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Highlights: On the global economy from the WEF

Date Jan 28 2010 16:59:32 Source:Reuters

DAVOS, Switzerland (Reuters) - Following are highlights on the global economy from sessions and interviews at the World Economic Forum in the Swiss resort of Davos on Wednesday.

Davos: China  |  Davos

JACOB FRANKEL, CHAIRMAN, JP MORGAN CHASE INTERNATIONAL

"We are falling to the trap of excessive interventionism, excessive protectionism. Money policy cannot do anything anymore. Interest rates are zero. Debt is increasing. This might stifle growth. Danger is, with excessive zeal to protect us all from debt crisis, governments will overly activist. Free trade is a win-win proposition."

GEORGE SOROS, BILLIONAIRE FINANCIER

"We''re not out of the woods and of course increasing resistance to stimulus and debt makes a double dip, particularly in the U.S. where households still are indebted, more likely it was than let''s say three months ago...

"I think actually there''s plenty of room for countries like the U.S. to increase the national debt but it''s of course very undesirable. However, reducing it at the cost of bringing on a slowdown will be counterproductive. It''s more a question of spending of the money wisely....

"I am confident Greece will pull through although there will be some moments when there''s pressure put on Greece from the European Union. The attraction of meeting the conditions are so great there is really no viable alternative."

ZHU MIN, DEPUTY GOVERNOR OF PEOPLE''S BANK OF CHINA

"Risk for sovereign debt crisis is real. It seems to me the real risk for the global economy is very weak and volatile economic growth. Currently people tend to be optimistic...

"If you are looking further, the current economic rebound is very weak, it''s supported by government expenditure. We don''t see a very strong growth engine behind the whole thing in the whole world. Soft landing, government stimuli (driven) rebound growth and landing in self sustainable growth. Even if we (have) soft landing, we need to land to structural economic growth. There is no guarantee everyone will be able to do soft landing. That''s potential risk for the global economy today. The U.S. and Europe have around 10 percent of the unemployment rate.....

"It''s (the financial sector) still very fragile. Balance mismatching is still a big issue. Obviously more regulation is deserved...."

"The real risk for the global economy is capital flow. Carry trade for dollar is a massive issue today. It causes huge volatility. Because of dollar carry trade, all money is going to emerging markets. But everyone realizes if U.S. monetary policy changes it will all go back.

It''s every important to have stable yuan. It''s absolutely important that having stable yuan is good for China and good for the world."

JOSEF ACKERMANN, CEO, DEUTSCHE BANK "There are some uncertainties about asset inflation, about commercial real estate in some part of the world, sovereign risk and certainly some of the global imbalances.

"We will continue to grow but at a more modest pace, on the global scale... you will see strong growth in the emerging economies...

"We should not underestimate the fact that we are in a transforming phase in the world economy."

PETER SANDS, CEO, STANDARD CHARTERED

"By spirit and inclination I am an optimist, but there are quite a few risks and I don''t think we should kid ourselves.

"I do not think there will be anything as neat as a double dip or a W -- it will be messier than that.

"The risks I would point to, and they will affect different parts of the world differently, are one there is still a lot of deleveraging to happen, particularly in the West... quite a lot of risk around the exit from monetary and fiscal stimulus initiatives.

"The imbalances are still there and it is hard to see how they get resolved quickly

"There is regulatory and policy risk in the world - missteps, be it protectionism, be it the way banking regulation is shaped, could themselves induce problems, but I don''t think it is quite as simple as, say, a W....

"We collectively underestimate the cost of complexity. if we all do slightly different variants of everything -- Basel II, remuneration regulation -- in every country in the world, it will create enormous amounts of complexity and the visibility of bank management and regulators of what''s going on will be impeded."

AXEL WEBER, GOVERNING COUNCIL MEMBER, EUROPEAN CENTRAL BANK

"We have to do monetary policy for the (monetary) union as a whole... we cannot take into our decisions developments in certain parts," Weber told broadcaster CNBC.

"We don''t expect inflation to significantly surpass 2 percent, so what we are seeing is in line with our definition of price stability and on that end, I am not concerned," Weber told Bloomberg television. "We think rates are appropriate at the time."

Wall Street hits back at Obama''s bank curbs

Date Jan 28 2010 16:57:01 Source:Reuters

DAVOS, Switzerland (Reuters) - Wall Street executives hit back on Thursday at President Barack Obama''s plan to curb big banks, questioning whether proposals reaffirmed in his State of the Union address would ever become law.

Davos

Obama pushed job creation to the top of his agenda in his annual speech to Congress and vowed not to abandon his struggling healthcare overhaul after the loss of a key Senate seat in Massachusetts raised doubts about his leadership.

He renewed criticism of "bad behavior" and recklessness on Wall Street that triggered the deepest economic crisis since the 1930s and demanded that Congress pass robust laws on financial regulation despite financial sector lobbying.

Howard Lutnick, chief executive of private investment bank Cantor Fitzgerald, told Reuters at the World Economic Forum that Obama was waging "a populist battle against the banks."

"It''s fun to bash the banks if you are not making ground in healthcare," he said in the Swiss ski resort of Davos .

Obama jolted markets on January 21 with proposals to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading. He also said he wanted the financial sector to pay for a massive taxpayer bailout.

On Wednesday, business leaders at the annual Davos meeting warned Western governments that an uncoordinated, heavy-handed crackdown on the financial industry could crimp a fragile recovery from the worst recession since World War Two.

In his State of the Union message, Obama pledged to slap tough new regulations on Wall Street but said: "Look, I am not interested in punishing banks, I''m interested in protecting our economy."

WILL IT BECOME LAW?

Asked whether he was concerned by the plans, Lutnick said: "Like all regulation, it is worrisome because you don''t know if it is a tank that fires in all directions."

"It is just very popular to beat on the banks but to forget that the banks are the key driver of the economy, they provide the liquidity and the financing for people to grow their business, and if you relentlessly pick on them they are going to be constrained in their thinking," he said.

John Studzinski, global head of the advisory group at private equity firm Blackstone Group, questioned whether Obama''s proposals would be carried through into legislation.

"The devil is in the detail," he told Reuters. "We have not heard any details yet. A lot of this has to do with execution.

"The market is probably relieved that he didn''t come out with some other nuclear attack on Wall Street. There is going to be a continuing diatribe on Wall Street but at the end of the day while it makes good headlines I am not sure the average American cares about Wall Street, they care about their own jobs and their own dignity," he said in an interview.

Still smarting from a drop in his popularity and the loss by his Democratic Party of the late Ted Kennedy''s Senate seat, Obama vowed to put the fight against double-digit unemployment at the top of his agenda amid signs that a stuttering recovery could bring the Democrats more losses in mid-term congressional elections in November.

He promised to repel finance industry lobbyists who he said were seeking to water down or kill the proposed legislation.

"We cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back," he said.

In a keynote Davos speech on Wednesday, French President Nicolas Sarkozy delivered a tirade against the excesses of financial speculation, deregulation, the bonus culture and accounting tricks which he said had driven the world economy to the edge of the abyss a year ago.

Only concerted government action had saved the world from financial meltdown, he said, and the first glimmers of recovery should not be a signal to let up on regulatory reforms.

"We can only save capitalism by refounding and moralizing it," Sarkozy said in a keynote address, warning central banks against an abrupt withdrawal of monetary stimulus measures that might trigger a collapse of the world economy.

Sarkozy endorsed Obama''s proposed curbs on Wall Street but stressed the need for a global consensus on financial regulation in the Group of 20 major economies.

New energy office to set overall strategy

Date Jan 28 2010 16:51:10 Source:Global Times

By Kang Juan

China has established a national energy commission headed by Premier Wen Jiabao to find ways to improve strategic policy-making and handle overall planning, the State Council said Wednesday.

Analysts said that China, the world''s second-largest energy consumer, is facing a grim and complicated energy environment, which makes it necessary to create an agency superior to all ministries.

The National Energy Commission (NEC) will be "responsible for studying and formulating a national energy development strategy, reviewing energy security and development issues, and coordinating major programs of domestic energy exploitation and international cooperation," the State Council said in a statement.

Vice Premier Li Keqiang will be the deputy head of the commission, which comprises of 21 ministers and directors from different departments, such as the National Development and Reform Commission (NDRC), the National Energy Administration (NEA) and the central bank, it said.

The commission will act as the highest office in charge of the country''s issues, the Economic Observer reported.

The energy shortage problem emerged in China, the world''s third largest economy, in 2003. The nation has embarked on a campaign to secure energy supplies to satisfy the skyrocketing demand.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times that the energy issue involves many problems, such as energy shortage and low-carbon transformation, and it concerns many departments.

"It''s far beyond the mandate of the NEA, which runs under the control of the NDRC," Lin said. "The commission will promote energy reform."

The Energy Industry Ministry was dissolved during a round of departmental restruc-turing in 1993, meaning that China hasn''t had a unified ministry devoted to administering the energy sector for 16 years.

Despite the establishment of the NEA in 2008, the central government still lacks the ability to implement a unified energy policy, as responsibility for the energy sector is currently dispersed among a number of departments, the Economic Observer said.

Guan Qingyou, an energy expert at Tsinghua University, told the Global Times that an energy strategic planning office, which considers development, security and diplomacy, is crucial when foreign-market dependence is above 50 percent.

According to statistics released by the NEA on Friday, net crude oil imported by China was 199 million tons compared with 189 million tons produced domestically, meaning 51.3 percent of its crude oil come from overseas.

Meanwhile, China is also under great diplomatic pressure due to the unbalanced energy structure in which the high polluting coal consumption accounts for 60 to 70 percent, Guan added.

"The performance of the NEC would be better than a unified energy ministry or the existing NEA," Guan said. "What should be considered is how to define the functions of the NEC and NEA."

Beijing will not levy property tax before the end of 2011

Date Jan 28 2010 15:29:50 Source:Global Times
Beijing will not start to levy a property tax before the end of 2011 and tax experts predict that the tax rate will range from 0.5 percent to one percent, according to People.com Tuesday.

An official from Beijing Local Taxation Bureau disclosed that there''s still a long way to go before levying the tax. He explained that whether to levy the tax and how to operate and manage it will depend on the State Administrative of Taxation (SAT). But right now there is no definite plan from SAT, said the official from a panel discussion during the Chinese People''s Political Consultative Conference (CPPCC).

There are various plans about how to levy the property tax, but the basic mode is to assess a property according to its market capitalization and tax in proportion to a certain degree after a discount, said Hong Yamin, a CPPCC member who joined the preliminary research on property tax.

The property tax consists of the existing land-use tax and house property tax and the tax rate will be from 0.5 percent to 1 percent, said Liu Huan, a Beijing CPPCC member and vice president of the Institute of Taxation in the Central University of Finance and Economics. He added that the tax would start from commercial lands then to mansions, and residential houses would be the last.

The property tax will curb real estate speculation and puncture housing bubbles, which in turn will restrain house prices and make homes more affordable to general citizens, Liu analyzed

Chinese local govts mull raising minimum wages

Date Jan 28 2010 15:29:00 Source:Global Times

By Chen Yang

With China''s economic recovery on track, many local governments are mulling raising minimum wage levels as early as next month.

Beijing will raise its minimum wage level by 10 percent from the current 800 yuan ($117.2) per month as early as April 1, the Beijing Times quoted an anonymous official in Beijing''s Department of Human Resources and Social Security as saying Wednesday.

Provinces including Zhejiang and Sichuan as well as cities such as Chongqing, Guangzhou and Dongguan are also considering raising minimum wage levels, after Jiangsu Province initiated a minimum wage adjustment over the weekend.

The provincial minimum wage level will be raised by at least 12 percent starting February 1, the Department of Human Resources and Social Security of Jiangsu Province announced Saturday.

Jiangsu''s highest monthly minimum wage will be increased to 960 yuan ($140.64) from the current 850 yuan ($124.53), the same level as in Shanghai and Hangzhou.

The minimum wage level is usually adjusted every two years. The Ministry of Human Resources and Social Security issued a circular November 2008 freezing minimum wag-es at their current levels due to the global financial crisis. Currently the minimum wage ranges from 580 yuan ($84.97) to 1,000 yuan ($146.50) per month around the country.

"The economic recovery and inflationary pressure are encouraging more local governments to raise their minimum wage levels, and it will improve low-income groups'' living conditions and boost domestic consumption," said Hu Ronghua, a professor at Nanjing University of Finance and Economics in Jiangsu Province.

China reported an 8.7 percent year-on-year economic growth in 2009, and the Consumer Price Index also rose 1.9 percent in December from a year earlier, according to fig-ures released by the National Bureau of Statistics Thursday.

Hu said the wage adjustment would benefit low-income groups first, then boost domes-tic demand and the economy in the long term.

However, there is controversy over raising the minimum wage level in Dongguan, Guangzhou Province. Currently its minimum wage is 770 yuan ($112.81) per month.

Liu Zhigeng, secretary of the Dongguan Municipal Committee of the CPC, said at a seminar last week that Dongguan''s minimum wage level should be raised to solve the employment shortage problem.

Increasing raw material and labor costs will make it difficult for export enterprises to survive, said Liao Yongjia, manager of Dongya Group, a leather bag manufacturer, at the seminar.

"Dongguan''s minimum wage level is lower than those of Jiangsu and Zhejiang provinces and should be increased," said Li Youhuan, a researcher at the Guangdong Academy of Social Sciences. "But it is not a good time to raise it now, as many small- and mediumsized labor-intensive enterprises are still struggling to survive."

Li said raising the minimum wage level would not relieve the region''s employment shortage, as there are other factors such as technology requirements and social welfare limiting employees'' choices.

Hu said the government should cut taxes and offer subsidies to help enterprises reduce financial burdens from increasing labor costs.