Spectacular fireworks explode over the Huangpu River during the opening ceremony for the 2010 World Expo held in Shanghai, east China, April 30, 2010. (Xinhua/Zhang Ming)
BEIJING, April 30 (Xinhua) -- With fireworks lighting up the night's sky and electrifying the city, the six-month 2010 Shanghai World Expo opened Friday night to music and dances in a 90-minute inauguration ceremony.
It was destined to be a moment crowded with glamour and splendor when China's metropolis of Shanghai was chosen to host the 41st World Expo almost eight years ago.
A total of 189 countries and 57 international organizations are participating in the event, the biggest number in the history of the exhibition.
Some 20 world leaders were present at the opening ceremony, including Chinese President Hu Jintao, French President Nicolas Sarkozy and South Korean President Lee Myung Bak.
Addressing the ceremony, the International Exhibitions Bureau (BIE) President Jean-Pierre Lafon said "Better City, Better Life", the chosen theme of the exhibition, must drive people to improve the quality of life for the citizens of both developing and developed countries as the majority of the world's population now lives in cities.
He hoped the Shanghai Expo would contribute to a social awakening so cities might become more sustainable, safer and more harmonious, adding that he wished the event a success.
Following Hu's official opening of the eagerly anticipated event, performances by China's famous pianist Lang lang, Italian tenor Andrea Bocelli and many other Chinese and international celebrities embraced the warmth of the audience present and those watching on TV around the world.
A boy and a girl orphaned in an earthquake that shook Yushu county in China's northwest Qinghai Province two weeks ago also featured, wearing traditional Tibetan costumes, when the indoor show came to close in the Expo cultural center on the eastern bank of the Huangpu River.
The ceremony launched a half-year opportunity for all participating nations and institutions to show their best to the world.
The fairy tale nation of Denmark brought the "Little Mermaid" statue out of the country for the first time.
Poland's presentation will focus on the economy and tries to show its image as a modern country, member of the European Union with good prospects of economic development, according to the Polska Times.
France, whose president is the first among the world leaders to come to China for the World Expo, has decorated its pavilion with famous impressionist paintings and Rodin sculptures.
French television BFM and iTele live broadcast the opening ceremony.
BFM's reporter at the scene called the event another festival following the Beijing Olympic Games, as the active participation of countries across the world made it global.
Penang's high-technology dreams hit by double whammy
THE evolution of the technology sector into a veritable hub that supports a variety of high-technology industries has hit a snag, prompting both the federal and state governments to race against time to clear the obstacle.
Known as the “Silicon Valley” owing to the establishment of US-based semiconductors companies such as Intel, AMD, and Fairchild Semconductor in the 1970s, Penang’s technological hub is now facing a shortage of workers and recurring power disruptions.
Having evolved from its semiconductor mould in the 1990s, the Silicon Valley has branched out to provide support for other technology industries in the light-emitting diodes, medical devices, aerospace, automation, and test and measurement devices sectors.
In an interview, Penang Chief Minister Lim Guan Eng says that besides the scarcity of land, human resource is another constraint for Penang, as newly-promoted sectors - such as shared services and business processed outsourcing (BPO) activities — require large numbers of skilled workers such as engineers, scientists and accountants.
“Penang cannot produce sufficient numbers to cater to these requirements. We need to train and retrain new and existing human resources as well as attract new talents,” says Lim.
Last September, Lim said the state was unable to supply 1,000 engineers which had resulted in Penang losing some US$3bil in investments.
Penang Free Industrial Zone Companies’ Association president Horst Rosenmueller says about five years ago, the investments that poured into the state became more involved in product development and designing, and complex manufacturing activities.
“This led to a greater demand for higher skilled workers and more operators. At both levels, we are experiencing a severe shortage of employees, which poses a challenge to expansion and potential investments, should the problem persists,” he says.
Penang Foundry & Engineering Industries Association president Datuk Ng Chai Eng says the Federal Government lacks an understanding on the needs of the electronics sector.
“That is why the engineers that the education system is producing do not meet the needs of the industry. There are many local technicians and engineers today who can’t handle new range of computer numerical control (CNC) machines with more than five axes,” he says.
(A five-axis CNC machine refers to the ability of the machine to move a part or tool on five different axes simultaneously.)
The Penang’s ‘Silicon Valley’.
Regular disruption
The problem is not to be taken lightly. Driving home this point is Pentamaster Corp Bhd executive chairman C.B. Chuah who recently said that the lack of skilled engineers would eventually sound the death knell of the automated equipment manufacturing industry in Penang.
“China will overtake us in the automated equipment segment in two to three years because it has better engineers who can produce innovative equipment that are cost-effective to manufacture,” he says.
Last April, Institute of Engineers Malaysia president Professor Datuk Chuah Hean Teik had noted that Malaysia was facing a shortage of engineers, which would impede the country’s development.
He says there is a need to train more engineers before the situation becomes critical, adding that the country will need about 200,000 engineers by 2020. “Currently, there are only 60,000 engineers in the country. We should plan ahead and not wait until there is an acute shortage.”
Besides the labour-shortage problem, there is also the recurrence of regular power disruption in Penang’s technology hub.
Rosenmueller says many of the companies here experience power disruption at least once a month.
“The power disruption may not be long in duration, but it delays the production process and increases wastage, as the machine and the production line have to be re-started,” he says, adding that Penang will lose out in foreign direct investments from Japan if the manpower shortage faced by the manufacturing sector prolongs and energy supply disruptions by Tenaga Nasional Bhd (TNB) are not resolved.
Due to the global recession, the State Government had a total of only 104 projects with investments totalling RM2.17bil last year, RM1.45bil of which came from overseas. In 2008, total investments brought in RM10.2bil.
“From the 104 projects, 61 were new projects totalling RM1.37bil while 43 were expansion or diversification investments with RM796.9mil.
“The projects approved were expected to create potential employment for 8,696 people,” he says.
Despite the labour shortage, the state’s electronics and electrical sector recorded the highest investment approved in 2009 with RM608.29mil for 30 projects.
The chemical products and test and measurement equipment industries registered the second and third highest with RM445.40mil and RM303.52mil respectively. The state’s gross domestic product has grown from approximately RM1.3bil in 1970 to RM21bil to date. This increase is largely due to the expanding manufacturing sector that now accounts for 39% of Penang’s economy, with the services sector contributing 57%.
Penang has now 1,427 companies, of which 227 are multi-national corporations employing 202,000 workers, where 50% of them are in the electrical and electronics industry. Penang contributes nearly 25% to Malaysia’s imports and exports both in value and volume.
Seeking a solution
To tackle the skills-shortage woes, the recently-formed Penang Skills Development Centre (PSDC) has asked for RM55mil funds under the 10th Malaysian Plan to establish a programme for diploma and degree holders to acquire the hard and soft skills in engineering in the shortest time possible via a finishing school concept.
PSDC chief executive officer Datuk Boonler Somchit says engineers need to be trained for one to two years to become productive.
“This means the companies that provide such training to the fresh graduates during this period will lose productive work. There is a need to formalise a system for graduates to acquire fast-tracked training and experience in six to eight months,” he says.
“The PSC will provide children mentoring on how to make scientific and technological ideas commercially viable,” Lim says, adding that the state has also set aside a 200-acre land in Balik Pulau for an education hub to woo investments from the private sector to build schools to produce the next generation of knowledge labour.
“We believe we can turn Penang into a showcase for silicon and software valley of Malaysia eventually becoming both a sweat-shop of the manufacturing industry and a smart-shop of the services industry,” he says.
On the problem of regular power disruptions, Lim says he will seek a meeting between all parties, including the top management of TNB.
New direction
Due to scarcity of land, the State Government is also keen to attract high-end technology businesses involved in research and development which require relatively smaller land space or built-up space. However, these companies need to meet the requirement of providing world-class services, adhere to international safety standards and have exposure to a wide market.
BPO fits well into this. It is noteworthy that last year, hard-disk maker Seagate, test and measurement devices manufacturer National Instruments, and broadband communications and storage semiconductors provider PMC-Sierra Inc established their BPO and intellectual property headquarters at the RM100mil SunTech Tower in Bayan Lepas.
A report last year entitled “Exploring Global Frontiers” by KPMG pointed out that Penang was among the 31 sites in the world that could become alternative BPO centres to established Indian cities. The credit crisis had resulted in a new rush for outsourcing services and a number of new locations were emerging as viable BPO hubs, according to the report.
Penang’s strength as a BPO hub has attracted MNCs such as Intel, Dell, Motorola, Citicorp and IBM to set up such centres in Penang.
Besides BPO companies, the State Government’s aim to bring in high-value activities has led to internationally-known companies such as National Instruments (NI), Rubicon Inc, B. Braun, and Symmetry Medical to set up or expand their research and development activities.
NI (Penang) managing director Rajesh Purushothaman says it will develop its products from concept to be released in Penang, which include the hardware, software and firmware. “This is very similar to what we do in our research and development centre in Austin, US.”
Illinois-based Rubicon Technology Inc is setting up a state-of-the-art LED operation in the Prai Industrial Estate to perform a high-end manufacturing process known as post-crystal growth processing.
B. Braun is also investing about RM500mil to expand its research and development and manufacturing facilities at its plant in Bayan Lepas to undertake R&D activities in nano technology, information technology and digitalisation to improve its medical products such as needles.
Meanwhile, US-based Symmetry Medical Inc, the world’s largest orthopaedic product outsourcing firm, also plans to invest RM30mil over the next two years for the design and development of medical devices for the endoscopy industry.
BEIJING: A multi-billion-euro aid package for Greece will be hammered out within days and the bailout will prevent the crisis from spilling over to other countries, European Commission president Jose Manuel Barroso said yesterday.
Speaking to reporters in Beijing, Barroso said he had discussed Greece’s troubles in meetings with Chinese Premier Wen Jiabao and that China remained confident in the euro even as sovereign debt worries ripple across Europe.
“I don’t think that China is lacking confidence in the European Union (EU) or the euro, on the contrary,” he said.
He also said Chinese leaders “never mentioned” any possible aid for Athens. Reports that Greece would sell bonds to China spurred market optimism earlier this year, but the Greek government subsequently denied there was any deal in place.
Visitors look at an art work featuring a projection of a Chinese renminbi note with a talking Mao Zedong at a gallery in Beijing. The Chinese currency has steadily appreciated against the euro since the end of last year.— AP
International Monetary Fund (IMF), European Union (EU) and European Central Bank officials are in Athens to negotiate the bailout and hope to wrap up a deal within days in an effort to avoid a debt default in Greece that could sink other fragile EU countries.
Barroso said they were “making solid, rapid progress” in drawing up the rescue package, reiterating that debt restructuring was not on option for Greece.
He also said the aid deal “will prevent further possible effects” of the crisis from spreading within the EU.
German politicians have said the aid package could be worth 100 billion-120 billion euros over three years, against an original plan for 45 billion euros of aid in 2010.
Greece has readied severe austerity measures demanded as a condition for the aid, providing relief to financial markets but drawing threats from unions of a mighty battle to come.
Union officials said the IMF asked Athens to raise sales taxes, scrap bonuses amounting to two extra months pay in the public sector, and accept a three-year pay freeze.
Greece’s debt woes served as a reminder of the need to address economic imbalances both inside and beyond Europe, Barroso said.
In the past, EU leaders have pointed their fingers at an undervalued yuan as a source of global imbalances, fuelling China’s massive trade surplus with Europe. But Barroso had a softer tone in public, at least after his latest round of meetings in Beijing.
“We are not putting pressure on anybody,” he said.
He added that it was natural that “the main global players discuss these issues of global imbalances, because we need to have a common approach, we need to restore growth globally.”
China had “clearly understood” EU’s message on currencies, Barroso said.
Beijing has effectively pegged the yuan at about 6.83 to the dollar since mid-2008, trying to cushion its exporters from the global economic downturn.
Tracking the dollar’s movements, the Chinese currency has steadily appreciated against the euro since the end of last year. — Reuters
CAMBRIDGE – Greece will default on its national debt. That default will be due in large part to its membership in the European Monetary Union. If it were not part of the euro system, Greece might not have gotten into its current predicament and, even if it had gotten into its current predicament, it could have avoided the need to default.
Greece’s default on its national debt need not mean an explicit refusal to make principal and interest payments when they come due. More likely would be an IMF-organized restructuring of the existing debt, swapping new bonds with lower principal and interest for existing bonds.
Or it could be a “soft default” in which Greece unilaterally services its existing debt with new debt rather than paying in cash. But, whatever form the default takes, the current owners of Greek debt will get less than the full amount that they are now owed.
The only way that Greece could avoid a default would be by cutting its future annual budget deficits to a level that foreign and domestic investors would be willing to finance on a voluntary basis. At a minimum, that would mean reducing the deficit to a level that stops the rise in the debt-to-GDP ratio.
To achieve that, the current deficit of 14% of GDP would have to fall to 5% of GDP or less. But to bring the debt-to-GDP ratio to the 60% level prescribed by the Maastricht Treaty would require reducing the annual budget deficit to just 3% of GDP – the goal that the eurozone’s finance ministers have said that Greece must achieve by 2012.
Reducing the budget deficit by 10% of GDP would mean an enormous cut in government spending or a dramatic rise in tax revenue – or, more likely, both. Quite apart from the political difficulty of achieving this would be the very serious adverse effect on aggregate domestic demand, and therefore on production and employment. Greece’s unemployment rate already is 10%, and its GDP is already expected to fall at an annual rate of more than 4%, pushing joblessness even higher.
Depressing economic activity further through higher taxes and reduced government spending would cause offsetting reductions in tax revenue and offsetting increases in transfer payments to the unemployed. So every planned euro of deficit reduction delivers less than a euro of actual deficit reduction. That means that planned tax increases and cuts in basic government spending would have to be even larger than 10% of GDP in order to achieve a 3%-of-GDP budget deficit.
There simply is no way around the arithmetic implied by the scale of deficit reduction and the accompanying economic decline: Greece’s default on its debt is inevitable.
Greece might have been able to avoid that outcome if it were not in the eurozone. If Greece still had its own currency, the authorities could devalue it while tightening fiscal policy. A devalued currency would increase exports and would cause Greek households and firms to substitute domestic products for imported goods. The increased demand for Greek goods and services would raise Greece’s GDP, increasing tax revenue and reducing transfer payments. In short, fiscal consolidation would be both easier and less painful if Greece had its own monetary policy.
Greece’s membership in the eurozone was also a principal cause of its current large budget deficit. Because Greece has not had its own currency for more than a decade, there has been no market signal to warn Greece that its debt was growing unacceptably large.
If Greece had remained outside the eurozone and retained the drachma, the large increased supply of Greek bonds would cause the drachma to decline and the interest rate on the bonds to rise. But, because Greek euro bonds were regarded as a close substitute for other countries’ euro bonds, the interest rate on Greek bonds did not rise as Greece increased its borrowing – until the market began to fear a possible default.
The substantial surge in the interest rate on Greek bonds relative to German bonds in the past few weeks shows that the market now regards such a default as increasingly likely. The combination of credits from the other eurozone countries and lending by the IMF may provide enough liquidity to stave off default for a while. In exchange for this liquidity support, Greece will be forced to accept painful fiscal tightening and falling GDP.
In the end, Greece, the eurozone’s other members, and Greece’s creditors will have to accept that the country is insolvent and cannot service its existing debt. At that point, Greece will default.
Open Hearings in US reveal the degree of greed and fraud on Wall Street Investment banks such as Goldman Sachs were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis, said senator Carl Levin
Ladies and gentlemen,
Allow me to present the Greatest Show on Earth or How Wall Street brought the Financial Crisis on Itself. There is a cast of thousands, from the most famous to the most guilty. Never have so few made so much money from so many.
See how god’s bankers say: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.” Of course they are god’s bankers – they make money on the way up and make money on the way down.
See how the Financial Crisis Inquiry Commission (FCIC) and the US Senate Subcommittee Investigating Financial Crisis summon almost every week the stars from Wall Street to show how they did it.
The Senate subcommittee chairman, Democratic Senator Carl Levin, said: “Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis.
“They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities, and sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients.”
Senator Carl Levin holds up paperwork while questioning a Goldman Sachs official. — Reuters
Goldman Sachs’ 2009 annual report stated that the firm “did not generate enormous net revenues by betting against residential-related products.” Levin said: “These emails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”
We must admire the United States for its high level of transparency and its willingness to go after the big guns. What these open hearings reveal is the degree of greed and fraud that Wall Street has perpetrated against the whole world in its pursuit of ever-growing profits.
Investors used to listen to these gods pontificate on the trend of the market and now realise that with proprietary trading, these gods are talking one book and trading also the other way. So if you believed them and bought the market up, they were probably selling the market down. This is known as “risk hedging”, but guess who pays when the market crashes?
The taxpayer bails the investment banks out and they are still laughing all the way to their golden bonuses.
April is the cruelest month, especially for Wall Street.
On April 7, the FCIC looked into the securitisation mess, beginning with the testimony of former Federal Reserve chairman Alan Greenspan. On April 13, the Senate subcommittee started the first of four major enquiries, which “examined how US financial institutions turned to high-risk lending strategies to earn quick profits, dumping hundreds of billions of dollars in toxic mortgages into the financial system, like polluters dumping poison upstream in a river.”
Coincidentally, on the same day, the Securities and Exchange Commission charged Goldman Sachs of fraud.
In the second hearing on April 16 on the role of the regulators, the subcommittee “showed how regulators saw what was going on, understood the risk, but sat on their hands or fought each other rather than stand up to the banks profiting from the pollution. Those toxic mortgages were scooped up by Wall Street firms that bottled them in complex financial instruments, and turned to the credit rating agencies to get a label declaring them to be safe, low-risk, investment grade securities.”
The third hearing on April 23 looked at the role of the credit rating agencies and the fourth hearing on April 27 considered the role of the investment bankers.
On hindsight, it was remarkable that the Wall Street bankers, who always had a good grip on what was happening in Washington, had clearly underestimated the public anger against them and their vulnerability.
The session on the credit rating agencies was most illuminating. There are three major rating agencies in the world that do most of the global credit rating business – Moody’s, Standard & Poor’s and Fitch. Most investors rely on the credit rating agencies to assess the quality of their investments, particularly bonds.
With the arrival of Basel bank supervision rules in the 1980s, bank regulators also use credit ratings to assess whether the capital-risk weights are appropriate. Thus, if a bank were to hold junk bonds, then the capital requirements would be higher. Of course, pension and money market funds use the credit ratings to distinguish between safe and risky investments.
The result is that having a AAA credit rating was very helpful to borrowing at cheap rates, whereas a downgrade would not only increase the cost of funds, but also cut off liquidity as investors dump the securities and refuse to hold such downgraded debt.
In the last 10 years, the three biggest credit rating agencies gave AAA ratings to the residential mortgage backed securities, or RMBS, and collateralised debt obligations, or CDOs that fuelled the derivative market bubble. Between 2002 and 2007, these agencies doubled their revenues, from less than US$3bil to over US$6bil per year. Between 2000 and 2006, investment banks underwrote nearly US$2 trillion in mortgage-backed securities, US$435bil or 36% of which were backed by subprime mortgages.
At the heart of the problem is the inherent conflict of interest of the credit rating agencies, because they charged fees for a “public good service”. The Senate subcommittee called this “like one of the parties in court paying the judge’s salary, or one of the teams in a competition paying the salary of the referee.”
The investors thought that they were buying super-safe securities rated AAA. But in reality, 91% of the AAA subprime RMBS issued in 2007, and 93% of those issued in 2006, have since been downgraded to junk status. It was the collapse of confidence in the ratings, which led to the withdrawal of liquidity in the market that triggered the meltdown in 2008.
This is only the beginning of the dirt that is coming out of Wall Street. The show will continue.
THINK ASIAN
By ANDREW SHENG
● 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.
It seemed to me Goldman Sachs had forgotten the first rule of business stated by the late management guru, Peter Drucker
The Goldman Sachs fiasco should remind businesses the purpose of their existence
Whose business is it anyway - by John Zenkin
I WAS going to write about the rather dry subject of risk assessment this week until I watched the Goldman Sachs congressional testimony on Tuesday night and linked it in my mind with an article in The Economist of April 24 entitled “Shareholders vs Stakehol-ders: A New Idolatry” which deals with the old conundrum of where to focus in good governance: on shareholders, customers or employees.
The reason I changed my mind was that I was shocked to listen to three Goldman Sachs traders being unable or unwilling to answer a simple “Yes” or “No” question from Senator McCaskill of Missouri.
Her question was simple and to the point: did they have a fiduciary duty to their clients, which means looking after their clients’ interest first?
Only one of the panel of four said “Yes”.
The other three hedged their answers to the increasing anger of the senator as she repeated her question.
From the testimony it appeared that all that mattered was that Goldman Sachs made money at the expense of the clients it was supposed to serve, even going to the extent of shorting trades that they had sold to their clients as being good investments, even though internal memos described the assets involved as “shi**y”.
Whether their behaviour was illegal is the subject for the courts, though it certainly appeared that the senators believed strongly that what the traders had been doing was unethical.
As I watched, fascinated by the drama, it seemed to me Goldman Sachs had forgotten the first rule of business stated by the late Peter Drucker in 1946 in his book The Concept of the Corporation that “the purpose of business is to create and maintain satisfied customers”.
What is more, this rule of business was Goldman’s own rule as long as they were a partnership because they recognised that the long-term interests of the partners were to avoid alienating their customers in return for a short-term profit.
What seems to have happened since Goldman Sachs went public is that its employees have been able to look after their own interests at the expense of both customers and shareholders.
This is because the money they were playing with was no longer theirs, but that of other people – their investors and their shareholders.
This suggests that there are limits to how much a company can look after the interests of its employees, especially when they are paid enormous bonuses, apparently regardless of how much pain the shareholders are experiencing (as we have seen in the case of AIG or Merrill Lynch).
It is even more the case when the payout comes from the taxpayer in the form of bailouts.
It seems to me therefore that if there is an excessive focus on protecting shareholder or employee interests at the expense of the client or the customer, the company could put itself at unnecessary risk as far as its reputation and license to operate are concerned.
How soon Goldman Sachs will recover from the damage to its brand shown in the following quote from April 28’s Washington Post is anybody’s guess:
“There was a time when issuers would pay a premium to have Goldman Sachs underwrite their securities, just as there was a time when investors would pay a premium to buy into a Goldman-sponsored offering. Today, Goldman has fully monetised the value of its reputation, and anyone who pays such a premium is a fool.”
I was also struck by the fact that their style of defence bore similarities to those of Exxon in the Valdez case, Shell in the Brent Spar case and recently Toyota when it was found wanting on quality. When customers get upset or when NGOs go after companies, their argument is emotional – designed to be fought in the court of public opinion rather than in a court of law. Legal niceties, technical subtleties do not go down well with people who are looking for memorable soundbites.
What ordinary people want to see is someone who shows emotion and empathy, says he/she is sorry and that he/she will try to do better next time and then there can be closure. Lawyers, with their eye on court cases and damages, advise clients to never say sorry and to prevaricate and obfuscate. This merely increases the anger and frustration of the offended parties.
I have, however, yet to see a company suffer because it has focused too much on serving its clients or delighting its customers.
Perhaps a more correct approach in today’s world is that of the new boss of Unilever, quoted in The Economist article referred to earlier, where he says:
“I do not work for the shareholder, to be honest; I work for the consumer, the customer … I’m not driven and I don’t drive this business model by driving shareholder value.”
·The writer is CEO of Securities Industry Development Corp, the training and development arm of the Securities Commission.
A range of issues keeps China in its coveted position as the most watchable country.
CHINA’S global profile remains undiminished this week, despite many other issues competing for international headline space.
The buzz among foreign investors is whether it is too late to “enter the Chinese market.” There is a strong implicit element of time for what will soon be, if not already, the world’s biggest market.
China Daily on Monday ran a piece on how opportunities still exist, particularly for SMEs. A consensus seems to be that while doing business in nominally communist China is better than ever because of improvements in institutional frameworks and the regulatory environment, competition from Chinese rivals particularly “tech companies” is getting tough.
The Google-Baidu competition could be an object lesson here. With incentives like the recent 4 trillion yuan (RM1.88 trillion) stimulus package for state-owned enterprises, China’s capitalist ethic is doing well.
The number of private companies grew more than 4,600% to 6.6 million over the past 18 years. Among foreign corporations, 96% of Fortune 500 companies are already operating in China.
Then there is the negative side as well, including that which reinforces negative stereotypes. This often involves Beijing’s attempts to control cyberspace, and what China’s 384 million Netizens may or may not do.
A Bill of amendments requiring Internet companies and telcos to report on users passing state secrets is up this week for its final reading in the National People’s Congress Standing Committee before becoming law. Associated Press reports that the move has already attracted criticism at home and abroad.
Officially, tightening the law on communications use is to ensure greater national security. Among the problems is that interpretation of what is a “state secret” is open to interpretation and abuse, so the law would be arbitrary and draconian.
More legislation attracting controversy this week concerns modifications to the law on the detention of suspects. When police have been required to pay compensation to persons wrongly detained, now compensation applies only to wrongful and prolonged detention beyond 37 days (one week and one month).
There would be no huge claims; sums derive from the average daily wage of a state employee in the preceding year. However, there are provisions for further compensation in cases of police brutality. Such laws may not be the best indicators of social change. A better measure would be the impact of public debate and argument on the policymaking process.
China’s next international extravaganza, following on the 2008 Olympics, is Shanghai’s World Expo that opens tomorrow. Singapore’s Straits Times bills it as the “glitziest and greenest” Expo of them all.
The organisers would make it the most glamorous World Expo yet. But, mindful of critics who would condemn a commercial showcase with doubtful environmental value, Shanghai’s show would also be the most environment-conscious.
For symbolism, there would be the world’s largest solar panel; for novelty, a restaurant would recycle excess food to produce electricity; and for visitors’ convenience, 1,000 vehicles powered by renewable energy would ferry people around the site.
Four large parks would act as “green lungs” while 3,000 inefficient factories have been closed. The Expo, due to run for six months, took nine years to prepare. The environmental aspects alone cost US$33bil (RM106bil), which is twice that of the Beijing Olympics. This indicates something of the scale with which China operates, ever since the Great Wall. Inevitably, the growing clout of a rising superpower would be reflected in its role in major multilateral institutions. Perhaps the most appropriate here is the World Bank, where this week China nearly doubled its voting power to 4.42%.
This places China as third-powerful in the bank after the US and Japan, reflecting its number three position in world GDP terms. That could soon change again: China’s economy is already bigger than Japan’s in PPP (purchasing power parity) terms, and is set to be number two even in GDP terms this year.
Every other country in the 186-member institution had its share reduced to make way for China’s increased strength except the US, which retained its share at 15.85%. But since the world’s largest debtor nation owes so much of its wherewithal to China’s economy, relations among Bank members may have to change further to remain relevant.
CHINA bashing by now must surely be the most popular sport among Western investors, mass media and institutions. China crashing now, China crashing a few years later, China crashing anytime and crashing forever is the mantra.
A mantra is like a hymn. If you chant it endlessly and repeatedly, it gets stuck in one’s head. However, the fact that it may get stuck in one’s head does not mean that it will happen or that it represents the reality.
In fact, a mantra based on superfluous analysis or worse, an inherent bias, would block the real realities from surfacing. An objective analysis of the global economic conditions would show that this is what is actually happening.
With all the high profile, high publicity given to China bashing, all eyes are centred on China in general and its property sector in particular. Will China crash? When will China crash? i Capital’s managing director gets these questions all the time.
In contrast to all the dire predictions about China, i Capital expects China’s economy to nicely soft land this year. When the Lehman Panic broke out in September 2008, and almost collapsed the world economy, China was ahead of every other economy in implementing economic expansion measures.
China very quickly bottomed out and pulled the global economy out of its worst conditions (which, of course, no Western country has given China any credit). While the US led the world economy into possibly the worst recession in a long time, China and the rest of Asia quickly pulled the world economy out of a US-created catastrophe (seecharts).
As China’s economy recovered quickly and strongly, the Chinese government has subsequently acted very quickly and effectively again. Measures to cool the hot property sector down have already been announced months ago.
China’s government is ahead of the property “bubblet” curve. However, it takes time for the impact to be felt, which is expected to take place in the coming months.
Selected segments of the property sector will cool down but the rest of the economy will still be performing well. China’s economy is huge and a cooling of the property sector will not crash the continental economy.
The decision by The People’s Bank of China not to raise interest rates so far is correct. Why kill the rest of the economy when there is no need to? There are many other effective ways to tackle the property “bubblet”, especially when the cause of the rise in property prices is not low interest rates.
Another unnoticed development that favours China soft-landing this year is that the current global economic recovery is not synchronised. The recovery in the United States is behind that of China and the rest of Asia but it is gathering momentum.
The growth in US exports and the recovery in the industrial sector have led the US recovery. Consumer spending is also recovering and will gather momentum as the US job market improves further. The US housing sector is also expected to contribute positively this year.
As 2010 progresses, the US economic recovery will play a greater role in global economic growth. This is ideal, as it will allow China to turn to other economic sectors for growth while it tackles its property bubblet.
In short, as the US economic recovery gathers momentum in 2010, China’s GDP growth would slow to a healthy, high single-digit rate.
Based on the economic outlook of the United States and China, i Capital sees a benign global economy. Unlike 2006 or 2007, 2010 will see a healthy unsynchronised global recovery. This upbeat view can, of course, be turned topsy-turvy by unexpected events. There seems to be plenty nowadays.
One, while the currency pressure on China seems to have reduced somewhat, the United States is now cleverly turning to other countries and US-dominated global institutions to crack China’s position. Apparently, even India and Brazil are now joining in the bandwagon as prominently headlined on the front page of the Financial Times.
So, although the currency pressure cooker is not boiling over for now, the threat of a trade war needs close watching.
Is China crashing the real worry? Or is the eurozone breaking up the real worry? Actually, an economy that has crashed but that has not been described in this way is the eurozone a.k.a a continent of discontent.
First, it was the PIGS (Portugal, Ireland, Greece and Spain). The budget deficit for Iceland is 14.3%, Greece 13.6%, Spain 11.2%, Portugal 9.4% and China 2.2%. The China bashers say that China’s budget deficit is actually higher because it does not include the local governments. We wonder why the clever Greeks did not think of this simple trickery.
Anyway, the Greek civil servants are on strikes and the budget deficit is running at unsustainable levels. No wonder the Greek economy is not in a sustainable mode. This continent of 35-hour working week but with wages paid equivalent to 350-400 hours of work in China or India is declining fast, faster than what is generally realised or acknowledged.
Greece, supposedly the birthplace of democracy, has transformed itself into a “debtmocracy”. Will China crash, as we all are led to believe, or will Greece be the Sword of Damocles for the eurozone and thus the global economy?
Then, as if Greece et al is not enough, as if an evil spell has been cast on Europe, we all discovered that cash-starved Iceland is actually rich with ashes. Imagine Iceland, more than 1,800km away from London and more than 2,100km away from Germany, taking revenge on the eurozone. Who would imagine that?
The hiatus caused by the volcanic eruption is not small. That a volcano from Iceland is causing so much havoc in the eurozone is symbolic of the very difficult period that this fledgling economic bloc is undergoing.
Almost every economy in the eurozone, including that of the United Kingdom, is in trouble. As i Capital wrote above, this is the reality, this is what is actually happening.
China and the rest of Asia are not crashing. The United States crashed and the eurozone has crashed. Should the East follow the West?
i Capital does not think so although there are many out there who would want to see this happening.
Once again, we have to say, In China We Trust. As i Capital advised previously, “This decoupling is here to stay”.
