By Amy Kazmin and James Lamont in New Delhi
Published: April 19 2011 08:45 | Last updated: April 19 2011 20:50
Vedanta Resources, the UK-listed mining group, has bought a 10.4 per cent stake in Cairn India for $1.5bn (£920m) from Petronas, the Malaysian state-owned oil group, as it steps up pressure on New Delhi to allow it to take over the company.
The purchase of the stake on the open market comes as Vedanta is seeking to buy a $9.6bn controlling stake in Cairn India – which owns strategically important oilfields in Rajasthan – from its London-listed parent Cairn Energy.
Vedanta bought the Petronas shares at Rs331 a share on Tuesday, a discount to the Rs405 Vedanta offered Cairn Energy and 1.6 per cent down on Monday’s closing market price.
Shares in Cairn India rose almost 3 per cent on Tuesday to Rs345.4, valuing the company at $15bn.
The transaction was agreed at short notice. People close to the deal said Vedanta did not approach Petronas but received feelers from brokers, suggesting that the Malaysian oil group, which has been a purely financial investor since 2006, was interested in withdrawing from the venture.
On Monday, Vedanta received a call from Merrill Lynch, which had a mandate to sell, and built a stake at an attractive price.
The signal of Vedanta's intent comes as the company is in the midst of an open offer for minority shareholders to sell out of Cairn India at Rs355 a share. However, analysts said Cairn India's relatively small free float meant Vedanta was unlikely to take a large stake through that offer, which closes on April 30.
When the offer was made in August, Vedanta agreed that the number of shares it acquired from Cairn Energy would be reduced by the number of shares Vedanta bought from minority shareholders up to 11 per cent of the share capital.
However, on Tuesday, Vedanta said it aimed to own 51 per cent to 70.4 per cent of Cairn India.
“Vedanta looks forward to the successful completion of the Cairn India acquisition,” it said.
Regulatory approval of Vedanta’s takeover of Cairn India has been stalled for months, with New Delhi debating whether to give its consent before resolution of a dispute with the state-run Oil and Natural Gas Corp over royalties.
The purchase of the stake shows that Vedanta, controlled by self-made Indian billionaire Anil Agarwal, is undeterred by the regulatory drag, in spite of what some consider a move to exclude him from India’s oil and gas sector.
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Tuesday, April 19, 2011
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Luxury carmakers eye India’s super-rich
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Global ultra-luxury carmakers are pouring into India. The country that is home to almost half a billion of the world’s poorest citizens, as well as the largest national group of billionaires outside the US, has become the next key market for sports cars worth more than $1m.
Aston Martin, the British luxury car manufacturer, is the latest to announce its entry into India’s coveted high-end car segment, signalling that the nation’s clan of über-rich has become too big to ignore.
“We think the market has now reached the necessary critical mass to make two local dealerships financially viable,” Bill Donnelly, Aston Martin’s global director, told the Financial Times.
Aston Martin, whose cars feature in James Bond films, joins Ferrari, Maserati and Bugatti, which have also announced plans to open a showroom in India, where the number of dollar millionaires reached 130,000 in 2010. At the same time an estimated 80 per cent of the population lives on less than $2 a day, according to the World Bank.
India sold 15,702 luxury cars last year, some way behind China, which sold 727,227 premium vehicles in the same period, according to research group IHS Global Insight.
Compared to China, the Indian market is only nascent, due to its poor highway networks, a 110 per cent tax barrier on imported vehicles and because Chinese car demand suffered a lot less during the financial crisis, analysts said.
“In China, luxury car sales did extremely well even during the financial crisis,” said Mike Dunne, an Asia-based auto consultant. “It was as if they were untouched by the events in the US.”
But demand among India’s super-rich seems to confirm sports car makers’ enthusiasm for Asia’s third-largest economy.
“The market for luxury sports cars is still in its infancy in India, but growing at a rate which makes it very important for the future,” said Mr Donnelly.
India’s demand for luxury cars is growing at a rate of more than 30 per cent, considerably higher than that of normal hatchbacks, said Jatin Chawla, auto analyst at India Infoline in Mumbai.
“Compared to China the Indian market is small but [it] is catching up rapidly,” said Mr Chawla.
Julius Kruta, of Bugatti Automobiles, which will be selling the group’s classic Veyron 16.4 Grand Sport for $3.6m in India, said the south Asian country was the latest frontier for luxury carmakers.
“India is the hub of luxury, the country of the erstwhile maharajas, who were the true patrons of bespoke luxury,” he said. “India, with its growing clan of billionaires and booming businesses, is a market that is hard to ignore.”
Simone Niccolai, Asia-Pacific managing director of Italy’s Maserati, which sold 5,675 cars globally in 2010, said that the Indian market had developed an appetite for luxury cars and planned to open seven dealerships in the country by 2015.
Lalit Choudary, an Aston Martin dealer, whose showroom in Mumbai is minutes away from the $1bn home of Indian tycoon Mukesh Ambani, said there was a new generation of millionaires who wanted to buy a luxury car to tell the world: “I’ve made it”.
“People in India want status and a car like [an] Aston Martin gives you exactly that,” said Mr Choudary, who plans to sell about 100 cars a year by 2015, including the collector’s model One-77, which will be on sale for $4.5m.
Global ultra-luxury carmakers are pouring into India. The country that is home to almost half a billion of the world’s poorest citizens, as well as the largest national group of billionaires outside the US, has become the next key market for sports cars worth more than $1m.
Aston Martin, the British luxury car manufacturer, is the latest to announce its entry into India’s coveted high-end car segment, signalling that the nation’s clan of über-rich has become too big to ignore.
“We think the market has now reached the necessary critical mass to make two local dealerships financially viable,” Bill Donnelly, Aston Martin’s global director, told the Financial Times.
Aston Martin, whose cars feature in James Bond films, joins Ferrari, Maserati and Bugatti, which have also announced plans to open a showroom in India, where the number of dollar millionaires reached 130,000 in 2010. At the same time an estimated 80 per cent of the population lives on less than $2 a day, according to the World Bank.
India sold 15,702 luxury cars last year, some way behind China, which sold 727,227 premium vehicles in the same period, according to research group IHS Global Insight.
Compared to China, the Indian market is only nascent, due to its poor highway networks, a 110 per cent tax barrier on imported vehicles and because Chinese car demand suffered a lot less during the financial crisis, analysts said.
“In China, luxury car sales did extremely well even during the financial crisis,” said Mike Dunne, an Asia-based auto consultant. “It was as if they were untouched by the events in the US.”
But demand among India’s super-rich seems to confirm sports car makers’ enthusiasm for Asia’s third-largest economy.
“The market for luxury sports cars is still in its infancy in India, but growing at a rate which makes it very important for the future,” said Mr Donnelly.
India’s demand for luxury cars is growing at a rate of more than 30 per cent, considerably higher than that of normal hatchbacks, said Jatin Chawla, auto analyst at India Infoline in Mumbai.
“Compared to China the Indian market is small but [it] is catching up rapidly,” said Mr Chawla.
Julius Kruta, of Bugatti Automobiles, which will be selling the group’s classic Veyron 16.4 Grand Sport for $3.6m in India, said the south Asian country was the latest frontier for luxury carmakers.
“India is the hub of luxury, the country of the erstwhile maharajas, who were the true patrons of bespoke luxury,” he said. “India, with its growing clan of billionaires and booming businesses, is a market that is hard to ignore.”
Simone Niccolai, Asia-Pacific managing director of Italy’s Maserati, which sold 5,675 cars globally in 2010, said that the Indian market had developed an appetite for luxury cars and planned to open seven dealerships in the country by 2015.
Lalit Choudary, an Aston Martin dealer, whose showroom in Mumbai is minutes away from the $1bn home of Indian tycoon Mukesh Ambani, said there was a new generation of millionaires who wanted to buy a luxury car to tell the world: “I’ve made it”.
“People in India want status and a car like [an] Aston Martin gives you exactly that,” said Mr Choudary, who plans to sell about 100 cars a year by 2015, including the collector’s model One-77, which will be on sale for $4.5m.
The Assembly Line Is Rolling Again, Tenuously, at Honda in Japan
SAYAMA, Japan — As an electric sign tallied the vehicles rolling off the Honda assembly line here, a scrolling message exhorted employees: “Let’s pool our strength to overcome this crisis.”
A little more than a month after the earthquake and tsunami devastated the automobile industry’s supply chains in Japan, Honda — like the other main Japanese car makers — has resumed domestic production.
Slogans or no, however, it is a tenuous triumph.
Honda’s factory here in Sayama, a suburb of Tokyo, was not damaged in the disasters. Neither was its other major plant, about 200 miles southwest of here. But auto production in Japan is at only half the normal level for Honda — as it is for Honda’s bigger rivals, Toyota and Nissan.
That is mainly because many of the 20,000 to 30,000 parts that go into a Japanese car come from the earthquake-stricken region in northeastern Japan, where numerous suppliers were knocked off line. Unless part makers can resume production soon, the auto companies might have to shut down once again.
“We cannot continue for a long time,” said Ko Katayama, the general manager at Honda’s factory here, declining to specify how long production could continue. “Sooner or later, it’s going to run out.”
Honda is now making only 400 to 450 vehicles a day at the factory in Sayama. That is down from the daily pace of 800 to 900 before the earthquake, said Atsushi Nemoto, a company spokesman.
The production shortfalls for Japan’s biggest automakers will crush earnings that had just begun to recover from the global slump caused by the world financial crisis. Over the long term, the Japanese industry could lose global market share — in recent years it has been nearly 30 percent — as overseas customers sample other brands.
Analysts say Japan’s car companies might also resign themselves to making even more of their products offshore. Even before the March disaster, Japan’s top three automakers were producing most of their vehicles outside the country. (In Honda’s case, only about 27 percent of its 3.6 million cars last year were made in Japan.)
Of course, if vital parts remain unavailable, some factories outside Japan are also being affected, though not to the same extent as those in Japan. Honda, for instance, has said it will produce at a reduced rate in North America at least through May 6.
Noriyuki Matsushima, automobile analyst at Citigroup, estimates that global production by Japanese automakers will decline 15 percent in the fiscal year that ends next March. He predicted full Japanese auto production would not resume until October.
“In a worst-case scenario,” he wrote in a recent report, industry operating losses in the first half of the fiscal year would be “the biggest ever, surpassing even those posted at the time of the Lehman Brothers bankruptcy.”
The limited scope of the recovery at the Honda factory here, known as the Saitama plant, was evident on Monday. The company had invited reporters to observe operations that had resumed a week earlier. But access was limited to a single spot near the end of the assembly line, where workers in white company jackets and trousers put finishing touches on Elysion minivans, a model sold only in Japan.
A Honda official acknowledged that if reporters had viewed the entire factory, they would have seen stretches of the assembly line containing no cars.
Toyota, too, which had resumed production in all 17 of its domestic factories as of Monday, is working at only half volume, said Shiori Hashimoto, a spokeswoman. It plans to shut factories again from April 28 through May 9 for an extended version of Japan’s Golden Week — a period containing several national holidays. And even after production resumes at half volume, Ms. Hashimoto said, the situation is uncertain beyond June 3.
In the last week Nissan has also resumed production at all five of its car factories and two engine factories in Japan — including the Iwaki engine plant that was heavily damaged by the earthquake. But Nissan, too, is producing only about half as many vehicles as usual, Mitsuru Yonekawa, a spokesman, said.
Koji Endo, a managing director at Advanced Research Japan, an equity research firm, said automakers “could have a June crisis” when inventories of crucial parts run out. “There is a very good chance they will have to shut down again,” he said.
A little more than a month after the earthquake and tsunami devastated the automobile industry’s supply chains in Japan, Honda — like the other main Japanese car makers — has resumed domestic production.
Slogans or no, however, it is a tenuous triumph.
Honda’s factory here in Sayama, a suburb of Tokyo, was not damaged in the disasters. Neither was its other major plant, about 200 miles southwest of here. But auto production in Japan is at only half the normal level for Honda — as it is for Honda’s bigger rivals, Toyota and Nissan.
That is mainly because many of the 20,000 to 30,000 parts that go into a Japanese car come from the earthquake-stricken region in northeastern Japan, where numerous suppliers were knocked off line. Unless part makers can resume production soon, the auto companies might have to shut down once again.
“We cannot continue for a long time,” said Ko Katayama, the general manager at Honda’s factory here, declining to specify how long production could continue. “Sooner or later, it’s going to run out.”
Honda is now making only 400 to 450 vehicles a day at the factory in Sayama. That is down from the daily pace of 800 to 900 before the earthquake, said Atsushi Nemoto, a company spokesman.
The production shortfalls for Japan’s biggest automakers will crush earnings that had just begun to recover from the global slump caused by the world financial crisis. Over the long term, the Japanese industry could lose global market share — in recent years it has been nearly 30 percent — as overseas customers sample other brands.
Analysts say Japan’s car companies might also resign themselves to making even more of their products offshore. Even before the March disaster, Japan’s top three automakers were producing most of their vehicles outside the country. (In Honda’s case, only about 27 percent of its 3.6 million cars last year were made in Japan.)
Of course, if vital parts remain unavailable, some factories outside Japan are also being affected, though not to the same extent as those in Japan. Honda, for instance, has said it will produce at a reduced rate in North America at least through May 6.
Noriyuki Matsushima, automobile analyst at Citigroup, estimates that global production by Japanese automakers will decline 15 percent in the fiscal year that ends next March. He predicted full Japanese auto production would not resume until October.
“In a worst-case scenario,” he wrote in a recent report, industry operating losses in the first half of the fiscal year would be “the biggest ever, surpassing even those posted at the time of the Lehman Brothers bankruptcy.”
The limited scope of the recovery at the Honda factory here, known as the Saitama plant, was evident on Monday. The company had invited reporters to observe operations that had resumed a week earlier. But access was limited to a single spot near the end of the assembly line, where workers in white company jackets and trousers put finishing touches on Elysion minivans, a model sold only in Japan.
A Honda official acknowledged that if reporters had viewed the entire factory, they would have seen stretches of the assembly line containing no cars.
Toyota, too, which had resumed production in all 17 of its domestic factories as of Monday, is working at only half volume, said Shiori Hashimoto, a spokeswoman. It plans to shut factories again from April 28 through May 9 for an extended version of Japan’s Golden Week — a period containing several national holidays. And even after production resumes at half volume, Ms. Hashimoto said, the situation is uncertain beyond June 3.
In the last week Nissan has also resumed production at all five of its car factories and two engine factories in Japan — including the Iwaki engine plant that was heavily damaged by the earthquake. But Nissan, too, is producing only about half as many vehicles as usual, Mitsuru Yonekawa, a spokesman, said.
Koji Endo, a managing director at Advanced Research Japan, an equity research firm, said automakers “could have a June crisis” when inventories of crucial parts run out. “There is a very good chance they will have to shut down again,” he said.
Obama Might Trade Parties With Paul Ryan: Laurence Kotlikoff
We all know that Democrats want to spend more on people and Republicans want to tax people less. But giving someone an extra dollar is no different than taking a dollar less from that person; raising spending is the same as cutting taxes, and cutting taxes is the same as raising spending.
Gee, maybe Democrats are closet Republicans, and Republicans are closet Democrats.
Of course some spending isn’t on people. It’s on tanks and bureaucrats. But the Democrats aren’t bigger discretionary spenders than Republicans. Bill Clinton, for example, cut discretionary spending from 8 percent to 6 percent of gross domestic product. George W. Bush raised it back to 8 percent. Since 1971, discretionary spending averaged 8 percent under Democratic administrations and 9 percent under Republican administrations.
So when it comes to discretionary spending, Republicans are Democrats and Democrats are Republicans.
This problem is on full display in the latest contretemps between “Democrat” President Barack Obama and “Republican” House Budget Chairman Paul Ryan. The president has characterized Ryan’s tax plan to cut top personal and corporate income tax rates from 35 to 25 percent as horribly regressive. But if you look closely, it may be highly progressive.
Progressive Taxation
Progessivity depends on average, not marginal taxes. Take TwoGuys, a country comprising Joe Rich and Harry Poor. Joe makes $5 million a year and pays $2 million in taxes. Harry makes $50,000 and pays $5,000 in taxes. Joe’s average tax rate is 40 percent; Harry’s is 10 percent. This outcome is progressive -- average tax rates rise with income. But, I forgot to mention, in TwoGuys, people earning more than $3.5 million face no extra tax; that is, the top rate is zero.
Conclusion: you can simultaneously lower the top rate and make the system more progressive.
Ryan is proposing dramatically broadening the tax base by curtailing or eliminating tax loopholes, such as the home mortgage-interest deduction. This break disproportionately favors the rich, saving millionaires $75,000 each on average. And Ryan’s base-broadening may include taxing capital gains and dividends at ordinary rates. In this case, the rich will pay a 25 percent, not 15 percent, tax on this income, and see both their marginal and average tax rates rise.
Next, consider cutting the corporate tax rate, which will lead to new investment, jobs, and higher wages. This isn’t a trickle-down fantasy. Just look at Ireland’s amazing growth after cutting its corporate rate.
Tax Avoidance
Unlike our personal income tax, the rich can avoid our corporate tax by investing abroad. With a higher corporate tax, capital leaves and wages (the cost of labor) fall until capital is again indifferent between staying and going. With a lower corporate tax, the opposite occurs.
Raise the corporate tax and take-home wages fall; lower it and take-home wages rise. Sounds like the corporate tax hits workers like a payroll tax.
That’s precisely what most public-finance economists believe. Hence, Ryan’s proposed cut in the corporate tax rate would, effectively, replace Obama’s temporary payroll tax cut with a permanent one -- and a roughly six times larger one at that. Haven’t the president’s economists told him this?
The president has also vilified Ryan’s Medicare voucher plan, which moves Uncle Sam from paying the fees for whatever services the health-care sector sends him to putting health care on a fixed budget. Absent such a budget, our nation will go broke, as the president himself acknowledges.
Never Worked
The president says he can limit Medicare’s fee-for-service spending through other, mainly unspecified means. But we’ve tried all types of alternatives for decades and nothing’s worked. As a result, Medicare, not Paul Ryan, is killing Medicare. As the health-care sector orders up ever-more services for the government to pay, government will be forced to cut its fees to the point that doctors will no longer cover Medicare participants.
Finally, think about Ryan’s Medicare vouchers. They are individually risk-adjusted and the poor, who are in worse shape than the rich, will get bigger vouchers. Those who will have to pay more out of pocket will be the rich.
Ryan’s voucher plan may be the most progressive reform proposed in recent memory. But the president dismissed it out of hand, saying, “I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking budget to pay for rising costs.”
Vouchers for All
To read this, you’d think Obama wouldn’t countenance vouchers for anyone. But Obama’s health plan, which covers the uninsured, provides the same vouchers that Ryan is advocating. So the president is saying vouchers are OK for uninsured workers, but not the elderly? And he’s saying leaving such workers at the mercy of the insurance industry is OK? He can’t have it both ways. Either vouchers and regulated insurance companies are OK or they aren’t.
Both are OK. As I’ve said in my last two columns, we need a single voucher system covering everyone. If Obama and Ryan sat down and spoke in French, they’d likely agree to that, as well as find common ground on taxes and discretionary spending cuts. After which, they might switch parties.
(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning Inc. and author of “Jimmy Stewart Is Dead.” The opinions expressed are his own.)
Gee, maybe Democrats are closet Republicans, and Republicans are closet Democrats.
Of course some spending isn’t on people. It’s on tanks and bureaucrats. But the Democrats aren’t bigger discretionary spenders than Republicans. Bill Clinton, for example, cut discretionary spending from 8 percent to 6 percent of gross domestic product. George W. Bush raised it back to 8 percent. Since 1971, discretionary spending averaged 8 percent under Democratic administrations and 9 percent under Republican administrations.
So when it comes to discretionary spending, Republicans are Democrats and Democrats are Republicans.
This problem is on full display in the latest contretemps between “Democrat” President Barack Obama and “Republican” House Budget Chairman Paul Ryan. The president has characterized Ryan’s tax plan to cut top personal and corporate income tax rates from 35 to 25 percent as horribly regressive. But if you look closely, it may be highly progressive.
Progressive Taxation
Progessivity depends on average, not marginal taxes. Take TwoGuys, a country comprising Joe Rich and Harry Poor. Joe makes $5 million a year and pays $2 million in taxes. Harry makes $50,000 and pays $5,000 in taxes. Joe’s average tax rate is 40 percent; Harry’s is 10 percent. This outcome is progressive -- average tax rates rise with income. But, I forgot to mention, in TwoGuys, people earning more than $3.5 million face no extra tax; that is, the top rate is zero.
Conclusion: you can simultaneously lower the top rate and make the system more progressive.
Ryan is proposing dramatically broadening the tax base by curtailing or eliminating tax loopholes, such as the home mortgage-interest deduction. This break disproportionately favors the rich, saving millionaires $75,000 each on average. And Ryan’s base-broadening may include taxing capital gains and dividends at ordinary rates. In this case, the rich will pay a 25 percent, not 15 percent, tax on this income, and see both their marginal and average tax rates rise.
Next, consider cutting the corporate tax rate, which will lead to new investment, jobs, and higher wages. This isn’t a trickle-down fantasy. Just look at Ireland’s amazing growth after cutting its corporate rate.
Tax Avoidance
Unlike our personal income tax, the rich can avoid our corporate tax by investing abroad. With a higher corporate tax, capital leaves and wages (the cost of labor) fall until capital is again indifferent between staying and going. With a lower corporate tax, the opposite occurs.
Raise the corporate tax and take-home wages fall; lower it and take-home wages rise. Sounds like the corporate tax hits workers like a payroll tax.
That’s precisely what most public-finance economists believe. Hence, Ryan’s proposed cut in the corporate tax rate would, effectively, replace Obama’s temporary payroll tax cut with a permanent one -- and a roughly six times larger one at that. Haven’t the president’s economists told him this?
The president has also vilified Ryan’s Medicare voucher plan, which moves Uncle Sam from paying the fees for whatever services the health-care sector sends him to putting health care on a fixed budget. Absent such a budget, our nation will go broke, as the president himself acknowledges.
Never Worked
The president says he can limit Medicare’s fee-for-service spending through other, mainly unspecified means. But we’ve tried all types of alternatives for decades and nothing’s worked. As a result, Medicare, not Paul Ryan, is killing Medicare. As the health-care sector orders up ever-more services for the government to pay, government will be forced to cut its fees to the point that doctors will no longer cover Medicare participants.
Finally, think about Ryan’s Medicare vouchers. They are individually risk-adjusted and the poor, who are in worse shape than the rich, will get bigger vouchers. Those who will have to pay more out of pocket will be the rich.
Ryan’s voucher plan may be the most progressive reform proposed in recent memory. But the president dismissed it out of hand, saying, “I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking budget to pay for rising costs.”
Vouchers for All
To read this, you’d think Obama wouldn’t countenance vouchers for anyone. But Obama’s health plan, which covers the uninsured, provides the same vouchers that Ryan is advocating. So the president is saying vouchers are OK for uninsured workers, but not the elderly? And he’s saying leaving such workers at the mercy of the insurance industry is OK? He can’t have it both ways. Either vouchers and regulated insurance companies are OK or they aren’t.
Both are OK. As I’ve said in my last two columns, we need a single voucher system covering everyone. If Obama and Ryan sat down and spoke in French, they’d likely agree to that, as well as find common ground on taxes and discretionary spending cuts. After which, they might switch parties.
(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning Inc. and author of “Jimmy Stewart Is Dead.” The opinions expressed are his own.)
Robots Find High Radiation as Tokyo Electric Lays Out Plan to End Crisis
Robots sent into two buildings at Japan’s crippled Fukushima Dai-Ichi nuclear station detected radiation still too toxic for humans as the plant operator set out a plan to end the crisis in six to nine months.
Measurements show one hour inside the No. 3 reactor building would expose humans to more than one-fifth of the radiation Japan has said is the most workers can endure in a year, the atomic safety agency said yesterday. People haven’t been in the buildings since a 15-meter (49-foot) surge following a magnitude-9 quake on March 11 knocked out cooling equipment, sparking the worst disaster since Chernobyl in 1986.
A sustained drop in radiation at the tsunami-damaged plant could be achieved within three months, Tokyo Electric Power Co. said in a statement laying out its plans. Following that, a cold shutdown, where core reactor temperatures fall below 100 degrees Celsius (212 degrees Fahrenheit), may be achieved within six months, it said.
The six-to-nine month timeframe “seems mindbogglingly long given the urgency,” said Michael Friedlander, a former U.S. nuclear engineer based in Hong Kong. The utility should aim to have the crisis in hand in two to three months, he said. “They’re managing expectations and don’t want to make a commitment they can’t deliver on.”
In the next three months, Tepco, as the utility is known, plans to fill the reactor containment vessels at the No. 1 and No. 3 units with water, the company said in its April 17 statement. The utility will seal the vessel of the No. 2 reactor, which is likely damaged, before flooding it.
Leaking Into Sea
“If we flood the damaged vessel, the leak of contaminated water will increase,” Tepco Vice President Sakae Muto told reporters in Tokyo April 17. “We will continue injecting water with care and monitor the volume of water leaked.”
The water pumped so far has overflowed into basements and trenches, with some of it leaking into the ocean.
“It is vitally important that Tepco succeeds in shifting the cooling process to a closed loop system,” said Philip White, international liaison officer at the Citizens’ Nuclear Information Center in Tokyo. “In the current situation, where water poured in one end leaks out the other, there is the constant danger that highly radioactive water will run off into the sea.”
Tepco completed preparations of a waste water treatment facility at the plant yesterday, NHK reported on its website. The company will begin moving highly contaminated water to the treatment unit from other areas of the plant after reporting the method and safety measures to nuclear regulators, the public broadcaster said.
Robots, Radiation
Two iRobot Corp. (IRBT) robots sent April 17 to check whether humans can reenter the site found radiation levels as high as 49 millisieverts per hour in the No. 1 reactor building, and up to 57 millisieverts in the No. 3 building, the Nuclear and Industrial Safety Agency said.
The cumulative maximum level for nuclear workers was raised to 250 millisieverts from 100 millisieverts by Japan’s health ministry on March 15. Exposure totaling 100 millisieverts over a year is the lowest level at which any increase in cancer is evident, according to the World Nuclear Association in London.
Another robot spent almost an hour in the main building of reactor No. 2 yesterday, NISA said in a press release. It didn’t give readings for the building. Tepco officials are analyzing the data taken by the robot, spokesman Akitsuka Kobayashi said today.
Shares Fall
Tepco shares fell as much as 5.4 percent to 442 yen in Tokyo today and traded at 446 yen at 9:57 a.m. The stock is down almost 80 percent since the quake and tsunami, which left about 28,000 people dead or missing.
Tepco plans to inject nitrogen into the containment vessels of the No. 2 and No. 3 reactors by the end of April, Muto said. The utility injected the inert gas into the No. 1 unit this month to prevent hydrogen explosions.
“Injecting nitrogen doesn’t hurt, but it makes no sense -- it just makes it look like you’re doing something,” said Friedlander, who spent 13 years working in nuclear plant management in the U.S. “It’s a question of resources and the people; those people could be better utilized.”
Three to six months after the initial phase of its plan, Tepco will attempt a cold shutdown of reactors No. 1, 2 and 3, the company said. Reactors 4, 5 and 6 were shut at the time of the disaster. The utility will also cover the No. 1, 3 and 4 reactor buildings as a temporary measure to reduce radiation emissions after the structures were damaged by hydrogen blasts last month, according to the statement.
Evacuated Families
Japan’s government plans to tell families evacuated from the area within ninth months whether they can return home, Trade Minister Banri Kaieda said in a briefing in Tokyo.
The government this month widened a 20-kilometer evacuation zone to include the towns of Iitate, Katsurao and Namie. Radiation no longer poses “significant” health risks beyond an 80-kilometer radius, the U.S. State Department said.
Seventy percent of people in Japan disapprove of the way Prime Minister Naoto Kan’s government has handled the nuclear crisis, the Nikkei newspaper said yesterday, citing a telephone survey it carried out with TV Tokyo Corp.
Measurements show one hour inside the No. 3 reactor building would expose humans to more than one-fifth of the radiation Japan has said is the most workers can endure in a year, the atomic safety agency said yesterday. People haven’t been in the buildings since a 15-meter (49-foot) surge following a magnitude-9 quake on March 11 knocked out cooling equipment, sparking the worst disaster since Chernobyl in 1986.
A sustained drop in radiation at the tsunami-damaged plant could be achieved within three months, Tokyo Electric Power Co. said in a statement laying out its plans. Following that, a cold shutdown, where core reactor temperatures fall below 100 degrees Celsius (212 degrees Fahrenheit), may be achieved within six months, it said.
The six-to-nine month timeframe “seems mindbogglingly long given the urgency,” said Michael Friedlander, a former U.S. nuclear engineer based in Hong Kong. The utility should aim to have the crisis in hand in two to three months, he said. “They’re managing expectations and don’t want to make a commitment they can’t deliver on.”
In the next three months, Tepco, as the utility is known, plans to fill the reactor containment vessels at the No. 1 and No. 3 units with water, the company said in its April 17 statement. The utility will seal the vessel of the No. 2 reactor, which is likely damaged, before flooding it.
Leaking Into Sea
“If we flood the damaged vessel, the leak of contaminated water will increase,” Tepco Vice President Sakae Muto told reporters in Tokyo April 17. “We will continue injecting water with care and monitor the volume of water leaked.”
The water pumped so far has overflowed into basements and trenches, with some of it leaking into the ocean.
“It is vitally important that Tepco succeeds in shifting the cooling process to a closed loop system,” said Philip White, international liaison officer at the Citizens’ Nuclear Information Center in Tokyo. “In the current situation, where water poured in one end leaks out the other, there is the constant danger that highly radioactive water will run off into the sea.”
Tepco completed preparations of a waste water treatment facility at the plant yesterday, NHK reported on its website. The company will begin moving highly contaminated water to the treatment unit from other areas of the plant after reporting the method and safety measures to nuclear regulators, the public broadcaster said.
Robots, Radiation
Two iRobot Corp. (IRBT) robots sent April 17 to check whether humans can reenter the site found radiation levels as high as 49 millisieverts per hour in the No. 1 reactor building, and up to 57 millisieverts in the No. 3 building, the Nuclear and Industrial Safety Agency said.
The cumulative maximum level for nuclear workers was raised to 250 millisieverts from 100 millisieverts by Japan’s health ministry on March 15. Exposure totaling 100 millisieverts over a year is the lowest level at which any increase in cancer is evident, according to the World Nuclear Association in London.
Another robot spent almost an hour in the main building of reactor No. 2 yesterday, NISA said in a press release. It didn’t give readings for the building. Tepco officials are analyzing the data taken by the robot, spokesman Akitsuka Kobayashi said today.
Shares Fall
Tepco shares fell as much as 5.4 percent to 442 yen in Tokyo today and traded at 446 yen at 9:57 a.m. The stock is down almost 80 percent since the quake and tsunami, which left about 28,000 people dead or missing.
Tepco plans to inject nitrogen into the containment vessels of the No. 2 and No. 3 reactors by the end of April, Muto said. The utility injected the inert gas into the No. 1 unit this month to prevent hydrogen explosions.
“Injecting nitrogen doesn’t hurt, but it makes no sense -- it just makes it look like you’re doing something,” said Friedlander, who spent 13 years working in nuclear plant management in the U.S. “It’s a question of resources and the people; those people could be better utilized.”
Three to six months after the initial phase of its plan, Tepco will attempt a cold shutdown of reactors No. 1, 2 and 3, the company said. Reactors 4, 5 and 6 were shut at the time of the disaster. The utility will also cover the No. 1, 3 and 4 reactor buildings as a temporary measure to reduce radiation emissions after the structures were damaged by hydrogen blasts last month, according to the statement.
Evacuated Families
Japan’s government plans to tell families evacuated from the area within ninth months whether they can return home, Trade Minister Banri Kaieda said in a briefing in Tokyo.
The government this month widened a 20-kilometer evacuation zone to include the towns of Iitate, Katsurao and Namie. Radiation no longer poses “significant” health risks beyond an 80-kilometer radius, the U.S. State Department said.
Seventy percent of people in Japan disapprove of the way Prime Minister Naoto Kan’s government has handled the nuclear crisis, the Nikkei newspaper said yesterday, citing a telephone survey it carried out with TV Tokyo Corp.
Sunday, April 17, 2011
Inflation in China Poses Big Threat to Global Trade
SHANGHAI — As the United States and Europe struggle to get their economies rolling again, China is having the opposite problem: figuring out how to keep its revved-up growth engine from generating runaway inflation.
The latest sign that things were moving too fast came on Sunday, when China’s central bank ordered the biggest banks to set aside more cash reserves.
The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China’s economy was growing at an annual rate of 9.7 percent, by far the strongest performance by any of the world’s biggest economies.
Because China is now the world’s second largest economy, after the United States, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.
High inflation endangers China’s status as the low-cost workshop for the world. And if the government’s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses — whether multinationals like General Electric or copper miners in Chile — that have been counting on China for growth.
Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and the Middle East have become the focus of popular uprisings.
“China’s inflation is a big concern, and actual numbers are worse than officially reported,” said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington.
She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.
Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).
The decision on Sunday to raise the capital reserve ratio for banks, to 20.5 percent of their cash, was the fourth such increase this year.
The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the United States, where inflation is low (the underlying annual inflation rate was 1.2 percent last month) and where the debate centers on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.
But analysts say the results of this economic management have been mixed. Growth has begun to moderate from its torrid pace of about 10 percent annual growth but inflation has become worse.
For example, housing prices continue to climb even though Beijing has long promised to curb the property market and to spend billions of dollars over the next few years on affordable housing.
The average apartment in central Shanghai now costs more than $500,000. Even in second-tier cities like Chengdu, in central China, the price of a typical home costs about 25 times the average annual income of residents.
Analysts say too much of the country’s growth continues to be tied to inflationary spending on real estate development and government investment in roads, railways and other multibillion-dollar infrastructure projects.
In the first quarter of 2011, fixed asset investment — a broad measure of building activity — jumped 25 percent from the period a year earlier, and real estate investment soared 37 percent, the government said on Friday.
Some of the inflationary factors, like global commodity and food prices, may be beyond Beijing’s ability to influence. Gasoline prices have also jumped sharply, in line with global oil prices. As the world’s largest car market, China’s demand for fuel is soaring, and gasoline prices are close to $4.50 a gallon, up from $3.82 a gallon in late 2009.
Rising food prices, meanwhile, are showing up in various ways — including higher prices at fast-food chains, like Master Kong, which in January raised the price of its popular instant noodles by about 10 percent.
China’s current supercharged boom began in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $586 billion stimulus package and record lending by state-run banks.
The loose monetary policy, and big investments in local government projects, did revive economic growth. But even at the time there were already concerns about soaring property prices, undisciplined bank lending and the huge debts being amassed by local governments.
The latest sign that things were moving too fast came on Sunday, when China’s central bank ordered the biggest banks to set aside more cash reserves.
The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China’s economy was growing at an annual rate of 9.7 percent, by far the strongest performance by any of the world’s biggest economies.
Because China is now the world’s second largest economy, after the United States, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.
High inflation endangers China’s status as the low-cost workshop for the world. And if the government’s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses — whether multinationals like General Electric or copper miners in Chile — that have been counting on China for growth.
Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and the Middle East have become the focus of popular uprisings.
“China’s inflation is a big concern, and actual numbers are worse than officially reported,” said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington.
She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.
Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).
The decision on Sunday to raise the capital reserve ratio for banks, to 20.5 percent of their cash, was the fourth such increase this year.
The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the United States, where inflation is low (the underlying annual inflation rate was 1.2 percent last month) and where the debate centers on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.
But analysts say the results of this economic management have been mixed. Growth has begun to moderate from its torrid pace of about 10 percent annual growth but inflation has become worse.
For example, housing prices continue to climb even though Beijing has long promised to curb the property market and to spend billions of dollars over the next few years on affordable housing.
The average apartment in central Shanghai now costs more than $500,000. Even in second-tier cities like Chengdu, in central China, the price of a typical home costs about 25 times the average annual income of residents.
Analysts say too much of the country’s growth continues to be tied to inflationary spending on real estate development and government investment in roads, railways and other multibillion-dollar infrastructure projects.
In the first quarter of 2011, fixed asset investment — a broad measure of building activity — jumped 25 percent from the period a year earlier, and real estate investment soared 37 percent, the government said on Friday.
Some of the inflationary factors, like global commodity and food prices, may be beyond Beijing’s ability to influence. Gasoline prices have also jumped sharply, in line with global oil prices. As the world’s largest car market, China’s demand for fuel is soaring, and gasoline prices are close to $4.50 a gallon, up from $3.82 a gallon in late 2009.
Rising food prices, meanwhile, are showing up in various ways — including higher prices at fast-food chains, like Master Kong, which in January raised the price of its popular instant noodles by about 10 percent.
China’s current supercharged boom began in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $586 billion stimulus package and record lending by state-run banks.
The loose monetary policy, and big investments in local government projects, did revive economic growth. But even at the time there were already concerns about soaring property prices, undisciplined bank lending and the huge debts being amassed by local governments.
G-20 Names ‘Too Big to Ignore’ Economies, Downplays Shocks
The U.S., China and five other large economies will face deeper scrutiny from their peers to ensure their policies don’t derail a global expansion that finance chiefs bet is strong enough to absorb recent shocks.
The seven countries have a gross domestic product greater than 5 percent of the Group of 20 nations’ economy, and so carry “the greater potential for spillover effects,” G-20 central bankers and finance ministers said during weekend talks in Washington.
Drawing up the list is part of a plan to spot imbalances in individual economies such as large trade gaps, and prescribe policies to fix them before they harm global growth. For now, the recovery is “broadening and becoming more self-sustained” even as unrest in the Middle East and North Africa, as well as Japan’s earthquake and tsunami, raise “uncertainty” about the outlook, policy makers said.
The economies named are “too big to ignore,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. The G-20 is “approaching a situation where there are common principles for them all and that those who deviate from them will be called to the dock.”
The push to rebalance the world economy so its growth relies less on drivers such as U.S. demand and Chinese exports will likely encourage appreciation of emerging market exchange rates against those of developed economies, New York-based Englander said. He predicts the Chinese yuan will rise to 6.18 per dollar over the next 12 months after it touched 6.5290 last week, the strongest since 1993.
Expansion Strength
Policy makers were in Washington for the semi-annual talks of the 187-member International Monetary Fund and World Bank as investors query the strength of expansion. In addition to the Japanese disasters, the price of oil is above $100 a barrel, monetary policy is tightening in China, and European nations from Greece to Portugal continue to struggle to finance their debts. World Bank President Robert Zoellick said the world is “one shock away” from a food crisis.
Even as it noted “downside risks still remain,” the G-20 nevertheless sounded more optimistic than in February when it complained of uneven growth and high unemployment in rich nations. At the end of a week in which German carmaker Volkswagen AG (VOW) posted record first-quarter sales and French retailer Carrefour SA (CA) said its first-quarter sales rose 3.9 percent, policy makers noted “increasingly robust” private demand growth and enough spare capacity to meet energy needs.
Stocks Fell
U.S. stocks fell last week, giving the Standard & Poor’s 500 Index its second straight weekly decline as companies from Alcoa Inc. (AA) to Google Inc. (GOOG) reported quarterly results that missed estimates.
Jim O’Neill, chairman of Goldman Sachs Asset Management in London, predicts the S&P 500 will rise to at least 1,400 by the end of the year from 1,319.68 last week as the recovery endures. Hiring and household balance sheets in the U.S. have also improved.
The focus of the discussions was the G-20’s new surveillance system for the world economy, of which it represents 85 percent. The goal is to foster balanced international growth after skewed trade and investment flows -- reflected in China’s $3 trillion foreign reserves and U.S. trade deficits -- helped trigger financial turmoil.
Have Guidelines
Having agreed two months ago to monitor indicators including budget deficits, private debt and external trade balances for signs of excess, policy makers now have guidelines against which to test them. They are based on historical performance and circumstances of the individual country and comparisons with other economies.
The U.S., Japan, Germany, France, U.K., India and China will be probed the most thoroughly because of their importance to the world economy.
The next step is for officials to work with the IMF to study the countries’ policies before telling leaders which ones are aggravating imbalances, and what measures can be taken to correct them, at a November summit in Cannes, France. The IMF’s policy committee said separately that the Fund will study how the financial policies of one country impact others.
“The net is a little bit tighter for those countries that are considered of systemic importance,” French Finance Minister Christine Lagarde told reporters.
China Satisfied
After a contentious summit in Paris two months ago, where China won omission of currency reserves from the list of indicators, Vice Finance Minister Zhu Guangyao said he was “satisfied with the result” of the Washington meeting.
His country still faced pressure from officials including U.S. Treasury Secretary Timothy F. Geithner and Mexican central bank Governor Agustin Carstens to let the yuan appreciate faster after gaining just 4.5 percent since 2009. The G-20 agreed to look more closely at currency misalignments.
Challenges to the G-20 process include its reliance on peer pressure to spur needed changes and the suspicion of emerging markets that it will be used by developed economies to ramp up pressure to increase currency flexibility, said Sophia Drossos, currency fund manager at Morgan Stanley Investment Management in New York.
In a sign of these challenges, finance officials argued over the causes of, and cures for, capital flows surging into developing nations. The U.S. blamed China’s currency policy, while Brazil pointed the finger at low interest rates in rich nations.
“Emerging markets are going to be concerned about how these rules will be implemented,” said Drossos. “There are also questions about how adequately any of the rules can be enforced.”
The seven countries have a gross domestic product greater than 5 percent of the Group of 20 nations’ economy, and so carry “the greater potential for spillover effects,” G-20 central bankers and finance ministers said during weekend talks in Washington.
Drawing up the list is part of a plan to spot imbalances in individual economies such as large trade gaps, and prescribe policies to fix them before they harm global growth. For now, the recovery is “broadening and becoming more self-sustained” even as unrest in the Middle East and North Africa, as well as Japan’s earthquake and tsunami, raise “uncertainty” about the outlook, policy makers said.
The economies named are “too big to ignore,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. The G-20 is “approaching a situation where there are common principles for them all and that those who deviate from them will be called to the dock.”
The push to rebalance the world economy so its growth relies less on drivers such as U.S. demand and Chinese exports will likely encourage appreciation of emerging market exchange rates against those of developed economies, New York-based Englander said. He predicts the Chinese yuan will rise to 6.18 per dollar over the next 12 months after it touched 6.5290 last week, the strongest since 1993.
Expansion Strength
Policy makers were in Washington for the semi-annual talks of the 187-member International Monetary Fund and World Bank as investors query the strength of expansion. In addition to the Japanese disasters, the price of oil is above $100 a barrel, monetary policy is tightening in China, and European nations from Greece to Portugal continue to struggle to finance their debts. World Bank President Robert Zoellick said the world is “one shock away” from a food crisis.
Even as it noted “downside risks still remain,” the G-20 nevertheless sounded more optimistic than in February when it complained of uneven growth and high unemployment in rich nations. At the end of a week in which German carmaker Volkswagen AG (VOW) posted record first-quarter sales and French retailer Carrefour SA (CA) said its first-quarter sales rose 3.9 percent, policy makers noted “increasingly robust” private demand growth and enough spare capacity to meet energy needs.
Stocks Fell
U.S. stocks fell last week, giving the Standard & Poor’s 500 Index its second straight weekly decline as companies from Alcoa Inc. (AA) to Google Inc. (GOOG) reported quarterly results that missed estimates.
Jim O’Neill, chairman of Goldman Sachs Asset Management in London, predicts the S&P 500 will rise to at least 1,400 by the end of the year from 1,319.68 last week as the recovery endures. Hiring and household balance sheets in the U.S. have also improved.
The focus of the discussions was the G-20’s new surveillance system for the world economy, of which it represents 85 percent. The goal is to foster balanced international growth after skewed trade and investment flows -- reflected in China’s $3 trillion foreign reserves and U.S. trade deficits -- helped trigger financial turmoil.
Have Guidelines
Having agreed two months ago to monitor indicators including budget deficits, private debt and external trade balances for signs of excess, policy makers now have guidelines against which to test them. They are based on historical performance and circumstances of the individual country and comparisons with other economies.
The U.S., Japan, Germany, France, U.K., India and China will be probed the most thoroughly because of their importance to the world economy.
The next step is for officials to work with the IMF to study the countries’ policies before telling leaders which ones are aggravating imbalances, and what measures can be taken to correct them, at a November summit in Cannes, France. The IMF’s policy committee said separately that the Fund will study how the financial policies of one country impact others.
“The net is a little bit tighter for those countries that are considered of systemic importance,” French Finance Minister Christine Lagarde told reporters.
China Satisfied
After a contentious summit in Paris two months ago, where China won omission of currency reserves from the list of indicators, Vice Finance Minister Zhu Guangyao said he was “satisfied with the result” of the Washington meeting.
His country still faced pressure from officials including U.S. Treasury Secretary Timothy F. Geithner and Mexican central bank Governor Agustin Carstens to let the yuan appreciate faster after gaining just 4.5 percent since 2009. The G-20 agreed to look more closely at currency misalignments.
Challenges to the G-20 process include its reliance on peer pressure to spur needed changes and the suspicion of emerging markets that it will be used by developed economies to ramp up pressure to increase currency flexibility, said Sophia Drossos, currency fund manager at Morgan Stanley Investment Management in New York.
In a sign of these challenges, finance officials argued over the causes of, and cures for, capital flows surging into developing nations. The U.S. blamed China’s currency policy, while Brazil pointed the finger at low interest rates in rich nations.
“Emerging markets are going to be concerned about how these rules will be implemented,” said Drossos. “There are also questions about how adequately any of the rules can be enforced.”
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