August 13, 2020

State Enterprises Pose Test for China’s New Leaders

Meanwhile, Chinese investors have poured more than $1 trillion in the last several years into loosely regulated trusts to bypass ultralow deposit rates offered by state-owned banks. The banks cannot readily afford to pay more because they need fat margins to cover losses on loans to politically connected borrowers.

For all the talk in recent years about the extent to which China has embraced capitalism, huge sectors of the economy still have not fully done so: those dominated by the country’s 145,000 state-owned enterprises.

With China’s top officials in Beijing for the 18th Party Congress, which is intended to put a seal of approval on the country’s next generation of leaders, one of the toughest issues on the agenda is how to overhaul this sprawling empire.

Many Chinese economists argue that the biggest conglomerates, especially banks and the leading oil and telecommunications companies, have grown so large that they swallow a large part of bank lending, crowd out more creative small companies and line the pockets of the politically well connected. The state sector ultimately threatens to choke the country’s economic growth and even damage its political stability, they say.

Almost no one has much good to say about state-owned enterprises these days — not even the people who run them. Wang Yong, the director of the State-Owned Assets Supervision and Administration Commission, which manages the enterprises belonging to the central government, chastised them publicly in a report to China’s legislature on Oct. 24.

“More efforts will be made to reform the power, telecommunications, oil and petrochemical industries,” Mr. Wang said. “Market entry into these sectors will be expanded based on the development of these industries.”

But whether those efforts will amount to more than window dressing depends on the willingness of the next Chinese leadership team to challenge the politically connected families that run many state-owned enterprises. And given the lavish opportunities these enterprises provide for insider corruption and self-dealing, that remains an open question.

On Thursday, at the opening of the party congress, the departing president, Hu Jintao, who has presided over an enormous increase in the wealth and influence of state-owned enterprises during his 10 years in power, seemed to suggest placing some limits on the sector and creating a more level playing field for private companies that try to compete against them.

But two political advisers to the incoming leadership, who have a deep knowledge of the factional rivalries in the Communist Party, expressed strong skepticism that most state-owned enterprises have much to fear.

The national, provincial and local governments are financially dependent on the profits of such enterprises and are reluctant to give them up, the advisers said. At the same time, the state enterprises provide political patronage for factions of the Communist Party and lower-level cadres, whose support is crucial to the government.

State-owned enterprises are also very important as providers of blue-collar jobs and as the operators of about 8,000 schools, hospitals and community centers for their current and former employees and their families.

Companies in which the state owns a majority represent 35 percent of all business activity in China, according to official figures. Yet they earned 43 percent of profits last year. Their hammerlock on a long list of strategic industries has allowed them to charge relatively high prices for their goods and services, even as they borrow at artificially low interest rates from state-owned banks.

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Greek Premier, Papandereou, Praises European Debt Deal

The accord, reached early Thursday morning in Brussels, includes an agreement by banks to accept a 50 percent loss on the face value of their Greek debt.

“The agreement allows us to make the necessary reforms without the burden of debt hanging around our necks,” Mr. Papandreou said, referring to Greece’s demanding — and unpopular — program of austerity measures and structural changes.

“Everyone needs to carry out his own personal revolution,” he said, calling on Greeks to support reforms.

But even as the agreement gave the country some much-needed breathing room, there were concerns about whether the reduction in Greek debt would help the nation’s rapidly shrinking economy, which has endured a credit crunch. For their part, Greek businesses were worried that the proposed nationalization of some banks might give the state too much control over the economy.

Some critics dismissed the accord, whose details were somewhat vague, as little more than window dressing.

“The most important problem is the bank capitalization,” said Yanis Varoufakis, an economist at the University of Athens, referring to a component of the plan that forces banks to raise new capital to protect themselves from possible sovereign debt defaults. “They didn’t specify how they were going to do it, or what they did say leaves a great amount of doubt.”

“It’s a complete fiasco,” he said of the new plan, “which is being once again paraded around as a great triumph.”

The new deal aims to bring down Greece’s debt to 120 percent of gross domestic product by 2020. Mr. Papandreou said Thursday that this would make the country’s debt “absolutely sustainable” and that there would be no more primary budget deficits. “From next year, we’ll be moving on to primary surpluses,” he said.

But many in Greece wondered how that could happen. The Greek economy contracted by 5.5 percent this year, and it is projected to shrink by 3 percent next year. Last month, the 2011 estimated budget deficit was increased to 9.5 percent of G.D.P., from 8.6 percent.

Greece’s once-protected public sector, which still employs one in five Greeks, has been hit by across-the-board wage cuts and planned layoffs, but with the credit crunch and the global economic slowdown, Greece’s private sector has been hit harder.

Unemployment is 16 percent and increasing. Since 2009, the Greek economy has lost all of the 320,000 jobs it created between 2000 and 2008, according to Savas Robolis, a labor market expert at the Greek General Confederation of Labor, the country’s main trade union.

“For a long time, banks have stopped giving loans to small businesses and they’re struggling,” Mr. Robolis said.

The banks’ agreement to accept a huge loss on their Greek debt “will force banks to sanitize their portfolios,” he said. “The liquidity, which has fallen, will be even worse if they’re not quick to recapitalize by March or April. If things don’t pick up, it will get ugly.”

Mr. Robolis, who has advised the government on pension reform, said that Greece’s pension funds, a portfolio worth about $34 billion, would also need an infusion of capital because of losses they were expected to incur in the write-down of Greek debt.

Even as Mr. Papandreou emphasized that the debt accord “creates new potential for growth and liquidity to return to the real economy,” the details of the recapitalization remained unclear.

In a news conference here, Finance Minister Evangelos Venizelos said that the new $184 billion rescue package pledged by foreign creditors as part of the new deal would cover Greece’s financing needs and allow it to recapitalize its banks.

Of that package, $42.5 billion has been earmarked as incentives for banks participating in private sector involvement in the write-down, and another $42.5 billion would provide banks with new capital.

But half of the recapitalization fund, or $21.3 billion, would come from planned privatizations of Greek state assets — a program widely seen to have stalled — as well as from a new Greek-German solar energy project.

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Stores Demand Mannequins With Personality (Heads Optional)

With retailers fighting for customers in the sluggish economic recovery, the generic white, hairless, skinny mannequin is being pushed aside by provocative alternatives that entice shoppers with muscles, unusual poses, famous faces and lifelike bodies.

“The customer shops from the mannequin,” said Jenny Ming, chief executive of the youth retailer Charlotte Russe, where poses for new mannequins are drawn from red-carpet celebrity pictures, and feature pierced ears, articulated fingers for rings and flexed feet for high heels. “The No. 1 reason our customers come in is because they see something they like.”

The Disney Stores chain has added little-boy figurines that fly from the ceiling and little-girl ones that curtsey. Nike has made its mannequins taller, and added about 35 athletic poses. Armani Exchange has ordered models that will lie down to help shoppers imagine wearing lingerie. A new accessories-only store by Guess features glossy black mannequins in model-like poses on an actual runway, while Ralph Lauren’s new women’s store in Manhattan commissioned mannequins with the face of the model Yasmin Le Bon.

It is all part of a new appreciation for old-fashioned window dressing. During the 1990s and early 2000s, many stores cut costs by hiring inexperienced workers to outfit their mannequins, and generic was best as the dummies needed to be dummy-proof. But with shoppers getting increasingly persnickety, retailers are expecting their store displays to serve as “come on in” advertising, with the made-to-order mannequins sending a very specific message.

“They personify their brand with their mannequin statements, and they’re looking for something a little more customized or unique,” said Peter Huston, brand president at Fusion Specialties, a mannequin company in Colorado whose sales, almost all of custom mannequins, rose 48 percent last year.

One of Fusion’s customers is Athleta, the sportswear company owned by Gap Inc. It commissioned mannequins based on a catalog model, Danielle Halverson, a track-and-field athlete training for the Olympics.

Fusion Specialties digitally scanned Ms. Halverson in stationary and action sequences. Then, over about two weeks, seven sculptors created clay renderings of the 3-D digital scans that “hand-etched her from a tiny pile of clay down to the tiny delineations of the sinew in the muscle,” said Tess Roering, vice president for marketing at Athleta, which opened its first physical stores this year.

After making more prototypes, Fusion produced the Dani-quin, as Athleta executives started calling the mannequin, in five variations. The running pose, especially, looks realistic: she is in midstride, with only her left toes on the ground. The Dani-quin, by the way, is headless.

“We wanted to make sure that our customers weren’t worrying about the hair, or anything else,” Ms. Roering said.

Michael Steward, executive vice president of Rootstein USA, which makes mannequins for stores like Ralph Lauren, Chanel and Neiman Marcus, said the newfound appreciation for specialty mannequins came as many retailers reassessed the market.

“A lot of people have decided they have to specialize,” Mr. Steward said. “Nothing sells the clothing like a mannequin: it’s a subliminal message from the retailer, the first thing people see in the window or in a department when they go into the store.”

When mannequins first were used, they were basically molded dress forms to which clothing makers pinned garments. By the 1920s, they had developed into torsos with joints attached, and slowly started to get wigs, makeup and glass eyes. By the 1960s, when some women stopped wearing bras, “you started to have nipples on mannequins,” said Linda Scott, a professor studying consumer culture at the Said Business School at Oxford. “That was a big shift,” she said.

But in the 1970s, as retail chains expanded nationally and cost pressures increased, mannequins shifted back toward the generic. “That’s when you saw mannequins that did not require makeup, did not require wigs, or so much attention to detail, to reduce the costs,” said Mr. Huston, the Fusion executive.

During the recession, companies curtailed spending wherever they could, and mannequin sales slowed. But after shedding unprofitable brands or merchandise during the recession, the retailers are focused on a specific customer and a particular brand position, and they want their windows to reflect that with custom mannequins.

“Over the past two years, everyone has really had to reassess their business and their client base,” Mr. Steward said, “and the market is so competitive that people are just focusing on what they do well, and what they sell.”

Prices of custom mannequins run from about $400 to $1,200 a mannequin, not including the $15,000 or more that places like Fusion charge for development. A mannequin makeover can cost a national chain millions.

Is it money well spent? Not always, said Professor Scott, because shoppers are an unpredictable lot. “Sometimes they’re imagining themselves in the clothes, sometimes they’re just entertaining themselves on an evening walk, sometimes they’re standing there with a girlfriend talking about how stupid the clothes look,” she said.

And Mr. Steward, the executive at Rootstein, said retailers sometimes ask too much of their mannequins.

“Everyone thinks they’re going to reinvent the wheel,” he said. “As I always say, there’s only so many things a mannequin can do: would you like two heads with that, madam?”

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