China's Competitive Edge In The Outsourcing Space

Egidio Zarrella, 10.07.10, 06:25 AM EDT

China's calculated move from being the world's factory to becoming the world's back office is increasingly becoming a reality, as our recent outsourcing survey finds.

Egidio Zarrella

China’s size, infrastructure and talent pool all indicate a promising future for outsourcing over the coming decade. The numbers speak for themselves: in 2009, industry revenues totalled $13 billion and they are projected to grow to $44 billion by 2014, according to IDC KPMG analyses and Datamonitor.

As China comes to the fore in this space, India remains ahead of the game, which is not surprising given it has a 20-year lead in this space. To put it in context, the vendor industry in India is worth around $60 billion, whereas in China it is a fledgling industry, worth around $25 billion. However, the key point is that it is no longer an India play, as multinationals are increasingly opting to have a balanced portfolio, with outsourcing centers located in a number of countries and regions. This is in order to mitigate potential social, economic and political risks, and to avail of favourable government incentives, which tend to vary from country to country.

China’s outsourcing industry has also been shaped by different factors to those of India. Its growth has been founded on the domestic market as well as nearby overseas markets such as Japan and Korea. It continues to branch out into new markets, taking advantage of its strong infrastructure and talent pool, as well as diverse language skills. Our latest survey (KPMG Pulse Survey: Shared Services and Outsourcing in China) confirms the extent to which outsourcing has become prevalent amongst organizations across Asia. These activities are no longer the preserve of US and European companies looking to offshore their back office functions.

Eighty-one percent of the 280 Asia-based respondents said they had a strategy that involved outsourcing. China was their number-one choice of location, ahead of India and Singapore. Most respondents said they had outsourced to more than one other country, with many still choosing more developed hubs like Singapore and Hong Kong as well.

It is important to note that Asian companies outsource just as much as their Western counterparts, as they all look for efficiencies in their supply chains. To illustrate this point, the survey indicates that almost 80% of respondents either have shared services in one location or two, as well as outsourcing various functions.

One of the key drivers to outsource is that of demographics. Australia, Korea and Japan are aging populations, and as a result they are increasingly tapping into the workforce of countries like China, India, the Philippines and Malaysia. In contrast to India, where the industry moved up the value curve sequentially, it appears that IT Outsourcing (ITO), Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) functions are all emerging simultaneously in China. This is a seismic shift as China increasingly becomes home to more of the world’s intellectual firepower.

China’s scale--and the number of potential outsourcing cities and service providers to choose from--offers huge opportunity for the market ahead of its competitor nations. Organizations are able to source multiple suppliers within one country, which reduces their dependence on a single location or supplier. It has a large domestic market, a government that invests heavily in infrastructure and a large pool of graduates that form the workforce. It offers good logistics operations, in addition to competitive wages. It does now need to shift from manufacturing into services, in order to maintain its competitive edge. Its main consumers in Europe and the US are purchasing less and this means their importance to China will lessen as its economy continues to expand. There will be less opportunity to sell its goods to overseas markets. This will equate to steady volume growth, while margins continue to fall and investment in factories and equipment will decline. Hence the need to shift its focus to services.

Current developments are encouraging, as we continue to see China’s political leadership support the growth of the outsourcing sector. This is evidenced by the series of Five Year Plans, where the foundations were laid for the development of the service outsourcing industry. There are now twenty-four designated outsourcing cities and over 9,000 service providers in China.

While India has tended to provide outsourcing for US and European organisations, China has mainly serviced the Korean and Japanese markets, partly due to geographical proximity and similar time zones. Our survey found that outsourcing strategies are no longer just about cost arbitrage. Equally or even more important is the need to ensure access to a reliable supply of abundant and skilled talent. China’s workforce boasts an impressive array of language skills, both Asian and European.

The government has made English a priority in schools and universities, boosting the country’s ability to win business from western markets. Another source of high quality skills is the large number of Chinese returnees who have the much needed project management experience. While China has a massive pool of outsourcing professionals, special domain expertise is crucial in order to maintain a competitive edge.

Government support continues to play an important role, with more encouragement being given now to domestic companies to outsource as well. China plans to train 1.2 million service outsourcing professionals by 2013, while 1 million college graduates are expected to find jobs in this sector within the same time frame. Financial subsidies for training and tax incentives also help to drive more interest in this sector.

Infrastructure is crucial, as without adequate telecommunications and transportation networks, it is difficult to attract investors and multinationals. China has invested heavily in a modernized telecommunications network with high-speed broadband connections in the major cities. It has also developed technology parks to further attract multinationals to locate here.

China has also made rapid progress in the development of shared services facilities. Accounting and finance already surpass IT as the most common functions being conducted by shared services centres in China, while HR functions are increasingly being outsourced or offshored. In terms of moving up the value chain, as service providers expand and the industry continues to mature, many are providing higher-value services. The government has also initiated a drive to encourage multinational corporations to set up research and development (R&D) centers in China. There are now over 1,200 R&D centers established by multinationals across China, benefiting from the vast R&D talent pool, according to numbers provided by the Ministry of Commerce.

It is also increasingly looking at the potential of its domestic market, particularly for automotive, telecommunications and financial services. Historically, the domestic service providers have primarily served the local government and state-owned enterprises (SOEs). While they may have an edge over the international players in the local market, they are limited by their size and experience of managing large scale and complex projects. The anticipated domestic demand on outsourcing services is a major differentiator compared to India, where the outsourcing industry is more offshore demand-driven.

No one destination will offer everything on the checklist and a new paradigm is emerging in which multinational companies assess several attractive markets, scoring them on their existing strengths. Companies increasing want global sourcing, not simply from India or China, but from both. As Chinese companies grow in size and complexity, the business case for setting up outsourcing arrangements becomes stronger. India remains a juggernaut in this space however the key differentiator for China is the rising potential of its domestic outsourcing industry.

Egidio Zarrella is a Partner in the Advisory practice at KPMG China.

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Currency wars ! China warns against rapid rise in yuan, IMF warms, Global central banks may act, Weak US dollar fuels financial bubble fears !

Wen Jiabao tells EU to stop pressuring Beijing to revalue the yuan or risk unleashing serious social unrest in China

• Julia Kollewe and agencies
• The Guardian, Thursday 7 October 2010
• Article history

 

China's Wen Jiabao rejected calls for a rapid appreciation of the yuan. Photograph: Koji Sasahara/AP

The war of words over international currency valuations escalated yesterday when the Chinese premier Wen Jiabao told the European Union to stop pressuring Beijing to revalue the yuan as any rapid shift risked unleashing serious social unrest in China.

Speaking in Brussels, Wen said that China would move towards making its currency more flexible but he rejected calls for a rapid appreciation as the issue threatened to dominate this weekend's meeting of the International Monetary Fund and G7 countries in Washington.

"Do not work to pressurise us on the renminbi [yuan] rate," Wen said, departing from a prepared speech on the sidelines of a summit with EU leaders. "Yes, we are going to proceed with the reforms."

China has been criticised by the EU and even more so by the US for pegging its currency at a low level, meaning that its exports are cheaper worldwide, hindering the efforts of western nations to recover from recession via export-led growth.

But Wen said yesterday that China's trade surplus with the US was explained by the specific structures of the two economies, not the yuan exchange rate.

He noted that a US congressman had predicted social unrest in China if there was a rapid rise in the yuan. "Many of our exporting companies would have to close down," Wen said. "Migrant workers would have to return to their villages. If China saw social and economic turbulence, then it would be a disaster for the world."

His remarks come as finance ministers from the G7 are about to discuss growing concerns over currency wars on the sidelines of the annual IMF gathering in Washington on Friday.

Timothy Geithner, the US treasury secretary who visited China earlier this year to plead the case for a higher yuan, said in Washington that a "damaging dynamic" of large economies keeping their currencies undervalued can cause inflation and asset bubbles. He called on countries to co-ordinate their policies.

"More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies," he said yesterday at the Brookings Institution in Washington. He said currencies are "inherently a multilateral issue. It's much easier to solve if countries come together and do things to complement each other.

Geithner's comments echoed calls by the IMF for greater currency flexibility. The organisation's chief waded into the row, warning governments against using exchange rates as a weapon. Dominique Strauss-Kahn told the Financial Times: "There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery … any such approach would have a negative and very damaging longer-run impact."

The Bank of Japan reinstated its zero interest-rate policy and pledged to buy ¥5tn (£37bn) of assets, leading to a drop in the yen. In recent weeks it has also intervened in the currency markets to weaken the yen for the first time in six years, although the impact was short-lived.

Brazil has threatened intervention to weaken the real. On Monday, it doubled a tax on foreign investors buying local bonds to put a lid on a recent rally in its currency. Brazil's finance minister, Guido Mantega, coined the phrase "international currency war" last week, following a series of interventions by central banks in Japan, South Korea, Switzerland and Taiwan to make their currencies cheaper.

Strauss-Kahn appeared to refer to Mantega's comments when he said: "We have seen reports that some emerging countries whose economies face big capital inflows are saying that maybe it is time to use their currencies to try to gain an advantage, particularly on the trade side. I don't think that is a good solution."

The weak dollar and expectations that the US Federal Reserve may announce stimulus measures pushed gold to a new record high yesterday. Spot gold hit $1,349.80 an ounce. Silver soared to a fresh 30-year high and platinum reached a four-and-a-half-month peak.

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6 Oct, 2010, 05.41PM IST,REUTERS

IMF warns against currency war, dollar heads lower

 A growing drive by nations to cap the strength of their currencies risks derailing the world economic recovery !

LONDON: The head of the IMF warned that a growing drive by nations to cap the strength of their currencies risked derailing economic recovery while the dollar dropped further on Wednesday.

Concerns that the Federal Reserve is about to embark on another round of policy easing that could weaken the dollar, tallied with China's polite refusal to let its yuan rise fast, has pushed currencies to the top of the agenda at Friday's meeting of finance chiefs from the Group of Seven nations.

Few hold out much hope of any meaningful agreement at the G7 or the International Monetary Fund meeting that follows.

"It's doing nothing for the American economy, but it's causing chaos over the rest of the world. It's a very strange policy that they are pursuing," Nobel economics laureate Joseph Stiglitz said of US policy.

The dollar extended its losses on Wednesday, falling to an 8-1/2 month low against a basket of currencies and edging toward a 15-year trough versus the yen.

That trend prompted Japan to intervene to weaken the yen last month and some emerging economies have followed suit or are threatening to.

"There is clearly the idea beginning to circulate that currencies can be used as a policy weapon," IMF Managing Director Dominique Strauss-Kahn was quoted as saying in Wednesday's edition of the Financial Times.

"Translated into action, such an idea would represent a very serious risk to the global recovery ... Any such approach would have a negative and very damaging longer-run impact," he said.

The IMF, which holds its twice-yearly meeting in Washington this weekend, is also expected to discuss foreign exchange moves as part of its mission to get countries working for balanced global growth.

Brendan Brown, economist at Mitsubishi UFJ Securities International in London, said the Fund, which has the United States as its biggest stakeholder, would not try to prevent further US monetary easing or a resulting slide of the dollar.

"That Washington institution has failed in its central mission to prevent currency war ," he wrote in a report.

CHINA UNMOVED

Euro zone policymakers urged Chinese premier Wen Jiabao on Tuesday to allow the yuan to rise more rapidly, but he politely rebuffed them, repeating Beijing's standard line on seeking currency stability.

Wen was due to hold a joint news conference with EU leaders in Brussels at 1515 GMT.

Policymakers have highlighted the issue of global imbalances for years, with fundamental problems seen as the dollar's global dominance, China's overvalued yuan and Germany's lack of domestic consumption.

Emerging nations say the cash flows seen this year have damaged their exports due to the determination of major economies to restrain their own currencies' levels.

But entrenched positions make it unlikely that officials sitting down to IMF and G7 meetings this weekend, and G20 meetings later in the year, will resolve their differences. 

Brazil fired the latest shot in what it has dubbed an "international currency war," doubling on Monday a tax on foreign investors buying local bonds to 4 per cent to curb a strong real.

Policymakers from emerging Asian economies have voiced growing concerns about the risk of a flood of hot money inflows. South Korea warned investors it might impose further limits on forward trading and India and Thailand said they were looking at steps to control speculative surges.

"It's natural in that context for them to say -- we can't just let our exchange rates appreciate and destroy our exports," Stiglitz told reporters at Columbia University on Tuesday.

MORE FED EASING?

Adding to speculation that the Federal Reserve will soon extend asset purchases to pump money into the economy, Chicago Fed President Charles Evans was quoted as saying the central bank should do much more to spur the economy.

And in a surprise move, Japan pulled interest rates on the yen back to zero on Tuesday and pledged to pump more funds into an economy struggling to compete while the currency remains close to a 15-year high against the dollar.

The euro gained 7.6 per cent versus the dollar last month as Fed easing speculation hotted up. Europeans are worried they will be saddled with an overvalued currency, stifling recovery, because they have few tools to contain the euro's rise.

France, which takes over the presidency of the Group of 20 major economic powers next month, has put reforming the international monetary system at the top of its agenda, hoping to draw China into multilateral talks on currency coordination.

Global Central Bank Action May Follow BOJ Moves

Wednesday, 06 Oct 2010 11:46 AM

 The Bank of Japan may have acted first in a new round of central bank action to prop up the global economy as recoveries in industrial nations falter.

The unexpected decision by the Japanese central bank yesterday to drop its interest rate to “virtually zero” and expand its balance sheet follows the U.S. Federal Reserve’s move toward more unconventional easing. Bank of England officials will consider further stimulus tomorrow, while the central banks of Australia, Canada and New Zealand are among those now holding fire on further interest-rate increases.

The renewed push for easier monetary policy comes as the International Monetary Fund warns growth in advanced economies is falling short of its forecasts ahead of its annual meetings in Washington this week. The dilemma for policy makers is that their actions may do little to revive growth and end up roiling currency markets.

“The Bank of Japan is at the head of the pack,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $370 billion in assets. “It looks like a lot of others will follow. Whether it’s right or not is another matter.”

Group of Seven ministers will gather Oct. 8 in Washington, on the sidelines of the IMF meeting. Currency issues will be discussed, Canadian Finance Minister Jim Flaherty, who will chair the meeting, said this week. Japanese Finance Minister Yoshihiko Noda said he’s ready to explain his country’s actions at that meeting.

BOJ Move.

The Bank of Japan cut its overnight call rate target from 0.1 percent and established a 5 trillion yen ($60 billion) fund to buy government bonds and other assets. It moved as the yen’s surge to a 15-year high last month hurts exports and damps economic growth. The yen traded at 83.13 per dollar at 2:32 p.m. in Tokyo, close to a Sept. 15 record of 82.88.

The central bank said today that weaker exports and slower global growth are causing the nation’s rebound to moderate. “Japan’s economy shows signs of a moderate recovery, but the pace of recovery is slowing down,” the bank said in a monthly economic report released in Tokyo.

‘Vicious Spiral’

Bank of Japan Governor Masaaki Shirakawa may not be alone for long in taking action and Daiwa Institute of Research argues he’s now engaged in a “vicious spiral” of monetary easing with the Fed as both compete to bolster their economies.

“The BOJ’s next moves will depend on the Fed,” said Maiko Noguchi, an economist at Daiwa in Tokyo. “The bank will have no choice but steadily take easing measures.”

Fed Chairman Ben S. Bernanke and his colleagues have signaled they may announce the purchase of more Treasuries as soon as their next policy meeting on Nov. 2-3 in an effort to boost growth and reduce an unemployment rate stuck near 10 percent for the past year.

“The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world,” Joseph Stiglitz, a Nobel Prize- winning professor at New York’s Columbia University, said today in New York.

Quantitative Easing

Bernanke said on Oct. 4 that the Fed had aided the economy by buying $1.75 trillion of mortgage debt and Treasuries from August 2008 through March 2010. Pacific Investment Management Co. says a new round of quantitative easing, the policy of creating money by enlarging the central bank’s balance sheet, is “likely.”

“The bottom line for the U.S. is a growth trajectory so slow you’d nearly call it stalled,” Paul McCulley, a portfolio investor at Pacific Investment Management Co., wrote on the company’s website this week.

Steven Englander, New York-based head of Group of 10 currency strategy at Citigroup Inc., said he anticipates the dollar will continue to fall, with the euro likely to pass through $1.40 from $1.37 yesterday. The dollar has already dropped 7 percent against the euro since the start of September.

Asset Purchases

At the Bank of England, policy maker Adam Posen made the strongest call yet on Sept. 28 for the U.K. central bank to resume asset purchases after keeping its bond-buying program at 200 billion pounds ($317 billion) for the past 11 months. That proposal lays the ground for the first three-way split when the Monetary Policy Committee meets tomorrow, with member Andrew Sentance advocating higher interest rates.

“At the present time, the growth threat is more of a danger than inflation,” said Graeme Leach, chief economist at the Institute of Directors, a London-based business lobby group. “Yes, inflation is above target now. But a double-dip recession would raise the specter of deflation.”

The revival of quantitative easing is a reversal from earlier this year, when central banks were halting stimulus or debating how to tighten policy. What’s changed is the loss of momentum in industrial economies.

Global Slowdown

John Lipsky, the IMF’s No. 2 official, said on Sept. 27 that global growth in the second half of the year will fall short of the fund’s 3.75 percent forecast. The Washington- based lender revises its outlook today.

While not yet looking to buy assets, some central banks are suspending their interest-rate increase campaigns.
After embarking on the most aggressive policy tightening in the Group of 20, the Reserve Bank of Australia unexpectedly left its benchmark rate unchanged yesterday at 4.5 percent for a fifth straight month. Bank of Canada Governor Mark Carney, who has overseen three rate hikes this year, said Sept. 30 that “the unusual uncertainty surrounding the outlook warrants caution.”

Not all policy makers are changing course. The central banks of Israel and Taiwan raised borrowing costs in the last ten days and the European Central Bank, whose Governing Council convenes tomorrow in Frankfurt, has indicated it wants to continue withdrawing liquidity support for banks.

‘Fully On’

The ECB will be forced to postpone tighter policy as European exports fade and investors continue to fret about peripheral euro-area economies such as Portugal and Ireland, said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Inc. in London.

“The ECB’s exit strategy is fully on, but the business cycle will turn against them,” said Peruzzo. “The communication will then be adjusted to consider downside risks greater than what they have anticipated.”

The ECB last week stepped up its government bond purchases as the cost of insuring against default on Portuguese government debt surged to a record and Irish bond spreads soared to euro-era highs.

Bolster Expansion

The question for those central banks leaning toward buying more assets is whether doing so will actually bolster expansion, said Charles Dumas, director of international research at Lombard Street Research Ltd., a London-based consultancy.

“Is quantitative easing going to cause people to spend more? I don’t think so,” he said. “It does add value in reducing the risk of a downward spiral in markets.”

Another risk is that the use of unconventional monetary policy is viewed as an effort to weaken currencies to boost exports, rising competitive devaluations and protectionist responses, said Eric Chaney, chief economist at AXA Group in Paris. Japan, Switzerland and Brazil are among the countries that have already intervened in markets to restrain their exchange rates.

“This is close to a currency war,” said Chaney, a former official at the French France Ministry. “It’s not through exchange-rate manipulation, but through monetary policies.”

© Copyright 2010 Bloomberg News. All rights reserved.

Weak US dollar fuels financial bubble fears!

By IZWAN IDRIS  October 7, 2010
izwan@thestar.com.my,

Emerging markets stepping up measures to control speculation!

PETALING JAYA: There is rising concern that the weak US dollar is fuelling new financial bubbles in emerging markets.

A growing number of Asian and South American countries, whose currencies had seen unwarranted appreciation, are stepping up control to curb speculative short term investments from overseas.

The flood of investment money into emerging market is expected to reach US$825bil this year, according to the latest estimate by Institute of International Finance (IIF) on Monday.

This is higher than the previous forecast of US$709bil it made in April. Last year’s figure was US$581bil.

The Malaysian ringgit, like other emerging market currencies, has been rising steadily against the greenback. — AP

 

Analysts expect capital flows from advanced economies into emerging markets to remain strong as long as central banks in developed nations continue to pursue a loose monetary policy.

Earlier this week, South Korea and Brazil announced plans to increase measures aimed at discouraging disruptive capital flows.

CIMB Research, in a recent note, said instead of imposing tough capital controls on inflows, central banks in South Korea, Taiwan and Indonesia had implemented quasi-capital controls by restricting currency derivatives and imposing a minimum holding period.

But the trend in capital flows from advanced economies into emerging markets will likely continue because the widening yield gap is in the emerging markets’ favour.

Growth prospects are also stronger and there are lingering worries about sovereign credit quality in mature economies,

CIMB Research said the “push and pull” factors are reinforcing competition to attract private capital flows into emerging economies.

Reuters reported yesterday that the falling dollar had escalated a global currency war, and that the exchange rate issue was now expected to top the agenda as finance officials from around the globe meet this week starting with those from the Group of 7 tomorrow followed by the International Monetary Fund (IMF) over the weekend.

Ultra low interest rates in Europe and Japan and concerns that the US Federal Reserve is about to embark on another round of money printing could weaken the dollar further.

This could result in further appreciation of emerging market currencies to a point that it would start to hurt exports.

London’s Financial Times reported yesterday that the head of IMF had warned that governments were risking currency wars if they tried to use exchange rates to solve domestic problems.

At the same time, emerging countries are also increasingly edgy about the flood of capital inflows from advanced economies.

The massive inflows had sent Asian stock indices, as well as their currencies, to or near record highs.
“If the situation continues for a while and Asian currencies continue to appreciate, there is a possibility that emerging Asian economies may have to do something to protect their interests.

“This may lead to, perhaps, some form of tax on capital inflows,’’ said Peck Boon Soon, an economist at RHB Research Institute.

In his report, Peck noted that overseas investors held 27% of Indonesia’s local currency government debts as at end-July, compared with 16% a year earlier.

In Malaysia, foreigners owned 18.8% in July versus 10% a year earlier.

Demand for Asian currency-denominated debts was so huge that the Philippines’ US$1bil worth of peso bonds directed at global investors was oversubscribed by 13 times.

Investors were so bullish that the Philippines was able to sell the bonds at just 5% yield. Based on Moody’s Investors Service’s calculation, the yield implied the bonds were rated at A3 by investors, which was six notches higher than the firm’s rating.

The weak US dollar also boosted the price of gold – viewed by some as the leading reserve currency – to a new all-time high of US$1,349.80 an ounce yesterday.

At home, the ringgit rose for the first time in two days to 3.0925 against the US dollar. The local currency hit a 13-year high at 3.085 last week.

Sex in the US: the shocking truth

The way a survey is reported, you'd think it's a surprise anyone's having any. This hypocritical puritanism poisons public discourse

• 
• • Melissa McEwan
  • guardian.co.uk,
  • Article history

 

A billboard displaying a message of abstinence towards teen sex; the Indiana university study found that teenagers are savvy and responsible about using condoms. Photograph: AP/Gail Burton 

 

"Sex is different for different people." Such is the keen observation of Logan Levkoff, a sexologist at New York University and member of the Trojan Sexual Health Advisory Council, some of whose members were part of the research team at Indiana University that recently concluded one of the most significant studies on sexual behaviour in America.

The study, comprised of nine smaller individual studies, was carried out by polling 5,865 preselected participants reflecting a nationally representative sample of adolescents and adults between the ages of 14 and 94. The full results are viewable here, although some of the more notable findings are already available in breathless headlines. Among the most widely-reported findings are the widespread use of condoms among teenagers, who use condoms even more frequently than adults, and that Americans' sex lives are wildly diverse, from a panoply of positions, even down to how we define sex and sexuality.

For some respondents, masturbation is sex; for others, it's not sex until someone inserts something into someone else's something somewhere. (And anal and oral sex are more popular than ever.) For some respondents, having had sex with a person of the same sex means identifying as gay or bisexual; for others, not so much. And we're no vanilla shakes: "There is enormous variability in the sexual repertoires of US adults, with more than 40 combinations of sexual activity described at adults' most recent sexual event."

"The surprise we found in this survey is the variability and diversity of the way people conduct their sex lives," says Levkoff.

Frankly, I'm more surprised by the surprise with which the findings – that teens are sexually responsible, sex lives are varied and people view themselves on a sliding scale of sexuality – are being met. The shock that Americans are not puritans is not only outdated – surely, we've all known Americans aren't doing it missionary-style through hole-punched fuck sheets ever since Dr Kinsey got a boner staring at gall wasps – but, ironically, seems indicative of the false puritanism that guides much of the US's public discourse about sex and sexuality.

We insistently believe ourselves to be puritans despite all evidence to the contrary, an intractable myth periodically punctuated by the findings of some sex researcher or another, who reveals to us the true nature of our naughtiness – and, oh, how we love to gasp at our scandalously sexy sexbusiness!

But even the actual Puritans weren't puritans. (This lady knows what I'm talking about.) And despite the collective apoplexy about the appearance of a boob at a football game or a naked butt in primetime, what happens behind closed doors has never had any relationship to the public sanctimony about sex and sexuality peddled by pecksniffs who parade a contrived virtue to bored busybodies.

The profound disconnect between who we are and who we regard ourselves to be would be amusing if it weren't so dangerous. The persistent narratives that we keep our bits buttoned-up and locked-down, only allowed fresh air for dignified attempts at Jesus-sanctioned reproduction attempts, that kids shouldn't be having sex because they're irresponsible, that same-sex sex is for deviant weirdos, are the damnable propaganda that underlie some of the most destructive, woman-hating, gay-hating legislation in this nation.

The lies we tell ourselves about who we are in the bedroom (or on the kitchen floor, or the conference room table at work, or the backseat of the car) are why we still argue about funding comprehensive sex education in public schools, why we are still fighting the slow but steady erosion of the conferred rights of Roe v Wade in state governments, why we are still having the absurd debate about whether we should allow to serve openly the gay, lesbian and bisexual soldiers who are willing to die for this country, in spite of its stubborn insistence on treating them as second-class citizens.


It is why the last sex survey of this scope, the National Health and Social Life Survey of 1992, started with government funding but had to be completed "with support from private sources" after congress cut off the financing, because the government is "reluctant to pay for studies of sexual behavior that do not focus on reproduction".

Our surprise serves a purpose, which is why it hangs around so tenaciously. Would that we could arrive at a day when the news that we are a sexually diverse and sexually sophisticated people was met with a shrug and a yawn, so that we might extricate ourselves from the grip of a puritanical illusion.

Sex is different for different people. If only that weren't still a radical statement in America.

[Note: the poll, while conducted by polling firm Knowledge Networks, was developed by researchers with the input of Church and Dwight, the corporation that owns the Trojan condom brand; and, because the primary researchers also sat on Trojan's sexual advisory council, a conflict of interest was disclosed. Researchers note, however, "that while they had shared information with the sponsor during the course of the study, the company had not exerted influence over the way it was conducted, except to offer advice on how to phrase questions to accurately gauge condom use."]

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The benefits of investing in exchange-traded funds (ETFs)

What are ETFs and why is it beneficial to buy them?

Personal Investing - By Ooi Kok Hwa

LATELY, the number of ETFs that get listed on Bursa Malaysia has been increasing.

At present, we have a total of five ETFs listed in Malaysia. Unfortunately, we have noticed that not many investors are aware of these instruments and there is also a lack of understanding on the true value of these ETFs.

ETF stands for exchange-traded fund. Buying into ETFs is almost similar to buying normal mutual funds. The key differences are that investors can buy or sell ETFs in a stock exchange or go through an authorised participant whereas investors can only buy and sell mutual funds through unit trust companies or other financial institutions.

ETF originated in United States. During 1960s and 1970s, some fund managers in the US discovered that it was quite difficult to beat the stock market index. They discovered that it was better to buy stocks that mirrored the index composition as many fund managers found that they tend to underperform the index.

As a result, the ETF industry has been growing in the US from two ETFs in 1995 to more than 900 ETFs listed in the US now. At present, there are many types of ETFs available in the US, for example ETFs on stocks, bonds, commodities, currencies and countries. For stocks, ETFs can be further divided into different types of market capitalisation (big cap vs small cap), equity styles (growth investing vs value investing) as well as different types of sector funds (like ETF on stocks in technology, health care or financial institution sectors).

One of the key advantages of buying into ETFs is that it is cheaper to buy ETFs as compared to normal mutual funds. Investors need to pay about a 5.5% sale charge (also known as front-end load) for normal mutual funds whereas they only need to pay a normal brokearge fee of 0.7% (inclusive of all other charges) for ETFs.

Comparing similar type of funds, the annual management fee for ETFs is generally lower than that of mutual funds.

Normally, ETF will charge about 0.65% per annum (0.6% for the annual management fee and 0.05% for the index license fee).

However, normal mutual funds will charge about 1.5% annual management fee. Assuming an investor intends to buy an index fund and intends to hold the fund for a one-year period, he or she will incur about 1.35% (0.7% - total transaction fee and 0.65% - annual management fee and index license fee).

However, the investor will incur about 7% (5.5% for sale charges and 1.5% for annual management fee) if he buys into the normal mutual funds. Given that ETFs are using the “in-kind” creation and redemption of shares, they eliminate any price discrepancy to net asset value (NAV) due to the supply and demand pressure.

As compared with close-end funds where investors may buy at the premium or discount to its NAV, the price that we pay for ETFs will be closed to its NAV like the normal mutual funds. As an added advantage over mutual funds, ETFs are generally more liquid than normal mutual funds as we can buy and sell them through secondary markets.

Please refer the chart for the mechanism of creating an ETF. The reverse of all of the arrows will be for the redemption of an ETF.

In addition, ETFs provide investors the benefits of portfolio diversification, same as normal mutual funds. Given that they will try to replicate the benchmark indices, their performances will be very close to the indices.

In Malaysia, sometimes we notice that some mutual funds may underperform their benchmark indices.
In short, we believe that there will be more ETFs getting listed on the stock market.
It will be to investors’ benefit to understandhow they can add ETFs onto their investment portfolios as a cost effective investment alternative.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting 

Investing Advice: 5 Benefits of ETFs

Understanding the strengths and weaknesses of your investment options is fundamental to successful investing. Advice may be limited to how it fits into your particular investment strategy, but ETFs offer an opportunity to diversify without starting out with a great deal of money. Here are the five strengths of investing in ETFs.

When people ask for investing advice, ETFs usually come up pretty quickly, because they are so heavily marketed and trumped by the industry. Exchange-traded funds, or ETFs, are an easy way to diversify a small investment, but to get the most out of your investment, it is important to understand how they operate.

ETFs are like mutual funds, in that they are a collection of investments, but they are traded on an exchange, such as the NYSE, instead of purchased directly from the issuing company. They also differ in their redemption structure and tax efficiency from traditional mutual funds.

Here are five benefits of ETFs over mutual funds:

1. Tax Efficiency: Upon redemption, mutual funds must sell its underlying securities, and the capital gains are then distributed to the owners of the funds. Since ETFs trade on an exchange and investors are selling to other investors, no underlying securities are sold, and no capital gains are distributed. If the makeup of the ETF changes it will, occasionally have to distribute gains, but it should be less frequent than with traditional mutual funds.

2. Lower Fees: ETFs are no-load funds, and you won't be slapped with a redemption fee when it's time to liquidate your position. Further, ETFs typically have lower annual fees than traditional Mutual Funds, making them an attractive alternative. (NOTE: In rare cases where a very small amount is being traded, broker's fees may be a higher percentage of the investment than a mutual fund's expenses would be, but in most of these cases the invested amount would not meet the minimum investment required by most mutual funds).

3. Liquidity: The exchange-traded structure of ETFs generally allow for liquidation of a position faster than a mutual fund, which must be liquidated at end of day. Further, the ability to set a limit order allows flexible trading that no investor could get from a mutual fund. Not all ETFs have the same liquidity, however, and it is important to review trading volumes and the ETF prospectus to determine whether you are comfortable with the frequency of trades.

4. Intraday Pricing: Because ETFs are traded on active stock exchanges, purchases and sales happen at market prices, rather than end-of-day Net Asset Value, which mutual funds use. As a result, one may purchase ETFs at a premium or a discount to the value of the underlying assets, and arbitrage is frequent.

5. No Minimum Investment: When starting investing, diversification can be cost prohibitive if you're using traditional mutual funds, which frequently have a minimum investment of $2500 or more. Because ETFs have no minimum investment (other than the market price of one share), they are a good vehicle for diversified investing.

Of course, many of these benefits could be liabilities if not used properly. For instance, the intraday pricing feature of ETFs could lead an investor to buy an ETF at a premium or sell it at a discount to the value of the underlying securities. Also, brokerage fees may have a greater impact on some investors than traditional mutual funds' management fees and loads would have.

Used wisely, ETFs can be a good vehicle for widely diversifying a small or initial investment, but it is always best to seek professional investing advice.

In the future I will cover the five negatives of investing in ETFs.

By Pat Regan

An exchange-traded fund (ETF), a member of exchange-traded product-family (ETP), is an investment fund traded on stock exchanges, much like stocks.^[1] An ETF holds assets such as stocks, commodities, or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.^[2][3]

Only so-called authorized participants (typically, large institutional investors) actually buy or sell shares of an ETF directly from/to the fund manager, and then only in creation units, large blocks of tens of thousands of ETF shares, which are usually exchanged in-kind with baskets of the underlying securities. Authorized participants may wish to invest in the ETF shares long-term, but usually act as market makers on the open market, using their ability to exchange creation units with their underlying securities to provide liquidity of the ETF shares and help ensure that their intraday market price approximates to the net asset value of the underlying assets.^[4] Other investors, such as individuals using a retail broker, trade ETF shares on this secondary market.

An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought or sold at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be more or less than its net asset value. Closed-end funds are not considered to be "ETFs", even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. In 1993, the first country specific ETFs were a collaboration between MSCI, BGI and a small independent third party Distribution firm called Funds Distributor, Inc. The product eventually evolved into the iShares brand widely known around the globe. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively managed ETFs.^[4]

Contents

• 1 Structure
• 2 History
• 3 Investment uses
• 4 Types of ETFs
  
  • 4.1 Index ETFs
  • 4.2 Commodity ETFs or ETCs
  • 4.3 Bond ETFs
  • 4.4 Currency ETFs or ETCs
  • 4.5 Actively managed ETFs
  • 4.6 Exchange-traded grantor trusts
  • 4.7 Leveraged ETFs
• 5 ETFs compared to mutual funds
  
  • 5.1 Costs
  • 5.2 Taxation
  • 5.3 Trading
• 6 Criticism
• 7 Issuers of ETFs
• 8 See also
• 9 References
• 10 Further reading
• 11 External links

China: a developing nation with growing pains

Though 61 is a mature age for people, the new China, which celebrated the 61st anniversary of its founding on Oct. 1, is still in its adolescence, developing rapidly and full of the vigor of a young man.

Also like a youth, the country has experienced growing pains over those contradictions between its self-perception and recognition by its peers.

China has been on track for rapid development during the three decades since its reform and opening-up in the late 1970s, as gross domestic product (GDP) jumped to more than 34 trillion yuan (5.08 trillion U.S. dollars) in 2009, from 364.52 billion yuan in 1978.

Even the global financial crisis failed to slow the country's developing momentum, with an annual growth rate of 9.1 percent last year, outshining its developed counterparts, such as the U.S. and Japan.

Despite the impact from the economic downturn, China also replaced Germany as the world's third largest economy and largest exporter last year, and overtook the U.S. to become the world's largest auto market.

What's more, in the second quarter of this year, China's GDP exceeded that of Japan for the first time.

Zhuang Jian, chief economist with the Asian Development Bank, praised the achievements China has accomplished during the past three decades, saying its strong growth has boosted the confidence of the Chinese people and encouraged them to work harder for a better future.

As China's economic clout grows, so do suspicions, criticism and even intentional exaggerations. Different readings on China's development have caused confusion - is China still a developing nation or a developed one?

The Chinese government has reiterated its status as a developing nation, while some insisted that China could no longer be called an emerging economy, and thus held China accountable for more responsibilities in its trade surplus, exchange rate, emission reductions and energy consumption. There is also fear that the emerging China would be a threat to other nations.

Premier Wen Jiabao said in September at the UN General Assembly that China was still in the "primary stage of socialism" and remains a developing country.

"These are our basic national conditions. This is the real China," he said.

Wen stressed this point with data showing that, although China's GDP ranks it as the world's third largest economy, per capita GDP is only one-tenth of those of advanced countries. China's further development is constrained by its shortage of resources, as well as energy and environmental problems, he added.

Experts believe that the growing Chinese economy is too large to be ignored, despite it still being a developing economy.

Wang Jun, a researcher with the China Center for International Economic Exchanges, said China would continue its relatively fast economic growth for an extended time, a fact that would be difficult for some nations to accept in the short term. This also requires constant adjustments in how China views its own development, as well as how other nations see China, he said.

"Misunderstandings and conflicts are inevitable," Wang noted.

"I can't name another country in the world that has changed so much in so short a time," said Patrick Chovanec, an associate professor at Tsinghua University's School of Economics and Management in Beijing. He has been coming to China since 1986.

Chovanec noted that China has undergone one of the most rapid and dramatic social changes in history, and "it is still playing out".

"People around the world have a lot of uncertainty over what a more powerful China would look like and what it would mean for them. A lot of cultural and political differences remain, and some of them are pretty significant," said Chovanec. So it is understandable that people have some fears and concerns, he added.

Further, to deal with misjudgments, Zhuang Jian said China should be more involved in explaining its true self to the world as it becomes more involved in the international community.

Patrick Chovanec suggested China should "try to empathize, and develop a thick skin ... As it becomes more powerful, China is going to be on the receiving end of more, not less, criticism. "

Sheng Hong, director of the Beijing-based Unirule Institute of Economics, warned of self-complacency and arrogance, saying the larger one's economy grows, the more cautious and humble it should become.

"China should take some criticism seriously, apart from that criticism based upon purposely harmful intentions, which could help step up its economic and political reform. Also, a clear understanding of its real strength would help the government to make the right decisions," he said.

Zhuang Jian said China's strong economic growth, mainly fueled by its large investment of resources and capital, is unsustainable, inefficient and energy-consuming, remaining vulnerable to the changes of the outside world.

China has a long way to go to catch up with the developed nations in terms of per capita GDP, and China is lagging far behind in terms of industrialization, Wang Jun said.

The biggest challenge that China will face in this century is how to achieve sustainable development, he said, adding that the imbalance of regional development, income disparities and the widening gap between state-owned and private firms are also among the difficulties China must face during its future development.

Additionally, Sheng Hong said China has to step up its reforms in becoming a market economy to achieve sustainable development. For the achievements China has gained have been attributed to economic reforms, because of which millions of Chinese workers can now unleash their creativity, rather than only their hands.

China should also accelerate political reforms, including restraining and effectively supervising its administrative power to match the economic reforms, said Sheng.

Source: Xinhua

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Can You Make It as an Entrepreneur?

By Eve Tahmincioglu of Entrepreneur.com

The recession has inspired many long-time employees -- ravaged by downsizing, furloughing and a host of other corporate cutbacks -- to consider going out on their own.

While it can be tempting, especially if you think you have a killer business concept, you have to ask yourself, "Am I cut out for entrepreneurship?"

"Everybody's got a great idea, but that doesn't mean it's going to work," says Vince Orza, dean of the Meinders School of Business at Oklahoma City University and an advisor to the university's Love's Entrepreneurship Center.

The successful entrepreneur, he adds, has a deep-seated passion for being his or her own boss. "It's that kid with a lemonade stand, the kid with the paper route," he explains. "If early in life you had that bug, you're more inclined to have it later in life."

I've interviewed hundreds of business owners in my work writing about small business, and there are a few common characteristics and personality traits most of them have:

• They tend to be risk-takers. (Not bungee-jumping-type risk-takers per se, but fearless when it comes to pursuing what they're passionate about.)
• Many had a burning desire from a young age to run their own businesses.
• Most are embarrassed of failure but not afraid of it.
• Multitasking seems to come naturally.
• Their work-ethic-o-meter is often off the charts.
• Most are confident beyond what would seem reasonable.

If this doesn't describe you, it doesn't mean you can't try your hand at self-employment, but entrepreneurial experts predict you'll be swimming upstream without at least a few of these at your core.

Scott Kluth, founder of Chicago-based CouponCabin.com, ran a lawn and snow service when he was 11 years old and brought in about $350 a week.

"If you asked my mom, she'd say I was an entrepreneur since birth," says Kluth, whose online coupon service brings in about $13 million in annual revenues and employs 38 people.

He worked for Sears.com before launching his own company in 2003. What motivated him was a burning desire to have control over his own destiny. "I wanted to be focusing on my own success," he maintains.

Allison O'Kelly, founder of Atlanta-based Mom Corps, also had a dream to run her own business from a young age, but found a successful career as an accountant for the audit and tax advisory firm KPMG before becoming an executive with Toys "R" Us. Her desire for more flexibility after her sons were born pushed her to finally pursue entrepreneurship.

O'Kelly describes herself as a risk-taker who is ultra-confident, especially when it comes to the business model for Mom Corps, a staffing company focused on getting moms part-time work. The company has 10 employees and annual sales of about $2 million.

"I was confident in my skills and what I had to offer," she explains. "I always had the attitude that I could do this. I'm very positive about what I do. I never believe I can't do something. That's what makes me successful."

While she admits there were times early on in her business when she was spending too much on things such as salary and marketing, and came pretty close to seeing her venture go under, she was able to persevere.

"I would be stupid to think there is no way I could ever fail, but that's what I tried to tell myself," she recalls. "I was going to do everything in my power not to fail because I would be embarrassed if I failed."

Another attribute that great entrepreneurs possess is a commitment to a vision for a product or service they believe in, according to Deborah Bailey, author of "Think Like an Entrepreneur: Transforming Your Career and Taking Charge of Your Life."

"They can see the possibilities that others can't, and because of that they may not get support or agreement from others around them," she says. "Focusing on your vision will help keep you on track and keep you motivated through the ups and downs."

Indeed, that's the double-edged sword for many entrepreneurs: The blind commitment that drives them can also lead to stunning failures. But a true entrepreneur, says Oklahoma City University's Orza, gets up and starts all over again.

So, do you think you have what it takes to make it as an entrepreneur?

Mom Corps' O'Kelly maintains, "If you're asking yourself the question, 'How do I know?' then you shouldn't do it."

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Social Games that Sway Behavior

With the rise of social networks, game designers are finding new paths to desired outcomes.

By Kristina Grifantini

Can your social network make you healthier? It's a question that health organizations are asking more and more--as part of a wave of new gaming experiments that aim to persuade players to think and act differently while having fun.

To your health: Healthseeker, a Facebook game which launched this summer, encourages users to take on healthy "missions." When players complete healthy actions, they are rewarded with points, virtual gifts, and approval from friends in their social networks.

In June, Vancouver game consulting company Ayogo launched a Facebook game called HealthSeeker that awards "life experience" points or virtual gifts when players with diabetes make small lifestyle changes. For example, it might assign a challenge such as not putting sugar in a single cup of coffee and then reward the player for completing the mission.

The challenge of this kind of game isn't to convince people of something but to get them to act. "People are already emotionally committed to their health," says Michael Fergusson, the founder and CEO of Ayogo. "They know they need to eat better and exercise." But approaching that challenge all at once can seem overwhelming and thankless. "We pay them to take healthy actions," says Fergusson. Reinforcing those small actions could turn them into habits that add up to better health.

"The game is an ongoing exploration for each player," adds Manny Hernandez, cofounder and president of the Diabetes Hand Foundation, a nonprofit social-media group that worked with Ayogo and the Joslin Diabetes Center to develop the game. "We hope that through that it can become a very strong source of support for the player," he says. So far, more than 3,000 people have signed up.

Businesses see value in the concept. "We were really trying to utilize the game players' own online social network as a source of inspiration and support," says Susan Holz, a public affairs and communications representative at the German pharmaceutical company Boehringer Ingelheim, which funded the project as part of an initiative to encourage creative online games related to diabetes.

The real power of the game lies in the principle of reciprocity, the tendency to do something positive for someone who did something positive for you. Game designers take advantage of reciprocity by making it easy for users to send gifts to friends ("You just accepted this pig" in Farmville, or "Thank Don by sending a free mystery bag back!" in Mafia Wars). Even if users know that the cost of a gift is minimal--often no more than a mouse click--"in general we found people will value the thing they receive," says Fergusson.

In HealthSeeker, a user can send a "Kudo"--a virtual gift designed to be interesting or amusing--to reward friends for completing a task such as going a day without chocolate. When they receive a Kudo, users feel rewarded and acknowledged for doing something difficult, Fergusson explains. They will also feel a subtle but powerful obligation to return the favor, he says: "That obligation drives the loop of social games."

Story continues below

The game also draws on the power of social networks in other ways. Users can accept challenges from friends, which Fergusson says make them more likely to take on the recommended mission (the average player is working on two active missions; players who have accepted a friend's challenge average four). What's more, users tend to return to the game more frequently when their friends are also playing.

While it's too early for HealthSeeker to have more than anecdotal evidence of the success of the game, other games have shown conclusively that they can alter behavior--even more than expected at times. MovieSet is a website that chronicles movie production to generate advance buzz for largely unknown films before promos hit TV or radio. When it launched a behind-the-scenes Web show last year, it initially attracted few viewers. The prerelease excitement that MovieSet craved wasn't there.

So the company turned to Ayogo, which created an online trivia game with answers hidden in the show itself. Players could test themselves, invite friends to take the quizzes, and compare scores. Successful players were rewarded with more video trailers of the MovieSet films. What would have been given away for free now had to be "earned."

It worked. Within a month, MovieSet's overall Web traffic skyrocketed from 24,000 to 125,000 unique visitors, according to Ayogo. The average visitor watched five trailers, up from one or two, while video views rose to 500,000, up from 30,000. The rest of the site benefited as well, with traffic to pages not featured in the game growing from 24,000 viewers to 45,000. What's more, users readily volunteered valuable information on their movie-watching habits--an alternative way to win the trailer clip if they failed to answer the trivia questions correctly.

The psychology is simple but powerful: not only do people like to win, but they don't like to feel like they've lost something, even if it's just a chance to watch a trailer.

The movie game ultimately resulted in over a million views of promotional videos without requiring the producers to pay for any traditional marketing. "It was a very successful mechanism for jump-starting our traffic," says Colleen Nystedt, the president and CEO of MovieSet. "It helped build the audience both for the hosted show and the films being discussed."

As more and more industries look to social games to change habits, games can become a win-win situation: the user feels engaged and rewarded for winning while a company or a society can achieve a critical goal.
"Games are stylized systems of social interaction that incentivize engagement and behavior," says Kati London, who serves as the senior producer at the New-York based game consulting company Area/Code. "That potentially makes them great engines for influencing and producing behavior change."

Area/Code was hired by the Discovery Channel to produces games meant to stimulate new thinking about energy while promoting the network's programs. Area/Code created a Facebook game called Power Planets, in which users are assigned a planet. Players gain points by creating buildings and developing energy sources. They lose the capacity for earning points when pollution increases or natural resources are depleted. Every few days the planets are shuffled among the players.

Rather than explicitly promoting conservation, the designers wanted the game to make users feel the effects of risky environmental decisions by tapping into their sense of social responsibility. "You make choices about how to keep your inhabitants happy while maintaining a healthy planet, but then you pass your planet to another player on Facebook and you get someone else's planet--which may or may not be left in a good state," says Allison Rand, a vice president at Discovery. "The response was much like the real-life feeling of treating your planet poorly and leaving it to your grandchildren to clean up."

The game, sponsored in part by Shell, was also meant to promote the Discovery series Powering the Future, which aired in July and gave viewers codes that unlocked powers in the game. Power Planets was the most popular game across the Discovery websites while the show was being promoted and aired, according to Rand, and the most popular game in Science Channel's history.

As social games grow increasingly popular, more and more companies are recognizing their inherent power to persuade. "This idea of gamification is spreading broadly," says Ayogo's Fergusson. "I hope that we can make the world better and more fun at the same time."

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Related Articles

» Tapping the Powers of Persuasion B. J. Fogg's lab at Stanford focuses on the ways technology can influence behavior.

» Guerrilla Webfare How unauthorized video producers are "brand-jacking" companies and forcing them to rethink the way they market.

China supports Euro, Offers to buy Greek debts

China's premier, Wen Jiabao, pledges support for euro

The country vows it will not reduce its holdings of European government bonds, and will double trade with Greece

• Reuters
• The Guardian, Monday 4 October 2010
• Article history

 

Chinese prime minister Wen Jiabao, addresses the Greek parliament in Athens yesterday. Photograph: Petros Giannakouris/AP 

China pledged to support a stable euro and not reduce its holdings of European government bonds, in an effort to deflect criticism of its foreign exchange policy ahead of this week's EU-China summit.

Chinese premier Wen Jiabao, who is at loggerheads with the United States over the yuan and likely to face similar complaints during his tour of European countries emphasised China's willingness to cooperate with the EU.

"I have made clear that China supports a stable euro," he said during a visit to Greece at the start of a one-week European tour. "We will not reduce the holdings of European bonds in our foreign exchange portfolio."

Wen, who offered on Saturday to buy an unspecified amount of Greek government bonds when debt-laden Athens resumes issuing, said he was glad Greece was starting to emerge from the shadows of its debt crisis. Wen vowed to double trade with Greece to $8bn (£5bn) within five years and provide a $5bn credit line to Greek shipowners buying Chinese-built vessels.

China has said it needs to diversify its foreign currency holdings and has bought Spanish government bonds. Chinese state entities have been conservative about investing in foreign financial markets and the Chinese government faces domestic criticism over losses incurred from the global financial crisis.

At the height of the European debt crisis this year, Chinese officials, concerned that the crisis could hurt the global economy, pressed European officials to restore confidence in the euro. But Beijing has rejected discussion of its foreign exchange policy. It even blocked an attempt by G20 leaders in June to praise its decision to allow greater flexibility in the yuan's exchange rate.

Ahead of a China-EU summit on 6 October, Wen urged the bloc to recognise China as a market economy, making it less vulnerable to anti-dumping charges under WTO rules. In exchange, China offered to boost copyright protection and widen bilateral trade.

"China commits to improving the investment environment, to intensify copyright protection, widen bilateral trade and upgrade technology cooperation," he said in his speech in Greece's parliament through an interpreter.

But despite its growth, China remains an emerging economy, Wen said. "The basic reality of China, such as a huge population, a weak economic base, and unbalanced growth has not radically changed," Wen told parliament.

"Per capita GDP is just one eighth of Greece's and the percentage of population below the poverty line is three times that of Greece. China continues to be an emerging country."

Wen and his Greek counterpart George Papandreou said in a joint statement the world's nations need to coordinate economic policies for global recovery to find a sure footing. "Global economic recovery is a journey with many turns and a full exit from it requires joint efforts," Wen said yesterday. He made no comments on the yuan. On Saturday he said he was willing to work with the EU to confront the financial crisis and reform the international financial system.

He said he was confident Greece was on track to exit a debt crisis that shook the euro and said China wanted to boost cooperation with Greece, which faces its worst recession in decades.

"Greece is China's best friend in the EU," Wen said at a meeting with Greek opposition leader Antonis Samaras. Bilateral trade volume should double to $8 billion euros a year in 2015 with Greek traditional exports, such as olive oil, increasing.

"A few months ago, [we] signed an agreement to purchase 290 tonnes of Greek olive oil," Wen said. "Last night, for the first time in my life, I dipped a bite of bread in olive oil. It tasted very good."

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China offers to buy Greek debt

Prime minister Wen Jiabao says his country will support Greece and rest of euro zone to overcome financial crisis. Last Modified: 03 Oct 2010 16:23 GMT http://www.youtube.com/v/ZN7DFPVz0qw Gerald Tan reports on the significance of China's proposal to buyout Greece's debt

China has offered to buy Greek government bonds, in a show of support for the country whose debt burden pushed the euro zone into a crisis. Wen Jiabao, the Chinese prime minister, made the offer on Saturday at the start of a two-day visit to Greece, his first stop in a European tour. During talks with George Papandreou, the Greek prime minister, Wen said China would double its trade ties with Greece over the next five years, underscoring Beijing's use of economic strength to win friends. "China will undertake a great effort to support euro zone countries and Greece to overcome the crisis," Wen said. In addition to seeing economic opportunities in Greece, China's support of a struggling European country may also help deflect international criticism of its trade policies and its refusal to let its yuan currency appreciate sharply. 'Full market status' Wen said during the visit that China will address European concerns over its investment rules and copyright violations, but wants the EU to relax remaining trade barriers with Beijing in return. Speaking at Greece's parliament, he urged the EU to recognise China's "full market economy status" and relax restrictions on high-tech exports. "I have repeatedly said that China supports a strong euro and will not reduce the number of European bond holdings from its foreign exchange reserves," he said. Wen sought to ease European concern that overseas companies operating in China face licensing rule restraints that give local competitors an unfair advantage. He said China would "strengthen dialogue" with the EU and was committed to continue "improving investment, confronting issues of intellectual copyright protection, expanding bilateral commerce and upgrading cooperation in technology." Wen did not specify how much Greek debt China would be willing to buy or which Chinese entities would buy the bonds. Chinese state entities have been generally conservative about investing in foreign financial markets and the Chinese government faces domestic political criticism over losses incurred by these entities during the global financial crisis. China has a lot to gain from getting a foothold into Europe, Vagelis Agapitos, an economist in Athens specialising in investment, said. "They [China] get a bargain in terms of buying into strategic industries, such as the port authorities, the railways and the logistic centre, which is important for the export of Chinese goods," Agapitos told Al Jazeera. High borrowing cost A senior Greek government official said Wen made clear his offer concerned buying bonds only when the country returned to markets. Greece, which is currently funded through a 110 billion euro ($150 billion) EU/IMF bailout, is only issuing short-term treasury bills for the time being. Since the true scale of its debt burden emerged late last year, investors have shunned its bonds. The yield they demand to hold 10-year Greek debt has shot up to 10 per cent, compared with just 2.3 per cent for similar bonds from the euro zone's biggest economy Germany, making it too expensive for Greece to seek long-term funding in international markets. It has said it wants to return to markets some time next year to sell longer-term debt. "There is domestic pressure [in Greece] not to sell itself cheaply, but there is also quite significant international pressure regarding the total debt, which is at 120 per cent of the GDP, and rising," Agapitos said. "This needs to go down in order to avoid debt restructuring which would be disastrous, not only for Greece but also for the European Union as a whole," he said. China, at loggerheads with the US over the yuan and likely to face similar complaints during this European tour, emphasised its willingness to co-operate with the 27-nation EU on financial issues. "China is prepared, hand in hand with the EU, as passengers in the same boat, to strengthen co-operation ... to confront the financial crisis," Wen said. "I believe that we can undertake a genuine effort to promote the reform of the international financial system and strengthen its supervision," he said.

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