Friday, April 27, 2012 6:09 AM EDT
Why the U.S. 'fiscal cliff' matters
KEVIN CARMICHAEL
A little more on the “fiscal cliff” the U.S. is facing at the end of the year, and then we’ll drop it until after the November presidential election. What follows is some more on why we should worry, and a few words from Deutsche Bank on why we should keep things in perspective.
As noted in this space on Wednesday, the Federal Reserve is rather troubled about what damage the divided U.S. Congress might cause on the eve of 2013. Revenues are set to jump by some 30 per cent over two years, as temporary tax cuts expire, according to the Congressional Budget Office. At the same time, the $1-trillion in arbitrary spending reductions over ten years that were agreed last year are scheduled to begin.
The combination will do wonders for the U.S.’s ugly balance sheet, putting the government on a path to narrow the debt to 65 per cent of gross domestic product by 2020. But the Fed believes this is too much fiscal consolidation at too rapid a pace for the fragile economic recovery to bear.
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Friday, April 20, 2012 5:18 PM EDT
Americans pay less income tax than they think
DAVID MILSTEAD
Americans who met their federal tax-filing deadline this week perhaps once again complained about the crushing burden they have when paying their annual levies.
Completely without justification, of course.
The Center on Budget and Policy Priorities, a left-leaning economic think tank, noted federal taxes on middle-income Americans are near historic lows, rivaling levels of the 1950s.
A family of four in the exact middle of the income spectrum will pay only 5.6 of its 2011 income in federal income taxes, according to a new analysis by the Urban Institute-Brookings Institution Tax Policy Center.
Wednesday, April 18, 2012 6:02 PM EDT
Why U.S. consumers are the ratings equivalent of junk bonds
DAVID MILSTEAD
If U.S. consumers were corporations, say the economists at Bank of America/Merrill Lynch, they’d be getting “junk” ratings from the debt-ratings agencies.
That sharply-worded view is behind the group’s recent skepticism about the strength of the U.S. recovery, specifically whether the country’s economy has hit a “sweet spot” of self-reinforcing cycles.
“In this narrative, job growth is spurring income, boosting spending, and the cycle repeats,” the bank’s economics group wrote in a recent report. “Stronger economic news, in turn, boosts asset prices, reinforcing the positive cycle of spending, income, and jobs. As a result, optimists argue, the U.S. has returned to its traditional role of leading a global cyclical recovery.”
Here’s why they’re doubters, expecting instead that growth will slow in the second half:
Tuesday, April 10, 2012 9:06 AM EDT
For China’s leaders, inflation the least of their worries
BRIAN MILNER
Now that China’s March inflation numbers have come in higher than expected – at 3.6 per cent year over year, up from 3.2 per cent the previous month – some of the dedicated souls who track Chinese data are warning that officials will cease their monetary easing and put other stimulus plans on the back-burner.
But the fact is, Beijing is far more worried about an economic slowdown than a modest bump in inflation, which, in any case, remains below the government’s 4 per cent target.
Monday, April 9, 2012 3:34 PM EDT
Rushing women onto boards is risky business, study says
CATHERINE McLEAN
If you’re a young, ambitious woman in the corporate world, you may want to stop reading.
A recent study released by the German central bank found that risk taking within the banking industry increases with more women on an executive board. The same goes for younger executives. In contrast, men who are graying at the temples and executives with Ph.D. degrees reduce the level of risk.
Friday, April 13, 2012 5:46 PM EDT
China’s diverging purchasing indices keep analysts guessing
CAROLYNNE WHEELER
If you’re feeling a little confused about China’s economic outlook, you’re in good company.
China’s most recent purchasing managers index results seem to have a little something for both bulls and bears – namely, an HSBC flash index at 48.3, showing March was a fifth consecutive month of contraction, versus an official PMI which rose 2.1 points to 53.1, a one-year high.
At least part of the discrepancy lies with the methodology. HSBC’s index tends to put more weight on small- to medium-sized private enterprises which are more heavily export- reliant, while the official index reflects more of the situation in larger state-owned enterprises, which are benefitting from stronger household spending.
The differing trends, though, are anybody’s guess.
“I can’t figure it out. You could say that they used different methodology, different sample sets,” said Patrick Chovanec, an economics professor at Beijing’s Tsinghua University. “But there’s usually one or two points difference, and now these seem to be heading away from each other, one is going down and one is going up. I don’t know how to reconcile it.”
At HSBC, creator of the flash PMI, analysts warned that official data may still be distorted by the Chinese New Year spring festival, which usually prompts a February slowdown followed by more activity in March.
“The conflicting signals from China were especially frustrating. The divergence between the official and HSBC's PMIs leaves investors scratching their heads,” an HSBC research note urging more government easing measures read. “China is lagging the region. This divergence cannot endure forever, especially if the rest of the world is again shifting down. We clearly need China to turn.”
What the numbers do suggest, though, is that China’s efforts toward reforming its economy’s heavy reliance on state-owned enterprise and state-driven investment have slid, which makes tentative government moves toward reforming the private financing sector all the more important.
“The divergence between private and state-owned firms is clearly of concern, as state-owned firms are less productive. In recent years, the government has leaned on state enterprises to drive the economy, pushing some smaller private firms out of the market,” wrote Alaistair Chan at Moody’s Analytics.
The proof will be in next month’s numbers, when seasonal distortions are removed and firms have been generally back to business as usual. But in the meantime, the calls for further economic reform are competing with the immediate concern over a global economic slowdown and the risk of a hard landing in China.
On Tuesday, at the Boao Forum for Asia in China’s tropical Hainan island, People’s Bank of China governor Zhou Xiaochuan signalled plans for some deregulation of overseas investments, a move that could help smaller enterprises thrive by giving them alternatives to state banks, where lending has been tightened.
But he warned that China would need to use a number of tools to ensure a soft economic landing while keeping inflation under control.
“We are still in the global financial crisis period, there are new elements that may bring the global economy back to recession,” Mr. Zhou said.
Friday, March 30, 2012 10:51 AM EDT
Why China’s sewing machines could go silent
CAROLYNNE WHEELER
It’s an inevitable march: With exports falling, and the costs of production including materials, labour and the need for cleaner technology rising, companies in China’s own garment industry will be the next generation to move their production offshore.
“They definitely are worried about what they’re going to do with costs rising. They are not expanding fast, but they are wondering what their next step will be as the market expands,” said Wang Jun, secretary general of the China National Garment Association, in Beijing this week. “I think in future it will appear that Chinese factories will move their production base offshore.”
Friday, March 30, 2012 7:43 AM EDT
Prof. Bernanke defends Fed’s crisis management
KEVIN CARMICHAEL
Course: The Federal Reserve and Its Role in Today’s Economy, George Washington University (Washington)
Guest Lecturer: Ben S. Bernanke
Lecture Title: “The Aftermath of the Crisis”
Date: March 29, 2012
Tuesday, March 27, 2012 1:59 PM EDT
South Africa feels the pain of sanctions against Iran
GEOFFREY YORK
As nations around the world scramble to comply with U.S. sanctions on dealing with Iran, one of those in the toughest predicament is South Africa.
South Africa relies on Iran for 27 per cent of its oil supply, and it hasn’t yet figured out how to replace the Iranian oil. But that’s only one part of the dilemma. South Africa also has a web of business and political connections with Iran, and those will be equally difficult to sever.
The U.S. and European Union sanctions are already sparking a backlash from key political factions in South Africa, where foreign policy is still influenced by a strong streak of “anti-imperialism.”
Iran was a firm opponent of apartheid, and South Africa tends to remember those things. In fact, South Africa has sharply increased its trade with Iran since the end of apartheid in 1994, importing nearly $21-billion in oil from Iran at its peak in 2007.
The ruling African National Congress, which has a political alliance with a trade-union congress and the South African Communist Party, has significant left-wing influences in its decision-making, and it tends to resent U.S. pressure.
There would also be a populist backlash if the U.S. sanctions lead to higher prices at the gas pumps. And the government is worried about the potential $40-million cost of converting its refineries to non-Iranian crude.
So far, there’s no indication that South Africa will try to defy the U.S. sanctions. South Africa knows it would lose its access to the U.S. financial system if it refuses to comply with the sanctions.
Negotiations are continuing, and South African officials say the government is hoping for an agreement with Washington by the end of May. But the officials also say they are considering “a variety of scenarios” and “all options” – including possibly defying the sanctions.
The Congress of South African Trade Unions (COSATU), one of the two alliance partners with the ANC, loudly condemned the United States for its “attempts to bully countries.” The U.S. allegations about Iran’s nuclear program are “unproven,” the union congress said.
“COSATU demands that the South African government stop this kowtowing to the U.S. imperialists,” the congress said. It called for a “principled stand against U.S. imperialism’s attempt to impose its will on sovereign states.”
The government often ignores COSATU’s demands, and it will probably do so again on the Iran oil issue. But the business connections between South Africa and Iran will be more difficult to cut.
One of South Africa’s biggest telecommunications companies, MTN, is a major investor in Iran. It owns 49 per cent of Iran’s second-biggest cellphone operator, MTN-Irancell, which controls almost half of Iran’s mobile phone market.
Critics say the South African company complied with Iranian orders to cut off Skype and text-messaging services to Iranian cellphones during the anti-government protests in 2009. They also allege that MTN-Irancell did a deal with a Chinese company to install tracking technology on Iranian cellphones, so that Iran can track dissidents.
Avi Jorisch, a researcher at the American Foreign Policy Council, has cited reports that MTN won the Iran cellphone deal by promising to lobby the South African government to mute any criticism of Iran’s nuclear program. MTN has strongly denied the allegations.
“MTN has a responsibility to stop supporting Iran,” Mr. Jorisch wrote last week. “Partnering with a regime that uses mobile technology to track and kill the opposition is a betrayal of its corporate responsibility.”
Turkish company Turkcell, which lost to MTN in the bidding for the Iranian company, has alleged that MTN made improper payments in exchange for the Iranian business. It also charged that MTN lobbied South Africa to supply military equipment to Iran.
MTN has rejected the allegations, and the South African government has said it won’t order MTN to pull out of Iran. The Iranian market is one of MTN’s biggest and fastest-growing sources of revenue.
Even as the MTN controversy continues, another business connection between South Africa and Iran has emerged. A report in a South African newspaper said several front companies in South Africa were involved in a sanctions-busting scheme to export helicopters and spare parts to Iran.
The partner of South Africa’s deputy president, Kgalema Motlanthe, attended a meeting where a bribe was solicited in exchange for government support for one of the Iranian export deals, although the scheme eventually fell apart, the report said. Several investigations into the report are now under way.
Wednesday, March 14, 2012 3:13 PM EDT
China’s housing market to remain cool
CAROLYNNE WHEELER
If anxious Beijing homeowners and property developers were looking for signs the city’s housing market would soon reopen, they must have been sadly disappointed by Premier Wen Jiabao’s last address to the press this morning.
For just over a year, most major Chinese cities, including Beijing, have held tight rein over who is allowed to buy property and how often, an effort to crack down on speculators who had sent prices skyrocketing. Beijing apartments, for instance, can now only be purchased by those with a permanent residency certificate for the city; mortgage requirements are more strict and there are also limitations on those who wish to purchase two or more homes.
The measures have had their intended effect, cooling housing prices and slowing sales. But the side effects have been felt by property developers and construction companies, who are now struggling to sell off existing inventory while new projects languish. Other industries, including China’s massive iron and steel companies, are also feeling a pinch, as their products sit unwanted.
Globe Correspondents Contributors
Eric Reguly
Eric Reguly joined The Globe and Mail in November of 1997. He has worked for a number of publications, including the Times of London, The Financial Post in New York and London, England, the Financial Times of Canada, Alberta Report magazine and the London (Ontario) Free Press. Until April, 2007, when he became The Globe's European business correspondent, based in Rome, Eric wrote the paper's main business column from Toronto. He is a regular radio guest in Europe, Canada and the United States and makes speeches about business issues. Eric has won several awards for his work, including, in 2007, the Hyman Solomon Award for Excellence in Public Policy Journalism.
Geoffrey York
Geoffrey York is The Globe and Mail's Africa correspondent. He has been a foreign correspondent for the newspaper since 1994, including seven years as the Moscow bureau chief and seven years as the Beijing bureau chief. He is a veteran war correspondent who has covered war zones since 1991 in places such as Somalia, Sudan, Chechnya, Iraq and Afghanistan. He is the author of three books including two books on aboriginal issues in Canada. He has received several journalistic awards, including a National Magazine Award and nominations for the National Newspaper Awards.
Mark MacKinnon
Mark MacKinnon is Beijing bureau chief for The Globe and Mail. Prior to being posted to China, he was the Middle East correspondent and before that, Moscow bureau chief. He has covered wars in Afghanistan, Iraq, Chechnya and Lebanon, as well as the popular revolutions in Georgia and Ukraine. Mr. MacKinnon who has been at The Globe and Mail since 1998, is a two-time winner of the National Newspaper Award. His first book, The New Cold War: Revolutions, Rigged Elections and Pipeline Politics in the Former Soviet Union, was published in 2007 by Random House.
