China Austerity Drive Becomes a Joke

February 25, 2013, 8:38 PM

China Austerity Drive Becomes a Joke

China’s leaders have been talking tough about graft, greed and gross extravagance again. One sign they’re serious this time: Their willingness to have a little fun with it.

Up until recently, the austerity campaign was suitably severe. There was tough talk from Communist Party chief Xi Jinping, who told a gathering of party heavyweights in November that corruption threatened their grip on power. He called for less pomp and ceremony for officials touring the countryside and urged comrades to make do with a little less banqueting. They should stick to four dishes and a soup and finish their food or else, he said.

Similar refrains have regularly appeared in the party mouthpiece, the People’s Daily. A recent commentary (in Chinese) said cadres need to avoid waste, hold only meetings that have a real purpose and observe the New Year holiday in a simple and modest fashion. “The people are looking forward to this – and they will be watching critically,” it warned.

But to help spread the party gospel even further, Beijing recently decided to take a more populist approach — making these themes part of the entertainment on CCTV’s widely watched Lunar New Year’s Eve gala – or the “Chun Wan Hui.”

In one of the CCTV New Year skits, comic Guo Degang took a swipe at the ex-Shaanxi work safety official Yang Dacai, dubbed the “Brother Watch” after photos of him appeared on the Internet sporting an array of expensive watches that normally would exceed a government salary. Mr Guo, who didn’t mention the sacked official by name, bragged he wore a hefty gold watch on his right wrist and a dozen more all the way up his left arm. Asked if it wasn’t risky wearing them he said: “I’m not afraid of wearing them and I’m not afraid of letting people see them,” he said, adding he had shortened his left suit sleeve so he could show them all off (in Chinese).

Still in character, he bragged of splashing out on a wedding banquet, inviting enough guests to fill 100 tables. He feigned outrage at apparently being upstaged by a banquet next door with 200 tables. On closer inspection, that banquet was paid for with public money, so it wasn’t a fair contest, he insisted. Read more of this post

China’s riskiest property market just collapsed. Is this how it starts?

China’s riskiest property market just collapsed. Is this how it starts?

By Max Fisher , Updated: February 25, 2013

The real estate market in Phoenix Island, a development project in the Chinese island province of Hainan, was so inflated, so outrageously expensive and unsustainable, that it became known as the Dubai of China. With its palm tree-lined streets, glimmering high-rises and ostentatious sports cars, it even looked a little like Dubai. And now, also like Dubai but maybe more in the vein of south Florida, the Phoenix Island real estate market that drove so much local economic growth has imploded.

Phoenix Island is an extreme case, but it’s in many ways symptomatic of China’s skyrocketing real estate market, which is both a blessing and a curse for China. A blessing because it helps to drive economic growth and domestic consumption, which the country’s economy needs more of to be healthy. It’s a curse because, as Americans are well aware, it can burst, pulling down much of the national economy with it.

If the national real estate market collapses in China, it would be disastrous not just for China but for the entire world economy, risking a third wave of the global crisis that began with the U.S. financial collapse and worsened with the Euro crisis. Is Phoenix Island an outlier, a crazy market so extreme that it tells us little about China? Is it the start of a major but recoverable setback? Or, in the worst-case scenario, is it the beginning of the end for China’s astounding 20 years of miraculous economic growth? Read more of this post

President Park: The Republic of Korea as we know it today has been built on the blood, toil, and sweat of the people. I have faith in the Korean people. I believe in their resilience and the potential of our dynamic nation.

2013-02-25 11:25

“Opening a New Era of Hope”

My fellow Koreans and seven million fellow compatriots overseas,

As I take office as the 18th-term President of the Republic of Korea, I stand before you today determined to open a new era of hope.

I am profoundly grateful to the Korean people for entrusting this historic mission to me. I also thank President Lee Myung-bak, former Presidents, dignitaries who have come from abroad to celebrate this occasion, and other distinguished guests for their presence.

As President of the Republic of Korea, I will live up to the will of the people by achieving economic rejuvenation, the happiness of the people, and the flourishing of our culture.

I will do my utmost to building a Republic of Korea that is prosperous and where happiness is felt by all Koreans.

Fellow citizens,

The Republic of Korea as we know it today has been built on the blood, toil, and sweat of the people. Read more of this post

Selloff Rattles Asia’s Bond Market; Plunge in Riskier Corporate Debt Has Left Many Investors with Large Losses, and Stoked Broad Fears

February 20, 2013, 6:47 p.m. ET

Selloff Rattles Asia’s Bond Market

Plunge in Riskier Corporate Debt Has Left Many Investors with Large Losses, and Stoked Broad Fears

By FIONA LAW

Fund managers worried about the end of an extended bull market in bonds might look to Asia, where a sudden selloff in a certain class of risky bonds has left many investors with large losses.

The plunge in so-called perpetual bonds is viewed as a cautionary example of an asset that had gotten too frothy and, some skeptics say, could be a sign of things to come in other corners of the bond market. Read more of this post

U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk

U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk

Warning: Banks in the U.S. are bigger than they appear.

That label, like a similar one on automobile side-view mirrors, might be required of the four largest U.S. lenders if Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., has his way. Applying stricter accounting standards for derivatives and off-balance-sheet assets would make the banks twice as big as they say they are — or about the size of the U.S. economy — according to data compiled by Bloomberg.

“Derivatives, like loans, carry risk,” Hoenig said in an interview. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.”

U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need.

Using international standards for derivatives and consolidating mortgage securitizations, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. would double in assets, while Citigroup Inc. would jump 60 percent, third- quarter data show. JPMorgan would swell to $4.5 trillion from $2.3 trillion, leapfrogging London-based HSBC Holdings Plc and Deutsche Bank AG, each with about $2.7 trillion. Read more of this post

CITI: There’s A Crisis Lurking In The Bond Market And No One Is Talking About It

CITI: There’s A Crisis Lurking In The Bond Market And No One Is Talking About It

Matthew Boesler | Feb. 20, 2013, 1:24 PM | 6,214 | 10

The Federal Reserve has revealed that it is considering scaling down and possibly even completely halting quantitative easing by the end of this year.

Whether or not the central bank will actually be in a position to do that in 2013 is one of the hottest debates in the market right now – but the 10-year U.S. Treasury yield has risen from an all-time low below 1.5 percent in July to its current levels, slightly above 2 percent, and that has people talking.

“It’s the $64,000 question: What ends up bringing this down?” Citi strategist Michael H. Anderson told Business Insider.

As several members of the Federal Reserve ramp up the public dialogue surrounding financial stability, Anderson thinks they’re looking in the wrong place.

In a recent note to clients, he wrote, “It’s more likely the excess that ultimately brings this cycle to an end is one that few are mentioning.”

In aggregate, investors have poured a staggering amount of money – hundreds of billions of dollars – into bond funds over the past five years. They have been largely deterred from stocks as memories of the crash in 2008 continue to haunt the market.

That may all be changing as investors in mutual funds begin to open up their monthly statements and realize that their bond investments are starting to lose money.

What happens when investors start pulling money from these mutual funds, and the fund managers have to turn around and get rid of their holdings of corporate bonds? Read more of this post

The Coming Atlantic Century; the pervasive narrative of western decline and Asia rising is quickly reversing itself

Anne-Marie Slaughter

Anne-Marie Slaughter, a former director of policy planning in the US State Department (2009-2011) and a former dean of the Woodrow Wilson School of Public and International Affairs, is Professor of Politics and International Affairs at Princeton University. She is the author of The Idea That Is America: Keeping Faith with Our Values in a Dangerous World.

The Coming Atlantic Century

21 February 2013

PRINCETON – The United States is rising; Europe is stabilizing; and both are moving closer together. That was the principal message earlier this month at the annual Munich Security Conference (MSC), a high-powered gathering of defense ministers, foreign ministers, senior military officials, parliamentarians, journalists, and national-security experts of every variety. The participants come primarily from Europe and the US; indeed, when the conference began in 1963, it was focused entirely on NATO members. This year, however, senior government officials from Brazil, China, India, Nigeria, Singapore, Qatar, and Saudi Arabia also joined, an important sign of the times. John McCain, the US senator and 2008 presidential candidate, always leads a large congressional delegation to Munich. The US administration also typically sends the Secretary of Defense or the Secretary of State to deliver a ritual speech reassuring the Europeans of the strength of the transatlantic alliance. This year, Vice President Joe Biden did the honors, bumping the US representation up a notch.

The conference also featured a panel on an unusual subject – “The American Oil and Gas Bonanza: The Changing Geopolitics of Energy.” Read more of this post

Andy Kessler: When Interest Rates Rise, Watch Out; The Fed’s inevitable Sword of Damocles could be brutal for bonds and stocks. Some of us recall the massacre of 1994

February 21, 2013, 7:09 p.m. ET

Andy Kessler: When Interest Rates Rise, Watch Out

The Fed’s inevitable Sword of Damocles could be brutal for bonds and stocks. Some of us recall the massacre of 1994.

By ANDY KESSLER

Can Ben Bernanke fly us through a needle’s eye? Minutes released this week from the last Federal Reserve policy meeting suggest evaluations are taking place that “might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.” It’s about time. The experiment to kick-start the economy with near-zero interest rates has failed. Maybe our central bankers have figured out that low rates are what is holding back lending and hiring and growth.

Meanwhile, even as the stock market hits highs not seen since 2007, everyone on Wall Street knows interest rates will go up—although no one except Mr. Bernanke knows when. Investors are playing a game of chicken with rates, enjoying the ride but bracing for a downturn when the rates turn up. When rates go up, bonds become more attractive than stocks because you get returns with less risk.

Those of us on Wall Street in 1994 witnessed something very similar. After several years of essentially flat short-term rates, the Fed raised rates by 25 basis points (or 0.25%) on Feb. 4, 1994. The Fed raised short-term rates a total of six times and 2.5% over the next 10 months.

In what became known as a bond-market massacre, the price of long bonds dropped almost 9%. The stock market dropped 9% in three months, killing a then-vibrant market for initial public offerings.

Today we are at the bitter end of a three-decade-long interest rate cycle, culminating in Mr. Bernanke’s near-zero rates. You can’t fall off the floor. And the prospect of higher interest rates is like the Sword of Damocles hanging over the stock market. Read more of this post

Why the Euro Crisis Isn’t Over; The economist who dared to predict Europe’s mess, and was fired for it, says there is much more pain to come

Updated February 22, 2013, 6:27 p.m. ET

Why the Euro Crisis Isn’t Over

The economist who dared to predict Europe’s mess, and was fired for it, says there is much more pain to come

By BRIAN M. CARNEY

London

Seventeen years ago, Bernard Connolly foretold the misery that awaited the European Union. Given that he was an instrumental figure in the EU bureaucracy and publicly expressed his doubts in a book called “The Rotten Heart of Europe,” he was promptly fired. Mr. Connolly takes no pleasure now in having seen his prediction come true. And he takes no comfort in the view, prevalent in many quarters, that the EU has passed through the worst of its crisis and is on the cusp of revival.

As far as Mr. Connolly is concerned, Europe’s heart is still rotting away.

The European political class, he says, believes that the crisis “hit its high point” last summer, “because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear.” But from the perspective “of real live people, and families and firms and economies,” he says, the situation “is just getting worse and worse.” Last week, the EU reported that the euro-zone economy shrank by 0.9% in the fourth quarter of 2012. For the full year, gross domestic product fell 0.5% in the euro zone.

Two immediate solutions present themselves, Mr. Connolly says, neither appetizing. Either Germany pays “something like 10% of German GDP a year, every year, forever” to the crisis-hit countries to keep them in the euro. Or the economy gets so bad in Greece or Spain or elsewhere that voters finally say, ” ‘Well, we’ll chuck the whole lot of you out.’ Now, that’s not a very pleasant prospect.” He’s thinking specifically, in the chuck-’em-out scenario, about the rise of neo-fascists like the Golden Dawn faction in Greece.

Mr. Connolly isn’t just any Cassandra. When he predicted disaster, he was running the European Commission’s Monetary Affairs Committee, the Brussels bureaucracy charged with ushering the euro into being. His public confession of fear that the monetary union would inevitably produce an economic crisis not only cost him his job, he says, it also cost him his pension, and he was barred from his office even before his dismissal was official. In the introduction to the paperback edition of “The Rotten Heart of Europe,” Mr. Connolly describes how his photograph was posted at entrances to the commission’s offices, as if he were a wanted criminal. Read more of this post

South Korea’s New President Faces Choices on Economy

February 24, 2013, 6:37 p.m. ET

South Korea’s New President Faces Choices on Economy

By EVAN RAMSTAD

SEOUL—When Park Geun-hye, the daughter of the man who led South Korea’s rise out of poverty, is sworn in as president on Monday, she will take control of an economy that is far larger and more important in the world—but that remains shaped by some of the institutions and regulations her father created in the 1960s.

One of the fundamental choices Ms. Park faces is whether to maintain the South Korean government’s enormous influence on the economy, which ranges from running dozens of regulatory agencies to owning about 400 companies, including several of the nation’s biggest banks.

Ms. Park is set to be sworn-in Monday morning before an invited crowd of 70,000 people on the grounds of the National Assembly, where she has been a member and leader of the ruling conservative party since the late 1990s.

Ms. Park, 61 years old, is the first woman to become president of South Korea. Thai Prime Minister Yingluck Shinawatra, the only other woman now leading an Asian nation, will attend Monday’s ceremony.

Since her election in December, Ms. Park has said little about the economy. The most substantial policy proposals announced by aides have been to expand welfare benefits for the elderly. Read more of this post

Unpredictable Policies Thwart Investment in Southeast Asia

Unpredictable Policies Thwart Investment in Southeast Asia
Karl Lester M. Yap | February 23, 2013

An unpredictable legal environment in Southeast Asia is the top concern of investors, according to an Economist Corporate Network survey, highlighting the challenge the region faces as it seeks to integrate by 2015 in an effort to boost growth and attract more investments.

Governments change their minds about important legislation with little warning, according to a report based on a survey of 147 companies including Unilever and General Electric released on Friday. “Even when laws remain unchanged, court decisions and interpretations of the laws can be highly arbitrary,” the report said.

While China remains the manufacturing capital of the world, companies including Nissan Motor and Google are expanding in Southeast Asia, lured by the prospect of a $2.2 trillion market. Nations including the Philippines are stepping up efforts to regain investor confidence after regulatory reversals and contract disputes in the past prompted Frankfurt, Germany-based Fraport to leave the country.

“The region’s diversity and uncertain legal environment remain major challenges for many multinationals,” said Clive Cook, a senior consultant at law firm Baker & McKenzie that commissioned the report. Companies are looking for legal advisers with expertise across different Association of Southeast Asian Nations markets, he said in a statement. Read more of this post

The most widespread margin squeeze in at least 10 years pushing some S’pore companies out of the city

Updated: Monday February 25, 2013 MYT 8:08:55 AM

The most widespread margin squeeze in at least 10 years pushing some S’pore companies out of the city

SINGAPORE: The most widespread margin squeeze in at least a decade is pushing some Singapore companies out of the city state as rising costs and slow growth sap profitability.

A Reuters study of 268 listed Singapore companies showed that 57 percent reported a year-on-year drop in operating profit margin for the first three quarters of 2012. That was the biggest percentage for the nine-month period on record, according to Thomson Reuters data going back to 2002. Full-year data for 2012 was not yet available.

A severe labour shortage is hobbling businesses in Singapore as the government tightens its immigration policies, while growth has been hard to come by as exports languish in a dull global economy.

Across Southeast Asia, 54 percent of companies reported shrinking margins, equalling the percentage recorded in 2009, when the global economy had tipped into a recession following the Lehman Brothers bankruptcy.

In all, Reuters examined the balance sheets of nearly 1,000 companies in Singapore, Malaysia, Indonesia, Thailand and the Philippines with a market value of at least S$100 million ($80.8 million).

The pain is particularly acute in Singapore, a smaller and more mature market lacking the burgeoning consumer classes of its emerging market neighbours. Inflation has heated up, with the consumer price index, due on Monday, expected to show a 4.0 percent rise in January, according to a Reuters poll.

The head of a Singapore business association is among those moving their corporate headquarters elsewhere, in search of lower costs and a larger market. Read more of this post