BEIJING - CHINA’S government has told discos, karaoke bars and other entertainment venues to install windows in private rooms and ensure staff dress modestly from Oct 1 as part of an effort to crack down on prostitution and drugs.
According to rules released on the Ministry of Public Security’s website, entertainment venues must install transparent partitions between rooms that ensure ‘the whole environment of the consumer’s entertainment area in the room can be seen’.
‘When open for business, the transparent part of rooms and windows to rooms at singing and dancing entertainment venues must not be obstructed,’ the rules say.
Discos, karaoke nightclubs and other bars in China frequently have private rooms for hire, and are a favourite places for businessmen to entertain guests, sometimes with prostitutes, which is illegal in China.
Staff clothing is also covered in the new rules. ‘Staff members should dress tastefully, and not be too exposing.’ Other rules demand closed circuit television cameras be installed and security guards placed at discos. -- REUTERS
13 comments:
Do they know how many KTV rooms are there in the entire China? How to implement this rule?
Starbucks to close 600 stores and eliminate 12,000 jobs...
Starbucks May Rise on Plans to Cut Staff, Reverse 'Overgrowth'
By Joseph Galante and Duane D. Stanford
July 2 (Bloomberg) -- Starbucks Corp. may rise in Nasdaq trading today after the coffee retailer, which has doubled in size since 2004, announced plans to retrench, including cutting 7 percent of its workforce and closing 600 stores.
Howard Schultz, the 54-year-old founder who fired his chief executive officer in January to regain the post, is opening coffee shops at a slower pace and shutting unprofitable stores as he tries recapture the charm he says Starbucks lost amid a rapid expansion that often put two or more stores within eyeshot of each other.
Investors are likely to respond positively to the cutbacks because they signal Starbucks is coming to grips with its ``overgrowth,'' said Matthew DiFrisco, an analyst at Oppenheimer & Co. in New York.
``They're basically the victim of their own success,'' DiFrisco, who recommends buying Starbucks stock, said yesterday. ``They've admitted that'' by closing 600 stores, he said.
Starbucks, whose shares have plummeted more than 50 percent in the past two years, rose as much as 7.2 percent in late trading yesterday after saying it would eliminate 12,000 jobs associated with the closures. The cuts include full- and part- time employees and will happen over the next nine months, the Seattle-based company said in a regulatory filing.
``It shows Schultz is willing to do the tough things that are necessary,'' James Walsh, an analyst at Coldstream Capital Management Inc. in Bellevue, Washington, said in a telephone interview. Coldstream has $1.1 billion under management, including Starbucks shares.
Cash-Strapped Consumers
Seventy percent of the stores to be shut are less than three years old, the company said. Starbucks Chief Financial Officer Peter Bocian said the stores were taking 25 percent to 30 percent of sales from nearby locations.
The closings will hurt long-term revenue projections while helping the company achieve its profit goals, Bocian said on a conference call yesterday, without elaborating.
Other Starbucks stores may recapture $180 million to $360 million of the roughly $600 million in sales lost from the closures, DiFrisco said.
Starbucks' sales and earnings have declined as cash- strapped consumers facing record gasoline prices cut back on gourmet coffee and other luxuries. The company still plans to open 200 other company-owned stores through September 2009.
`Clean Slate'
Most of the 600 stores set to close were opened in late 2005 and 2006, Bocian said on the call with investors and analysts. During that time, more than 50 percent of the new stores had drive-through service, he said.
Consumers are driving less because of gasoline prices that have soared to more than $4 a gallon, according to separate surveys in the past two weeks by Mastercard Advisors analyst Michael McNamara and JPMorgan Securities Inc. analyst Himanshu Patel.
``I think it will be well received by the Street,'' said Sharon Zackfia, an analyst at William Blair & Co., who recommends buying Starbucks shares. ``It's pretty clear they want to enter fiscal '09 with a clean slate.''
Starbucks rose as high as $16.74 in trading after the close of U.S. markets, following the announcement yesterday. The shares fell 12 cents to $15.62 in regular Nasdaq Stock Market composite trading.
Most of the closings, which include 100 that were announced previously, will be completed by next March, Starbucks said. The stores are located in ``all major U.S. markets,'' the company said, without naming them. The IWW Starbucks Workers Union called on Starbucks yesterday to disclose where the locations will be.
Florida and California are among the largest states affected, Starbucks spokeswoman Valerie O'Neil said in an interview. Starbucks isn't targeting any other stores for closure, Bocian said.
Factories hit worldwide as commodity prices soar
By Jonathan Cable and Hideyuki Sano
Jul 01, 2008
LONDON/TOKYO (Reuters) - Soaring commodity costs are denting manufacturing activity in Asia and Europe and the outlook looks bleak as new orders drop off in the face of rising prices, surveys showed on Tuesday.
Manufacturing activity in the euro zone contracted in June for the first time in three years while business confidence in Asia's largest export markets is buckling and output has likely contracted further in the United States.
Purchasing managers indices showed manufacturing activity in the euro zone fell to 49.2 in June, China saw its index fall to a near three-year low of 52.0 while in Britain it contracted at its sharpest rate since December 2001.
The 50.0 mark separates growth from contraction. Factories worldwide have struggled in the face of soaring raw material and energy costs -- oil hit over $143 a barrel on Monday.
Meanwhile, the Bank of Japan's tankan corporate index of big manufacturers' sentiment dropped to plus 5, from 11 in March, showing their mood has not been darker since 2003.
The picture of slowing growth and spiraling prices applied to Britain too.
The UK's manufacturing sector saw output and new orders fall at their fastest rate in almost a decade. But there was no let-up in inflationary pressures with input costs and output prices both rising at the fastest rate since the series began.
Even Japanese manufacturers, which have long struggled to pass on costs, pushed up prices in the last quarter, although not fast enough to offset a rise in costs and to keep profits growing, the tankan showed.
"That could indicate more inflationary pressures in the pipeline," said Magnus Prim, chief Asia currency strategist at SEB in Singapore. "They're getting squeezed on the profit side and see no alternative but to pass on price increases."
The rally in commodity prices, driven in part by burgeoning demand from India and China, is feeding global inflation, threatening to push up low labor costs that for a decade helped keep a lid on prices.
The European Central Bank is widely expected to hike rates this week, despite a rapidly cooling economy, as it battles record inflation, whereas the Federal Reserve has slashed U.S. rates as it tries to stave off a prolonged recession.
The median of forecasts from economists is for U.S. manufacturing to have contracted for a fifth consecutive month in June, although some believe the slowdown is not severe enough to merit the recession tag.
The U.S. Institute for Supply Management's index is due at 1400 GMT and forecast to dip to 48.6 in June from 49.6 in May.
To compound the gloom, unemployment has been rising although job losses in Spain, Italy and France were offset by a slight recovery in Germany, while lower demand in the UK saw firms laying off staff.
Germany offered a rare ray of light on Tuesday. Retail sales rose strongly in May after a weak April, while unemployment fell by a bigger-than-expected 38,000 in June to a near 16-year low of 3.266 million.
CHINA TROUBLE
China and India are battling their fastest inflation this decade.
Chinese firms warned they were passing rising costs on to consumers, which could hurt domestic demand, and struggling to export because of weak global markets, two PMI surveys showed.
The measure for input prices paid by China's manufacturers rose to its highest since the PMI survey was launched in 2005. Domestic and export orders fell to their lowest since January.
A separately published PMI from brokerage CLSA showed output prices rose at their fastest pace in four years.
"The PMI shows a slowdown in orders and production in June. The question is how permanent this is. The businesses questioned suggested that it might be temporary," said Eric Fishwick, CLSA's head of economic research.
Slowing foreign demand for its goods has not stopped China exporting inflation, although it remains only a minor factor in the global surge in prices.
In India, purchasing managers were also worried about higher input costs. The ABN AMRO Bank PMI hit a seasonally adjusted 58.6 in June, its highest reading since February and up from a 10-month low of 57.4 in May.
But the survey's input price index rose to a 19-month high and the rate of increase was the strongest since November 2006.
王冠一： 惡 性 通 脹 手 尾 甚 長
2008年07月02日（星期三）
國 際 結 算 銀 行 在 剛 過 去 的 周 末 ， 於 瑞 士 巴 塞 爾 舉 行 年 會 ， 逾 百 名 央 行 行 長 匯 聚 一 堂 ， 討 論 重 點 ， 是 近 期 屢 創 新 高 的 油 價 ， 對 通 脹 以 至 全 球 經 濟 的 影 響 。
會 議 沒 有 談 及 高 油 價 成 因 ， 對 油 價 是 否 由 炒 賣 活 動 推 高 ， 亦 沒 作 評 論 ， 但 同 意 能 源 成 本 高 企 正 拖 低 全 球 經 濟 增 長 ， 亦 表 明 對 解 決 通 脹 這 個 棘 手 問 題 ， 並 沒 有 一 套 完 美 的 方 案 ， 唯 一 可 以 做 的 ， 是 對 通 脹 提 高 警 惕 。
金 融 市 場 有 暗 湧
阿 根 廷 央 行 行 長 Redrado 認 為 ， 全 球 經 濟 增 長 面 臨 非 常 困 難 時 刻 ， 尤 其 隨 著 經 濟 放 緩 殃 及 消 費 信 貸 ， 我 們 正 見 證 金 融 市 場 進 入 次 輪 動 盪 ， 水 面 看 似 平 靜 ， 卻 暗 藏 危 機 。 畿 內 亞 央 行 行 長 Bangoura 亦 指 ， 油 價 上 升 已 演 變 成 為 重 大 問 題 ， 由 於 相 比 起 已 發 展 國 家 ， 新 興 國 家 國 民 更 大 比 重 的 收 入 是 用 於 購 買 食 品 ， 通 脹 已 不 單 是 貨 幣 政 策 問 題 ， 而 是 社 會 問 題 。 不 少 國 家 因 通 脹 狂 升 ， 引 發 連 串 暴 亂 和 示 威 ， 造 成 大 量 人 命 傷 亡 。
智 利 央 行 行 長 Gregorio 稱 ， 最 重 要 的 是 打 擊 通 脹 的 政 策 ， 不 會 演 變 成 工 資 與 物 價 螺 旋 式 上 升 ， 並 推 高 通 脹 預 期 ， 否 則 要 穩 定 經 濟 更 加 困 難 。
避 免 工 資 物 價 競 走
冠 一 早 於 去 年 便 已 發 出 滯 脹 警 告 ， 指 全 球 經 濟 正 邁 向 高 通 脹 低 增 長 的 「 滯 脹 」 深 淵 ， 現 時 情 況 較 70 年 代 的 滯 脹 稍 佳 ， 是 工 資 增 長 尚 未 與 通 脹 競 走 ， 造 成 惡 性 循 環 。 美 國 工 會 勢 力 已 漸 次 瓦 解 ， 連 汽 車 製 造 業 工 會 亦 已 態 度 軟 化 ， 對 薪 津 福 利 不 再 企 硬 ， 答 允 與 僱 主 共 度 時 艱 ， 反 而 歐 洲 工 會 勢 力 未 減 ， 出 現 工 資 與 通 脹 螺 旋 式 上 升 這 惡 性 通 脹 的 風 險 更 大 。 歐 洲 央 行 不 理 會 增 長 放 緩 ， 執 意 加 息 壓 通 脹 預 期 ， 大 家 可 從 中 得 到 一 些 啟 示 ？
* * * * *
曾淵滄： 石 油 泡 沫 幾 時 爆 破 ？
2008年07月02日（星期三）
七 一 回 歸 ， 香 港 股 市 休 息 ， 歐 美 則 繼 續 在 炒 石 油 期 貨 ， 又 再 創 新 高 ， 並 在 創 新 高 之 後 出 現 套 利 盤 。 今 日 ， 許 多 人 都 說 石 油 市 場 已 進 入 泡 沫 階 段 ， 問 題 是 我 們 不 知 道 這 個 泡 沫 還 要 吹 多 大 才 爆 破 ， 泡 沫 爆 破 是 不 是 一 定 是 好 事 ？
石 油 泡 沫 一 旦 爆 破 ， 會 紓 緩 通 脹 的 壓 力 ， 但 是 石 油 泡 沫 爆 破 ， 也 會 使 到 大 量 國 際 基 金 、 石 油 王 子 出 現 虧 損 ， 虧 損 之 餘 就 得 賣 其 他 資 產 填 債 ， 這 又 會 導 致 大 量 資 產 包 括 股 票 被 拋 售 。 總 之 ， 一 句 話 ， 任 何 泡 沫 化 的 市 場 都 是 壞 事 ， 泡 沫 形 成 的 過 程 中 ， 有 人 賺 得 盤 滿 缽 滿 ， 得 意 之 餘 不 知 危 險 之 將 至 。 今 日 ， 你 不 必 是 產 油 國 的 王 子 ， 一 樣 可 以 在 石 油 期 貨 市 場 上 大 炒 特 炒 ， 你 所 需 要 的 只 是 膽 量 ， 炒 石 油 期 貨 的 人 並 不 是 石 油 的 用 家 或 生 產 者 ， 而 是 華 爾 街 的 大 鱷 。
上 個 世 紀 70 年 代 的 石 油 危 機 ， 開 始 的 時 候 是 政 治 手 段 ， 後 來 則 變 成 了 泡 沫 ， 石 油 泡 沫 帶 來 海 上 探 油 業 ， 帶 來 核 能 、 太 陽 能 、 風 能 、 水 利 發 電 ， 然 後 ， 突 然 之 間 泡 沫 爆 破 ， 油 價 由 每 桶 70 美 元 跌 至 10 美 元 ， 許 多 人 破 產 了 ， 不 少 政 府 開 始 炸 毀 核 電 廠 ， 太 陽 能 、 風 能 也 廢 棄 不 用 ， 因 為 成 本 高 ， 投 資 者 損 失 慘 重 。
吸 收 了 上 個 世 紀 石 油 泡 沫 爆 破 的 經 驗 ， 今 日 新 的 石 油 泡 沫 在 形 成 過 程 中 ， 絕 大 部 份 政 府 仍 未 將 建 核 電 廠 的 計 劃 提 上 議 程 ， 太 陽 能 、 風 能 的 開 發 也 不 積 極 ， 所 擔 心 的 就 是 一 旦 投 入 大 量 資 金 尋 找 石 油 替 代 品 時 ， 石 油 泡 沫 爆 破 了 ， 怎 麼 辦 ？
奧 運 概 念 股 慘 跌
本 來 ， 地 球 上 的 能 量 是 無 窮 無 盡 、 取 之 不 盡 ， 核 能 就 是 最 經 濟 、 成 本 最 低 的 能 源 ， 上 個 世 紀 70 年 代 末 期 ， 全 世 界 都 在 建 核 電 廠 ， 後 來 ， 石 油 價 格 跌 至 每 桶 10 美 元 時 ， 核 電 廠 就 相 繼 被 拆 毀 了 。
前 日 ， 曾 蔭 權 特 首 下 區 了 解 民 情 ， 所 到 之 處 ， 人 人 皆 投 訴 通 脹 太 嚴 重 了 。 曾 特 首 說 今 年 10 月 的 施 政 報 告 中 ， 他 將 提 出 紓 緩 通 脹 的 方 法 。
我 不 知 道 曾 特 首 有 甚 麼 方 法 紓 緩 通 脹 的 壓 力 ， 是 的 ， 政 府 可 以 免 除 柴 油 稅 ， 但 是 ， 免 了 柴 油 稅 後 ， 難 保 石 油 公 司 不 會 趁 機 再 加 價 。 香 港 的 汽 油 、 柴 油 基 本 上 是 寡 頭 壟 斷 行 業 ， 擬 議 中 的 「 競 爭 法 」 根 本 不 可 能 阻 止 石 油 公 司 一 先 一 後 加 價 的 行 為 。
港 股 半 年 結 算 ， 竟 然 是 14 年 來 最 差 的 表 現 ， 才 於 前 年 成 為 恒 指 新 貴 的 富 士 康 （ 2038 ） ， 成 了 恒 指 成 份 股 中 跌 得 最 慘 的 股 ， 不 知 道 這 隻 新 貴 還 能 在 恒 指 內 呆 多 久 。 我 在 去 年 、 前 年 大 牛 市 時 ， 已 經 告 誡 大 家 一 旦 牛 市 結 束 ， 第 一 隻 該 拋 售 的 股 港 交 所 （ 388 ） ， 成 了 最 差 表 現 第 二 名 的 恒 指 成 份 股 。
H 股 中 ， 則 奧 運 概 念 最 害 人 ， 奧 運 概 念 股 國 航 （ 753 ） 成 為 H 股 中 跌 得 最 慘 的 股 ， 首 都 機 場 （ 694 ） 也 一 樣 慘 ， 是 第 5 慘 情 的 H 股 。
“If you die without fighting back, it means that you’ve given up hope on life.”
Something Worth Living For - Shayne Ward
I don't wanna leave you here all by yourself
I just wanna let you know I'm there for you like no-one else
I don't wanna drift off to another place
I just wanna lay here in your arms with your hand on my face
So let's not ever tell the moon about the sun
I'll keep hearing love songs, hoping every wrong's undone
It's foolish but we've only just begun
I don't wanna stop this, all my walls are caving in
I wanna give you something worth living for
Oh, yeah
I wanna tell you this and so much more
My everything, my universe
I'm so mesmerised by your serenity
Hopefully you'll take me there inside your dreams
Just like autumn leaves I'm falling over you
It's so unbelievable but yet so true
Our imperfections are so beautiful
Right now
I don't even see them
Only diamonds now remain
It's crazy how
Without making a sound
You can make me feel things
[CHORUS:]
All my walls are caving in
I wanna give you
Something worth living for
Oh, yeah
I wanna tell you this
And so much more
My everything, my universe
You're something worth living for
Something worth living for
[BRIDGE:]
So let's not ever tell
The moon about the sun
I'll keep hearing love songs
Hoping every wrong's undone
It's foolish
But we've only just begun
I don't wanna stop this
[CHORUS:]
All my walls are caving in
Give you something worth living for
Oh, yeah
I wanna tell you this
And so much more
My everything, you’re my universe
Something worth living for
Something worth living for
You're something worth living for
Merrill, Citigroup Estimates Cut by Meredith Whitney (Update2)
By Josh Fineman
July 2 (Bloomberg) -- Merrill Lynch & Co. and Citigroup Inc. had their second-quarter earnings estimates cut by Oppenheimer & Co.'s Meredith Whitney on expectations of writedowns related to the subprime market and bond-insurer downgrades.
Merrill, the third-biggest U.S. securities firm, will probably lose $4.21 a share and write down $5.8 billion of assets, Whitney said in a report today, compared with her earlier estimate for a profit of 20 cents. Citigroup will probably lose $1.25, compared with her prior estimate for a gain of 21 cents. She forecast Citigroup's writedown at $12.2 billion.
Analysts and investors are reversing their predictions that the worst of the credit-market contraction is over after more than $400 billion of writedowns and losses by the world's largest financial institutions. Lehman Brothers Holdings Inc. last month increased its loss estimate for Merrill and more than doubled its prediction for the firm's subprime writedown, to $5.4 billion.
``Given Merrill's headwinds of de-leveraging and the next disruptive step of restructuring, we believe Merrill's shares are expensive,'' said Whitney, who has an ``underperform'' rating on the shares of Merrill and Citigroup.
Merrill, which reports second-quarter earnings in two weeks, fell 83 cents, or 2.6 percent, to $31.42 at 12:27 p.m. in composite trading on the New York Stock Exchange. The stock is down 41 percent this year. Citigroup, the biggest U.S. bank, fell 14 cents to $16.99.
UBS Cuts Estimates
UBS AG analyst Glenn Schorr today reduced his estimates for Merrill's second-quarter to a loss of $2.20 from profit of 55 cents, and he predicted $4.5 billion in writedowns. He also cut his price target to $35 from $47 a share.
``While the stock looks fairly cheap on our numbers, given the challenging earnings backdrop, Merrill's remaining exposure to troubled asset classes and the potential dilution from capital raises we remain neutral,'' Schorr wrote.
Sanford Bernstein & Co.'s Brad Hintz last month reduced his estimate for Merrill to a loss of 93 cents a share from a profit of 82 cents and predicted a writedown of $3.5 billion.
Goldman Sachs Group Inc. analyst William Tanona reduced his Merrill estimate to a loss of $2 per share from earnings of 25 cents and predicted a writedown of $4.2 billion. He cut his Citigroup estimate to a loss of 75 cents from profit of 25 cents.
Whitney said the downgrade of the so-called monoline insurers last month will force Merrill and Citigroup to book more losses. She sees a $2.5 billion writedown for Merrill related its monoline assets and a writedown of $3.6 billion for Citigroup.
2008 and 2009
MBIA Inc. and Ambac Financial Group Inc. were stripped of their top grades by Moody's Investors Service last month, following downgrades by Fitch Ratings and Standard & Poor's.
``We continue to be negative in our outlook on Citigroup due simply to the fact that the company has seriously constrained earnings power, in addition to the writedowns seen in the quarter,'' Whitney wrote.
Whitney estimated a wider 2008 per-share loss for Merrill of $5.37 compared with her earlier prediction for a loss of 45 cents. For 2009, she sees profit of $2.85, down from $4.05 previously. She also said she expects Merrill to announce an asset sale, probably involving its stakes in BlackRock Inc. and Bloomberg LP, the parent of Bloomberg News.
Whitney estimated a 2008 loss of $2.15 for Citigroup, compared with an earlier prediction of a loss of 58 cents. She lowered her 2009 estimate to profit of 45 cents from 80 cents.
Analysts' Reversals
Of 18 analysts who rate Merrill shares, three have ``buy'' ratings, 12 rate it ``hold'' and three say ``sell.'' On Citigroup, of the 17 analysts who track it, six say ``buy,'' five have ``hold'' ratings and six rate it a ``sell.''
Analysts have been reversing their calls on banking and brokerage stocks in recent weeks as the credit crisis continues. Goldman reversed a call on financial stocks, saying on June 23 that its May 5 recommendation was ``clearly wrong.'' Merrill on June 17 cut its rating on Lehman to ``neutral,'' just a week after telling clients to buy.
Of the 39 analysts tracked by Bloomberg who follow stocks in the Amex Securities Broker/Dealer Index, 32 produced losses for investors. Investors who bought brokerages on ``buy'' recommendations, sold when they switched to ``hold'' and speculated prices would decline when analysts said ``sell,'' lost 17 percent in the last year through June 23, compared with the S&P 500's 11 percent drop.
Lehman Brothers Blues
July 01, 2008
A look at the speculation that Lehman will sell itself, with Andrew Ross Sorkin, The New York Times and Joe Kinahan, Thinkorsim
Algae Chokes Bay That Will Host Olympic Sailing
AssociatedPress
July 02, 2008
China's latest Olympics nightmare is a vast algae bloom that covers one-third of the sea where the world's best sailors are supposed to be competing in just over a month.
Calm returns to Mongolia, still no election result
July 02, 2008
ULAN BATOR (Reuters) - Calm has returned to the Mongolian capital Ulan Bator after rioting in the wake of election fraud allegations left five dead, but there is still no official result from the weekend's parliamentary polls.
The violence has dampened hopes for a period of stable government to develop the mining sector and tackle inflation in the vast but thinly populated country, strategically sandwiched between China and Russia.
A curfew has been imposed in Ulan Bator, though the situation on the streets appeared to have returned to normal following the violence, in which protesters clashed with police and set fire to the ruling Mongolian People's Revolutionary Party (MPRP) headquarters.
The General Election Committee announced preliminary results on national television late on Wednesday, though did not say specifically to which parties the winners belonged.
According to Reuters calculations, the ruling MPRP has won 45 seats while the opposition Democratic Party has won 27, which would give the MPRP a clear majority in the 76-seat parliament.
Two of the seats are still undecided, and a few others have gone to small parties or independents.
International observers say overall the election was free and fair. But new election rules have led to procedural problems and some confusion over counting.
President Nambariin Enkhbayar declared a four-day state of emergency late on Tuesday after the protests.
The emergency rule -- the first in Mongolia's history -- means protests are banned and security forces can use tear gas and rubber bullets to break up demonstrations.
The uncertainty threatens to further delay deals that could unlock vast reserves of copper, coal, uranium and other resources beneath the country's vast steppes and deserts, seen as key to lifting the landlocked Central Asian state out of poverty.
The biggest project at stake is at Oyu Tolgoi, also known as Turquoise Hill, backed by Ivanhoe Mines of Canada and Rio Tinto.
The two companies propose to spend up to $3 billion developing the field. Rio paid $303 million for a 10 percent stake in Ivanhoe in 2006. It has said it could invest up to $1.5 billion, under defined conditions, when the deal is approved.
Oil hits new peak above $144
July 3, 2008
SINGAPORE (Reuters) - Oil hit fresh records on Thursday for the fifth time in six sessions, as the dollar fell on gloomy U.S. jobs data and a broad equity sell-off, and a higher than expected fall in U.S. crude stocks raised supply concerns.
U.S. crude rose as much as 87 cents to $144.44 a barrel, before easing back to $144.25 by 0155 GMT. The contract touched a previous peak of $144.32 on Wednesday.
London Brent crude rose as much as 85 cents higher at a record $145.11.
The dollar hit a two-month low against the euro on Thursday after a report a day ago showed U.S. private employers cut the most jobs in nearly six years and as the U.S. Dow Jones industrial average sank into bear market
Later on Thursday, traders will focus on the outcome of a European Central Bank meeting, which may result in an interest rate hike that could weaken the U.S. dollar further.
Oil has risen more than 50 percent this year, helped by inflows of speculative money as investors seek to hedge against the falling dollar and inflation.
"We have the weaker U.S. dollar, the reduction in U.S. oil stocks... We may see a bit of profit taking tonight but it all depends on the U.S. dollar," said Gerard Rigby of Fuel First Consulting in Sydney.
In the latest of a series of news this week which stoked supply concerns, official data showed U.S. crude oil stocks fell more than expected last week, down by 2 million barrels to 299.8 million barrels, putting commercial inventories below 300 million barrels for the first time since January.
Oil prices have jumped seven-fold since 2002 as demand from emerging economies like China and India stretch supply growth.
In the Middle East, fears of an escalation in the showdown between Iran and the West over Tehran's nuclear programme continued to support oil prices.
The United States has said it would defend shipping in the Gulf if Iran made good on threats to block the Strait of Hormuz, in the event OPEC's No.2 producer was attacked.
Forty percent of the world's seaborne oil passes through the Strait.
But Iranian Foreign Minister Manouchehr Mottaki struck a conciliatory tone on Wednesday, saying Tehran would reply shortly to an offer from Western powers designed to curb its nuclear work.
Western nations say Iran's nuclear program is aimed at developing atomic weapons, while Tehran insists it has only peaceful purposes.
Factory orders see 0.6 percent gain in May
By MARTIN CRUTSINGER
July 2, 2008
WASHINGTON (AP) - Orders to U.S. factories turned in the slowest performance in three months in May as a surge in demand for commercial aircraft was not enough to offset weakness in autos, heavy machinery and steel.
Factory orders rose by 0.6 percent in May, less than half the gains turned in during April and March, the Commerce Department reported Wednesday. It was the poorest showing since factory orders had fallen by 0.4 percent in February.
Analysts said the figures for the past three months have been inflated by big increases in the cost of refined petroleum and related products such as chemicals, which have been soaring because of the rising cost of global oil prices.
Oil hit a new record on Wednesday, climbing to above $144 per barrel. Global Insight, a major economic forecasting firm, said it was boosting its forecast for how high oil will go this year, predicting that West Texas intermediate crude will hit $160 a barrel in December, up from its previous forecast that oil would close out this year at $124 per barrel.
Nariman Behravesh, Global Insight's chief economist, said that his firm had decided to revise its oil forecast higher in light of the sustained run-up in prices that has already occurred and a belief that global demand and speculation would keep prices at elevated levels for some time to come.
The expectation of a more prolonged and costly jump in oil plus continued weakness in housing will mean greater downward pressure on the overall economy, Behravesh said.
The economy so far has managed to stay in positive territory for growth, thanks in part to $106.7 billion in economic stimulus checks that are now being mailed out. The gross domestic product grew at an annual rate of 1 percent in the first quarter. Behravesh predicted the just-completed April-June quarter would show an even stronger growth rate of 1.8 percent followed by GDP growth of 1.6 percent in the July-September quarter, when the economy will still be feeling the positive effects of increased spending from the stimulus payments.
But Behravesh said growth was likely to decline at a 1.7 percent rate in the final three months of this year and decline at a 0.7 percent rate in the first three months of next year. A standard definition of a recession is two consecutive quarters of negative GDP.
"This slowdown has got a ways to go because we haven't hit bottom yet on housing and this oil shock is going to get worse before it gets better," Behravesh said.
On Wall Street, the Dow Jones industrial average fell 166.75 points to close at 11,215.51, its lowest close since August 2006. It now stands 20.82 percent below its Oct. 9, 2007, record close of 14,164.53.
Economists are watching to see how big an impact the overall economic slowdown will have on manufacturing, which has been hurt by troubles in the auto industry and housing-related industries. That weakness has been offset to some extent by strength in exports, which have continued to rise as American manufacturers have benefited from a weak dollar, which makes their products more competitive overseas.
The Institute for Supply Management's closely watched gauge of manufacturing activity released on Tuesday showed a rise to 50.2 in June, just above the 50-point level that signals expansion in the manufacturing sector. The index had declined for four consecutive months.
The orders report showed that demand for durable goods, items expected to last at least three years, were flat in May while demand for nondurable goods, products such as food and petroleum, rose by 1.2 percent.
Transportation orders rose by 2.5 percent, reflecting a big 10.3 percent surge in demand for commercial aircraft. That helped to offset a 1.6 percent drop in demand for motor vehicles. Automakers have been battered by soaring gasoline prices, which have cut into demand for once-popular trucks and sport utility vehicles. Ford, General Motors and Chrysler all reported big declines in June sales.
The factory orders report showed that demand for machinery was down by 5 percent in May, reflecting big decreases in orders for construction machinery, mining equipment and industrial machinery.
Orders for primary metals including steel were off by 2 percent, but orders for computers and electronic products rose by 2.9 percent.
华尔街见闻: 抄底须谨慎
2008年07月02日
许多股票似乎都已经一败涂地，但这并不意味着它们价格已算低廉。
这是因为，收益预期下调的速度不足以反映日趋暗淡的经济前景。只要有一点点迹象，渴望增长的投资者或许都得付出高昂代价。
结果就是，一些股票虽然损失惨重，但预期市盈率仍相当可观。这对于试图抄底的投资者来说可能是个陷阱。以下是一些例证：
拉斯维加斯金沙公司(Las Vegas Sands Corp.)。这家Venetian Resort & Casino和Palazzo的运营商，其股价已经较52周高点下挫约三分之二。但这只股票目前价格仍为2009年预期收益的31倍。
虽然投资者们通常认为赌场不会受衰退影响，但现在可能已经不是这样了。航空公司已经减少了飞往拉斯维加斯的航班。
为了吸引顾客，赌场运营商提供了更好的住宿和赌博条件。但在收入增长疲软之际，它们的利润空间很可能会受到影响。
摩根大通(J.P. Morgan)分析师约瑟夫•格雷夫(Joseph Greff)表示，今年下半年可能是拉斯维加斯自2001年9月11日恐怖袭击事件后几个月以来最为艰难的一段时期。因此，格雷夫最近下调了金沙公司今明两年的收益预期。
Blue Nile Inc.。虽然珠宝商们对消费者的痛苦感同身受，投资者还是会对Blue Nile的扩展能力深具信心。没错，这只股票已经较52周高点下跌了58%，但其预期市盈率仍高达33倍。
还有一些因素也让投资者怀有希望：这家钻石珠宝在线零售商正在向海外扩张，而其互联网销售模式意味着它不会在存货上占用运营资本。但这家公司同样也不太可能提供足够的保护，让投资者不受美国经济急剧下滑的影响。
经济减缓的后果已经开始显现。据花旗集团(Citigroup)最近的一份报告，Blue Nile站点“独立访客”数量4月和5月较上年同期分别下降了5%和29%。
就算未来12个月的经济形势还算过得去，Blue Nile的市盈率也还是太高。如果经济更暗淡，这个数字就太过头了。
GSI Commerce Inc.，电子商务及交互式营销公司。该公司股票已较其52周高点跌去一半多，交易价为2009年收益预期的60多倍。
GSI不太容易受经济低迷影响，因为该公司提供外包服务的许多零售客户都与其签定了长期协议。但要签下新的合作伙伴会难得多，同时，该公司现有客户能否全部度过当前的经济低迷也很难说，虽然其大多数客户都是实力雄厚的大公司，应该能够度过危机。
这可能影响GSI的增长，继而又会妨碍公司在提高自由现金流水平上的努力。GSI在创造自由现金流方面成绩不佳，很大程度上是因为它必须投入大笔资金用于技术开发。而当前股价和市盈率是在过于乐观的预期之下出炉的。
总而言之：在不太可能实现增长的情况下为增长预期掏钱很可能会赔掉。
BNP准备进行更多并购
虽然今年美国零售银行出售价格较低，欧元又走强，但上市的欧洲银行不太可能成为它们的买家。不过，法国巴黎银行(BNP Paribas)却有这个可能。
虽然其下属的BancWest在美国20个州拥有680间分支机构，但这家法国银行已经证明是信贷危机中最具弹性的欧洲银行之一。BNP没有筹集新资产来支撑自己的资产负债表，其股票今年的业绩也胜过其他欧美大银行。
将BNP相对坚挺的行情与其最近收购美国银行(Bank of America)大宗经纪业务部门的行动联系起来，就能看出这家银行对美国市场的极大兴趣，而且，当前美国的资产价格的确便宜。
考虑到BNP过去就有收购外部公司并加以改造的爱好，其进一步在美国扩张的目标可能会涉及能为其提供新的业务区域以增加交易的银行。那么，该从何处下手呢？Wachovia或许符合要求，虽然现在要实现这样一桩并购可能会有点让人难以想像。BB&T Corp.、Fifth Third和KeyCorp等地方银行规模较小，旗下网点也经营的不错。
悲观主义者认为，保存资本应当是BNP的重点。但根据《新巴塞尔资本协议》(Basel II)，银行可以在三年内减少300亿欧元（合472亿美元）的高风险资产。这令BNP有充分空间以其他欧洲对手做不到的方式考虑自己的未来。
David Reilly / Arindam Nag
通胀难遏，政府如何维持稳定？
谢国忠
2008-07-01
在目前通胀无法被制止的情况下，应提高利率，不应管制价格
受各国将限制食品出口的消息推动，作为国际大米交易中基准价格的泰国大米价格，在3月31日上涨30％至790美元/吨。自2007年底以来，泰国大米价格已经翻番，相比于2003年的水平也增长了近三倍。
当前食物的价格趋势与油价在50美元/桶时的情况类似，后者在这一时点吸引了大量投机资本进入。投资基金密切关注农产品期货的情况已经尽人皆知，而投机资本可能很快就会控制食品价格，并推动其在当前水平上再次翻番。
劳动力重新定价
现在，中国的劳动力市场可能已经进入了一个重新定价的阶段。在1995年－2005年，尽管中国经济以每年8％的速度增长，但非熟练工人的工资水平几乎没有任何变化。过剩的供给使劳动力市场呈现买方市场特征，工人们彼此间竞争，使他们的工资仅达到可接受的最低水平。因此，他们并没有分享到经济增长带来的好处。
但低工资吸引了全球产品生产迁往中国，并进一步引发中国服务业的强劲增长。与此同时，中国政府也忙于进行大规模的基础设施建设，以消化剩余劳动力。这些因素使得劳动力需求迅速扩张，某种程度而言，劳动力市场的转折点已经来临。这个市场似乎已不再是一个买方市场。工资，尤其是年轻工人的工资，首次处于巨大的提高压力之下。
其原因有二。第一，生活成本出现了大幅提高。在非熟练工人或其家庭的消费篮子中，食品占有很大一个比例。而食品价格的大幅上扬降低了这些工人的实际工资水平。第二，在当前的工资水平下，对年轻劳动力的需求超过了供给。2008年珠江三角洲地区的劳动力短缺进一步恶化，反映出这些地区的工厂并没有支付市场可接受的工资水平。
2008年－2010年，中国非熟练工人的工资水平可能将提高50％。由于劳动生产率每年以8％的速度增长，而全要素生产率以4％的速度增长，即便资本收入占GDP的比例大幅下滑，劳动力重新定价的潜在要求也不能完全被生产率的增长所消化，这必将会引发显著的通货膨胀。
通货膨胀是一个缓慢移动的变量，当通胀被察觉时，再想抑制它可能已经为时过晚。中国政府宣布2008年的通胀目标为4.8％，目的在于控制通胀预期。这个意图虽好，可政府应该注意可能丧失控制通胀的政府信誉。如果公众意识到政府打击通胀仅停留在语言上，而没有实际行动，他们可能会采取行动自我保护。在过去的数次高通胀中，中国民众倾向于抢购大量重要食品以应付纸币贬值。这样的行为将进一步恶化通胀压力，并引发通胀的恶性螺旋式上升。
现在，要想抑制通胀可能已经为时太晚。实际上本来就不应该阻止劳动力市场重新定价。中国工人提出分享经济增长成果的主张，对社会稳定而言是件好事，这也将迫使企业提高劳动力的使用效率。
当你步入一个高档酒店，服务员会排成一溜迎接你。这种门面装饰纯属滥用劳力，却也反映了低廉的劳动成本。在西方国家，一名服务员的日收入相当于每位顾客每餐消费的2倍－4倍，而在中国高档酒店的商务餐中，服务员的日收入仅为每位顾客每餐消费的0.3倍－0.5倍。
另一方面，许多工人在40岁甚至30岁就已经“退休”了。当你走在诸如重庆或成都等城市的街头，你会看见大量此类“退休人员”在街头巷尾打麻将。当年轻劳动力非常丰富时，企业更倾向于雇用他们，因为他们更易于培训，能快速适应环境。但事实上，只要多一点培训，就可以使得那些中年工人也参加生产。
对中国劳动力市场的重新定价，并不意味着中国的工人工资将不再便宜。它仍旧便宜，仅仅是不再像过去那样便宜。它也并不意味着中国劳动力将出现绝对短缺。随着年轻工人工资水平的提高，企业将更为有效地提高工人的使用率，并发现培训中年劳动力更为有利可图。中国经济增长对资源的使用非常浪费，尤其是对劳动力的使用而言，更为糟糕。未来几年劳动力市场的重新定价，将迫使经济变得更有效率。当劳动效率提高时，劳动力成本的提高不会令中国丧失太多的竞争优势。
投机推升食品价格
中国政府无法控制上升的劳动力成本，也无法控制不断攀升的食品价格。数十年来，全球农业都是一个不盈利的部门。发达国家政府对农民提供了大量补贴以维持正常生产。由油价上涨引发的生物燃料的创新，是推动农产品价格上扬的催化剂。美国政府提供了大量津贴，从玉米中提取乙醇作为汽油的替代品。这构成了油价和农产品价格间的关联。随着油价持续上扬对投机资本的冲击，后者直接转投农产品，推升农产品价格。
过去三个月中，农产品价格的大幅飙升与投资基金大量购入农产品期货密切相关。农产品市场目前所受到的瞩目，与原油市场在突破50美元/桶时受到的关注有相似之处，现在它吸引了大量的金融资本。随着资本的流入和价格的上扬，期货市场将变得更大，更富有流动性，并将吸引更多的资本流入。越来越多的分析师将提高农产品的价格目标，就像当年他们提高油价预期一样。与原油相似，2008年的农产品可能会产生一个巨大的泡沫。
当一个市场出现积极的增长势头时，金融投机就会发生，并起到放大作用。例如，随着全球经济的强劲增长，市场对原油确实有一个强劲的需求。而控制了逾 80％原油储备的各国政府手中已经有了足够多的金钱，实在是没有太多动力来增加原油供给。金融资本看到了这一机会，便在低供给上大做文章，维持油价处于高位，尽管这时原油的需求可能已经减少。这样，对油价泡沫的支持因素便从强劲的需求转移到了疲软的供给之上。
正如上文提到的，原油和农产品的关联推动了后者价格的不断上扬。农产品的基本面在过去五年中不断好转，食品需求也在不断增加。新兴市场国家经历了四年的强劲增长期，他们趋向于将更多的收入放在改善饮食上，即摄入更多的肉类和乳制品，这意味着对谷物有更多的需求。由于农产品基本面仍维持强劲，而投机资本缺乏其他可以选择的投资渠道，资本仍将流入这个市场，并放大食品价格的涨势。
能源和食品是2008年全球通胀的两大推动因素，而美联储的货币政策是引发全球泡沫的根源。目前，美联储正在印制大把的钞票来挽救美国的金融体系。扩张的货币政策引发美元贬值和通胀，从而使得大宗商品变得富有吸引力。诸如股票、信贷、债券等传统金融工具目前均处于熊市，过剩流动性源源不断地涌入商品市场。当美联储将政策的优先考虑点从金融稳定转至价格稳定时，商品市场泡沫将会破裂。但2008年不会出现这一情景，甚至直到2009年，美联储可能都不会改变其政策方向。
政府如何维持稳定
现在看起来，中国政府在2008年甚至2009年都无法成功抑制通胀的大幅上升。但如果认为通胀在短期内无法抑制，而消极地作壁上观，那将是大错特错。
通胀将从三个方面导致不稳定。首先，持续高通胀的预期将导致企业提高产品价格，工人要求提高工资，这一螺旋式的上涨时期比食品和劳工价格的必要调整期要更为长久。政府必须采取措施，使得企业和个人确信未来物价水平将下滑，而低通胀预期将缓和企业和工人的行为。
其次，通胀将使得存款人对其银行存款的真实价值感到恐慌。中国家庭拥有18万亿元的银行存款。目前的存款利率较通胀率低4个百分点，中国家庭银行存款额的真实价值每天蒸发掉20亿元。对损失将进一步扩大的忧虑可能会刺激存款人从账户中提出存款，购买诸如食用油、大米、卫生纸等日用品。在中国的每一次高通胀中，抢购风潮都会发生。除非采取有效措施，否则这一情景将再次出现，并破坏经济稳定。
第三，诸如养老金领取者、接受福利救助者以及学生等固定收入群体，在通胀中会受到严重影响。印度、也门、墨西哥、布基纳法索和其他数个国家，在 2007年已经或近乎发生食品骚乱，这是数十年全球农产品维持低价以来从未见到的情形。美国国会预算办公室预计，截至2008年10月，将有2800万民众需要依赖联邦政府的食品援助生活，高于2007年的2650万人。这也是该项目自20世纪60年代实行以来需要援助人数最高的一次。
为了在物价飞涨时维持社会稳定，一国政府必须帮助那些领取固定收入的群体渡过难关。如果中国不采取预防措施，将可能发生与印度等国类似的骚乱。中国必须将存款利率提升至通胀率水平之上，以保护公众的银行存款；对弱势群体加大财政转移力度；并避免价格控制。
许多人担心，提高利率将吸引热钱流入。这个忧虑合情合理，但可以从两个方面着手解决。首先，中国可以也应该强化对资本账户的控制。尽管长期来看，中国将实现资本账户的自由兑换，但目前更迫切的是提高货币政策的独立性。没有独立货币政策，通胀在中国将不可控制。
其次，为了避免热钱流入，中国可以提高长期储蓄利率水平。例如，可以在两年或更长期的存款利率中加上通胀率，类似于通胀保值债券。“热钱”缺乏进行长期投机的耐心，所以，提高长期储蓄利率不会吸引更多的“热钱”流入，却能够为存款人提供一个安全屏障，他们可以不再担心血汗钱被通胀吞噬。
中国也可以模仿美国发行通胀保护债券，这一金融工具的引进将改善中国金融体系的稳定性。例如，银行可以利用这种债券的市场为储户提供保值储蓄，从而令大多数家庭受益。
目前中国的财政状况相当良好。上世纪90年代财政收入仅占GDP的11％，而现在占到了20％。进一步而言，来自电信和金融行业的国有企业利润丰厚，如果有需要，它们可以为财政收入做出更多贡献。中国政府有足够的资金为那些在高通胀中处于弱势地位的群体提供保护。目前已经采取的措施有提高退休人员的养老金和高校大学生的补贴，如果有必要，政府应出台更多的新举措。
在中国的政治文化中，政府总是倾向于以价格管制来打击通胀。然而长期来看，它将对经济产生严重破坏，甚至可能引发危机。价格控制将引发恐慌性抢购和囤积，因为商品的价格被低估了，理性的消费者将购买更多价格被低估的货物，而这造成进一步的短缺。不断蔓延的柴油短缺就是一个很好的例子。
当物价水平上升时，中国经济增长也开始放缓。但这仅是从高位下调，即便下滑30％，降至8％，仍是一个相当不错的增长率。不过，当通胀出现两位数的增长时，中国就会面临麻烦，因此，打击通胀而不是促进经济增长，应该是政策优先考虑的对象。
通胀目前无法被制止，但政府必须竭力采取措施，以确保通胀在未来一段时间内逐步下滑，并且在此期间内维持社会稳定。提高利率是正确的办法，管制价格则是错误的选择。
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Don't Control Price, Raise Interest Rate
Andy Xie
2008-04-16
China is in an all out battle against inflation. But, the approach-price control may be wrong. China is too open to have independent prices. Fuel shortage suggests that such policy cannot last long. China may have to come back to hiking interest rate while tightening capital account control. The following is in the current issue of Caijing Magazine.
The price of Thai white rice, a benchmark for international rice trade, surged 30% to $790/ton on March 31st, prompted by news of various countries restricting food exports. Its price has doubled since end of 2007 and nearly quadrupled from the level in 2003. The FAO food price index has roughly doubled in the past two years. The price trend for food at present bears eerily resemblance to oil price at $50/barrel-the point that oil market began to attract large amounts of speculative capital. Investment funds that specialize in the futures of agricultural commodities are becoming popular. Soon, speculative capital may take over the pricing of food products and cause food price to double from the current level.
At the same time, China's labor market may enter a phase of re-pricing. Between 1995-2005, the wage for unskilled workers in China barely changed despite the economy rising at 8% per annum. This is because the excess supply of labor kept the labor market a buyer's market. Chinese workers competed against each other and settled for wage at a minimum acceptable level. Hence, they didn't share in the upside in an expanding economy. The low wage has caused global production to relocate to China on a massive scale and has also triggered robust growth of the service sector. At the same time, the government has engaged in massive infrastructure expansion to absorb surplus labor. All three developments have rapidly expanded labor demand. Some sort of turning point has been reached. The labor market now seems no longer a buyer's market. For the first time, wage, especially for youth labor, is now under enormous upward pressure for two reasons.
First, the cost of living has increased enormously. The consumption basket of unskilled workers or their families has a high share of food products. The enormous inflation of food products has decreased real wage for such workers. Hence, the nominal value of the minimum acceptable wage has increased. Second, the demand for youth labor exceeds supply at the current wage level. The 'shortage' of labor in Pearl River Delta, which has gotten worse this year, really reflects that factories are not paying market wage. The two factors suggest that China's unskilled labor requires re-pricing for market to reach equilibrium. Mean reversion suggests that the wage level needs to reclaim the lost growth relative to GDP since1995. I think that wage for unskilled labor in China will likely rise by 50% between 2008-2010. As labor productivity growth is about 8% per annum and total factor productivity 4% per annum, the re-pricing of labor cannot be absorbed by productivity growth, even if capital's income share in GDP declines significantly, and will cause significant inflation.
Inflation is a slow moving variable. When it becomes visible, it is too late to stop it. Chinese government has announced an inflation target of 4.8% for 2008. Its purpose is to contain inflation expectation. While the intention is good, the government should be careful about losing credibility. If the population perceives that the government's effort in fighting inflation is rhetoric, not action, they may take actions to defend themselves. In the past episodes of high inflation, Chinese people engaged in hoarding essential goods to fight against the devaluation of paper money. Such behavior can exacerbate inflationary pressure and cause a vicious spiral.
It is probably too late to stop inflation now. Indeed, the re-pricing of labor should not be stopped at all. It is good for social stability that Chinese labor is claiming their share in China's prosperity. It also will force businesses to use labor more efficiently. Ten years ago, I visited an electronics assembly factory. 'They are all eighteen', the manager pointed at rows and rows of young girls hunching over their worktables. 'In a few years, their fingers will not be so nimble. We will get a new batch'. Such callous remarks summarized the attitude of some businesses in treating Chinese labor. They believed in eternal labor surplus.
When you walk into a high-end restaurant, a line of waiters greet you. This is purely decorative use of labor. Such wasteful use of labor reflects low labor cost. In the West, the daily income of a waiter is 2-4 times of a customer's meal cost. In high-end restaurants for business meals in China, it is 0.3-0.5 times. This is why restaurant owners find it lucrative to use so much labor for decorative purposes to attract business.
On the other hand, many workers in forties or even thirties are retired. When you walk through cities like Chongqing or Chengdu, you see crowds of such retirees playing mahjong on the sidewalks. When youth labor is plentiful, businesses prefer to hire them, because they are easy to train and can adapt to the rapidly changing environment better. However, a bit more training can turn the retired middle-aged workers productive. It is totally irrational for a society to leave such people in their prime idle.
The re-pricing of China's labor doesn't mean that China's labor is no longer cheap. It is still cheap, just less cheap. Nor does it mean absolute labor shortage in China. As youth labor inflates in cost, businesses will make labor use more efficient and find it profitable to train middle-aged workers. Chinese economy is wasteful in using resources. The worst is in wasting labor. The re-pricing of labor in the coming years will force the economy to become more efficient. When businesses restructure their labor use, China will not lose as much competitiveness as the rising labor cost suggests.
Surging labor cost cannot be controlled by the Chinese government. Nor could it food price. Agriculture has been unprofitable around the world for decades. Governments in developed economies have provided massive subsidies to farmers to keep them in business. The introduction of biofuel in response to surging oil price was the catalyst for the surging food price. The United States introduced subsidies for turning corn into ethanol as a gasoline substitute. It established a linkage between the prices of agricultural commodities and oil. As oil price has kept surging on speculative capital, it has lifted the prices of agro commodities.
Instead of playing through oil, speculative capital is now moving into agricultural commodities directly. The price surge in the past three months has much to do with the setting-up of investment funds that buy futures of agricultural commodities. What's occurring in agro commodities now bears striking similarities to the oil market when its price hit $50/barrel. The momentum is attracting financial capital. Even though the futures market is not deep, as capital flows in and prices surge, the market becomes larger and more liquid, which attracts more capital. Big investment banks are beginning to provide research support and trading instruments. More and more analysts will put sensational price targets on agro commodities like they did on oil. Like oil before, agricultural commodities may become a big bubble in 2008.
Financial speculation happens when a market has positive momentum. It is a magnifier of an established trend. Oil, for example, did have strong demand due to the strong global economy. The supply response has been muted as governments control over 80% of oil reserves, and they have low incentives to increase supply when they already have enough money. Financial capital sees the low supply and has kept price surging despite demand weakness. Hence, the support for the oil bubble has switched from demand strength to supply weakness.
Similarly, the fundamentals for agricultural commodities have been improving for the past five years. As mentioned above, the linkage to oil has boosted the fortune of the agro commodities. The food demand for eating has also been improving. Emerging economies have experienced four years of strong growth. They tend to spend their income gains on improving diet, i.e., more meat and dairy products in their food consumption. It means more demand for grain. Despite a weak US economy, emerging economies will continue to grow at a healthy pace, because they have high reserves of foreign exchange and can continue to invest despite export weakness. As fundamentals for agro commodities remain strong and speculative capital lacks alternative outlets, capital will flow into this market and exaggerate the increase of food prices.
Energy and food is the twin scourge for global inflation in 2008. The monetary policy of the Fed is the root cause for all the bubbles in the world. The Fed is printing money to save the US financial system. The monetary expansion is causing dollar depreciation and inflation, which makes commodities attractive. As traditional financial instruments like stock, credit, and bond are in bear markets, excess liquidity has been pouring into commodities. The commodity bubble will burst when the Fed shifts its policy priority to price stability from financial stability. It doesn't appear likely in 2008. The Fed may not even shift its policy in 2009.
It appears that Chinese government can't stop inflation from surging in 2008 or even in 2009. The rise of food price and wage is catch-up increase. Does that mean that the government shouldn't do anything about inflation? It would be very wrong if one concludes that nothing should be done because inflation cannot be stopped in the short term. Inflation can cause instability in three ways. First, the expectation of sustained high inflation can cause businesses to raise prices and workers to demand wage increase. The spiral could last longer beyond the necessary price adjustment of food and labor. The government has to take actions to convince businesses and workers that it will bring down inflation in future. The expectation for low inflation in future will moderate their behavior.
Second, inflation can frighten savers about the value of their bank deposits. Chinese households have Yuan 18 trillion in bank deposits. The deposit rate is four percentage points below inflation at present. Chinese households are losing Yuan 2 billion on the real value of their deposits everyday. The fear for further loss may inspire savers to withdraw deposits from banks and purchase commodities like cooking oil, rice, or toilet paper for value preservation. Hoarding happened in every episode of high inflation in China. Unless something is done, it could happen again and destabilize the country.
There are already many cases of hoarding. In Taipei, consumers queued to buy toilet papers. Hong Kong just saw panic-buying of rice. In China, cooking oil is one favorite for hoarding. Some shops limit customers to one bottle for each purchase. Such practice invites people back tomorrow to buy more. Down this slippery path, China may have to ration essential goods again, setting the country back twenty years in developing a market economy.
Third, people on fixed pay like pensioners, welfare recipients, and students are hit hard by inflation. India, Yemen, Mexico, Burkina Faso and several other countries have had, or been close to, food riots in the last year, something not seen in decades of low global food commodity prices. The US government has a food stamp program to ensure social stability for the low income group. The US's Congressional Budget Office (CBO) projects that by October, 28 million people will depend upon federal food assistance, up from 26.5 million in 2007. This will be the largest number of people depending on food stamps since the program began in the 1960s. To maintain social stability during surging food price, a government must help the people on fixed pay. If China doesn't take preventive measures, it may see similar disturbances as other countries have seen.
To safeguard stability during inflation, China must protect the value of bank deposits by raising deposit rate above inflation, increase fiscal transfers for the disadvantaged, and avoid price control. Many are worried about attracting hot money if deposit rate is raised. This is a legitimate concern. It can be addressed in two ways. First, China can tighten up capital account control. The recent tightening measures are already having an effect. Underground money shops in Hong Kong now charge up to 10% commission for channeling money into China.
China can and should tighten capital account control. While capital account convertibility is desirable in the long term, a higher priority now is to increase monetary independency. The Fed is pursuing a policy to stabilize its financial system and is tolerating inflation for now. Without monetary independence, inflation can spike out of control in China. One big hole to plug is the allowed HK$ 10,000 purchase of Rmb per day in Hong Kong. The total amount of Rmb deposit in Hong Kong through this channel totaled Rmb 48 billion in February 2008, up from Rmb 30 billion November 2007. The amount is still small but is rising rapidly. It may pose a challenge to the stability of Hong Kong dollar. As Hong Kong people convert their HK dollar into Rmb, the former may vanish. China may have to close this loophole soon for China's and Hong Kong's stability.
To discourage hot money, China can raise long-term deposit rates first. For example, for two-year deposit or longer, China could introduce inflation plus interest rate, similar to the inflation protection bonds or TIPS in the US. Hot money rarely has the patience for a two-year bet. Hence, raising long-term deposit rates will hardly attract more hot money. It serves the purpose as a safe haven for savers who are worried about the vanishing value of their hard-earned money.
China can issue inflation protection bonds like the US government already does. The introduction of such an instrument can improve China's financial stability. Life insurance companies face enormous risks when interest rates fluctuate. Because, their liabilities are fixed in nominal terms and their income depends on interest rates, they can sink into negative equity value like in 1998. The inflation protection bonds can stabilize this part of the financial system. Also, banks can use this market to offer inflation protection deposits, which benefits most households.
China's fiscal situation is excellent now. The fiscal revenue bottomed at 11% of GDP in 1990s. It is now 20%. Further, state-owned enterprises in telecom and financial sectors are flush with profits and can contribute to fiscal revenue if need be. The SoEs were in dire financial condition in 1990s. Chinese government now has plenty of money to protect the disadvantaged during inflation. Steps have already been taken to increase pension payments for retirees and allowances for college students. If need be, more actions should be taken.
In Chinese bureaucratic culture, it is always tempting to use price control to deal with inflation. However, it is very damaging for the economy in the long run and may even cause crisis. Price control is invitation for panic-buying and hoarding, because, it under-prices goods. Rational consumers will buy more under-priced goods, which leads to shortage. The widespread shortage of diesel fuel, for example, is a good example. The prices for processed petroleum products are 30% below crude price. It leads to smuggling of such products into the international market.
China may repeat the mistake in grain market. As international prices surge, imports stop, which pushes up local prices. The government may unload inventories to keep domestic prices low. This is a high risk move for two reasons. First, we don't know the true level of inventory. China imports over 50 million tons of feed meals per annum. It is hard to see how long the inventory can last to replace imports. Second, there could be smuggling of under-priced Chinese grain into surrounding countries in Southeast Asia.
While inflation is picking up, Chinese economy is also slowing. Much of the world is experiencing the same. China, however, is slowing from a high level. If the growth rate drops by 30% to 8%, it is still a good growth rate. China didn't have trouble in the 1990s at a similar growth rate. However, China always gets into trouble when inflation is double digit rate. Hence, China's policy priority should be inflation rather than growth.
Inflation can't be stopped now. But it must be managed to ensure it declining overtime and society remaining stable during the meantime. Raising interest rate is the right approach. Price control is the wrong one.
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