Is Lithium the 21st Century's Oil?

27. Feb. 2010

Lithium and China

Over the last decade, China has led the world in battery exports for laptop computers, cell phones, and other electronic devices. In China there are hundreds of companies, both small and large, that are involved in development of Ni-MH, lead-acid, and lithium-ion batteries. In the past 3 to 4 years, many multinational companies have brought advanced battery technologies to China and set up partnerships and/or joint ventures to manufacture batteries for these and other applications (such as electric bikes, electric vehicles, and hybrids) to take advantage of low labor costs in China and incentives provided by the Chinese government.

While China does have domestic sources of lithium, the country does not have sufficient reserves to cope with the expected demand of consumer electronics, hybrids and electric vehicles. It therefore has no choice but to import lithium. In 2008 China imported roughly 4,300 tons of lithium (mainly from Chile).

What many people don’t realize is that next to Chile, Argentina and Bolivia, China is one of the countries with the largest lithium reserves in the world. China's lithium reserve base is 2.7 million tons (other estimates peg it at 3.35 million tons), ranking the country 3rd in the world in terms of salt lake brine lithium reserves, and 4th in terms of total lithium ore resources.

China has three major salt lake deposits: (a) Taijinaier Salt Lake (Qinghai Province), (b) Dangxiongcuo, or DXC (Tibet), and (c) Zhabuye (Tibet). The Qaidan Basin, where Tiaijinaier is located is supposedly the largest salt bed lithium reserve in China. The main operator in the area is CITIC Guoan, who is purportedly building the largest lithium carbonate plant in the world.

One issue facing Chinese lithium deposits is a lack of infrastructure. Similar to their Andean counterparts, the dry salt lakes in China are in very remote and inhospitable places. Trains and highways are crucial if the lithium is to be transported to end users at the right price.

The bottom line is that China does not want to be left behind. If it wants to be the leader in consumer electronics, electric vehicles, and by extension batteries, it needs to do several things: further develop its domestic lithium deposits, beef up the physical infrastructure that lead to those deposits (i.e. roads, rail), and opportunistically look for acquisitions abroad.

Conclusion

Latin America and China have a special bond when it comes to lithium. While China does have reserves of lithium in Qinghai and Tibet, the growth of the hybrid and electrical vehicle markets will dwarf current global production (an electric automobile uses a quantity of lithium equivalent to 700 cell phones). Latin America, especially Chile, Argentina and Bolivia may hold a key.

China is the world’s largest auto market but the country lags the United States and Europe in technology for gas-powered vehicles. As a result, Chinese leaders are now focusing on electric cars. They plan to turn China into one of the leading global producers of hybrid and all-electric vehicles in the next few years. A clear winner could be BYD (BYDDF.PK), a firm relatively unknown outside of China. BYD is the world’s 2nd largest cell phone Li-ion battery manufacturer and in 2008 it received $230 million for a 10% stake from Warren Buffett’s MidAmerican Energy Holdings. David Sokol, Chairman of MidAmerican, said he thought that BYD's technology was a "potential game changer if we're serious about reducing carbon-dioxide emissions." Today BYD has roughly 12,000 engineers working on battery technology in the southern Chinese city of Shenzhen.

From our vantage point in Shanghai, we think that the “road to riches” in the 21st century may not necessarily be paved with gold, but with a silvery metal known as lithium. And as fate would have it, this road to riches may also inexorably bind two regions of the world that have a lot to gain from each other: China and Latin America.
[Seeking Alpha]

Carlyle says China top spot for Asian deals

25. Feb. 2010

HONG KONG - The Carlyle Group CYL.UL aims to invest most of its Asia-focused funds on deals in China, where the U.S. buyout group also expects to finance new funds as it gets tougher to raise money in the United States.

"There's no doubt that raising money is harder than it used to be," said David Rubenstein, Carlyle's co-founder and managing director.

"There's no doubt that some of the public pension funds in the United States are probably over-allocated to private equity," he told Reuters in a telephone interview on Wednesday.

Some private equity executives have complained about difficulties in fund-raising in the United States and Europe, where institutional investors, also known as limited partners, used to be big fans of private equity before the financial crisis.

More fund managers, such as George Soros, are rushing to raise new capital in Asia, which has a shorter history of private equity and hedge funds than the West.

Carlyle's most recent Asia buyout fund, launched in July 2006, raised $1.8 billion and has invested in various projects across Asia.

Carlyle was raising a new Asia buyout fund with a target size of up to $3 billion, Reuters reported in September.

"Clearly, China has a fair amount of money to invest, not only through the large sovereign wealth funds that are well known, but from so many other vehicles in China," he said.

"So I think China and other parts of Asia like Singapore and Korea are going to be very attractive places in which to raise money for organizations like ours generally."

MORE CHINA FUNDS

Rubenstein, who was ranked by Forbes magazine as the 123rd richest American in 2009 with a net worth of $2.5 billion, told Reuters investors continue to have a strong interest in investment opportunities in China despite the financial crisis.

"We do invest outside China as well, of course, but China will get a predominant share of the money that we have for Asia because it's so much larger and it's such an exciting place to invest," said Rubenstein.

In China, Carlyle has already made about 50 transactions worth a combined total of more than $2 billion.

One of its most successful investments in the region was its landmark deal with China Pacific Insurance (Group) Co (601601.SS) (2601.HK), China's No.3 life insurer, which went public in Hong Kong late last year, allowing Carlyle to sell part of its stake for a huge profit. However, Carlyle has a one-year lock-up period since China Pacific's listing in December.

"When we do try to raise money to invest in Asia, I would say 75 percent of the interest from our investors is here about China," said Rubenstein, who was a top domestic policy advisor to former U.S. President Jimmy Carter.

"China is the area (in Asia) that most of our investors are interested in ... and so that's what we do talk a lot about," he said.

Carlyle said also said on Wednesday it was teaming up with China's largest non-state-owned conglomerate Fosun Group to launch a $100 million yuan-denominated private equity fund to tap more China deals.

Carlyle said in January it plans to launch a China-dedicated, yuan-denominated private equity in Beijing.

"We may be able to finish the fund-raising for the yuan fund set up in Beijing by the end of this year, or may be faster, but we don't have a target for the fund size," said Rubenstein.

Carlyle's rival Blackstone Group (BX.N) aims to raise 5 billion yuan ($732.5 million) for its first local yuan fund in Shanghai. Chinese media reported Carlyle might raise a similar amount of money for its Beijing fund.

($1=6.826 Yuan)
[Reuters]

A grand bargain to solve global imbalances

18. February. 2010

Michael Pettis, a professor and China expert at the Carnegie Endowment for International Peace, has put together a thorough and informative look at all things U.S.-China trade. It’s well worth reading and watching the entire thing, but here’s a few highlights that jump out:

* We’re likely to see a significant increase in global trade tensions

* China will probably allow the renminbi currency to rise, but not by a lot

* There is a way to resolve those huge global imbalances but it will be painful and the chances of mustering the political will — in China, the United States and Europe — look slim.

A bit more on that last point: Pettis thinks that those three players need to “come to some kind of grand agreement.”

“China needs to recognize that the trade surpluses it needs to absorb its excess capacity are politically unacceptable in countries suffering from high unemployment.

“Europe and the United States need to understand that China simply can’t adjust quickly enough. In an ideal world, the leadership of the three economies would get together and work out a plan—six years, eight years, however long it took—in which China committed to taking the necessary steps.

“Most importantly, raising the value of the currency, liberalizing interest rates, and liberalizing the banking system, that would go a long way to rebalancing the Chinese economy. It will be painful and it will be difficult, but it’s what China will need to do one way or another.

“In exchange, in order to make the difficulty much less, the United States and Europe would commit to slowing down their own adjustments. The United States would continue to run large fiscal deficits in order to slow down the increase in savings in the United States. And they would commit to keeping their markets completely and totally open to Chinese goods, so that the adjustment in China could be slowed down over a seven or eight year period. ”

Pettis says he’s a “little bit pessimistic” that the key players can get to that point.
[Reuters]

China seen allowing stronger yuan in 2010

17. February. 2010

WASHINGTON - Beijing is likely to let its currency begin rising in value again this year in response to growing pressures at home and abroad, two U.S. private sector specialists on China said on Wednesday.

"I think China has been waiting for its exports to resume growth, which they started to do in December. That, I think, gives them the domestic cover they need to resume (a) gradual appreciation," John Frisbie, president of the U.S.-China Business Council, said during a panel discussion.

President Barack Obama pushed China's exchange rate practices to the top of the bilateral agenda this month when he complained countries that undervalue their currency put U.S. companies at a huge competitive disadvantage.

That added to a growing list of issues straining U.S.-Sino ties, including Obama's plan to meet with Tibet's exiled spiritual leader, the Dalai Lama, on Thursday.

Many Western economists maintain that China's currency is undervalued by 25 to 40 percent, giving Chinese companies an unfair advantage in international trade.

Charles Freeman, a former U.S. trade official now at the Center for Strategic and International Studies, said he agreed Beijing would allow the yuan to rise gradually this year "as long as (its) exports don't drop through the floor."

Many within China who "are deeply upset that they continue to have to spend hundreds of billions of dollar every year" to suppress the value of the currency, Freeman said.

"So you know, there are pressures internally in China to appreciate the renminbi for its own purposes and I'll we'll see an appreciation this year," said Freeman, who worked on China issues at the U.S. Trade Representative's office.

Beijing allowed its currency to rise about 20 percent between July 2005 and July 2008, but put on the brakes to help stabilize its exports when the global financial crisis hit.

Obama's recent comments have raised speculation his administration might label China a "currency manipulator" in an semiannual Treasury Department report due on April 15.

"My gut is it doesn't out-and-out name China a currency manipulator, but it comes awful close," Freeman said.

"I think the administration's approach is going to be to shake a big stick on appreciation and, when they move, declare victory," he said.

But for all the political attention China's exchange rate gets in Washington, it's "never a Top Ten issue" for U.S.-China Business Council members, Frisbie said.

A far bigger concern is China's practice of rebating value-added taxes on exports, he said.

Wednesday's panel discussion focused mostly on a Chinese proposal to promote its high-technology sector by excluding foreign companies from its vast government procurement market unless they establish Chinese brands and transfer research and development of new products to China.

Freeman, a former assistant U.S. trade representative in charge of China, said the United States has lost considerable leverage over the Asian manufacturing giant in recent years.

U.S. negotiators used to be able to threaten Congress would close the U.S. market to Chinese goods, but the Chinese "don't believe the threats any more," Freeman said.

That, plus the view of many in China that they have already surpassed the United States in economic might, makes it difficult for U.S. negotiators to change the country's behavior on any policy that is not a clear violation of World Trade Organization rules, he said.
[Reuters]

Problem Neighbors: China's Expansion Efforts Starting to Irk India

17. February. 2010

There are continued signs of stress between the 2 developing Asian powers, and this is not the first sign that China's new heavyweight status is causing consternation. [Dec 15, 2009: China's Economic Power Unsettles Neighbors] [Jun 13, 2009: Australia in Perfect Position Aside China, but at a Cost?] China appears to be following the same strategy in South Asia that it has taken in Africa.

Via The New York Times:

For years, ships from other countries, laden with oil, machinery, clothes and cargo, sped past this small town (Hambanato, Sri Lanka) near India as part of the world’s brisk trade with China. Now, China is investing millions to turn this fishing hamlet into a booming new port, furthering an ambitious trading strategy in South Asia that is reshaping the region and forcing India to rethink relations with its neighbors.

China’s Export-Import Bank is financing 85% of the cost of the $1 billion project, and China Harbour Engineering, which is part of a state-owned company, is building it. Similar arrangements have been struck for an international airport being built nearby.

Mr. Rajapaksa has said he offered the Hambantota port project first to India, but officials there turned it down. In an interview, Jaliya Wickramasuriya, Sri Lanka’s ambassador to the United States, said the country looked for investors in America and around the world, but China offered the best terms. Still, Sri Lankan officials have refused to disclose information that would allow analysts to compare China’s proposals with those submitted by other bidders. The country has also kept private details about other projects that are being financed and built by China, including a power plant, an arts center and a special economic zone.

The Sunday Times, a Sri Lankan newspaper, recently estimated that China was involved in projects totaling $6 billion — more than any other country, including India and Japan, which have historically been big donors and investors in Sri Lanka.

Harsha de Silva, a prominent economist in Colombo and an adviser to the country’s main opposition party, said the Sri Lankan government appeared to prefer awarding projects to China because it did not impose “conditions for reform, transparency and competitive bidding” that would be part of contracts with countries like India and the United States or organizations like the World Bank.

As trade in the region grows more lucrative, China has been developing port facilities in Pakistan, Bangladesh and Myanmar, and it is planning to build railroad lines in Nepal. These projects, analysts say, are part of a concerted effort by Chinese leaders and companies to open and expand markets for their goods and services in a part of Asia that has lagged behind the rest of the continent in trade and economic development.

But these initiatives are irking India, whose government worries that China is expanding its sphere of regional influence by surrounding India with a “string of pearls” that could eventually undermine India’s pre-eminence and potentially rise to an economic and security threat.

“There is a method in the madness in terms of where they are locating their ports and staging points,” Kanwal Sibal, a former Indian foreign secretary who is now a member of the government’s National Security Advisory Board, said of China. “This kind of effort is aimed at counterbalancing and undermining India’s natural influence in these areas.”

India and China, the world’s two fastest-growing economies, have a history of tense relations. But the two countries also do an increasingly booming business with each other. China recently became India’s largest trading partner, and both have worked together to advance similar positions in global trade and climate change negotiations.

As recently as the 1990s, China’s and India’s trade with four South Asian nations — Sri Lanka, Bangladesh, Nepal and Pakistan — was roughly equal. But over the last decade, China has outpaced India in deepening ties.

For China, these countries provide both new markets and alternative routes to the Indian Ocean, which its ships now reach through a narrow channel between Indonesia and Malaysia known as the Strait of Malacca. India, for its part, needs to improve economic ties with its neighbors to broaden its growth and to help foster peace in the region. Some of the shift in trade toward China comes from heightened tensions between India and Pakistan, which has hampered trade between the two countries. But China has also made inroads in nations that have been more friendly with India, including Sri Lanka, Bangladesh and Nepal.

Moreover, protectionist sentiments have marred India’s relationships with its neighbors. South Asia has a free-trade agreement, but countries that are part of the pact get few benefits, economists say, because India and its neighbors refuse to lower tariffs on many goods and services to protect their own businesses. By contrast, the countries of Southeast Asia have minimal or no duties on most goods and services that they import from one another.
[Seeking Alpha, by: TraderMark]

CDS Tale of a Giant (China) and a Dwarf (Greece)

17. February. 2010

The past week has seen the problems of a small southern European country writ large on the global stage as the world weighs whether contagion or moral hazard is the more important enemy to battle.

So while the world watches the woes of a country with 11MM people, a country with 1 bilion has tapped the breaks three times since we entered 2010. The first came on 1/7 when the People’s Bank of China raised the interest rate on its three-month treasury bills by 0.04%. The second time was on 1/18 when the central bank increased reserve requirements by 0.50%. The third time was last Friday when the PBoC raised its reserve requirement by another 0.50% bringing the percentage of deposits banks have to keep on hand to 16.5%.

The move on the 18th was part of a triple whammy to hit the U.S. stock market, accompanied by Obama’s banker bonus bashing and the bumbling of Bernanke’s 2nd term confirmation. This troika set of the correction that brought the S&P 500 from 1150.23 on 1/19 to 1056.74 on 2/8.

Stocks in China also dropped on each of the days the People’s bank took action but China’s economy doesn’t seem to care. Evidence of this was corroborated by data released Friday that electricity demand rose by 40% in January alone and appears to be pushing the limits of existing infrastructure.

Two separate purchasing-managers indexes also showed increased activity in manufacturing with the HSBC China Manufacturing Purchasing Managers Index (3 times fast please) rising to a record of 57.4 in January from 56.1 in December. The China Federation of Logistics and Purchasing and the National Bureau of Statistics index came in at 55.8, down slightly from December’s 56.6 reading but still comfortably above the 50 mark which determines whether the economy is expanding or contracting.

As for Friday’s efforts to slow things down, Mark Williams with Capital Economics in London said, “The first signals that the People’s Bank were tightening made big waves in the markets around the world, because the China recovery has been such a big part of the global story over the last few months,” adding “I wouldn’t expect this move to have anything like the same impact.”

With regard to how these moves are impacting the Middle Kingdom’s economy, Wang Tao, UBS’ China economist said, “Even if new Yuan loans were under control, liquidity in China’s real economy remained ample last month, which supported the manufacturing activity.”

The central bank’s efforts to rein in lending “is creating some concern here that they might slow down their economy so much that it impacts the global rebound,” was how Robert Pavlik, chief market strategist at Banyan Partners in New York, described the reasoning behind the world’s reaction to the rate hikes.

As with many things, the tightening seems to be relative as new local currency loans totaled 1.39TN Yuan ($203.6BN) in January, nearly 1/5th of the governments lending target for the entire year. With property prices up 9.5% in the first month of 2010 it would seem prudent to slow things a bit. Fortunately consumer price inflation moderated to 1.5% in January from 1.9% in December so there might not be the need to really slam on the brakes.

Additionally, the National Development and Reform Commission, the agency responsible for economic planning, predicted that oil will average around $80/bbl this year, up about 25% from last year and reinforcing analysts’ expectations that Chinese demand will continue to help push prices up despite concerns that recent credit tightening moves could crimp its demand for oil.

China’s apparent energy appetite rose 15% YoY in December and Harry Tchilinguirian, senior oil analyst with BNP Paribas, thinks that “with growth front-loaded in 2010, the progressive tightening won’t bear much impact on oil demand in the first half of the year.”

Sounds like the growth news out of China will more than make up for the gross debt issues out of Greece.

5-yr CDS levels for Greece retreated last week falling from 425bps on 2/8 to 355 on 2/12. For a little perspective, it should be noted that in August of last year, default protection cost just 100bps on Greek debt.

CDS levels for China’s sovereign paper closed at 85bps on Friday. CDS levels in this market have been range bound since May of last year with a high of 92bps (11/27/2009) and a low of 59bps on 9/23/2009.

Enjoy the holiday shortened week.
[Seeking Alpha, by: Jim Delaney]

New York factories gain but China sells U.S. debt

16. February. 2010

NEW YORK - A New York state manufacturing gauge published on Tuesday hit its highest level since October this month, while sentiment among home builders rose more than expected, signaling continued improvement in the U.S. economy.

But analysts said the data also showed a factory rebound might run out of momentum.

At the same time, a U.S. capital flows report showing China paring its Treasuries holdings underscored analysts' worry that the recovery could be stymied by a steep rise in bond yields, making borrowing more expensive for homeowners and companies.

However, the generally stronger-than-expected economic data helped boost risk appetite and drove Wall Street stocks up more than 1 percent in afternoon trading.

The New York Federal Reserve said in a barometer of manufacturing in New York state rose in February as inventories jumped. Its "Empire State" general business conditions index rose to 24.91 in February, the highest level since October and up from 15.92 in January.

"The U.S. manufacturing sector shows no signs of slowing down in February," said Kathy Lien, director of currency research at GFT in New York. "The strong number will lead the markets to expect a similar improvement in the Philadelphia Fed index, which will be released on Thursday."

On the surface, the index appeared to reinforce the impression that industrial companies are continuing to bounce back after the long recession. Economists polled by Reuters had expected a February figure of 18.

Despite a stronger-than-expected headline reading, however, some analysts said the details of the report were somewhat more bearish.

"A lot of the improvement was driven by a correction of inventories," said Anna Piretti, senior U.S. economist at BNP Paribas in New York. "It's a temporary factor. What worried me more was a sharp decline in new orders."

The inventories index rose sharply, to zero from negative 17.33, its highest reading in more than a year.

But the new orders index tumbled to 8.78 in February from 20.48 in January -- a warning sign that activity could decelerate in the future.

However, the report offered some signs of improvement in the job market at factories. Employment indexes were positive for a second consecutive month, although at relatively low levels, the Fed said.

Separately, the National Association of Home Builders said U.S. home-builder sentiment rose more than expected in February as low interest rates and a sharper-than-expected drop in unemployment boosted confidence for the first time since September.

The percentage of Americans falling behind on credit card bills stabilized in January, according to data from five lenders released on Tuesday, signaling that U.S. consumer credit woes may be leveling off.

CHINA CUTS TREASURIES

But continued improvement in U.S. mortgage and other lending markets still depends on borrowing rates staying low, a factor influenced by foreign purchases of U.S. debt.

Overall, net capital inflows into the United States rose to $60.9 billion in December from an inflow of $30.9 billion the prior month. But foreigners cut purchases of long-term securities, the Treasury said on Tuesday.

China has been a net seller of some $45 billion of U.S. Treasuries over the last five months, wrote Alan Ruskin, chief international strategist with RBS Securities Inc. He added that it was "a long enough period to hint strongly at a trend."

Japan overtook China as the biggest foreign holder of U.S. Treasury debt in December for the first time in more than a year.

Much of China's selling has been in short-dated Treasury bills, but China has not indicated that it will buy longer maturity U.S. government notes and bonds instead. "That is the bad news for the U.S. dollar and the Treasury market," Ruskin wrote.

Analysts said this underscored the risk that waning appetite for U.S. debt among major foreign holders could spark a sell-off and send yields rising.

Over the longer term, borrowing costs may determine how anemic the U.S. economic recovery will prove.

The U.S. economy will likely grow at a pace of close to 3 percent over the next two years, slower than many private-sector economists forecast, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said on Tuesday.

Also on Tuesday, Kansas City Fed President Thomas Hoenig said the ballooning U.S. budget deficit will increase pressures on the Fed to hold interest rates low and make it harder to avoid inflation.
[Reuters]

Goldman Sachs economist sees China revaluing yuan

15. February.

NEW YORK - China could be about to allow its currency to strengthen by as much as 5 percent to slow down the country's fast-growing economy, Goldman Sachs' chief economist was quoted as saying on Sunday.

"I have a strong opinion that they're close to moving the exchange rate," Jim O'Neill told Bloomberg. "Something's brewing. It could happen anytime."

The news service said O'Neill believes China may allow the yuan to rise as much as 5 percent in a one-time revaluation and to then trade within a bigger band or against a larger basket of currencies.

"They need to do something to slow the economy down and deal with the inflation consequences," he was quoted as saying. O'Neill believes China's economy is growing between 12 percent and 14 percent, Bloomberg said.

The World Bank has forecast China's economy will grow 9 percent this year, faster than global growth of 2.7 percent. Beijing said it expanded by 8.7 percent in 2009.
[Reuters]

Who wins in U.S. vs Europe contest?

12. February. 2010

In these days of renewed gloom about the future of Europe, a quick test is in order. Who has the world’s biggest economy? A) The United States B) China/Asia C) Europe? Who has the most Fortune 500 companies? A) The United States B) China C) Europe. Who attracts most U.S. investment? A) Europe B) China C) Asia.

The correct answer in each case is Europe, short for the 27-member European Union (EU), a region with 500 million citizens. They produce an economy almost as large as the United States and China combined but have, so far, largely failed to make much of a dent in American perceptions that theirs is a collection of cradle-to-grave nanny states doomed to be left behind in a 21st century that will belong to China.

That China will rise to be a superpower in this century, overtaking the United States in terms of gross domestic product by 2035, is becoming conventional wisdom. But those who subscribe to that theory might do well to remember the fate of similar long-range forecasts in the past. At the turn of the 20th century, for example, eminent strategists predicted that Argentina would be a world power within 20 years. In the late 1980s, Japan was seen as the next global leader.

The latest pessimistic utterances about Europe were sparked by a debt crisis in Greece which raised concern over the health of the euro, the common currency of 16 EU members. Plus U.S. President Barack Obama’s decision to stay away from a U.S.-EU summit scheduled for May in Madrid, with a new EU leadership structure that should have made it easier to answer then U.S. Secretary of State Henry Kissinger’s famous question: “Who do I call when I want to talk to Europe?”

There are still several numbers to call in the complex set-up, giving fresh reasons to fret to those crystal-gazers who see the future dominated by the United States and China, the so-called G-2.

Pundits who see the European way of doing things as a model for the United States (and others) to follow are few and far between, not least, says one of them, Steven Hill, because most Americans are blissfully unaware of European achievements and, as he puts it, “reluctant to look elsewhere because ‘we are the best.’”

As foreigners traveling through the United States occasionally note, the phrases “we are the best” and “America is No.1″ are often uttered with deep conviction by citizens who have never set foot outside their country and therefore lack a direct way of comparison. (They are in the majority: only one in five Americans has a passport).

Hill, who heads the political reform program at the New American Foundation, a liberal Washington think tank, has just published a book whose title alone is enough to irk conservative Americans: Europe’s Promise. Why the European Way Is the Best Hope in an Insecure Future.

STUBBORN PRECONCEPTIONS

It marshals an impressive army of facts and comparative statistics to show that the United States is behind Europe in nearly every socio-economic category that can be measured and that neither America’s trickle-down, Wall Street-driven capitalism nor China’s state capitalism hold the keys to the future.

While China’s growth has been impressive, says Hill, the country remains, in essence, a sub-contractor to the West and is racked by internal contradictions.

“When I talk to American audiences,” Hill said in an interview, “many find the figures I cite hard to believe. They haven’t heard them before. U.S. businesses making more profits in Europe than anywhere else, 20 times more than in China? 179 of the world’s top companies are European compared with 140 American? That does not fit the preconceptions.”

Such preconceptions exist, in part, because U.S. media have portrayed Europe as a region in perpetual crisis, its economies sclerotic, its taxes a disincentive to personal initiative, its standards of living lower than America’s, its universal health care, guaranteed pensions, long vacations and considerably shorter working hours a recipe for low growth and stagnation. “In the transmission of news across the Atlantic, myth has been substituted for reality,” says Hill.

He is in good, though numerically small, company with such views. The economists Joseph Stiglitz and Paul Krugman, both Nobel prize winners, also have positive outlooks for Europe. In a recent column in the New York Times, Krugman said that Europe is often held up as evidence that higher taxes for the rich and benefits for the less well-off kill economic progress. Not so, he argued. The European experience demonstrates the opposite: social justice and progress can go hand in hand.

The relative rankings of countries tend to be defined by gross domestic product per capita but Hill points out that this might not be the best yardstick because it does not differentiate between transactions that add to the well-being of a country and those that diminish it. A dollar spent on sending a teenager to prison adds as much to GDP as a dollar spent on sending him to college.

On a long list of quality-of-life indexes that measure things beyond the GDP yardstick — from income inequality and access to health care to life expectancy, infant mortality and poverty levels — the United States does not rank near the top.

So where is the best place to live? For the past 30 years, a U.S.-based magazine, International Living, has compiled a quality-of-life index based on cost of living, culture and leisure, economy, environment, freedom, health, infrastructure, safety and climate. France tops the list for the fifth year running. The United States comes in 7th.
[Reuters]

Oil falls almost 3 percent to $73 as China tightens

12. February. 2010

LONDON - Oil fell almost 3 percent toward $73 a barrel on Friday after a blow to the energy demand outlook by China's surprise decision to increase banks' reserve requirements for the second time this year.

Few in the market were expecting the Chinese central bank's move on Friday, which will raise the requirements from the end of this month. Analysts said it may tighten lending and slow a booming economy.

Rapid growth and development in China, the world's second largest energy consumer, has boosted oil prices in recent years.

The International Energy Agency (IEA) said on Thursday oil demand may have peaked in developed countries, but it still predicts world oil consumption will rise by 1.6 million barrels per day (bpd) this year to 86.5 million bpd due to emerging market growth.

U.S. crude for March delivery fell $2.03 to $73.25 a barrel by 1526 GMT (10:56 a.m. EST), after settling 76 cents higher at $75.28 a barrel on Thursday. Brent crude for the new front month of April fell $1.84 to $72.28.

"Markets may view it negatively in the short-term as China might import less commodities," Barclays Capital analyst Amrita Sen said.

"But in the longer term we definitely see it as beneficial for commodity demand. The worst thing that could happen to commodity markets would be for China's growth to shoot to 15 percent then crash to 5 percent. The policy of tightening keeps their growth on a far more sustainable path."

The U.S. dollar rose to its strongest level against the euro since May 2009 on the news, as investors moved away from riskier assets. A stronger greenback often pressures commodities priced in dollars as they become more expensive for holders of other currencies.

Concerns about debt-stricken Greece also weighed on sentiment across markets, with no concrete bailout plan emerging from a meeting of European leaders on Thursday. Greek Prime Minister George Papandreou on Friday blamed bickering among EU bodies for delaying support for his country.

U.S. OIL DATA

Despite Friday's dip, oil is on track for a 2 percent rise this week, led by signs of higher heating demand due to U.S. snowstorms and a bullish global oil demand forecast from the

IEA.

Traders will also scour weekly U.S. oil inventory data on Friday from the Energy Information Administration (EIA) for further clues on demand in the world's largest consumer.

The EIA data was delayed until Friday at 1600 GMT from its usual Wednesday release because of the severe snowstorms that have swept the U.S. East Coast.

A report from the American Petroleum Institute (API) on Tuesday showed U.S. crude inventories jumped by 7.2 million barrels to 337.6 million last week, despite a drop in crude imports, against expectations of a 1.5 million rise.

"The EIA inventory numbers are on tap for Friday, and should they come in with substantial builds we could see crude oil prices roll back some of their recent gains," MF Global analyst Edward Meir said.
[Reuters]

Chinese wire product exporters evading AD duties in US

11. February. 2010

Manufacturers in China are evading millions of dollars of US anti dumping duties on steel wire products by exporting them via third countries, according to an American industry group.

The US Coalition for Enforcement of Antidumping and Countervailing Duty Orders said it has developed compelling evidence how certain foreign manufacturers in China are evading duties.

It said “In some cases, they shipped the products via third countries and then falsely designating it as the country of origin to evade the duties, a practice termed transhipment.”

It added “In other cases, an inconsequential modification is made to the product in third countries to avoid the duties or false labels displaying a different country of origin are placed on shipments of products actually made in China.”

The coalition named the “third countries” as Vietnam, South Korea, Malaysia, Canada and Mexico. The Hong Kong and Taiwan economies were also accused of being used by the Chinese based manufacturers to send the products to the United States in an apparent bid to evade duties.

The coalition, comprising six companies manufacturing steel wire products, said it had informed the U.S. government and lawmakers on the problem, adding that duty evasions had cost the authorities at least USD 84 million annually and also threatened jobs.

Mr David Libla president of Mid Continent Nail and a coalition member said “These schemes are blatant and purposeful. Not only are they clear evidence of attempts to maintain an unfair advantage in the marketplace, they're also costing taxpayers millions of dollars and reducing job opportunities in this country,.”
[Steel Guru]

Australia wants transparency in Rio spy case

11. February. 2010

Australia urged China to deal quickly and transparently with the trials of four Rio Tinto staff accused of bribery and stealing commercial secrets, amid growing investor concern over dealing with Beijing.

China is embroiled in a series of trade disputes with other countries, while Internet search engine Google (GOOG.O) has said it is getting harder to operate in China and has threatened to pull out of the country over censorship and hacking concerns.

China expert Hui Feng at the University of Queensland in Australia said the Rio case was a sign Beijing was determined to play tough with foreign firms to gain a commercial advantage.

"China's increased economic and financial prowess has made the government feel it has more leverage in dealing with foreign business," Hui told Reuters on Thursday.

"I think the (Rio) arrests and allegations are part of the overall strategy to put pressure on Rio Tinto to come to the negotiation table for future talks," he said.

At the centre of the Rio case is Beijing's demands for a lower yearly fixed price for iron ore, an essential commodity to drive Chinese steel plants, and Rio's refusal to lower the benchmark price it had reached with Japanese and Korean mills. China on Wednesday indicted the four China-based Rio employees, including Australian Stern Hu, it's top iron-ore negotiator at the time of his arrest last year.

The four are set to stand trial in Shanghai. If found guilty, they could face up to seven years in jail on the commercial secrets charge and up to 20 years on the bribery charge, said Zhang Peihong, a lawyer for one of the accused Chinese nationals.

"We continue to emphasise to the Chinese authorities the need for the case to be handled transparently and expeditiously," a spokesman for Australia's Foreign Minister Stephen Smith.

Rio Tinto was yet to comment on the indictments on Thursday, but has previously said its staff are innocent.

INVESTOR UNCERTAINTY

The indictments will add to investor uncertainty about the power Chinese authorities can wield over business in the world's third-biggest economy.

Hui agreed with Google founder Sergey Brin that it was getting harder to operate in China in recent years. "How to deal with the political risk is the real issue," she said.

Foreign investors have called for China to clarify its complex laws to make it easier to conduct business.

"I think this is a clear signal to foreign business that the government is serious about cracking down on what they see as illegal activities," Hui said. "In the past the government largely turned a blind eye to such activities."

China is Australia's biggest trade partner. Australia exported $15 billion worth of iron ore to China in 2008, or 41 percent of China's iron ore imports.

Resource-hungry Chinese firms have been behind several tie-ups with Australia firms in the past year.

In January, Australia approved China's biggest-listed gold miner Zijin Mining Group's (2899.HK) $498 million bid for Australia's Indophil Resources NL (IRN.AX), clearing the way for Zijin's dream of becoming a top global copper producer.

But the Rio case and several high profile failures by China to buy into the country's resource sector in 2009 have strained ties diplomatically and commercially.

The collapse of a bid by China state-owned aluminium group Chinalco to invest $19.5 billion in Rio, which would have been China's biggest overseas investment, left China vulnerable to just two suppliers -- the Rio/BHP (BHP.AX)BHP.L combination and Brazil's Vale (VALE5.SA) -- which control 70 percent of global iron ore trade.

The Rio case poses election-year difficulties for Australian Prime Minister Kevin Rudd, who is a China expert and under pressure from media and political opponents at home to use his relationship with Beijing's leaders to help free Hu.

Australian opposition lawmakers and key minor-party senators have pointed to the Rio case as reason for the government to limit Chinese investment in Australian resource firms.
[Reuters]

The Giant Dragon, a Future Refined Oil Exporter

11. February. 2010

China's refining capacity has been expanding rapidly since 2005, and this expansion era will not conclude until 2013. It is estimated that a total number of 3.7 million barrels per day new capacity will come on stream during 2009-2013. Take Sinopec for instance -- it plans to process 205 million tonnes of crude oil in 2010, or 4.4 million barrels per day..

Meanwhile, China's demand for refined oil will remain stable during the period. The annual growth of Chinese refined oil demand was only 4.5% from 2006 to 2010, much smaller than the 100 million tonnes additional capacities. Export therefore becomes a must for Chinese oil producers. This dramatic change will have a butterfly effect on the Asia-Pacific oil market, and even the international market.

The topic of China as a future refined oil exporter will be discussed in the 11th China Oil Traders' Conference (COTC), an annual oil event and the 'APPEC' in China, which will be held by CBI in March 2010. Acknowledged as a serial conference with the largest scale, highest level and the most practical content, COTC has attracted over 400 participants every year in the past ten years.
[PR Newswire]

Billionaires make more from ideas than bubbles

10. February. 2010
ArabianBusiness (by: William Pesek)

All the buzz about losers if Google Inc leaves China ignores a potential winner: India.

In any China-versus-India contest, 2009 belonged to China. Its 10.7 percent growth in the fourth quarter blew the doors off the 6.5 percent India may have experienced. It was the toast of the town in Davos, Switzerland, last week at the annual meeting of the World Economic Forum.

China's "old economy" is clearly booming, and investors haven't made a lot of money betting against it. Why, then, would China's leaders imperil their future prospects as 2010 gets under way? That's what they may do by letting Google, the Information Age's biggest name, walk away.
 
"I would look going forward for new investment increasingly to go somewhere else - probably India, Brazil and other big markets," William Reinsch, president of the National Foreign Trade Council in Washington, said last month.

Google's announcement last month that it is considering leaving China amid misgivings about censoring the internet won't change everything on its own. China's top-down economy is thriving, while India's is bureaucratic, inefficient and notoriously corrupt.

Yet India has a track record of innovation and a stable of internationally competitive companies that China doesn't. India also has far superior laws on intellectual property and corporate governance. And China's willingness to blow off Google plays to India's relative advantage in these areas.

China should be concerned about the most influential internet tool bypassing its $4.3 trillion economy and 1.3 billion people - and the specter of other Silicon Valley giants following suit. Executives at multinational companies who dragged their feet on diversifying investments away from China may now expedite the process.

At issue is the next phase of China's development. Too much attention is on ideas of the last century: keeping labour cheap, holding down the currency, picking and subsidising national champions and favouring exports for growth. China's spat with Google underlines how the Communist Party relies on the strategies of yesterday, not tomorrow. It's really a proxy for how the past and future are colliding.

Who knows, perhaps China's mix of free-market policies and limits on free speech is a viable new model. It's possible that China can thrive while censoring cyberspace and the media. Perhaps China will prove that it can leapfrog over years of domestic company building - as with Lenovo Group Ltd's purchase of International Business Machines Corp's personal computer business. China does, after all, have $2.4 trillion of currency reserves to deploy around the globe.

The odds don't favour it, though. Letting Google leave may dull the long-term benefits of the trillions of yuan that China is throwing at the economy. It limits the participation of entrepreneurs in an age where ideas and impulses mean more than sweat on factory floors. It also makes it less likely that massive stimulus efforts lead to the kind of self-sustaining, indigenous economy that China needs.

The question is where China wants to be in five or ten years. The world is now driven by knowledge flows, making it vital to stay attuned to the latest developments in any field. Only then can innovators ride the latest waves in international business and finance and create the hundreds of millions of jobs needed to raise living standards.

Here, my thoughts are with India's billionaires. They must be rubbing their hands together in glee as China's leaders make an expensive miscalculation. According to a 2008 Forbes magazine poll, India may have the most billionaires by 2017.

China's ultra-wealthy are growing in numbers. It's better, though, for one's billions to come from new ideas than from bubbles in the Chinese stock market, which rose 80 percent last year. What China lacks is a growing roster of homegrown knowledge-based and technology outfits creating jobs, pushing the country up the value chain and inspiring young people to become the next Bill Gates.

Nandan Nilekani, the co-founder of Bangalore-based Infosys Technologies Ltd, is often called India's answer to Microsoft Corp's co-founder. When asked about the secret of India's success in technology, Nilekani points to a free press and a rabid embrace of information flows. In other words, if India censored cyberspace, companies such as Infosys or Wipro Ltd wouldn't be what they are today.

India's challenges are overwhelming. It scores low on global efficiency scales, infrastructure is dodgy and bottlenecks to investment are many. India lags far behind China in reducing poverty. That's where billionaires such as Nilekani re-enter our story.

Millions of rural poor people claim that corrupt officials steal their paltry wages, withdrawing money from post-office accounts without providing proof of identity. India turned to Infosys to devise a fraud-proof deterrent.

A year from now, Nilekani will roll out the world's biggest biometric database to enable India's 1.2 billion people, half of whom lack access to financial services, to open an ICICI Bank Ltd account or sign up for a Vodafone Group Plc mobile phone.

It's not the Three Gorges Dam or the Shanghai skyline, yet India's technology billionaires are helping the government devise new strategies and spread the benefits of growth. China, for all its advantages, could use more of that dynamic. Waving goodbye to Google won't help.

China's CIC gives breakdown of U.S. equity stakes

9. February. 2010
Reuters

China Investment Corp CIC.UL, the country's $300 billion sovereign wealth fund, has made its biggest U.S. equity bets in natural resources and financial stocks.

A filing with the U.S. Securities and Exchange Commission detailed equity holdings in U.S. listed companies and funds worth $9.63 billion at the end of 2009.

About a quarter of the investments are in exchange-traded funds, giving CIC exposure to markets in Europe, Asia and emerging markets at a low cost.

Among other ETF stakes, CIC said it had $78.6 million in U.S. Oil Fund, $155.6 million in SPDR Gold Trust and $116.4 million in Market Vectors, also a gold fund.
It also disclosed small stakes in gold miners AngloGold Ashanti Ltd (ANGJ.J) and Kinross Gold (K.TO) as well as energy firms Chesapeake Energy Corp (CHK.N), Andarko Petroleum Corp (APC.N), Valero Energy Corp (VLO.N) and Tesoro Corp (TSO.N)

The filing, made last Friday, is not exhaustive. It does not include investments entrusted to outside fund managers or CIC's stake in private equity house Blackstone (BX.N).

CIC paid $3 billion for a 10 percent stake in Blackstone in 2007, before it was formally set up, and bought more shares in 2008.

The biggest holding listed in the SEC filing, worth $3.54 billion, was in Canadian miner Teck Resources Ltd (TCKb.TO).

Among U.S. holdings, CIC declared a stake of $1.77 billion in Morgan Stanley (MS.N) and a previously unannounced $713.8 million holding in BlackRock Inc (BLK.N), the world's largest independent money manager.

CIC disclosed stakes, mostly small, in more than 60 companies, including:

-- $498 million in the U.S.-traded stock of Brazilian miner Vale SA (VALE5.SA);

-- $29.8 million in Citigroup (C.N);

-- $19.9 million in Bank of America Corp (BAC.N);

-- $14.7 million in American International Group Inc (AIG.N);

-- $9 million in Coca Cola Co (KO.N);

-- $6.3 million in Apple Inc (AAPL.O);

-- $4.1 million in News Corp (NWSA.O).

For CIC's filing, click here CIC has made no secret of its ambitions to develop its own investment expertise so it can manage more of its money by itself, cutting down on fees in the process.

Lou Jiwei, the chairman of CIC, said the fund would manage more of its investments in developed markets internally this year and steadily accelerate its overseas investments, the China Securities Journal reported.

"As of now, most of CIC's overseas funds are managed by outside portfolio managers, but we will gradually increase in-house investment in more efficient developed markets in the future," the newspaper paraphrased Lou as saying in an article he published on Monday. It did not say where the article appeared.

CIC has been investing intensively in resources and commodities since 2009, mainly because there is still plenty of room for price gains in those sectors, Lou said.

CIC also needed to hedge against the risk of inflation as the world economy picked up, he added.

Lou restated CIC's policy to operate the fund as a financial investor seeking to maximize its returns, not to control the companies in which it invests.

Bank reform clouds Davos summit

8. February
Aljazeera

The world economy is recovering but remains fragile and dogged by huge deficits, officials have said at the end of a Davos summit clouded by divisions over banking reform.

Asia is leading the resurgence after the worst crisis for decades with China returning to double-digit growth, however, the United States and Europe remain dogged by unemployment and the crisis over Greece.

"The situation is better, but fragile," Dominique Strauss-Kahn, the International Monetary Fund (IMF) chief, said on Saturday.

"We have to go ahead strongly in the financial sector reform, much more rapidly than has been done until now.

Bank regulation

"The fiscal sustainability problem is going to be one of the biggest problem. We'll have to deal with this for five, six or seven years, depending on the country," he said.

Criticism over US plans to curb risk-taking by banks again took centre stage on the last day of the World Economic Forum.
 
The meeting brought together British and French finance ministers Alistair Darling and Christine Lagarde, European Central Bank chief Jean-Claude Trichet and the heads of private banks.

"There's going to be regulation, they [the bankers] understand that," Barney Frank, the US congressman, said.

"The political leadership certainly in the United States is going to go ahead with tough, sensible regulation."

The banking issue has clouded the four-day Davos meeting, following French President Nicolas Sarkozy's opening address in which he supported US President Barack Obama's bank reform plans.

At the same time there has been cautious optimism about the outlook for global recovery after the financial crisis of the last 18 months.

Asian growth

Chinese and Indian officials have announced their country's growth rates of nearly nine and seven per cent respectively, and the US hailed Friday's unexpected 5.7 per cent gross domestic product (GDP) growth figure.

But unemployment remains a problem in the US and Europe, which both have a jobless rate of around 10 per cent, despite a return to overall growth.
 
"What we're seeing in the United States is a statistical recovery and a human recession," Larry Summers, Obama's chief economic advisor, said.

Warnings of a "double dip" recession, where recovery fades back into a new slowdown, have arisen in Davos as leaders mull exit strategies from stimulus packages agreed to prevent a full-blown depression last year.

Christine Lagarde, the French economy minister, told the AFP news agency she followed a "three Rs" principle: recovery, reform, and restoring public finances.

But she said timing was crucial.

China's yuan peg?

"Balancing between the recovery process that has to continue, the reform that needs to be maintained and the restoring of public finances is a tough line to draw," she said.

A senior Chinese banker meanwhile said that Beijing could move on the issue of its currency's exchange rate once other countries start to withdraw their stimulus packages.

China has been under fire for keeping the renminbi [Chinese yuan] weak against the dollar, a strategy which critics say is aimed at keeping Chinese exports competitive.

"If global [partners are] ready to do exit strategy, China is ready," Zhu Min, the deputy head of China's central bank, told the Davos forum.

China shuts down largest hacker training website

8. February. 2010
Reuters

China has closed what it claims to be the largest hacker training website in the country and arrested three of its members, domestic media reported on Monday.

The "Black Hawk Safety Net" website taught hacking techniques and provided malicious software downloads for its 12,000 members in exchange for a fee, the Wuhan Evening News newspaper reported this weekend, citing police in Huanggang, just east of Wuhan.

Hacking from China has received international attention since Google Inc threatened to quit China last month after a serious hacking attempt originating from China, resulting in the theft of its intellectual property.

China has denied involvement in the hacking episode and said it does not condone hacking.

The website was shut in late November and three of its members arrested on suspicion of criminal activity, the newspaper reported, without saying why the news was only released now.

Wuhan happens to be home to the Communication Command Academy, which trains hackers, according to U.S. congressional testimony by cyber expert James Mulvenon in 2008.

The popularity of hacking in China, and hackers' use of multiple addresses and servers, in Taiwan and elsewhere, makes it hard to prove how or by whom they are coordinated.

Would-be hackers in China do not have to look far to figure out how to do it, thanks to a healthy hacking industry and sites such as Black Hawk Safety Net (www.3800hk.com), which was unavailable on Monday.

Largest wind market in the world

7. February. 2010
GWEC

The Global Wind Energy Council today announced that the world’s wind power capacity grew by 31% in 2009, adding 37.5 GW to bring total installations up to 157.9 GW. A third of these additions were made in China, which experienced yet another year of over 100% growth.

“The continued rapid growth of wind power despite the financial crisis and economic downturn is testament to the inherent attractiveness of the technology, which is clean, reliable and quick to install. Wind power has become the power technology of choice a growing number of countries around the world,” said Steve Sawyer, GWEC’s Secretary General. “Copenhagen didn’t bring us any closer to a global price on carbon, but wind energy continued to grow due to national energy policy in our main markets and also because many governments in prioritised renewable energy development in their economic recovery plans,” he said.

Wind energy is now an important player in the world’s energy markets. The global wind market for turbine installations in 2009 was worth about 45 bn EUR or 63 bn US$. GWEC estimates that around half a million people are now employed by the wind industry around the world.

The main markets driving this significant growth continue to be Asia, North America and Europe, each of which installed more than 10 GW of new wind capacity in 2009.

China was the world’s largest market in 2009, nearly doubling its wind generation capacity from 12.1 GW in 2008 to 25.1 GW at the end of 2009 with new capacity additions of 13 GW.

“The Chinese government is taking very seriously its responsibility to limit CO2 emissions while providing energy for its growing economy. China is putting strong efforts into developing the country’s tremendous wind resource. Given the current growth rates, it can be expected that the even the unofficial target of 150 GW will be met well ahead of 2020,” said Li Junfeng, Secretary General of the Chinese Renewable Energy Industries Association.

Newly added capacity of 1,270 MW in India and some smaller additions in Japan, South Korea and Taiwan make Asia the biggest regional market for wind energy in 2009, with more than 14 GW of new capacity.

However, the US continues to have a comfortable lead in terms of total installed capacity. Against all expectations, the US wind energy market installed nearly 10 GW in 2009, increasing the country’s installed capacity by 39% and bringing the total installed, grid-connected capacity to 35 GW. In early 2009, some analysts had foreseen a drop in wind power development of as much as 50%, but the implementation of the US Recovery Act with its strong focus on wind energy development in the summer reversed this trend.

“The U.S. wind energy industry shattered all installation records in 2009, chalking up the Recovery Act as a historic success in creating jobs, avoiding carbon, and protecting consumers,” said AWEA CEO Denise Bode. “But U.S. wind turbine manufacturing is down compared to last year’s levels, and needs long-term policy certainty and market pull in order to grow.”

Europe, which has traditionally been the world’s largest market for wind energy development, continued to see strong growth, also exceeding expectations. In 2009, 10.5 GW were installed in Europe, led by Spain (2.5GW) and Germany (1.9 GW). Italy, France and the UK all added more than 1 GW of new wind capacity each.

“It is a remarkable result in a difficult year” said Christian Kjaer, CEO of the European Wind Energy Association. “The figures, once again, confirm that wind power, together with other renewable energy technologies and a shift from coal to gas, are delivering massive European carbon reductions, while creating much needed economic activity and new jobs for Europe’s citizens.”

“Wind energy is already making a significant contribution to saving CO2 emissions. The 158GW of global wind capacity in place at the end of 2009 will produce 340 TWh of clean electricity and save 204 million tons of CO2 every year,” concluded Sawyer. “As we see in Europe and the US, wind power is now often the most attractive option for new power generation, both in economic and environmental terms, and for improved supply security.”