MORE than 10,000 corrupt Chinese officials collectively took $120 billion out of the country in a 15-year spree of embezzlement, bribes and defections, with some of the money ending up in Australia.
The revelations, laid bare in a report by the People's Bank of China that was never intended to be released to the public, shine an embarrassing spotlight on Chinese corruption; a problem seen by some as an Achilles' heel for the world's second-largest economy.
The report appears to have been mistakenly uploaded to an official website after winning a prize for the quality of its research.
Official corruption remains a source of disgust and frustration to the Chinese population at large.
The pervasiveness of money laundering outlined in the report offers a damning indictment of the government's wars on corruption in the run-up to the Communist Party's 90th anniversary on July 1.
A handful of prominent cases, including one that involved the Ministry of Railways, have rattled China since the beginning of the year - but just as destabilising is the constant, low-level corruption that blights the lives of ordinary Chinese.
This week at least eight new websites came online to offer increasingly infuriated Chinese the chance to vent their anger - from “gifts” to doctors to perform operations correctly to the rigging of trials.
The same angry online communities, riled by the palpably widening gulf between rich and poor, pushed last month for the death penalty to be given to Xu Maiyong, the former vice-mayor of Hangzhou who was convicted of taking more than $30 million in bribes and embezzlement.
The research, whose revelations of corruption are breathtaking even by Chinese standards, estimates that between 16,000 and 18,000 officials may have fled the country with monumental hoards of ill-gotten money between the mid-1990s and 2008.
In one paragraph, the report, which had the words “internal data, store carefully” on the front page, cautioned that unchecked corruption was putting communist rule at risk. “It is a direct threat to the cleanpolitics structure of the Communist Party and harms the foundations of its power,” it said.
Large amounts of the money, along with the officials who amassed it, headed for Australia or the US.
Hong Kong was highlighted as a favourite springboard from which more senior officials could first leave mainland China and then flee to Commonwealth countries.
The defectors, according to the report, exploited both Hong Kong's status as an international aviation hub and the historic privilege of allowing residents to apply for visas on arrival in Commonwealth countries.
Less ambitious escapees, usually lower-ranking malfeasants, made for South-East Asian countries such as Burma and Thailand, while the more senior bribe-takers would make for tax havens in the Cayman Islands and Bermuda.
The most elite officials, said the report, would aim for Western countries such as Canada and the Netherlands, possibly moving through a small African or Eastern European country while documents were forged and time elapsed after their escape.
Some, revealed the People's Bank of China's 67-page report, smuggled money to the former Portuguese colony of Macau where it emerged, laundered through an accommodating casino, ready to fund a defector's life of opulence in Russia or Mongolia. The trail of officials bearing bags of banknotes and crossing from Shenzhen was described in the report as “like ants moving houses”.
The report, which was compiled by the central bank's money-laundering analysts and called “The routes that our country's corrupt officials transfer assets abroad”, described eight main conduits for moving money out of China.
Methods ranged from the “high-risk” option of a suitcases full of cash and a dash to the border, to convoluted networks of foreign intermediaries.
Senior managers from listed companies or state-owned enterprises, it said, would disguise the illegal transfers beneath legitimate remittances, cloaking the process with forged contracts and other documents that were destroyed.
The three-year-old document appears to have made it, fleetingly, into the public domain this week because the research was deemed so good.
The report won first place in the China Society for Finance and Banking's annual awards for financial research and, despite the warnings that it was for internal central bank consumption only, was put online as the winner of the prize.
It was removed from the People's Bank website moments after domestic media spotted it and began publishing its findings.
The Times
Global hit on balance sheets estimated at greater than $1 trillion for all businesses
Recent survey results of Grant Thornton’s international business report show that 61% of manufacturing businesses globally are not aware of, and are therefore unprepared for, one the most impactful global accounting changes in the past decade - moving all but short-term leases onto the balance sheet. This despite the survey finding that the average manufacturing company holds 17 leases.
Of the business leaders from manufacturing businesses who were aware of the changes, 28% thought the change would increase cost and complexity but only 15% thought it would increase transparency.
Awareness of the change was greatest in the US (69%), Mexico (68%) and Chile (63%), and was lowest in mainland China (5%), Denmark (8%) and Turkey (14%).
Given the statistics, there is no question that a global review of lease accounting is long overdue. The lack of transparency with regard to leases has festered for years, but a major change to lease accounting is a once in a generation event and the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) need to be patient to get things right. Our survey findings should give the Boards pause for thought as businesses are seeing costs and complexity in the proposals but are questioning whether there is any improvement in transparency. Some of the proposals we’ve seen could create a different set of incentives to structure leases to achieve desired accounting outcomes. Change for the sake of change is not the goal, and a rush to a new standard could actually make things worse.
With the Boards set to re-expose revised proposals in the second quarter of this year, companies with extensive leases should be considering how the proposals will affect them and preparing to engage in the debate. The US Securities and Exchange Commission has estimated the undiscounted value of future lease payments among US listed companies alone at more than US$1.25 trillion - an amount that is greater than the gross domestic product of many countries. Globally, the figure is far higher.
Although there are legitimate tax and legal advantages to lease financing, too many transactions have been structured for the purpose of arriving at a desired accounting treatment. The current balance sheet does not present a complete and transparent financial picture. Basic analytical tools like return on investment and debt-to-equity ratios are useless when neither the investment nor the debt is on the books. Before conducting even elementary financial statement reviews, users must look to the notes, and then make their own adjustments to published accounts based on what is, in many ways, incomplete information.
Executive Summary
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With the highest per-capita GDP and lowest inflation in the region, Chile, the freest economy in Latin America, offers steadfast business prospects for Hong Kong companies.
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Thanks to Chilean consumers' ready acceptance of China-made products, plus the Chile-China Free Trade Agreement (FTA) effective since October 2006, China became Chile's No. 1 export destination (outperforming the US) and No. 2 import source in 2007.
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But given a population of 16 million, Chile is a relatively small market. Therefore, Hong Kong exporters should keep an eye on the countries nearby, such as Peru, Bolivia and Ecuador, using Chile as the first port of call.
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Also worth noting is that Chilean consumers are conservative. Bearing less sense of showing off, it is not uncommon to see Chilean consumers picking unbranded but more reasonably priced products rather than branded and stylish ones.
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Aside from distance and language barriers, Hong Kong exporters should take note of the intensifying competition from indigenous mainland suppliers. They should endeavour to justify their higher prices, for instance, by enhancing quality and service.
A Sustained Growing Economy
Despite a substantial regional slowdown in the period 1998-2003, Chile managed to maintain an average annual GDP growth of more than 5% between 1990 and 2007. Chile, being the freest economy in Latin America, offers not only a stable macroeconomic environment - the highest per-capita GDP and the lowest average inflation rates among major Latin American countries but also steadfast business prospects for foreign traders and investors.
Being recognised as the mining capital of Latin America and the world's leading copper supplier, Chile's economic development depends largely on its mining sector, and so does its overall trade profile. Skyrocketing international copper prices in recent years - spot copper prices rose more than fivefold from US$0.7 per pound in 2003 to US$3.8 per pound in February 2008 - have therefore provided a strong boost to the Chilean economy. With sustained commodity prices stemming from increasing investment demand for base metals amid the continued worry of the slowdown of US economy and the ever-growing consumption demand for copper for production and infrastructure construction in China, the world's biggest copper consumer, sturdy commodity exports will continue to be a key driver of the Chilean economy.
Closer Link between Chile and China in the Post-FTA Era
For more than a quarter of a century, Chile has been the freest, most open and stable economy in Latin America. Having established an extensive web of FTAs and preferential trading arrangements, Chile has preferential market access to nearly 90% of the world's GDP and 4 billion potential consumers. Riding on its proximity to and strong connections with other South American markets, Chile has been the first port of call to many of its neighbouring countries.
Thanks to Chilean consumers' ready acceptance of China-made products, Chile for years has been regarded as the most open market for Chinese imports in Latin America. Spurred further by the Chile-China FTA (the first FTA China signed with a Latin American country) effective since 1 October 2006, China became Chile's No. 1 export destination (outperforming the US), No. 2 import source and No. 2 trading partner in 2007. As bilateral trade and economic cooperation are expected to fare even better between the two countries in the post-FTA period, China will very likely surpass the US and become Chile's No. 1 trading partner by the end of 2008.
This closer link between Chile and China poses challenges as well as opportunities for Hong Kong exporters. While many major retail groups have already established a direct presence in the mainland for sourcing a wide range of consumer products like consumer electronics, garments, footwear, watches and toys, many others are looking for reliable partners to help market their products such as wine and fresh produce to mainland consumers. To further strengthen Hong Kong's starring role in facilitating Sino-Chilean trade, Hong Kong traders, apart from promoting their products to Chilean customers, should take better advantage of their business experience and distribution network in the Chinese mainland to help new-to-the-market Chilean companies to tap into the challenging but lucrative mainland market.
A Small and Conservative Country with Big Neighbours
Inhabited by a population of some 16 million, Chile is a small country situated in the southern cone of Latin America. This makes it crucial for Hong Kong exporters to eye not only the domestic Chilean market, but also neighbouring countries by using Chile as a first port of call. In fact, many foreign companies, including many Hong Kong companies, have used the free ports of Arica and Iquique in the Free Zone of Iquique (ZOFRI) in the far north of Chile as a storage and distribution hub for re-exports to Peru, Bolivia, Ecuador, Colombia and Venezuela.
Perhaps due to its remoteness and geographical isolation, Chilean consumers are quite conservative. In general, Chilean consumers prefer practicality to fancy design and simple attire to fussy costume. Bearing less sense of showing off, it is also not uncommon to see Chilean shoppers picking unbranded but more reasonably priced items as substitutes for branded and stylish ones. This gives Hong Kong exporters a hint regarding the importance of offering products with high quality/price ratio.
Potential Challenges and Practical Recommendations
Despite rosy prospects, doing business with Chile is not free from challenges. Aside from distance and language barriers, Hong Kong exporters should take note of the growing trend of direct trade between Chile and China and the intensifying competition from indigenous mainland suppliers. Hong Kong exporters are advised to justify their higher prices, while differentiating their products from indigenous mainland products, by enhancing quality and rendering better services, e.g. accepting small orders.
As indicated by many importers and retailers in Chile, companies planning to sell goods to Chile are recommended to appoint a local sales agent or representative or to associate with a local company. To jump-start, Hong Kong companies can find reliable agents through various Chilean chambers of commerce. Most referred include the Federation of Chilean Industry (SOFOFA).
Furthermore, in order to mitigate the annoyance caused by long flights and exorbitant travel costs, Hong Kong companies should consider the alternative of using Hong Kong trade fairs and exhibitions as a platform to meet Chilean businesspeople. This can further help Hong Kong traders avoid the language barriers that they will find difficult to overcome in Chile. As an illustration, the Hong Kong Trade Development Council received 898 Chilean visitors at its various trade fairs in 2007, demonstrating a compound annual growth (CAGR) of 24% over the past five years.
This new report is available at TDC's Retail Outlets
Progressing with growing incomes and improving living standards, Chileans are ready for quality products from all over the world. This, together with their wide acceptance of made-in-China imports, presents a shining beacon of opportunity for Hong Kong companies. To stand out and get the “red carpet” treatment to the market, however, Hong Kong companies must first understand the characteristics of their customers.
Small or not small?
One of the most cited drawbacks of trading with the 17 million-strong Chile is its small pool of consumers. However, when one looks at it from the perspective of purchasing power, Chile is by no means a small market. With a per-capita GDP of US$11,800, Chile’s purchasing power ranks only after the much less populated Bahamas, Barbados, Antigua and Barbuda and Uruguay in Latin America.
Perhaps, this is one of the reasons why Chile was third in Hong Kong’s exports to Latin America last year, trailing only the region’s two largest countries – Mexico and Brazil. Accounting for nearly 7% of Hong Kong’s Latin American bound exports in 2010, Chile, in this sense, is a bigger market for Hong Kong companies than such markets as Argentina, Colombia, Venezuela and Peru in the region.
|
Country |
Market size (population, mn) |
Purchasing power (per-capita GDP, US$) |
Share of Hong Kong’s 2010 exports to Latin America (%) |
|
|
1 |
Mexico |
109 |
9,600 |
29.2 |
|
2 |
Brazil |
193 |
10,800 |
27.6 |
|
3 |
Chile |
17 |
11,800 |
6.6 |
|
4 |
Argentina |
41 |
9,100 |
6.3 |
|
5 |
Panama |
4 |
7,600 |
5.7 |
|
6 |
Paraguay |
6 |
2,900 |
5.2 |
|
7 |
Colombia |
46 |
6,300 |
3.0 |
|
8 |
Venezuela |
29 |
10,000 |
2.6 |
|
9 |
Peru |
30 |
5,200 |
2.4 |
|
10 |
Uruguay |
3 |
12,000 |
1.4 |
Source: IMF, Bank of Chile, Census & Statistics Department, HKSAR Government
Moreover, to overcome the limitations of a small domestic population, Chilean enterprises usually have their business operations and networks extending across borders. Taking a regional perspective, Chile, riding on its extensive presence in Argentina and Peru, for example, is therefore never an insignificant market for new-to-the-region Hong Kong companies, but a convenient trading platform to tap the region.
Targeting the top incomes
Notwithstanding an appreciable improvement in incomes among the lower- and middle-income classes, the overall income distribution in Chile is uneven, with the top income quintile (V) earning more than 55% of the nation’s total income, while the least privileged quintile (I) earning less than 4% of the total.
Earning an income of more than US$400 per month on average, the IV and V income quintiles, which comprise nearly two million households or six million people are expected to add critical mass to Hong Kong exporters’ marketing efforts in Chile and provide the greatest growth momentum in the market.
Income distribution in Chile
|
Quintile |
No. of households |
Population |
Average household size |
Per-capita monthly income |
||
|
Average |
Min |
Max |
||||
|
I |
937,091 |
3,586,875 |
3.8 |
63 |
0 |
117 |
|
II |
937,248 |
3,628,503 |
3.9 |
158 |
117 |
200 |
|
III |
937,748 |
3,407,328 |
3.6 |
253 |
200 |
317 |
|
IV |
936,306 |
3,182,844 |
3.4 |
422 |
317 |
568 |
|
V |
937,097 |
2,777,285 |
3.0 |
1,505 |
568 |
- |
|
Total |
4,685,490 |
16,582,835 |
3.5 |
480 |
0 |
- |
Source: CASEN Survey 2009, MIDEPLAN
Aside from earnings, another characteristic of these higher-income groups is their smaller-than-average household size. The smaller household size has led to smaller demand for economy- or family-size household items, while the smaller number of children has prompted these well-off consumers to trade up to premium baby and children’s products such as educational toys and clothes to pamper their children.
Showing exuberance in practical ways
Looking at spending patterns, Chileans, after paying for food, beverages, tobacco and housing, are estimated to have spent more than 60% of their income on various goods and services in 2010. In line with their high demand for home improvement and personal care, household goods and services, healthcare and clothing and footwear accounted for nearly 30% of total household spending in Chile. This compares with roughly 13% in Brazil, and is almost double that of Peru.
Household spending patterns (2010)
Source: Euromonitor
Bearing less sense of showing off, Chileans, in general, are conservative in making purchases. They prefer practicality to fancy design and simple outfits to elaborate costume, except for a few items such as consumer electronics including smartphones, interactive digital TVs (iDTVs) and cross-platform multimedia players.
That said, even for hi-tech gadgets such as smartphones which are fast gaining in popularity in the country, most Chilean consumers don’t mind buying and using alternatives from Asia as lower-cost substitutes, given the latter’s comparable quality and functionality.
On brand preference, it is not uncommon to see Chilean consumers choosing less-
prestigious but more reasonably-priced brands as substitutes for premium brands. While this may dampen demand for luxury and high-end products, it gives Hong Kong’s mid-ranged exports plenty of room to grow, especially when Chileans make functionality and quality the top priority.
Don’t miss out RM when counting I to XV
Home to 40% of the country’s population and almost half of its aggregate output, Santiago Metropolitan Region (Región Metropolitana de Santiago or RM) is the smallest yet the most important and densely populated region of all the 15 Chilean regions.
The RM region not only contains the capital, but the business hub and the largest consumer market of Chile. As a consumer base, it represents the country’s most modern retail landscape, where most of the pricey and chic shopping malls, department stores and chain stores are clustered, including the ongoing development and construction of the US$500-million Costanera Center complex that houses Torre Gran Costanera – the tallest building in South America.
Concerning logistics, RM has the most advanced transportation and telecommunications infrastructure in Chile. It is home to the country’s busiest airport, Arturo Merino Benítez airport (SCL), which is considered one of the most efficient airports in Latin America, and is only two hours’ drive from the country’s most important trading ports for consumer goods – the Port of San Antonio and the Port of Valparaíso.
Riding on its strategic position, RM has attracted many prominent companies, such as Packard Bell, IBM, HP, Panasonic, LG, Zurich, Dodge Mining Services, Procter & Gamble and Nestlé, to set up production facilities, headquarters and representative offices to serve the regional market, oiling the wheels of business networking and negotiations.
Population distribution, by region (2010)
|
Region |
Name |
Capital |
Population |
|
|
I |
Tarapacá |
Iquique |
293,200 |
|
|
II |
Antofagasta |
Antofagasta |
575,268 |
|
|
III |
Atacama |
Copiapó |
280,543 |
|
|
IV |
Coquimbo |
La Serena |
718,717 |
|
|
V |
Valparaíso |
Valparaíso |
1,759,167 |
|
|
VI |
Libertador G. B. O’Higgins |
Rancagua |
883,368 |
|
|
VII |
Maule |
Talca |
1,007,831 |
|
|
VIII |
Bíobío |
Concepción |
2,036,443 |
|
|
IX |
La Araucanía |
Temuco |
970,419 |
|
|
X |
Los Lagos |
Puerto Montt |
836,256 |
|
|
XI |
Aisén |
Coihaique |
104,843 |
|
|
XII |
Magallanes y Antártica |
Punta Arenas |
158,952 |
|
|
RM |
Metropolitana de Santiago |
Santiago |
6,883,563 |
|
|
XIV |
Los Ríos |
Valdivia |
379,709 |
|
|
XV |
Arica-Parinacota |
Arica |
184,957 |
Source: Department of Health Statistics and Information, Ministry of Health of Chile (DEIS)
As far as external trade is concerned, Region I (Tarapacá) and Region XII (Magallanes y Antártica) are important, where the two free trade zones, namely the Free Zone of Iquique (ZOFRI) and the Free Zone of Punta Arenas (PARANEZON), are respectively located. Considering their large pool of consumers and advanced logistics infrastructure, Bío-Bío (Region VIII) and Valparaíso (Region V) are also highly relevant to trade.
Becoming a global economic pacemaker
Brazil, recording the highest annual economic growth since 1986 in 2010, accounts for 40% of the region’s GDP and one-third of its total population, so it is by far the economic powerhouse of Latin America. It has also long been bracketed together with Russia, India and China as among BRICs to dominate world economic growth over the coming decades, and by 2050 outperform many of today’s leading economies which are still struggling with balance sheet repair and austerity measures.
Becoming the first developed economy in Latin America
Having grown at a year-average of more than 5% in the past two decades, Chile, the freest economy in Latin America, offers not only a stable macroeconomic environment – high per-capita GDP (US$12,000 in 2010) and low inflation rate (1.4% in 2010) but steadfast business prospects for foreign traders and investors.
Despite the disastrous 8.8-magnitude earthquake in February 2010 (the sixth strongest recorded since 1900), the Chilean economy triumphed on the back of sustained commodity prices and reconstruction efforts. The hard-fought battle to grow the economy ended last year with an encouraging rise of 5.2%. That laid the groundwork for the challenging goal of becoming the first developed economy in Latin America by 2018.
Small or not small?
One of the most cited drawbacks of trading with the 17 million-strong Chile is its small pool of consumers. However, when one looks at it from the perspective of purchasing power, Chile is by no means a small market. With a per-capita GDP of US$11,800, Chile’s purchasing power ranks only after the much less populated Bahamas, Barbados, Antigua and Barbuda and Uruguay in Latin America.
Perhaps, this is one of the reasons why Chile was third in Hong Kong’s exports to Latin America last year, trailing only the region’s two largest countries – Mexico and Brazil. Accounting for nearly 7% of Hong Kong’s Latin American bound exports in 2010, Chile, in this sense, is a bigger market for Hong Kong companies than such markets as Argentina, Colombia, Venezuela and Peru in the region.
To overcome the limitations of a small domestic population, Chilean enterprises usually have their business operations and networks extending across borders. Taking a regional perspective, Chile, riding on its extensive presence in Argentina and Peru, for example, is therefore never an insignificant market for new-to-the-region Hong Kong companies, but a convenient trading platform to tap the region.
Taking a regional perspective
Given its strong logistics and retail sectors, Chile not only boasts the region’s largest shipping company, but the most sophisticated retail sector. Two of the top-five retailers in Latin America, namely Cencosud (2nd) and Falabella (5th) are Chilean-based, outperforming many of their Brazilian and Mexican peers.
In terms of countries of operation, both Cencosud and Falabella are far more multinational than their Latin American counterparts. For instance, the second-ranked Cencosud operates in five markets including Argentina, Brazil, Chile, Colombia and Peru, while the No.1 Latin American retailer, Pão de Açúcar, focuses only on the Brazilian market.
This extensive regional presence is therefore not only a major reason behind the success of Chilean retailers in overcoming the limitations of a small domestic market, but offers new-to-the-region Hong Kong companies a convenient bridgehead to further conquer the large and promising Latin American market.
Chileans are ready for Hong Kong products
Given its liberal trade regime, virtually all imports are subject to a Most Favoured Nation (MFN) duty of 6% ad valorem in Chile, not to mention the duty-free access afforded to countries with which free trade agreements (FTAs) are signed. The low entry barrier and the underlying ready acceptance for imports present a lucrative market for Hong Kong exports in many respects. To catch up with growing demand, consumer electronics, clothing, footwear, toys and timepieces look set to have the most promising prospects.
Promoting Chilean wine and gourmet foods via Hong Kong
Not only has the privileged agro-climatic conditions made Chile a vitivinicultural paradise in South America, but also a major wine supplier to Hong Kong. Thanks to the reduction of wine duties to zero in 2008, the city has become increasingly an important platform for Chilean wineries to grow their business given the increasing affluence and burgeoning wine culture in the underpenetrated Asian markets. Meanwhile, Chilean fruit and vegetables are also gaining popularity in Asia, presaging greater business opportunities for Hong Kong – the culinary capital of Asia.
Start small to finish big
Although Chile is a liberal market and has been restrained in its use of trade remedies, trading with Chile is not completely challenge-free. To tackle the limitations of a small domestic market and conservative consumers, Hong Kong traders have to go the extra mile in Chile, for instance, by fine-tuning their products to emphasise practicality and to accept small orders.
To mitigate the inconvenience caused by long flights and the high cost of travel, Hong Kong companies can consider using Hong Kong trade fairs and exhibitions as a platform to meet Chilean businesspeople. As an illustration, the Hong Kong Trade Development Council (HKTDC) received more than 950 Chilean buyers at its various trade fairs in 2010, up 52% from the previous year.
Feb. 10 (Bloomberg) -- The trade deficit in the U.S. widened in December to a six-month high as a strengthening economy prompted bigger gains in imports than exports.
The gap increased 3.7 percent to $48.8 billion from $47.1 billion in November, Commerce Department figures showed today in Washington. Purchases of goods and services produced overseas were the strongest in more than three years on record demand for capital equipment like machinery and semiconductors.
Imports may keep rising as an improving job market underpins consumer spending, and businesses rebuild inventories and replace outdated equipment. At the same time, demand from emerging markets is boosting sales at companies like General Electric Co. and Caterpillar Inc., buffering the fallout from Europe’s debt crisis and helping to sustain exports.
“Growth in consumer and business demand is pretty good and that is helping to pull in imports,” said Jay Bryson, a senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected the gap would rise to $49 billion. “We will see a widening trade deficit this year as imports grow faster than exports.”
Stock-index futures slumped on concern over Greece as one of the three party leaders supporting the country’s government said he cannot vote for the current austerity package. The contract on the Standard & Poor’s 500 Index maturing in March dropped 0.9 percent to 1,335.8 at 8:44 a.m. in New York.
Survey Results
The median forecast in a Bloomberg News survey of 75 economists called for the deficit to rise to $48.5 billion from a previously estimated $47.8 billion in November. Estimates ranged from gaps of $43 billion to $50.5 billion.
For all of 2011, the shortfall grew 12 percent to $558 billion, the most since 2008. Both imports and exports climbed to records.
Imports advanced 1.3 percent to $227.6 billion, the most since July 2008. In addition to capital goods, American companies also bought more consumer household items, automobiles and parts and crude oil from overseas.
Exports increased 0.7 percent to $178.8 billion, boosted by record sales of petroleum to buyers overseas. That caused the trade gap excluding petroleum to widen even more than the deficit overall, rising to $21.9 billion in December from $19.4 billion the prior month.
After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit grew to $47.7 billion from $47 billion. The fourth- quarter average of $46.2 billion was larger than the $45.7 billion in the previous three months, confirming that trade subtracted from growth over the period.
Growth Accelerates
The world’s largest economy expanded at a 2.8 percent annual rate in the fourth quarter after a 1.8 percent pace in the prior three months, Commerce Department figures showed on Jan. 27. The trade gap subtracted 0.11 percentage point from GDP in the final three months of 2011, after adding 0.43 points in the prior quarter.
The trade gap with China narrowed to $23.1 billion from $26.9 billion as imports dropped, today’s report shoed.
Exports to the European Union climbed 3.6 percent and imports rose 2.2 percent, leaving the trade gap with the region little changed.
U.S. exporters globally may continue to see gains. Caterpillar, the largest construction and mining equipment maker, posted fourth-quarter profit that beat analysts’ estimates and said prospects for global growth have improved. It also projects more orders as pent-up demand is released and customers replace older products.
Growing Exports
“We’re expecting 2012 to be another year of good growth,” Doug Oberhelman, chairman and chief executive officer of the Peoria, Illinois-based company, said in a Jan. 26 statement. “2011 was a record-breaking year for U.S. exports,” which “supported thousands of jobs in the United States.”
China, the world’s second-biggest economy, expanded 8.9 percent in the fourth quarter from a year earlier, exceeding the Bloomberg survey median forecast. An index of India’s services industry rose in January at the fastest pace in six months, and manufacturing accelerated.
“The emerging markets continue to be very strong,” Jeffrey Immelt, chief executive officer of General Electric, said on a Jan. 20 conference call with investors. “There are a few challenged markets like Europe and appliances, but on balance, we have a positive outlook.”
Gap with China
Even with the improvement in December, the trade deficit with China remains a thorny issue as the U.S. presses the Asian country to allow its currency, the yuan, to rise against the dollar. President Barack Obama, in his State of the Union address, said last month he is creating a trade enforcement group that would use investigators and other federal resources to combat unfair trade practices by nations including China.
China’s overseas shipments decreased 0.5 percent in January and imports declined a more-than-forecast 15.3 percent from a year earlier in a month that had four fewer working days than in the same month in 2011 because of the Chinese New Year holiday, the customs bureau said today. That pushed the trade surplus for the world’s second-largest economy up to a six-month high of $27.3 billion, the data showed.
--With assistance from Chris Middleton in Washington. Editor: Carlos Torres
To contact the reporter on this story: Shobhana Chandra in Washington at This email address is being protected from spambots. You need JavaScript enabled to view it.
Feb. 10 (Bloomberg) -- U.S. makers of wind towers such as Broadwind Energy Inc. are being harmed by cheaper imports from China and Vietnam, a trade panel ruled in the first step toward imposing tariffs on the shipments.
The U.S. International Trade Commission voted today in a preliminary ruling on a petition from the Wind Tower Trade Coalition asking the Obama administration to impose anti-dumping and countervailing duties. The Washington-based ITC will now proceed with a full investigation.
The coalition’s complaint, filed in December, said competitors from China use unfair pricing to win U.S. sales. The group also includes Otter Tail Corp.’s DMI Industries, a unit of Trinity Industries Inc., and Katana Summit.
The U.S. Commerce Department and the trade commission also have agreed to investigate a separate Oct. 19 complaint from U.S. solar-panel manufacturers led by the U.S. unit of SolarWorld AG, which said they are being harmed because China’s government uses cash grants, discounts on raw materials, preferential loans and tax incentives to benefit Chinese companies. Commerce is scheduled to make a preliminary finding in the case March 2.
The petition on metal towers, which hold aloft turbines that convert wind into electricity, expanded a dispute over pricing and government subsidies for alternative energy. The Commerce Department has agreed to consider the wind-tower companies request for countervailing-duties against China.
China, Vietnam Imports
The U.S. in 2010 imported towers valued at $103.6 million from China and $51.9 million from Vietnam, according to the Commerce Department.
Anti-dumping duties are imposed when imports are sold at or below the price in the home nation. U.S. prices on towers from China are 64 percent less than in the domestic price, while units from Vietnam cost 59 percent less, according to the U.S. companies’ petition. Countervailing duties aim to offset the benefits of government subsidies to industries.
President Barack Obama’s administration filed a complaint against China at the World Trade Organization in December 2010 over support for wind-energy manufacturers using aid tied to using locally produced content. China agreed to end hundreds of millions of dollars in such subsidies, the U.S. trade office said in June.
The U.S. and China have also clashed over access to each others’ markets for products including steel pipes, poultry, tires, movies and music.
--Editors: Steve Geimann, Jon Morgan
To contact the reporter on this story: William McQuillen in Washington at This email address is being protected from spambots. You need JavaScript enabled to view it.
WASHINGTON -- The Obama administration is gearing up for next week's visit by Chinese vice president Xi Jinping, who is expected to become the country's next leader, as a once-in-a-decade chance to set the tone in relations between Washington and Beijing.
But President Barack Obama starts the new relationship in a difficult setting, in the midst of a heated presidential contest that is exerting pressure on the president to accentuate a tough stance toward the Chinese. The White House has muffled expectations of major breakthroughs on any significant issue.
Nonetheless, the administration said it expects to zero in on some of the most contentious issues between the two countries when Obama and Xi meet behind closed doors. The visit takes place amid a rolling boil of political crises across the Middle East and Asia, from a looming civil war in Syria to the implications of the leadership succession in North Korea.
In the meeting with Obama, as well as in sessions with Vice President Joe Biden and others, US officials hope to get a read on how China's heir apparent views everything from sanctions against Iran to currency and trade issues.
Particularly telling will be a session planned for Wednesday with the Republican leader of the House of Representatives, Rep. John Boehner (R-Ohio), a leader of Obama's opposition, which has relentlessly criticized China for its human-rights policies and its role in international crises.
Moving to deflect political criticism and show a stern side, the White House this week hosted a visit by advocates of expanded human rights in China, and called for improvements from Beijing.
Later, Biden, while traveling in Ohio, boasted that the US economy remained larger than China's.
Chinese leaders also have issued tough talk, with a senior official saying in Beijing on Thursday that Xi would address a US-China "trust deficit."
Describing administration plans Friday for the trip, Anthony Blinken, Biden's national-security adviser said, "This visit is really an investment in the future of the US-China relationship."
In addition to high-level engagements in Washington, Xi's itinerary also includes stops later next week in Iowa and California. China observers say the US tour offers Xi a chance to demonstrate statesmanship and raise his profile at home.
For Obama, the time spent with Xi will offer a new view of China. Since taking office, Obama has had 10 face-to-face meetings with Chinese president Hu Jintao, but this will be his first meeting with Xi.
(Reuters) - Mitt Romney slammed China's "autocratic model" of capitalism in a speech to technology executives on Friday, keeping up attacks on the economic powerhouse days before a visit from a Chinese official expected to be the country's next leader.
China's rise could ultimately threaten U.S. freedom, said Romney, seen as the frontrunner in the Republican race for the nomination to oppose President Barack Obama in the November election.
Romney couched his usual call for limiting government regulation of the U.S. economy in the context of a zero-sum contest with China's fast growing economy.
"China now has a competing strategy which they are selling around the world . and their strategy is this: free enterprise, of a sort," he said, to laughter from the audience, "combined with authoritarianism."
Chinese Vice President Xi Jinping, who is expected to be China's next president, is to be in the United States next week on a visit that could set the mood for relations in the next decade. Both sides want Xi's visit to encourage long-term cooperation between the world's two biggest economies.
Romney has made tough talk on China a centerpiece of his campaign's economic message. He has called the country a cheater and said that if elected president he would seek to label Beijing a currency manipulator.
In his remarks on Friday, Romney said in addition to China, Russia and jihadism threatened to compete with the United States and the West for world leadership.
He said Russia was competing through its use of energy resources and other commodities "to power a new, robust military to threaten the world." The "jihadist model," he said, "is to cause the collapse of the other three and be the last man standing."
"All three of the competitors to the west and to America are based on authoritarianism," Romney said.
"Only if America succeeds as the most powerful model in the world, the most powerful economy, the most powerful military can we ensure our kids and our grandkids and theirs that they will enjoy freedom," he said.
Romney spoke to the Northern Virginia Technology Council, an audience friendly to his core message that he is the candidate best equipped to right a still struggling U.S. economy.
"I'd never heard it put quite like that. With regulations, then on top of that you have us on a playing field with China and Russia, then it is very difficult," said Travis Smith, 34, who works at a science and technology consulting company in Virginia.
Hardly a day goes by without some politician or pundit pointing out that companies are hoarding cash — roughly $3 trillion of it. If only they would spend it, the thinking goes, the economy might get better.But the story is not as simple as that. Though it seems to have escaped nearly everyone's notice, companies have piled up even more debt lately than they have cash. So they aren't as free to spend as they may seem.
U.S. companies are sitting on $358 billion more cash than they had at the start of the recession in December 2007, according to the latest Federal Reserve figures, from June. But in the same period, what they owed rose $428 billion.
Before the recession, you have to go back at least six decades to find a time when companies were so burdened by debt.
Companies borrow money all the time, of course. They borrow to build factories, cover expenses, even make payroll. The problem: Debt doesn't go away. A business can cut costs during a recession. But it can't just shred the IOUs.
Heavy debt means companies could have to dip into those reserves of cash to pay their lenders. And when interest rates eventually go up, companies will have to spend more money just to service the debt.
In the last recession, which ended in June 2009, small businesses that depended on credit cards and bank loans got slapped with higher rates just as sales began to drop. Some got cut off all together.
Peter Boockvar, equity strategist at Miller Tabak & Co., says business debt is too high even if the U.S. manages to stay out of a second recession. If economic growth doesn't pick up, they'll be more bankruptcies, and more defaults, he predicts.
Even if companies used cash to pay off what they owe, they would be left with plenty of debt — in fact, an amount equal to 83% of all the goods and services they produce in a year, according to Federal Reserve data for incorporated businesses.
In March 2009, the low point of the Great Recession, companies owed 95%. To stay afloat, companies tapped credit lines at banks, increasing debt while they were bringing in less money. They burned through cash to meet expenses.
Before that, though, it has been at least six decades since companies owed so much money as a share of what they produce, says Andrew Smithers, a London consultant who has written extensively about debt.
In short, American business is awash in cash like a man who borrowed from a bank is rich. He may have plenty of money in his pocket, but he still has to return it.
Already, there are signs that companies are struggling to pay off debt. Since this summer, buyers of bonds issued by deeply indebted companies — called junk bonds because they're so risky — have been demanding 14% more in annual interest. Some companies haven't been able to sell bonds at all.
The financial picture is at least better for the biggest, publicly traded firms. Non-financial companies in the Standard & Poor's 500 are making more money than ever and adding to their cash fast. It's middle-sized and small companies that appear to be most vulnerable.
But this sunny picture for the largest companies is marred by debt, too. Since the start of the recession, S&P 500 companies have borrowed an additional 44 cents for every additional dollar they've hoarded in cash. For many companies, debt has risen more than cash.
Drugmaker Pfizer added $3.5 billion to cash from the start of the recession. But it added $28 billion of debt, according to FactSet. PepsiCo added $22 billion more debt than cash. Hewlett-Packard added $16 billion more, Wal-Mart $13 billion.
The lack of fear about debt is an about-face from the recession. Back then, Wall Street was worried that many companies had borrowed too much during the boom, and would suffer for it in the bust.
The expectation was that this "wall of debt" would cause some companies to fail. Others would struggle but ultimately pay their lenders. Either way, borrowing would ultimately fall.
But that didn't happen. Instead, the Federal Reserve slashed benchmark interest rates to near zero, lowering yields for conservative investments like money market funds and pushing frustrated investors into riskier corporate bonds offering higher returns. As demand for those bonds rose, businesses were able to issue more of them than ever, and use the proceeds to pay off old ones coming due soon.
That problem could upend the expectations of investors. Many are banking on companies using cash to buy back more of their own stock, which might lift sagging prices.
Smithers thinks high debt will eventually force companies to do the opposite — cut buybacks.
And given the big role these purchases play in the market, that could wallop stocks. Smithers says that buybacks by non-financial companies over the past decade have more than compensated for the wave of selling by individuals and mutual funds.
The problem with debt is you don't need an actual recession to cause trouble for companies, just the fear of one. Spooked lenders can hike rates on new loans needed to pay off old ones, or cut companies off completely.
For companies issuing those risky junk-rated bonds, that day has already arrived.
A maker of private planes in Kansas saw rates on its bonds jump 40 percent in just a month. And on Wednesday, a shipping company in Florida filed for bankruptcy because it was unable to borrow to pay off old loans.
Story first appeared in USA TODAY.