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Sunday, May 30, 2010

Is China facing a Japanese bubble trap?


AS the world debates whether the renminbi (RMB) is undervalued, the real concern is whether after the RMB revalues, China will repeat the mistakes of Japan during the 1985 post-Plaza Accord period.

In that decade, the yen rose from roughly 240 yen to one US dollar to as low as 80 by August 1995 and then depreciated to 147 in June 1998 before joint intervention stopped the depreciation worsening the Asian crisis.

During this period, Japan suffered the worst asset bubble with the stock market falling by more than 80%, land prices falling by over 60% and the banking crisis took nearly a decade before it was finally resolved.

The Japanese public debt rose to nearly 200% of GDP, one of the highest in the OECD countries and Japan had almost zero growth for nearly two decades, as interest rates were kept near zero.

The worst part of the Japanese dilemma is that with a huge overhang of the public debt and an aging population, Japan may face both a decline in population and also an implosion in the wealth holdings if interest rates were to go back to global levels.

Note that unlike the US, which has a lot of foreign debt owed in US dollars, the high level of Japanese debt is yen debt owed to its own citizens.

There are many foreign commentators who think that after the recent increase in credit in the Chinese banking system, equivalent to nearly 40% of GDP, with a broad money to GDP ratio of 180% of GDP, that China may be facing a Japanese-style meltdown.

What is the truth and what is the correct analysis?

In the period 1950-70, Japan enjoyed high growth, high capital formation, rapid monetization and rising property prices, very similar to what China is going through.

The interesting point is that monetization did not appear to be highly inflationary, so in the run-up to 1989 at the height of the asset bubble, the Bank of Japan was initially reluctant to raise interest rates.

Exactly like what happened with the US subprime bubble, there was also insufficient regulatory action to stop banks exposing themselves to real estate loans. Koyo Ozeki is Japan analyst for PIMCO and his analysis in December 2009 is very illuminating (

The amount of bank lending equivalent to nearly 40% of GDP also went into Japanese real estate between 1985 to mid-1990s.

In the case of Japan, most of it went into commercial real estate. Real estate loans to individuals for mortgages only accounted for 20% of the total credit growth.

What was interesting was his comparison of Japan (1985-91), US (2000-2007) and China (2003-2009).
During these periods, Japan and US grew roughly by 3% per annum, whereas China grew by 10%.

Real estate bubbles during this period were roughly 2 times in price growth for China and the US, but 5 times in the case of Japan.

He felt that since in China “there is overwhelming shortage of residential property that meets its new living standards; it will likely take a considerable amount of time for supply to catch up to demand.”

He “sees little risk in the foreseeable future that increase in loans to the real estate sector will pose a threat to the financial system”, but also recognizes that “a rapid increase in lending could lead to a rise in bad debt in the future.”

What were the Japanese policy mistakes during the bubble period and what can we learn from this?
One of the most distinctive features of the Japanese experience was how long it took to bring the banking crisis under control.

It was almost eight years after the bubble burst in 1989 before the first serious failures of banks forced the government to use public funds to prevent the meltdown in the banking system.

Hiroshi Nakaso, formerly from the Bank of Japan, wrote probably the best technical analysis of this experience for a paper for BIS in 2001.

Part of the problem was that no one understood the scale of the losses because there was a paradigm shift.
Richard Koo, the chief economist of Nomura Securities, called this a “balance sheet deflation”.

No one understood how serious the real estate bubble had on the balance sheet of the banking system.

I have argued that the real estate bubble is the elephant in the room – no single government department is in charge and current fragmented monetary and regulatory theory grossly underestimates the importance of real estate as collateral for companies and bank loans, income for local governments and wealth of households.

So when the real estate bubble burst, the damage to household, corporate, government and bank balance sheets is huge, but the effects may take a while to recognize in accounting terms.

Ozeki (2008) noted that it took the Japanese government a long time to recognize the asset deflation because most people assumed that the property prices would turn around after such low interest rates.

Secondly, the Japanese banks had large latent profits from their holdings of corporate shares that everyone assumed that they could cushion themselves from the asset losses. But the more the banks sold the shares, the lower the stock market prices became, creating a downward spiral in confidence and growth.

Thirdly, the cumulative bad debt problems were as large as 25-30% of GDP, in addition to actual write-offs amounting to 20% of GDP.

No one has an accurate number on the massive deflation of the Japanese real estate bubble.

Assuming that the US real estate/GDP ratio of 225% of GDP was the ratio for Japan in 1989 and prices deflated by 60%, then the wealth loss could be as high as 130% of GDP. Because these were commercial real estate, most of the losses were borne by the corporations, and those who could not finance their losses transferred it to bad debt for banks.

Given the fact that the banks had capital not more than 10% of GDP, it was not surprising that the Japanese banking system could not by themselves get out of the bad debt burden without large fiscal help.

Most analysts identify the new credit in China as being given to local government financing vehicles. This is the topic that I shall discuss in the next article.

> Datuk Seri Panglima Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysia’s National Economic Advisory Council. He is the author of the book “From Asian to Global Financial Crisis”.

Sime Darby dethroned

PETALING JAYA: Sime Darby Bhd has been dethroned as the largest company on the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) and now occupies third place after having shed close to RM5.89bil in market capitalisation over the last one month.

Instead, Malayan Banking Bhd (Maybank) now reigns as the largest company on Bursa Malaysia with a market cap of RM50.54bil as at May 27.

Second spot is held by CIMB Group Holdings Bhd with a market cap of RM47.89bil.

Over the last four weeks, Sime Darby’s shares have shed some 98 sen, and it now has a significantly lower market cap of RM47.05bil compared with RM54.15bil six months ago.

The selldown in Sime Darby was perpetuated by the discovery of RM964mil in provisions, which caused investors to lose confidence in and rush to dump the stock.

Maybank’s market cap has in fact increased by RM2.2bil over the last six months on the back of operational improvements.
It recently reported third quarter to March 31 net profit of RM1.03bil, which was 105% higher than the previous corresponding period.

The nine-month cumulative period saw net profit rise to RM2.9bil, driven by higher growth in all sources of operating revenue and a lower loan loss provision.

Since May 13, the FBM KLCI has retraced 77.76 points to 1,269.16. On a year-to-date basis, it is lower by a mere 6 points from 1,275 on Jan 4. The FBM KLCI’s impact on Malaysia’s 10 largest companies has not been quite as bad.

On a six-month basis, five of these companies have still managed to increase their market cap despite the volatility.

MISC Bhd has been a winner and looks poised to become one of the world’s largest tank terminal operators, having entered into a conditional sale and purchase agreement with Vitol Group for the acquisition of a 50% stake in VTTI BV worth some RM2.4bil.

VTTI is one of the largest independent tank terminal operators in the world with a network of terminals spreading across 11 countries.

“This buy serves to expand significantly MISC’s existing tank terminal operations − currently two terminals, one each in Tanjung Langsat and Tanjung Bin. We understand that VTTI’s current tank terminal capacity of 5 million cu m is expected to rise to 8 million cu m by 2012,” said an analyst from AmResearch.

Significantly, IOI Corp Bhd has lost close to RM5bil in market cap at RM31.76bil. On Wednesday, IOI touched a 10-month low of RM4.67 in intra-day session following more selling pressure.

The efficient planter reported a decline in earnings from its plantations division in the quarter ended March 31, down 12% to RM282.02mil.

This was due to lower operating profit from the low crop season which also coincided with the hot weather, further aggravated by the recent El Nino phenomenon. The industry is expected to feel the heat of the weather anytime from six to 24 months.

Meanwhile, Axiata Group Bhd is enjoying a good run, with its market cap gaining some RM5bil to RM31.64bil, as net profit ballooned to RM921.5mil for the first three months from RM63.9mil a year ago.
This was boosted by higher sales from overseas units and disposal of shares in Indonesian subsidiary, PT XL Axiata Tbk.

XL Axiata has been performing better than expected on the back of the telco industry in Indonesia undergoing a revolution of data usage.

This phenomenon started when BlackBerry and iPhone handsets flooded Indonesia last year. There has been a surge in data revenue, mainly from Internet access charges, via the 2G platform.


 SIME :  [Stock Watch]  [News]

Saturday, May 29, 2010

Tapping young investors


IN this week’s Monday Starters column in StarBiz, deputy executive editor Soo Ewe Jin wrote about Bursa Malaysia’s goal of getting more young adults to invest in our stock market. One suggestion from the exchange is that people should buy stocks for their children so as to kindle an interest in share investing at an early age.

It’s a modest step but the ideas behind it are important – that we should start young and that parents have a major role in shaping their kids’ attitudes towards investments. If we lose sight of these, it’s the equities market that may suffer.

To maintain its liquidity and vibrancy, our stock exchange needs a healthy proportion of buying and selling by individual investors. Last year, retail participation accounted for a third of the trading value in Bursa Malaysia’s securities market.

It’s an improvement from the 24% recorded in 2008, but still a long way from the 60% level seen about a decade ago.

In trying to draw in retail investors, Bursa Malaysia is targeting the youthful set. In the chief executive officer’s message in the exchange’s annual report 2009, Datuk Yusli Mohamed Yusoff wrote: “We are cognisant that we need the young generation investor base.”

Recent market research commissioned by the bourse found that there’s a generation gap in the Malaysian share investing arena.

The findings are presented in a booklet published as part of Bursa Malaysia’s Rethink Retail project.

According to Omar Merican, the exchange’s chief operating officer, the project’s aim is “to reach out to younger audiences to create more awareness on the capital market and how they can become more involved”.

The research has determined that investors aged between 20 and 29 make up almost 30% of the investing population but only 12% of share investors. Most of the other share investors (nearly 60%) are at least 40 years old.

It’s not that the young don’t have the money to invest in shares. They prefer to seek returns from other avenues – savings accounts, unit trust, investment-linked insurance and property.

Says Yusli in the booklet’s foreword: “We believe the future growth lies with the young Malaysian segment that is the untapped potential for the growth of this industry. There is, however, a challenge in getting more youngsters interested in viewing share investing as an option to building their investment portfolio.”

There’s a perception problem here. The research shows that the majority of young potential investors are intimidated by the risks associated with shares. They think investing in futures, options and foreign currency is less risky.

They see share investing in Malaysia as having “a strong speculative character”, and some liken it to gambling.

Just where did they get that notion? We should look at the dominant component of the share investing population – those who are 40 and above. And most of them are, in fact, parents.

Are these moms and dads teaching their children about investing in the stock market? Are they imparting the skills and knowledge that come through the experience of riding the ups and downs of the market?

If the parents cum share investors are not doing enough to help their children develop a firm understanding of share investing, the likely issue here is that they’re poor at engaging with and relating to the kids. Or maybe the parents don’t know all that much about investing in stocks.

Or could it be that parents think that share investing is so tough and perilous that don’t fancy the idea of the children going into it, in the same way that a smoker won’t encourage his child to start lighting up? If that’s the case, that’s just bad parenting – “Yes, I do it, but that doesn’t mean you should.”

There’s another possible reason for the young people’s aversion to share investing. They do passively learn about it from their parents, except that they largely pick up on the negative aspects.

The Rethink Retail booklet hints at that: “The speculative image (of share investing in Malaysia) is further fuelled with the emotional success and failure stories told by friends, family, colleagues and others”

And let’s not forget that some investors don’t rely on fundamentals and diligence. Instead, they trade based on tips and rumours. What conclusions will a child form about share investing when he often hears his parents spouting lines such as “Can still go in. They’ll push it up to RM4.30.” or “The general election is coming. The share price will surely fly?”

Bursa Malaysia has plans to convert youngsters into share investors.

In the booklet’s conclusion, the stock exchange says: “If we are able to reach out to potential investors, especially the young investors, we can change their perceptions of share investing and make shares an option to savings, deposits, property, unit trust and investment-linked insurance.”

Sure, Bursa Malaysia can do this on its own. Still, it wouldn’t hurt if the parents buy into the programme as well. But for that to happen, the parents must first believe that stocks are solid long-term investments as long as everybody plays by the rules. Now that’s the real challenge, isn’t it?

>Deputy executive editor Errol Oh is working on a pre-schoolers’ book on the stock market, tentatively titled The Stock That Sank Like A Rock. But he’s stuck because he can’t find simple, familiar words that rhyme with ‘Bursa’, ‘dividends’, ‘warrants’ (nope, ‘blackcurrants’ doesn’t work in this context) and ‘unusual market activity’.

Technology Can Save Money, Planet

We must act in order to preserve our planet. This is self evident. One interesting aspect of this important endeavor, in which we all should take part, is that you may help accomplish it by saving money.

Imagine this, you are taking good care of yourself, your pocketbook, you become more generous and this contributes to life on our planet. Let's see, if we do not spend on things that are not really needed, we save money. Therefore, we have more resources (maybe money) to spend on those things that really are important: health, leisure, study, travel, giving, etc. - quality of life. Sounds like good business, doesn't it?

Interestingly, an Internet trend based on this reasoning is gaining momentum -- examining it provides us with interesting examples and opportunities for action. This new trend is called SaaS, an acronym for "Software As A Service". Note the philosophy: why buy word a processor or spreadsheet if you can use them at Google Docs, that you access only when needed? Google's word processor and spreadsheet is a classic example of SaaS. The advertisers pay Google (dearly) so that you have this service for "free."

Well, you can say there is the Open Office, it is free, I agree, but what about disk space? To spend it on something you use occasionally? Use this space for the software you really always use, even if for fun stuff - our hard drives should not be a software cemetery. Via SaaS you have one more gain: your spreadsheets or documents are always at your disposal anywhere in the world and ready to use.

With SaaS it is easy to see the saving action effect. Indeed, if we just need to access the Internet, our computer (laptop, notebook or desktop) can be simpler and cost much less. This equation in itself points to computers becoming cheaper, therefore generating greater social inclusion, more business, more opportunities, etc. And more, light computers use less electricity.

And guess what? This trend is global and irreversible; SaaS is here to stay. SaaS will more than double by 2012, said the analysis firm Gartner in a report last year. There a lot of other providers of SaaS as well. Just two weeks ago, at Intermodal South America, I met people offering something I never thought about. My interview with them is embedded below.

A World Free of Nuclear Weapons

February 2010

February 2010

Since the first atomic bombs exploded in 1945, some have tried to rid the world of nuclear weapons. President Obama has embraced this goal with new vigor. This issue of eJournal USA examines the challenges to achieving nuclear disarmament. It conveys the hopes of some thinkers, and explains the doubts of others.

Well, back to saving money, resources and the planet we live in. Think about your purchases, and consider the developments that each will cause. Stay tuned, pay close attention to the chain of events that every product you buy follows. Be aware of where the garbage you generate goes, how much space will it use, how often you will really use what you plan buy and so on.

Once more, try to see that what you buy doesn't become garbage at all - be generous. That attitude of intelligent saving on everything you bring home (like in your computer) will change the entire planet.
©2010 OhmyNews

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Friday, May 28, 2010

Blogger Buzz: Blogger integrates with Amazon Associates

Blogger Buzz: Blogger integrates with Amazon Associates

After foreclosure: How long until you can buy again?

NEW YORK ( -- Walking away from a mortgage you can still afford to pay has consequences; everyone knows that. Your credit score is shot and it can be impossible to get credit.

Some homeowners, no doubt, believe that the credit score hit is worth getting out from a deeply underwater mortgage. They may owe, say, $500,000 when their house value is only valued at $350,000. And, they figure, there's no way it will ever be worth what they owe so it's better to get out from underneath the burden.

After default, they reason, they can raise their FICO scores by paying all their bills on time and eventually finance another home purchase.

Don't count on it. 

While homeowners who default due to economic hardship, such as a job loss or divorce, normally must wait two to five years before buying a home again, walkaways may face double that time.

"It could be well over seven or eight years before [walkaways] are able to obtain a mortgage to buy a home again," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

"Credit scores are only one component of a complete credit decision," Brinkmann said. "[In these cases] credit scores are not a good indicator of their willingness to continue to pay their mortgage."

But future underwriters will scrutinize their records very closely, and if they find no precipitating factors leading to the defaults -- no job loss, no health issues --the repaired credit score won't overshadow the black mark of a walkaway.

"If you made a strategic decision to default on paying your mortgage, it will work against you," said Bill Merrell of the National Association of Review Appraisers and Mortgage Underwriters.

Merrell, who teaches underwriting, said banks are looking at several factors in determining whether to grant mortgages: the amount of money borrowers have in the bank; employment histories; payment history.

However, banks may be far more lenient if the default resulted from factors somewhat beyond the borrower's control, such as from local economic problems. "They'll give you more consideration if it's job related," he said. But, he added, banks look at strategic defaults "very negatively."

That said, it's not impossible to get a loan. Banks still want to make interest payments, so they might be willing to gamble with a walkaway.

"It might be a little more difficult for them to borrow, but [banks'] drive for market share -- to profit from making loans -- will trump that caution," said Keith Gumbinger, of the mortgage information publisher HSH Associates. "I don't think we'll see a full denial."

It's hard to foresee the state of mortgage lending six or seven months from now, let alone seven or eight years into the future. So lenders may look at applications from one-time strategic defaulters and say, "Yes, they walked away but it's a whole different market now," according to Gumbinger.

Even so, lenders may require more from borrowers who walked away than those who didn't.
"To the extent they could get a mortgage," said Brinkmann, "they can count on needing a heavy down payment."

The lenders may ask for 30% down or more. That would provide enough collateral cushion that the bank could get all or most of its money back in a foreclosure.

Strategic defaulters might also be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.

By Les Christie, staff writerMay 28, 2010: 3:54 AM ET
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Nokia and Intel birth mobile Linux baby

Fast march on Android
Intel and Nokia have released the first code from their joint mobile Linux project, MeeGo, an effort to challenge Google's Android.

Three months after the project was announced, the two companies have delivered MeeGo 1.0. Intel said it provides a stable core foundation for application development and a "rich user experience" on netbooks. MeeGo for touch-based handsets, tablets, and in-car systems is due to appear in June. MeeGo 1.1, which will combine code for netbooks and touch-based devices, is scheduled for October.

Such is the desire to beat Google's Android, which is now moving from smartphones onto other mobile computing devices.

Mobile Linux efforts come and go, but Intel and Nokia are determined to make sure that MeeGo sticks around. MeeGo aims to be mutually rewarding, to create a viable mobile Linux for Intel's new Atom processor that attracts developers, while giving Nokia an open-source option for smart devices that these same devs are actually interested in.

Announced in February, MeeGo combined the companies' respective Moblin and Maemo Linux mobile projects. They've transferred stewardship to the Linux Foundation so MeeGo doesn't die a death in some corporate backroom. And they're talking tough on patents in Linux - Microsoft's favorite bogeyman - saying they'll go toe-to-toe against Microsoft or anyone else over patents by defending MeeGo with their own, huge portfolios.

MeeGo 1.0 is based on the 2.6.33 Linux kernel, features the next-generation BTRFS file system, Nokia's Qt 4.6 SDK, and what Intel called "various other operating system tools."

Intel called out a "fast and rich" internet experience using Google Chrome but also highlighted support for the open-source Google Chromium, while saying the planned MeeGo Handset edition will use Mozilla Foundation's Fennec browser.

You can read more here. ®

By Gavin Clarke in San FranciscoGet more from this author
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eBay enlists China and US post services

US auction site eBay announced a partnership on Friday with China Post and the US Postal Service in a new bid to re-establish itself in China, where the market is dominated by homegrown rival

Under the plan, eBay hopes to woo Chinese merchants by developing shipping programs that make it easier for them to sell to US consumers, eBay officials said at a signing ceremony in Shanghai.

"The collaboration will make the most of the advantages of the three while helping expand profits," Jeff Liao, eBay's Greater China chief executive and head of Asia-Pacific cross-border trade, told reporters.

The partnership centres on an express delivery service to the US that will be run by China Postal Express and Logistics Corporation, part of China Post, and which will include online tracking systems, eBay said.

Liao said China's e-commerce market was growing very fast and was worth more than four trillion yuan ($A689.98 billion) last year.

He did not, however, say what eBay's share of that market was, saying only that its Chinese transaction volumes grew "between 50 and 100 per cent in 2009 and so far this year" and provided no specific figures.

The US auction site largely withdrew from China years ago after being overtaken by Taobao, part of China's largest e-commerce firm, the Alibaba Group, which also operates business-to-business marketplace

The American firm shut down its Chinese consumer website in late 2006 and folded its China operations into Eachnet, a joint venture run by Hong Kong's Tom Online Group, after Taobao won the lion's share of the Chinese market.

Unlike eBay, Taobao charges no commission to list items for sale and the site's revenue comes from advertising.

Starting as a consumer-to-consumer auction website, Taobao has grown into an online retailer that also features a growing number online shops run by big brands such as US computer maker Dell.

However, eBay is fighting to make a comeback in China, a market with more than 400 million web users, by refocusing on export-oriented Chinese merchants who are keen to reach overseas buyers through international websites.

The firm's current Chinese operations include, a Chinese platform targeting Chinese merchants - mostly small and medium-sized enterprises - by offering online training courses on international trade and listing tips.

It also runs, a Chinese version of payment site Paypal.
© 2010 AFP
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Brush Your Teeth or Get Heart Disease

People who have poor oral hygiene have an increased risk of heart disease compared to those who brush their teeth twice a day, finds research published today on the web site of the medical journal BMJ.

In the last twenty years there has been increased interest in links between heart problems and gum disease. While it has been established that inflammation in the body (including mouth and gums) plays an important role in the build up of clogged arteries, this is the first study to investigate whether the number of times individuals brush their teeth has any bearing on the risk of developing heart disease, says the research.

The authors, led by Professor Richard Watt from University College London, analysed data from over 11,000 adults who took part in the Scottish Healthy Survey.

The research team analysed data about lifestyle behaviours such as smoking, physical activity and oral health routines. Individuals were asked how often they visited the dentist (at least once every six months, every one to two years, or rarely/never) and how often they brushed their teeth (twice a day, once a day or less than once a day).

On a separate visit nurses collected information on medical history and family history of heart disease, blood pressure and blood samples from consenting adults. The samples enabled the researchers to determine levels of inflammation that were present in the body. The data gathered from the interviews were linked to hospital admissions and deaths in Scotland until December 2007.

The results demonstrate that oral health behaviours were generally good with six out of ten (62%) of participants saying they visit the dentist every six months and seven out ten (71%) reporting that they brush their teeth twice a day.

Once the data were adjusted for established cardio risk factors such as social class, obesity, smoking and family history of heart disease, the researchers found that participants who reported less frequent toothbrushing had a 70% extra risk of heart disease compared to individuals who brushed their teeth twice a day, although the overall risk remained quite low. Particpants who had poor oral hygiene also tested positive for inflammatory markers such as the C-reactive protein and fibrinogen.

"Our results confirmed and further strengthened the suggested association between oral hygiene and the risk of cardiovascular disease - furthermore inflammatory markers were significantly associated with a very simple measure of poor oral health behaviour," Watt said. "Future experimental studies will be needed to confirm whether the observed association between oral health behaviour and cardio vascular disease is in fact causal or merely a risk marker".

Submitted by LiveScience Staff

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Mental Illness Tied to Immune Defect

Bone marrow transplants cure mutant mice who pull out their hair compulsively. The study provides the first cause-and-effect link between immune system cells and mental illness, and points toward eventual new psychiatric treatments.

"We're showing there is a direct relationship between a psychiatric disorder and the immune system, specifically cells named microglia that are derived from bone marrow" and are found in the brain, said Mario Capecchi, professor of human genetics at the University of Utah School of Medicine. "There's been an inference. But nobody has previously made a direct connection between the two."

The findings – published in the Friday, May 28 issue of the journal Cell – should inspire researchers "to think about potential new immune-based therapies for psychiatric disorders," Capecchi said.

Capecchi and colleagues showed that pathological grooming and hair-pulling in mice – a disorder similar to trichotillomania (trick-o-til-o-MAY-nee-ah) in humans – is caused by a mutant Hoxb8 gene that results in defective microglia, which are immune system cells that originate in bone marrow and migrate from blood to the brain. Microglia defend the brain and spinal cord, attacking and engulfing infectious agents.

Mice with pathological grooming appear to groom normally, but do so too often and for too long, leading to hair removal and self-inflicted skin wounds. The disease of pulling out head or body hair is common in humans; studies in seven international communities found trichotillomania affecting 1.9 to 2.5 of every 100 people.

In the key experiment, geneticist Shau-Kwaun Chen, Capecchi and colleagues transplanted bone marrow from normal mice into 10 mice that had a mutant Hoxb8 gene and compulsively pulled out their own chest, stomach and side fur. As the transplant took hold during ensuing months, grooming behavior became normal, four mice recovered completely and the other six showed extensive hair growth and healing of wounds.

"A lot of people are going to find it amazing," says Capecchi. "That's the surprise: bone marrow can correct a behavioral defect."

Nevertheless, "I'm not proposing we should do bone marrow transplants for any psychiatric disorder" in humans, he says. Bone marrow transplants are expensive, and the risks and complications are so severe they generally are used only to treat life-threatening illnesses, including certain cancers and disabling autoimmune diseases such as lupus.

Capecchi says that mice with the mutant gene that causes pathological grooming now can be used to study the surprising connections between the immune system's microglia cells and mental illness – and ultimately to produce new treatments.

"We think it's a very good model for obsessive-compulsive disorder," he says.

The researchers also transplanted bone marrow into normal mice from Hoxb8 mutant, hair-pulling mice. The normal mice started pulling out their hair compulsively. Normal mice transplanted with normal bone marrow kept grooming normally, while mutant mice implanted with mutant bone marrow exhibited severe grooming and self-mutilation. Half died, probably due to difficulty re-establishing mutant bone marrow.

Capecchi and colleagues also proved that reduced sensitivity to pain among mutant Hoxb8 mice is not the cause of the animals' compulsive grooming and hair removal, as some researchers had believed.

Mutant Microglia from Marrow Link Immunity and Mental Disorder

Capecchi says previous studies have linked the immune system and psychiatric disorders, but not in a cause-and-effect manner.

"If you look at people who are depressed, often you find their immune system isn't working normally," Capecchi says. And studies have shown that genes that confer a higher rate of depression, schizophrenia, obsessive-compulsive disorder, bipolar disorder and autism also "have something to do with the immune system," he adds.

The new findings "provide direct evidence for an association between neuropsychiatric diseases and dysfunction of the immune system or of the blood-forming system," says Capecchi.

Hox genes orchestrate embryo development. Hoxb8 is responsible for maintaining "myeloid progenitor cells," including those that give rise to monocytes, which are white blood cells that move from the circulatory system to the brain and become microglia.

It was surprising that the new study identified mutant microglia cells that originate in bone marrow as the cause of compulsive hair-pulling in mice. Researchers expected to find the mutant Hoxb8 in brain nerve cells that control grooming.

It is the first study to suggest "there is a connection between microglia and behavior – and a direct connection," Capecchi says.

Capecchi says nerve cells or neurons represent only about 10 percent of the brain, and the rest is made of various glial cells, including microglia. There are two kinds of microglia in the brain. Sixty percent are "resident" microglia that form in an embryo's brain even before the blood circulation system develops. The second kind of microglia in the brain – 40 percent of the total – originates in bone marrow, and then moves to the brain, circumventing the blood-brain barrier.

The geneticists believed the mutant microglia originated in bone marrow because they did not find them among the resident microglia present in the mouse brain at birth, but instead saw microglia with mutant Hoxb8 first migrate into the mouse brain two days after birth. To identify the cells in the brain with active mutant Hoxb8 genes, the researchers used a method that attached a fluorescent yellow-green label to such cells.

Pathological Grooming is Different than Scratching an Itchy Rump

Capecchi first reported in 2002 that mice with mutant Hoxb8 genes displayed compulsive grooming and pulling out the hair on their chest, stomach and sides. Over the years, some researchers attributed this to reduced pain sensitivity also observed in mutant Hoxb8 mice, apparently due to nerve damage in the spinal cord. The idea was that reduced sensitivity to pain would make mice scratch more in response to an itch. In the new study, the Utah geneticists concluded that compulsive grooming and reduced sensitivity to pain were due to separate malfunctions of the Hoxb8 gene; the bone marrow transplants that cured hair-pulling did not restore the loss of pain sensitivity.

Also, mutating Hoxb8 genes in microglia from bone marrow made the mice groom pathologically but didn't make them insensitive to pain. Mutating Hoxb8 in the spinal cord resulted in reduced sensitivity to pain, but not compulsive grooming.

Finally, in earlier studies of mice insensitive to pain due to mutant Hoxb8, the mice used paws to scratch too much and cause hair loss and wounds on their rumps, near the tail. But mice in the Utah study used their teeth to remove hair on their chest, stomach and sides. They followed a normal head-to-rear grooming pattern, but did it excessively.

To be Determined: How Mutant Microglia Cause Hair-Pulling

How do mutant immune cells from bone marrow cause pathological grooming?

All we know now is that there are 15 percent fewer microglia in the brain when Hoxb8 is mutant, Capecchi says. "In the next wave of experiments, we can ask how microglia affect behavior. We anticipate it has to affect neural circuitry in some way."

He speculates ways mutant microglia might trigger pathological grooming: The microglia could make cytokines that activate or inhibit nerve activity, and thus influence behavior. Because microglia have long extensions that "feel" the synapses that connect nerve cells, they might be involved in controlling nerve-signal transmissions, he says.

For now, "we have no idea which will be right," Capecchi says.

In Capecchi's 2002 study of mice with compulsive grooming, the researchers recorded the number and duration of each mouse's grooming sessions using a video recorder, which was very labor intensive to analyze. So in the new study, the mouse cages were placed on sensitive vibration-detecting platforms capable of distinguishing mouse vibration from different activities such as eating, drinking, grooming, climbing, sitting still, walking and scratching. They tested the method's accuracy by using a video camera to double check what the mice were doing at times.

The result: Mice with the mutant Hoxb8 gene spent about twice as much time grooming as their normal littermates.

The new study was funded by the Howard Hughes Medical Institute and the National Institutes of Health. Capecchi is senior author. The first author is Chen, who recently completed a Ph.D. in human genetics. They conducted the study with human genetics postdoctoral fellows Petr Tvrdik, Erik Peden and Sen Wu; Gerald Spangrude, an internal medicine professor; and Scott Cho, a graduate student in Spangrude's lab.
Capecchi shared the 2007 Nobel Prize in Physiology or Medicine for developing "gene targeting" in mice, a method of knocking genes out of action to see what goes wrong and thus learn each gene's normal function.

Submitted by LiveScience Staff
posted: 27 May 2010 10:31 pm ET
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More Like This

China boosts euro, makes stocks flying

The euro staged a broad rally and US stocks jumped 3 percent Thursday, after China said Europe remains a key investment market for its foreign-exchange reserves.

The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone bond holdings was groundless.

The FT report had driven the euro to a near four-year low on Wednesday and cut short a rally in US stocks.

Stocks in Europe and emerging markets also jumped and crude oil prices jumped 4 percent as the perceived risk that China might change the composition of its foreign exchange reserves was reduced.

"Reports from the front suggested that investors might become frightened that China could do something drastic," said Douglas Peta, an independent market strategist in New York. "Getting some assurance that Chinese sale of European debts isn't imminent is making everyone feel better."

At the close of trade, the Dow Jones industrial average gained 284.54 points, or 2.85 percent, to 10,258.99. The Standard & Poor's 500 Index rose 35.11 points, or 3.29 percent, to 1,103.06. The Nasdaq Composite Index climbed 81.80 points, or 3.73 percent, at 2,277.68.

Equity markets shrugged off a report showing the US economy grew at a slower pace than previously estimated in the first quarter as business investment slackened.

The euro gained 1.67 percent at $1.237 while the dollar fell against a basket of major trading-partner currencies.

On Wednesday the euro collapsed 1.5 percent against the dollar after the Financial Times reported China's State Administration of Foreign Exchange (SAFE) was meeting foreign bankers because of concerns about its exposure to debt troubles in Europe.

SAFE, the arm of the central bank, manages China's $2.4 trillion in foreign exchange reserves -- the world's largest stockpile.

Crude oil prices posted their biggest two-day gain since mid-August, as a forecast for an intense Atlantic hurricane season fueled fears of disruptions in US supplies and spurred speculative buying. Oil had also risen more than 4 percent on Wednesday.

People's Daily Online / Agencies

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Lehman Sues JPMorgan for Billions of Dollars in ‘Lost Value’

 Lehman Brothers sues JPMorgan for billions over collapse

Photo source or description
[JURIST] Lehman Brothers Holdings [corporate website] on Wednesday filed suit [complaint, PDF] against JPMorgan Chase & Co. [corporate website] for allegedly "siphoning" off billions of dollars in "critically-needed" assets days before the investment bank filed for a record-breaking bankruptcy. JPMorgan was Lehman's main short-term lender before its collapse and acted acted as a middleman between Lehman and its investors. In the complaint, Lehman accused JPMorgan executives of using inside knowledge to take advantage of Lehman during its financial downfall and pressured the brokerage firm to turn over $8.6 billion in collateral in September 2008. The last-minute transactions allegedly accelerated Lehman's free fall into bankruptcy, costing the investment bank tens of billions of dollars in "lost value." The complaint, which was filed in the US Bankruptcy Court for the Southern District of New York [official website] in Manhattan, is seeking monetary relief for JPMorgan's contribution in Lehman's downfall as a result of its wrongful conduct:

JPMorgan's insistence on the new agreements in August and September 2008, its unjustified demands for billions in additional collateral, and its refusal to return that collateral in the critical days before [Lehman's] bankruptcy filing, severely constrained [Lehman's] liquidity and impeded its ability to pursue and implement alternatives and initiatives that would have resulted in the preservation of billions in value. Instead, [Lehman's] liquidity constraints compelled an exigent chapter 11 filing that has resulted in tens of billions of dollars in additional lost value to the [Lehman] estate and its creditors. ... It is now too late to undo all the harm caused by the [Lehman] bankruptcy. It is not too late, however, to return to [Lehman's] estate and its creditors the billions of dollars of [Lehman] assets that JPMorgan illegally converted and continues to hold, and to compensate [Lehman] for all the damages that flow directly from JPMorgan's misconduct. This lawsuit seeks to return that value to the [Lehman] estate and to restore all of the creditors to the position they would have occupied but for JPMorgan's wrongful conduct.

May 27 (Bloomberg) -- Lehman Brothers Holdings Inc. sued JPMorgan Chase & Co. to recover tens of billions of dollars in “lost value,” accusing the bank of precipitating its downfall and preventing it from winding down in an orderly fashion.

JPMorgan, which was Lehman’s main short-term lender before its September 2008 bankruptcy, helped cause the failure by demanding $8.6 billion of collateral as credit markets tightened during the financial crisis, Lehman said in a complaint filed yesterday in U.S. Bankruptcy Court in New York.

“On the brink of LBHI’s bankruptcy, JPMorgan leveraged its life and death power as the brokerage firm’s primary clearing bank to force LBHI into a series of one-sided agreements and to siphon billions of dollars in critically needed assets,” Lehman said in the complaint.

Lehman, once the fourth-biggest investment bank, has said it may spend another five years selling assets to pay unsecured creditors as little as 14.7 cents on the dollar. Any money recovered through lawsuits may increase the payout.

“The lawsuit is ill conceived, and the costly litigation will cause a further drain on the limited resources available to the Lehman bankruptcy estate,” said Joe Evangelisti, a JPMorgan spokesman.

The lawsuit follows a report by Lehman examiner Anton Valukas, who said in March that Lehman might have grounds for suing JPMorgan and other banks.

Lehman said JPMorgan’s top managers took advantage of privileged information they gained as Lehman’s primary clearing bank to “capitalize” on a Lehman bankruptcy.

Dimon Meetings

JPMorgan Chairman Jamie Dimon knew from meetings in Washington with Federal Reserve Chairman Ben Bernanke and former U.S. Treasury Secretary Henry Paulson that the U.S. wouldn’t rescue Lehman and decided to “accelerate” the bank’s efforts to gain more collateral from Lehman, according to the complaint.

JPMorgan gained extra collateral from Lehman in part by threatening to stop providing clearing services that were the “lifeblood” of the Lehman brokerage and other affiliates, according to the lawsuit. Lehman said JPMorgan put a “financial gun” to its head and gave the already insolvent investment bank nothing in return for the collateral.

Lehman said in the complaint that from Sept. 9 to Sept. 11 in 2008 it posted $3.57 billion in cash and money-market funds as collateral. On the night of Sept. 11, JP Morgan demanded an additional $5 billion, which Lehman delivered the next night.

Total Collateral

The total $8.6 billion in collateral “rightfully” belongs to defunct Lehman and its creditors, Lehman said. In addition, it seeks unspecified damages, according to the complaint.

“As the examiner’s report makes clear, it was the ill- advised decisions of Lehman itself and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate, and not any conduct by JPMorgan, that led to Lehman’s demise and the enormous losses to its various constituents,” Evangelisti said.

Lehman also has sued Barclays Plc, which bought its bankrupt brokerage, alleging the British bank made an $11 billion “windfall” on the deal. A trial of that suit is due to continue next month in bankruptcy court.

Lehman filed the biggest bankruptcy in U.S. history with assets of $639 billion. It has paid its lawyers and managers $794 million in 19 months, according to a regulatory filing.

Creditors include Goldman Sachs Group Inc., UBS AG, the New York Giants and Abu Dhabi Investment Authority as well as individuals who hold Lehman bonds.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

By Linda Sandler and David McLaughlin --Editors: John Pickering, Michael Hytha.

Concepts of fairness and inequality develop over time

Concepts of fairness and inequality develop over time

As part of a research study in experimental economics at NHH in Norway, 500 school children had to work and then decide how to share their earnings.Image courtesy of Knut Egil Wang.

Young children are strict egalitarians, content to divvy things up equally among members of a group -- but, as those children progress from elementary school to adolescence, their sense of fairness changes to a more merit-based ideology, researchers report in the May 28 issue of Science.
Ingvild Almľs and colleagues used an economic exchange game and a large group of fifth- to 13th-grade volunteers to reach this conclusion. They suggest that more exposure to various achievement-based activities, like sports, could be one of the reasons why the older children eventually shift toward a more merit-based stance.

The researchers say that most adults believe that differences in individual achievements, as well as outside influences, can justify unequal distributions of income, but that they disagree on whether inequalities reflecting luck are fair or not.

Almľs and her colleagues used a modified version of the dictator game, which has been considered the standard experimental design for studying fairness preferences, to gauge the younger generations’ concepts of fairness while the students were distributing wealth among group members.

The researchers found that the large majority of fifth graders were strict egalitarians, but the older students considered individual achievement increasingly important when dividing up their wealth.

The findings demonstrate that, as children get older, they seem to place a heavier emphasis on peoples’ actual production—but not their luck—on pay day. They also imply that social experiences play a role in shaping ’s concepts of .

More information: "Fairness and the Development of Inequality Acceptance," by I. Almas et al., Science.
Provided by AAAS

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Copyrights lawsuit: Yahoo, Facebook side with Google against Viacom

Some of the biggest and most respected Web services have come to the aid of Google and YouTube, which are defending themselves against accusations that they violated copyright on a grand scale.

Yahoo, Facebook and eBay on Wednesday filed a friends-of-the-court brief in the U.S. District Court for the Southern District of New York. That's where Viacom, parent company of MTV Networks and Paramount Pictures, filed a $1 billion copyright lawsuit against Google in March 2007.

The three companies have urged District Judge Louis Stanton to dismiss Viacom's suit, arguing that the Digital Millennium Copyright Act protects Internet service providers from liability for copyright violations committed by users. They say that a decision against Google could stifle the growth of important Internet services.

"Plaintiffs' legal arguments, if accepted, would retard the development of the Internet and electronic commerce," wrote a lawyer representing the four companies.

Viacom alleges that YouTube, which Google acquired in 2006, encouraged users to upload unauthorized clips from Paramount Pictures, Comedy Central, and MTV Networks to the video-sharing site. Those clips helped YouTube attract users as well as generate ad sales, Viacom claims.
The amicus brief filed on Wednesday follows a similar type of filing made by NBC Universal, Warner Bros., Disney, the Screen Actors Guild, and Directors Guild of America on behalf of Viacom.

That so many powerhouse companies are weighing in is testament to the importance of the case. The court's decision will likely help establish copyright law as it applies to the Web.

In response to Wednesday's filing, Kelly McAndrew, a Viacom spokeswoman, told Bloomberg: "The courts have been clear that creating and building a Web-based business on the intellectual property of others is illegal. That is exactly what YouTube did in its formative years."

But when it comes to services such as YouTube, the law hasn't been as clear as McAndrew asserts--not to the courts or even Viacom executives.

In September, a U.S. district judge ruled in favor of Veoh, an online-video service, after that site was sued by Universal Music Group for alleged copyright violations. Legal analysts have said that the Veoh case is very similar to YouTube's but Viacom has argued that there are important differences and that decision, which Universal said it will appeal, is not binding on Stanton's decision.

And Viacom also has had trouble determining whether the DMCA protects YouTube.

On Friday, more documents in Viacom vs. Google were released and among them was an e-mail from Michael Fricklas, Viacom's general counsel, in which Fricklas appeared to defend YouTube.

"Mostly, YouTube behaves--and why not," Fricklas wrote in July 2006. "User-generated content appears to be what's driving it right now. Also, the difference between YouTube's behavior and Grokster's is staggering. While the Supreme Court's language IS broad; the precedent is not THAT broad."

A Viacom spokeswoman said Fricklas' e-mail was sent before Fricklas had a chance to fully evaluate YouTube and "in a few short months, it became clear to Mr. Fricklas and others that YouTube's behavior was egregiously unlawful."
By Greg Sandoval covers media and digital entertainment for CNET News. He is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at

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Thursday, May 27, 2010

Raja Petra challenges Govt to bring him to trial in London

Raja Petra can’t be tried in Britain


PETALING JAYA May 26, 2010: The Govern-ment cannot bring fugitive blogger Raja Petra Raja Kamarudin to trial in Britain even if it wanted to.

Bar Council vice-president Lim Chee Wee said Malaysia would have to bring Raja Petra back to prosecute him.

“Essentially, it can’t be done,” he said when asked about Raja Petra’s challenge to the Malaysian Government to try him in Britain.

“You have to bring him back to prosecute him. To do that, you have to check if there is an extradition treaty with Britain.

“And if there is, it depends whether UK gives consent. One factor is whether he can get a fair trial in Malaysia,” said Lim.

It was reported on Monday that an online news portal had written that Raja Petra said he would seek a level playing field in his fight against charges of defamation and sedition as well as his appeal against his detention under the Internal Security Act.

Raja Petra refuted the notion that he should return home to defend himself at a Malaysian court, adding that it was the prosecution’s job to prove guilt.

He has two warrants of arrest issued against him for not attending up for his sedition trial in April and May last year.

Another lawyer, Norman Fernandez concurred with Lim that Raja Petra cannot be tried in Britain. “There is no provision to try him in UK. He is not a war criminal.

“And if he is tried there, and found guilty, can he serve his sentence in a UK prison?” he said.

Fernandez said Raja Petra was merely taunting the Malaysian authorities after he managed to slip out of the country.

“He’s thumbing his nose at the Malaysian authorities and saying ‘Catch me if you can’. He knows it is not easy to bring him back to Malaysia,” he said.

Fernandez said nobody knew Raja Petra’s residential status in Britain.

“If he is a visitor, then his term of stay in the country is limited. He could have entered Britain through special documents. Or as a refugee.

“We don’t know, and the British authorities have yet to shed light on this,” he said.
Former Selangor PKR Youth chief Hamidzun Khairuddin, who joined Umno in 2004, called Raja Petra a traitor to Malaysians.

Raja Petra challenges Govt to bring him to trial in London
PETALING JAYA May 25, 2010: Fugitive blogger Raja Petra Raja Kamarudin has turned up in London and threw a challenge to the Malaysian Government to bring him to trial in the United Kingdom.

An online news portal reported that the writer had said that he would seek a level playing field in his fight against charges of defamation and sedition as well as his appeal against his detention under the Internal Security Act.

“I will take on the Government and I will fight them but I will do what Sun Tzu said, ‘Fight him in your territory.’

“So my territory is here in the UK,” he said in a speech in a hall in Holborn in London on Saturday.

The talk was reportedly organised by the Solicitors International Human Rights Group.

Raja Petra refuted the notion that he should return home to defend himself at a Malaysian court, adding that it’s the prosecution’s job to prove guilt.

He also said that Opposition Leader Datuk Seri Anwar Ibrahim, who is facing a sodomy charge, was in a different situation.

“Anwar has accepted the fact that he has to stay (in Malaysia) as he aspires to be the next prime minister. I have no political aspirations.

“I’ll probably be a free man longer than Anwar,” the Malaysian Insider news portal quoted him as saying.

In April, Home Minister Datuk Seri Hishammuddin Tun Hussein said that the police were investigating how Raja Petra had used other channels to go overseas without any trace of immigration records when he left the country.

Raja Petra, who has two warrants of arrest issued against him for not turning up for his sedition trial in April and May last year — had possibly escaped to Thailand via Langkawi


Could humans be infected by computer viruses?

 ( -- A scientist at the University of Reading has become the first person in the world to be infected by a computer virus.
 humans be infected by computer viruses?
 Dr Mark Gasson, from the School of Systems Engineering, contaminated a computer chip which had been inserted into his hand as part of research into human enhancement and the potential risks of implantable devices.

These results could have huge implications for implantable computing technologies used medically to improve health, such as heart pacemakers and , and as new applications are found to enhance healthy humans.

Dr Gasson says that as the technology behind these implants develops, they become more vulnerable to computer viruses.

"Our research shows that implantable technology has developed to the point where implants are capable of communicating, storing and manipulating data," he said. "They are essentially mini computers. This means that, like mainstream computers, they can be infected by viruses and the technology will need to keep pace with this so that implants, including medical devices, can be safely used in the future."

Dr Gasson will present his results next month at the IEEE International Symposium on Technology and Society in Australia, which he is also chairing.

A high-end (RFID) chip was implanted into Dr Gasson's left hand last year. Less sophisticated RFID technology is used in shop security tags to prevent theft and to identify missing pets.

The chip has allowed him secure access to his University building and his mobile phone. It has also enabled him to be tracked and profiled. Once infected, the chip corrupted the main system used to communicate with it. Should other devices have been connected to the system, the virus would have been passed on.

Dr Gasson said: "By infecting my own implant with a we have demonstrated how advanced these technologies are becoming and also had a glimpse at the problems of tomorrow.

"Much like people with medical implants, after a year of having the implant, I very much feel that it is part of my body. While it is exciting to be the first person to become infected by a in this way, I found it a surprisingly violating experience because the implant is so intimately connected to me but the situation is potentially out of my control.

"I believe it is necessary to acknowledge that our next evolutionary step may well mean that we all become part machine as we look to enhance ourselves. Indeed we may find that there are significant social pressures to have implantable technologies, either because it becomes as much of a social norm as say mobile phones, or because we'll be disadvantaged if we do not. However we must be mindful of the new threats this step brings."
Provided by University of Reading
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Govt delays decision on sukuk size and timing

Swings in emerging-market assets the reason, say sources

 It is still a 50:50 chance that Malaysia will try to tap in such a shaky market
- Sergey Dergachev of Union Investment

KUALA LUMPUR: Malaysia has delayed making a decision on the size and timing of its first sale of Islamic bonds in eight years due to unstable market conditions, say two people with direct knowledge of the plan.

The decision would not be made this week because of swings in emerging-market assets, said one of the people, who declined to be identified because discussions were private. Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah didn’t pick up calls to his mobile phone seeking comment.

The Government had planned to determine the final size of the sukuk notes this week after completing an international roadshow to promote the securities to investors in Asia, the Middle East, Europe and the US. Sales of sukuk rose 31% so far in 2010 from the same period of last year.

“It’s still a 50:50 chance that Malaysia will try to tap in such a shaky market,” said Sergey Dergachev, who helps manage about US$6bil of emerging-market debt at Union Investment in Frankfurt.

Emerging-market assets have slumped over the past month as the debt crisis in the European Union fuelled concern the global economic recovery will stall. The extra yield investors demand to hold debt of developing nations over US treasuries widened 25 basis points in the past week to 345 basis points yesterday, according to JPMorgan Chase & Co’s EMBI+ Index.

The sukuk deal was subject to stable market conditions and it would take time for Middle Eastern investors to process any purchases, said the other unnamed person with knowledge of the matter.

Malaysia is turning to the international debt market for the first time since 2002 as it aims to increase development spending and boost economic growth. Indonesia this month trimmed the size of its planned sales of Islamic and yen-denominated debt because of concern that Greece’s debt crisis would spread.

The MSCI Emerging-Markets Index has lost 17% from its April 15 high on concern Europe’s 750 billion euro (US$922bil) aid package for indebted nations would fail to prevent a global economic slowdown.

Malaysia Airports Holdings Bhd said in a statement to Bursa Malaysia on Tuesday that it was considering issuing ringgit- and dollar-denominated debt among “various options” to meet funding needs.

The company planned to issue US$500mil of conventional bonds and RM1bil of sukuk to finance its second low-cost carrier airport project, Reuters reported last Friday, citing unidentified people with knowledge of the deal.

State-owned Petroliam Nasional Bhd’s (Petronas) Islamic dollar bonds rose, snapping a five-day drop.

The yield on Petronas’ 4.25% sukuk due in August 2014 fell two basis points to 3.94%, according to Royal Bank of Scotland Group Plc. — Bloomberg

Can Malaysia make it easier to pay taxes?

Pemudah is working on an effective and efficient tax system to strengthen Malaysia’s revenue collection and the public sector
Policy Perspective - By Datuk Chua Tia Guan

 “IN Sweden, we pay taxes online. The corporate income tax, value-added tax, labour contributions and property tax are filed in a single form. Doesn’t everyone do it that way?” This is a question raised by Mr Astrid, a business owner in Sweden where the tax system is highly simplified.

Back home, in Malaysia, what kind of tax system do we want? Have we ever asked ourselves, why can’t we do away with individual tax filing for employees who don’t have income other than salary since they are already under the Schedular Tax Deduction scheme?

How much more tax revenue needs to be collected from such filings vis-a-vis the additional administrative cost incurred?

Successful Tax Reforms

According to the World Bank, simple moderate taxes and fast, cheap administration mean less hassle for businesses – also more revenue collected and better public service. Since 2005, 90 reforms in 65 economies have pointed to the following four most successful tax reforms:

l Introduce online filing
 “A quarter of the world’s countries have electronic filing and payment of business taxes. That means no need for paper documents – and no need for personal interaction with tax officers. A third of the world’s countries now use electronic payment methods such as bank transfers – and half use payment by cheque.”

l Combine taxes
“Almost 50% of countries have more than one labour tax or contribution, 27% more than one tax on profits and 41% more than one tax on property. If the base is the same (salaries, profits or property value), why not just combine them? Having multiple taxes increases the bureaucratic burden for both the taxpayer and tax administration.”

l Simplify tax administration
“Making the tax rules for business complex is unlikely to bring about more revenue – quite the opposite in fact. Countries that do not require special books (i.e. separate book-keeping requirements for tax purposes only) have 10% more revenue (as a percentage of GDP) on average than countries that do. And having a clear tax law increases tax revenue by 6% on average.”

·Reduce tax rates and broaden the base
“High tax rates can force companies into the informal sector (i.e. businesses have a strong incentive to evade taxes). Such countries can increase tax revenue by lowering rates and persuading more businesses to comply with the new tax system.”

Focus Group on Paying Taxes

Based on the above successful tax reforms in other countries, the Pemudah’s (Government’s Special Task Force to Facilitate Business) Focus Group on Paying Taxes addresses the taxes and mandatory contributions that a medium-sized company must pay or withhold in a given year, as well as measuring the administrative burden in paying taxes.

These measures include the number of payments an entrepreneur must make; the number of hours spent preparing, filing and paying; and the percentage of profits they must pay in taxes. Malaysia’s ranking in the World Bank’s Paying Taxes Indicator is tabulated in the table above.

The Focus Group is working on three broad areas:

·Income taxes – corporate tax, individual tax, and stamp duty;
·Customs taxes – sales tax, service tax, excise duty, and goods and services tax;
·Other taxes – Employees Provident Fund (EPF), Social Security Organisation (Socso), Human Resource
Development Fund (HRDF), road tax and quit rent.

Paying Taxes Made Easy

Paying taxes has been made easy with many improvements to the public delivery system in taxation made by the relevant ministries and Government agencies, some of which through the recommendations of the Focus Group on Paying Taxes.

The following are the improvements made to date:

Income Taxes by the Inland Revenue Board (IRB)
·Reducing the period taken for refunding tax overpaid due to companies and individuals from one year to between 14 and 30 days in cases of submissions through e-Filing;

·Refunding tax overpaid for the current year of assessment without reference to the previous years of assessment;
·Years prior to 2006 assessment to be finalised later and further monies repayable/tax payable to be dealt with separately; and
·Refunding tax overpaid directly to taxpayers without the need for formal application.
·Reduce the number of procedures and the processing time taken in the assessment of stamp duty.
·Introduce e-registration for companies and individuals to register their tax files online.
·Companies can submit their estimates and revisions of corporate tax liability online.
·Issue guidelines to stipulate the conditions and circumstances that would allow overpayments to be set-off against tax instalments. This includes guidelines on when a group of companies could enjoy this set-off and the required documents.
·Issue guidelines to stipulate the circumstances in which lower tax estimates could be considered.
·Issue guidelines to stipulate circumstances in which penalties on late payment or under-estimation could be lowered or waived and the scale of penalties which would increase with the number of offences the companies committed.
·Individual employees are relieved of the burden of having to claim for deduction in their personal tax returns with the introduction of a list of common employment benefits.
This guide helps to clarify to the employers the activities that could be considered as expenditures incurred by the employees.
·A joint review of the Public Ruling on Entertainment Expenditure has helped to clearly outline the circumstances under which a company would be eligible for a full or partial deduction on entertainment expenses.
·Taxpayers and tax agents can submit their tax returns at any assessment branch in addition to the central processing centre. All that is required is that they provide the proof of submission by manual means.
·The IRB has also incorporated an English section on its website to ensure that non-residents and foreigners are able to access information pertaining to their tax returns.
·The IRB’s Client Charter now stipulates the timelines for IRB staff to address taxpayers’ appeals and objections. There is an internal mechanism to monitor their adherence to the charter.

Customs Taxes by the Royal Malaysian Customs
·Companies are now allowed to make payments at the nearest Customs office instead of only at controlled stations.
·Excise Forms 7 and 8 can now be downloaded from the website and forms can be submitted through diskette, CD or thumb drive.
·The new Sales Tax Composite Form CJP1 is now only needed to be submitted in three copies instead of the obligatory six copies previously.
·Eliminate the requirement to submit the Daily Sales Record (Attachment A of Form CP3) for Service Tax purposes as well as an attachment to the Sales Tax Form CJ10.

Other Taxes
 ·Encourage electronic submission of EPF, Socso and HRDF contributions by employers.
·Introduce MyCOID where companies require just one standard identification number (i.e. the Companies Commission of Malaysia (CCM) registration number) to interact with different Government agencies including CCM, IRB, HRDF, EPF, Socso and SME Corp.

Tax Reform

Tax reform is an important element of our Economic Transformation Programme (i.e. the New Economic Model). Effective and efficient tax system will strengthen our revenue collection and the public sector at large.

Continuous improvements to the tax system would ensure that we are globally competitive in attracting foreign direct investments and encourage domestic investments. The following are some of the proposals currently being pursued by the Focus Group on Paying Taxes:

·Currently, in relation to employment income, the Schedular Tax Deduction (STD) is made on the basis that tax reliefs are claimed on EPF, spouse and children only. As such, the STD may be over-deducted and resulted in a tax refund situation.

It is proposed that taxpayers with only an employment income source who do not wish to claim the tax refund be exempted from annual tax filing.

·It is proposed that IRB makes an advance announcement that compensation for late refund for tax will be implemented, say in 2015. This will allow IRB to have sufficient time to make preparation for the execution.

·The six-year timeframe within which a tax audit can be carried out is too long and creates uncertainty for business. In Australia, the timeframe is four years and in the United Kingdom it is around two years. In line with global benchmark, it is proposed that time barred to be reduced from six years to four years.

·To consolidate the payments for EPF, Socso and HRDF into one payment.

·To standardise the definition of wages for the purpose of computing EPF, Socso and HRDF contributions.

Together, We Can Do It Better

Since the establishment of Pemudah, many improvements to the public delivery system as initiated by the task force have been made by the respective ministries and agencies.

These improvements are in the areas of starting a business, business licences, dealing with construction permits, immigration matters, tax administration, trading across borders, enforcing contracts, registering property and e-payment facilities.

Details can be found at Pemudah’s website,

These improvements would not have been achieved without the hard work of the government ministries and agencies as well as the suggestions and feedback from the public. We strongly believe that together we can make Malaysia a good place to do business and a great place to live.

  • Datuk Chua Tia Guan is a member of Pemudah and chairman of Pemudah’s Focus Group on Paying Taxes.