No giving in on renminbi appreciation

Date Mar 05 2010 14:50:57 Source:China Daily

Beijing should not bow to pressure from other countries, advisors say

BEIJING: Top legislators and advisors defended the country''s exchange rate policy on Thursday, saying the government should not buckle under US pressure for a sharp increase in the renminbi.

If Washington uses trade protectionist measures as a tool to pressurize Beijing, it would jeopardize its own interests, they said during the ongoing sessions of the National People''s Congress (NPC) and the Chinese People''s Political Consultative Conference (CPPCC).

Sun Zhenyu, China''s ambassador to the World Trade Organization, said Washington''s demand for currency revaluation is aimed at deflecting attention from its domestic woes.

"It is not right for the US to blame China for its economic problems," Sun, a CPPCC member, told China Daily.

Despite a gradual economic recovery from the global financial crisis, the US is still suffering from a high unemployment rate and uncertain recovery prospects. The Barack Obama administration and the Congress are facing severe pressure from voters to reinvigorate the domestic economy.

The US has imposed a series of trade remedy measures against Chinese products and attacked China''s exchange rate policy. In late February, 15 US senators accused China of using its "manipulated" currency as de facto subsidy for its exporters and urged US Commerce Secretary Gary Locke to consider action against Chinese imports.

International investment banks, for example, the US-based Goldman Sachs, are playing up the benefit of quicker and bolder renminbi revaluation.

A "one-off" appreciation of the currency may trigger a rally in stocks and would signal the government''s confidence in the domestic and global economies, and its willingness to use market measures to contain inflation, the Wall Street bank said in a research note.

Su Ning, vice-governor of the central bank, said "China would properly deal with the demand for yuan appreciation".

In a monetary policy report released in mid-February, the central bank reiterated the country''s long-standing policy stance of keeping the renminbi''s value basically stable at a reasonable level while reforming the exchange rate regime "in a pro-active, controllable and gradual manner".

Premier Wen Jiabao vowed late last year that the country would not bow to outside pressure on renminbi revaluation.

The currency has remained largely unchanged against the dollar since July 2008, as the country was hit hard by the global financial crisis. But as the pressure for quicker and faster renminbi appreciation has grown in the past months, many analysts expect it to happen, although they are divided on the timing.

However, Li Ruogu, former vice-governor of the central bank and president of the China Exim Bank, warned that Beijing should not bow to pressure from other countries given the still unstable economic recovery. Although exports are rising, growth prospects remain unclear.

If the US continues its trade protectionism policy, it would also harm its own interests, Li, a CPPCC member, said.

I.M.F. Help for Greece Is a Risky Prospect

Date Mar 05 2010 14:48:41 Source:New York Times

Greece skirted disaster this week by persuading investors and politicians that it is finally on track to fix its finances. But even before the dust settles, the government is setting the stage for a potential conflict with Germany, France and other European governments that may raise doubts about the sustainability of the euro project.

In the last two days, Greece’s finance minister has threatened to turn to the International Monetary Fund for a bailout if Chancellor Angela Merkel of Germany and other European politicians resist pledging aid to help Greece cope with its newfound frugality. Asking the fund for help could create a new round of financial and political turmoil by sending the message that Europe cannot resolve its own problems, analysts said.

“It would be damaging for the euro zone going forward because it would sow seeds of doubt about whether this is really a currency union, or just a group of countries that share a currency,” said Simon Tilford, the chief economist of the Center for European Reform in London.

Policy makers and leaders of many countries that use the euro see Greece’s troubles as a problem within the family. They want a homegrown political solution to show that Europe can fix internal economic crises without outside help.

Turning to the I.M.F., which often helps struggling emerging-market nations, is seen as a stigma that is to be avoided, a concern underscored by the European Central Bank’s president, Jean-Claude Trichet, on Wednesday. “I do not trust that it would be appropriate to have the introduction of the I.M.F. as a supplier of help,” he said.

No member of the euro zone has had to borrow from the I.M.F. since the official use of the common currency began in 1999, and no major industrialized country in Europe has done so since Britain in 1976.

But from Greece’s perspective, the I.M.F. would force the government to swallow nearly the same bitter medicine that Germany, France and others have required — but at least Athens would receive guaranteed financial aid from the I.M.F. in return.

In addition, it is not clear that Germany and other European governments seeking to contain the crisis have the resources or expertise to monitor Greece and other profligate euro members for the many years that it will take for the troubles to blow over. And if Greece has to refinance more and more of its debt in the coming months, the crisis could intensify.

“It’s a black eye for the euro zone if one of their members has to turn to the I.M.F. for support,” Randall W. Stone, a political scientist at the University of Rochester, said. “That’s embarrassing. On the other hand, it’s potentially more damaging to create a precedent for the rich European countries to bail out the poorer ones when they get into financial trouble.”

Greece’s game of brinkmanship may well bring the I.M.F. to its doorstep. “I think the I.M.F. is going to get called in before the end of the day,” Kenneth S. Rogoff, a Harvard economist and former I.M.F. chief economist, said in a phone interview from Germany. “Greece’s austerity plan is like a New Year’s resolution. It’s not going to be easy to enforce.”

For Greek leaders facing wide civil unrest, including the unions’ occupation of the country’s finance ministry on Thursday, the threat of turning to the I.M.F. can serve useful ends.

“People like to blame the I.M.F. for the policies they impose, but in many cases these are policies the governments know they have to push through,” said James Raymond Vreeland, a political scientist at Georgetown University. “They use the leverage of the I.M.F. so it’s a little more politically palatable.”

But even setting aside the symbolic implications, some experts believe that an I.M.F. bailout would deeply rattle the markets.

Despite the reassuring bond sale on Thursday, investors could quickly drive up Greece’s borrowing costs if they come to believe an I.M.F. intervention is likely, said Michael L. Mussa, a former I.M.F. research director who is now a senior fellow at the Peterson Institute for International Economics.

“The market is expecting other Europeans to do something,” Mr. Mussa said. “If that expectation is disappointed, I don’t see how they’re going to resolve the crisis.”

The biggest challenge is in Germany, which has historically tended to enforce fiscal and economic rectitude on its neighbors. Many German taxpayers are vehemently opposed to paying for the profligacy of their free-spending neighbors in Greece and other southern European countries that let their deficits soar sky-high instead of taming them when times were good.

At the same time, German banks also underwrite much of the Continent’s debt and exert considerable influence in domestic politics, according to Mark S. Copelovitch, a political scientist at the University of Wisconsin, Madison. Germany “doesn’t want its banking sector to go under because Greece has defaulted,” he said.

Yet nightly broadcasts of widespread strikes in Greece, and accusations by some in Athens that Germany owes Greece for inadequate reparations paid out after the Second World War, have some Germans thinking that intervention by the I.M.F. may be worth the trouble.

“In Germany, the public might favor an I.M.F. intervention if it reduced Greece’s reliance on German funds,” said Justin Vaïsse, a senior fellow at the Brookings Institution.

European power struggles are also at stake. Simon Johnson, an economist at the Massachusetts Institute of Technology and a former I.M.F. chief economist, said that Germany has long sought to have a German lead the European Central Bank, and an I.M.F. intervention could be seen as tarnishing Germany’s credibility.

Nicolas Sarkozy, the French president, views Dominique Strauss-Kahn, the I.M.F. leader and a former French finance minister, as a political rival, and would be loath to give him a perceived victory.

For weeks, the I.M.F. has tried to say as little as possible about Greece other than to state that it stands ready to help. Mr. Stone said that strategy seems the wisest for now. “The only thing worse than announcing an I.M.F. program is announcing that maybe you’re going to have one,” he said.

Market Defies Fear of Real Estate Bubble in China

Date Mar 05 2010 14:47:21 Source:New York Times

SHANGHAI — The spacious duplex comes with crocodile-skin bedposts, hand-carved bronze doors inlaid with Swarovski crystals — and a $45 million price tag.

It is still on the market, but Charles Tong, the developer of Tomson Riviera, a luxury riverfront complex in the heart of the financial district here, says he is having no trouble finding takers for similarly priced units.

“We’re selling three to four apartments every month,” said Mr. Tong, seated in a white Versace easy chair. “Now, people here want something more luxurious; they’d like a new lifestyle.”

Everyone agrees China is in the middle of a spectacular real estate boom. The question is whether it is in the middle of a rapidly growing real estate bubble.

When other recent booms collapsed — in the United States, for instance — they depressed entire economies. In China’s case, a bursting bubble could affect much of the world. China is the fastest-growing large economy and, so far, a main engine pulling the world out of recession.

Beijing is clearly concerned. Authorities have recently moved to rein in the easy credit that has helped finance China’s hyperdevelopment, including making it more difficult for home buyers to take out a second mortgage.

Last year, a record $560 billion of residential property was sold in China, an increase of 80 percent from the year before, according to government statistics that are widely considered reliable. And with prices soaring, developers are scrambling to build more mansions, villas and high-rise apartments with names like Rich Gate, Park Avenue and Palais de Fortune.

Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion “floating city,” a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.

“This is wild,” said Andy Xie, a former Morgan Stanley economist who is now an independent analyst. “By all the traditional measures, like rental yield, this is a bubble.”

Speculators are snapping up properties on the expectation that prices will continue to rise, as prices have nearly every year for more than a decade. And powerful developers are working with local governments to transform old cities into urban dreamscapes.

But Shanghai, China’s wealthiest and most dazzling city, is the epicenter of the boom. Prices here have risen more than 150 percent since 2003, pushing the price of a typical 1,100-square-foot apartment up to $200,000, according to real estate experts. (Shanghai residents typically earn less than $5,000 a year.)

A buying frenzy has gripped the city, leading to billion-dollar land auctions and long waiting lists.

“The speed you buy a house here is faster than you buy vegetables,” said Andy Xiang, an advertising executive who recently put down a large cash down payment to get the right to pay $1.3 million for an apartment in the city’s exclusive Xintiandi area.

Few residences, though, are as upscale as Tomson Riviera, which consists of four golden-hued towers overlooking the Huangpu River, with a central garden mapped out in the shape of a dragon. The apartment complex’s entrance has original artworks by Salvador Dalí and well-known Chinese artists. The apartments, a few of which have been decorated by Armani and Fendi, as well as Versace, lease for $7,000 to $17,000 a month — to high-level executives from companies like General Motors.

Those who buy an apartment here tend to be extremely wealthy, like Liu Yiqian, an eccentric Shanghai entrepreneur whom Forbes magazine says is worth about $540 million.

Mr. Liu, 47, got his start driving a taxicab in Shanghai but eventually made a fortune investing in the stock market. In an interview this week, he acknowledged owning hundreds of apartments in Shanghai (he said he could not remember exactly how many), including a 6,000-square-foot apartment in Tomson Riviera, which he bought in 2008 for about $11.5 million.

“I invest in properties,” Mr. Liu said, noting that he also collects art, antiques and jade. “I think in Shanghai in five to seven years the real estate prices will be even higher.”

As they try to modulate the market, local and central governments here are walking a thin line. Land sales were a major source of government revenue, raising about $234 billion last year, an amount equal to over a third of the cost of China’s half-trillion-dollar stimulus program.

Whether the country is in the middle of a bubble has become the subject of a debate. Some economists, like Nicholas R. Lardy at the Peterson Institute for International Economics in Washington, say the housing boom is being propelled by a huge urbanization push that is creating premium-priced houses.

Other analysts say prices are being propped up by greedy developers and government policies that are making housing increasingly unaffordable for the masses migrating to big cities.

Despite the fear of a bubble here, Mr. Tong said his prices were just right, particularly because of so much hidden wealth in China. The publicly listed company is controlled by his family.

“I have a friend,” he said. “She makes maternity clothes. Her company has 20 percent of the world’s market share, and they’re not even a listed company.”

Still, Tomson’s prices are soaring. The most recent apartment sold for about $2,300 a square foot. The average luxury apartment in Manhattan sold for just under $1,900 a square foot in the fourth quarter of 2009, according to Prudential Douglas Elliman real estate.

Indeed, for the price of a Tomson apartment in Shanghai, a buyer could easily purchase a 6,000-square-foot home in Los Angeles built by Frank Lloyd Wright and now for sale ($10.5 million), or a 52-acre site with a 22-room residence in New Canaan, Conn. ($24 million).

But a sales agent at Tomson Riviera says this is the future financial capital of the world, not the dying one.

“Look at this bronze door,” said Wang Yaodong. “That costs $50,000! Look at these Gaggenau appliances. They were made in Germany.” The glasses were imported from Belgium, the Jacuzzi from Italy. And don’t worry about losing your key, he said, “This lock can read the palm of your hand.”

Dynamic Materials posts lower Q4 profit, shrs down

Date Mar 05 2010 14:36:58 Source:Reuters

* Q4 revenue falls 27 pct

* Sees Q1 rev to be about 30 pct lower sequentially

* Sees FY 2010 rev to be flat to down 5 pct from 2009

* Shares down 9 pct after market

March 4 (Reuters) - Industrial equipment maker Dynamic Materials Corp (BOOM.O) posted a 81 percent drop in quarterly profit, hurt by lower sales at its explosive metalworking segment, and said it sees first-quarter revenue to be lower sequentially, sending its shares down 9 percent after market.

"We currently are anticipating that 2010 revenue will be in a range of flat to down 5 percent versus our 2009 top-line performance," Chief Financial Officer Rick Santa said in a statement.

The company sees a slow start to the year as it makes manufacturing adjustments, and expects first-quarter sales to be down about 30 percent sequentially.

Analysts on average were expecting the company to post a revenue of $37 million for the quarter, according to Thomson Reuters I/B/E/S.

For the fourth quarter, the company reported net income of $1 million, or 8 cents a share, compared with $5.4 million, or 42 cents a share, a year ago.

Revenue fell about 27 percent to $42.6 million. Sales from the company''s explosive metalworking segment dropped 34 percent to $31.7 million.

Analysts on average were expecting the company to earn 13 cents a share, before special items, on revenue of $39.73 million, according to Thomson Reuters I/B/E/S.

Shares of the company were trading down 9 percent at $17.35 in extended trade. They had company closed at $19.06 Thursday on Nasdaq. (Reporting by Fareha Khan in Bangalore; Editing by Jarshad Kakkrakandy)

House OKs $15 billion jobs bill

Date Mar 05 2010 14:30:10 Source:Reuters

(Reuters) - Congressional Democrats made headway on Thursday on their top legislative priority -- job creation -- when the House of Representatives approved a $15 billion package of tax credits and highway construction.

The 217 to 201 vote gave Democrats a much-needed victory after weeks of delay caused by Republican tactics, a record-setting snowstorm and internal bickering.

More job-creation efforts are in the pipeline, House Speaker Nancy Pelosi said.

"Today''s legislation is ... one key element of our agenda to get Americans back to work and strengthen our economy," Pelosi said on the House floor.

The Senate passed the bill last week. But that chamber will have to approve it again before President Barack Obama can sign it into law because the House modified it to satisfy the concerns of centrist Democrats and black lawmakers.

The Senate will probably take up the bill next week after it finishes work on a much larger jobs package, a Senate aide said.

After bruising fights over healthcare and global warming, Democrats hope to show voters they can bring down the 9.7 percent unemployment rate before the November congressional elections.

But they also face a growing backlash for the aggressive spending measures they have taken to fight the worst recession in 70 years.


Rather than passing another massive job-creation bill along the lines of last year''s $863 stimulus package, Democratic leaders plan to advance a series of smaller job-creation bills to avoid public sticker shock and keep their job-creation efforts in the news.

The Senate is debating a $107 billion measure that would extend jobless aid, help states pay spiraling healthcare costs and renew a package of expired tax breaks.

After that, Democrats could take up legislation to boost lending to small businesses, create incentives to weatherize buildings, or give states more aid to help them avoid layoffs of teachers, police and other public employees.

The bill passed by the House includes a $13 billion payroll tax break for businesses that hire unemployed workers, along with subsidies for state and local construction bonds.

It also extends a highway-construction fund through the end of the year, despite concerns that some of the money is distributed unfairly among the states. Senate Majority Leader Harry Reid has promised to fix the funding formula in later legislation, said Transportation Committee Chairman James Oberstar.

The bill''s costs, other than the highway fund, are offset by a crackdown on offshore tax shelters. The House also postponed a tax break covering business interest by one year to satisfy the concerns of centrist Blue Dog Democrats who said it would otherwise violate budget rules.

(Reporting by Andy Sullivan, editing by Philip Barbara)