Ecommerce Pitstop

The world’s big economies were all hit by the recession. Now the field is spreading

A YEAR ago almost every economy in the world was being walloped. The degree of pain varied. In rich countries output plunged; in China and some other emerging economies growth slowed sharply. But the slump was as striking for its synchronicity as its severity.

The opposite seems true of the recovery. China’s rebound began earliest and has been the most spectacular (see article). America’s economy began growing in the middle of 2009 and seems to have accelerated sharply in the final months of the year. Initial GDP estimates for the fourth quarter are due on January 29th, and many analysts expect annualised GDP growth to have shot up to 5.5% or more. News from the euro zone and Japan is rather gloomier. Germany emerged from recession before America, but its number-crunchers recently suggested that growth fell back to zero in the fourth quarter. The Japanese recovery also seems to be fading. ...

The West’s recession spurs China’s hunt for energy supplies in its own backyard

DURING his first visit to Kazakhstan in 1996, Jiang Zemin was reportedly amused to learn that his Central Asian neighbour, the ninth-largest country in the world by land mass, had a population of only around 15m. “You probably all know each other,” China’s then president is said to have quipped to his hosts. With its population of 1.3 billion, China naturally thinks on a grand scale. This is what the five countries of Central Asia—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan—both admire and fear. Like Russia, looking to its own far east, they worry about Chinese expansionism.

But for most of the 18 years since the Soviet Union’s break-up, China has taken a back seat in the fierce competition between Russia and America for influence in this resource-rich region. In 2009, with the energy needs of its burgeoning economy continually growing, it woke up to new opportunities in its western backyard. ...

Tensions are likely to rise further over China's exchange rate

A COMMUNIST leadership always on full alert for violations of national sovereignty has lately grown shrill over calls by American and European policymakers to raise the value of the Chinese yuan, kept low by a heavily managed currency regime. Recently the prime minister, Wen Jiabao, presided over a grumpy summit between China and the European Union. There he berated his guests for their “unfair” pressure to revalue the yuan. The mantra of Mr Wen and other Chinese leaders is that the yuan ain’t nobody’s business but their own.

This message cannot be immune forever to reason, and an almighty international ruckus over the Chinese currency looks likely in the coming months. A tiny economy may enjoy what Martin Wolf, a columnist at the Financial Times, calls “the liberty of insignificance”. But China is the world’s largest exporter, with $2.3 trillion of foreign-exchange reserves. The scale and consequences of its currency regime are alike unprecedented. ...

Next year's World Expo in Shanghai has a little-known precedent

MORE familiar these days with the works of Adam Smith, China’s leaders may nonetheless recall Marx’s adage that history repeats itself, first as tragedy, second as farce. This might explain their apparently wilful oversight of an important event in Chinese history. In 1910 modernisers in the imperial court sought to whip up national pride by staging a world’s fair. The models were the West’s great expositions, whose iconic edifices, such as the Eiffel Tower and Crystal Palace, had inspired visitors with the industrial world’s swelling might. Too late, alas. The Manchu empire collapsed a year later. Undaunted, China’s Communist rulers, nurturing similar dreams, are having another go.

Officials in Shanghai, where the 2010 World Expo will run from May until October, understandably do not dwell on the historical precedent. The Shanghai fair, said the bid document the city submitted in 2000 to the body governing world’s fairs, the Bureau International des Expositions (BIE) in Paris, would be the first in any developing country. Technically, that might be right. Before the BIE’s founding in 1928, no rules covered what constituted “world’s fairs”. But many cities had already held them, beginning in 1851 with London, in its now-ruined Crystal Palace. ...

The “peaceful rise” hits some turbulence; but China’s economy is not about to crash

THE thunderous applause that China has become used to has suddenly been drowned by catcalls. Celebration that it had seen the light on climate change turned to condemnation of its spoiling role at Copenhagen. Foreign complaints about the jailing of a human-rights activist and the execution of a mentally disturbed British drug-smuggler recalled the bad old days of hectoring from Western governments. Barack Obama is (at last) due to meet the Dalai Lama, and his government has gone through with the sale of arms to Taiwan. And Google, an internet giant that had been notoriously willing to tailor its services in China to repressive local regulations, has said it may quit the market (see article). Even China’s strongest suit, its booming economy, has been damned. Rather than cheering China’s success in shrugging off the “Great Recession” of 2009, some analysts say China’s prosperity comes at the expense of the rest of the world and claim that, anyway, it is heading for a crash. One describes it as “Dubai times 1,000, or worse”.

Two Chinese bubbles, in other words, seem about to pop. One is a confection of naive optimism that the rise of a continent-sized, authoritarian power could be accommodated in the global system without serious strains. The other is a “bubble economy”, characterised by excessive lending, overinvestment and overvalued share and house prices. The obvious comparison is to Japan in the 1980s. When this bubble bursts, argue pessimists, China will suffer a prolonged slump similar to Japan’s after its bust two decades ago. ...

Investors are breathless over China’s biggest developer of wind farms

CHINA’S biggest producer of wind power, China Longyuan Power, is in essence a staid regulated utility. It buys turbines, erects them and sells the electricity they generate to China’s power distributors at prices fixed by the state. So why is its initial public offering next week on the Hong Kong Stock Exchange generating such excitement?

The offering is likely to value the firm, the former research arm of the ministry of energy, at nearly 30 times next year’s projected profits. Despite this heady figure, the tranche of shares being marketed to institutional investors is over eight times oversubscribed; the one for individuals, almost 30 times. The firm plans to sell 30% of its shares, but could, if it wanted, offload far more. The only check on price is not demand but rather caution among the bankers handling the sale, because a series of recent offerings in Hong Kong have dropped after listing. ...

High-cost smelters face a bleak future

ON THE face of things, the aluminium business is recovering swiftly from a nasty tumble. In 2009 the parlous state of the global economy pushed spot prices for the metal down below $1,500 a tonne. In recent weeks they have risen above $2,200—a 14-month high. Demand is picking up, particularly in India and China. Chinalco, China’s biggest aluminium-maker, which had idled 10% of its capacity, said in December that it would restart it all. Yet according to Michael Widmer of Bank of America Merrill Lynch, an investment bank, aluminium still has “horrible fundamentals”—in part because outfits like Chinalco continue to open smelters.

Those who consider the industry’s recovery superficial point to the 4.5m tonnes of aluminium stashed in warehouses around the world, far above the typical level of around 1m tonnes. Even when the price was near its lows last year, the futures market was anticipating a rebound this year. So speculators could buy stocks on the cheap, sell futures contracts at higher prices, and simply store the metal until the contracts fell due. Much of that metal will come back into circulation in the coming months. ...

China’s share of world markets increased during the recession. It will keep rising

MANY people start the new year by resolving to change their old ways. Not China. On December 27th Zhong Shan, the country’s vice-minister of trade, declared that China will continue to increase its share of world exports. Figures due out on January 11th are expected to show that China’s exports in December were higher than a year ago, after 13 months of year-on-year declines. China’s exports fell by around 17% in 2009 as a whole, but other countries’ slumped by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999 (see chart).

China takes an even bigger slice of America’s market. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008. ...

Apple uncovers poor conduct at some of its contractors

APPLE is renowned for the control it exercises over every element of its business, from design to marketing. The resulting products, to its fans, verge on perfection. But there are clearly some steps in the manufacturing process that it does not supervise so closely. According to a report the firm released on February 23rd, the treatment of workers at several of its contractors in various countries broke both local laws and Apple’s own standards. Such problems are thought to be rife at Western firms’ suppliers in China in particular, but are seldom brought to light. Even Apple’s account raises more questions than it answers.

Apple says some of its suppliers hired underage employees, dumped hazardous waste illegally, made staff work unreasonable hours and paid less than the minimum wage. They also violated Apple’s own standards by discriminating against pregnant women, providing inadequate safety equipment and imposing onerous recruitment fees on workers. Remedial steps, the company says, have already been taken. But it does not specify where these events occurred or how many people were affected. Over the past three years the firm has increased the number of facilities audited each year from 39 to 102. But how much of its production this represents is not disclosed. The report does, however, observe that Apple’s suppliers are good at protecting its intellectual property, if not their workers’ rights. ...

Progress in talks with China is a mixed blessing for Ma Ying-jeou

RELATIONS between Taiwan and China may be better than at any time since Nationalist forces routed in China’s civil war fled for Taiwan in 1949. But not everyone is cheering. Chen Yunlin, China’s most senior Taiwan negotiator, visited Taichung in central Taiwan in December to sign three technical accords (covering co-operation on fishing, industrial standards and the quarantine of agricultural products). But public support in Taiwan for President Ma Ying-jeou’s China-friendly policies seems to be eroding.

The opposition Democratic Progressive Party (DPP) claimed 100,000 people had joined its protest rally on December 20th. (The police estimated 30,000.) They condemned the pact the government wants to sign with China, formally known as the Economic Co-operation Framework Agreement, or ECFA, saying it would cause thousands of job losses and lead to an influx of cheap Chinese goods. Mr Chen was dogged by protesters, albeit in far smaller numbers than on his first visit in November 2008. In the worst scuffle, a policeman was badly hurt and six people detained. ...

China will test the WTO’s dispute-settlement system

IN 2009 China overtook Germany to become the world’s largest exporter. Exactly half the trade disputes that were filed at the World Trade Organisation (WTO) last year involved China. These facts are not unrelated. As Pascal Lamy, the WTO’s chief, pointed out in January, the scope for trade friction increases as countries trade more. Disputes between China and other countries are only to be expected.

Mr Lamy did not have to wait long for evidence to back up his claim. On February 8th China complained to the WTO about the European Union’s anti-dumping duties on Chinese-made shoes. This latest fracas over footwear follows recent complaints by the Chinese about restrictions on its exports of steel fasteners, car tyres and poultry. Having initiated just two disputes between joining the WTO in 2001 and September 2008, China has complained to the WTO another five times since then. Marc Busch of Georgetown University in Washington, DC, says that China has moved from “learning by watching”, where it mainly observed others’ trade tussles, to being an active participant in formal dispute settlement. ...

The cradle of China’s start-up firms is showing its age

CHINA’S remarkable resurgence began three decades ago with the designation of Shenzhen, just north of Hong Kong, as a “special economic zone”. Businesses in the zone were free to re-engage with overt capitalism and make profits by satisfying customers, not the state. The result was the transformation of a farming village into a city of 9m people, bustling with production lines and sewing machines, making everything from iPods to Nikes, in a burst of entrepreneurial zeal.

But that may describe its past more accurately than its future. Inevitably, prosperity has affected people’s attitudes and the local business environment. A study by the Shenzhen Academy of Social Sciences and the Chinese University of Hong Kong, released on January 18th, shows a precipitous drop in the fraction of the population involved in starting new businesses, from 12% in 2004 to 5% in 2009. “It’s not so special anymore,” says Kevin Au, a professor of management at Chinese University. ...

America struggles with climate-change legislation

“WHAT that means in code”, Senator Bob Corker, a conservative Republican from Tennessee, told the audience at a hearing of the Senate Committee on Energy and Natural Resources about America’s proposed climate-change legislation, “is we’re transferring wealth from our companies and our citizens…to raise carbon prices and send money abroad.”

Senator Maria Cantwell, a left-wing Democrat from Washington, does not normally agree with Mr Corker, but her line of reasoning was similar. In costing the bill, she said, the Environmental Protection Agency had estimated that $1.4 trillion dollars a year would go abroad to cover the generous provision for offsets in the bill. “What can we buy abroad for that? Can’t we spend this money on developing technology at home?” Senator Corker was fairly sure that the foreigners would find things to sell America. “When $1 trillion comes around there are hucksters all over the world who will do business with you.” ...

Hong Kong’s stock exchange looks beyond China

RUSAL, the world’s largest aluminium company, desperately needs money to support mountains of debt but, as its recently issued prospectus suggests, there are reasons why funds may be tricky to raise. The prospectus repeatedly warns would-be investors that they could lose everything; it also admits that the firm does not meet the profit test for listing on the Hong Kong stock exchange.

That apparently does not bother the exchange itself, which will host Rusal’s planned multibillion-dollar share offering, the first by a Russian company, later this month. The bourse is making a vigorous play for foreign listings from companies outside China, the source of its recent success but a stamping-ground that may soon be lost to resurgent local exchanges in Shenzhen and Shanghai. ...

Who matters in the world’s second-largest financial system is barely understood

FROM being a rounding error a decade ago, the financial clout of China now trails only that of America. By market capitalisation, it has three of the four largest banks, the two largest insurance companies, the second-largest stockmarket and a lengthening list of investment funds. Yet who makes the decisions in China is barely understood. The government and the Communist Party are intimately entwined with the managers of China’s financial institutions. Working out who is really in charge is almost impossible.

Even attempting to do so takes you into sensitive territory. Disclosing information about how the Chinese government works risks violating nebulous secrecy laws or sacrificing business opportunities. Many China-watchers will only speak face to face, concerned about using e-mails or phone calls to discuss what, in the West, would be standard chatter about the status of bankers and their supervisors. ...