|
||||||||
|
|
|
 RSS
|
Business Tianjin Magazine - Business English Magazine in China
Bernanke Calls for Action on Trade Gap
Tuesday, 20 October 2009 16:10
SANTA BARBARA, Calif. -- Large U.S. trade deficits with developing countries, though smaller than they were two years ago, remain a threat to the global economy, Federal Reserve chief Ben Bernanke said Monday in a speech that called on policy makers in the U.S. and Asia to address the issue.
Mr. Bernanke's comments -- in which he urged Asian leaders to build better pension systems and to increase government spending, and the Obama administration to address the U.S. budget deficit -- reflect a growing consensus among world leaders on the need to rebalance global economic growth so it depends less on U.S. consumers.
Between 2000 and 2006, the gap between U.S. exports and imports widened from less than $400 billion to nearly $800 billion. As a percentage of the country's gross domestic product, the gap soared to more than 5% from less than 2% in the mid-1990s.
The U.S. shipped dollars overseas to buy foreign-made goods and services. Many emerging-market central banks, wary of letting their currencies appreciate against the dollar and hurting their own export-led growth, recycled those dollars by purchasing U.S. Treasury bonds and other debt.
Speaking at a Federal Reserve Bank of San Francisco conference on Asia, Mr. Bernanke said the U.S. financial system was "overwhelmed" by the inflow of capital. "We must avoid ever-increasing and unsustainable imbalances in trade and capital flows," he said.
The U.S. trade gap has narrowed to less than 3% of GDP as U.S. consumers have cut back amid the economic slowdown. China's trade surplus has also narrowed, from 10% of GDP to about 6.5%. Mr. Bernanke pointed to data showing that industrial production in many Asian economies is growing faster than exports, a sign that domestic demand there is outpacing exports and imbalances are improving.
But Mr. Bernanke warned that as the global economy recovers, imbalances may reappear. "Policy makers around the world must guard against such an outcome," he said.
One result of concerns about the U.S. trade deficit -- although Mr. Bernanke didn't say so explicitly -- could be a U.S. dollar that is weaker against currencies of developing nations such as China and India. A weaker currency would make U.S. exports cheaper overseas and thus more competitive with locally made goods, and it would make imports more expensive and thus less competitive with U.S. products. The dollar has weakened substantially in recent months, mainly against currencies other than China's.
Morris Goldstein, a fellow at the Peterson Institute for International Economics, a Washington think tank, said that unless China's currency appreciates more rapidly, rebalancing global growth "is going to be an uphill battle."
Mr. Bernanke on Monday was careful to avoid drawing the dollar into his prescription for more-balanced global trade.
He also avoided singling out China, but said, "Trade surpluses achieved through policies that artificially enhance incentives for domestic saving and the production of export goods distort the mix of domestic industries and the allocation of resources," and yield "an economy that is less able to meet the needs of its own citizens in the longer term."
Mr. Bernanke emphasized that smaller U.S. budget deficits would preserve confidence in the dollar and help rebalance global growth by pushing America toward more saving.
"The most effective way to accomplish this goal [of more saving] is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time," he said.
A weaker dollar does pose risks to the U.S. If foreign investors and central banks pull back from U.S. dollar assets, it could drive up U.S. interest rates, slow economic growth and unsettle financial markets.
China launches own 'Nasdaq'
Monday, 19 October 2009 16:32
China will this week launch its long-awaited Nasdaq-style stock market with 28 companies lined up to list on the new exchange, including China's first listed film company.
Shang Fulin, chairman of the China Securities Regulatory Commission, on Saturday said the new market would open on October 23, according to the official Xinhua news agency.
Investors have not demonstrated overwhelming appetite for the first companies to conduct IPOs ahead of listing on China's new Growth Enterprise Market. The Shenzhen-based market is aimed at funding technology and innovation-driven start-up companies, in line with Beijing's plans to shift the Chinese economy from its traditional export base.
Small and medium-sized companies in this sector have enjoyed little access to the flood of bank lending that has been available to larger and state-owned enterprises since the beginning of this year.
Shares in nine companies involved in a third round of subscriptions for the board were oversubscribed.
The listing of Huayi Brothers Media, the well-known Chinese film company, demonstrates the Chinese government's recent encouragement of companies in the highly-regulated culture industry to seek public funds to boost their size and quality.
Beijing, which has been considering launching such a board for nearly 10 years, hopes it will not only provide funds for cash-starved start-ups, but eventually even rival Nasdaq and London's Aim market as a source of small Chinese company funding.
The launch of the new board could have a psychological impact on investors in other Chinese markets who are already concerned about the large number of recent IPOs draining liquidity from the market, stock market analysts said.
But Peng Yunliang of Shanghai Securities says he does not think the launch of the GEM will do much to depress other mainland markets because the small size of the second board.
Analysts are sceptical about the GEM's prospects for success.
"China's problem is not so much the number of boards but are enough of those companies lined up for funds genuine viable long-term businesses?" says Fraser Howie, author of Privatizing China: Inside China's Stock Markets. "Nasdaq has got huge critical mass with major listings. It will be much harder for the GEM to achieve that critical mass"
US hardens stance on China's currency rigidity
Friday, 16 October 2009 15:13
The US Treasury said it had "serious concerns" about the rigidity of the renmimbi yesterday but stopped short of accusing China of manipulating its currency in a closely watched report to Congress, reported by the Financial Times.
The Treasury toughened its language on China in its half-yearly report on exchange rate policies. While acknowledging that Beijing had been important in steadying the global economy, it said recent moves to accumulate more foreign exchange reserves "risk unwinding some of the progress made in reducing imbalances".
But the Treasury did not say China was manipulating its currency, in spite of pressure from labour groups and scores of legislators who argue the undervalued renmimbi makes China's exports unfairly cheap. Political pressure on the issue has built this year as manufacturers suffer huge job losses and the unemployment rate creeps towards 10 per cent.
The report comes as the Obama administration seeks to rebalance the global economy - and particularly the imbalances between itself and China - through the multilateral framework of the G20 group of countries under the stewardship of the International Monetary Fund.
Russia, China seal trade ties with 3.5b USD in deals
Tuesday, 13 October 2009 15:18
BEIJING — China and Russia on Tuesday cemented their burgeoning trade relationship with billions of dollars in new deals as Prime Minister Vladimir Putin was to meet his Chinese counterpart Wen Jiabao.
Putin, who arrived late Monday, was also due to meet President Hu Jintao as the two countries seek closer ties, and attend a summit of the Shanghai Cooperation Organisation, a regional security grouping, during his visit.
It is the Russian leader's first trip to China as prime minister, although he visited four times previously as president.
The Russian government said the official agreements due to be signed by the leaders included one committing each country to notifying the other of the launch of ballistic missiles from its territory.
About 40 economic deals worth around 3.5 billion dollars were signed early Tuesday ahead of the leaders' meeting, Russian Deputy Prime Minister Alexander Zhukov told reporters.
Zhukov gave few details but said the deals included financing arrangements between Russian and Chinese banks, adding that more agreements would be sealed between Putin and Wen.
"I think a meeting between the two premiers will be successful. A whole number of very serious intergovernmental agreements will be signed," he said, without offering specifics on those deals.
He said talks on energy issues led by Putin's powerful deputy Igor Sechin were still ongoing.
"The talks are continuing," he said, declining further comment.
Sechin later refused to comment on a possible gas deal, but told reporters: "Work is going on all the time. China is a colossal market."
The Russian government said earlier that other agreements to be struck include a memorandum of understanding on developing high-speed train travel on Russian territory.
Despite a rocky Cold War relationship, Sino-Russian ties have grown markedly since the collapse of the former Soviet Union, with Russian energy and military sales driving the relationship.
Bilateral trade between the giants grew to nearly 48 billion dollars in 2008, nearly double the volume in 2004, according to Chinese figures.
"Besides deepening the strategic political partnership, Putin's visit will certainly advance bilateral cooperation in energy," Shi Yajun, an expert on Sino-Russian relations at the East China Normal University told AFP.
"Progress is likely to be made in a natural gas pipeline project as well as in nuclear energy."
The two sides in 2006 signed an initial agreement on a pipeline to supply China with up to 80 billion cubic metres of natural gas annually, earlier press reports said.
But negotiations over the pricing of the gas have reportedly remained a major obstacle to a final deal.
Moscow and Beijing have a complicated history, and Russia has been watching China's growing economic and political might with a mixture of awe and unease.
However, in a message on communist China's 60th birthday on October 1, Putin and Russian President Dmitry Medvedev hailed Moscow's "strategic partnership" with Beijing, a term usually reserved for its closest allies and friends.
During Putin's visit, the two nations -- both permanent members of the UN Security Council -- are also expected to coordinate international diplomacy, especially how to respond over the Iranian and North Korean nuclear programmes.
On Wednesday, Putin will attend a heads of government meeting of the Shanghai Cooperation Organisation, a group dominated by China and Russia that has been touted as a counterweight to Western-led institutions.
Moscow has said an "important document" could be adopted at the meeting on joint efforts to combat the effects of the global financial crisis.
The SCO also includes four ex-Soviet Central Asian countries -- Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan -- while India, Iran, Mongolia and Pakistan have observer status.
China nurtures futures markets in bid to sway commodity prices
Monday, 12 October 2009 14:49
ZHENGZHOU, China -- Chinese leaders are concerned that their nation's enormous economic expansion is becoming an excuse for foreign suppliers to inflate commodity costs. So, they hope to use their three futures exchanges to fight back.
Government officials say the country is positioning its futures markets to be major players in setting world prices for metal, energy and farm commodities. By letting the world know how much its companies and investors think goods are worth, China hopes to be less at the mercy of markets elsewhere.
"It is true we have a long-term goal of increasing our influence in terms of pricing, but to do that we have to create conditions and do it step by step," Jiang Yang, chief futures-industry policy maker and assistant chairman of the China Securities Regulatory Commission, said in an interview. "But as the Westerners say: 'Rome was not built in a day.'"
Now in China's scopes: the $130 billion it spent importing oil last year.
Globally, crude oil is the biggest and most important traded commodity, and China is the second-largest importer after the U.S. The New York Mercantile Exchange's contract for light, sweet oil -- a grade of crude easily refined into gasoline -- is the world's most actively traded one and is thus the dominant mechanism for setting the global price.
But as early as next year, the Shanghai Futures Exchange may muscle in with its own contract in crude oil, possibly modeled on New York's global benchmark, according to people familiar with the situation. That would, for the first time, give Chinese traders a direct role in valuing the commodity. "We are actively thinking about crude oil now," says one of the people involved in the planning.
The emergence of major stock, bond and commodity markets in nominally communist China is one of the starkest examples of the nation's embrace of capitalism. As China marks the 60th anniversary of the founding of the People's Republic this month, the nation is celebrating its rise as an economic superpower. Beijing is increasingly eager to assert its clout -- challenging international policy makers to rethink the global currency system, how multilateral institutions are run and the direction of global trade talks.
To be sure, China's fledgling futures markets don't pose any immediate threat to the giant exchanges in New York, Chicago and London that set benchmark prices for most commodities. For one thing, the Chinese challengers are largely closed to foreigners, and government-owned entities are among the biggest traders -- hardly a recipe for a freewheeling global marketplace. At most, the emergence of big futures exchanges in China is giving Chinese companies and speculators a role, but not control, in determining global costs alongside traders in the West.
But Beijing believes hosting big futures markets will enhance the country's economic security by essentially advertising what the world's biggest customer for some commodities considers a fair price. For the rest of the world, the exchanges could mean less guesswork about China's buying habits, possibly reducing volatility in the global market. Already, copper and soybean suppliers shift output toward or away from China depending on how its futures prices are moving. Increasingly, traders say, Chinese futures appear to drive price trends elsewhere, particularly in metals like copper.
An expanding list of 21 commodities traded on China's exchanges includes many of the goods imported in vast quantities by the world's fastest-growing major economy. China buys 10% of all crude oil, 30% of copper output and 53% of the world's soybeans, according to Barclays Capital.
American consumers are already feeling China's buying power in commodities. In 2007 and 2008, markets were gripped by a belief that surging car ownership in China and other developing countries was destined to drive crude oil ever higher. That thinking helped send oil futures soaring in New York to a peak of $147 a barrel in July 2008. American drivers saw the average price of gasoline rise 85% between late 2006 and July 2008. Then, worries about global recession pushed gasoline prices almost two-thirds lower last year.
Early this year, traders determined that China was stocking up on crude -- and oil prices have rebounded 61% so far this year.
Futures are exchange-traded contracts that fix a price to buy or sell sugar, copper or oil a day, month or year in advance. Basic food, energy and raw-material costs are determined on commodity-futures exchanges, affecting everything from the sticker price of automobiles to the cost of gasoline at the pump and a hamburger at a drive-through window.
Chinese historians claim the country originated a version of grain futures contracts some 800 years ago, during the Song Dynasty. Modern-style futures trading began almost 160 years ago in Chicago with corn.
In the early 1990s, China was eager to demonstrate its embrace of market economics and launched stock and commodity-futures trading.
But there wasn't much planning. More than 50 commodity exchanges sprang up, many of them trading primarily lu dou, or green mung beans, a variety that after soaking stretch into crunchy white sprouts.
Mung-bean prices made little difference to China's economy but proved wildly popular with speculators, until a 1995 futures scandal prompted regulators to close all but three exchanges.
Beijing overhauled futures trading after it joined the World Trade Organization in 2001. It fused markets onto the real economy with cotton, soybean, copper and rubber trading, but eschewed the exotic financial derivatives tied to stocks, bonds and currencies that were gaining in popularity in the U.S.
For China, it was also a time of soaring commodity imports -- which fostered suspicion about foreign merchants.
In 2002, Beijing hit foreign soybean suppliers like Minnesota-based Cargill Inc. with import restrictions. It also modernized the Dalian Commodity Exchange's soybean-futures platform. The result today: The northeastern China exchange's soybean prices are tracked almost as closely as the global benchmark in Chicago.
"It's not a local exchange anymore, it's a big exchange," says Robert Horster, a Cargill risk manager. During the weeks Cargill soybean cargos are steaming toward China, Mr. Horster's Shanghai-based team uses Dalian futures to insure, or hedge, against gyrating prices -- and to make money on price differences between Dalian and Chicago, in trades called arbitrage.
Chinese futures are attracting institutional investors like Rockwell Investment & Holdings, a Ningbo-based firm with a dozen analysts and traders.
It is run by Ye Qingjun, who first put money into China's futures markets in the early 1990s as a copper-company official eager to apply what he was learning about supply and demand. But Mr. Ye says those early days were "messy," with prices of silk, plywood and other products listed on blackboards and jostled by arbitrary rule changes. During a violent swing in mung beans, Mr. Ye got wiped out.
Today, the 42-year-old says the industry is more professional and complex, driven as much by Chinese import trends as swings in the U.S. dollar. Facing five computer screens that flicker commodity, stock and currency prices from Shanghai to Chicago, Mr. Ye says futures are now tied to the real world and "related to the scale of China's economy and the pace of development."
The 165 million contracts in white sugar that changed hands on the Zhengzhou Commodity Exchange last year made it the most-active commodity future anywhere, according to the Washington-based Futures Industry Association. In 2008, Chinese exchanges traded three of the world's five most-active metals contracts and seven of the 10 biggest agricultural contracts based on volume, the group says.
World financial markets are on constant alert for changing trends in China's economy. Shanghai's big stock market is sometimes regarded as an economic barometer for China, though futures may provide deeper insight, since commodities actually change hands when contracts expire.
China has turned to futures markets to augment its sometimes rocky global commodity scramble. Beijing is flexing new diplomatic muscle in the Middle East and sending its navy to patrol strategic shipping lanes. It has locked in supplies with infrastructure-for-oil deals in Angola, copper-mine purchases in Peru and cultivation of farmland in Australia.
In addition to oil, China is developing futures contracts in tin, lead, silver and pork. Another Chinese futures contract could transform global container-shipping rates, which officials believe have gotten so volatile that exports are being held back, says a person involved in the effort.
The regulator, Mr. Jiang, said futures may assure Chinese commodity importers "get fairer deals." Before the Shanghai Futures Exchange launched fuel-oil futures in 2004, he said, the benchmark Singapore price would soar when empty Chinese ships arrived in the harbor there looking to load up with fuel oil they would transport back home; the price would then drop once they sailed away.
Now, predatory pricing practices don't work as well, Mr. Jiang said, because China's fuel oil buyers can insist on terms that reflect Shanghai futures levels. "So that gave them very strong bargaining power," he said in the interview.
As Chinese futures trading pumps up global volumes, exchanges like CME Group Inc.'s New York Mercantile Exchange and Chicago Board of Trade are tilting eastward. To better reflect trading in soybeans and other agricultural products during Asian hours, CME recently tacked 75 minutes onto its busy overnight session, making it 13 hours and 15 minutes long. Volumes promptly rose 65%.
To offer clients access to China's markets, J.P. Morgan Chase & Co. has located brokers near Guangzhou. "It's got such huge pricing power in commodities it is able to influence physical prices, which gets reflected in futures prices," says Richard Shen, who directs the operation.
Futures exchanges won't solve key commodity challenges for China, including the government's charge that steelmakers overpay to import iron ore. That mineral cost China $60.53 billion last year. But it isn't traded on exchanges and is instead priced in negotiations with major suppliers, which may result in higher profits for suppliers.
Some caution that high volumes on Chinese exchanges overstate their importance. A futures industry joke says China is second only to the weather in driving some commodity prices -- but less predictable.
Even Zhengzhou exchange officials concede frenzied sugar trading may signify speculation among the country's 300,000 active futures investors more than China's sweet tooth. For every Chinese contract like copper or soybeans that cleanly reflects China's actual needs, professionals say there is another like sugar or corn with a loose -- or "dirty" -- relation to on-the-ground fundamentals.
International futures-market benchmarking has been slow to shift to China from long-established exchanges like the New York and Chicago venues. Despite China's huge volumes, its futures markets allow foreigners limited access. By contrast, the London Metal Exchange says 95% of its business emanates from overseas.
General Motors Co., Ford Motor Co. and Tyson Foods Inc. are some of the companies that use futures in the U.S. to protect themselves from volatility in commodity prices. Despite expanding production in China, and being technically eligible to hedge on China's exchanges, all three say they haven't used its futures markets.
Instead, the big footprints in China's futures markets belong to state-owned groups, primarily commodity trader Cofco Corp. and Beijing's secretive stockpiling agent, the State Bureau of Material Reserve. That makes the government both player and policy maker.
More Articles...
Page 187 of 194
| Subscription | Advertising | Contact Us | |
|