By Kevin Brown, FT.com
(FT) -- China's manufacturers sharply increased output in October, powered largely by rising domestic demand and defying a widespread slowdown in the rest of Asia.
The official purchasing managers' index released by the China Federation of Logistics and Purchasing rose to 54.7 from 53.8 in September, indicating strong growth in spite of Beijing's efforts to slow the economy to avoid asset bubbles.
The widely watched HSBC China manufacturing PMI, also released on Monday, moved up to 54.8 from 52.9 in one of the biggest month-on-month rises since the series began in April 2004.
The PMI indices, in which a figure above 50 indicates expansion and a lower figure indicates contraction, showed that Chinese manufacturing surged in October for the third successive month.
HSBC said the rate of expansion in new business for Chinese manufacturing companies was at a six-month high, in spite of a relatively small increase in export orders, suggesting that growth was firmly centred on the domestic market.
Hongbin Qu, HSBC's chief China economist, said the upbeat numbers suggested the economy would grow at an annualised rate of around 9 per cent in the fourth quarter of the year.
The Chinese numbers contrasted sharply with PMI reports for South Korea, Taiwan and Japan, all of which showed a continuing slowdown in the wake of very rapid growth after the sharp contraction caused by the global financial crisis.
The HSBC Taiwan index fell to 48.6 from 49 in September, the third successive monthly number suggesting a contraction. The bank's index for South Korea fell to 46.7 from 48.8, the second successive monthly number below 50.
The Nomura Japan manufacturing purchasing managers' index, which was released on Friday, fell to 47.2 from 49.5, the second monthly contraction in a row, indicating that slowing economic conditions and the strong yen are hurting most Japanese manufacturers.
The industrial slowdown in Asia outside China suggests that economic growth is decelerating from the very high rates of expansion achieved after the global crisis.
Gross domestic product for the region excluding Japan soared by 9 per cent between April 2009 and June this year, largely on the back of a 25 per cent rise in industrial production over the same period. That reflected an increase in domestic consumption that more than compensated for a fall in exports to the western advanced economies.
The first clear sign that Asia's overall economic growth may be slowing came in Singapore in October, where preliminary GDP figures for the third quarter showed a contraction of 19.8 per cent, quarter on quarter, seasonally adjusted, which was much bigger than consensus forecasts.
That compared with growth of 24 per cent on the same basis in the second quarter, and 45.7 per cent in the first. Wealthy Singapore is often a bellwether for Asia. It was the first Asian country to move into recession when the crisis hit home in 2008, and the first to start growing again a year ago.
Calculations by Credit Suisse, the investment bank, suggest that industrial production growth in Asia excluding Japan and China may fall as low as 3.5 per cent by January, compared with a long-term average of 6.1 per cent.
Underlying the production slowdown is a steady decline in PMI indices, which track a range of indicators such as business confidence, prices and new orders. Leading indicators from Singapore and Australia indicate a contraction in October, with even fast-growing India expected to report a deceleration.
In spite of the manufacturing slowdown in many countries, no one is predicting a return to recession. The Asian Development Bank has upgraded its 2010 GDP growth forecast for Asia excluding Japan to 8.2 per cent from 7.5 per cent, with growth of 7.3 per cent in 2011.
Source:The Financial Times Limited 2010
www.ft.com
Monday, November 1, 2010
Monday, October 25, 2010
Asia's economic history foretells Chinese slowdown
By Alan Wheatley, Global Economics Correspondent
GYEONGJU, South Korea
(Reuters) - The past is not an infallible guide to the future, but a reading of how East Asia's economies developed suggests China needs to get ready for an appreciable slowdown in growth in the years ahead.
And that same history lesson must have Beijing praying that it can follow in the footsteps of vibrant South Korea, not stagnant Japan.
Last weekend's gathering of the Group of 20 major economies was aimed at securing short-term growth and currency stability.
But the opulence of the lake resort where G20 finance ministers met was a vivid illustration of how South Korea has avoided the so-called middle-income trap and continued to push living standards closer to those of advanced countries.
For decades, many countries in Latin America and the Middle East have failed in this task. In Asia, the Philippines is a prominent example.
"Many countries make it from low-income to middle-income, but very few actually make that second leap to high-income. They seem to get stuck in a trap where your costs are escalating and you lose competitiveness," said Ardo Hansson, a World Bank economist in Beijing.
Not so South Korea. When war on the divided peninsula ended in 1953, the south was poorer than the north.
By 1997, though, South Korean per capita GDP (at purchasing power parity exchange rates) had reached 57 percent of the average of the Organisation for Economic Co-operation and Development, a forum of industrial democracies that Seoul joined a year earlier.
The 1997/98 Asian financial meltdown set back many middle-income countries across the region. Investment, vital to sustain medium-term growth, has still not recovered to pre-crisis levels in Thailand, Malaysia and the Philippines.
South Korea, though, after nearly defaulting on its debts at the end of 1997, pulled itself together and resumed its march up the value chain.
DON'T STOP REFORMING
The key reason is that Seoul embarked on far-reaching market reforms. In particular, the government reduced the power of the chaebol, sprawling debt-heavy conglomerates whose links to the state created the impression that they were too big to fail.
But many did fail as South Korea injected more competition into the economy, liberalised imports and deregulated the financial sector that was a captive source of funding for the chaebol.
"They really changed the rules of the game for the large corporations. It became clear that being big and being close to government was not enough to keep you alive," said Randall Jones, who heads the OECD's South Korea desk.
Since the crisis, the country has grown more than twice as fast as the OECD norm, propelling per capita GDP to 83 percent of the group average by 2008.
"Korea is a success story because of what they've been able to do during the past decade, and it's the wave of reform back in 1997/98 that gave them that second wind," Jones said.
The lessons for Beijing seem evident. The chaebol can be likened to China's state-owned enterprises, which generally enjoy cosy monopolies and favourable financing from state-owned banks that are themselves cossetted.
Beijing needs to emphasise the efficiency of investment, not its scale. It must foster innovation and make it easier for more-productive private firms to enter sectors such as finance and logistics.
"Part of it is just making sure that you are creating new sources of growth all the time," said Hansson at the World Bank.
A HISTORY LESSON
A particular lesson from South Korea is that investing in human capital is critical to avoiding the middle-income trap.
"Korea, 50 years ago, already had very high levels of educational attainment. There has to be some sense in which making that final leap really depends upon widespread access to high-quality education," Hansson at the World Bank said.
Emulating South Korea would help China to improve the structure of its economy and actually benefit from the loss of momentum that history suggests is looming.
According to data compiled by the late economic historian Angus Maddison and cited by Morgan Stanley, about 40 economies have attained a per capita GDP level of $7,000 over the past century or so.
Remarkably, the average growth rate of 31 of those 40 countries was 2.8 percentage points less in the decade after the $7,000 inflection point was reached than in the preceding decade.
Japan and South Korea hit the $7,000 mark around 1969 and 1988, whereupon their annual average GDP growth rates decelerated in the following decade by 4.1 and 2.4 percentage points respectively, Morgan Stanley calculates.
China's per capita GDP today is less than $4,000 at market exchange rates, but the bank reckons it reached Maddison's magic number, which is based on purchasing power, in 2008.
"If history is a guide and the law of gravity applies to China, China's economic growth is set to slow," Morgan Stanley said in a recent report.
China's slowdown might be gentler given its continental-sized economy and the potential for catch-up in the poorer interior. But the development experience of its neighbours, including Taiwan, is a benchmark too powerful to ignore.
Morgan Stanley has pencilled in average GDP growth of 8.0 percent a year from 2010-2020, down from 10.3 percent from 2000-2009.
Slower, though, can mean a better balance. In Japan and South Korea consumption and labour income rose sharply as a share of GDP in the decade after growth peaked, while their service sectors expanded strongly.
China's new five-year plan proclaims the same goals.
"China is not unique. It will follow the pattern of Korea and Japan and, after the inflection point, consumption will take off and investment will decline," said Steven Zhang, a Morgan Stanley economist in Shanghai.
(Additional reporting by Aileen Wang; editing by Richard Pullin)
Source: www.bx.businessweek.com
GYEONGJU, South Korea
(Reuters) - The past is not an infallible guide to the future, but a reading of how East Asia's economies developed suggests China needs to get ready for an appreciable slowdown in growth in the years ahead.
And that same history lesson must have Beijing praying that it can follow in the footsteps of vibrant South Korea, not stagnant Japan.
Last weekend's gathering of the Group of 20 major economies was aimed at securing short-term growth and currency stability.
But the opulence of the lake resort where G20 finance ministers met was a vivid illustration of how South Korea has avoided the so-called middle-income trap and continued to push living standards closer to those of advanced countries.
For decades, many countries in Latin America and the Middle East have failed in this task. In Asia, the Philippines is a prominent example.
"Many countries make it from low-income to middle-income, but very few actually make that second leap to high-income. They seem to get stuck in a trap where your costs are escalating and you lose competitiveness," said Ardo Hansson, a World Bank economist in Beijing.
Not so South Korea. When war on the divided peninsula ended in 1953, the south was poorer than the north.
By 1997, though, South Korean per capita GDP (at purchasing power parity exchange rates) had reached 57 percent of the average of the Organisation for Economic Co-operation and Development, a forum of industrial democracies that Seoul joined a year earlier.
The 1997/98 Asian financial meltdown set back many middle-income countries across the region. Investment, vital to sustain medium-term growth, has still not recovered to pre-crisis levels in Thailand, Malaysia and the Philippines.
South Korea, though, after nearly defaulting on its debts at the end of 1997, pulled itself together and resumed its march up the value chain.
DON'T STOP REFORMING
The key reason is that Seoul embarked on far-reaching market reforms. In particular, the government reduced the power of the chaebol, sprawling debt-heavy conglomerates whose links to the state created the impression that they were too big to fail.
But many did fail as South Korea injected more competition into the economy, liberalised imports and deregulated the financial sector that was a captive source of funding for the chaebol.
"They really changed the rules of the game for the large corporations. It became clear that being big and being close to government was not enough to keep you alive," said Randall Jones, who heads the OECD's South Korea desk.
Since the crisis, the country has grown more than twice as fast as the OECD norm, propelling per capita GDP to 83 percent of the group average by 2008.
"Korea is a success story because of what they've been able to do during the past decade, and it's the wave of reform back in 1997/98 that gave them that second wind," Jones said.
The lessons for Beijing seem evident. The chaebol can be likened to China's state-owned enterprises, which generally enjoy cosy monopolies and favourable financing from state-owned banks that are themselves cossetted.
Beijing needs to emphasise the efficiency of investment, not its scale. It must foster innovation and make it easier for more-productive private firms to enter sectors such as finance and logistics.
"Part of it is just making sure that you are creating new sources of growth all the time," said Hansson at the World Bank.
A HISTORY LESSON
A particular lesson from South Korea is that investing in human capital is critical to avoiding the middle-income trap.
"Korea, 50 years ago, already had very high levels of educational attainment. There has to be some sense in which making that final leap really depends upon widespread access to high-quality education," Hansson at the World Bank said.
Emulating South Korea would help China to improve the structure of its economy and actually benefit from the loss of momentum that history suggests is looming.
According to data compiled by the late economic historian Angus Maddison and cited by Morgan Stanley, about 40 economies have attained a per capita GDP level of $7,000 over the past century or so.
Remarkably, the average growth rate of 31 of those 40 countries was 2.8 percentage points less in the decade after the $7,000 inflection point was reached than in the preceding decade.
Japan and South Korea hit the $7,000 mark around 1969 and 1988, whereupon their annual average GDP growth rates decelerated in the following decade by 4.1 and 2.4 percentage points respectively, Morgan Stanley calculates.
China's per capita GDP today is less than $4,000 at market exchange rates, but the bank reckons it reached Maddison's magic number, which is based on purchasing power, in 2008.
"If history is a guide and the law of gravity applies to China, China's economic growth is set to slow," Morgan Stanley said in a recent report.
China's slowdown might be gentler given its continental-sized economy and the potential for catch-up in the poorer interior. But the development experience of its neighbours, including Taiwan, is a benchmark too powerful to ignore.
Morgan Stanley has pencilled in average GDP growth of 8.0 percent a year from 2010-2020, down from 10.3 percent from 2000-2009.
Slower, though, can mean a better balance. In Japan and South Korea consumption and labour income rose sharply as a share of GDP in the decade after growth peaked, while their service sectors expanded strongly.
China's new five-year plan proclaims the same goals.
"China is not unique. It will follow the pattern of Korea and Japan and, after the inflection point, consumption will take off and investment will decline," said Steven Zhang, a Morgan Stanley economist in Shanghai.
(Additional reporting by Aileen Wang; editing by Richard Pullin)
Source: www.bx.businessweek.com
U.S., China discuss economic ties amid tension
Beijing, China (CNN) -- U.S. Treasury Secretary Timothy Geithner met China's Vice-Premier Wang Qishan on Sunday and "exchanged views" about economic relations between their countries, both sides said.
The meeting came shortly after Geithner publicly hammered China over its currency, which Washington says Beijing keeps at artificially low levels to boost exports.
Geithner had urged the world's leading finance ministers to take strong action to ensure emerging markets nations allow their currency to rise in value in line with the free market.
The worry is that if such currency manipulation continues, it could wreak havoc on international trade.
He insisted that "countries that have traditionally run large trade and current account surpluses" -- which China has done -- needed to move "away from export dependence and toward stronger domestic demand led growth."
He said rich countries like the United States needed to play their part too by saving, investing and exporting more.
He was speaking at a meeting of finance ministers of the G-20 group of nations. Their two-day meeting wrapped up Saturday in Gyeongju, South Korea, with the ministers pledging not to engage in currency wars.
Geithner then flew on to China, where he met Wang at the Qingdao Airport.
They also discussed plans for the G-20 leaders meeting in Seoul, South Korea, next month, the Americans said.
In the G-20 finance ministers' closing statement, they said they would "move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies."
The ministers added that the G-20 member nations would "continue to resist all forms of protectionist measures and seek to make significant progress to further reduce barriers to trade."
The G-20 stopped short of outright banning currency manipulation though.
The meeting was a precursor to the larger G-20 meeting taking place in Seoul on November 11 and 12. That summit will involve the heads of state from the G-20 nations. President Obama will attend.
Tensions about currency and trade are likely to be high at that meeting as well.
The G-20 acknowledged in Saturday's statement that the global economic recovery is currently advancing, but it was doing so in "a fragile and uneven way."
The ministers added that "growth has been strong in many emerging market economies, but the pace of activity remains modest in many advanced economies."
As further evidence of that, China announced earlier this week that its gross domestic product for the third-quarter rose at an annual rate of 9.6 percent.
While that's slower than in previous quarters, it is still far higher than the growth rates of the United States, Japan and nations in Europe.
China's central bank also announced earlier this week that it was raising a key interest rate for the first time in nearly three years.
That comes at a time when many expect the Federal Reserve to soon announce more details about how it intends to further ease its own monetary policies.
In a nod to the increased economic clout of China and other emerging markets, such as Brazil, India and Russia, the G-20 ministers also announced a deal Saturday that would give emerging markets countries more seats on the board of the International Monetary Fund.
By the CNN Wire Staff
Source: CNN
www.cnn.com
The meeting came shortly after Geithner publicly hammered China over its currency, which Washington says Beijing keeps at artificially low levels to boost exports.
Geithner had urged the world's leading finance ministers to take strong action to ensure emerging markets nations allow their currency to rise in value in line with the free market.
The worry is that if such currency manipulation continues, it could wreak havoc on international trade.
He insisted that "countries that have traditionally run large trade and current account surpluses" -- which China has done -- needed to move "away from export dependence and toward stronger domestic demand led growth."
He said rich countries like the United States needed to play their part too by saving, investing and exporting more.
He was speaking at a meeting of finance ministers of the G-20 group of nations. Their two-day meeting wrapped up Saturday in Gyeongju, South Korea, with the ministers pledging not to engage in currency wars.
Geithner then flew on to China, where he met Wang at the Qingdao Airport.
They also discussed plans for the G-20 leaders meeting in Seoul, South Korea, next month, the Americans said.
In the G-20 finance ministers' closing statement, they said they would "move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies."
The ministers added that the G-20 member nations would "continue to resist all forms of protectionist measures and seek to make significant progress to further reduce barriers to trade."
The G-20 stopped short of outright banning currency manipulation though.
The meeting was a precursor to the larger G-20 meeting taking place in Seoul on November 11 and 12. That summit will involve the heads of state from the G-20 nations. President Obama will attend.
Tensions about currency and trade are likely to be high at that meeting as well.
The G-20 acknowledged in Saturday's statement that the global economic recovery is currently advancing, but it was doing so in "a fragile and uneven way."
The ministers added that "growth has been strong in many emerging market economies, but the pace of activity remains modest in many advanced economies."
As further evidence of that, China announced earlier this week that its gross domestic product for the third-quarter rose at an annual rate of 9.6 percent.
While that's slower than in previous quarters, it is still far higher than the growth rates of the United States, Japan and nations in Europe.
China's central bank also announced earlier this week that it was raising a key interest rate for the first time in nearly three years.
That comes at a time when many expect the Federal Reserve to soon announce more details about how it intends to further ease its own monetary policies.
In a nod to the increased economic clout of China and other emerging markets, such as Brazil, India and Russia, the G-20 ministers also announced a deal Saturday that would give emerging markets countries more seats on the board of the International Monetary Fund.
By the CNN Wire Staff
Source: CNN
www.cnn.com
Singapore stock exchange bids $8.3bn for Australian ASX
The Singapore stock exchange (SGX) has unveiled a multi-billion dollar bid for the company that owns the Australian Stock Exchange (ASX) in Sydney.
If approved, the $8.3bn takeover would mark the first stock exchange merger in the Asia Pacific region.
The deal would enhance Singapore as a major financial hub in the region and benefit Australian investors by giving them greater access to Asian markets.
A merged exchange would hope to compete more effectively with Hong Kong.
ASX shares soared more than 20% to A$43.49 ($43.17) after the announcement, while SGX shares fell back 4.35% to S$9.13 ($7.05).
A merger would create the second-largest exchange in the region by number of companies listed with 2,700 quoted firms.
However, in terms of market value of the companies listed, the new exchange would still lag behind Hong Kong, Tokyo and Shanghai.
SGX chief executive Magnus Bocker, said: "The capital flow we see today is really changing from West to East. This will be the gateway to Asian capital markets."
The Singapore bid values ASX at A$48 ($47.50) per share, nearly 40% higher its latest traded price before the announcement.
The offer is made up of A$22 plus 3.473 SGX shares for each ASX share.
Any merger deal would require approval by the regulatory authorities in both countries.
Graeme Samuel, the chairman of the Australian Competition and Consumer Commission, said he did not see any potential problems with the proposed deal.
"I think it's a matter between the Singapore Exchange and the Australian exchange, and I can't see that raising competition issues for us."
Sourse: BBS
www.bbc.co.uk
If approved, the $8.3bn takeover would mark the first stock exchange merger in the Asia Pacific region.
The deal would enhance Singapore as a major financial hub in the region and benefit Australian investors by giving them greater access to Asian markets.
A merged exchange would hope to compete more effectively with Hong Kong.
ASX shares soared more than 20% to A$43.49 ($43.17) after the announcement, while SGX shares fell back 4.35% to S$9.13 ($7.05).
A merger would create the second-largest exchange in the region by number of companies listed with 2,700 quoted firms.
However, in terms of market value of the companies listed, the new exchange would still lag behind Hong Kong, Tokyo and Shanghai.
SGX chief executive Magnus Bocker, said: "The capital flow we see today is really changing from West to East. This will be the gateway to Asian capital markets."
The Singapore bid values ASX at A$48 ($47.50) per share, nearly 40% higher its latest traded price before the announcement.
The offer is made up of A$22 plus 3.473 SGX shares for each ASX share.
Any merger deal would require approval by the regulatory authorities in both countries.
Graeme Samuel, the chairman of the Australian Competition and Consumer Commission, said he did not see any potential problems with the proposed deal.
"I think it's a matter between the Singapore Exchange and the Australian exchange, and I can't see that raising competition issues for us."
Sourse: BBS
www.bbc.co.uk
Saturday, October 23, 2010
Geithner calls for cap on trade surpluses
Gyeongju, South Korea (FT) -- Washington has taken a fresh line of attack in attempts to get Beijing to allow its currency to appreciate, calling for the G20 group of leading economies to agree a cap on current account surpluses.
The U.S. has long sought faster and sustained appreciation of the renminbi but Beijing has consistently resisted specific targets.
In order to break this impasse, Timothy Geithner, U.S. Treasury secretary, said G20 finance ministers, meeting in the South Korean city of Gyeongju on Friday, should commit to limit trade deficits and surpluses that create imbalances in the global economy.
"G20 countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth and support global demand," Mr Geithner wrote in a letter to G20 ministers that was circulated among reporters.
Still, much of Mr Geithner's language was tailored to the challenge posed by the renminbi. By building up domestic demand and increasing imports, China would be inclined to allow a faster strengthening of its currency.
"Emerging market countries with significantly undervalued currencies and adequate precautionary reserves need to allow their exchange rates to adjust fully over time to levels consistent with economic fundamentals," he added.
G20 officials on Friday said the U.S. initially proposed that trade surpluses should be capped at 4 per cent of gross domestic product.
One senior G20 official said the letter, drafted after a proposal from South Korea, would not come as a shock to the Chinese because financial officials had been sounding out Beijing in earlier meetings.
The G20 official said the Chinese had cautiously welcomed the suggestion of shifting the debate away from the narrow focus on currency and could even be open to the 4 per cent target because it chimed with their own forecasts.
"I do not know whether the Chinese fully agreed in advance or not, but if the Americans decided to circulate the letter, it should be a sign they have already agreed something. The bigger worry is opposition from Germany and Japan."
China gave no immediate reaction. Cui Tiankai, Beijing's representative to the G20, last week said any U.S.-led offensive on Chinese currency would be "wrong" but said he was "cautiously optimistic" a final deal could be done if it took broad macroeconomic factors into account.
He said asking China to set targets on currency was tantamount to asking it to manipulate the renminbi. He repeated Beijing's assertions that it was already doing enough to stimulate domestic demand and that it was unfair to expect a sudden change in consumers' habits.
Jim Flaherty, Canada's finance minister, said Mr Geithner's proposal was helpful and added that it could be regarded as part of an action plan to be agreed by a summit of G20 leaders in Seoul on November 11. A French official told reporters that Paris was also sympathetic to the suggestion, which echoed its complaints about Germany's surpluses.
However, Yoshihiko Noda, Japan's finance minister, told reporters that numerical targets would be difficult to implement. A senior German official also reacted negatively, telling Deutsche Presse-Agentur that Germany's surplus could not be likened to that of China. He argued that Berlin's surpluses were unrelated to the euro and were simply a sign of trading strength.
Mr Flaherty held out hopes that an initial compromise could be reached by the end of the Gyeongju meeting on Saturday.
"No one wants to walk out from here without an agreement on an action plan," he told reporters.
It was unclear whether a demand for action on current accounts would be any more acceptable to Beijing as it argues it is already taking sufficient steps to stimulate domestic demand. "We are not just an exporter," Mr Cui told a conference in Seoul. "We are making our best efforts to diversify our economy to base economic growth on domestic consumption and we are going to import more."
Despite the growing divisions, Lee Myung-bak, South Korea's president, joked he would not let any of the ministers leave until a deal was done.
"If you do not reach an agreement, when you come to leave, we may not operate buses, trains or planes," he said.
By Christian Oliver and Song Jung-a,
www.FT.com
The U.S. has long sought faster and sustained appreciation of the renminbi but Beijing has consistently resisted specific targets.
In order to break this impasse, Timothy Geithner, U.S. Treasury secretary, said G20 finance ministers, meeting in the South Korean city of Gyeongju on Friday, should commit to limit trade deficits and surpluses that create imbalances in the global economy.
"G20 countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth and support global demand," Mr Geithner wrote in a letter to G20 ministers that was circulated among reporters.
Still, much of Mr Geithner's language was tailored to the challenge posed by the renminbi. By building up domestic demand and increasing imports, China would be inclined to allow a faster strengthening of its currency.
"Emerging market countries with significantly undervalued currencies and adequate precautionary reserves need to allow their exchange rates to adjust fully over time to levels consistent with economic fundamentals," he added.
G20 officials on Friday said the U.S. initially proposed that trade surpluses should be capped at 4 per cent of gross domestic product.
One senior G20 official said the letter, drafted after a proposal from South Korea, would not come as a shock to the Chinese because financial officials had been sounding out Beijing in earlier meetings.
The G20 official said the Chinese had cautiously welcomed the suggestion of shifting the debate away from the narrow focus on currency and could even be open to the 4 per cent target because it chimed with their own forecasts.
"I do not know whether the Chinese fully agreed in advance or not, but if the Americans decided to circulate the letter, it should be a sign they have already agreed something. The bigger worry is opposition from Germany and Japan."
China gave no immediate reaction. Cui Tiankai, Beijing's representative to the G20, last week said any U.S.-led offensive on Chinese currency would be "wrong" but said he was "cautiously optimistic" a final deal could be done if it took broad macroeconomic factors into account.
He said asking China to set targets on currency was tantamount to asking it to manipulate the renminbi. He repeated Beijing's assertions that it was already doing enough to stimulate domestic demand and that it was unfair to expect a sudden change in consumers' habits.
Jim Flaherty, Canada's finance minister, said Mr Geithner's proposal was helpful and added that it could be regarded as part of an action plan to be agreed by a summit of G20 leaders in Seoul on November 11. A French official told reporters that Paris was also sympathetic to the suggestion, which echoed its complaints about Germany's surpluses.
However, Yoshihiko Noda, Japan's finance minister, told reporters that numerical targets would be difficult to implement. A senior German official also reacted negatively, telling Deutsche Presse-Agentur that Germany's surplus could not be likened to that of China. He argued that Berlin's surpluses were unrelated to the euro and were simply a sign of trading strength.
Mr Flaherty held out hopes that an initial compromise could be reached by the end of the Gyeongju meeting on Saturday.
"No one wants to walk out from here without an agreement on an action plan," he told reporters.
It was unclear whether a demand for action on current accounts would be any more acceptable to Beijing as it argues it is already taking sufficient steps to stimulate domestic demand. "We are not just an exporter," Mr Cui told a conference in Seoul. "We are making our best efforts to diversify our economy to base economic growth on domestic consumption and we are going to import more."
Despite the growing divisions, Lee Myung-bak, South Korea's president, joked he would not let any of the ministers leave until a deal was done.
"If you do not reach an agreement, when you come to leave, we may not operate buses, trains or planes," he said.
By Christian Oliver and Song Jung-a,
www.FT.com
Friday, October 22, 2010
IMF Sees Strong Growth in Asia Continuing, Further Policy Tightening Needed
Press Release No. 10/393
October 21, 2010
Asia remains firmly in the lead of the global economic recovery and strong growth in the region is set to continue, the International Monetary Fund (IMF) said today in its latest Regional Economic Outlook (REO) for Asia and the Pacific which was released in Jakarta, Indonesia.
The expansion in Asia exceeded expectations in the first half of the year, the IMF said, prompting the Fund to revise up its 2010 growth forecast for the region to 8 percent, nearly 1 percentage point higher than its April forecast. Economies across the region are expanding strongly. China and India are leading the way with projected 2010 growth rates of 10.5 percent and 9.7 percent, respectively, while Indonesia is expected to grow by 6 percent. In Japan, growth is now projected at 2.8 percent. In 2011, regional growth is expected to moderate to a more sustainable pace of 6.8 percent.
Strong economic growth is leading to new policy challenges, according to the REO analysis. Inflationary pressures are continuing to build, while prices in some property markets are growing at double-digit rates. With Asia set to remain an attractive destination for foreign investment given the sluggish recovery in the U.S. and Europe, capital inflows could add further to domestic price pressures in the period ahead.
The time has therefore come for countries in the region to normalize monetary and fiscal policy stances, according to Mr. Anoop Singh, Director of the IMF’s Asia and Pacific Department. “We welcome the steps so far taken by policymakers to control inflation risks and limit the build-up of financial sector vulnerabilities, but more now needs to be done given the continued strong growth in the region,” Mr. Singh said.
The REO points to the need for further tightening of monetary policy in many countries in Asia, including through greater exchange rate appreciation. A faster withdrawal of the fiscal stimulus put in place during the global financial crisis would also help guard against the risks of overheating. The REO notes, however, that should a worsening of global economic conditions negatively affect Asia, there is room to return to a more stimulative policy stance.
Managing capital inflows into the region is a difficult challenge. These inflows present many opportunities, but they also pose potential risks to financial stability. Macro-prudential measures have appropriately been taken in many regional economies to minimize risks, but more action may be needed. These important issues were recently discussed at a high-level conference on “Macro-Prudential Policies: An Asian Perspective” hosted by the People’s Bank of China and the IMF in Shanghai.
Rebalancing Asia’s growth remains the top policy priority over the medium term. With external demand from advanced economies unlikely to return to pre-crisis levels in the foreseeable future, Asia will need stronger domestic demand in order to continue along a robust growth path. A broad range of reforms are needed to support domestic consumption and investment, including strengthening social safety nets, ensuring access to credit, easing restrictions in service sectors, and improving infrastructure. Exchange rate appreciation is an important part of rebalancing. “It is only natural that as Asian economies grow stronger so too will their currencies,” said the IMF’s Singh. “This is very much a sign of Asia’s success.”
Source: International Monetary Fund
www.imf.org
October 21, 2010
Asia remains firmly in the lead of the global economic recovery and strong growth in the region is set to continue, the International Monetary Fund (IMF) said today in its latest Regional Economic Outlook (REO) for Asia and the Pacific which was released in Jakarta, Indonesia.
The expansion in Asia exceeded expectations in the first half of the year, the IMF said, prompting the Fund to revise up its 2010 growth forecast for the region to 8 percent, nearly 1 percentage point higher than its April forecast. Economies across the region are expanding strongly. China and India are leading the way with projected 2010 growth rates of 10.5 percent and 9.7 percent, respectively, while Indonesia is expected to grow by 6 percent. In Japan, growth is now projected at 2.8 percent. In 2011, regional growth is expected to moderate to a more sustainable pace of 6.8 percent.
Strong economic growth is leading to new policy challenges, according to the REO analysis. Inflationary pressures are continuing to build, while prices in some property markets are growing at double-digit rates. With Asia set to remain an attractive destination for foreign investment given the sluggish recovery in the U.S. and Europe, capital inflows could add further to domestic price pressures in the period ahead.
The time has therefore come for countries in the region to normalize monetary and fiscal policy stances, according to Mr. Anoop Singh, Director of the IMF’s Asia and Pacific Department. “We welcome the steps so far taken by policymakers to control inflation risks and limit the build-up of financial sector vulnerabilities, but more now needs to be done given the continued strong growth in the region,” Mr. Singh said.
The REO points to the need for further tightening of monetary policy in many countries in Asia, including through greater exchange rate appreciation. A faster withdrawal of the fiscal stimulus put in place during the global financial crisis would also help guard against the risks of overheating. The REO notes, however, that should a worsening of global economic conditions negatively affect Asia, there is room to return to a more stimulative policy stance.
Managing capital inflows into the region is a difficult challenge. These inflows present many opportunities, but they also pose potential risks to financial stability. Macro-prudential measures have appropriately been taken in many regional economies to minimize risks, but more action may be needed. These important issues were recently discussed at a high-level conference on “Macro-Prudential Policies: An Asian Perspective” hosted by the People’s Bank of China and the IMF in Shanghai.
Rebalancing Asia’s growth remains the top policy priority over the medium term. With external demand from advanced economies unlikely to return to pre-crisis levels in the foreseeable future, Asia will need stronger domestic demand in order to continue along a robust growth path. A broad range of reforms are needed to support domestic consumption and investment, including strengthening social safety nets, ensuring access to credit, easing restrictions in service sectors, and improving infrastructure. Exchange rate appreciation is an important part of rebalancing. “It is only natural that as Asian economies grow stronger so too will their currencies,” said the IMF’s Singh. “This is very much a sign of Asia’s success.”
Source: International Monetary Fund
www.imf.org
Japan business: No rare earths coming from China
(CNN) – China can publicly deny that it has halted exports of rare earth. But Shigeo Nakamura knows what he is seeing: no rare earth has come into his company from his Chinese suppliers.
“Nothing, nothing at this moment. Nothing,” said Nakamura, president of Advanced Material Japan Corporation, a Tokyo-based rare earth and metal trading house.
Nakamura said his company has a year’s supply stockpiled, but he is worried.
“This,” he said, pointing to a tiny, two millimeter cylinder, “is a micro-motor from a mobile phone. If China stops supply of the raw material, you will not use the mobile phone. You will not see the TV. And you will not see any refrigerator.”
Rare earths are minerals used in small amounts on virtually every electronic item for sale around the world.
China has 30 percent of the world’s reserve of rare earths, but mines it cheaply and effectively. More than 90 percent of the world’s available supply is currently mined in China.
That control became clear last month to Japanese rare earth importers, exporters and the government.
In the wake of a collision at sea between a Chinese fishing vessel and the Japan coast guard in September, multiple Japanese rare earth importers tell CNN that China dramatically slowed exports of rare earth.
China denies it stopped exports in retaliation.
But Beijing has been curbing international exports for the last few years amid concerns about supply and growing demand.
Whatever the reason behind the slowdown in rare earth exports, Mizuho Research Institute senior economist Jun Inoue says it highlights what Japanese economists call “China risk.”
That risk involves the world relying too heavily on China, a country whose communist government can rapidly affect the global economy.
“The world is heavily relying on China not only in finance and trade, but also natural resources,” said Inoue. “In the market economy, each economic entity makes decisions by individual will. But under the controlled market economy (like China), the government has plans and targets. There is a risk that such national plans and targets influence the world economy.”
China on Wednesday denied that it has halted export of rare earth materials amid news reports that Beijing started blocking shipments of the crucial minerals to the United States and Europe following similar measures against Japan.
"China will continue to provide rare earth to the rest of the world," the ministry of commerce said in a statement faxed to CNN. "At the same time, to protect exhaustible resources and achieve sustainable development, China will also continue to implement restrictive measures on the mining, production and export of rare earth."
Nakamura said his company has a year of rare earth stockpile. He remains optimistic that Beijing will loosen exports, saying China stands to lose too much money if developed economies like Japan and the U.S. mine for rare earth elsewhere.
“Maybe two weeks” before Chinese exports resume, said Nakamura. “Two weeks, I hope.”
Posted by: CNN Correspondent, Kyung Lah
Source: cnn.com
“Nothing, nothing at this moment. Nothing,” said Nakamura, president of Advanced Material Japan Corporation, a Tokyo-based rare earth and metal trading house.
Nakamura said his company has a year’s supply stockpiled, but he is worried.
“This,” he said, pointing to a tiny, two millimeter cylinder, “is a micro-motor from a mobile phone. If China stops supply of the raw material, you will not use the mobile phone. You will not see the TV. And you will not see any refrigerator.”
Rare earths are minerals used in small amounts on virtually every electronic item for sale around the world.
China has 30 percent of the world’s reserve of rare earths, but mines it cheaply and effectively. More than 90 percent of the world’s available supply is currently mined in China.
That control became clear last month to Japanese rare earth importers, exporters and the government.
In the wake of a collision at sea between a Chinese fishing vessel and the Japan coast guard in September, multiple Japanese rare earth importers tell CNN that China dramatically slowed exports of rare earth.
China denies it stopped exports in retaliation.
But Beijing has been curbing international exports for the last few years amid concerns about supply and growing demand.
Whatever the reason behind the slowdown in rare earth exports, Mizuho Research Institute senior economist Jun Inoue says it highlights what Japanese economists call “China risk.”
That risk involves the world relying too heavily on China, a country whose communist government can rapidly affect the global economy.
“The world is heavily relying on China not only in finance and trade, but also natural resources,” said Inoue. “In the market economy, each economic entity makes decisions by individual will. But under the controlled market economy (like China), the government has plans and targets. There is a risk that such national plans and targets influence the world economy.”
China on Wednesday denied that it has halted export of rare earth materials amid news reports that Beijing started blocking shipments of the crucial minerals to the United States and Europe following similar measures against Japan.
"China will continue to provide rare earth to the rest of the world," the ministry of commerce said in a statement faxed to CNN. "At the same time, to protect exhaustible resources and achieve sustainable development, China will also continue to implement restrictive measures on the mining, production and export of rare earth."
Nakamura said his company has a year of rare earth stockpile. He remains optimistic that Beijing will loosen exports, saying China stands to lose too much money if developed economies like Japan and the U.S. mine for rare earth elsewhere.
“Maybe two weeks” before Chinese exports resume, said Nakamura. “Two weeks, I hope.”
Posted by: CNN Correspondent, Kyung Lah
Source: cnn.com
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