World Economy thread

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World Economy

The Outlook For China's Economy

Nouriel Roubini, 04.09.09, 12:00 AM ET

China, the world's second largest economy by purchasing power parity, contributed over 10% to global economic output in 2007 and 2008 and is thus a key part of any recovery of the global economy. China faced a severe deceleration of growth in the second half of 2008 based on a number of indicators: GDP, production of electricity, the Purchasing Managers' Index (PMI), weakness of auto sales, a fall in residential home sales, manufacturing data and falling imports and exports. In fact, calculated on a quarter-by-quarter basis like most other countries, Chinese growth (which is reported only on a year-on-year basis) was practically zero and even negative by some private sector estimates.

However, there are greater signs of economic recovery in March from the depths of the fourth quarter of 2008, and most forward-looking indicators suggest that from the second to the fourth quarter of 2009, growth will accelerate relative to the dismal fourth quarter of 2008 and weak first quarter of 2009.

In particular, economic data for China (including loan growth, the PMI, recovery in residential sales volume--if not prices--and public investment) do point to a stabilization or even slight improvement; but I still see risks that Chinese growth will be well below the government target of 8%, and even below the 6.5% level that the IMF and World Bank are predicting--a figure of 5% to 6% seems more likely.

The more optimistic outlook for Chinese growth would require a recovery in the global economy, especially the U.S., in the second half of 2009, a development that seems more likely to come in 2010. It seems too soon to point to an economic recovery, particularly in the absence of a rebound in demand from the G-3 economies (the U.S., European Union and Japan) that absorb most of Chinese exports.

There are other risks to this scenario. First, the Chinese policy stimulus could turn out to be insufficient, and further stimulus could be delayed. Second, if a "drugged" recovery--via easy money, loose fiscal policy and easy credit--leads to further over-capacity (of which there is some evidence), it could result in rising non-performing loans, falling profits or rising losses.

Given the collapse of external demand, exports are now in free fall, while the policies that will eventually lead to greater consumption have been woefully slow to be implemented. The job of lifting domestic demand is mostly in the hands of an aggressive ("pro-active" in their terms) fiscal policy and a more easy ("moderately easy" in their terms) monetary and credit policy. Although government-linked investment rose sharply beginning in February 2009, private-sector capital expenditure (mostly financed via retained earnings) is likely to stay weak in 2009, given sharp profit declines.

Furthermore, although indicators of private consumption like retail sales have remained relatively robust, they are growing at a slower pace compared to the second half of 2008. The extent of job losses and falling incomes as well as negative consumer confidence may slow consumption further going forward, particularly in urban areas, despite government incentives.

Despite the fact that China's aggressive policy response included monetary easing, a scaling up of bank lending and a particularly aggressive scaling up of government investment to offset the contraction in private demand, there is an increased risk that China will grow only in the 5% to 6% range year-on-year in 2009, about half its average growth of the previous five years, and well below potential. Such a growth rate would increase pressures on China's government, as the hard landing has been accompanied by job losses and factory closures as well as implying that Chinese commodity demand could continue to be lower than recent trends.

There are signs that the Chinese government is increasingly front-loading its investment and backstopping bond issuances of cash-strapped regional and local governments that are being expected to provide their own contributions. And although implementation has been slow, the government has tweaked its spending to increase allocations to social welfare programs. China is also taking the time to allocate spending to meet longer-term goals, including increasing the share of renewable fuels in its energy mix. However, the finance ministry's implicit 3% of GDP bound for its fiscal deficit means that revenue shortfalls might limit additional spending should it be needed in 2010. Nonetheless, China's domestic savings, its low debt and the fact that it is still attracting foreign direct investment, albeit at a slower pace than 2008, imply that it is better positioned than many of its emerging-market peers, in part because it can raise funds domestically to finance its deficits.

The structural reasons for high Chinese savings rates still persist. And with the Chinese yuan having returned to its implicit peg to the U.S. dollar, Chinese reserve accumulation and purchase of U.S. assets could again be quite strong in 2009. However, lower net hot money inflows could contribute to keep the pace of reserve accumulation below the one displayed in 2008.

But the gap between a very weak U.S. and global economy and the Chinese growth target of 8% for 2009 is wide, and given the sluggish outlook for the U.S. and global economy, China may continue to grow below potential in 2010. There is also another important caveat: Even once the U.S. economy recovers, it will rely less on consumption and imports and more on an improvement in net exports. The world where the U.S. was the consumer of first and last resort--spending more than its income and running an ever larger current account deficit--and where China was the producer of first and last resort, spending less than its income and running ever larger current account surpluses, is changing.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes. (Rachel Ziemba of Roubini Global economics contributed to the authorship of this essay.)
 

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Germany, France suffer from global trade slump

Germany, France suffer from global trade slump

Wed Apr 8, 2009 4:23pm BST

* German exports fall 23.1 pct on the year in February

* German industry orders fall by more than expected

* French exports sink 20.9 pct y/y in Februa
ry

By Paul Carrel

BERLIN, April 8 (Reuters) - German exports fell for a fifth month running in February and in France exports dropped by more than a fifth on the year, aggravating recessionary pressures in the euro zone's two biggest economies as global trade slows sharply.

German exports fell by 0.7 percent on the month and figures for January were revised down to show a 7.4-percent slump, compared to 4.4 percent originally reported. Unadjusted exports dropped by 23.1 percent on the year in February and imports fell 16.4 percent.

Adding to the bleak news out of Germany, Europe's largest economy, a sharp drop in domestic demand led a steeper-than-expected 3.5-percent fall in manufacturing orders in February, Economy Ministry data released on Wednesday showed.

"The fall in incoming orders in Germany is unprecedented. In just six months (since August last year) orders are down by 33.3 percent," Citigroup economist Juergen Michels wrote in a research note.

"We expect a further contraction in GDP in the second quarter, but probably a smaller one than in the first quarter, and forecast some stabilisation of economic activity in the second half," he added.

In the final quarter of 2008, GDP contracted by 2.1 percent and many analysts expect the economy to have shrunk by even more in the first three months of this year. Germany is facing its deepest recession since World War Two this year.

As the world's largest exporter of goods, Germany enjoyed robust foreign demand for its manufactured products until the economic downturn took hold last year and sent the export-orientated economy sharply into reverse.

The domestic economy is now suffering too, with retail sales falling in February and Wednesday's trade data showing imports fell by 4.2 percent in February.

A Reuters poll of economists published on Wednesday pointed to gross domestic product (GDP) contracting by 4.4 percent this year, dragged down by falling exports and private consumption.

STALLING TRADE

Germany and France accounted for 45 percent of euro zone exports last year, but their businesses are now being hit by the global economic downturn stemming from the financial crisis.

Earlier on Wednesday, German carmaker Daimler (DAIGn.DE: Quote, Profile, Research) forecast a significant drop in revenue in all of its automotive businesses this year and pushed back its expectations of when the crisis-hit sector may recover.

Last month, Air France-KLM (AIRF.PA: Quote, Profile, Research) ditched its forecast for an operating profit in the current financial year as a slump in trade rocks airlines.

In France, imports and exports both fell sharply on the year in February, indicating the depth of the economic slowdown. Exports totalled 28.86 billion euros, compared with 36.5 billion euros last year.

"We're importing less because we're spending less and companies are investing less," said Alexander Law, an analyst at Paris researchers Xerfi.

Separately, the Bank of France in its latest survey revised down its first quarter economic forecast, saying it expected the French economy to shrink by 0.8 percent in the period against a previous prediction for a 0.6 percent contraction.

Many independent analysts are predicting French growth will decline by at least one percentage point in the first quarter.

Bank of France Governor Christian Noyer told France's BFM radio he expected the French economy to stabilise by year-end and to grow from early 2010.

In Germany, a study by state-owned bank KfW and the Ifo economic institute showed morale among small and mid-sized firms -- the so-called "Mittelstand" -- hit a record low in March.
 

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'China's investment-led growth a time bomb'

'China's investment-led growth a time bomb'

As a political economist who tracks China and India closely, Yasheng Huang has long argued that Asia's two largest emerging economies hold developmental lessons for each other. "But my worry," says Huang, "is that they're learning the wrong lessons from each other." In this first part of a two-part interview to DNA in Hong Kong, the MIT Sloan School of Management professor and the author of, most recently, Capitalism with Chinese Characteristics traces the problems in China's growth model, the effects of which are showing up acutely during this global economic downturn.

Excerpts:

Sudhir Shetty / DNA

Yasheng Huang has long argued that Asia's two largest emerging economies hold developmental lessons for each other.

You argue that China's growth model, which is the envy of India and much of the world, is flawed. Why?

In my view, the true China economic miracle happened in the 1980s, when the country was powered by bottom-up enterprises, especially in the rural areas. In the 1990s, China changed its development strategy by placing greater emphasis on big cities like Shanghai and Beijing. To me, the 'Shanghai model' represents the most extreme example of economic and financial distortion, but today that model is being replicated elsewhere in China.

The 'Shanghai model' is an extreme version of a model that's effective in building production but not in building a consumption base. Indicatively, in the 1990s, Shanghai's GDP per capita grew dramatically in comparison with the national average, but household incomes relative to the rest of the country were virtually unchanged.
That goes to the heart of the problem that China faces today: It's been successful in generating GDP growth, but far less successful in generating household income growth.

It's been good at building a huge production base but equally good at suppressing a consumption base. And now, as a result of the financial crisis and the global economic downturn, unemployment is rising and wage growth for China's rural migrants has slowed, which will only suppress incomes further.

If the model is flawed, how do you account for China's supernormal GDP growth for 30 years?

It's not a mystery. Some 50% of China's GDP comes from investment, which has a huge multiplier effect on GDP. Now, there's evidence that they are doing that again, with the 4 trillion yuan ($585 billion) stimulus package.

Sure, some of that will go into social spending, which is good. But much of that will trigger another wave of huge investments. You only have to look to Japan to know that such investments cannot get you out of a hole.

I feel very strongly that if you see a fast GDP recovery in China and if that recovery is powered by investment, it is a time bomb.
In the past, that kind of growth was sustained by high demand from the US and other developed countries. I don't see any evidence that the US economy will recover magically to the level it was before the financial crisis.

So, the stuff that China puts out has to be absorbed somewhere. The government is trying to increase domestic consumption, but they're trying that within the existing level of the income rather than thinking of growing the income.

In terms of household income and the small asset base, China is very poor - in some ways, poorer than India. China's consumption-to-GDP ratio is lower than India's. Savings rate of households are not high in China: It's only government corporations' savings that are high.

Since 2003, China's leaders have emphasised rebuilding the social safety nets and narrowing the income gap between rural and urban areas. Do these mark a return to the policies of the 1980s, which you believe underlie the China growth miracle?
There's an attempt to go back to the 1980s, but these developments have been mixed. Sure, there is more emphasis on rural issues and social safety nets. And connected to that is the emphasis on rural education and rural health provisions.
But there's very little connection with the 1980s in terms of the methods.

We're now seeing only baby steps, and more administrative measures, more government involvement. In the 1980s, on the other hand, rural financial reforms were put at the front and centre and at a very high level of policy response. In that sense, we've not returned to the 1980s model at all, even though leaders are talking about rural entrepreneurship today.

One similarity between now and the 1980s is that then too the country faced a huge unemployment problem. But support for rural entrepreneurship in the 1980s was driven not by ideology but pragmatism. Today, a majority of the policy emphasis is on preserving GDP growth at 8% by supporting exports. Even if there is a rural entrepreneurship initiative, it's not been highlighted.

There's been a slideback in China's efforts at poverty reduction since the 1990s. How did this happen despite high GDP growth and what are the socio-political implications of this?

The whole issue of rural migration has shaped many of the economic and social developments in China. Some of these are positive effects: China created this huge export industry, which was very successful for a time. In fact, I'd argue that India should have more of this broad-based export success.

But the issue in China is whether we need this level of migration to create this level of success. I acknowledge the success, but I also see a huge downside.

When rural migrants go to the cities for employment, they are excluded from the social services, educational services and health services. When I was in Guangdong province (in China's south, home to many special economic zones) recently, I saw a sign that said: "People born between September 1 1994 and October 1 2008 should report to the government to receive free immunisation shots."

Basically, one entire generation of rural people who were born in the 1990s simply fell off the map! The same is the case with education. Because the migrants are not urban residents, their children are not entitled to education in the cities. And when NGOs started schools for migrant workers' children, the government shut them down.

An entire generation of people in the 1990s fell through the cracks.
All this has enormous political implications. The rural situation makes politics less stable rather than more stable. I link everything to rural development. When rural development in China was successful, the country as a whole was successful.

The rural issue has to be front and centre - similar to what (Mahatma) Gandhi said. I disagree with Gandhi's methods, but the philosophy was right.

(To be continued)
 

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India learning wrong lessons from China'

India learning wrong lessons from China'

Venkatesan Vembu
Wednesday, April 8, 2009 3:35 IST

Indian policymakers' fascination with the 'Shanghai model' of development shows that India is learning precisely the wrong lessons from China's growth, says political economist and MIT Sloan School of Management professor Yasheng Huang. In this concluding part of a two-part interview to DNA, Huang, author of, most recently, Capitalism with Chinese Characteristics, points to the most important 'Chinese takeaway' for India.

Excerpts:


Indians are enamoured of Shanghai, but your most recent book has an entire chapter detailing Shanghai's failings as an economic model. What is wrong with Shanghai?

A successful economic model creates value for everybody, rather than for some at the expense of others. Shanghai didn't do that. In Shanghai, the government intervened to acquire land as the sole buyer, without competition, from rural households, and gave it to domestic and international real estate developers. That creates value on huge infrastructure projects and impressive high-rises, but the average Shanghainese people's household income has not grown relative to the rest of the country.

My hunch about Shanghai -- even though I couldn't find the data to support it -- is that its growth was subsidised by the rest of China. I've heard that when Pudong (the Special Economic Zone in Shanghai) was built, virtually every Chinese province was required to invest there. There's a fundamental difference between Shanghai in the 1990s and Shenzhen in the 1980s. Shenzhen's development was a bottom-up, bootstraps model: in the 1980s, Shenzhen too drew entrepreneurs from the rest of the country, but it didn't receive subsidies from the central government the rest of China. And my biggest concern going forward is that the Shanghai model is being repeated for the whole country.

China's model of reckless urbanisation is also distorted. Migrant workers are denied entitlements in cities, and so urban areas get a labour contribution but they don't have to pay for it. I'm not against urbanisation; but urbanisation implies certain responsibilities and costs that are not currently reflected in the way China is urbanising itself.

In China today, there's a phrase that reflects mainstream view: political aesthetics, that is, beautiful cities for political reasons. There is a view that economic growth means gleaming airports, high-rises, six-lane highways... That's not productive.

If it's wrong for Mumbai to aspire to be a Shanghai, is there a China template to replicate?

You can have Mumbai becoming the next Shanghai - if you neglect Bangalore, Kerala, Tamil Nadu and so on.

But my criticism of the Indian model is this: If you're not building highways and buildings, are you investing your resources in education, health and so on? India isn't learning the truly successful Chinese model, which is the social model of the 1970s and 1980s, with emphasis on education and public health, especially in the rural areas. Instead, they are fascinated with high-rises, Shanghai and things like that.

But the Shanghai model is troubled, also because it relies heavily on foreign direct investment (FDI), which has slowed down in China. Shanghai relies so much on external sources of efficiency and business improvement that as soon as it runs out of external sources of capital, it will face problems.

The biggest lesson for India from China is the importance of the social sector: education and health. When India doesn't educate its girls, it's counterproductive --- economically and socially. The other important lesson is for India to get the sequence right. You look at China, and you see airports, highways and you think that China succeeded because of these. Whereas, in fact, these things followed China's success. China succeeded in the first place because of the social investments it made in the 1970s.

The conventional view is that democracies pay for political liberalism with slower growth; people cite India and China as contrasting examples. But you disagree...

I don't see a trade-off between economics and politics. India failed economically in the 1960s and 1970s, and people blamed it on democracy. But India had a centralised economic system then, so you have at least two competing hypotheses to explain India's slow growth.

In fact, in both China and India, the period when their growth was meaningfully fast was when they experienced some political liberalisation. We can have a debate about what constitutes political liberalism. I'd argue that India perhaps has to work on increasing accountability and reducing corruption. But the general principles of accountability and liberalism -- and some form of constitutional checks and balances -- constitute the formula for economic success. China, too, had a system of checks and balances in the 1980s: its politics was centralised, but economics was decentralised. The central government and the provinces had to consult each other. But in 1993, they centralised the economic system. Many of China's problems can be traced back to that: it deprived the country of a productive consultation process.

In the 1980s, for instance, you heard all kinds of opinions because various policy options were debated openly. People's Daily would run articles debating major policy issues. You don't see that now.

In that sense, what can China learn from India?

Economist Amartya Sen, in his book The Argumentative Indian, uses the term 'democracy by discussion'. I like that. China should more have 'democracy by discussion' even in the absence of a formal democracy.

The biggest value of the Indian model is that there isn't necessarily a contradiction between political liberalism and economic growth. When scholars in China cite India's problems, I say, "Yes, I acknowledge these problems, but the fact is that India showed it too can grow at 9%, so you have to convince me that there is a huge downside with that system."

When I first advocated the Indian model, it was much more difficult because India was a slow grower, but now it's a little easier. My view is that the Indian system is able to efficiently use the limited things it has, whereas China has lots of things in its favour but it also wastes its resources. Indian companies, for instance, may have old buildings or slow computers, but they have good managements and the right ideas, whereas in China, factory buildings are very good and the equipment is modern, but you still have quality problems.

So, I think both countries have a lot to learn from each other, but my worry is that they are learning the wrong things from each other.
(Concluded)
 

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Empty Tables Threaten Some Restaurant Chains

Empty Tables Threaten Some Restaurant Chains

By ANDREW MARTIN
During a decade of easy credit and loose spending, American businesses built too many cars, houses, stores and factories. It turns out the country built too many restaurants, too.

Now consumers are cutting back, and dining out is among the casualties. Finer restaurant chains have been hit hard, and so have the casual sit-down places that flooded suburban shopping centers and tourist districts across the country, aimed straight at middle American tastes.

A few chains have boarded up already. Many others are going into survival mode, trying to renegotiate their loans, cutting staff, offering bargains to customers and closing less profitable restaurants. Analysts predict thousands more restaurants could close in the next year or two.

The pain is evident even amid the neon glitz of Times Square, which draws big crowds of tourists used to eating at places like Red Lobster and Applebee’s.

Zane Tankel opened an Applebee’s franchise there eight years ago. At the time, he said his nearest real competition, an Olive Garden, was about six blocks away.

Now, Mr. Tankel could sit in his restaurant and throw rocks through the windows of a half-dozen competitors, including ESPN Zone, Dave & Buster’s, Chevys and Dallas BBQ.

“We’ll see some weeding out,” he said one recent lunch hour, sitting in a near-empty Applebee’s dining room overlooking 42nd Street. Noting a restaurant above him and another across the street, he said, “One of the three of us is not going to be here.”

Mr. Tankel’s fears are shared by many analysts and consultants, who say that a decades-long expansion produced too many restaurants even for a good economy, let alone the worst malaise since the Great Depression.

Since 1990, the number of restaurants and bars has grown to 537,000 from 361,000, a 49 percent increase, according to the National Restaurant Association. Population in the United States grew 23 percent in that period.

Amid the seeming prosperity of a credit-fueled era, people got in the habit of eating more and more of their meals out. The association’s statistics show that 48 cents of every food dollar is now spent at restaurants, compared with 40.5 cents per dollar in 1985.

In a recent note to investors, John Glass, an analyst for Morgan Stanley, said the casual dining industry — midrange restaurants like Applebee’s — needed to shutter about 1,200 of its roughly 18,000 locations to regain financial health.

“The chain casual dining industry has been overbuilt since 2005,” Mr. Glass wrote, noting that was the last year the industry posted positive numbers for customer traffic. “It may take two or more years to reach equilibrium.”

Others said the pruning of restaurants would extend beyond casual dining to all types of restaurants. Bob Goldin, executive vice president at Technomic, a Chicago consultancy for the restaurant industry, predicted that more than 20,000 restaurants would close over the next three years.

“I think 20,000 is a minimum,” he said. “We probably need more than that. There are a lot of marginal players out there.”

Mr. Goldin said the rapid expansion was driven by chains that added 300 or more new stores a year, following a “you build it and they shall come philosophy.”

“There isn’t a sector in the retail market that isn’t overbuilt,” he said.

The result is that after 16 years of sales growth, inflation-adjusted sales declined 1.2 percent last year, an already tough year for restaurateurs as ingredient costs hit record highs. Sales are expected to decrease another 1 percent in 2009, according to the National Restaurant Association.

“There’s not a day that goes by that I don’t get a heads-up about somebody closing their doors,” said Amy Greene, who tracks the industry for Avondale Partners in Nashville.

So far, many of the companies going out of business are small enterprises with one to three locations; they are struggling because of slower sales and limited access to credit, she said. The NPD Group, a market research firm, reported in January that unit growth of small chains and independents declined by 1 percent in 2008.

But larger chains have struggled too, particularly those with a more expensive menu than competitors, or onerous levels of debt. Outback Steakhouse is one example.

Known for its fried appetizer the Bloomin’ Onion and its ostensibly Australian décor, Outback was taken private in 2007 at the peak of the private equity buying binge, even as the casual dining sector was struggling with sluggish sales. Outback’s owner, OSI Restaurant Partners, now finds itself saddled with debt and declining customer counts.

“Because of all the debt they took on, there’s limited cash available to fix the stores,” said Howard W. Penney, an analyst at Research Edge, in New Haven. “The structure for the company is disastrous right now.”

In early March, the rating agency Moody’s included OSI Restaurant Partners on its list of “bottom-rung” companies that are most likely to default on debt payments. A company spokesman, Michael Fox, said the company had recently significantly improved its financial position by retiring $300 million of debt at a discounted cost of $85 million.

The company also is trying to lure customers with values and created a new menu with 15 meals for $15.99 each.

Other restaurant chains on that ignoble bottom-rung list included Krispy Kreme Doughnuts, Sbarro and Arby’s.

Of course, there are some exceptions to the industry’s malaise, even in the casual dining sector. Darden Restaurants, which owns Olive Garden and Red Lobster, recently announced a better-than-expected outlook for the coming year. In the most recent quarter, same-store sales dropped 3 percent, compared with a 6 percent decline for the rest of the casual dining industry.

“You are not in an environment where a rising tide will raise all boats,” said Clarence Otis, Darden’s chief executive, noting that strong brands and mature and efficient operations were crucial. “We have a lot of strengths. We are gaining share.”

In addition, fast-food restaurants with a value menu like McDonald’s, Taco Bell and Subway have thrived by offering full meals for less than $5.

“The guys that are succeeding are the ones that have ingrained in the customer that it is less expensive to eat there than to buy groceries and prepare it at home,” Ms. Greene said.

Mr. Tankel, whose company owns 30 Applebee’s franchises in and around New York, has had a first-row seat to the restaurant industry’s woes. In 2007, Applebee’s was acquired by Dine Equity, the owner of IHOP, and some analysts have worried about its ability to pay off its debt.

He is also on the board of Morton’s Restaurant Group, which has struggled as expense accounts have dried up, and Perkins & Marie Callender’s Inc., which is on Moody’s “bottom rung” chart.

Still, Mr. Tankel, an adventurer who has climbed Mount Everest and visited both poles, said his 30 stores were beating the odds by being up 2 percent so far this year, which he attributes to a relentless focus on service. He plans to continue expanding during the downturn.

“Dine Equity’s problems are not our problem,” he said. “They gave us a brand, and the brand has weight, the brand has firepower.”

Even so, several passers-by in Times Square said Friday that they had cut back on dining out. Scott Wood, 37, said economic uncertainty and a 20 percent pay cut had forced him and wife to cut their restaurant visits in half.

“We go to the same places, but just not as much,” said Mr. Wood, who was visiting from Utah.

Renita Dickens, a 42-year-old from Connecticut, said she too had cut back on restaurant visits, curbing a once-a-week habit to once a month, because of worries about the future. But she made an exception to her informal rule on Friday, eating lunch at Red Lobster with a friend.

“We’re going to treat ourselves,” she said. “But we’ll pay for it later.”

http://www.nytimes.com/2009/04/04/business/04restaurant.html?pagewanted=1&_r=2
 

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Making Banking Boring

Making Banking Boring

By PAUL KRUGMAN
Thirty-plus years ago, when I was a graduate student in economics, only the least ambitious of my classmates sought careers in the financial world. Even then, investment banks paid more than teaching or public service — but not that much more, and anyway, everyone knew that banking was, well, boring.

In the years that followed, of course, banking became anything but boring. Wheeling and dealing flourished, and pay scales in finance shot up, drawing in many of the nation’s best and brightest young people (O.K., I’m not so sure about the “best” part). And we were assured that our supersized financial sector was the key to prosperity.

Instead, however, finance turned into the monster that ate the world economy.

Recently, the economists Thomas Philippon and Ariell Reshef circulated a paper that could have been titled “The Rise and Fall of Boring Banking” (it’s actually titled “Wages and Human Capital in the U.S. Financial Industry, 1909-2006”). They show that banking in America has gone through three eras over the past century.

Before 1930, banking was an exciting industry featuring a number of larger-than-life figures, who built giant financial empires (some of which later turned out to have been based on fraud). This highflying finance sector presided over a rapid increase in debt: Household debt as a percentage of G.D.P. almost doubled between World War I and 1929.

During this first era of high finance, bankers were, on average, paid much more than their counterparts in other industries. But finance lost its glamour when the banking system collapsed during the Great Depression.

The banking industry that emerged from that collapse was tightly regulated, far less colorful than it had been before the Depression, and far less lucrative for those who ran it. Banking became boring, partly because bankers were so conservative about lending: Household debt, which had fallen sharply as a percentage of G.D.P. during the Depression and World War II, stayed far below pre-1930s levels.

Strange to say, this era of boring banking was also an era of spectacular economic progress for most Americans.

After 1980, however, as the political winds shifted, many of the regulations on banks were lifted — and banking became exciting again. Debt began rising rapidly, eventually reaching just about the same level relative to G.D.P. as in 1929. And the financial industry exploded in size. By the middle of this decade, it accounted for a third of corporate profits.

As these changes took place, finance again became a high-paying career — spectacularly high-paying for those who built new financial empires. Indeed, soaring incomes in finance played a large role in creating America’s second Gilded Age.

Needless to say, the new superstars believed that they had earned their wealth. “I think that the results our company had, which is where the great majority of my wealth came from, justified what I got,” said Sanford Weill in 2007, a year after he had retired from Citigroup. And many economists agreed.

Only a few people warned that this supercharged financial system might come to a bad end. Perhaps the most notable Cassandra was Raghuram Rajan of the University of Chicago, a former chief economist at the International Monetary Fund, who argued at a 2005 conference that the rapid growth of finance had increased the risk of a “catastrophic meltdown.” But other participants in the conference, including Lawrence Summers, now the head of the National Economic Council, ridiculed Mr. Rajan’s concerns.

And the meltdown came.

Much of the seeming success of the financial industry has now been revealed as an illusion. (Citigroup stock has lost more than 90 percent of its value since Mr. Weill congratulated himself.) Worse yet, the collapse of the financial house of cards has wreaked havoc with the rest of the economy, with world trade and industrial output actually falling faster than they did in the Great Depression. And the catastrophe has led to calls for much more regulation of the financial industry.

But my sense is that policy makers are still thinking mainly about rearranging the boxes on the bank supervisory organization chart. They’re not at all ready to do what needs to be done — which is to make banking boring again.

Part of the problem is that boring banking would mean poorer bankers, and the financial industry still has a lot of friends in high places. But it’s also a matter of ideology: Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress.

Can they be persuaded otherwise? Will we find the will to pursue serious financial reform? If not, the current crisis won’t be a one-time event; it will be the shape of things to come.

http://www.nytimes.com/2009/04/10/opinion/10krugman.html?em
 

Daredevil

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Partying Like It’s 2008

Partying Like It’s 2008

Germany is one of the worst-hit economies in the developed world. So why is everybody so calm?

Stefan Theil
NEWSWEEK
From the magazine issue dated Apr 20, 2009
The economic crisis has taken its toll in Europe. Governments in the Czech Republic, Hungary and Latvia have collapsed. Violent street protests have erupted in France and Britain. Yet Germany remains unfazed. While its economy is forecast to contract by 5.3 percent this year—compared with 4 percent in the U.S., 3.7 in Britain and 3.3 in France—Germans are remarkably angst-free about their prospects.

When spring temperatures finally arrived in late March, Berlin's sidewalk restaurants were packed. Its roads were choked with shiny convertibles tanked up on newly cheap gasoline. Consumer spending has held up; March auto sales were up 40 percent over last year, thanks to the €2,500 government trade-in incentive that came with Germany's fiscal-stimulus plan. Only 13 percent of Germans tell pollsters their personal finances might be affected by the crisis. A long-planned protest in Berlin in late March managed to attract only a few thousand antiglobalization activists and left-wing fringe types. "Why Is It Still So Quiet?" the Frankfurter Allgemeine newspaper asked in a recent headline, intrigued by the idea that the country's citizens might be sitting out the grimmest recession in 60 years.

The main reason that most Germans have yet to feel affected by the crisis is, to put it simply, that they haven't been affected. Unemployment, at 8.6 percent in March, only began to creep up in December when it was at 7.4 percent, and is still near lows last seen in the early 1980s. German banks were among the biggest speculators in toxic U.S. assets, but that has had few repercussions for ordinary Germans. They saw neither a bubble in real-estate prices (in fact, they're a nation of renters) nor a boom in credit-fueled consumer spending, the implosion of which is now hurting the United States, Britain, Ireland and Spain. Though German stocks are down 41 percent from their 52-week highs (versus 39 percent for the Dow Jones), it affects few private households, as few Germans own stocks directly. For their retirement they depend on state pensions and life-insurance policies, whose returns (and risks) don't show up on monthly statements.

What's more, most Germans seem to be enjoying a sweet spot they haven't seen in decades. Even with the recent jump, joblessness is still far below its 2005 peak of 12.6 percent. After years of cost-cutting and wage restraint, unions finally negotiated some raises; the latest round of pay hikes was the highest in 13 years. Plummeting energy prices and a stimulus tax cut have brightened the mood as well.

The good times may last a little while yet. Even as the recession begins to bite—mainly via a sudden collapse in Germany's exports, which account for some 40 percent of GDP—its impact will be muffled. Germans trust their welfare state to cushion the blows in a way unimaginable in the United States. Most workers are eligible for benefits, and few of them have to worry about losing their health insurance.

Jobs are slow to disappear, in part due to worker protections. Layoffs in Germany's hard-hit export industry—orders in such key sectors as cars or machinery are down by about 50 percent—have been kept artificially low, thanks to a newly expanded government subsidy that is paying 50,000 companies to keep more than 1 million workers on the payroll even though they no longer have work to do.

Moreover, with a national election coming up in September, Chancellor Angela Mer-kel's coalition government is desperate to tide over the job market, as are big German companies, which fear that massive layoffs might lead to a big win for a left-wing coalition. "Every German company will try not to lay off workers before the election," says Daimler public-affairs executive Martin Jäger.

Also helping Germans keep their cool: the attitude that whatever happens, they've probably been there before. Germans have endured worse than the 11.6 percent unemployment predicted for 2010 by the OECD, and have been through long phases of economic stagnation as recently as the 1990s and early 2000s. Paradoxically, many Germans may now sleep even easier, especially among the nearly 50 percent who receive government benefits, pensions or civil-service salaries. With the reversal of the political winds, welfare-state reform no longer seems on anyone's agenda. On the contrary, some benefits were expanded as part of the country's stimulus program.

The rosy mood will be tested in the coming months as insolvencies and layoffs start to hit harder, and could turn truly sour should the German exports fail to bounce back next year as expected. But until then, Europe's biggest economy won't let a little downturn spoil the day.

URL: http://www.newsweek.com/id/193506
 

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Weak exports hit China's growth

Weak exports hit China's growth


Annual growth in China's gross domestic product (GDP) slowed in the first quarter of 2009 to 6.1%, the National Bureau of Statistics has announced.

This is the weakest growth since quarterly records began in 1992, but some analysts see signs of a recovery.

Growth was 6.8% in the last quarter of 2008, but the first quarter GDP figure dropped as exports fell 17% in March.

China's government has said it is determined to achieve annual growth of 8%, and to expand its domestic demand.

"There's little the Chinese government can do to help key markets for Chinese products in the US and Europe recover," said the BBC's Chris Hogg in Shanghai.

"That's why it's focussing on trying to stimulate domestic demand."

There has been a recognition among Chinese state officials that too sharp an economic slowdown could lead to growing unemployment and may fuel social unrest.

'Pressure'

Announcing the GDP figure, the National Bureau of Statistics (NBS) said that export demand had dropped sharply, cutting into company profits, reducing government revenues and raising unemployment.

"The national economy is confronted with the pressure of a slowdown," an NBS statement said.

“ The Chinese government, like the rest of the world, has been trying to avoid the worst affects of the global recession ”
Michael Bristow, BBC Beijing correspondent
China experienced double-digit growth from 2003 to 2007, and recorded 9% growth in 2008.
Analysts said the first-quarter drop in growth was in line with expectations.

But other data offered by the government suggested a tentative recovery may already be under way.

"Government figures suggest China's economic performance will continue to improve during the remaining months of this year," said the BBC's Michael Bristow in Beijing.

Industrial output expanded 5.1% in the first quarter. It was up 8.3% year-on-year in March, against 3.8% in January and February.

Fixed asset investment on items such as new factories and equipment was up 28.6% in March from 26.5% in February.

Spending on property development grew by 4.1% in the first quarter, and retail sales remained strong with a 14.7% growth during March.

'Surge in investment'

"Most of the indicators are better than earlier market expectations, although the annual GDP growth in the first quarter is a historical low," said Xing Zhqiang, analyst at China International Capital Corporation in Beijing.

“ There are risks to calling China's economic recovery too soon ”
Juliana Liu, BBC Asia business reporter, Hainan
"We expect that the most difficult time for China's economy has passed, as the surge in investment has partly offset the negative impact from declining exports."
China has started to implement a 4 trillion yuan ($585bn, £390bn) stimulus package to counter the impact of the global slowdown, and this package has been seen as helping to spur lending in the first three months of the year.

"The overall national economy showed positive changes, with better performance than expected," the NBS said.

It said that urban per-capita incomes were up 11.2% from a year earlier in real terms and that rural per-capita incomes were up 8.6%.

The consumer price index (CPI), China's main gauge of inflation, fell 0.6% in the first quarter of 2009 from a year earlier, according to the bureau.

The data comes as Asian business leaders and officials are gathering on the Chinese island of Hainan for the annual Boao business forum.

Tourism on the island has been hit hard by the economic downturn and there are risks to calling China's economic recovery too soon, said the BBC's Juliana Liu in Hainan.

"After all, an estimated 40 million people have lost their jobs, mostly from factories in the deep south," she said. "But most economists believe China's growth has stabilised."

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/8001315.stm
 

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Meanwhile in fairyland, formally Australia.



May 28, 2009 11:28am

The Rudd Government spent $40 million paying Stimulus money to dead people and prisoners with the $900 tax bonus.
More than $11 million was spent marketing the Kevin Rudd cash splash - which has seen $8 billion paid out in the Stimulus bungle.

THE $40 million in stimulus payments made to dead people and expats was not being wasted, Federal Finance Minister Lindsay Tanner said.

The Australian Tax Office said the cost of tax bonus payments to 16,000 dead people was likely to exceed $14 million while another $25 million had been sent to about 25,000 Australians living overseas.

Mr Tanner rejected suggestions the payments were a waste.

"Even where they go to people who are dead, they go to the estate (which) typically is going to consist of ordinary Australians who will in turn get the payments ... and over time spend them,'' he said.

Opposition Leader Malcolm Turnbull rejected the Government's explanation saying it was "an incredible example of the reckless way'' Labor was borrowing billions and spraying it around.

Liberal backbencher Stuart Robert said stimulus payments also went to prisoners, and pets left with estates after their owners had died.
 
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U.S. Fast-Tracks High-Technology Trade With India

U.S. Fast-Tracks High-Technology Trade With India

U.S. Fast-Tracks High-Technology Trade With India

WASHINGTON -(Dow Jones)- A General Electric Co. (GE) unit will be the first Indian company to benefit from a U.S. Commerce Department program unveiled on Wednesday that is designed to fast-track high-technology trade between the U.S. and India.

Under the program, the General Electric unit will more easily be able to import technologies for security-sensitive industries such as civilian aircraft and explosive detection.

The program will allow Indian companies to request a special background review in order to receive clearance as a "validated end-user" that eliminates the need for them to request U.S. clearance for every transaction.

"This is an important step in enabling a more rapid and efficient flow of sensitive technology between India and the United States," U.S. Secretary of Commerce Gary Locke said in a statement Wednesday. Locke encouraged other Indian firms to apply for the program as well.

The only countries eligible for the program to date are India and China, which was approved in late April.

- By Kristina Peterson, Dow Jones Newswires; 202-862-6619; kristina.peterson@ dowjones.com
 
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:mornin:ha ha Thoday Eithar jao, Thoday udhay jao, Baki marey pichey aao, ha ha.
 

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India Inc buys 143 US cos in 2 yrs

India Inc buys 143 US cos in 2 yrs

19 Jun 2009, 1108 hrs IST, TNN


NEW DELHI: The greater engagement of US with India seems to have benefited the former during the economic downturn as thousands of Americans managed to save their jobs when Indian corporates went on a major acquisition drive in the US. ( Watch )

During the last two years, Indian companies acquired 143 US firms across various sectors. While 94 deals were concluded in 2007-08, in the following year when the economy was on the downturn, Indians bought as many as 50 US entities that were on the verge of closure, saving thousands of jobs.

A study, jointly conducted by Indian industry association FICCI and Ernst & Young, said Tata Chemicals, Wipro, Reliance Communications and Firstsource Solutions were some of the top Indian entities that were involved in bailing out US companies in the red.

The report released on Thursday said IT&ITeS, manufacturing and pharmaceuticals were the prime sectors in which most of the deals were formalised. Indian companies from the IT sector have over the years been aggressively expanding in the US market.

The deals were predominantly debt financed with cash being a popular mode of payment. "This trend probably extends from India Inc's traditional preference for cash transactions in the domestic merger and acquisition space," the report observed.

The Ernst & Young report says the boom in the Indian economy in the last three to four years made the domestic companies cash-rich which provided them with access to more capital than in the past.

Interestingly, one of the key factors, as the report cites, behind more acquisitions has been the liberal policies introduced by the government and RBI for overseas investments.

According to RBI data, in 2007-08 the total outbound investments of Indian companies amounted to $18 billion. In the first half of 2008-09, at least 2,000 proposals valued at $9 billion were cleared for overseas investments in joint ventures and wholly owned subsidiaries.
 
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India's TCS opens new outsourcing center in Mexico

India's TCS opens new outsourcing center in Mexico - Forbes.com

India's TCS opens new outsourcing center in Mexico
By ERIKA KINETZ , 06.18.09, 07:48 AM EDT


MUMBAI, India -- Tata Consultancy Services, India's largest outsourcing firm, has opened a new center in Queretaro, Mexico, the company said Thursday - a reflection of the growing move to diversify offshore locations.

TCS said it would hire 500 people to work at the new center, its third in Mexico since entering the country in 2003.


The company has seven centers across Latin America, in Brazil, Argentina, Uruguay, and Chile, as well as Mexico, and employs information technology consultants in 42 countries around the world.

The industry and its clients alike have been seeking to expand the number of countries they use for offshore outsourcing, and some U.S. clients are more comfortable sending work closer to home than to faraway Asia, analysts say.

India still dominates the industry, accounting for 85 percent of the $45 billion information technology services offshore market in 2008, according to Forrester Research ( FORR - news - people ).

"There are some clients out there, particularly the large ones, that are looking to diversify risk," said John McCarthy, principal analyst at Forrester.

He said some companies, like General Electric ( GE - news - people ), have tried to lessen their dependence on Indian outsourcers, but have struggled to find adequate alternatives.

"They can't find the skills in some of these other locations," he said.

The push out of India began several years ago, as wages skyrocketed and attrition soared, McCarthy said. The recent downturn has curtailed both those trends, but last year's terror attacks on Mumbai and continuing political instability in neighboring Pakistan have renewed the push to alternate locations, he said.

"India clearly is going to be the dominant location for the foreseeable future, barring some major geopolitical issue," he said. Argentina, Brazil, Mexico, Eastern Europe, Russia, Egypt, China, Malaysia, Vietnam, and the Philippines have all been developing as India alternatives, but none, save China, has the potential to be a real competitor, McCarthy said.

"I think potentially the big wild card is China. The rest of the locations will continue to play a niche role. They just can't scale," he said.

But for now China is "not cheaper than India and the skills aren't nearly as developed," he said. "Until that changes not much is going to happen."
 

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India's journey from holiday backwater to destination du jour

India's journey from holiday backwater to destination du jour

As a sales pitch for a holiday paradise, you would think it left much to be desired. “We have hoardings obscuring heritage sites, we have terrible roads, we have sewage and solid waste problems. And we have some of the lousiest airports in the world.”

But Amitabh Kant's blunt critique of his homeland's shortcomings is part of an approach that has earned glowing reviews from some of the tourism industry's fussiest arbiters - picky Western travel writers.

When he is not deploring the state of Indian public toilets, the dapper civil servant, who in 2001 was handed the job of rescuing India's sinking tourism industry, likes to measure his success by counting the billions of dollars that he has helped to add to the country's foreign currency reserves by luring upmarket travellers to the lush backwaters of Kerala and the grand palaces of Rajasthan.

In industry circles, he is treated as something of a guru. The day before talking to The Times, Mr Kant had been the guest of honour at a lavish Mumbai reception hosted by Ratan Tata, India's most-fêted businessman.

The event recognised Mr Kant's standing as a global doyen of the fiendishly tricky art of “national branding”, a status he achieved by masterminding the successful “Incredible India” campaign, the country's first co-ordinated effort to market itself under a single banner.

But not even a man of Mr Kant's talents can control world events. None has been more horrific than the terror attack on Mumbai last November, in which 166 people were murdered by a group of ten gunmen who deliberately sought to kill Western visitors to India's financial capital.

Mr Kant's interview with The Times was held in the renovated Taj Mahal Palace hotel, in a spot in the famous Heritage Wing that only seven months ago was pocked with bullet holes and littered with dead bodies but now has been returned to an oasis of genteel calm, its deep, elaborate carpets and rich teak furniture noticeably new.

He only partially concedes, however, that the terror strike hit India's tourist industry. His evaluation - that its impact on foreign visitor numbers was much less than that of the global credit crunch - is widely shared, but, whatever the reason, the Taj is definitely less busy than before the attacks.

Mr Kant's journey in the tourism industry began at a similarly inauspicious time for the tourist trade. In 2001, when he became joint secretary of the Ministry of Tourism in Delhi, India's tourism-related revenues were languishing at $2 billion a year, less than 0.5 per cent of the industry's global turnover.

Across the country, hotel room occupancy rates had fallen to 25 per cent and tour operators were refusing to offer trips to India in their brochures. Faced with a crisis, he says, his objective was clear: to redefine India as a luxury destination, and to discourage those looking for an ultra-cheap getaway.

“All that I'm against is getting in too many backpackers,” Mr Kant said, adding that his dislike of budget tourists is nothing personal but based on financial pragmatism. “For a country with India's overstretched infrastructure, backpackers do more damage than good to the economy. Particularly the British variety.”

In an effort to dissuade the gap-year students, Goa-bound ravers and ageing hippies that have travelled India for decades, Mr Kant tried to stop cheap charter flights flying to popular seaside locations such as Kerala. To replace them, he promoted new, sometimes controversial, “high-value” forms of tourism.

Among the most radical moves was the decision to promote India as a destination where foreigners can access cheap medical care. The resulting steady stream of middle-class Western patients has proven lucrative, but some feel that Indian doctors would be better employed treating Indian patients.

Across the country's seldom-travelled agricultural hinterlands, “rural tourism” was championed, with villagers being trained in how to host Westerners and sell them handicrafts. Entrepreneurs have been encouraged to set up homestays, houseboats and treehouse hotels.

But the main tool he used to attract these well-heeled travellers was the “Incredible India” campaign. A series of adverts displayed internationally but co-ordinated by Mr Kant from Delhi, it represented India's first attempt to sell itself under a single banner.

Visible today in London and New York, it was launched in 2002, just as the post-9/11 malaise in the global tourism industry was approaching its nadir. As rival destinations slashed their promotional budgets, India, under Mr Kant's direction, ramped up its spending, splashing out to create a marketing strategy far slicker than anything it had used before.

The gamble worked. Last year, when Mr Kant's tenure at the ministry ended (and he was rotated to a posting in his home state of Kerala), India's annual earnings from tourism had risen more than fivefold, to $11.6 billion, and the readers of Conde Naste Traveller had ranked India as the world's “No1 preferred travel destination”.

The party thrown by Mr Tata coincided with the publication of Mr Kant's memoirs, a book recommended as an object lesson in how to attract foreign visitors by Francesco Frangialli, secretary-general of the UN World Tourism Organisation. He admits, however, that India still has a long way to go, that many of its experiences, such as those terrible roads and sewage problems, are still far from incredible.

The most commonly cited example of India's lax attitude towards its cultural assets is that of the Taj Mahal, a building often referred to as the world's most magnificent monument to love but which is near a heavily polluted river and is serviced by a dank, smelly, intimidating train station.

Mr Kant blames “a failure of municipal governance” for the Taj's inglorious surroundings. India's state chief ministers, arguably the country's most powerful politicians, need to realise that tourists can be more lucrative even than that totem of India's economic renaissance: software.

“The size of the tourism industry is $4.6 trillion [£2,800 billion], whereas the software industry globally is a mere $500 billion,” he said. “The tourism industry globally generates over 250 million jobs, whereas the software industry generates only 20 million.

“But you can't cultivate tourism by having the Taj Mahal, a great heritage site, and having garbage and filth outside. The entire experience has to be spiritually and mentally rejuvenating.”

India's journey from holiday backwater to destination du jour - Times Online
 

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UK :Tough times ahead for Tata, UK's largest industrial employer.

UK :Tough times ahead for Tata, UK's largest industrial employer.​



Tata will reveal this week the price it has paid for becoming the UK's largest industrial employer. Tata Motors will lay bare the finances of Jaguar Land Rover, which it bought 18 months ago for £1.7bn before the recession took hold. Tata Steel, which includes the struggling UK division, formerly known as Corus, will also publish fourth-quarter results. Expect a sea of red.

One London-based analyst said the figures for both would be "PDA" - pretty damn awful. An analyst working for an Indian broker forecast annual losses of around $150m (£91.7m) for Jaguar Land Rover, although this is less than many experts in the UK have been fearing.

The performance of Tata Steel's UK arm is expected to have deteriorated significantly in the first quarter of the year, but its parent does not publish separate figures for each division, so it will be hard to assess just how bad the situation is.

It was not what Ratan Tata, chairman of the Tata group, had in mind when he masterminded the conglomerate's £8bn buying spree in the UK. Including Tata Consultancy Services, it employs more than 40,000 people in the UK.

So far he doesn't have too much to show for his largesse, other than heavy debts and ongoing losses. Tata now finds itself having to prop up its UK acquisitions with cash generated by its businesses in India and elsewhere, and it cannot afford to do so indefinitely.

Tata Motors, which largely makes commercial vehicles in India, is only barely profitable and probably loss-making if you include Jaguar Land Rover. But there are signs that demand is picking up: last month sales of commercial vehicles in the country were down by a quarter - a vast improvement compared to late last year, when sales were down by more than two thirds. Nevertheless, some analysts and bankers say Tata Motors will find it hard to raise more debt, given that its existing burden is around $5bn. More likely is another rights issue or even selling a stake to a strategic investor to raise the cash to keep Jaguar Land Rover afloat.

Tata has also been trying to secure a chunk of the £2.3bn loan guarantees the government has offered the UK car industry. But officials from Lord Mandelson's business department have been holding talks with Tata for more than six months with nothing to show for it. The Guardian revealed in April that talks were close to breaking down because of the onerous conditions demanded by the government in return for its financial support. Since then, sources say that little if any progress has been made.

Some government officials argue that the Tata empire, rather than the UK taxpayer, should bail out Jaguar Land Rover. The group spans more than a dozen companies with a combined market value of over $35bn. Behind these sits Tata Sons, which holds large stakes in them. But two-thirds of Tata Sons is owned by philanthropic trusts dedicated to charitable causes. This means that Jaguar Land Rover is not the only needy cause in town. Lord Bhattacharyya, founder of the Warwick Manufacturing Group, is close to the Tata family. "There is a misconception that these guys are all rich Indians," he said. "Ratan Tata does not own shares in Tata Sons - he is just an employee. Tata Sons is a charity with many global commitments."

The deadlock is partly down to brinkmanship. Tata wants to see how far it can push the government, knowing that a Labour administration will not want large job cuts on its watch. "Tata is waiting for a car crash," says one Whitehall source. But the government is reluctant to risk taxpayers' money by guaranteeing loans which may never be repaid.

Bhattacharyya concedes there have been frustrations on both sides. "Ratan Tata gets on very well with Gordon Brown," he says. "Sometimes the discussions between the government and JLR are a little bit heated but Tata does not make statements criticising the government - they wouldn't think of doing this. There has been a learning curve on both sides: Tata has been learning how the government works and vice versa."

Tata has invested too much in Jaguar Land Rover to let it go under. Tough emissions rules in 2012 mean the company has to develop new fuel efficient technologies and models, which doesn't come cheap. Tata is especially keen to use the technology from Land Rover to make SUV-type vehicles for the developing world market. Bhattacharyya says Tata is not about to quit the UK: "Ratan Tata is not a fair-weather person. He knows that companies have to go through ups and downs. Tata is here for the long term."

But tough decisions are looming about how to ensure the company's immediate survival. Tata's bankers are seeking to secure short-term finance of between £500m and £1bn to allow Jaguar Land Rover to pay off supplier payments due by the end of the summer and stop it running out of cash. If no government help is forthcoming soon, Tata will have to scale down its investment plans in Jaguar Land Rover to make its losses sustainable. That would result in more job losses - and possibly plant closures.

Jaguar job threat as Tata opens the bonnet | Business | The Observer
 
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India, South Korea close to concluding CEPA

India, South Korea close to concluding CEPA - The Financial Express

India, South Korea close to concluding CEPA

Press Trust of India
Posted: 2009-06-24 23:36:06+05:30 IST
Updated: Jun 24, 2009 at 2336 hrs IST



New Delhi: India and South Korea are close to concluding a free trade agreement for opening markets to each other for giving a boost to bilateral trade.

The 'Comprehensive Economic Partnership Agreement (CEPA)' was among major issues discussed when South Korean minister for foreign affairs and trade Yu Myung-hwan met commerce minister Anand Sharma and external affairs minister SM Krishna on Tuesday. Reiterating their commitment to strengthen long-term cooperative partnership of peace, Myung-hwan and Krishna stressed upon the need to have regular high-level political interactions between the two countries.

"They expressed happiness that the two sides are close to concluding a bilateral CEPA, which will give a boost to economic partnership between them," an official statement said.

Assuring his Korean counterpart of a conducive investment environment for Korean firms, Krishna expressed hope that negotiations for other agreements including a revised Double Taxation Avoidance Convention, could be concluded soon.

Myung-hwan on his a day-long official visit to India, also called on Prime Minister Manmohan Singh. With the signing of CEPA and enhanced access of markets to the business players of the two countries, the $15-billion bilateral trade will get a fillip. The two sides also discussed matters of regional and international concerns with the Korean minister briefing Krishna about the situation in the Korean peninsula and the external affairs minister talking about the situation in India's neighbourhood.

Myung-hwan and Krishna emphasised that official dialogue mechanism should continue on a regular basis between the two sides.

The two ministers shared the view that it was important for North Korea to return to the six-party talks
 

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S Korea keen to step up economic ties with India

Seoul (PTI) South Korea is keen to sign the Comprehensive Economic Partnership Agreement (CEPA) with India "as early as possible" to cement growing bilateral trade and commercial links, Korean diplomats said here on Monday.

To hasten the signing of the CEPA, South Korean Foreign Minister Yu Myung-hwan on Monday left here for New Delhi for talks with the Indian government on ways to boost bilateral ties with special focus on the trade sector.

Mr. Yu will meet senior Indian officials in New Delhi, including External Affairs Minister S.M. Krishna and Commerce Minister Anand Sharma, to discuss a range of bilateral and global issues, a South Korean Foreign Ministry official said.

He is also scheduled to meet Prime Minister Manmohan Singh.

"In particular, the issue of CEPA between the two nations will be discussed," the official said.

South Korea and India are in the final stage of negotiations on the CEPA, a term used to emphasise the agreement's purpose of covering goods and services trade, investment and economic cooperation in a comprehensive manner.

South Korea is seeking to sign the CEPA as early as possible, Yonhap news agency reported.

"The Foreign Minister's visit to India this time is expected to make big contributions to the strengthening of South Korea-India ties and the government's push for the 'New Asia Initiative,'" the Foreign Ministry said.

The Hindu News Update Service
 

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