Jan. 27 (Bloomberg) -- Japanese stocks advanced for the first time in three days as U.S. economic indicators eased concerns of a deepening recession in the world’s biggest economy.
Toyota Motor Corp., the No. 1 automaker globally, and Honda Motor Co. jumped more than 4 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, climbed 5.3 percent after metal prices soared. Kawasaki Kisen Kaisha Ltd. surged 8.4 percent after shipping fees for commodities gained for a fifth day.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” Mamoru Shimode, equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The Nikkei 225 Stock Average advanced 187.68, or 2.4 percent, to 7,869.82 as of 9:54 a.m. in Tokyo. The broader Topix index rose 17.68, or 2.3 percent, to 785.96, with more than five stocks climbing for each that slumped.
The Nikkei dived by a record 42 percent last year as Japan, the U.S. and Europe sank into simultaneous recessions, and the gauge has lost another 11 percent in 2009. The tumble made shares cheaper, driving up the average dividend yield on the gauge’s members to 2.79 percent as of yesterday, more than twice the returns on 10-year government bonds.
Toyota jumped 4.5 percent to 2,880 yen, breaking a four-day losing streak, while Honda, which gets about half its sales in North America, added 4.4 percent to 2,030 yen. A gauge of automakers contributed the most to the Topix’s gain.
Unexpected Gains
U.S sales of existing homes climbed 6.5 percent last month, the National Association of Realtors said yesterday, while economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data boosted commodities prices, lifting a gauge of six metals by 5.5 percent in London yesterday. In New York, copper futures for March delivery soared as much as 11 percent to the highest level since Dec. 2.
Mitsubishi, Japan’s biggest trading company by value, leapt 5.3 percent to 1,228 yen, and Mitsui & Co., the No. 2, added 4.7 percent to 928 yen. Sumitomo Metal Mining Co., the nation’s second-largest copper smelter, surged 5.9 percent to 878 yen.
Kawasaki Kisen, Japan’s No. 3 shipping line, advanced 8.4 percent to 373 yen, while Mitsui O.S.K. Lines Ltd., the second biggest, jumped 5.8 percent to 583 yen. Market leader Nippon Yusen K.K. added 5.2 percent to 487 yen. The Baltic Dry Index, a measure of shipping costs for commodities, rose 1.5 percent yesterday, bringing its five-day advance to 13 percent.
Nikkei futures expiring in March leapt 3.6 percent to 7,860 in Osaka and rose by the same degree to 7,865 in Singapore.
Monday, January 26, 2009
Asian Stocks Climb as U.S. Indicators Boost Exporters, Banks
Jan. 27 (Bloomberg) -- Asian stocks rallied from a seven- week low as U.S. economic indicators sparked optimism that demand for commodities and Japanese-made goods will recover.
BHP Billiton Ltd., the world’s biggest mining company, leapt 5.2 percent in Sydney after metal prices jumped in London. Panasonic Corp., the world’s biggest maker of consumer electronics, gained 1.8 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, led financial stocks higher after American Express Co.’s profit beat the most pessimistic forecasts and the UK’s Barclays Plc shunned government funding.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” said Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The MSCI Asia Pacific Index rose 1.9 percent at 9:49 a.m. in Tokyo. The index is still down 8.9 percent this year, after falling a record 43 percent in 2008, as the world’s biggest economies slipped into recession.
The Nikkei-225 Stock Average rose 2.6 percent to 7,877.86, the biggest gain since Dec. 15. Australia’s S&P/ASX 200 Index rose 2.3 percent to 3,419.70 in Sydney. In New York, the Standard & Poor’s 500 Index drifted between gains and losses before finishing up 0.6 percent.
Home Sales
Panasonic advanced 2.7 percent to 1,086 yen, its biggest gain since Jan. 7. U.S sales of existing homes climbed 6.5 percent last month, whereas economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data gave a boost to commodities prices, driving up a gauge of six metals by 5.5 percent in London yesterday. BHP Billiton rose 5.7 percent to A$29.02.
Asian banks gained after American Express, the biggest U.S. credit card company by purchases, reported profit from continuing operations declined 72 percent to $238 million. American Express rose as much as 7.2 percent.
Commonwealth Bank gained 2.7 percent to A$24.73. Mitsubishi UFJ Financial gained 3.5 percent to 474 yen after Bank of America Corp. sublet its Times Square trading floor in New York to the company’s investment banking unit.
Barclays jumped the most in at least two decades in London trading after saying it won’t need government funding because revenue increased last year
BHP Billiton Ltd., the world’s biggest mining company, leapt 5.2 percent in Sydney after metal prices jumped in London. Panasonic Corp., the world’s biggest maker of consumer electronics, gained 1.8 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, led financial stocks higher after American Express Co.’s profit beat the most pessimistic forecasts and the UK’s Barclays Plc shunned government funding.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” said Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The MSCI Asia Pacific Index rose 1.9 percent at 9:49 a.m. in Tokyo. The index is still down 8.9 percent this year, after falling a record 43 percent in 2008, as the world’s biggest economies slipped into recession.
The Nikkei-225 Stock Average rose 2.6 percent to 7,877.86, the biggest gain since Dec. 15. Australia’s S&P/ASX 200 Index rose 2.3 percent to 3,419.70 in Sydney. In New York, the Standard & Poor’s 500 Index drifted between gains and losses before finishing up 0.6 percent.
Home Sales
Panasonic advanced 2.7 percent to 1,086 yen, its biggest gain since Jan. 7. U.S sales of existing homes climbed 6.5 percent last month, whereas economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data gave a boost to commodities prices, driving up a gauge of six metals by 5.5 percent in London yesterday. BHP Billiton rose 5.7 percent to A$29.02.
Asian banks gained after American Express, the biggest U.S. credit card company by purchases, reported profit from continuing operations declined 72 percent to $238 million. American Express rose as much as 7.2 percent.
Commonwealth Bank gained 2.7 percent to A$24.73. Mitsubishi UFJ Financial gained 3.5 percent to 474 yen after Bank of America Corp. sublet its Times Square trading floor in New York to the company’s investment banking unit.
Barclays jumped the most in at least two decades in London trading after saying it won’t need government funding because revenue increased last year
Indian Bond Yields Show Traders Pared Rate-Cut Bets, ICICI Says
Jan. 27 (Bloomberg) -- Indian bond yields, which have rebounded from a record low touched earlier this month, indicate traders have scaled back bets for an interest-rate cut, according to ICICI Securities Ltd.
The Reserve Bank of India may today opt for a pause in reductions as policy makers consider past measures as sufficient to bolster the economy, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based primary dealer that underwrites government debt sales. Ten-year yields touched an all-time low of 4.85 percent on Jan. 5 as the central bank cut its benchmark rate four times in less than three months. Yields have jumped almost one percentage point since.
“The rebound in yields suggests the bond market has priced in a no-rate cut scenario for today,” Prasanna said. “The aggressive monetary easing of recent months suggests the RBI frontloaded its rate cuts and may now wait for results before more action. Recent government comments support this view.”
Yields on 10-year government debt have risen to 5.72 percent and are headed for the first monthly increase since July, according to the central bank’s trading system. They climbed 48 basis points, or 0.48 percentage point, this month, after dropping 1.82 percentage points in December.
“I don’t see bonds rallying much further in the near term,” Prasanna said. “We may see the 10-year yield move mostly between 5.75 percent and 6 percent in the coming weeks.”
Rate Survey
Eleven of 22 economists surveyed by Bloomberg News expect the central bank to hold the overnight lending rate, or the repurchase rate, at 5.5 percent, with the rest expecting a reduction. A separate survey shows 14 of 21 economists expect no change in the reverse-repurchase rate at which the central bank drains funds from the banking system. The rate decision is due at noon in Mumbai.
Central bank Governor Duvvuri Subbarao lowered the overnight lending and borrowing rates to 5.5 percent and 4 percent respectively on Jan. 2, both record lows. The central bank has cut its lending rate, the repurchase rate, by 3.5 percentage points since Oct. 20. It also reduced the so-called cash reserve ratio, or the proportion of deposits banks must set aside as reserves, by 4 percentage points to 5 percent.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said on Jan. 21 measures taken recently by policy makers were enough to revive an economy expected to expand at the slowest pace in six years.
Stimulus Packages
India has unveiled two stimulus packages to counter the effect of the global economic slump on Asia’s third-biggest economy. Growth has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003.
Volatility in India’s bonds may remain near a record touched this month as the economy slows and the government increases debt sales, according to ICICI.
“The bond market is in a phase of high volatility as supply pressure and the weak economic outlook are posing a conundrum,” Prasanna said.
The 30-day historical volatility gauge of the Indian 10- year government bond yield surged to an all-time high of 61.3 percent on Jan. 23, more than doubling from a month earlier. The swing in yields between opening and closing levels on Jan. 7 was a half-percentage point.
India raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($40.9 billion), from 1.45 trillion rupees set in its budget for the period.
The Reserve Bank of India may today opt for a pause in reductions as policy makers consider past measures as sufficient to bolster the economy, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based primary dealer that underwrites government debt sales. Ten-year yields touched an all-time low of 4.85 percent on Jan. 5 as the central bank cut its benchmark rate four times in less than three months. Yields have jumped almost one percentage point since.
“The rebound in yields suggests the bond market has priced in a no-rate cut scenario for today,” Prasanna said. “The aggressive monetary easing of recent months suggests the RBI frontloaded its rate cuts and may now wait for results before more action. Recent government comments support this view.”
Yields on 10-year government debt have risen to 5.72 percent and are headed for the first monthly increase since July, according to the central bank’s trading system. They climbed 48 basis points, or 0.48 percentage point, this month, after dropping 1.82 percentage points in December.
“I don’t see bonds rallying much further in the near term,” Prasanna said. “We may see the 10-year yield move mostly between 5.75 percent and 6 percent in the coming weeks.”
Rate Survey
Eleven of 22 economists surveyed by Bloomberg News expect the central bank to hold the overnight lending rate, or the repurchase rate, at 5.5 percent, with the rest expecting a reduction. A separate survey shows 14 of 21 economists expect no change in the reverse-repurchase rate at which the central bank drains funds from the banking system. The rate decision is due at noon in Mumbai.
Central bank Governor Duvvuri Subbarao lowered the overnight lending and borrowing rates to 5.5 percent and 4 percent respectively on Jan. 2, both record lows. The central bank has cut its lending rate, the repurchase rate, by 3.5 percentage points since Oct. 20. It also reduced the so-called cash reserve ratio, or the proportion of deposits banks must set aside as reserves, by 4 percentage points to 5 percent.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said on Jan. 21 measures taken recently by policy makers were enough to revive an economy expected to expand at the slowest pace in six years.
Stimulus Packages
India has unveiled two stimulus packages to counter the effect of the global economic slump on Asia’s third-biggest economy. Growth has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003.
Volatility in India’s bonds may remain near a record touched this month as the economy slows and the government increases debt sales, according to ICICI.
“The bond market is in a phase of high volatility as supply pressure and the weak economic outlook are posing a conundrum,” Prasanna said.
The 30-day historical volatility gauge of the Indian 10- year government bond yield surged to an all-time high of 61.3 percent on Jan. 23, more than doubling from a month earlier. The swing in yields between opening and closing levels on Jan. 7 was a half-percentage point.
India raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($40.9 billion), from 1.45 trillion rupees set in its budget for the period.
Subbarao May Keep Indian Interest Rates on Hold at Record Low
Jan. 27 (Bloomberg) -- India's central bank Governor Duvvuri Subbarao may keep interest rates unchanged today after lowering them to a record this month.
The Reserve Bank of India will leave the reverse repurchase rate at 4 percent, according to 14 of 21 economists surveyed by Bloomberg News. The rest expect a reduction. A decision is due at 11:15 a.m. in Mumbai.
Subbarao, who alone decides monetary policy, unexpectedly cut rates on Jan. 2 to coincide with Prime Minister Manmohan Singh's second fiscal stimulus package since December. After reversing four years of monetary policy tightening in little over three months, the governor may focus today's scheduled meeting on his assessment of the economy.
``Rates haven't been reduced enough given the current economic scenario, but it's unlikely they will cut today,'' said Soumendra K. Dash, chief economist at Credit Analysis & Research Ltd., a ratings company in Mumbai. ``The bank will assess the impact of the steps taken so far before resuming.''
Since January, data has confirmed Subbarao's comments that the economy is slowing along with investment.
Exports, 14 percent of gross domestic product, sank 9.9 percent in November from a year earlier. Industrial production grew at half the pace between April and October than for the same period a year earlier.
Foreign Investment
Foreign investors, who were instrumental in driving the Indian economy's record 9.3 percent expansion in the three years to March 2008, are fleeing. Last year they pulled out $13.1 billion from Indian stocks after buying $17.2 billion of equities in 2007. India's Sensitive Index, or Sensex, has dropped 10 percent so far this year, extending last year's 52 percent slide.
``Share prices have tanked and confidence has evaporated,'' said Tehmina Khan, a London-based economist at Capital Economics Ltd. ``What's more, domestic lenders too have grown increasingly cautious.''
The argument that India's inflation rate requires policy caution is also losing credence. Wholesale prices for the week ended Jan. 3 rose 5.6 percent, less than half the pace in August.
Subbarao may today lower his forecast for India's growth for the year to March 31 from 7.5 percent, the weakest in four years, and predict slower inflation.
Along with the one percentage point cut to the reverse repurchase rate on Jan. 2, Subbarao lowered the repurchase rate by the same margin to 5.5 percent and cut the amount of cash that lenders need to set aside as reserves by 50 basis points to 5 percent.
Domestic Demand
``Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand,'' said Chetan Ahya, a Singapore-based economist at Morgan Stanley.
Commercial lenders have been slow to follow the central bank's lead in cutting rates because they are still paying high interest on deposits following the RBI's efforts to control inflation by raising interest rates to a seven-year high in July.
Lending rates for the best corporate customers at ICICI Bank Ltd., the nation's second biggest, stand at 16.75 percent, reflecting only one 0.5 percentage point cut. The central bank's repurchase rate, at which it lends to commercial banks, has dropped by 3.5 percentage points since October to 5.5 percent.
Singh's Surgery
Singh, who underwent heart bypass surgery on Jan. 24, has been coordinating with Subbarao since October to ensure investment doesn't suffer from the global credit crunch. Investment typically accounts for about one third of growth in the $1.2 trillion economy.
The government has undertaken a $4 billion plan to invest in roads and ports, and on Jan. 2 raised the overseas investment limit in the local corporate bond market to $15 billion from $6 billion.
Singh is also under pressure to prop up the economy and prevent companies from scaling back production and firing workers before general elections scheduled for April and May this year.
Tata Motors Ltd., India's biggest truckmaker, stopped production at a commercial-vehicle factory for six days this month. Hyundai Motor Co.'s Indian unit is cutting output and firing temporary staff. Indian exporters said this month they expect to cut about 10 million jobs by March.
``Ensuring job security is the main challenge before the government ahead of the elections,'' said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. ``The mother of all monetary easing is still alive and kicking, it's just that they might take a pause today.'
The Reserve Bank of India will leave the reverse repurchase rate at 4 percent, according to 14 of 21 economists surveyed by Bloomberg News. The rest expect a reduction. A decision is due at 11:15 a.m. in Mumbai.
Subbarao, who alone decides monetary policy, unexpectedly cut rates on Jan. 2 to coincide with Prime Minister Manmohan Singh's second fiscal stimulus package since December. After reversing four years of monetary policy tightening in little over three months, the governor may focus today's scheduled meeting on his assessment of the economy.
``Rates haven't been reduced enough given the current economic scenario, but it's unlikely they will cut today,'' said Soumendra K. Dash, chief economist at Credit Analysis & Research Ltd., a ratings company in Mumbai. ``The bank will assess the impact of the steps taken so far before resuming.''
Since January, data has confirmed Subbarao's comments that the economy is slowing along with investment.
Exports, 14 percent of gross domestic product, sank 9.9 percent in November from a year earlier. Industrial production grew at half the pace between April and October than for the same period a year earlier.
Foreign Investment
Foreign investors, who were instrumental in driving the Indian economy's record 9.3 percent expansion in the three years to March 2008, are fleeing. Last year they pulled out $13.1 billion from Indian stocks after buying $17.2 billion of equities in 2007. India's Sensitive Index, or Sensex, has dropped 10 percent so far this year, extending last year's 52 percent slide.
``Share prices have tanked and confidence has evaporated,'' said Tehmina Khan, a London-based economist at Capital Economics Ltd. ``What's more, domestic lenders too have grown increasingly cautious.''
The argument that India's inflation rate requires policy caution is also losing credence. Wholesale prices for the week ended Jan. 3 rose 5.6 percent, less than half the pace in August.
Subbarao may today lower his forecast for India's growth for the year to March 31 from 7.5 percent, the weakest in four years, and predict slower inflation.
Along with the one percentage point cut to the reverse repurchase rate on Jan. 2, Subbarao lowered the repurchase rate by the same margin to 5.5 percent and cut the amount of cash that lenders need to set aside as reserves by 50 basis points to 5 percent.
Domestic Demand
``Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand,'' said Chetan Ahya, a Singapore-based economist at Morgan Stanley.
Commercial lenders have been slow to follow the central bank's lead in cutting rates because they are still paying high interest on deposits following the RBI's efforts to control inflation by raising interest rates to a seven-year high in July.
Lending rates for the best corporate customers at ICICI Bank Ltd., the nation's second biggest, stand at 16.75 percent, reflecting only one 0.5 percentage point cut. The central bank's repurchase rate, at which it lends to commercial banks, has dropped by 3.5 percentage points since October to 5.5 percent.
Singh's Surgery
Singh, who underwent heart bypass surgery on Jan. 24, has been coordinating with Subbarao since October to ensure investment doesn't suffer from the global credit crunch. Investment typically accounts for about one third of growth in the $1.2 trillion economy.
The government has undertaken a $4 billion plan to invest in roads and ports, and on Jan. 2 raised the overseas investment limit in the local corporate bond market to $15 billion from $6 billion.
Singh is also under pressure to prop up the economy and prevent companies from scaling back production and firing workers before general elections scheduled for April and May this year.
Tata Motors Ltd., India's biggest truckmaker, stopped production at a commercial-vehicle factory for six days this month. Hyundai Motor Co.'s Indian unit is cutting output and firing temporary staff. Indian exporters said this month they expect to cut about 10 million jobs by March.
``Ensuring job security is the main challenge before the government ahead of the elections,'' said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. ``The mother of all monetary easing is still alive and kicking, it's just that they might take a pause today.'
Saturday, January 24, 2009
News Analysis China Jittery About Obama Amid Signs of Harder Line
WASHINGTON — Whether it was a shot across the bow or a simple restatement of his boss’s views, Timothy F. Geithner’s assertion that China “manipulates” its currency has complicated a crucial front in President Obama’s efforts to improve America’s relations with the world.
China experts here said there were several other signs that the Obama administration could take a harder line toward Beijing, including Mr. Obama’s emphasis on climate change and the environment in trade negotiations and Secretary of State Hillary Rodham Clinton’s focus on human rights.
The Chinese Ministry of Commerce responded tartly to the charge by Mr. Geithner, Mr. Obama’s nominee for Treasury secretary. “Directing unsubstantiated criticism at China on the exchange-rate issue will only help U.S. protectionism and will not help towards a real solution to the issue,” the ministry said late on Friday in a statement to Agence France-Presse.
China starts off on weaker footing with Mr. Obama than it did with his predecessor, George W. Bush. Mr. Bush and his last Treasury secretary, Henry M. Paulson Jr., cultivated Chinese leaders and refused to call Beijing a manipulator. Mr. Obama has little personal experience of China, and lacks senior advisers with a deep interest in or knowledge of the country. With the American economy in a deep slump, and China trying to ramp up its exports to cushion a sharp slowdown there, experts worry that trade relations between the countries could deteriorate.
If the United States repairs its image in many parts of the world, that could make it harder for the Chinese to present themselves as an alternative to American influence in Asia, Africa, and elsewhere.
“The Chinese are probably one of the few people in the world who were sorry to see President Bush go, and are nervous about his successor,” said Kenneth G. Lieberthal, a visiting fellow at the Brookings Institution who worked on China policy for the Clinton administration.
“They saw the Inaugural Address as having some uncomfortable elements for them,” Mr. Lieberthal said. “They are uneasy about Hillary Clinton. She has, in their assessment, not been a friend of China.”
The Chinese news media played down the significance of Mr. Geithner’s remarks, which were made in writing to the Senate Finance Committee as part of the confirmation process.
Rather than dwell on or analyze the reference to China’s currency, the Chinese official newspaper, The People’s Daily, quoted Mr. Geithner as saying that the currency manipulation issue would take a back seat to working with China to alleviate the global financial crisis. The headline said, “U.S. Treasury secretary-designate vows to deepen U.S.-China economic ties.”
American experts agree that the United States will have to work closely with China to engineer a global recovery, and the two countries have each embarked on costly programs to stimulate their economies. The Obama administration will also depend on China to continue buying Treasury bills and other government debt to finance its $825 billion recovery package.
Yet several things could conspire to spoil that cooperation. The Treasury must decide later in the spring whether to label China a currency manipulator, under a law that requires the administration to report to Congress twice a year on the exchange rate practices of trading partners.
In his written response, Mr. Geithner appeared to leave the administration plenty of wiggle room. “The question is how and when to broach the subject in order to do more good than harm,” he said.
But as a candidate, Mr. Obama took a tough line on China’s practices, saying that Beijing pegged its currency at an artificially low rate and pledging to use diplomatic means to force a change.
“This is not good for American firms and workers, not good for the world, and ultimately likely to produce inflation problems in China itself,” Mr. Obama said in a campaign essay for the American Chamber of Commerce in China.
Advocates for closer ties said they worried that unless the administration developed an overall framework for the relationship, individual events like the Treasury report could dictate the atmosphere.
It is not clear that such a framework exists. Mrs. Clinton was careful to steer clear of currency issues in her testimony to the Senate. In that testimony, she demurred on the question of whether the Obama administration would continue the “strategic economic dialogue,” a semiannual meeting on economic issues between the two countries that was led by Mr. Paulson.
Mrs. Clinton does not have the same extensive history with China that she has had with other countries. She is best known there for a speech she gave in 1995 in Beijing about women’s rights, and some China experts said they worried that her positions on trade and human rights could be a problem. Mr. Obama’s focus on energy and climate change, experts said, could cut both ways. If China and the United States could find ways to cooperate on stemming the growth of greenhouse gases, it could become the cornerstone of the relationship. If not, it could be dangerously disruptive.
Nicholas R. Lardy, an expert on the Chinese economy at the Peterson Institute of International Economics in Washington, said the financial crisis had upended many of the assumptions about the relationship.
China’s currency, he noted, has increased in value in recent months because it is pegged to the dollar, which has risen as investors fled to safe investments. China’s trade surplus with the United States has stopped growing, as American consumers stop buying so many Chinese imports.
C. Fred Bergsten, the Peterson institute’s director, said Mr. Geithner had another target in mind with his remark.
“It was a shot across the bow of Congress,” he said. “The administration is saying, ‘We will be tougher on the Chinese on trade, so you don’t need to pass protectionist legislation.’ ”
China experts here said there were several other signs that the Obama administration could take a harder line toward Beijing, including Mr. Obama’s emphasis on climate change and the environment in trade negotiations and Secretary of State Hillary Rodham Clinton’s focus on human rights.
The Chinese Ministry of Commerce responded tartly to the charge by Mr. Geithner, Mr. Obama’s nominee for Treasury secretary. “Directing unsubstantiated criticism at China on the exchange-rate issue will only help U.S. protectionism and will not help towards a real solution to the issue,” the ministry said late on Friday in a statement to Agence France-Presse.
China starts off on weaker footing with Mr. Obama than it did with his predecessor, George W. Bush. Mr. Bush and his last Treasury secretary, Henry M. Paulson Jr., cultivated Chinese leaders and refused to call Beijing a manipulator. Mr. Obama has little personal experience of China, and lacks senior advisers with a deep interest in or knowledge of the country. With the American economy in a deep slump, and China trying to ramp up its exports to cushion a sharp slowdown there, experts worry that trade relations between the countries could deteriorate.
If the United States repairs its image in many parts of the world, that could make it harder for the Chinese to present themselves as an alternative to American influence in Asia, Africa, and elsewhere.
“The Chinese are probably one of the few people in the world who were sorry to see President Bush go, and are nervous about his successor,” said Kenneth G. Lieberthal, a visiting fellow at the Brookings Institution who worked on China policy for the Clinton administration.
“They saw the Inaugural Address as having some uncomfortable elements for them,” Mr. Lieberthal said. “They are uneasy about Hillary Clinton. She has, in their assessment, not been a friend of China.”
The Chinese news media played down the significance of Mr. Geithner’s remarks, which were made in writing to the Senate Finance Committee as part of the confirmation process.
Rather than dwell on or analyze the reference to China’s currency, the Chinese official newspaper, The People’s Daily, quoted Mr. Geithner as saying that the currency manipulation issue would take a back seat to working with China to alleviate the global financial crisis. The headline said, “U.S. Treasury secretary-designate vows to deepen U.S.-China economic ties.”
American experts agree that the United States will have to work closely with China to engineer a global recovery, and the two countries have each embarked on costly programs to stimulate their economies. The Obama administration will also depend on China to continue buying Treasury bills and other government debt to finance its $825 billion recovery package.
Yet several things could conspire to spoil that cooperation. The Treasury must decide later in the spring whether to label China a currency manipulator, under a law that requires the administration to report to Congress twice a year on the exchange rate practices of trading partners.
In his written response, Mr. Geithner appeared to leave the administration plenty of wiggle room. “The question is how and when to broach the subject in order to do more good than harm,” he said.
But as a candidate, Mr. Obama took a tough line on China’s practices, saying that Beijing pegged its currency at an artificially low rate and pledging to use diplomatic means to force a change.
“This is not good for American firms and workers, not good for the world, and ultimately likely to produce inflation problems in China itself,” Mr. Obama said in a campaign essay for the American Chamber of Commerce in China.
Advocates for closer ties said they worried that unless the administration developed an overall framework for the relationship, individual events like the Treasury report could dictate the atmosphere.
It is not clear that such a framework exists. Mrs. Clinton was careful to steer clear of currency issues in her testimony to the Senate. In that testimony, she demurred on the question of whether the Obama administration would continue the “strategic economic dialogue,” a semiannual meeting on economic issues between the two countries that was led by Mr. Paulson.
Mrs. Clinton does not have the same extensive history with China that she has had with other countries. She is best known there for a speech she gave in 1995 in Beijing about women’s rights, and some China experts said they worried that her positions on trade and human rights could be a problem. Mr. Obama’s focus on energy and climate change, experts said, could cut both ways. If China and the United States could find ways to cooperate on stemming the growth of greenhouse gases, it could become the cornerstone of the relationship. If not, it could be dangerously disruptive.
Nicholas R. Lardy, an expert on the Chinese economy at the Peterson Institute of International Economics in Washington, said the financial crisis had upended many of the assumptions about the relationship.
China’s currency, he noted, has increased in value in recent months because it is pegged to the dollar, which has risen as investors fled to safe investments. China’s trade surplus with the United States has stopped growing, as American consumers stop buying so many Chinese imports.
C. Fred Bergsten, the Peterson institute’s director, said Mr. Geithner had another target in mind with his remark.
“It was a shot across the bow of Congress,” he said. “The administration is saying, ‘We will be tougher on the Chinese on trade, so you don’t need to pass protectionist legislation.’ ”
State Bank of India, ICICI Profits Advance on Bond Investments
Jan. 25 (Bloomberg) -- State Bank of India and ICICI Bank Ltd., the nation’s two largest lenders, said third-quarter profit increased after government bonds posted their biggest quarterly gains in at least a decade, boosting investment returns.
State Bank, which accounts for almost a fifth of the nation’s loans, yesterday posted a 37 percent advance in net income to 24.8 billion rupees ($503 million), matching analyst forecasts. At Mumbai-based ICICI, profit rose 3.3 percent to 12.7 billion rupees, more than analysts had expected.
India’s central bank cut interest rates four times in the final three months of 2008 as inflation slowed, helping 10-year bonds complete their best year since 2001. That boost may not sustain banks going forward, as they set aside more funds to cover loan delinquencies by corporate clients and consumers.
“Gains from treasury will be limited as we go ahead,” U.P. Bhat, who manages 43 billion rupees at Canara Robeco Asset Management Co. in Mumbai, said by telephone. “Economic activity is unlikely to pick up before the second-half and banks may find it difficult to increase lending.”
Growth in Asia’s third-largest economy has slowed for two straight quarters, and the government forecasts an expansion of 7 percent in the fiscal year ending March 31, the weakest since 2003, after recording average annual growth of more than 9 percent in the previous three years.
In the most recent quarter, bond holdings buoyed both banks. At ICICI, income from treasury operations, which includes trading in bonds and currencies, climbed more than three-fold from a year earlier to 9.76 billion rupees. At State Bank, also based in Mumbai, treasury income jumped 51 percent climb to 60 billion rupees.
Diverging
In other areas, the performances of the two lenders diverged. State Bank’s deposits climbed 36 percent in the quarter, and advances rose 29 percent, with large companies’ borrowings rising 47 percent and retail credit increasing 27 percent.
ICICI’s deposits fell 9 percent to 2.09 trillion rupees. Advances dropped 1.3 percent, even as loan growth for Indian banks averaged 28 percent in the three months ended Dec. 31, according to central bank data.
State Bank’s gross non-performing assets as a percentage of loans shrank to 2.61 percent, from 2.82 percent a year earlier. The lender increased the funds set aside to cover defaults by 16 percent to 5.15 billion rupees.
ICICI increased its provisions by 33 percent to 10.1 billion rupees.
Bad Debts
“Banks will have to watch out for rise in bad debts, especially from the real estate sector,” said Canara Robeco’s Bhat.
ICICI last year racked up the largest losses tied to the global financial crisis among Indian lenders, leading to a run on the bank in September as depositors grew concerned about the company’s capital adequacy.
ICICI reduced operating expenses by 19 percent during the quarter, without specifying how it did so.
“ICICI will have to cut its rates to once again get competitive,” said R.K. Gupta, who manages 2.5 billion rupees at Taurus Mutual Fund in New Delhi including ICICI shares. Still, “the results are better than expected and will ensure that investor confidence isn’t shattered. The worst seems to be over for the bank.”
ICICI fell 64 percent in 2008, surpassing the 52 percent drop in the nation’s benchmark Sensitive Index and 42 percent decline in State Bank’s stock, as investors shunned the company on concern that it might record bigger losses on overseas investments tied to failed U.S. financial institutions.
ICICI fell 3.8 percent to 363.85 rupees on Jan. 23, valuing the company at 405 billion rupees. The shares have declined 19 percent this year. That compares with a 10 percent retreat in the Sensex.
State Bank declined 4.5 percent to 1,041.5 rupees on Jan. 23, valuing the company at 661 billion rupees. Like ICICI, its shares have fallen 19 percent in 2009.
State Bank, which accounts for almost a fifth of the nation’s loans, yesterday posted a 37 percent advance in net income to 24.8 billion rupees ($503 million), matching analyst forecasts. At Mumbai-based ICICI, profit rose 3.3 percent to 12.7 billion rupees, more than analysts had expected.
India’s central bank cut interest rates four times in the final three months of 2008 as inflation slowed, helping 10-year bonds complete their best year since 2001. That boost may not sustain banks going forward, as they set aside more funds to cover loan delinquencies by corporate clients and consumers.
“Gains from treasury will be limited as we go ahead,” U.P. Bhat, who manages 43 billion rupees at Canara Robeco Asset Management Co. in Mumbai, said by telephone. “Economic activity is unlikely to pick up before the second-half and banks may find it difficult to increase lending.”
Growth in Asia’s third-largest economy has slowed for two straight quarters, and the government forecasts an expansion of 7 percent in the fiscal year ending March 31, the weakest since 2003, after recording average annual growth of more than 9 percent in the previous three years.
In the most recent quarter, bond holdings buoyed both banks. At ICICI, income from treasury operations, which includes trading in bonds and currencies, climbed more than three-fold from a year earlier to 9.76 billion rupees. At State Bank, also based in Mumbai, treasury income jumped 51 percent climb to 60 billion rupees.
Diverging
In other areas, the performances of the two lenders diverged. State Bank’s deposits climbed 36 percent in the quarter, and advances rose 29 percent, with large companies’ borrowings rising 47 percent and retail credit increasing 27 percent.
ICICI’s deposits fell 9 percent to 2.09 trillion rupees. Advances dropped 1.3 percent, even as loan growth for Indian banks averaged 28 percent in the three months ended Dec. 31, according to central bank data.
State Bank’s gross non-performing assets as a percentage of loans shrank to 2.61 percent, from 2.82 percent a year earlier. The lender increased the funds set aside to cover defaults by 16 percent to 5.15 billion rupees.
ICICI increased its provisions by 33 percent to 10.1 billion rupees.
Bad Debts
“Banks will have to watch out for rise in bad debts, especially from the real estate sector,” said Canara Robeco’s Bhat.
ICICI last year racked up the largest losses tied to the global financial crisis among Indian lenders, leading to a run on the bank in September as depositors grew concerned about the company’s capital adequacy.
ICICI reduced operating expenses by 19 percent during the quarter, without specifying how it did so.
“ICICI will have to cut its rates to once again get competitive,” said R.K. Gupta, who manages 2.5 billion rupees at Taurus Mutual Fund in New Delhi including ICICI shares. Still, “the results are better than expected and will ensure that investor confidence isn’t shattered. The worst seems to be over for the bank.”
ICICI fell 64 percent in 2008, surpassing the 52 percent drop in the nation’s benchmark Sensitive Index and 42 percent decline in State Bank’s stock, as investors shunned the company on concern that it might record bigger losses on overseas investments tied to failed U.S. financial institutions.
ICICI fell 3.8 percent to 363.85 rupees on Jan. 23, valuing the company at 405 billion rupees. The shares have declined 19 percent this year. That compares with a 10 percent retreat in the Sensex.
State Bank declined 4.5 percent to 1,041.5 rupees on Jan. 23, valuing the company at 661 billion rupees. Like ICICI, its shares have fallen 19 percent in 2009.
Price Waterhouse Auditors Arrested in Satyam Inquiry
Jan. 24 (Bloomberg) -- PricewaterhouseCoopers LLP’s Indian affiliate, the auditor of Satyam Computer Services Ltd., said two partners were arrested by police as authorities extended the nation’s largest fraud inquiry.
Srinivas Talluri and S. Gopalakrishnan were remanded to judicial custody on charges of “conspiracy and co- participation,” A. Shivanarayana, a police spokesman in Andhra Pradesh state, said from the province’s capital Hyderabad, where Satyam is based. Price Waterhouse said in an e-mailed statement it didn’t know why two partners were detained.
Seven years after the implosion of Enron Corp. led to the dissolution of accounting firm Arthur Andersen LLP, the Satyam case has put PricewaterhouseCoopers in the spotlight. Indian police, fraud squad, markets regulator and accounting body have started investigations after Satyam founder Ramalinga Raju said Jan. 7 that he had fabricated $1 billion of assets.
“Over the last fortnight, the firm has fully cooperated in all inquiries and has provided the documents called for by the Indian authorities,” Price Waterhouse said today in a statement from New Delhi. “We greatly regret that two Price Waterhouse partners have been detained today for further questioning.”
PricewaterhouseCoopers LLP may also face scrutiny in the U.S. after Satyam’s New York-listed equities lost 82 percent of their market value in two weeks. The U.S. Securities and Exchange Commission is investigating whether Satyam misled investors and officials from the SEC plan to coordinate inquiries with counterparts in India.
Fudged Accounts
The auditing firm said Jan. 15 that its reports could no longer be relied on after former chairman Raju said he’d fudged the accounts. The Institute of Chartered Accountants of India, a statutory body which oversees auditors, will report on its investigation into Price Waterhouse on Feb. 11.
Prosecutors allege Satyam padded employee numbers to siphon off cash and forged documents to support fake bank deposits.
Satyam had about 33 billion rupees ($674 million) of “fictitious and non-existent” accounts, public prosecutor K. Ajay Kumar told a hearing on Jan. 22. The company had about 40,000 employees, compared with the 53,000 claimed by Satyam, he said.
India’s biggest corporate fraud investigation is being led by teams from the Andhra Pradesh state police’s criminal investigation department, the markets regulator, the independent accounting body and the government’s serious fraud office.
Separate Entity
Satyam’s state-appointed board has almost arranged funds to help tide over a cash crunch till the end of March, the company said yesterday. The board has hired KPMG and Deloitte Touche Tohmatsu to restate the accounts.
Satyam is struggling to raise cash to pay salaries after Raju said he had falsified accounts for several years. It is also battling to stop off customers from joining State Farm Mutual Automobile Insurance Co. in canceling contracts.
Price Waterhouse has offices in nine Indian cities, according to the firm’s Web site. The Indian operation is a separate legal identity from PricewaterhouseCoopers International Ltd., according to the Web site.
The auditor’s clients include Maruti Suzuki India Ltd., maker of half the cars in the country, and the local units of Colgate-Palmolive Co., the world’s largest toothpaste maker.
PricewaterhouseCoopers LLP has a “vigorous global network” allowing member firms to “operate simultaneously as the most local and the most global of businesses,” the firm says on its Web site. The site also includes a disclaimer that each member firm “is a separate and independent legal entity.”
Larsen & Toubro
Larsen & Toubro Ltd., India’s biggest engineering company, yesterday tripled its stake in Satyam to give it greater say in the rescue of the software exporter.
Larsen bought shares in the open market to triple its holding from 4 percent, Chief Financial Officer Y.M. Deosthalee said in by telephone from Mumbai, where the company is based.
Satyam’s board has short-listed three candidates each for the positions of chief executive officer and chief financial officer and an announcement will be made in the coming week, Satyam said yesterday.
Delays in raising funds and appointing a chief executive officer are costing Satyam customers. At least two of them have given notice about terminating their contracts, board member Kiran Karnik said on Jan. 21.
Srinivas Talluri and S. Gopalakrishnan were remanded to judicial custody on charges of “conspiracy and co- participation,” A. Shivanarayana, a police spokesman in Andhra Pradesh state, said from the province’s capital Hyderabad, where Satyam is based. Price Waterhouse said in an e-mailed statement it didn’t know why two partners were detained.
Seven years after the implosion of Enron Corp. led to the dissolution of accounting firm Arthur Andersen LLP, the Satyam case has put PricewaterhouseCoopers in the spotlight. Indian police, fraud squad, markets regulator and accounting body have started investigations after Satyam founder Ramalinga Raju said Jan. 7 that he had fabricated $1 billion of assets.
“Over the last fortnight, the firm has fully cooperated in all inquiries and has provided the documents called for by the Indian authorities,” Price Waterhouse said today in a statement from New Delhi. “We greatly regret that two Price Waterhouse partners have been detained today for further questioning.”
PricewaterhouseCoopers LLP may also face scrutiny in the U.S. after Satyam’s New York-listed equities lost 82 percent of their market value in two weeks. The U.S. Securities and Exchange Commission is investigating whether Satyam misled investors and officials from the SEC plan to coordinate inquiries with counterparts in India.
Fudged Accounts
The auditing firm said Jan. 15 that its reports could no longer be relied on after former chairman Raju said he’d fudged the accounts. The Institute of Chartered Accountants of India, a statutory body which oversees auditors, will report on its investigation into Price Waterhouse on Feb. 11.
Prosecutors allege Satyam padded employee numbers to siphon off cash and forged documents to support fake bank deposits.
Satyam had about 33 billion rupees ($674 million) of “fictitious and non-existent” accounts, public prosecutor K. Ajay Kumar told a hearing on Jan. 22. The company had about 40,000 employees, compared with the 53,000 claimed by Satyam, he said.
India’s biggest corporate fraud investigation is being led by teams from the Andhra Pradesh state police’s criminal investigation department, the markets regulator, the independent accounting body and the government’s serious fraud office.
Separate Entity
Satyam’s state-appointed board has almost arranged funds to help tide over a cash crunch till the end of March, the company said yesterday. The board has hired KPMG and Deloitte Touche Tohmatsu to restate the accounts.
Satyam is struggling to raise cash to pay salaries after Raju said he had falsified accounts for several years. It is also battling to stop off customers from joining State Farm Mutual Automobile Insurance Co. in canceling contracts.
Price Waterhouse has offices in nine Indian cities, according to the firm’s Web site. The Indian operation is a separate legal identity from PricewaterhouseCoopers International Ltd., according to the Web site.
The auditor’s clients include Maruti Suzuki India Ltd., maker of half the cars in the country, and the local units of Colgate-Palmolive Co., the world’s largest toothpaste maker.
PricewaterhouseCoopers LLP has a “vigorous global network” allowing member firms to “operate simultaneously as the most local and the most global of businesses,” the firm says on its Web site. The site also includes a disclaimer that each member firm “is a separate and independent legal entity.”
Larsen & Toubro
Larsen & Toubro Ltd., India’s biggest engineering company, yesterday tripled its stake in Satyam to give it greater say in the rescue of the software exporter.
Larsen bought shares in the open market to triple its holding from 4 percent, Chief Financial Officer Y.M. Deosthalee said in by telephone from Mumbai, where the company is based.
Satyam’s board has short-listed three candidates each for the positions of chief executive officer and chief financial officer and an announcement will be made in the coming week, Satyam said yesterday.
Delays in raising funds and appointing a chief executive officer are costing Satyam customers. At least two of them have given notice about terminating their contracts, board member Kiran Karnik said on Jan. 21.
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