American dependence on oil and fiscal mismanagement will allow emerging markets to come into their own

By Chris Devonshire-Ellis

BEIJING, Sept. 30 - With the news yesterday that the U.S. Congress had voted against plans to inject US$700 billion into its beleaguered financial system, the chances of the United States entering into a depression have significantly increased. In fact, warning signs over the state of the U.S. economy and warnings over sub-prime mortgage debt have been circulating for the past 18 months. The phrase “Great American Depression” to give a title to the current state of affairs was first coined by Socgen analysts well over a year ago, while the debate goes way back to January; see this report by the Global Anticipation Bulletin.

With U.S. election due in just a matter of weeks, Congress has effectively voted not to allow the current administration access to US$700 billion of tax payers money to sort out the banking mess. That may well tip the United States into recession, even depression, but although that may well be tough for America and Western Europe, who also bought into the U.S. debt, it will have the longer term impact of allowing time for the United States to get their financial and regulatory house in order. That is to be welcomed. But what happens next? (more…)

U.S. problems “unlikely” to impact on emerging Asia growth

Sept. 30 - Klaus Schwab, the founder of the World Economic Forum currently being held in Tianjin, echoed comments made earlier this week by Chinese Premier Wen Jiabao that China’s economy would withstand the onslaught of any U.S. downturn and its current financial problems.

Schwab said the Wall Street storm had “shocked” the world. He added that the depression and soon to come evolution of Wall Street regulation “will surely bring influence to the world and change the way of working the financial markets,” as well as the structure of global cooperation.

He predicted that the world economy will see a slowdown in growth in the next one to three years, and China’s growth rate will also drop to seven or eight percent, down from the 2008 predicted rate of 9.5 percent. But he stressed that China is still the fastest growing economy in the world, and will keep a high growth in the future. (more…)

BEIJING, Sept. 29 - The Beijing government has announced that the vehicle usage restrictions that were widely enforced during the Olympics period will be reintroduced in a modified format from October 11 this year until April 10, 2009, from 6am to 9pm daily.

Restrictions will be Monday-Friday, as follows, as per the last number of vehicle license plates:

Road ban on private cars:
Monday: 1 and 6
Tuesday: 2 and 7
Wednesday: 3 and 8
Thursday: 4 and 9
Friday: 5 and 0

(more…)

Tianjin Davos Forum Upbeat, 2009 growth rate expected to be 8.5 percent

Sept. 28 - China has passed many difficult tests during 2008 and now has full confidence and the capability to overcome various difficulties to ensure sound and fast economic growth for an even longer period of time, said Premier Wen Jiabao yesterday at the Tianjin Summer Davos Forum, according to China Daily.

Those comments are borne out by a survey conducted by China Briefing amongst international and Chinese financial institutions that indicated that China’s grow was likely to fall to 8.5 percent during 2009, a full percentage point lower than 2008. However, it was noted that infrastructure development, particularly in Beijing prior to and during the Olympics may have added a one percent growth for this years figures, meaning that China’s true growth was on course for a consistent 8.5% performance and that next year, despite severe uncertainties in the United States and Europe, would be one of similar performance to 2008. (more…)

Sept. 28 - The on-going development of the Chinese melamine scandal has reached into international brand products with several multinational food manufacturers now also having to recall product after tests showed them to contain traces of melamine, the substance initially discovered in Sanlu baby milk powder.

The South China Morning Post has reported the following brands are now affected and have been recalled pending further tests:

Chinese
Four Seas cake (strawberry flavor)
Mengnui high-calcium low fat milk
Silang House of Steamed Potato wasabi crackers
Sanlu baby milk powder
Yili ice yoghurt bar, fruit bar and eight other Yili products from frozen foods to milk
White Rabbit milk cream candy (more…)

Sept. 25 - China will carry out its second economic census between October and December state media reports.

The census, which has been conducted every five years since 2004, helps Beijing form the basis for the nation’s social and economic development blueprint during the 12th Five-Year Plan period (2011-2015).

The National Bureau of Statistics announced that their office would survey all enterprises from the secondary and tertiary sectors, including the smaller ones that had earlier been left out in annual statistics.

Economists say the census will prove particularly important this year as the figures will shed more light on how local enterprises are faring amid the subprime crisis. (more…)

Sept. 21 - China Investment Corp, China’s State investment fund, is in discussions to purchase up to 49 percent of the prestigious Wall Street investment bank Morgan Stanley.

The bank has been battered over the past few weeks as its shares have dived during the financial storm that has emerged in the United States. Its survival has been cast in doubt, and a merger with U.S. banking lender Wachovia has also been proposed; however it is believed that a tie-in with CIC is preferred by Morgan Stanley’s senior executives.

CIC previously purchased 9.9 percent of Morgan Stanley last December. (more…)

Sept. 19 – Starting today, the stamp duty on stock purchases will be abolished in an effort to rescue the falling domestic stock market.

The move to dissolve the 0.1 percent was done, “to encourage market confidence,” reported Xinhua. The new rule does not include sellers of shares which are still required to pay the 0.1 percent stamp duty.

Last April, authorities decreased stock transaction tax by two-thirds to 0.1 percent. This led to investors going on a buying spree and propelling the benchmark index by almost 10 percent for the largest single-day gain in more than six years.

(more…)

Sept. 18 - The turmoil at AIG and subsequent US$85 billion bail out by the U.S. government sent panicked policy-holders to offices throughout Asia yesterday. AIG, the world’s sixth-largest company by assets and the biggest insurer is now facing the possibility of a measured sell-off to pay off the U.S. Federal reserve’s loan within two years.

This could mean significant fall out in Asia, where AIG has extensive holdings. Founded in 1919 in Shanghai, it is China’s largest foreign-owned life insurer by premium. And according to the New York Times, 62,00 of AIG’s 116,000 direct employees work in Asia, and about 40 percent of AIG.’s US$54 billion in life insurance premiums and retirement services fees is from Asia (excluding Japan). (more…)

Sept. 18 - As the U.S. financial crisis unravels, China’s three top commercial banks have reported their levels of exposure through bonds issued by investment bank Lehman Brothers.

The fourth largest investment bank in the United States, Lehman Brothers, had filed for bankruptcy on Monday when efforts to find a buyer failed last Sunday.

In a statement, China Merchants Bank said it holds US$70 million worth of Lehman Brothers bonds: US$60 million of which is senior debt and US$10 million in subordinated debt. (more…)