May 26, 2019

Muted Fears of Contagion as Asian Currencies Fall

The most affected large economies have been those of India and Indonesia, two countries where many domestic and foreign investors are now rushing for the exits, exchanging local currencies for dollars. After months of decline, both countries’ currencies dropped further on Thursday, with the Indonesian rupiah and the Indian rupee falling about 2 percent before recovering some of their losses.

Some Asian business leaders say they still hope the region can escape largely unscathed from the broader troubles afflicting emerging markets this summer. Sofjan Wanandi, the tycoon who is the longtime chairman of the Indonesian Employers’ Association, said in a telephone interview on Thursday that he believed Indonesia’s currency troubles were a result of a temporary failure by the government to formulate a response and communicate it clearly.

“We know the economy is O.K., but the government is not taking quick action,” he said, adding that he and other business leaders were working with the government on a policy statement to be issued on Friday. “After that, we hope this will all be calmed down,” he said.

The currencies of Malaysia, the Philippines and Thailand also declined, although by less than 1 percent. Stock markets across most of the region fell on Thursday, but share prices rebounded slightly in India after days of decline there.

At this point, fears of a continent-wide crisis, like in 1997, have been minimized. But economists are still cautious. “Between the two countries, Indonesia has a far better balance of economic growth and a greater chance of revival,” HSBC, referring to India and Indonesia, said on Wednesday in a research report that cautioned investors against buying Indian government bonds.

Largely unaffected on Thursday and in recent weeks have been the currencies of Asia’s two largest economies, China and Japan. The Japanese yen has been little changed over the last month, despite weakening marginally this week, and the value of the Chinese renminbi, heavily managed by China’s central bank, has stayed flat as well. Both countries have begun economic stimulus programs in recent months, although they have done so with very different styles.

China’s stock market has even posted a small rally this month on signs that an economic slowdown may be less severe than expected this autumn, although worries persist about next year.

The preliminary purchasing managers’ index in China, compiled by the research firm Markit and released by the British bank HSBC on Thursday, showed a swing to expansion from contraction in August. The increase, to a four-month high, easily beat analysts’ expectations.

HSBC’s preliminary survey offers one of the earliest indications each month of how the Chinese economy is doing, and Thursday’s reading is likely to solidify expectations that a stabilization that began to show in July has continued into August.

The reading “adds to the number of green shoots indicating a stabilizing economy since July,” Li Wei and Stephen Green, economists at Standard Chartered, wrote in a note, adding that government-led measures aimed at shoring up economic growth, like tax breaks for small businesses and efforts to speed up railway construction, appeared to have begun to take effect.

After years of double-digit expansion rates, the economy has now settled into a slower pace of growth of around 7.5 percent this year. And despite Thursday’s unexpectedly strong survey results, some analysts said the picture could well cloud again next year.

Indonesia and other countries in Southeast Asia have been hurt by their dependence on slower-growing China. They have also been hit by China’s gradual shift away from industries dependent on commodity imports from Asian neighbors, like steel production, and toward service industries.

With chronic trade deficits and a dependence on foreign investment, Indonesia and particularly India have faced the biggest problems in the region. The government of India has resorted to increasingly desperate measures in the last two weeks, like steeply raising taxes on imports of silver and gold, but it has been unable to halt the decline of the rupee, which is down more than 7 percent in August and more than 20 percent since the start of May.

Daily steep declines in the rupee are making it much harder for Indian companies to repay their foreign loans, many of them denominated in dollars. The rupee’s decline has also made real estate and other projects in India less attractive for foreign investors who count their profits and losses in dollars, prompting many of them to pull out as well.

As the Federal Reserve mulls tightening monetary policy in the United States in response to early signs of economic recovery there, rising interest rates on Treasury securities and other American financial instruments are drawing money away from emerging markets around the world.

Indonesia has tried to undertake some difficult overhauls this summer, most notably raising retail gasoline prices in June to limit government subsidies for the country’s millions of drivers. Economists say they expect Indonesia’s trade deficit to start shrinking in the coming months and its government finances to improve as families avoid unnecessary trips and buy less fuel as a result.

Bettina Wassener contributed reporting.

Article source: http://www.nytimes.com/2013/08/23/business/global/currencies-drop-as-dollars-flee-asia.html?partner=rss&emc=rss

China Reports Increase in Manufacturing

HONG KONG — A manufacturing index published by the Chinese authorities on Thursday provided an unexpectedly solid reading for July but did little to dispel the picture of an economy that has left the days of double-digit growth well behind it.

The reading, published by the National Bureau of Statistics, edged up slightly, to 50.3 from 50.1 in June, indicating that recent small-scale economic support measures announced by the authorities in Beijing may be having some effect on demand.

The slight increase confounded analyst expectations that the index would slip below the 50-point mark that separates expansion from contraction.

Underlining the lingering malaise within the world’s second-largest economy, however, a separate manufacturing activity gauge published by the British bank HSBC came in at an eleven-month low of 47.7. The figure, which was unchanged from the initial reading published last month, highlighted the tough domestic and international demand that many Chinese companies are confronted with.

“With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment,” said Qu Hongbin, chief China economist at HSBC, in a statement accompanying the release.

On the upside, he noted, the string of recent weak data has prompted Beijing to introduce more targeted support measures, which “should boost confidence and reduce downside risks to growth.”

The leadership that took the helm in Beijing in March has been insisting that the slowdown is not only desirable — as part of their efforts to rein in excessive lending and bring about more balanced growth — but also stable and sufficient to meet its target of 7.5 percent this year.

But it has also prescribed a steady stream of small-scale, targeted support measures in a bid to ensure that growth does not cool too rapidly.

These have included tax cuts for small and micro enterprises and measures aimed at speeding up railway construction in inland and poor areas. In a bid to raise the economy’s overall efficiency the authorities have also issued instructions to more than 1,400 companies in 19 industries to cut excess production capacity this year.

Meanwhile, the central bank on July 19 said it would no longer set a minimum interest rate for corporate loans – a symbolically important first step toward wider interest rate liberalization.

“All of these things amount to a small-scale stimulus,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong. These steps, combined with more fine-tuning moves that are likely to follow in the next few months, are likely to lift economic growth to just above the official 7.5 percent growth target this year, Mr. Kowalczyk said.

“The new leadership cannot afford politically to miss that target during their first year,” he said, adding that he expected moves aimed at spurring consumer demand, such as subsidies for big-ticket items or consumption-tax cuts, as well as a modest depreciation in the renminbi in the coming months.

Article source: http://www.nytimes.com/2013/08/02/business/global/chinese-manufacturing-unexpectedly-strengthens.html?partner=rss&emc=rss

Markets Falter After Chinese Central Bank Statement

HONG KONG — In its first direct comment about a credit crunch last week that raised concerns about the health of the Chinese financial system, China’s central bank insisted Monday that there was ample cash in the banking system but stressed that the country’s commercial banks needed to be better managed.

Bank-to-bank lending rates, which had hit record highs last week, further eased Monday. But stocks slumped sharply in a sign that markets remained intensely nervous about China’s growth prospects and the uncertainties that surround the Chinese leadership’s efforts to reshape the economy.

The Shanghai composite index, which has been under pressure for months amid mounting evidence that the Chinese economy is cooling, plunged 5.3 percent, its biggest single-day drop in nearly four years, taking its decline so far this year to more than 13 percent. The Shenzhen composite index dropped 6.1 percent, while in Hong Kong, the Hang Seng Index fell 2.2 percent, sagging below the 20,000-point mark for the first time since last September.

Markets in Europe were down almost 2 percent in afternoon trading, while Wall Street shares were down 1 percent shortly after the opening.

Numerous analysts have revised downward their growth projections — HSBC, for example, cut its forecast for this year to 7.4 percent from 8.2 percent — amid signs that Beijing’s new leaders are willing to tolerate slower growth in the short term as they pursue stability for the long term.

The interbank lending market’s benchmark overnight rate, which serves as a gauge of liquidity in the financial market, stood at 6.489 percent Monday. That was down from 8.492 percent Friday and well below the record high of 13.44 percent it hit Thursday, but still elevated compared with the level of about 3 percent of most of the past 18 months.

In a statement dated June 17 but published Monday, the Chinese central bank, the People’s Bank of China, addressed some of the concerns about the cash crunch, saying that “currently, liquidity in our country’s banking system is overall at a reasonable level.” But, in a stern sign to Chinese lenders, it called on financial institutions to improve “awareness about preventing risks” and to “strengthen their analysis and forecasting about factors affecting liquidity.”

“Follow the requirements of macro prudence in allocating assets in a sensible fashion,” the central bank’s instructions to lenders went on, “and cautiously control the risks that the excessively rapid expansion of credit and other assets may lead to liquidity risks. When there is turbulence in market liquidity, swiftly adjust the structure of assets.”

The fact that the People’s Bank of China had allowed interbank lending rates to soar last week — rather than injected money into the financial system — was widely interpreted as a deliberate effort to rein in excessive lending and force banks to focus on prudent, low-risk loans.

A buildup of debt by local governments, property developers and state-owned companies, while useful for supporting economic growth, bears substantial risk, including asset price bubbles and potentially destabilizing defaults if loans turn sour, analysts have cautioned. The rapid expansion of lending in unregulated and often opaque shadow banking activities, in particular, has worried many.

Last month, the International Monetary Fund cautioned that the growth in credit “raises concerns about the quality of investment and its impact on repayment capacity, especially since a fast-growing share of credit is flowing through less-well supervised parts of the financial system.”

Beijing has responded in recent months with efforts to address the potential risks. “Policy makers have taken measures to slow the rapid growth in credit and at the same time tightened rules about irregular and imprudent activity in the financial system, including interbank bond repo transactions,” economists at JPMorgan in Hong Kong wrote in a research note Friday, referring to bond repurchases. That “tough-line attitude,” they added, had caused the recent increase in interbank funding costs.

Although factors like a seasonal demand for liquidity and a crackdown on cash hoarding at banks also contributed to the rate increase, the JPMorgan team wrote, it seemed that the P.B.O.C. also “wants to use this as an opportunity to address” banks’ expectations that it is always there to provide backup.

Yiping Huang and Jian Chang, China economists at Barclays, said in a report that with “China’s credit-to-G.D.P. ratio at 200 percent, we believe that the P.B.O.C. is acting in line with the government’s efforts to deleverage, rebalance and position the economy towards a path for sustainable growth.” Though the central bank is likely to stabilize the interbank market in the near term, they added, “short-term rates are likely to remain elevated, at least for a while, possibly leading to the failing of some smaller financial institutions.”

Louis Kuijs, an economist at Royal Bank of Scotland and former China economist at the World Bank, said conditions in the interbank market were likely to remain “tight and nervous” in the coming weeks.

“We expect conditions on the interbank market to normalize gradually after that,” Mr. Kuijs added.

Chris Buckley contributed reporting.

Article source: http://www.nytimes.com/2013/06/25/business/global/chinese-central-bank-says-liquidity-at-reasonable-level.html?partner=rss&emc=rss

DealBook: Leniency Denied, UBS Unit Admits Guilt in Rate Case

UBS accepted a $1.5 billion fine for its role in manipulating interest rates.Michael Buholzer/ReutersUBS accepted a $1.5 billion fine for its role in manipulating interest rates.

UBS on Wednesday became the first big global bank in more than two decades to have a subsidiary plead guilty to fraud.

UBS, the Swiss bank, scrambled until the last minute to avoid that fate. A week ago, in a bid for leniency over interest-rate manipulation, the bank’s chairman traveled to Washington to plead his case to the Justice Department, according to people briefed on the matter. Knowing the long odds, the chairman, Axel Weber, asked the criminal division for a lighter punishment.

But the government did not budge. With support from Attorney General Eric H. Holder Jr., the agency’s criminal division decided the bank’s actions were simply too egregious, people briefed on the matter said.

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On Wednesday, UBS announced it would plead guilty to one count of felony wire fraud as part of a broader settlement. With federal prosecutors, British, Swiss and American regulators secured about $1.5 billion in fines, more than triple the only other rate-rigging case, against Barclays. The Justice Department also filed criminal charges against two former UBS traders.

The guilty plea and the individual charges provide the Justice Department with a long-awaited case to prove it is taking a hard line against financial wrongdoing.

Since the financial crisis, the government has faced criticism that it has not brought significant criminal actions. The money-laundering case against HSBC, which averted indictment when it agreed instead last week to pay $1.9 billion, raised more concerns that the world’s largest and most interconnected banks were too big to indict.

With UBS, prosecutors wanted to send a warning.

The Justice Department’s decision stops short of imperiling the broader financial system because it shields UBS’s parent company from losing its charter, among other major repercussions. But by securing a guilty plea against a subsidiary, the department has shown that it is willing to punish severely one of the world’s most powerful banks. It was the first guilty plea from a major financial institution since Drexel Burnham Lambert admitted to six counts of fraud in 1989.

“We are holding those who did wrong accountable,” Lanny A. Breuer, the head of the Justice Department’s criminal division, said at a news conference on Wednesday. “We cannot, and we will not, tolerate misconduct on Wall Street.”

The rate-rigging inquiry, which has ensnared more than a dozen big banks, is focused on major benchmarks like the London interbank offered rate, or Libor. Such rates are central to determining the borrowing rates for trillions of dollars of financial products like corporate loans, mortgages and credit cards.

The fallout from the UBS case is expected to increase pressure on some of the world’s largest financial institutions and spur settlement talks across the banking industry. The Royal Bank of Scotland has said it expects to pay fines before its next earnings statement in February, while American institutions, including JPMorgan Chase, also remain in regulators’ cross hairs.

The UBS case highlighted a pattern of abuse that authorities have uncovered in a multiyear investigation into the rate-setting process. The government complaints laid bare a 10-year scheme, describing how the bank had reported false rates to squeeze out extra profits and deflect concerns about its health during the financial crisis.

“The settlement reflects the magnitude of the wrongdoing and how critical it is that these be honest and reliable,” said Gary S. Gensler, chairman of the Commodity Futures Trading Commission, the American regulator that opened the UBS investigation.

Six months ago, authorities did not seem ready to take an aggressive stance with UBS.

They had just scored their first Libor settlement, a $450 million payout from Barclays. UBS, which had already struck a conditional immunity deal with the Justice Department’s antitrust division, figured its penalty would be similar.

The immunity deal, some UBS executives contended, would protect the bank from criminal charges. Even officials at the Justice Department were skeptical about the prospect of levying large penalties, according to people briefed on the matter.

Then the tone shifted this fall. After examining thousands of e-mails and hours of taped phone calls, the agency’s criminal division concluded that the conduct at the Japanese subsidiary warranted a criminal charge.

Agency officials also cited the bank’s repeated run-ins with authorities. For example, the Swiss bank had agreed in 2009 to pay $780 million to settle charges that it had helped clients avoid taxes.

Not everyone in the Justice Department agreed on the course of action. According to people briefed on the matter, the antitrust unit pushed for less-onerous penalties, citing the cooperation of UBS. With officials split over how to proceed, Mr. Holder cast the deciding vote in favor of securing a guilty plea from the subsidiary.

The move caught UBS off guard. The bank dispatched dozens of lawyers to Washington to negotiate the fine print of the deal, setting up makeshift offices at the Four Seasons hotel in Georgetown.

Mr. Weber joined the lawyers, in a typical last-ditch appeal to the criminal division. Last Wednesday, Mr. Weber and his general counsel explained to the agency how UBS had overhauled its management ranks, bolstered internal controls and generally tried to clean up its act.

Mr. Breuer and other Justice Department officials agreed to consider the bank’s request to abandon the guilty plea, people briefed on the talks said. But hours later, a prosecutor phoned to say the agency was standing firm.

UBS agreed to the guilty plea, conceding that the Japanese unit would otherwise most likely face an indictment. In turn, prosecutors credited the bank for its recent efforts to improve.

“We are pleased that the authorities gave us credit for the important and positive changes we have already made,” Mr. Weber said in a statement.

The Commodity Futures Trading Commission adopted a similarly tough attitude.

Since Thanksgiving, UBS has tried to negotiate lower penalties with the regulator, according to people briefed on the matter. But David Meister, the agency’s enforcement chief, would not back down from $700 million in fines, an agency record.

“Even for a megabank, that amount serves as a direct deterrent,” said Bart Chilton, a commissioner at the regulator.

Authorities’ strict stance stems from the extent of the bank’s actions. The Commodity Futures Trading Commission cited more than 2,000 instances of illegal acts involving dozens of UBS employees across continents.

The most significant wrongdoing took place within the Japanese unit, where traders colluded with other banks and brokerage firms to tinker with yen-denominated Libor and bolster their returns.

In colorful e-mails, instant messages and phone calls, traders tried to influence the rates. “I need you to keep it as low as possible,” one UBS trader said to an employee at another brokerage firm, according to the complaint filed by the Financial Services Authority of Britain.

As the employees carried out the ostensible manipulation, they also celebrated the efforts, with one trader referring to a partner in the scheme as “superman.” “Be a hero today,” he urged, according the complaint.

The Justice Department also took aim at two former UBS traders, Tom Hayes, 33, and Roger Darin, 41, bringing the first criminal charges against individuals connected to the Libor case.

Like other traders at UBS, Mr. Hayes was willing to reward others for their efforts. He trumpeted the work of an outside broker who had helped, writing in a message, “i reckon i owe him a lot more.” Another broker responded that the person was “ok with an annual champagne shipment,” and “a small bonus every now and then.”

As prosecutors ramped up their investigation, Mr. Hayes even tried to dissuade former colleagues from cooperating, the complaint said. “The U.S. Department of Justice, mate, you know,” he said, they are the “dudes who…put people in jail. Why…would you talk to them?”

Mark Scott, Ashley Southall and Julia Werdigier contributed reporting.

Article source: http://dealbook.nytimes.com/2012/12/19/leniency-denied-ubs-unit-admits-guilt-in-rate-case/?partner=rss&emc=rss

DealBook: British Regulator Says Banks ‘Too Big to Prosecute’

Andrew Bailey in 2009.Georges Gobet/Agence France-Presse — Getty ImagesAndrew Bailey in 2009.

Andrew Bailey, the future chief of the Prudential Regulation Authority, a newly created British regulator, believes that some banks have become too big to prosecute.

The fear, one that has been echoed in the United States, is that the indictment could hurt confidence in the wider financial services industry.

“It would be a very destabilizing issue. It’s another version of ‘too important to fail,’” Mr. Bailey told The Telegraph, a British newspaper.

A number of British banks, including HSBC and Barclays, have recently been forced to pay large fines connected to illegal activity by some of their employees. Mr. Bailey said the size of many financial institutions made it difficult to take legal action against firms.

American authorities recently decided against indicting HSBC over money laundering, over concerns about the broader financial system. Instead the bank agreed to pay $1.92 billion to settle the matter.

The case is raising some questions. On Thursday, Senator Charles E. Grassley, Republican of Iowa, sent a letter to Eric H. Holder Jr., the attorney general, citing the Justice Department’s “inexplicable unwillingness to prosecute and convict those responsible for aiding and abetting drug lords and terrorists.” Mr. Grassley called the HSBC fine “hardly even a slap on the wrist,” given the bank’s profits.

Article source: http://dealbook.nytimes.com/2012/12/14/british-regulator-says-banks-too-big-to-prosecute/?partner=rss&emc=rss

Growth Returns to Factories in China

HONG KONG — The Chinese manufacturing sector expanded in November for the first time in more than a year, according to the early reading of a business survey released Thursday, the latest sign that the Chinese economy might have skirted the sharp slowdown that many economists had earlier feared.

Greater demand for Chinese goods around the world and a series of domestic stimulus measures are trickling through the Chinese economy, breathing life into the giant factory sector. A monthly purchasing managers index published by the British bank HSBC rose from 49.5 in October to 50.4 in November, climbing above the threshold of 50 that separates expansion from contraction for the first time in 13 months.

The preliminary reading of the HSBC index is one of earliest indicators to shed light on the Chinese economy’s performance each month, and it is closely watched by economists and investors.

If confirmed by further economic data in the coming weeks, the improved performance would cement a picture that has been crystallizing for the past couple of months: that the slowdown in growth that buffeted China for much of the past year has now bottomed out.

Indeed, many analysts believe the Chinese economy has already put the worst behind it, and that the recovery is gaining traction.

The HSBC reading Thursday suggests that the “upswing in China — and by extension in the whole Asia-Pacific region — is gathering strength,” Klaus Baader, an economist at the French bank Société Générale in Hong Kong, commented in a note. The report, he added, “should further dispel fears of a hard landing.”

Relaxed restrictions on bank lending, accelerated infrastructure investment, and two small interest rate cuts over the summer have helped reinject some dynamism, analysts said. The housing sector has stabilized after suffering from government-mandated restrictions aimed at reining in soaring prices in recent years.

At the same time, overseas demand for exports also has improved somewhat in recent months and has led to a marked improvement in export orders, according to the survey published Thursday.

Analysts caution, however, against expecting a sharp bounce back to the double-digit annual growth rates seen before the global financial crisis.

The current recovery, Qu Hongbin, chief China economist at HSBC, said in a note accompanying the survey results Thursday, is still in its early stages. More policy easing is necessary to strengthen the recovery, especially given the still uncertain global environment, Mr. Qu commented.

The U.S. tax increases and spending cuts set to take effect in January and the euro zone debt crisis remain “a key risk factor in China’s road of economic recovery going into next year,” economists at J.P. Morgan said in a research note.

Many analysts expect the Chinese economy to grow at rates between 7 percent and 8 percent in the next few years.

The J.P. Morgan team, for example, forecasts 7.6 percent for this year, and 8 percent for 2013. Both the World Bank and the International Monetary Fund forecast that expansion will tick up to a little more than 8 percent next year, from slightly less than 8 percent this year.

While that is well above the growth rates seen in Europe, Japan and the United States, such figures are well below the 9.3 percent expansion in 2011, and the 10.4 percent growth rate in 2010.

With a new leadership now taking the helm in Beijing, attention has also shifted to the longer-term issues that many economists say need to be addressed to keep China on a path of rapid growth.

The incoming leadership has already signaled that combating rampant corruption and addressing the environmental degradation caused by the headlong economic expansion of the past years are important priorities.

On the economic front, analysts say the economy needs to be weaned from the reliance on exports and investment in large infrastructure and other projects that underpinned past growth and the current recovery, toward more domestic and consumption-driven growth. China’s demographics — an aging population will cause the proportion of nonearners to soar in the coming years — will also present major challenges in the coming decades.

The final November reading of the HSBC purchasing managers index will be published Dec. 3, while the Chinese authorities will publish a string of economic data starting in early December.

Article source: http://www.nytimes.com/2012/11/23/business/global/growth-returns-to-factories-in-china.html?partner=rss&emc=rss

Chinese Manufacturing Contracts in November

HONG KONG — The Chinese manufacturing sector contracted in November, according to a closely watched barometer, indicating that a key engine of global growth is getting dragged down by the economic woes of Europe and the United States and by the Chinese authorities’ moves to cool inflation.

An index measuring activity in the manufacturing sector, released by the China Federation of Logistics and Purchasing on Thursday, slumped to 49 in November, much more than economists had expected. The reading is below the 50 mark that separates expansion from contraction, and marked a significant fall from the previous month’s reading of 50.4.

A separate purchasing managers’ index released by HSBC on Thursday painted a similar picture. That index fell to 47.7, from 51 in October.

A large part of the slowdown has been the result of Beijing’s efforts to combat the inflationary pressures that have accompanied the rapid pace of growth seen during much of 2010 and 2011.

On Wednesday, the authorities reversed some of that tightening, by loosening the reins on bank lending for the first time in nearly three years. The rise in the so-called reserve requirement ratio for banks effectively allows financial institutions to extend more credit, helping prop up flagging growth.

“The message is clear: The economy is slowing much faster than expected and the government has stepped into the ring,” Alistair Thornton, China economist at IHS Global Insight in Beijing, said in a note on Thursday. “The loosening campaign has begun.”

He said the government moved early on cutting the reserve requirement ratio to give it some breathing room.

“They loosened too aggressively in 2009-10, tightened too aggressively in 2011, and are now treading a fine line in pursuing measured easing,” he said.

Data from other parts of Asia on Thursday indicated that the global gloom is starting to be felt across much of the region, albeit with varying intensity.

HSBC’s manufacturing indexes for India and South Korea slipped in November, but the reading for Taiwan edged higher.

Meanwhile, the South Korean government reported that exports held up unexpectedly well, with 13.8 percent growth from a year earlier.

But the situation is likely to get more challenging. “We believe that Korea’s still-solid exports to emerging economies will fade soon as these economies are negatively affected by weaker growth from the euro area, the U.S. and China,” said analysts at Nomura.

With the escalating debt crisis in Europe and feeble growth in the United States likely to brake growth further, economists expect policy makers in China and other countries to announce more stimulus measures in coming months.

Several indicators suggest that overall manufacturing growth in China has basically stalled in the last three to four months, while the services sector also has slowed, Stephen Green, China economist at Standard Chartered in Hong Kong, wrote in a note Thursday.

“This slowdown is no bad thing, given the overheating of the second half of 2010 and the first half of 2011, but as the balance of risks has shifted, policy now needs to respond,” he commented.

Crucially, China and many other Asia-Pacific economies have ample tools at their disposal to cushion their economies from the worsening global environment. Most countries in the region are not burdened with the high debt levels that beset the United States and Europe, and most have room to lower interest rates if needed.

Asian stock markets on Thursday greeted the cut in the Chinese banks’ reserve requirement ratio with a firm rally. Sentiment was also buoyed by action from the Federal Reserve and other central banks to free up liquidity in the global financial system.

In mainland China, the Shanghai composite index rose 2.3 percent, and in Hong Kong, the Hang Seng index jumped 5.3 percent. The Straits Times index in Singapore climbed 2.4 percent.

In Japan, the Nikkei 225 index closed 1.9 percent higher, and in Taiwan, the Taiex rose 4 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=102a114fd37f795ff4d4efd1dcfe6343

West’s Economic Slump Catching Up With Asia

HONG KONG — Asia’s resistance to the West’s economic troubles is slowly wearing thin.

For much of this year, the economies of the Asia-Pacific region appeared to be blissfully isolated from the turmoil in other parts of the world. Asian stock markets fell along with those in the West, but the region’s economies continued to power ahead.

Within the past few weeks, however, cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States struggles to pick up speed.

“The potential risks for Asia have increased” as the European crisis has moved beyond small peripheral economies like Greece, enveloping larger countries like Italy, Spain and even France, said Frederic Neumann, co-head of Asian economics at HSBC in Hong Kong. “It’s a whole different ball game now.”

The spreading economic troubles were underscored Wednesday when a closely watched gauge showed that Chinese manufacturing was contracting. The reading, published by HSBC, dropped from 51 in October to 48 in November, the lowest level in nearly three years and much lower than economists had expected. A reading of 50 is the dividing line between expansion and contraction.

The steep decline fanned worries about the spillover of the West’s problems into Asia. But it also reinforced nervousness about the effect in the opposite direction: the West increasingly needs a strong Asia to buy its goods as consumers at home stay on the sidelines.

The concern is that things are going to get worse before they get better.

“Europe is only at the beginning of its crisis,” said Pranay Gupta, chief investment officer for the Asia-Pacific region at ING Investment Management in Hong Kong. “Europe is now where the United States was three years ago: The economic contraction is only just beginning.”

So far, the economic pain in Asia has been relatively muted, and much of the region remains on course for growth rates that most Western nations can only dream of.

The Chinese economy is set to expand 9.5 percent this year, according to projections from the International Monetary Fund
last month. India is expected to grow 7.8 percent, Indonesia 6.4 percent, and many other Southeast Asian nations more than 5 percent, the I.M.F. estimates.

Those figures, however, are generally below the growth rates seen in 2010, and are likely to ease off further next year, the I.M.F. and most economists say.

Exports from Asia have been softening for months as demand in Europe, in particular, has slowed. Although many countries depend less on exports than they once did, the sector remains crucial for economies like those of Taiwan and South Korea and for the small, open economies of Hong Kong and Singapore, economists say.

Reacting to the worsening global environment, Indonesia and Australia have lowered interest rates in recent weeks. Most other central banks in the region have put off rate increases that seemed likely only months ago as they have become less concerned about inflation and more worried about growth.

In Japan, the pain has been compounded by the results of the devastating earthquake and tsunami of last March and by the persistent strength of the yen. Fanned by the economic difficulties in other parts of the world, the Japanese currency’s rise has made Japanese goods more expensive for shoppers abroad and has helped dent exporters’ profits.

With no room to lower already-low interest rates further, the government has resorted to direct intervention in the currency markets — selling yen for U.S. dollars — four times in little more than a year in its battle to weaken the yen.

In the financial sector, meanwhile, banks like HSBC, UBS and Nomura are cutting jobs around the globe. And although many would like to grow, rather than shrink, in the Asia-Pacific region, financial centers like Hong Kong and Singapore have not escaped the hiring freezes and job cuts.

“There are still pockets of hiring in the Asian financial sector, but it has got a lot tougher in recent months,” said Matthew Bennett, managing director at the recruitment firm Robert Walters in Hong Kong.

Article source: http://www.nytimes.com/2011/11/24/business/global/wests-economic-slump-catching-up-with-asia.html?partner=rss&emc=rss

Rise in Chinese Currency Draws Attention

HONG KONG — China’s currency has staged a small but unexpected rally in currency markets this week, as the country’s central bank has allowed it to rise 0.72 percent against the dollar, with most of the move coming Wednesday and Thursday.

The State Administration of Foreign Exchange, which is part of the central bank, fixed the initial trading value Thursday morning below 6.4 renminbi to the dollar for the first time in the modern history of the currency.

Economists and traders interpreted the new trading value, 6.3991 to the dollar, as a signal that the central bank might be willing to tolerate a slightly faster rate of appreciation against the dollar, something the United States and other big industrial nations have long pressed China to do.

Daniel Hui, a senior foreign exchange strategist at HSBC, said in a research note that the recent movement in the daily fixing of the renminbi “indicates something has changed — the question is why, and if it will last.”

Allowing the renminbi to strengthen can help China fight inflation, by making imports cheaper. But a stronger renminbi can also hurt exports and employment at China’s many export-oriented factories by making Chinese goods more expensive in foreign markets.

The government’s National Bureau of Statistics announced Tuesday that inflation in consumer prices had reached 6.5 percent in July, the highest level in three years. At the same time, China’s exporters are showing unusual strength despite economic weakness in the West.

China’s General Administration of Customs announced Wednesday that exports were up 20.4 percent in July from a year earlier, more than most economists had expected, producing a trade surplus of $31.5 billion, the country’s largest in more than two years.

But any sustained acceleration in the appreciation of the renminbi could bring greater speculative inflows of money to China. As a result, many economists have been predicting that China may soon allow the currency to trade in a wider band each day around the initial fixing, which is done in Shanghai. Greater volatility makes it harder for speculators to borrow money to put bets on a rising renminbi.

The Administration of Foreign Exchange sets an initial trading value each day and then keeps the currency within a tight range around that value through the day by buying dollars, frequently on a large scale, and selling renminbi. In theory, the currency can vary during the day by as much as 0.5 percent, but the government has tended to keep the daily trading in a much tighter range, often less than 0.1 percent.

China’s foreign exchange reserves swelled by $350 billion in the first half of this year — equal to one-ninth of the country’s economic output in the period — mostly because of this currency market intervention. The Administration of Foreign Exchange also earns interest on its reserves, which totaled $3.2 trillion at the end of June.

Bettina Wassener contributed reporting from Hong Kong, and David Jolly from Paris.

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HSBC to Announce 10,000 Job Cuts

LONDON — HSBC, Europe’s biggest bank, plans to announce thousands of job cuts on Monday as part of a wide-ranging cost-reduction program that started in May, a person with direct knowledge of the decision said Sunday.

HSBC plans to cut about 10,000 jobs, or 3 percent of its global work force, said the person, who declined to be identified before the figures are made public. The bank, which employed 307,000 people at the end of last year, is expected to announce the job cuts when it reports earnings for the first half of this year on Monday. HSBC declined to comment on the job cuts, which were first reported by Sky News.

Meanwhile, on Sunday, the bank announced that it would sell 195 of its branches in upstate New York to the First Niagara Financial Group for about $1 billion. The branches being sold hold about $15 billion in deposits.

Stuart T. Gulliver, who took over as HSBC’s chief executive in January, said in May that he was seeking to lower costs by at least $2.5 billion in the next two to three years mainly by scaling back the bank’s retail operations outside Britain. HSBC said in May that it might also sell its bank card business in the United States. It has already withdrawn from the Russian retail banking market.

Mr. Gulliver has said that he plans to radically change HSBC’s business in the United States, which has been a drag on group earnings mainly because of the bank’s ill-advised acquisition of the subprime lender Household International in 2003. Mr. Gulliver has indicated that he hopes to strengthen the business by winning market share with its commercial banking unit.

To compensate for sluggish growth in Europe and its British home market, Mr. Gulliver also plans to win market share in faster-growing economies like those in Latin America and Asia, where HSBC has a historically strong presence. HSBC was helped through the subprime mortgage crisis by its growing business in Asia, where it continues to generate more than half its annual pretax profit.

HSBC would be the latest bank to announce job cuts. Credit Suisse said last week that it planned to eliminate 2,000 positions, or 4 percent of its global jobs. Goldman Sachs and Morgan Stanley are also reducing their head counts. The cuts are expected to help the banks improve returns despite slower economic growth and a stricter regulatory environment.

First Niagara’s deal to purchase the HSBC branches in upstate New York would more than double its branch network in the region. As of the end of June, the firm, based in Buffalo, had 117 branches in upstate New York and 346 total.

First Niagara reportedly beat out several bigger competitors for the HSBC branches, including MT Bank, whose market value is more than three times larger.

HSBC also plans to consolidate 13 of its branches in Connecticut and New Jersey into nearby existing locations.

HSBC’s pretax profit for the six months to the end of June is expected to fall to $10.9 billion from $11.1 billion a year earlier, according to the average of analyst forecasts polled by Reuters.

HSBC’s shares fell 8.7 percent this year, less than its British rival Barclays, which is set to report earnings on Tuesday.

Julia Werdigier reported from London and Michael J. de la Merced from New York.

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