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Thursday, September 16, 2010

Comparing Chinese And U.S. Capitalism

Official presidential portrait of Barack Obama...

At the dawn of the new century, a new technology promised to fundamentally change global economics. Government leaders in the United States and China, the two largest economies in the world, believed that companies from their respective countries should lead in the development of this new technology. By 2010, two national champions, one from each country, had emerged.

Founded by a young entrepreneur in the mid-1990s with approximately $300,000 of capital, Company A had become a global leader over a 10-year period in a related field. In 2002, Company A went public, gaining additional capital by listing its shares on one of the world’s major stock exchanges. Then, in 2003, Company A decided to diversify beyond its original business and develop new products using the new, game changing technology.

By late 2008, Company A had attracted the interest of a prominent global investor, a cold-nosed, savvy industrialist who regularly saw the most promising investment opportunities from all over the world. Proclaiming Company A’s technology to be the best that he had seen, his company invested over $200 million in Company A. With a long history of commercial success and profitability, Company A achieved revenues of nearly $4.0 billion, and earnings of $150 million, in 2008.

On the other side of the world, Company B came into being just after the turn of the century. Convinced by the vast potential of the new technology, the founders were a group of individuals who based Company B’s products on research done by one of the country’s leading universities. By 2006, Company B had attracted the attention of the country’s government and business leaders, and began receiving development grants from an industry consortium that was working in collaboration with a large government agency. Incremental investments from several of the country’s largest companies followed.

Company B’s breakthrough came at the beginning of 2009 when it won a $250 million grant from a government agency to build a new production facility in an economically depressed part of the country. In addition to wanting its country to lead the world in this new technology, the government was motivated by its desire to create jobs for its citizens.

With strong government support, Company B went public in late 2009 and raised an additional $400 million of capital. In 2009, Company B had revenues of $91 million, and a net loss of $87 million. By the end of 2009, it had accumulated losses of $239 million and had never earned a profit.

If you are a United States politician or business leader, or just a plain ordinary American citizen who is alarmed by this story and concerned with the way in which “China, Inc.” is competing unfairly in the global economy, well, guess again.

As improbable as it may seem, Company A is none other than… BYD, the Chinese private company that quickly became the world’s largest rechargeable battery maker that decided to enter the market for passenger cars and electric vehicles several years ago. On the other hand, Company B, the recipient of the government largesse, is Massachusetts- based A123 Systems. Ironically, both companies received approximately the same amount of investment– at about the same time. BYD received a $230 equity investment from Warren Buffet’s Mid America Corporation in late 2008, while A123 received a $250 million grant from the U.S. Department of Energy in January 2009.

On Monday, September 13, 2010, A123 announced the opening of a large lithium-ion battery factory in Livonia, Michigan. The plant employs 300 workers, and is expected to employ up to 3,000 in several years.
President Barack Obama placed a congratulatory call to A123 executives and Michigan Governor Jennifer Granholm. “Thanks to the Recovery Act, you guys are the first American factory to start high-volume production of advanced vehicle batteries,” the President said. “This is about the birth of an entire new industry in America — an industry that’s going to be central to the next generation of cars. And it’s going to allow us to start exporting those cars, making them comfortable, convenient and affordable.”

The central planners in Washington must be feeling pretty good about themselves these days and the way in which they are single-handedly re-shaping the U.S. auto industry. The grant to A123 is part of a total of $1.4 billion of funding that the U.S. government is providing to nine Michigan companies to support advanced battery manufacturing and job training. This comes on top of the Department of Energy’s $465 million loan to Tesla, a maker of high priced electric vehicles, and the $50 billion bailout of General Motors. Now all the planners have to do is hope that these companies can produce products that customers want, and can afford.

Undoubtedly, the thinking on the part of the Obama Administration is that: “If China can use government funds to create national champions, so can we.” What they don’t understand is that this is not the way it works. Admittedly, state-owned banks still make loans to state-owned companies, but these behemoths are not the innovators in China 2010. Instead, hundreds of thousands of entrepreneurial Chinese companies, just like BYD, are driving innovation in the country in industry after industry.

China has obviously studied American economic history. Washington should do the same.

Banks take over record number of homes in August

By Lynn Adler

NEW YORK | Thu Sep 16, 2010

(Reuters) - A record number of U.S. homeowners lost houses to their banks in August as lenders worked through the backlog of distressed mortgages, real estate data company RealtyTrac said on Thursday.

New default notices decreased at the same time, suggesting that lenders managed the flow of troubled loans and foreclosed properties hitting the market to limit price declines, the company said.

Root problems of high unemployment, wage cuts, negative home equity and restrictive lending practices persist, however, pointing to lingering housing market pain.

RealtyTrac sees a record 1.2 million repossessions this year, up from just under 1 million last year, with more than 3.2 million homes in some stage of foreclosure.

In 2005, before the housing bust, banks took over just about 100,000 houses, according to the Irvine, California-based company.

"It really does look like we're seeing a slowdown of new foreclosures being initiated as part of a means to manage inventory levels on the market," RealtyTrac senior vice president Rick Sharga said in an interview.

Banks foreclosed on 95,364 properties in August, topping the May 2010 record by 2 percent. These repossessions, or real estate owned (REO) homes, jumped 3 percent in the month and 25 percent in the year.

At the same time, a similar amount -- 96,469 homes -- got a default notice. Defaults declined 1 percent from July and 30 percent from August 2009 after peaking at 142,064 properties in April 2009.

It will take about three years to work through the stockpile of distressed housing, Sharga said, resulting in a market that moves sideways.

"I don't think it gets any better really until the end of 2013," he said.
Total foreclosure actions last month, including notice of default, scheduled auction and repossession, were made on a total of 338,836 properties in August, up 4 percent from July and down 5 percent from August 2009.

The number of homes getting at least one notice topped 300,000 for the 18th month in a row.
One in every 381 housing units got a foreclosure filing last month.

Slowing home sales, after buyer tax credits of up to $8,000 ended in April, could tilt more owners toward foreclosure.

"Fewer buyers means it's going to take longer to clear out the distressed inventory, the longer you have that inventory the more price pressure there is on the overall housing market," said Sharga. "The more price pressure, the more homes are in danger of going into foreclosure because they're going to be upside down."

Homeowners that are upside down, or have a mortgage bigger than the home's value, often cannot sell or refinance.

Foreclosure auctions were scheduled for the first time on about 147,000 properties last month, up 9 percent from July and the second highest total in records dating back to April 2005.

Nevada, Florida, Arizona and California had the highest state foreclosure rates in August, with Nevada topping the list for the 44th straight month despite a 24 percent drop in foreclosure actions from a year earlier.

Idaho, Utah, Georgia, Michigan, Illinois and Hawaii were the other states with the highest rates of foreclosure.

The 10 metro areas with the nation's highest foreclosure rates had fewer actions for a second straight month.

"Some markets may have already peaked, but even with the decreased levels of activity they're still running at multiples of national averages," Sharga said. "In some cases it really is a matter of trying to keep inventory levels from overwhelming the local markets."

(Reporting by Lynn Adler, Editing by Chizu Nomiyama)

U.S.Housing Market

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US economists oppose imposing punitive measures against China

Nobel Laureate economists on Wednesday urged American politicians to restrain from imposing punitive measures against imports of Chinese goods, calling it both unwise and useless.

"This is crude populism and represents the attempt of the two parties to win voters," said James Heckman, professor of economics at the University of Chicago, in an exclusive interview with Xinhua.

"What I do worry about is that there has been a lot of talking about taxing the Chinese and punishing them," said Heckman on the sidelines of a forum celebrating the opening of University of Chicago Center in Beijing.

The statement comes two days after 93 U.S. lawmakers signed a letter urging Democratic leaders in the House of Representatives to schedule a vote on a bill to get tougher with China.

The bill would allow the U.S. Commerce Department to slap countervailing and anti-dumping duties on "injurious imports from any country that persistently undervalues its currency."

The Chinese currency has seen increased volatility in the trading days since the People's Bank of China (PBOC), the central bank, announced on June 19 that it would increase the currency's exchange rate flexibility.

The yuan's central parity against the U.S. dollar has risen by 1.5 percent from the rate of 6.8275 per U.S. dollar, set a day before the PBOC's pledge to increase flexibility.

A more expensive Chinese currency would help, in some sense, but the key problem was in the U.S. economic policies which had proven to be ineffective, said Heckman, who won the Nobel Prize in Economic Sciences in 2000.

He said the current difficulties facing the U.S. economy in the form of high unemployment and a staggering deficit mainly stemmed from its own "unwise policies" that finance consumption and practice large tax cuts.

"There is an issue that China and the rest of the world has to be worried about -- How much will America continue to live beyond its means and whether America has the political will to solve the problem?"

He called upon the U.S. leadership to wake up to a deeper understanding of the nature of the deficit problem and look to a much longer-term solution, and deemed the proposed action as pure politics.

"Every serious person in economics said we have to deal with the deficit, but the government has not listened to it," Heckman said.

He said America's soft money policy and its consumption patterns were not sustainable and had to be adjusted, but "We don't even have a serious discussion about the nature of the deficit problem in America."

"It is easy to attack China, and so many people in the US will say it is the Chinese who are responsible for the lack of jobs, but they don't look at the deep structural questions," Heckman said.

"I don't believe that any American with any integrity would advocate this kind of punitive policy toward China, which is pure politics."

Echoing Heckman's words, another Nobel Laureate economist present at the opening ceremony, Gary Becker, said it was the U.S. who should take significant responsibility for its problems.

"The U.S. has a very low savings rate which has contributed in a very important manner to its current difficult situations and the global financial crisis, as well," said Becker, a professor of economics and sociology at the University of Chicago.

Heckman and Becker called for caution, as some economists suggest China sell down its vast holdings of U.S. Treasuries, which makes up some two-thirds of its 2.45 trillion U.S. dollars in international reserves.

"If China dumps a lot of U.S. dollars, that would be unwise, because that would create a currency crisis in the currency market," he said.

Source: Xinhua
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UCLA Anderson Forecast predicts 'very sluggish growth' accompanied by high unemployment

By Hilary Rehder

In its third quarterly report of 2010, the UCLA Anderson Forecast predicts "very sluggish growth" for the foreseeable future as the U.S. economy continues to recover from the recession. As for the California economy, the state is looking at a difficult period ahead as it attempts to regenerate not only the 1.3 million jobs lost during the recession but also create additional jobs needed for new entrants into the job market over the past two-and-a-half years.

The National Forecast

In a report titled "The Uncertain Economy," UCLA Anderson Forecast senior economist David Shulman offers two explanations for the ailing national economy. The first is the "balance-sheet hypothesis" put forth by the Forecast nearly two years ago, which is analogous to the work done by economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University. These economists noted that recoveries from the bursting of debt-fueled financial bubbles are invariably slow and are associated with high unemployment rates and rising government debt. Given that, Shulman suggests that a quick recovery is not likely.

Shulman also writes that, "the recovery from the balance-sheet recession is being exacerbated by an extraordinary increase in policy uncertainty, which is amplifying the usual economic uncertainties associated with recessions." Simply put, he believes that the nation's businesses are unsure of the implications of their investments — whether new hires or new computers — given the uncertainty surrounding tax, environmental, energy, financial, labor and health care policies.

"At present," Shulman said, "business firms can only make the wildest guesses as to what corporate and individual taxes will be next year, and, for that matter, three years from now what the cost of health care will be, whether or not there will be a revived cap-and-trade policy with respect to carbon emissions or whether the Environmental Protection Agency will step in with regulations of their own absent a statute, and whether it will be easier or more difficult to hedge risks with financial derivatives."

Given these factors, the Forecast expects very sluggish growth accompanied by high unemployment.
"As time passes," Shulman said, "the economy will naturally heal and the policy uncertainties will resolve themselves to allow growth to return to a 3 percent path, causing unemployment to begin a long-awaited downward trajectory. We forecast that these more ebullient trends will become noticeable by 2012."
The Forecast predicts the national unemployment rate will be 9.7 percent by year's end and 9.5 percent in 2011.

The California Forecast

Considering the California economy, UCLA Anderson Forecast senior economist Jerry Nickelsburg writes that "all the evidence suggests that California is ever so slowly coming out of the recession … but slow growth means that while the groundwork for faster growth is being put down, there is not a lot or perceptible change."

The Forecast implies that the weak growth will continue in the absence of any imminent changes in consumer or business behavior. According to the report, the very slow growth period will remain until next year. The recovery from the recession will be driven by education, health care, exports and technology and, to a lesser extent, growth in the battered residential construction sector.

On an annual basis, the expectation is that California employment will contract by -0.7 percent in 2010 and that once employment growth returns in 2011, employment will begin to grow faster than the labor force, at a 1.9 percent rate, and the unemployment rate will begin to fall.

Real personal income growth is forecast to be 0.6 percent in 2010, 2.2 percent in 2001, and 4.1 percent in 2012. The unemployment rate — currently at its high point of 12.6 percent — is expected to fall slowly through the balance of 2010 and average 12.2 percent for the year. The unemployment rate won't fall below double digits until 2012.

More information: http://uclaforecast.com/
Provided by University of California Los Angeles (news : web)

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Boeing subsidies should be withdrawn says WTO

Boeing has always said that all US support was above board

The World Trade Organization (WTO) has ordered more than $20bn (£13bn) in US government subsidies should be withdrawn from Boeing, according to agency reports.

A confidential interim report released on Wednesday is said to back European complaints over $17bn in research contracts from Nasa and the Pentagon.

Another $4bn tax breaks came from Washington state.
The US says there are a "number of inaccuracies" in press reports.

Nefeterius McPherson, a spokeswoman for the US Trade Representative' s Office told the BBC: "The report is confidential, so I can't speak about the contents."

The WTO report on Boeing was prompted by complaints from the European Union, which argued that Boeing was being given support that was anti-competitive.

European Trade Commissioner Karel De Gucht said the report backed the EU's case: "Some of the findings of the WTO Panel Report on subsidies to Boeing have already been leaked and commented upon. I would like to limit myself to saying that the analysis conducted appeared very thorough and its conclusions support the EU's view."

The EU has itself fallen foul of the WTO.

Earlier this year, the organisation ruled that the EU paid illegal subsidies to the European firm, EADS, the parent company of Boeing's arch-rival Airbus.

The acrimonious tit-for-tat spat has dragged on for almost six years. Brussels brought its case to the WTO in October 2004 - on the same day that Washington complained about EU subsidies to Airbus.

Aerospace and Defence

Wednesday's WTO report is said to have found the Boeing aid "actionable" and has called for it to be withdrawn but has stopped short of labelling the state incentives "prohibited," which would require faster remedies, according to sources.

The EU is appealing against the earlier decision by the WTO that it itself was guilty of giving EADS illegal subsidies in the form of support for the A380 plane.

It added that it would also contest the ruling that there had been a causal link between support to Airbus and adverse effects to Boeing.

Truce?

Some analysts have said that such an agreement would be in the best interests of both companies - allowing them to focus instead on developing their aircraft.

Earlier, an Airbus spokeswoman said the two rivals may negotiate a settlement.

Mr De Gucht said more time was needed to absorb the WTO's report, but that he believed "even more strongly than before that the question of subsidies to aircraft manufacturers can be settled only by way of negotiations".

Ms McPherson said the US had been happy to hold talks for some years: "We were interested six years ago. We were interested four years ago. We were interested two years ago. And we're still interested."

Violation claim

The EU complaint accused Washington of funnelling subsidies to civil aviation through military research funds.
Boeing, the maker of the long-delayed 787 Dreamliner, insisted that all US support was above board.

In a statement ahead of the WTO's preliminary decision, it said none of Washington's actions had "the market-distorting impact of launch aid nor even approach the sheer scale of European subsidy practices".

More on This Story

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Lenovo's Thoughtful ThinkPad Is a Near-Perfect Machine

Reviewed by Christopher Null • September 15, 2010
Editors' Pick

Lenovo ThinkPad T410s

$1,985 • thinkpad.com

9 out of 10

At the top of Lenovo's product heap is the ThinkPad line. The top of the ThinkPad line is the T-series. And the top of the T-series, even in Lenovo's own estimation, is the T410s.

Few laptops can be all things to all people, but the ThinkPad T410s comes dangerously close.

First there's the screen: The 14.1-inch laptop offers improved resolution, at 1440 x 900 pixels, and a display so bright it should come with sunscreen. (Seriously, it's not just the brightest notebook display in our records, it's brighter than some desktop monitors.)

Specs leave nothing to complain about: 2.4-GHz Core i5 chip, 4-GB RAM, an Nvidia NVS 3100M graphics processor, and the aforementioned bad-ass screen. Only the 128-GB SSD hard drive is perplexing: Either up it to a proper 256 GB or forgo SSD for a big, regular hard drive, Lenovo.

Space concerns aside, the benchmarks are record-breaking. The T410s had the highest numbers on general performance apps among anything we've ever tested, and it's no slouch in the gaming department, too: While short of our all-time highs, for a business machine, it's more than graphics capable. And all of this comes in a perfectly thin, 3.9-pound package, which earns it yet another record by making it the lightest 14-inch laptop we've tested, as well.

Naturally, few ThinkPads come at a discount, and the $1,985 price tag is likely too steep for most (try subbing that HD in lieu of the SSD to trim the cost a bit), but our sole operational complaint is one of battery life. That ultra-bright screen clearly exacts its toll on your power cell, with the T410s turning in just 83 minutes of DVD playback while operating at full brightness. It may not be able to make it through back-to-back episodes of Mad Men, but you'll certainly love it while it's running.

WIRED A multiple record-breaker: Top performance and brightest screen among all laptops we've seen. Very slim and extremely lightweight. Rock-solid ThinkPad keyboard with well-thought-out controls. Love the textured touchpad. Sturdy as a granite pillar anchored in Dolomite.

TIRED Battery life needs a serious boost. Expensive. No HDMI connector.

Manufacturer: Lenovo
Price: $1,985 (as tested)

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Wednesday, September 15, 2010

Bankrupt, USA: Why our cities aren't too big to fail

by Kit R. Roane, September 15, 2010: 5:48 AM ET

FORTUNE -- Harrisburg, Pennsylvania, has dodged a debt bullet. The only problem is that the gun is still loaded.

The Keystone State's cash-strapped capital was scheduled to default on a $3.3 million bond payment on Wednesday. It avoided that debilitating fate when Pennsylvania's governor, Ed Rendell, pledged to resolve the problem with $4.4 million from the state's own challenged coffers.

This gives Harrisburg a chance to fight again another day. But its problems are far from over, and that's bad news for investors in the $2.8 trillion muni-bond market.

States from California to Illinois have been in deep crisis since the recession began, hammered by drastic cuts in tax revenue and inflexible spending demands for things like health care, debt service and pension plans. Forty-eight states grappled with fiscal shortfalls in their 2010 fiscal budgets. Totaling $200 billion, or 30% of state budgets, this fiscal shortfall is the largest gap on record, according to the DC-based Center on Budget and Policy Priorities, which sees at least 46 states facing shortfalls this fiscal year.

Some cities are in even worse shape than Harrisburg. Central Falls, Rhode Island, recently went into receivership when it couldn't pay its bills. San Diego is said to be considering bankruptcy to get out from under its pension obligations. Miami's city council, hoping to avoid Harrisburg's fate, recently used emergency powers to slash city salaries and pensions and is now instituting hefty traffic fines and garbage fees. This year, ratings agencies have cut the debt in several cities -- including Littlefield, Tex., Detroit, Mich. and Bell, Calif. -- to junk.

Harrisburg's default on bond payments for its ill-fated $288 million incinerator project would have given it the dubious distinction of birthing the second-largest default on general-obligation municipal bonds this year. The largest default was on $227 in municipal warrants issued by Jefferson County, Alabama. Given that general obligation bonds are backed by the full faith -- and taxing power -- of the issuing government, and aren't supposed to default, even the hint of strain with such a bond is worrisome.

Buffett's prediction: Stiffing creditors

The growing perceived risk has sent a few municipal bond buyers in search of safer pastures. Warren Buffett's Berkshire Hathaway (BRK-A), which doubled its municipal bond holdings as investors fled the sector between June 2008 and March 2009, was more recently selling its municipal bond investments and moving to shorter maturities. The reversal followed Buffett's February 2009 investor's letter, where he noted that city councils were much more likely to skin bond insurers and bond investors than their own constituents.

He said the trend will begin when "a few communities stiff their creditors and get away with it." His municipal bond insurer, Berkshire Hathaway Assurance Corporation, also quickly pulled back from the market that year, insuring less than 8% of the $600 million in municipal bonds it guaranteed in 2008.

The problem, he told the US Financial Crisis Inquiry Commission this June, is that nobody really knows what state and major city municipal bonds are worth. Calling the municipal debt market "troubled," he opined: "If the federal government will step into help them, they're triple-A. If the federal government won't step in to help them, who knows what they are?"

Many participants in the municipal bond market, which is made up of more than 50,000 different issuers and more than 1.5 million issues, see concerns like those voiced by Buffett as overblown. After all, most states are likely "too big to fail" in the federal government's eyes. And, no matter how you slice it, defaults have remained exceedingly rare over the last thirty years.

According to Moody's, the ten-year default rate for investment-grade municipal bonds in recent decades has hovered around six-tenths of a percent. Dominic Frederico, the CEO of Assured Guaranty (AGO), a bond insurer, told attendees at an investment conference last week he calculates there have been only 60 municipal bond defaults through August 2 and that most of these defaults were not investment grade. The numbers, he said, show no evidence of a crisis at hand.

Defaults on the rise

That's just the sort of data that has kept a multitude of yield-hungry and tax-averse investors flocking to the sector. In August, investors plowed more than $1.2 billion a week into municipal bond funds. They invested a record $69 billion in new money there in 2009, up from just $7.8 billion in 2008 according to the Investment Company Institute. High-yield --or "junk" -- bonds have been exceedingly popular too.

But defaults on municipal debt have been rising, according to the Distressed Debt Securities newsletter, which says defaults rose from $349 million in 2007 to $7.77 billion in 2008. They have breached $4 billion so far this year, according to Bloomberg, despite heavy stimulus injections and other dollops of federal aid. Also, while AAA-rated bonds rarely go down the drain, the more speculative grades don't always stand up so well, with bonds rated B to C having ten-year cumulative default rates of 11% to 13% even in good times.

Municipal bond defaults could continue to rise even if the economy gains a footing. According to the US Government Accountability Office, despite the federal help, state and local governments continue to operate in the red. Without massive austerity, the GAO predicts their fiscal positions will continue to worsen for the next fifty years.

The problem is that the vast majority of municipal bond investors these days tend to be of the mom and pop variety and they are not generally being compensated much for risk. As Bond Buyer notes, heavy investor demand last month pushed "10-year tax-exempt yields below 2.20% and 30-year munis lower than 3.70% for the first time in history."

Despite the Pollyannaish view expressed by such a yield, critics fear that you don't need another Panic of 1873 -- when ten states, including Alabama, Arkansas, Tennessee, Michigan and Minnesota, defaulted on their municipal debts -- to seize up the system.

Drop dead

Perhaps not even something like the famed default of New York City during the Gerald Ford administration in 1975 would be needed to instigate a panic. Rapidly rising interest rates would be enough to wipe the smile off many retail investors in muni-bond funds. A few smaller but well-known municipalities threatening default could send them fleeing for crowded exits.

And crowded they would be. Despite the liquidity of municipal bond mutual funds and ETFs, their underlying bond holdings trade far less often. The "new normal" hasn't helped matters, noted bond giant Pimco this January, explaining that many of the major broker dealers in the municipal space -- Bear Sterns and Lehman Brothers for instance -- are no longer with us, while many of the major liquidity providers there, such as single strategy municipal hedge funds, "collapsed or were shut down."

Nor is a wave of defaults off the table just because they have not occurred in recent decades. Before the housing downturn, real-estate bulls saw housing prices laddering to the sky and often noted that real-estate prices had never declined nationwide -- until they finally did.

As Richard Bookstaber, the senior policy advisor at the Securities and Exchange Commission wrote in a blog post this April, the municipal market is massive, leveraged and opaque, blessed by questionable analyst ratings and backed by revenues already mortgaged off to someone else.

In other words, it bears all the hallmarks of a crisis in waiting.

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Tuesday, September 14, 2010

Shaolin warrior monks take a leap of faith

Bryce Hallett

Leaps of faith ... Belgian choreographer Sidi Larbi Cherkaoui and one of the 17 Shaolin monks demonstrate their acrobatic skills in Sutra. Photo: Hugo Glendinning

A troupe of high-flying Buddhist monks cured a renowned choreographer's creative fatigue, turning modern dance on its head in the process, writes BRYCE HALLETT.

In the political arena, cultural exchange suggests a formal diplomatic arrangement aimed at broadening horizons or engendering a level of mutual understanding and trust. In the arts world, it is more about loosening stereotypes, creative leaps of faith and breaking down barriers to achieve original and adventurous forms.
An unlikely cross-cultural partnership, and one of the big touring success stories of recent years, is the acclaimed contemporary movement piece Sutra, which was commissioned by the British dance house Sadler's Wells in 2007. It opens in Sydney this week for the Spring Dance season at the Opera House.

Directed, choreographed and performed by the Moroccan-Belgian dancer Sidi Larbi Cherkaoui, the East-meets-West collaboration fuses contemporary European dance, the martial arts feats of 17 Buddhist monks from the Shaolin Temple in China, an ingenious set of wooden boxes by the British sculptor Antony Gormley and an original score by the Polish composer Szymon Brzoska.

Leaps of faith ... Shaolin monks demonstrate their acrobatic skills in Sutra. Photo: Hugo Glendinning

Cherkaoui, 34, came to notice when he won a Belgian dance contest in 1995 by creating an energetic jumble of hip-hop, classical ballet and African moves. The judges were reportedly spellbound. His strength, agility and vulnerability caught the eye of the visionary Alain Platel, whose Compagnie C de la B has trained and influenced many of the world's leading dancers.

Cherkaoui says creating Sutra was a rewarding but daunting experience, not least because it meant earning the trust and involvement of the young warrior monks, who are aged between 20 and 22. "They follow a strict Buddhist doctrine and the challenge was to gain their acceptance, then inspire them to expand their perspective about the role of martial arts," says Cherkaoui, who began his career as a hip-hop dancer. "Kung fu and tai chi are integral to their faith and it was important to observe their culture from within."

The innovative and prolific choreographer, who performed Zero Degrees with his friend and kindred spirit Akram Khan at the 2007 Sydney Festival, spent months in the remote mountainside monastery near the city of Dengfeng in Henan Province. He observed a religious life that puts the individual in a system of ritual and discipline, and joined the increasingly receptive monks for meals, exercise and meditation.

Shaolin monks demonstrate their acrobatic skills in Sutra. Photo: Hugo Glendinning

"I didn't go in [to the temple] with a plan but with an open mind and heart. I remember saying to a friend who encouraged me, 'But what could I be doing?' I couldn't see the outcome but when I was there I saw the potential. The monks were intrigued by me and I was intrigued by them. I realised I could apply my knowledge to their rituals and adapt their precise movements – the powerful kicks and daring backflips – into something transformative, dramatic, mysterious and exciting."

Ever curious and open to ideas (Cherkaoui is a big fan of Bruce Lee's high-flying virtuosity), the loquacious choreographer says his pilgrimage was both personal and practical, and motivated by a desire to regenerate his ideas and overcome creative fatigue.

"At the time I was looking for a new way of expressing myself," he says. "The Shaolins were wonderfully open and relaxed around me. During our initial encounters, we spoke a lot about how their kung fu training and mastery connects with the outside world and how they relate spiritually to animals and the environment."
Despite the lack of heating and other comforts, Cherkaoui says he felt at home and was tempted to stay for as long as he could. It helped, of course, that he doesn't drink, smoke or eat meat.

He says Sutra's gradual blossoming into a multi-faceted movement piece was unforced, well-organised, rigorous and mutually engaging. "It was fascinating to see how much common ground we had and, amazingly, their way of expressing some things turned out to be similar to my own Belgian humour. There was lots of laughter."

Meanwhile, Gormley, who also collaborated on Zero Degrees, was busy designing the 21 open-sided spruce boxes that would eventually adorn the stage and be used to create an array of striking images, including lotus flowers, skyscrapers, mazes and burial grounds.

The Turner Prize-winning sculptor's work is as much about the body as it is about the incongruous landscapes in which he locates his figures. He relished furthering his artistic partnership with the supple and strong Cherkaoui. He also spent time at the Shaolin Temple. Working on Sutra allowed him to nourish his spirituality while returning to the vocabulary of dance.

"To me, dance is one of the most direct art forms there is and one of the most poetic and vulnerable," Gormley says. "The monks have a wonderful freedom of spirit and they're as interested in hip-hop and contemporary culture as they are in the Buddhist sutras."

Gormley, who had spent two years in India living in monasteries and practising meditation in his youth, quickly responded to the physicality of the monks and the austerity of their environment. His coffin-like boxes were partly inspired by his earlier travels to China, where he was astonished by the compartmentalised domestic arrangements for young girls at a factory he visited. The image of five or six beds stacked on top of the other came to mind when he saw the dormitory arrangements in the monastery. It got him thinking, then creating a set design he imagined would be static. Cherkaoui, who grew up enchanted by the expressive and liberating movements of Kate Bush and Madonna, had other ideas.

No sooner had the boxes arrived than the super-fit Shaolins attentively responded to the choreographer's playful instructions as they manipulated the set pieces to form a variety of patterns and forms in which they could hide, spring out, make walls or topple them like dominoes.

"It reminded me of when I was a child playing with Lego," he says "The monks don't speak English and communicate through gesture; they are soulful and talented. Some are naturally artistic while others don't know how to separate performance and life. Their whole Shaolin philosophy is based on discovery and self-discovery and a healthy sense of how to handle suffering."

Cherkaoui says his time in the monastery recalled the hothouse environments of Les Ballets C de la B and the Royal Danish Ballet. For someone who has spent much of his career exploring notions of identity and the role of the collective, he found much in common with the monks. "The monks all commit to the Buddhist way, to the same thing, and their shared ritual assumes profound meaning when set against all the communities that are divided and where people are either oppressed or trying to break free."

Having grown up Muslim in Belgium, Cherkaoui is acutely aware of what it is like to be an outsider and he says becoming a choreographer was his response to this. "It's given me the freedom to explore my own language and [to] blur the lines of gender. My education was always as an individual and having to find your own thing . . . I'm still looking for purpose and it has a lot to do with my family. My parents were very divided people. They loved each other but [they] were struggling with each other in a culture of two extremes. It's that continual ping-pong: do you stay true to yourself or do you abandon yourself to the other; there is no real happiness either way."

Sutra is at the Sydney Opera House from Thursday to Sunday, September 19.

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