Friday, August 21, 2015

Here’s What Could Happen Next in Greece - Fortune

July 9, 2015 at 12:35am
http://time.com/3948475/greece-euro/

Here’s What Could Happen Next in Greece
Geoffrey Smith / Fortune July 7, 2015   

No one cares enough to save Greece with their own money


All sides say they still want Greece to stay in the euro, and as long as that’s the case, then there’s always a chance that they will make the necessary compromises.

However, all sides are acting like they would rather Greece were out of it: Greece’s government has made impossible promises about keeping the euro without austerity. The Eurozone’s last offer was a deal that pretended Greece has a realistic future in the currency union without growth. The European Central Bank is pretending that Greece’s banks are solvent, but still refusing to lend them any more money to cover a massive run by depositors.

So where do things go from here?

1. How long can the current deadlock last?

The best guess is still July 20th. This is the day when Greece is due to repay the ECB €3.5 billion. It will miss that payment barring some kind of miracle. On that day, it becomes politically impossible for the ECB to continue making emergency short-term loans to Greek banks. If the ECB won’t take the Greek government bonds as collateral, their value will collapse, and the banks will become insolvent (for supervisory purposes, their current troubles are deemed to be ‘temporary’ liquidity difficulties).

No sensible investor would put new money into a bank in that situation, so you would have to use administrative measures to reduce the banks’ liabilities to a level where they are properly covered by assets. The only realistic ways to do that are to convert deposits into equity, or to “haircut” them. That can either be done by simply writing them down or by redenominating them in a new currency.

2. Is there no hope that the creditors will back off on the demand for austerity?

Actually, yes, there is. The creditors’ red line is to write off part of the money Greece owes them. But they can achieve the same effect by rescheduling the debt so that it’s paid off over a much longer time (say 50 years) and with a long grace period. That way, Athens wouldn’t have to run as tight a budget as is currently being demanded, giving the economy more room to grow. If the economy is growing and the debt level isn’t, then pretty much everybody would be satisfied with that.

But there are a lot of problems even with that. For one thing, Greece is already paying less, proportionately, on debt servicing than countries such as Italy and Belgium (whose coat-tails they would be riding on). For another, it would encourage radicals in other countries, bolstering the kind of tax-and-spend leftism that is anathema to Berlin and the European Commission. And most importantly, growth depends on more than writing debt off. The IMF, which suggested the above idea on debt re-profiling last week, despairs of the Greek government ever reforming enough to generate growth.

3. Will Germany relent?

German press coverage has started to swing against Chancellor Angela Merkel as the risk of breaking up the Eurozone rises (see above), but it’s happening too late to change a groundswell of public opinion bitterly opposed to lending Greece any more money. Merkel herself said that there are “only a few days left” to avoid the worst as she arrived for today’s summit. In that timeframe, she has more to lose politically by caving in to Greece than by refusing them. The most likely outcome is that she will try to spin a “Grexit” as a measure to strengthen the euro’s credibility. The Eurozone’s political elite would dearly like to believe that, but the evil Anglo-Saxon speculators who dominate global finance will take more convincing.

4. Can anyone else stop Greece being forced out?

It’s clear that governments from China to the U.S. are concerned by what could happen if Greece goes (President Barack Obama has called Merkel and France’s President Hollande in recent days to voice those concerns). There will be major market volatility (and China’s are quite volatile enough already), huge question marks over the future direction of the E.U., another slowdown in its economy (the world’s largest), and a failed state right on the front line of a migrant crisis that is a major humanitarian disaster.

Despite all this, no-one (not even Vladimir Putin or Nobel Prize-winning liberal economists) seems to care enough about the Greek state, in its current dysfunctional form, to save it with their own money.

5. Would Greece be better off without the euro?

Who better to ask than the Greeks themselves? A Bloomberg poll last week showed 81% of people wanting to keep the euro, and only 12% wanting a return to the drachma. That’s because a euro is a hard currency, with real spending power. Nobody knows what the value of a currency printed at will by Greek governments would be worth, but Greeks remember the last one well enough to have very serious doubts about it. For more on what a drachma would be worth – read this by Fortune’s Stephen Gandel.

6. So why did Greeks vote ‘no’ at the referendum?

Because the government’s message–that this was about austerity–drowned out the warnings from the rest of Europe that it was actually about keeping the euro. That suggests that Greeks are still suffering from acute cognitive dissonance, believing that they can keep the euro without the conditions that everyone else in the Eurozone says are necessary.

7. Will Greece cave at the last minute?

Maybe. The government has to pay pensions and public-sector wages again at the end of every month, and it will not be able to gather together the euros to do that after July 20th. So at some stage it has to admit who has ultimate control over the supply of euros. At that point, it could accept the creditors’ demands. But so many of Tsipras’ party would rebel that the country will need new elections and a new parliament to have any hope of implementing a new deal. On the bright side, once Tsipras and Syriza are out of power, the European might be more inclined to grant debt relief. Politics is a personal business, after all.

This article originally appeared on Fortune.com

Thursday, August 20, 2015

China’s Currency Move Clouds Its Policy Goals - New York Times

August 15, 2015 at 6:37pm
China’s Currency Move Clouds Its Policy Goals

By KEITH BRADSHERAUG. 11, 2015


HONG KONG — As President Xi Jinping of China prepares for a state visit to Washington next month to smooth over troubled relations, his government has just turned the spotlight back on a recurring issue: the value of his country’s currency.

The currency, the renminbi, is part of the fabric of the global economy, providing a way for China to further its diplomatic and investment goals. The renminbi is also an important tool for the leadership’s domestic agenda, namely supporting its economy.

China now faces the difficult dilemma of trying to balance its needs at home and abroad.

When China abruptly devalued its currency nearly 2 percent on Tuesday morning, authorities said market forces would play a bigger role in determining the value of the renminbi. After the renminbi fell further during trading on Tuesday, the central bank set the currency another 1.6 percent lower on Wednesday morning.


China's central bank set the official exchange rate for the renminbi at 6.33 per dollar on Wednesday, or 1.6 percent lower than the previous day.China Weakens Its Currency FurtherAUG. 11, 2015
Counting renminbi in Beijing last month. On Tuesday, China’s central bank set the value of its currency nearly 2 percent weaker against the dollar.China Devalues Its Currency as Worries Rise About Economic SlowdownAUG. 10, 2015
A fruit vendor in Beijing on Tuesday. China's central bank devalued the nation's currency.Economic Trends: Why Did China Devalue Its Currency? Two Big ReasonsAUG. 11, 2015
The United States and others have long called for Beijing to let the currency move more freely, rather than keeping it under such tight control. China’s restrictions on the renminbi have also been a concern of the International Monetary Fund, which is weighing whether to include the renminbi in an elite group of world currencies along with the dollar, the euro and the yen.

How China Is Trying to Stabilize Its Economy
China’s devaluation of the renminbi was the latest in a series of moves over the past two months to help boost the slowing Chinese economy.

But China has another, seemingly contradictory, motive. In devaluing its currency, China is giving priority to its domestic needs. As China’s economy slows, a weaker currency will help buoy the country’s exporters and create jobs at home.

Surging blue-collar wages in China coupled with recent declines in the currencies of rival exporters like South Korea and Taiwan have made it harder for Chinese companies to compete in labor-intensive industries like garment manufacturing and shoe production. Chinese exports fell 8 percent last month compared with a year ago.

“When the renminbi was appreciating, our customers, who are mainly from North America and Europe, had complained about our prices being too high,” said Anna Cho, sales manager of the Shanghai Kaiyuan Pump Industrial Company, a maker of water and sewage pumps. “They will be happy about this new development,” she said, referring to the currency devaluation.

The coming months will provide a test of whether the leadership is focused more on reforms or on the nation’s economy. While Beijing wants a weak currency, it does not want it to go too low.


Editorial: China’s Currency DilemmaAUG. 11, 2015
On Tuesday, traders bet heavily that the renminbi would continue to fall. If Beijing follows through on its pledge to let the market play a much bigger role, more declines will follow.

“If they really do it, it may be going down and down and down,” said Diana Choyleva, the chief economist at Lombard Street Research, a consulting firm in London.

Devaluing the renminbi weeks before President Xi’s visit to the United States also poses clear political challenges at a time when China is trying to smooth over trans-Pacific disputes.

In recent weeks, China announced a halt to its controversial construction of artificial islands in the South China Sea. It has also had an uncommonly muted response to American accusations of digital espionage.

The devaluation risks inflaming a seemingly dormant political issue in the United States: whether China manipulates its currency to gain a trade advantage. Critics in Congress have long argued that the renminbi is undervalued and that this dynamic has prompted many companies to move production to China.

“For years, China has rigged the rules and played games with its currency, leaving American workers out to dry. Rather than changing their ways, the Chinese government seems to be doubling down,” said Senator Chuck Schumer, Democrat of New York.

Under President George W. Bush and now under President Obama, the Treasury has been cautious about publicly criticizing China on currency policy. Treasury officials have not wanted to incite Chinese defiance, and they have tended to respect China’s contention that its trade surpluses, though huge, have shrunk as a percentage of its growing economy.

Buses wait to be exported at the Lianyungang port in China. Credit Agence France-Presse — Getty Images
“We will continue to monitor how these changes are implemented and continue to press China on the pace of its reforms, including additional measures to transition to a market-oriented exchange rate and its stated desire to move towards an economy that is more dependent on domestic demand, which is in China and America’s best interests,” a Treasury representative said in a statement on Tuesday. “Any reversal in reforms would be a troubling development.”

China’s action could also factor into the Federal Reserve’s thinking.

The Fed’s leaders have been talking for months about raising interest rates as a way to curb the considerable monetary stimulus they have delivered to the strengthening American economy. But a weakened renminbi — and the possibility that other countries may follow suit — could mean further weakening of American exports and slower economic growth.

Continue reading the main story
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“It could lower the odds of a Fed rate hike in the near term,” said Thomas Lam, the chief economist for industrialized economies at RHB Securities Singapore, a unit of a Malaysian financial conglomerate, the RHB Group.

The currency situation puts China in a tricky position.

China has the means to stop any unwanted drop in currency. The country has $3.5 trillion in foreign exchange reserves, which it can use to buy back renminbi globally and push up the value.

But the devaluation also comes at a time when China is pushing for broader acceptance of the renminbi, and the exercise of tight currency controls undermines that effort.

The International Monetary Fund contended for years that the renminbi was undervalued, but it dropped that assertion in May. Still, the I.M.F. in a staff report last week suggested that China would need more time to finish preparations for including the renminbi as a global reserve currency.

The I.M.F., in particular, wants to see more evidence that the renminbi is being used outside China, notably for central bank reserves or bonds. The appetite among overseas central banks and bond investors for renminbi-denominated assets has gradually increased.

But part of the demand has been a speculative bet that the renminbi will continue to rise against the dollar. Even small, occasional hints in the last 18 months that the renminbi might weaken have tended to erode such players’ enthusiasm. So Tuesday’s devaluation could damage China’s bid to bolster international use of its currency.

The I.M.F. on Tuesday said that China’s new plan for determining the value of the renminbi “appears a welcome step as it should allow market forces to have a greater role.” But “the exact impact will depend on how the new mechanism is implemented in practice.”

Senator Schumer warned that the devaluation might lower the chances that the renminbi will be recognized by the I.M.F. as a leading currency, as part of the fund’s so-called special drawing rights.

“Unless and until China stops artificially devaluing their currency,” he said, “the renminbi should be barred from consideration as a global reserve currency by the I.M.F.”

Wednesday, August 19, 2015

China Turned to Risky Devaluation as Export Machine Stalled - New York Times

August 18, 2015 at 9:44pm
http://www.nytimes.com/2015/08/18/business/international/chinas-devaluation-of-its-currency-was-a-call-to-action.html?emc=edit_th_20150818&nl=todaysheadlines&nlid=56381892

INTERNATIONAL BUSINESS

China Turned to Risky Devaluation as Export Machine Stalled
By KEITH BRADSHERAUG. 17, 2015


HONG KONG — When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda.

The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, China’s export machine had stalled, prompting labor strikes.

In a little-noted advisory to government agencies, the cabinet said it was essential to fix the export problem, and the currency had to be part of the solution.

With the government keeping a tight grip on the value of the renminbi, Chinese goods were more expensive than rivals’ products overseas. The currencies of other emerging markets had fallen, and China’s exporters could not easily compete.

Soon after, the Communist Party leaders issued a statement also urging action on exports.

It all set the stage for the currency devaluation last week that resulted in the biggest drop in the renminbi since 1994.


How China Is Trying to Stabilize Its Economy
China’s devaluation of the renminbi was the latest in a series of moves over the past two months to help boost the slowing Chinese economy.

But the sharp focus on the domestic agenda also complicates China’s global ambitions. By devaluing the currency, the authorities, who have been pushing a big expansion of global investments, are eroding some of the country’s buying power overseas.

China appears willing to make those trade-offs. Manufacturing, the core engine of growth in the world’s second-largest economy, is just too critical. And the pressures have been mounting, with exports last month plunging 8 percent compared with 2014.

The weakness is creating problems elsewhere in an economy already rattled by a real estate slump. Across the country, millions of workers and thousands of companies are feeling the pain, as sales slip and incomes drop.

Zhang Wei, a carpenter at a construction materials market in Guangzhou, says customers’ orders are plunging. Hu Sheng, a seller of metal siding, had to cut prices to the bone, and even then his sales dropped by a third.

At a covered market in Guangzhou, Zhang Xiaojun sat dejectedly behind a counter where half a dozen gutted, plucked chicken carcasses lay. “I was selling 30 to 40 chickens a day last year,” he said. “Now at best I sell only 10 chickens in a day, and I can’t make a living.”

After the top-level meetings in July, officials moved quickly. On Aug. 11, the central bank announced a new policy for determining the value of the renminbi, saying it would allow market forces to play a greater role.


Although the central bank denied the decision was motivated by the export issue, officials were assured a quick, economic benefit. Once market forces were unleashed, they resulted in the sharp and swift decline of the currency, which dropped by 4.4 percent last week.

But the devaluation creates uncertainty, potentially undermining confidence in what had been the world’s steadiest and most enduring economy. It will also test President Xi Jinping and the leadership, as they try to balance their domestic needs and global expansion. A deteriorating economy could force them to pick between the two agendas.

“For Xi Jinping, domestic stability is the top priority,” said Willy Lam, a specialist in Beijing politics at the Chinese University of Hong Kong. “It’s going to be a higher priority than China’s international responsibilities.”

A Shaky Foundation

The biggest casualties of the economic woes are the workers.

Zhou Ping, 23, moved from central China to Guangzhou in Guangdong Province three years ago and got hired cutting fabric at a garment factory. He lost his job three months ago and has been unable to find any work.


Growing Unrest
Labor unrest in China has increased as the country’s economy has faltered, especially in the provinces that produce goods for export. One focus now is on unpaid wages, a sign of struggling businesses in a troubled economy. Previous labor actions were largely about pay increases, reflecting a strong job market.

About 500 workers of Henan Dingsen Clothing, a cloth maker in Shangqiu City in Henan province, strike and march to a government building in July over receiving i.o.u.s for unpaid wages for three months.
Over 1,000 workers at Compart Technologies, a hard-disk drive maker in Chongqing province, strike in July for receiving i.o.u.s for unpaid wages and housing funds for eight months.
More than 1,000 workers strike in July at the Guangdong Elecpro Electric Appliance manufacturer in Foshan in Guangdong province demanding severance pay after a large layoff.
*Labor protests peaked in January 2015 because workers pressed for back wages and made other demands before returning to their hometowns for Chinese New Year.
Sources: China Labor Bulletin; New York Times reporting
By The New York Times
“Competition is too intense; there are so many people fighting for each job,” he said. “However, I have no plans to return to my home province just yet. My friend is letting me take turns in his bunk bed.”

While China lacks reliable unemployment statistics, the labor market is under significant pressure. Pay is barely climbing faster than consumer prices. Millions of Chinese are looking for work.

It is a sensitive issue. The leadership has indicated that slower economic growth is acceptable, provided the labor market remains strong. Any instability could prompt an internal debate about whether the government can manage a slowdown and still meet its global goals.

If President Xi cannot deliver rising living standards, “that will undermine the long-term sustainability of the regime,” said Li Daokui, an economist at Tsinghua University in Beijing.

When Deng Xiaoping began opening the country’s economy to capitalism and foreign investment in 1979, he started in a series of duck-farming villages in southeastern China’s Guangdong Province, next to Hong Kong. His successors subsequently built on the plan, turning the experiment into the world’s biggest hub of light industry manufacturing, producing items like microwave ovens and laptop computers.

The area is a crucial backbone of China’s economic story. Guangdong’s main cities — Shenzhen, Dongguan and Guangzhou — developed into a vast urban sprawl, each with a population the size of Los Angeles.


Butchers cut meat at a market in Guangzhou, one of the cities in the Guangdong province that developed around light industry manufacturing that now has a population the size of Los Angeles. Credit Adam Dean for The New York Times
As exports surged, the country produced double-digit growth for decades. The newfound wealth prompted China to find opportunities overseas, which helped expand its international influence and support its domestic needs.

But the export business is now suffering.

Sales have slumped for furniture makers, for example, as demand overseas has flagged, particularly in Europe. Chinese families are also buying less, as sagging home sales and real estate prices mean fewer people need to decorate new apartments.

“Many furniture factories in the Guangzhou area have closed over the past year,” said Rachel Wang, the sales manager at Hongyuan Furniture Manufacturing, a Guangzhou maker of home saunas. Hongyuan Furniture has helped offset a slowdown in Europe by expanding to Australia.

Charles M. Hubbs, the owner of Premier Guard, which makes medical equipment in Guangdong Province, said the devaluation would help, estimating the currency drop would add $300,000 a year in profit. But it’s not enough, he said, to make the company more competitive.


Despite the problems in the job market, monthly factory wages, which have increased tenfold at Premier Guard over the last decade, remain high and eat into profit. Mr. Hubbs is considering moving part of his manufacturing operation to Texas, as a way to reduce freight costs and to avoid American import taxes.

Photo

A worker at Premier Guard, which makes medical equipment in Guangdong province. The owner of the company is considering moving part of his manufacturing operation to Texas, as a way to reduce freight costs and to avoid American import taxes. Credit Adam Dean for The New York Times
Even if the currency drops by 8 to 9 percent, it is “not going to bring any business back to China,” he said. “Nobody’s going to come back to China,” for fear the renminbi might strengthen later.

As sales fall and factories close, strikes and other labor actions have been increasing, to nearly 200 a month, according to the China Labor Bulletin, a nonprofit group based in Hong Kong that calls for collective bargaining rights. Four years ago, it was around a dozen a month.

At the Zhanheng Toys Electronics Company in Dongguan, 700 workers raucously demonstrated on Aug. 4, demanding back wages. Management had suddenly left and stopped paying workers.

Such disappearances are common in China. If they stick around, managers of failed companies may be detained by the police, who search for signs of embezzlement and try to force executives to dig into their savings to pay creditors.

“The Hong Kong boss ran away,” said a security guard at Zhanheng’s front gate on Thursday afternoon who declined to give his name. No managers were left to answer questions, the guard added. The local government ended up paying the back wages a day later. It is a routine practice after business failures in China, where local governments are responsible for maintaining social stability.

Wu Yukan, a plastics distributor who is also the vice chairman of the local chamber of commerce, came to the factory gate in a black Audi with two aides.


At the Zhanheng Toys Electronics Company in Dongguan, 700 workers raucously demonstrated on Aug. 4, demanding back wages. Management had suddenly left and stopped paying workers. Credit Adam Dean for The New York Times
“This factory owes me hundreds of thousands of renminbi for raw materials,” he said. “The economy is not doing well. I have other clients who also owe me a lot of money, and from whom I have not been able to collect as well.”

Balancing Needs

Over a thousand miles away from the turmoil in Guangdong, at a monolithic building in Beijing, Zhou Xiaochuan, the governor of the People’s Bank of China, has the task of guiding the currency at a complicated time, at home and abroad.

Tall, cerebral and urbane, he has written a series of books and long academic articles in Chinese on economics. He taught himself English. He has been steeped in Communist Party politics from childhood. His father, a deputy minister in the early 1960s, mentored a young Jiang Zemin, who later served as China’s leader for a decade.

Mr. Zhou needs those economic and political strengths, as the country tries to rev up exports and keep its international expansion on track.

While he needs to let the renminbi respond to the market, he must also maintain control over the currency. Mr. Zhou also wants to convince the world that the renminbi deserves a place among the elite group of global reserve currencies, which includes the dollar, euro, yen and pound.


In March, Mr. Zhou welcomed Christine Lagarde, the managing director of the International Monetary Fund, to a conference in Beijing. He told Ms. Lagarde and top global bankers that he would dismantle the many currency restrictions.

“A set of pilot policies and regulations will be released this year, to basically achieve the requirements for a currency that can be used more easily,” he said.

Mr. Zhou was making the case that China could meet the I.M.F. requirements for joining the basket of global reserve currencies known as the special drawing rights. The biggest test was whether the renminbi was considered “freely usable.”

For years, China set an initial price for the renminbi in dollars each morning and then allowed the currency to trade in a narrow band. The initial price was somewhat arbitrary. A week before the devaluation, an I.M.F. report expressed concerns, suggesting a more market-oriented approach.

Starting last Tuesday, the central bank said it would give the market more sway, basing the initial level on the previous closing price. The I.M.F. gave its cautious approval, saying it “appears a welcome step.” But the execution, the fund said, would be critical.

Mr. Zhou faces a delicate task.


He used to be able to set monetary policy without worrying that money would rush out of the country if interest rates were too low or the currency too high. With the loosening of controls on moving large sums of money, he must now navigate the pressures of the market.

He also has to appease many constituencies.

The commerce ministry has long lobbied for a weak renminbi to help the country’s exporters. But Mr. Zhou can’t let the currency drop too much, lest he antagonize the Chinese companies investing abroad and the Chinese families sending students overseas.

“You see it as more than 100 million Chinese travel abroad, and there are more than 800,000 Chinese students studying overseas,” said Yu Yongding, a former member of the central bank’s monetary policy committee. “They want a strong renminbi.”

Erica Law, a 27-year-old Chinese investment banker, sat in a Starbucks in Guangzhou on Thursday, talking about her plans to buy an apartment in Europe.

As a student, Ms. Law studied and traveled in Europe. She has since returned on vacations, maintaining a love affair with a continent that, with its clean air and well-preserved historic monuments, still seems so different from China.

The exchange rate now factors into her plans.

“The recent days of renminbi devaluation are not of that much concern,” she said. “However, if the devaluation trend continues and reaches for example 10 to 20 percent, then it will really affect my travel and investment decisions — perhaps at that time, I will consider more vacation and investing options closer to home.”

Michael Forsythe contributed reporting from Hong Kong, and Michael Schuman from Beijing. Kiki Zhao and Patrick Zuo contributed research from Beijing.

Tuesday, August 18, 2015

Companies feel effect of Tianjin blasts as $625m of cars wrecked - FINANCIAL TIMES

August 18, 2015 at 3:13pm
http://www.ft.com/intl/cms/s/0/ad62904c-44ce-11e5-b3b2-1672f710807b.html#axzz3j8lSpmZW

August 17, 2015 1:04 pm
Companies feel effect of Tianjin blasts as $625m of cars wrecked
Kana Inagaki in Tokyo, and Tom Mitchell and Lucy Hornby in Beijing


Companies including Toyota and John Deere have suspended operations near Tianjin in northern China, widening the supply-chain disruption from the two huge explosions last week at one of the world’s busiest ports.
Five days after the blasts at a warehouse for toxic chemicals killed more than 100 people, multinationals are still trying to gauge the extent of damage on facilities and products. Company officials say that assessing the impact has been difficult as they have been prevented from visiting facilities located as far away as 5km from the site of the explosions.

Chinese state media have reported that 8,000 cars worth an estimated Rmb4bn ($625m) were destroyed in the blasts, including 2,700 made by Germany’s Volkswagen and 1,500 by France’s Renault. Hyundai Motor of South Korea said 4,000 cars parked near the area were damaged while Japan’s Mitsubishi Motors put the potential damage at about 600 vehicles.
“The authorities haven’t told us when we can get back to work,” said Liu Jinghua, a trader at a motor parallel import centre. “We don’t have any cars that were destroyed and our imports are arriving on time, but we won’t be able to get them through customs.”
Toyota, Japan’s biggest car group, said it was halting production until Thursday at two plants in and near Tianjin. The two factories, which are operated with its Chinese partner FAW, produce about 440,000 vehicles annually including the Corolla. Credit Suisse estimates about 1,500-2,000 cars a day are produced per day at the factories.
Toyota said about 50 employees who live near the explosions were injured, including two local dealers who were hurt by broken glass.
Audi, VW’s premium division, said none of its cars were destroyed but anticipates minor damage at one of its warehouses. Some of its employees were among the more than 6,000 evacuated from their homes and are now living in hotels.
“For now, the impact seems limited,” said Credit Suisse analyst Masahiro Akita.
For many of the carmakers, the fallout from the Tianjin blasts is another headache for an industry grappling with slowing economic conditions in the world’s biggest car market.
Outside the motor sector, John Deere, the US maker of agricultural and construction equipment, suspended operations near Tianjin after some of its workers were injured.
Japanese retailer Aeon said on Monday that it did not know when it could reopen a local shopping precinct that was damaged by the explosions. The company said one of its employees suffered a minor injury. China Vanke, the country’s largest housebuilder, said 4,990 residential units were damaged.
While the damage still needs to be assessed, Credit Suisse says a large number of Chinese insurance companies will be affected, with initial insured losses put at $1bn-$1.5bn. A large portion of those losses are expected to be covered by reinsurance.
The explosions also briefly affected off-loadings of iron ore and soybeans, and disrupted the discharge of crude oil and chemicals. But with most berths undamaged, the primary disruption came from the cordoning-off of most of the roads around the northern section of the Tianjin port. Other areas of the port were mostly undamaged.
“In the north part of Tianjin port, the products can’t be uploaded and the roads are all blocked,” said Sam Song, a branch manager at ALS Minerals Division. “Other parts seem unaffected, and there are a few ports starting to be operational.”
Additional reporting by Gabriel Wildau in Shanghai, Simon Mundy in Seoul, Jennifer Hughes in Hong Kong, and Anna Hsieh

Monday, August 17, 2015

Goldman estimates China's 'national team' stock rescue at $144bn - Financial Times

August 6, 2015 at 3:54pm

August 6, 2015 6:29 am
Goldman estimates China's 'national team' stock rescue at $144bn
Gabriel Wildau in Shanghai


China’s “national team” has probably spent about $144bn to bolster the country’s fragile stock market, Goldman Sachs has estimated, raising questions about how much firepower remains if stocks resume their recent sharp descent.
The government has not disclosed either the amount of rescue funds it has allocated to the coalition of state financial institutions — known as the “national team” — or how much of this total has already been invested.

But Goldman estimates that China Securities Finance Corp, the state-owned margin lending agency that is the main conduit for injecting rescue funds into the market, has about Rmb2tn ($322bn) at its disposal.
This total includes Rmb1.3tn in loans from large commercial banks, Rmb80bn in bonds issued in early July, and equity capital of Rmb100bn. The People’s Bank of China has also said it has provided liquidity to CSF through re-lending and other channels.
Tallying up how much of this Rmb2tn total has already been spent is more challenging.
Media leaks about the size of the national team’s war chest are likely to have come from officials eager to communicate the government’s muscular response to the market turmoil. By contrast, the national team has good reasons for keeping quiet about how much it has already spent, since this could prompt investor worries that the government’s resources are nearly exhausted.
Indeed, shares tumbled by 10 per cent last week after local media cited anonymous sources saying that the national team was preparing its exit plan.
“The episode has underlined the difficulty the government faces in the task it has set itself of convincing investors that equity markets will deliver sustained gains,” said Chang Liu at Capital Economics.
“The market is driven more than ever by speculation about official intentions and any positive momentum will raise questions about whether support will be withdrawn.”
Goldman estimates the current amount spent at Rmb860-Rmb900bn. Media reports in early July indicated that CSF lent Rmb260bn to brokerages to support stock purchases, bought 400bn in stock directly, and invested another Rmb200bn in mutual funds.
Using an alternative methodology that compares fund inflows to the stock market from traceable sources with the total inflows necessary to keep the index at current levels, Goldman reached an estimate of Rmb900bn for national team investment in June and July.
“We believe the current market concern over the Chinese government’s potential exit from its market support is probably overdone,” Chengjie Liu and his colleagues wrote this week.
“With the government having just spent a considerable sum to stabilise the market, it is too early for them to reverse course, especially given the still-skittish manner in which the market is trading.”
The problem for the government is that it apparently has little to show for the money spent.
The Shanghai Composite Index was at 3,682 at midday on Thursday, just 9.2 per cent above the low point touched at the height of the selldown on July 9 and 28.9 per cent below the seven-year high of 5,178 reached on June 12.
On the other hand, the government is probably not comparing the market’s current level to its recent highs and lows, but rather to the unknown depths the index might have plumbed had the national team done nothing.

Sunday, August 16, 2015

Xi’s history lessons - TIME

August 16, 2015 at 4:07pm
http://www.economist.com/news/leaders/21660977-communist-party-plundering-history-justify-its-present-day-ambitions-xis-history?spc=scode&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709

Xi’s history lessons

The Communist Party is plundering history to justify its present-day ambitions
Aug 15th 2015 | From the print edition


IN EARLY September President Xi Jinping will take the salute at a huge military parade in Beijing. It will be his most visible assertion of authority since he came to power in 2012: his first public appearance at such a display of missiles, tanks and goose-stepping troops. Officially the event will be all about the past, commemorating the end of the second world war in 1945 and remembering the 15m Chinese people who died in one of its bloodiest chapters: the Japanese invasion and occupation of China of 1937-45.

It will be a reminder of the bravery of China’s soldiers and their crucial role in confronting Asia’s monstrously aggressive imperial power. And rightly so: Chinese sacrifices during that hellish period deserve much wider recognition. Between 1937, when total war erupted in China, and late 1941, when the attack on Pearl Harbor brought America into the fray, China fought the Japanese alone. By the end of the war it had lost more people—soldiers and civilians—than any other country bar the Soviet Union.

Yet next month’s parade is not just about remembrance; it is about the future, too. This is the first time that China is commemorating the war with a military show, rather than with solemn ceremony. The symbolism will not be lost on its neighbours. And it will unsettle them, for in East Asia today the rising, disruptive, undemocratic power is no longer a string of islands presided over by a god-emperor. It is the world’s most populous nation, led by a man whose vision for the future (a richer country with a stronger military arm) sounds a bit like one of Japan’s early imperial slogans. It would be wrong to press the parallel too far: China is not about to invade its neighbours. But there are reasons to worry about the way the Chinese Communist Party sees history—and massages it to justify its current ambitions.

History with Chinese characteristics
Under Mr Xi, the logic of history goes something like this. China played such an important role in vanquishing Japanese imperialism that not only does it deserve belated recognition for past valour and suffering, but also a greater say in how Asia is run today. Also, Japan is still dangerous. Chinese schools, museums and TV programmes constantly warn that the spirit of aggression still lurks across the water. A Chinese diplomat has implied that Japan’s prime minister, Shinzo Abe, is a new Voldemort, the epitome of evil in the “Harry Potter” series. At any moment Japan could menace Asia once more, party newspapers intone. China, again, is standing up to the threat.

As our essay on the ghosts of the war that ended 70 years ago this week explains, this narrative requires exquisite contortions. For one thing, it was not the Chinese communists who bore the brunt of the fighting against Japan, but their sworn enemies, the nationalists (or Kuomintang) under Chiang Kai-shek. For another, today’s Japan is nothing like the country that slaughtered the inhabitants of Nanjing, forced Korean and Chinese women into military brothels or tested biological weapons on civilians.


ESSAY: The unquiet past - Asia's second-world-war ghosts
Granted, Japan never repented of its war record as full-throatedly as Germany did. Even today a small but vocal group of Japanese ultra-nationalists deny their country’s war crimes, and Mr Abe, shamefully, sometimes panders to them. Yet the idea that Japan remains an aggressive power is absurd. Its soldiers have not fired a shot in anger since 1945. Its democracy is deeply entrenched; its respect for human rights profound. Most Japanese acknowledge their country’s war guilt. Successive governments have apologised, and Mr Abe is expected to do the same (see article). Today Japan is ageing, shrinking, largely pacifist and, because of the trauma of Hiroshima and Nagasaki, unlikely ever to possess nuclear weapons. Some threat.

The dangers of demonisation
China’s demonisation of Japan is not only unfair; it is also risky. Governments that stoke up nationalist animosity cannot always control it. So far, China’s big show of challenging Japan’s control of the Senkaku (or Diaoyu) islands has involved only sabre-rattling, not bloodshed. But there is always a danger that a miscalculation could lead to something worse.

East Asia’s old war wounds have not yet healed. The Korean peninsula remains sundered, China and Taiwan are separate, and even Japan can be said to be split, for since 1945 America has used the southern island of Okinawa as its main military stronghold in the western Pacific. The Taiwan Strait and the border between North and South Korea continue to be potential flashpoints; whether they one day turn violent depends largely on China’s behaviour, for better or worse. It is naive to assume America will always be able to keep a lid on things.

On the contrary, many Asians worry that China’s ambitions set it on a collision course with the superpower and the smaller nations that shelter under its security umbrella. When China picks fights with Japan in the East China Sea, or builds airstrips on historically disputed reefs in the South China Sea, it feeds those fears. It also risks sucking America into its territorial disputes, and raises the chances of eventual conflict.

Post-war East Asia is not like western Europe. No NATO or European Union binds former foes together. France’s determination to promote lasting peace by uniting under a common set of rules with Germany, its old invader, has no Asian equivalent. East Asia is therefore less stable than western Europe: a fissile mix of countries both rich and poor, democratic and authoritarian, with far less agreement on common values or even where their borders lie. Small wonder Asians are skittish when the regional giant, ruled by a single party that draws little distinction between itself and the Chinese nation, plays up themes of historical victimhood and the need to correct for it.

How much better it would be if China sought regional leadership not on the basis of the past, but on how constructive its behaviour is today. If Mr Xi were to commit China to multilateral efforts to foster regional stability, he would show that he has truly learned the lessons of history. That would be far, far better than repeating it.

Saturday, August 15, 2015

China Scrambles to Support Slipping Yuan -TIME



China Scrambles to Support Slipping Yuan
Jonathan Chew / Fortune Aug. 12, 2015  
China Scraps Yuan Peg To US dollar

Beijing is playing a dangerous game with its currency

China’s shocking move to devalue the yuan and to align it closer to market rates has caused the currency to fall to a four-year low. Now, the country’s central bank is intervening to stop the slide.

Sources close to the matter told The Wall Street Journal that the People’s Bank of China told state-owned banks to sell dollars to help stop the yuan’s slide relative to the American greenback, a move that comes after the yuan experienced its biggest two-day rout since 1994.

China roiled financial markets Tuesday after it announced it would weaken the midpoint of the yuan’s trading band by nearly 2% against the US dollar. That one-day shift was the biggest since China’s currency was officially de-pegged from the U.S. dollar in 2005.

That move, likely a reaction to China’s slowing economic growth rates and stock market slumps, caused a ripple effect worldwide, leaving the Dow Jones Industrial Average down more than 200 points at Tuesday’s close.

The yuan is facing “a vicious cycle of depreciation,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, told Bloomberg. “At some point they’ll either abandon the implementation of the new fixing mechanism and stabilize the fixing, or they’ll intervene heavily.”

The global response to China’s currency changes will test Beijing’s resolve in letting free-market forces decide the currency’s value. The People’s Bank tried to stem overseas worries by answering some key questions on its website. “In view of both domestic and international economic and financial condition, currently there is no basis for persistent depreciation of [China’s currency],” said a Bank spokesman in a statement online.

Friday, August 14, 2015

Devaluation Hints at China’s Rising Distress Over Economy - New York Times

http://www.nytimes.com/2015/08/13/business/international/chinese-economic-vigor-is-disputed.html?emc=edit_th_20150813&nl=todaysheadlines&nlid=56381892&_r=0

By NEIL GOUGHAUG. 12, 2015




HONG KONG — Whenever China’s economy swooned in recent downturns, its currency never buckled. It held steady, or strengthened, even as China’s neighbors or trading partners scrambled to cut the value of their own currencies to deal with the fallout.

With the Chinese renminbi now taking its biggest plunge in decades, the worry is that the country’s already slowing economy is even worse off than reported and that the government is panicking. On Thursday, China allowed the renminbi to weaken significantly for a third consecutive day.

The situation is shaking the aura of supremacy surrounding President Xi Jinping and the Communist Party, which has portrayed a sense of ultimate authority. But the Chinese government’s response to the country’s financial woes is creating concerns about its ability to manage a slowdown.


A souvenir plate bearing the image of China's President Xi Jinping at a shop in Beijing. He is making a state visit to Washington next month.China’s Currency Move Clouds Its Policy GoalsAUG. 11, 2015
China's central bank set the official exchange rate for the renminbi at 6.33 per dollar on Wednesday, or 1.6 percent lower than the previous day.China Weakens Its Currency FurtherAUG. 11, 2015
“People are used to growth and rising living standards,” said Jonathan Fenby, an author and co-founder of the research firm Trusted Sources. “But now they are in a ‘real’ world, and the leadership has to convince them both that slower growth is in their long-term interests and that it is in control.”


What’s the Latest
For the third day in a row, China’s central bank on Thursday devalued the currency, the renminbi, this time by 1.1 percent against the dollar.
The total devaluation since Tuesday is 4.4 percent, the biggest drop in decades.
Government officials, in an unexpected news conference on Thursday, stressed that the currency was not in free fall.
Global markets appeared to respond to the assurances. The Shanghai composite index ended the day higher.
The devaluation reflects weakness in the Chinese economy.
A weaker currency would make goods more affordable for overseas buyers, but it risks tensions with trading partners like the United States.
By the official measures, the economy is growing at 7 percent, right in line with government targets. It is a steady pace that the leadership has indicated can support decent job growth and put more money into consumers’ pockets.

But a look below the surface shows a different, more worrisome picture. Core parts of the economy, like construction, are weaker than ever as the real estate industry struggles. Consumer spending, which was supposed to pick up the slack, is not that strong. And financial services, a major driver of economic growth when the stock market was booming, are slipping.

The data coming out of China, too, is somewhat suspect. Economists now wonder whether, despite official figures showing growth, some provinces and regions could be dealing with outright recessions.

“To be honest, no one has a clue where the economy is, and I don’t think that it’s properly measured,” said Viktor E. Szabo, a senior investment manager at Aberdeen Asset Management.

“Definitely there is a slowdown,” he added. “You can have an argument about what level it is, but it’s not 7 percent,” he said, referring to the rate of growth.

The government’s aggressive action on the currency has brought the economy into sharp focus.

The currency’s official rate, at 6.4 renminbi per dollar, is down 4.4 percent over the last three days. On a typical day, the renminbi rises or falls just a small fraction of a percentage point.

While the government said the decision was intended to make the currency more market-oriented, the devaluation also was largely a gift to exporters. In relative terms, it makes China’s shipments of clothing or electronics to consumers in the United States or Europe more affordable.



China has invested 667 million renminbi, or over $100 million, building a giant telescope in the southern province of Guizhou. Credit Reuters
“I don’t see this mini-devaluation as some kind of outrageous act,” said George Magnus, an economic adviser to the bank UBS and an associate at Oxford University’s China center. “But it is part of an array of other economic and financial stimulus measures designed to shore up the flagging growth rate.”

The government has taken the usual steps by cutting interest rates and freeing up more money for banks to lend. But the leadership has also turned to more unconventional means in recent months to try to cushion the blow as the economy’s once-runaway expansion sinks back to earth.

It relaxed a rule that banned investment companies tied to local governments from piling on debt. When the stock market slumped, it aggressively moved to halt the slide, by encouraging borrowing to buy stock and pouring money into the system. It has also pledged tens of billions of dollars in support to state-controlled policy banks for loans to favored projects.

China’s plan has been to wean itself off a debt-driven growth model that has led to wasteful, government-led investment. Instead, policy makers want consumers to become the main engine for the economy, but that will take time.

They had hoped to maintain growth by keeping credit flowing to favored projects, a nationwide program that amounts to trillions of renminbi worth of investment in new infrastructure. The money is going to redevelop shantytowns and to build wastewater treatment facilities, as well as expand road and rail networks.

In the city of Liupanshui in Guizhou, one of China’s least affluent provinces, the local government is building its first subway line. Officials hope to bring in private investment to help finance the project, a 49-kilometer line expected to cost 10 billion renminbi, or about $1.6 billion.

But such efforts have not been enough. While infrastructure investment is rising, it has failed to offset the nationwide pullback in spending on new factories and apartment block towers. In July, overall investment in fixed assets rose 11.2 percent, the slowest increase in 15 years.

The troubles can be seen in mid-tier cities like Zhanjiang, on the southern coast, which is home to the navy fleet that patrols the South China Sea. While property prices in major metropolises like Shenzhen or Beijing have rebounded, those are exceptions. Prices of new homes in Zhanjiang fell 9.8 percent in June from a year earlier, the most recent data available.


How China Is Trying to Stabilize Its Economy
China’s devaluation of the renminbi was the latest in a series of moves over the past two months to help boost the slowing Chinese economy.



China’s builders just are not building as much. For years, double-digit growth was the norm in construction materials, as cities across the country went on a building spree. That situation has reversed sharply, and output of many crucial materials has been declining this year.

Cement output fell 5 percent by volume last month, while plate glass production declined 13.5 percent. Steel output fell 1.8 percent in July, the most on record. Exports of steel soared as mills, many of them operating at a loss and unable to find buyers at home, shipped their excess stock overseas.

Consumers aren’t yet able to shoulder the burden of driving the economy. While incomes are still rising, the job market has started to show signs of stress. Vacancies are declining across the market as companies reduce hiring in response to slowing business growth.

The stock market slump has also taken a toll, with the main Shanghai index down about a quarter from its peak two months ago. Ordinary investors have poured money into the markets over the last year, and many are now sitting on losses.



The overall result is that consumers are spending less. Retail sales grew 10.5 percent in July from a year earlier, near the slowest pace in a decade. Share prices of big multinationals that sell heavily into the China market, like LVMH, the spirits and luxury goods retailer, or Yum Brands, which operates the KFC and Pizza Hut fast food chains, have suffered since the renminbi’s devaluation.

Even homegrown e-commerce companies, held up by China’s leaders as builders of a new economy, have not escaped the rout. Shares in Alibaba, in New York, and Tencent, traded in Hong Kong, have both declined over the last two days.

The stock market slump is a double blow. In the first half of the year, the flurry of new share sales, strong brokerage business and other market-related activities helped mask some underlying issues.

Without that boost, China’s gross domestic product would have risen notably less than the 7 percent reported rate. Instead, it would have been about 6.2 percent in the second quarter and 6.5 percent in the first, economists at Standard Chartered estimated in a report last month.


As the government pumps money into the market and the broader economy, it will help, along with moves like the devaluation. It is just not clear how solid the economy will actually be.

“It’s all about the quality of growth,” said Victor Shih, a China scholar at the University of California, San Diego. “If they want to, they can always achieve the right rate of growth.”

The Chinese government, he added, just needs to find a group of people and “tell them to go dig a ditch.”

Correction: August 13, 2015
An earlier version of this article misstated the decline in the official exchange rate of China’s currency against the dollar over the past three days. It was down 4.4 percent, not 4.7 percent.

Friday, August 7, 2015

Trump faces more jeers than cheers in Republican debate - Financial Times

August 7, 2015 at 3:43pm
http://www.ft.com/intl/cms/s/0/2c660310-3cb9-11e5-bbd1-b37bc06f590c.html?ftcamp=published_links%2Frss%2Fworld%2Ffeed%2F%2Fproduct#slide0


August 7, 2015 6:02 am
Trump faces more jeers than cheers in Republican debate
Gina Chon and Megan Murphy in Washington

The top ten Republican candidates selected for the debate based on their rank in an average of the five most recent national political polls. The number one ranked Donald Trump, centre, was introduced as “businessman”©GettyThe contenders, left to right, Chris Christie, Marco Rubio, Ben Carson, Scott Walker, Donald Trump, Jeb Bush, Mike Huckabee, Ted Cruz, Rand Paul and John Kasich, at the Fox News and Facebook sponsored debate at an arena in Cleveland, Ohio©GettyDonald Trump attempted to take advantage of the pro-immigration stance of rival Jeb Bush, whose position is out of step with the Republican party base©GettyDonald Trump drew boos from the crowd when he took aim at Fox anchor Megyn Kelly for a question about his sexist remarks, saying he did not have time for “political correctness”©GettyMr Trump dominated in speaking time, ahead of Jeb Bush and Chris Christie, followed by Marco Rubio, in the first hour of the debate, while the rest of the ten candidates had under four minutes in air time©GettyThe first question asked candidates to raise their hand if they could not pledge to respect every other candidate or run as a third party candidate. Donald Trump was the only candidate to raise his hand©GettyTed Cruz became the most-searched on Google in the first hour of the debate as he introduced his platform©GettyChris Christie, left, clashed with Rand Paul over his bonding with President Obama over Hurricane Sandy, while Marco Rubio, centre, avoided conflict with rivals by acknowledging them and then stating his own views. Ben Carson, right, quipped that he did not expect to get much airtime.©GettyIn a moment of rapprochement, Mr Trump called Jeb Bush a “true gentleman” after Mr Bush denied calling Mr Trump a word which the Fox anchor described as unrepeatable on television©GettyAhead of the prime time Republican presidential candidate debate, those who did not make the cut based on their standing in the polls instead took part in a so-called “undercard” event. Left to right, Jim Gilmore, Lindsey Graham, Bobby Jindal, Rick Perry, Rick Santorum, Carly Fiorina and George Pataki.©GettyFormer Hewlett-Packard chief executive Carly Fiorina made the greatest impact as judged by social media and Google trends during the course of the early debate©GettyRepublican presidential hopeful Rick Perry stumbled when asked whether the US should side with Iran or Saudi Arabia in the Middle East, seeming confused about the 1983 Beirut barracks bombing, instead mentioning Iran in remarks about the killing of US marines©AFPRick Santorum referred to his family’s move from Italy as he espoused his strident views on immigration reform©AFPThe audience hall for the Republican presidential primary debate at the Quicken Loans Arena was sparsely populated for the early debate but filled with a rowdy crowd for the main event©AFP

The first Republican debate appears to have prevented what most of the rival candidates feared the most: Donald Trump stealing the show.
While many of the questions by the Fox News moderators, the hosts of the debate, were geared toward Mr Trump, he was at times openly jeered by the audience after kicking off the event by refusing to pledge that he would support the party’s eventual nominee.

“I don’t think they like me very much,” the bombastic billionaire was forced to concede, in a debate performance which made clear that, even on the debate stage, he will continue to run as an anti-establishment iconoclast, as opposed to striking a more presidential tone.
With Mr Trump coming into Thursday’s debate as the frontrunner by a clear margin, many of the candidates had spent their strategy sessions assessing how to handle him.
The near-consensus approach was to focus on their own message, as candidates who have been left scrapping for air time were finally given a clear shot at making an impression.
Mr Trump also fielded some of the most pointed questions from the Fox News moderators, including on his insults of women and his business record that includes several bankruptcies.
“I’ve been challenged by so many people, and I don’t frankly have time for total political correctness. If you don’t like it, I’m sorry,” Mr Trump told Fox’s Megyn Kelly after she asked whether he has the temperament to be president given he’s called women “fat pigs.”
“I’ve been very nice to you although I could probably not be based on the way you have treated me, but I wouldn’t do that,” he retorted.
Instead, it was some of the less flashier candidates that appeared to fare well in a rowdy, freewheeling debate, such as Ohio governor John Kasich, who had the added advantage of the debate taking place in his home state. He came across as one of the more moderate candidates, saying he would love his daughters unconditionally if they were gay.
The debates are critical because they can take popular candidates down a peg and give boosts to those who are running behind. It was not even clear in the previous 48 hours whether Mr Kasich was going to make it into the prime time debate until Fox News announced the line-up Tuesday night, and he took the last spot of the ten candidates.



It was the showdown that has had US political junkies on the edge of their seats for weeks: bombastic billionaire Donald Trump squaring off against nine rivals for the Republican presidential nomination.

Throughout the two-hour event, a boisterous crowd repeatedly cheered and booed various candidates — with much of the booing reserved for Mr Trump.
Significantly, Hillary Clinton, the Democratic frontrunner for president, was not a key focus of the debate, with the field clashing mainly with each other on issues such as immigration, national security and domestic surveillance,
Fox’s three moderators drew praise for their tough questioning of the candidates’ records and their control of a debate that constantly threatened to descend into a reality show farce with Mr Trump on the stage.
Jeb Bush, for example, was pressed hard on his stance on immigration reform, where his support for a pathway to legal status for some unauthorised immigrants is out of step with the majority of his party.
Scott Walker was asked to defend his record on job creation in Wisconsin, where he fell far short of a campaign pledge to create 250,000 jobs in his first term.
Whether the debate will reshape a 17-candidate field remains to be seen, with some contenders scoring points but featuring none of the sort of gaffes that can cause a campaign to implode. Fox had to split the debates into two sessions because of the number of candidates, with the top ten contenders in the polls grabbing the prime time slot.
But there were several moments of exquisite political theatre, most notably a heated exchange between Chris Christie, the New Jersey governor, and Rand Paul, the Kentucky senator. The two clashed over the National Security Agency’s bulk collection of phone records, with Christie claiming Mr Paul’s resistance to the programme threatened national security.
“I want to collect more records from terrorists but less records from innocent Americans,” said Mr Paul, who has made his resistance to the surveillance a signature issue.
“That’s a completely ridiculously answer,” said Mr Christie, a former US attorney who told the audience he had experience prosecuting terrorists. “How are you supposed to know?”
Mr Bush’s somewhat tepid performance may further unnerve donors who have pumped tens of millions behind his campaign. The former Florida governor was widely expected to be the race’s frontrunner, given his fundraising prowess and his standing as the preferred candidate among the Republican party’s establishment wing.
But his candidacy has failed to catch fire with Republican voters, and he has made several gaffes on the trail. Only this week he was forced to backtrack after saying he did not understand why the country needed to spend a half a billion dollars on women’s health.
On Thursday, many of his answers during the debate were stilted and he appeared uncomfortable on stage.
Fellow Floridian and senator Marco Rubio, who has trailed a bit after being one of the frontrunners, gave a stronger performance, delivering crisp, natural answers and appearing one of the most comfortable with the forum.
“How is Hillary Clinton going to lecture me on living paycheck to paycheck? I was raised paycheck to paycheck,” Mr Rubio said to cheers.
In an earlier debate between the seven candidates that did not make the main event, the standout performance was from Carly Fiorina, the former chief executive of Hewlett-Packard. She delivered polished responses, with crisp answers on issues such as Iran and national security while also ratcheting up the offensive on Mrs Clinton.
It was a fairly flat affair otherwise, hindered by a format that gave candidates only a brief time to answer questions and featured little interaction between them on the main policy issues tackled: the fight against the Islamic State of Iraq and the Levant, how to boost the economy, immigration and border security.

Thursday, August 6, 2015

Greece's Tsipras says loan deal with lenders close - Reuter

August 6, 2015 at 3:48pm


Markets | Wed Aug 5, 2015 12:37pm EDT
Greece's Tsipras says loan deal with lenders close
ATHENS | BY MICHELE KAMBAS AND ANGELIKI KOUTANTOU

Prime Minister Alexis Tsipras said on Wednesday that Greece was close to concluding a deal with lenders on a multi-billion-euro bailout, which he said would end doubts over its place in the euro zone.

The comments were the latest in a series of unusually upbeat assessments by Greek and European officials of progress in talks towards up to 86 billion euros ($93.6 billion) in fresh loans to stave off the country's financial ruin and economic collapse.

"We are in the final stretch," Tsipras said. "Despite the difficulties we are facing we hope this agreement can end uncertainty on the future of Greece."

An accord must be settled -- or a bridge loan agreed -- by Aug. 20, when a 3.5 billion euro debt payment to the European Central Bank falls due.

Both sides have said such a deal is possible, although the European Commission described the target as ambitious, suggesting much remains to be done.

Discussions between Greece and representatives from the International Monetary Fund, European Central Bank, European Commission and the euro zone's bailout fund, the European Stability Mechanism, started in the last week of July.

Tsipras, who was visiting the agriculture ministry, said the process should also potentially include the European Parliament, indirectly alluding to past complaints over the legitimacy of demands from lenders.

Wednesday, August 5, 2015

Ending Greece’s Bleeding - New York Times

August 4, 2015 at 4:30pm


http://www.nytimes.com/2015/07/06/opinion/paul-krugman-ending-greeces-bleeding.html?WT.mc_id=2015-AUGUST-INYT-INTL_REG_ENG-0804-0808&WT.mc_ev=click&ad-keywords=IntlAudDev&_r=0

Ending Greece’s Bleeding
JULY 5, 2015

Paul Krugman


Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.


What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?


The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.

Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.

In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?


I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.


Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?

Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.

Tuesday, August 4, 2015

Why gold has lost its shine for investors - Financial Times

August 4, 2015 at 6:05pm
http://www.ft.com/intl/cms/s/0/4a29ee6e-350e-11e5-b05b-b01debd57852.html#axzz3hpbLYPNl


Why gold has lost its shine for investors
Mohamed El-Erian


Metal has not reacted to events that would usually push up price
A shop assistant arranges gold accessories at a gold store in Lin'an, Zhejiang province November 6, 2014. Gold languished near its lowest level since April 2010 on Thursday as investors dumped the safe-haven metal amid strength in the dollar and on fears that $1,000 an ounce is the next target.

The observation that gold has been a disappointing investment of late should come as no surprise to anyone in the investment world. The fact that this has occurred in the context of developments that would normally push gold prices higher is notable. But the most consequential hypothesis of all is that gold may be losing its traditional role in a diversified investment portfolio.
To say that gold has underwhelmed investors the past couple of years is an understatement. It did not participate in the surge upwards in nearly all financial asset prices; and it has not provided protection in the more recent downturn in risk markets.

Throughout this period, gold has not benefited from rock-bottom interest rates that compensated for one of its major disadvantages as a financial holding — namely, that gold holders do not earn any interest or dividend payments. It has also shown an unusual lack of sensitivity to multiple geopolitical shocks, Greek-related concerns about the single European currency, and the massive injection of liquidity by central banks.
The performance of gold has been so dreary as to encourage a growing number of hedge funds to bet against the asset, notwithstanding its price decline of 8 per cent year to date (and 16 per cent over the past 12 months). Indeed, positioning reports point to large shorts.
Several reasons may be advanced to explain these historical anomalies. They suggest that while cyclical factors have played a role, the main drivers are much more structural and secular in nature.
First, investors have found more direct ways to express their views about the future, particularly in a world in which central banks have had such an important influence on asset prices — from the explosion in equity exchange traded funds globally to the deepening of interest rate and credit products.
Second, gold has become a lot less attractive to investors as a result of the lack of meaningful inflationary pressures. It has also suffered from the more general decline in interest in commodities among institutional and retail investors, due in part to slower global growth.
Third, gold faces the growing risk of lower demand from central banks, once deemed reliable core holders. Part of this is driven by the fall in holdings of international reserves by the emerging world, particularly as they try to cope with the impact of lower commodity prices.
Fourth, as historical correlations have broken down, the analytical case for investing in gold has been increasingly challenged. In particular, prices have failed to respond positively to some notable geopolitical shocks, eroding the metal’s attraction as a diversifier and risk mitigator.
Fifth, the main drivers of most asset prices — namely, liquidity injection by central banks and the deployment of some of the large corporate cash holdings via dividends, buybacks and M&A activity — have not spilled over in any meaningful way to gold; neither directly through reallocation of investor funds due to price movements, nor indirectly due to concerns that all this liquidity would fuel inflationary pressures.
Sixth, the size of the demand response induced by the lower prices — from jewellery and other physical uses of gold — is too small to offset the erosion of investor interest.
Finally, there is the price level argument. Before its recent lacklustre performance, the price of gold had surged (for example, at one stage it had risen more than $1,000 per ounce from its November 2008 level of around $700). Thus, it is the earlier price move that could be deemed unusual and excessive.


Assessing the cyclical versus secular/structural balance of these seven factors, it is hard not to conclude that gold may well be experiencing an erosion in its positioning as a core holding in diversified institutional and retail investment portfolios. The more this happens, the more enticing it will be for “fast money” to short the metal as a way of inducing even greater sales by disappointed core holders.
This situation is unlikely to change soon but it need not be terminal. A shift would probably require a broader normalisation of financial markets, including a diminution in the direct and indirect role of central banks in determining asset prices and their correlations. Until that happens, the glittering metal is likely to continue to languish.
Mohamed El-Erian is chief economic adviser to Allianz and chair of President Barack Obama’s Global Development Council