Dollar Crisis: Economic Pearl Harbor?

What do Brazilian supermodel Gisele Bündchen and the People's Republic of China have in common? The answer, as of last week, is that both distrust the dollar.

Patricia Bündchen, the twin sister and manager of the world's top model, announced that Gisele now prefers to be paid in euros rather than dollars. Almost simultaneously, the Chinese central bank predicted that the dollar is likely to lose its status as the world's leading currency.

One could easily overlook a supermodel's currency preferences, but China is a different story. It's the beast breathing down America's neck.

The most important country in the world for the United States isn't Great Britain, Germany, Saudi Arabia, Russia or Iraq. China holds that dubious distinction, because it is also the country the US can least do without. Without its willingness to buy an almost unlimited supply of US treasury bonds, there would be no American spending miracle. Without a spending miracle there would be no economic growth. In other words, without China the US superpower would lose a significant share of its economic clout.

So far Beijing has behaved like the benevolent shopkeeper who willingly extends credit to his customers. The Americans receive shipments of Chinese-made television sets, toys and underwear, but the Chinese do not import a comparable volume of US goods. The gap between buying and selling amounts to about $5 billion every week.

The Chinese are satisfied with buying US treasury bonds, partly to keep their most important customer afloat. The central bank in Beijing already holds currency reserves of $1.4 trillion.

The Chinese have looked on with great patience as their best customer has gradually lost its ability to supply goods.

But the men in power in Beijing cannot be indifferent to the dollar's decline. It devalues their central bank's dollar reserves, the monetary embodiment of some of the fruits of China's export machine.

For the United States, a Chinese decision to abandon the dollar would be tantamount to Pearl Harbor without the war. It would represent a challenge to the world's biggest economy by the world's fastest growing economy. Millions of people would see their standard of living suffer as a result, and American self-confidence, already shaky, would crumble even further. The United States would suffer a serious blow on its very own turf, the economy.

Americans can hardly blame Beijing for their troubles. The Chinese aren't exactly kamikaze politicians, concocting some secret plan to attack the dollar. On the contrary, the preparations are taking place in full view. Translated into Texan, what the Chinese politely told the Americans last week simply means: Unless something happens, all hell will break loose.

For years the US economy has suffered one dramatic setback after another. A historic trend reversal began with the rise of the Asian economies -- first Japan, then China and now India. The United States, a once-proud exporting nation, became the world's biggest importer. In only 15 years, from 1992 to 2007, the US balance of trade deficit has surged from $84 billion to $700 billion.

Within a single generation, the world's biggest lender has become its biggest borrower, a circumstance the United States has made no serious attempts to change. And what has been Washington's standard take on the shift? The dollar is our currency, but it's your problem.

Thus, the tone of the US government's callous and thick-skinned reaction to China's announcement last week came as no surprise. There was a reason the dollar became the world's reserve currency, US Treasury Secretary Hank Paulson said in a slightly offended tone.

But the truth is that the United States would be better off if Paulson and the administration of President George W. Bush would take decisive action instead of sulking. The US's ability to deliver goods should be increased and its industrial base should be reinvigorated. Government and consumer spending, which in reality is doing nothing but eating away at the country's future, should be curbed. Although growth would decline as a result, it would be a more sustainable form of growth.

Last week's remark by a Chinese central bank official should be interpreted as a warning, not a threat. Indeed, China has no choice but to respond, given the dollar's ongoing weakness.

For these reasons, an attack on the US economy is probably the most easily predictable event of the coming years. And if it happens, the attacker will even be able to justify its actions as self-defense.

What is the difference between the US government in 1941 and the administration in Washington today? Perhaps there is none. A Japanese attack on the US Pacific Fleet at Pearl Harbor was unimaginable, even though US intelligence had picked up clues that it could happen. Washington, at the time, was convinced that the Japanese wouldn't dare stage an attack on a target 5,000 miles away, and that they wouldn't succeed if they did.

The crews on America's ships were sleeping as the Japanese bombers approached Pearl Harbor.

Another British import finds running success at Butler

Like so many runners before him, Andy Baker arrived from England without ever having seen the Butler campus or met the coach. Baker was ambitious, though.


"I wanted to prove I'm a better runner than what it looks like I am," said Baker, who is in only his fourth year of serious running.
He made his U.S. cross country debut Sept. 28 at the Notre Dame Invitational. He finished 97th.
What that proved to coach Matt Roe was that something was wrong. Roe was right. Baker was diagnosed with iron deficiency, a condition that improved with supplements and change of diet.
"Now, he's just like a freight train," Roe said.
Baker won the Horizon League race by more than a minute. He finished third in last week's Great Lakes Regional, one of the toughest of nine regionals nationwide. That qualified him for the NCAA Championships, set for Monday at Terre Haute.
Notre Dame's Patrick Smyth was first on Bloomington's 10,000-meter course in 30 minutes, 22.44 seconds. Big Ten champion Matt Withrow, Wisconsin, finished second in 30:38.42. Baker followed about two seconds later.
Baker said he wasn't familiar with the names, and that might have been advantageous.
"They didn't really mean anything to me," he said.
Now it is Baker making a name for himself. Butler has a legacy of top finishers in NCAA cross country -- Victoria Mitchell was fourth in 2005, Mark Tucker fourth in 2002, Fraser Thompson 14th in 2000 and Julius Mwangi third in 1998.
Baker, 22, is a transfer from Loughborough College, where two-time Olympic gold medalist Sebastian Coe and former Butler runner Becky Lyne attended. Butler's pipeline from the United Kingdom was built by former coach Joe Franklin, who left for New Mexico.
Baker conceded there was initial concern but that the transition has been easy. Roe wants to intensify recruiting in the Midwest but said Butler would continue to seek foreign athletes. Baker, in particular, has become valuable as a teammate.
"To have somebody like that who's an international athlete, who's a little bit older, really provides a great dynamic and structure for our program," Roe said.
Butler did not qualify its men's or women's teams for the NCAAs, but it has another British representative in senior Genni Gardner, 23, who was ninth in the women's regional race.
No. 19 Notre Dame and No. 28 Indiana made the men's field as at-large teams. Also advancing were two Hoosiers from Stanford, Nef Araia (Lawrence North) and Katie Harrington (Carmel). Araia, the 2006 NCAA runner-up, was sixth in the West Regional. Harrington, the No. 5 runner for Stanford's top-ranked women, was 14th in the regional.
Sports of all sorts

Gymnastics: Pittsboro gymnast Bridget Sloan, an alternate on the U.S. team that won a gold medal at the World Championships, has been selected to compete in a pre-Olympics test event later this month at Beijing. . . . Samantha Peszek, McCordsville, is narrator for an online episode of "USA Gymnastics: Behind the Team." A video behind-the-scenes look at a visit by Peszek and her U.S. teammates to New York City can be accessed at usa-gymnastics.org or attblueroom.com/teamusa.
Running: IU has constructed a tribute to cross country and track greats at Running Legends Park, a collection of limestone slabs on IU's cross country course. . . . Cindy Harris, 38, Indianapolis, won the women's division of a race to the top of Chicago's Sears Tower for the sixth straight year Sunday. She ran 103 flights of stairs -- 2,109 steps -- in 15 minutes, 1 second. . . . Desiree Davila won a special women's 10,000-meter track race in 33:20.7 Saturday at IUPUI. Erin Nehus of the Indiana Invaders was seventh in 34:14.1.
Trampoline and tumbling: A Fortville 11-year-old, Tristan Van Natta, won a silver medal in women's double-mini trampoline in the age-group world championships at Quebec City, Quebec.

S. Korean firms demand EU's early lowering of import duties

SEOUL, Nov. 15 (Yonhap) -- South Korean companies called on the government Thursday to push for the early lowering of the European Union's (EU) import duties on cars and electronic goods at free trade talks scheduled for next week.

Representatives from such industry umbrella groups as the Korea Automobile Manufacturers Association (KAMA) and the Korea Display Industry Association (KDIA) said it is imperative that local companies be allowed to export goods without paying import duties if a free trade agreement (FTA) is reached.

In four previous FTA talks held between South Korea and the EU, European negotiators said they want to maintain tariffs on cars and some electronic products for up to seven years.

Cars and electronics account for a large part of South Korea's exports to the 27-nation economic bloc, which totaled US$48.45 billion last year. The EU is the second-largest destination for South Korean products after China.

South Korean companies also said that Seoul must get the EU to soften its stance on its country of origin rules for components that go into products.

"Because EU countries can get cheap parts from East European members, they are insisting on higher percentages of so-called locally made parts than even the United States," said one businessman. He said that since South Korea imports many of its components from countries like China, the EU's position places local companies at a disadvantage if a FTA is signed.

The request by KAMA, KDIA, and other interest groups including the Korea Chamber of Commerce and Industry and the Federation of Korean Industries comes as the trading partners get ready for the fifth round of talks in Brussels from Monday to Friday.

Local businesses have held six previous talks beginning in February to coordinate their requests to government negotiators and to exchange views on how best to maximize benefits from the FTA.

The government, meanwhile, said the upcoming talks will determine whether the trade talks will proceed on track or take longer than anticipated. Seoul said it wants to conclude negotiations within the year.

"Policymakers will reflect requests made by businesses at the upcoming talks," said Hong Suk-woo, the deputy minister for trade at the Ministry of Commerce, Industry and Energy.

He said that while Seoul will do its best to help companies, businessmen should do their part to aggressively make inroads into the world's single largest economic block.

World Bank Raises East Asia's Growth Forecast as China Expands

Nov. 15 (Bloomberg) -- East Asia's economies will expand at the fastest pace in more than a decade in 2007 as China's accelerating growth offsets a slowdown in U.S. demand for the region's goods, the World Bank said.

East Asia, which excludes Japan and the Indian subcontinent, will grow 8.4 percent this year, faster than the 7.3 percent rate the World Bank predicted in April. Economic growth will slow to 8.2 percent next year, the Washington-based lender said its semi-annual report today.

``This year's pickup in East Asia has occurred despite an already substantial decline in U.S. import growth, and some slowing in the region's own exports,'' the bank said. ``Capacity utilization is at much higher levels now than it was in the last global downturn and the region's corporations are also stronger.''

Surging exports and business investment have driven China's trade surplus to a record and boosted its foreign-exchange holdings to the highest globally. In turn, China's appetite for raw materials and other goods purchased from its Asian neighbors is helping the region weather a slowdown in demand from the U.S., which is mired in the worst housing slump in 16 years.

The World Bank has raised its forecasts for China twice this year, predicting Asia's second-largest economy will grow 11.3 percent, before easing to 10.8 percent in 2008. It maintained that forecast in today's report. The country's inflation rate, which rose at the fastest pace in more than a decade last month, is expected to ``gradually ease'' later this year, the lender said.

No Serious Risk

China needs to address its rising trade surplus, which has forced the central bank to mop up the inflow of cash by selling bills, raising interest rates and ordering banks to set aside larger reserves, the World Bank said.

``Although there are some macroeconomic and financial trends that could pose a risk to this strong growth forecast, none appears serious enough at present to derail the current momentum or to cause authorities to make major policy changes that would lead to a marked slowing in the near term,'' the bank's report said.

China's government can rebalance growth by implementing policies including allowing more appreciation and flexibility in the yuan, as well as raising borrowing costs, it said.

Still, risks remain a decade after the Asian financial crisis, which led the International Monetary Fund to arrange more than $90 billion of loans to Thailand, Indonesia and South Korea after their currencies collapsed, the World Bank said.

Threats to the region's growth have increased in the past six months amid turmoil in financial markets and record oil prices, the lender said.

The price of crude oil prices has risen 54 percent this year. It reached $98.62 a barrel on the New York Mercantile Exchange on Nov. 7, the highest price since trading began in 1983.

`Substantial Downturn'

``There is a significant probability the subprime crisis, the associated credit squeeze and rising oil prices could force a more substantial downturn in the developed world, in particular in the U.S.,'' the World Bank said. ``If a U.S. recession were to materialize, it would likely be accompanied by a significant but not severe decline in East Asian growth.''

The collapse of the subprime market in the U.S., where borrowers with impaired credit got mortgages before home foreclosures rose to a record, spread to global credit markets and triggered about $45 billion in writedowns among the world's largest banks.

``The outbreak of the U.S. subprime crisis has had little adverse impact on East Asia so far,'' the report said. ``Risks may increase if the global instability and tightening of credit markets intensifies and leads to further declines in prices of various other structured assets held by banks.''

Investment Climate

The World Bank also raised its forecasts for Southeast Asia's middle-income countries including Malaysia and the Philippines, plus the newly-industrialized economies of South Korea, Singapore, Hong Kong and Taiwan.

Investment in Indonesia is expected to ``remain strong,'' while the country's fiscal deficit may widen further this year, the World Bank said. Growth in the Philippines may reach or exceed the government's targets, it added.

In Thailand, where domestic consumption and investment have languished amid political turmoil following a military coup, elections later this year may spur growth in 2008, the report said.

``Clearer policy direction from the new government after the December elections should help improve investor sentiment and raise investment growth next year,'' the lender said. ``Exports of goods and services remain the key driver of growth this year and will remain so next year.''

The following table contains the World Bank's April estimates of growth, as well as revised forecasts for 2007 and projections for 2008.



April's Nov.'s Estimates
Estimates & Forecasts
2007 2008 2007 2008

East Asia 7.3 7.1 8.4 8.2
China 9.6 8.7 11.3 10.8
Southeast Asia 5.5 5.7 5.7 5.8
Indonesia 6.3 6.5 6.3 6.4
Malaysia 5.6 5.8 5.7 5.9
Philippines 5.6 6.0 6.7 6.2
Thailand 4.3 4.5 4.3 4.6
Newly Industrialized 4.6 5.0 5.1 5.1
Hong Kong (SAR) 5.3 5.1 5.8 5.2
Singapore 5.5 5.6 7.4 6.4
South Korea 4.5 5.0 4.8 5.1
Taiwan (China) 4.1 4.6 4.6 4.6
Small Economies 6.0 5.8 6.4 6.2
Vietnam 8.0 8.0 8.3 8.2

Turning a phone call into import business

VANCOUVER -- Helen Zhao found out that sometimes you just have to pick up the phone to make your fortune. That's essentially how she got off employment insurance and became the exclusive Canadian importer of China's second-best-selling beer.

Of course, other factors came into play before Pearl River Zhu Jiang Beer arrived in liquor stores and Chinese restaurants as a long overdue alternative to the familiar Tsingtao -- factors such as vision, research, hard work, luck, bravado and persistence.

Even the Canadian government contributed by financing a program for would-be entrepreneurs administered by S.u.c.c.e.s.s., Vancouver's non-profit immigrant services agency. Ms. Zhao enrolled after the computer company where she worked as a bookkeeper went belly up during the high-tech meltdown of the late 1990s.


But the moment of truth came in 2003 when Ms. Zhao, who doesn't drink, boldly called the export manager at Guangzhou Zhu Jiang Brewery in Guangdong -- otherwise known as Canton province -- and asked if he wanted to sell his beer into Canada.

When he said yes, the next step was to get some samples and try to persuade the B.C. Liquor Distribution Branch to list the product. Unfortunately, in the wake of the terrorist attacks of Sept. 11, it was virtually impossible to get air freight or courier companies to ship small quantities of liquid.

The solution was for Ms. Zhao to go to China and bring back the samples.

"At the time, I didn't have any money," Ms. Zhao said. "I was on EI and out of a job for a while. So I said, 'Yes, I could come, but if you want me to import your beer, you should offer me an airplane ticket.' And they did."

Wasn't that a bit cheeky?

"I know, I know," Ms. Zhao said. "It's amazing, but I did it anyway, and they flew me over and I picked up some samples."

Zhu Jiang Brewery was established in 1985 with guidance from InBev, the Belgian brewing conglomerate owning international beer brands that now include Canada's Labatt and Alexander Keith's. The Guangzhou plant is described as the world's single largest brewing facility, producing 48,000 bottles an hour.

"They make over 20 different kinds of beer," Ms. Zhao said. "Because I don't drink, I don't know which is which, so I showed the liquor board everything and they chose one."

The board selected Zhu Jiang Gold Lager, which Ms. Zhao renamed Pearl River Zhu Jiang Beer for the Canadian market. "At first I thought it would just go into a few Chinese restaurants, but it took off. It's in almost every province except Ontario, and it's mostly Caucasians who drink it because it's a premium import beer and people just love it."

To her surprise, women enjoy Pearl River beer, which she describes as similar to Corona in taste but a little stronger at 5.3% alcohol by volume.

While she is reluctant to disclose financial details of her business, which she operates as Richmond's Omega Trading Group Ltd., she acknowledges that volumes have tripled since the first year when Pearl River was available only in British Columbia and Alberta. The beer is now one of the top 10 imports in Quebec, where it is in more than 400 stores, and approval is pending in Manitoba. Only Ontario's Liquor Control Board is holding out. "We keep on applying, but they've turned me down three times because they say they already have one Chinese beer and that's good enough."


Thanks to the growing strength of the Canadian dollar against the U.S. and Chinese currencies, she says she will be able to discount Pearl River beer to $8.99 for six bottles from its current $10.25, starting on Oct. 28.


"We want to thank the customers for their loyalty," she said. "We made some extra money and we want to pass it on to the customers."

And for would-be entrepreneurs she offers this advice: "If you have a dream and you want to do something, just don't give up. Keep on trying. I had lots of hard times and I cried so many times, but after all this work, you have success."

India may retain top slot in vegetable oil imports

MUMBAI: India is expected to continue as the largest importer of vegetable oil for at least the next 10 years, owing to slow growth of domestic output as compared to the demand, a top industry official said.
The size of the Indian oilseeds sector is estimated at $16.5 billion inclusive of exports and imports. India is the world’s fourth largest vegetable oil economy, the Solvent Extractors’ Association of India’s executive director BV Mehta said at a presentation on India’s Vegetable Oil Market in Kuala Lumpur.

India is a leading importer of vegetable oil in the world. During FY07, the EU was the world’s largest importers of 17 oils at 10 million tonne, followed by China at 8.6 million tonne and India in the third place at 5.4 million tonne. Each year, India consumes around 12-12.5 million tonne of various edible oils.

Currently, India accounts for 7.4% of the world oilseeds output, 6.1% of oilmeal production, 3.9% of oilmeal export, 5.8% of vegetable oil production, 11.2% of vegetable oil import and 9.3% of edible oil consumption.

Although edible oils are widely consumed, the per capita consumption is around 11 kg a year, considerably lower than in most developed countries. Palm oil and soyabean oil account for almost half of the country’s total edible oil consumption, followed by mustard oil, groundnut oil, cottonseed oil, rice bran oil and sunflower seed oil.

Mr Mehta said that the domestic vegetable oil production of 7-8 million tonne is not sufficient to meet the domestic demand. The trade policy reforms in the mid-1990s fuelled increase in edible oil imports, which now meet 40-45% of the country’s consumption requirement.

The composition of the import basket will, however, depend on relative prices of oils. Currently, crude palm oil/palmolein and crude soyabean oil are the favourites as they provide the lowest price option.

The demand for edible oils is expected to increase from the current level of 12 million tonne to 15.6 million tonne in FY10 and further to 21.3 million tonne by FY15. This assumes a per capita consumption increase of 4% and a population growth of 1.8%, which translates to an overall growth in demand at 6% per annum, Mr Mehta added. He said India will continue its dependence on imports to the extent of about 40% of its consumption requirement. The improvement in yields and the increase in area under cultivation will ensure that the domestic oilseed production is sufficient to meet 60% of consumption requirement.

Commenting on the current scenario of edible oil import by India, Mr Mehta said that from November 2006 to July 2007, India imported close to 3.3 million tonne of edible oils consisting of 2.2 million tonne of palm products and 1.1 million tonne of soft oils.

"The import volume increased by 8% over the same period of previous year. It is expected that during the three months (August-October), arrivals would be 500,000-600,000 tonne per month and the total imports would be 4.7 to 4.8 million tonne for the whole year compared to 4.4 million tonne last year (2005-06)."

“India imports mainly crude oil to utilise its own processing capacity and practically 97%-98% import is in crude form,” he said.

World business briefs: Thomson seeks OK for Reuters takeover

Thomson Corp. has asked European Union regulators to clear its $17.5 billion takeover of Reuters Group PLC, a deal that faces intense regulatory review because of competitive issues.

The European Commission set an initial deadline of Oct. 8 to examine the deal.

A merger would cut from three to two the number of major companies that sell information and trading systems to the financial services industry — a combined Reuters and Thomson and privately owned Bloomberg LP.

Bones found in beef

South Korea said it found bones in the latest shipment of American beef and will revoke import approval for the U.S. facility that processed it.

South Korea has banned bones in beef because of fears of mad cow disease. The meatpacking plant belongs to JBS Swift & Co. of Greeley, Colo., and is one of 36 U.S. plants originally authorized to handle meat for export to South Korea.

The South Korean ban affected the JBS Swift plant in Grand Island, Neb. The company will serve South Korean customers with meat processed at its plants in Utah and Texas.

Hyundai, union agree

Hyundai Motor Co. and its labor union agreed on a wage deal Tuesday, possibly averting a strike over annual salary negotiations for the first time in a decade.

Union leaders accepted Hyundai’s offer of a 5.8 percent increase in basic monthly salary for each worker, an increase in the annual bonus and a pair of separate lump-sum payments, the two sides said.

The deal is tentative and must be voted on Thursday by the union rank-and-file. The union has gone on strike every year but one since it was founded in 1987. Workers had walked off the job twice this year.

Iraqi oil pipeline opens

Iraq’s oil minister said crude oil began to flow from the country’s northern oil-rich Kirkuk region to a Turkish export terminal last week — for the first time since Saddam Hussein was toppled in 2003.

“We’re pumping between 300,000 to 400,000 barrels a day of Kirkuk crude to the Turkish export terminal of Ceyhan,” Hussain al-Shahristani told Dow Jones Newswires.

The pipeline — Iraq’s main export route from Kirkuk to the Turkish Mediterranean port of Ceyhan — has been mostly closed because of sabotage since the U.S.-led war.