conventional wisdom is a wondrous feat. Seemingly, in the middle of the night, a new truth emerges that is impregnable, monolithic and unassailable, and it rises upon a landscape scattered with the rubble of previous conventional wisdoms. The newest “truth” is what appeared this week on the cover of the Economist : “The new tech bubble.” But it’s not just the Economist , which does wrestle with some of the complexities of bubble creation. The Economist , in fact, comes a little late to this parlor game. The notion that there’s a new tech bubble — inflated valuations from social media wunderkinds like Facebook, Twitter, Groupon and LinkedIn to the nosebleed-high $8.5 billion Microsoft paid to grab Skype — has been a blogospheric meme and has recently graced, as if by dictation from above, nearly every major newspaper. But is it true? Are these ballooning valuations for a handful of tech startups, mostly in social media, a reprise of the dot-com bust of 2001, or for that matter, the mortgage bubble and meltdown? How strong is the evidence? Are their divergences from those previous bubbles, which of course we can only confirm as bubbles because they burst? And the key question really: Why do we believe that we can call this inflation of tech valuations a bubble, when we’ve been so wrong, so regularly, in the past? What does it say about the power of the media to do anything about it? And what do we really mean when we say there’s a bubble brewing? The Economist offers a compact recitation of the charges that a tech bubble is inflating. The valuations for Facebook and Twitter — still private companies — are astronomical. Skype was clearly overvalued by Microsoft, based on its still-thin earnings. “Prices,” notes the Economist , look even more excessive for fledgling firms in the private market (Color, a photo-sharing social network, was recently said to be worth $100 million, even though it has an untested service) or for anything involving China. There has been a stampede for shares in Renren, hailed as China’s ‘Facebook,’ and other Chinese web giants listed on American exchanges. The Economist does offer some caveats. The world is different than in 2001 and the Internet is a far larger, more diverse universe with extensive broadband connectivity. Moreover, many of these startups have real revenues and earnings, unlike the hundreds of dot-com startups of the late ’90s that had traffic but no discernible business models. Those ’90s startups were also hoisted aloft on a vast surge of initial public offerings, which has yet to develop. And while tech stocks have been rising, as a group they’re well below the Nasdaq of 2000. So where’s the bubble? The Economist argues that wealthy angel investors, many of whom made their money in the ’90s, are scrambling to take stakes in Web startups, competing with traditional venture capitalists who in turn are feeling heat from “Gucci-shod leveraged-buyout-kings” (oh please) and “bank-led funds hunting for profits in a bleak investment environment.” Most of this hot money, the Economist declares, hasn’t done its due diligence and doesn’t know tech (perhaps, but no evidence is offered). And to make matters worse, they’re increasingly investing overseas, adding to the risk. How does the Economist marry up these two seemingly contradictory realities? The magazine admits that we’re still early on in the bubble process. Facebook and LinkedIn look like real companies — like Google, which stirred its own bubble prognostications after its IPO in 2004 — but that will just feed the mania to overinflate the startups that the magazine believes will inevitably follow. “The froth in China’s web industry could also lead to unrealistic valuations elsewhere. And it may be China that causes the web bubble eventually to burst.” Notice the “could” and “may.” But even then, “with luck the latest web bubble will do less damage than its predecessor,” mostly because telecom isn’t mixed up in the mess (though given its latent state, who knows what neighboring sectors will get sucked in). The Economist then asks: “When will that be?” Excellent question. But after congratulating itself on calling the dot-com and mortgage bubbles, it fails to answer it. Someday. In the future. Could there be a tech bubble gestating? Certainly. But there could also be a bubble in emerging market stocks, in anything China, in energy and commodities and, for all I know, in rare earth metals and university tuitions. The wonderful thing about bubble prediction is that it’s so easy. No one will really care if you’re wrong — you’re just being provocative, even if you’re part of a herd — and the definition of a bubble can extend from an uptick in prices that aren’t sustainable to a crash that threatens the economy. This may explain why, at the end of the day, no one pays attention to bubble warnings: They occur too often, and they’re often far too amorphous and far too early. Contrary to the media critics, bubble warnings appeared regularly on both the dot-coms and mortgages. Few listened. Or rather, not enough listened and, importantly, acted to stop the inflation and destruction. In a decent market, some stocks — or M&A and private valuations — are always being driven up. There are always hot sectors that the “smart” money is chasing like a newly discovered cache of Warhols. And as the Economist admits, those investment decisions may be sloppy, but they aren’t necessarily irrational or based on fantasy. Facebook, like Google, looks like the real thing, which wasn’t necessarily apparent just a few years ago. LinkedIn is a real company, making its IPO valuation a matter of debate, not sheer faith. The process of bubble inflation is not fast, and it’s not simple. It requires both a larger supply of startups than we have right now and a broadening beyond the bounds of a single sector. The dot-com bubble grew serious when it drew in telecom and when it spread beyond the smart money, which can make as many mistakes as anyone, and into the broad retail universe. Real estate inflation became a bubble when it spread nationwide and drew in more than just subprime; it became a mortal threat when it sucked in core financial institutions. For the “new” tech bubble to become a systemic danger, it must diffuse far beyond what the Economist calls “the antics of angels” and into the consumer world, and it must spread beyond social media — say, to mobile. To drive the bubble, some fundamental innovation needs to occur, which as yet, we do not detect. After all, this is also the age of Tyler Cowan’s “stagnation” thesis, which also may be right or may be wrong, but which clearly represents one aspect of the Zeitgeist. The dot-com bubble was powerfully driven by tech euphoria, underpinned by low interest rates, strong growth, robust productivity, low inflation, low unemployment and a sense that the American-centric world grew better and better every day. A bubble is always the confluence of many streams; the probabilities have to line up. Right now, we only have a few of them. It’s a leap — though always possible — to predict a few more. But as we project out, our ability to get anything right decays. And the Economist is peering pretty far out in this exceedingly turbulent world. This is a glib observation, but I’ll offer it anyway: The closest thing to a bubble in tech these days may be the rush to declare it a bubble in the media. Even if it turns out to be the case, it would be more luck than prescience.

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WATCH: China’s ‘Ghost Cities’

May 17, 2011

So many new high-rise urban centers have sprouted across China in recent years that you can almost hear the bubble popping. Kangbashi, a city in Inner Mongolia, is the subject of Bloomberg’s first video installment on these underpopulated, but investment-heavy “ghost cities.” And Kangbashi is just one city in the government’s larger plan to create roughly 36 million affordable apartments in the country. Currently, only around 30,000 people live in Kangbashi. But that hasn’t stopped the government from investing $160 billion in the city’s real estate construction in order to provide accommodation for an expected one million people, Bloomberg TV reports. Could China be on the verge of a bubble? Much of the economy has been driven by real estate construction designed for an expected influx of people from rural farming areas to urban industrialized centers. But well-known economist Jim Chanos of Kynikos Associates tells Bloomberg he sure this will happen as planned. Many of the overly optimistic now could be too stubborn to admit it. “People don’t want to think that the Chinese growth model might not have as much to it as they thought,” Chanos says in Bloomberg’s video. See the first installment of Bloomberg’s Chinese “ghost city” series below.

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Kantar Health Names Simon Li General Manager, China

May 17, 2011

NEW YORK, NY–(Marketwire – May 16, 2011) – Kantar Health , a leading healthcare-focused global consultancy and marketing insights company, has named Simon Li as General Manager, China. Based in Shanghai, Mr. Li will direct Kantar Health’s growth strategy in the Chinese market, partnering with pharmaceutical and biotech companies to optimize their performance in this critical high-growth region.

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Video: Wynn Says New Macau Casino Resort to Open in Four Years

May 16, 2011

May 16 (Bloomberg) — Steve Wynn, chairman and chief executive officer of Wynn Resorts Ltd., talks about the outlook for its new resort in Macau. Wynn Resorts, owner of the Wynn and Encore casinos, expects to double Macau earnings when it opens the new resort in the Chinese city in four years. Wynn also discusses the U.S. economy. He spoke with Bloomberg’s Robyn Meredith in Macau on May 14. (Source: Bloomberg)

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Ian Fletcher: Should America Stiff China?

May 16, 2011

I shall leave aside for now the strategic question of whether America should stiff China, i.e. repudiate our roughly $3 trillion in obligations to them. Strategically, repudiation of debt and other instruments on this scale is obviously something analogous to the atomic bomb in warfare: a very extreme option, with serious negative side effects, and not something to be taken lightly. My question in this article is, rather, the ethical question: does America have the right to stiff China? Frankly, we quite arguably do. Any serious ethical argument on this question turns upon the fact that China has not honored obligations it has assumed towards us, so therefore we are not obliged to honor our obligations towards it. This sounds like a technicality, but in fact, China’s failures to honor its obligations run into the trillions of dollars. Let’s start with currency manipulation. China engages in this practice to a massive degree, spending roughly a billion dollars a day to drive down the renminbi-dollar exchange rate. And yet China has agreed, by becoming a signatory to the Articles of Agreement of the IMF, not to do so. Article IV, section 1 of this document–which China voluntarily signed–reads: Each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall:… (iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members. (See http://www.imf.org/external/pubs/ft/aa/aa.pdf ) The next big area of unethical Chinese behavior is the theft of American intellectual property. The most obvious and superficial case of this is rampant Chinese copying of American DVDs and other entertainment materiel, together with fake designer handbags, watches and the like. But the more serious kind of intellectual property theft concerns industrial know-how. Although China committed, when it joined the World Trade Organization in 2001, to crack down on such theft and start to uphold the standards on the issue that developed nations uphold, it has not done so. Instead, with government acquiescence and best and proactive help (sometimes with the aid of Chinese intelligence agencies) at worst, it has continued to steal. As reported by the Irish journalist Eamonn Fingleton in his book Jaws of the Dragon , The story began as long ago as 1980 when Beijing agreed to join the World Intellectual Property Organization. Various laws were duly promulgated that ostensibly provided Western owners of trademarks, patents, and copyrights with extensive protection against theft. After American corporations complained that these laws were mere window dressing, Beijing assured first Washington and then the World Trade Organization that it would tighten enforcement. Yet all the evidence is that the problem has just kept getting worse–so much so that China was recently reckoned to account for fully two-thirds of all the world’s output of pirated and counterfeit products. Moreover, China’s counterfeiting style has in recent years developed in a way that poses a qualitatively different, much more devastating, threat than previously. Whereas in the 1990s China confined itself largely to producing rather obvious knockoffs of luxury items such as Rolex watches and Louis Vuitton handbags, these days it is heavily involved in producing fake versions of everything from General Motors spare parts to Otis elevators. China also exports vast quantities of counterfeit pharmaceuticals, most notably drugs like Prozac Viagra, which sell particularly well on the Internet. Not only does such counterfeiting damage American corporate interests but it raises major questions of consumer safety. In recent years there have been many reports of deaths caused by Chinese counterfeiting activities. In Panama in 2006, more than 100 people died after taking cough medicine laced with a toxic Chinese-made ingredient. As documented by the author Tim Phillips in 2005, whole cities in China are devoted to various counterfeiting specialties. The city of Yiwu in eastern China even functions as a sort of “Wall Street” for the industry, providing a vast marketplace where, Phillips states, 100,000 counterfeit products are openly trade and 2,000 metric tons of fakes change hands daily. Meanwhile, as Edmund Andrews of the New York Times has reported, in big cities like Shanghai, vendors still openly sell pirated goods even along major thoroughfares. Not only has the Chinese government turned a blind eye to all of this, but large sections of the Chinese establishment, not least many sons and daughters of top leaders (know to China watchers as “princelings”), are heavily implicated in the racket. The value of this stolen property must be accounted for in any calculation of what America owes China on net. This is not a minor issue in a modern technology-based economy–which must, by definition, be a know-how based economy. (According to a 2006 study by the Federal Reserve Board, America’s investment in this and related intangible assets like research and development , computer software, workforce training, and spending to build brands exceeds its investment in tangible assets.) The cost to American industry is not only the licensing and other fees that should have been paid and were not. The cost includes also the long-term contracting of America’s industrial base due to counterfeit competition and the destruction of our capacity to innovate and invent due to depriving inventors of their just reward. Finally we come to the most fundamental Chinese violation of its obligations to the U.S. Despite having committed on paper to engage in free trade with us–a commitment that we have honored to a fault–China in reality closes its own markets to its trading partners. China’s protectionism doesn’t only mean obvious policies like tariffs and quotas; it also includes local content laws, import licensing requirements, and subtler measures (some of them covert, hard to detect, or infinitely disputable) such as deliberately quirky national technical standards and discriminatory tax practices. And it includes outright skullduggery such as deliberate port delays, inflated customs valuations, selective enforcement of safety standards, and systematic demands for bribes. The quantitative size of these Chinese repudiations of assumed obligations? Well, if we take seriously the claim by neoclassical free-trade economists that trade naturally tends towards balance, then we must conclude that their size is equal to China’s gigantic accumulated trade surpluses with the United States. Interestingly enough, the size of China’s accumulated American assets, because these derive from these accumulated trade surpluses, corresponds fairly closely to the size of China’s accumulated cheating. Which suggests–not proves, suggests–a certain poetic justice if America were to repudiate these obligations. Perhaps it’s not the prudent thing to do (at least at the present time), but we shouldn’t feel guilty about considering it, especially as it’s one of our strongest forms of leverage for negotiating a better solution.

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