Economy boosted by narrowing trade deficit

The U.S. economy, which has been picking up steam recently, got another boost from the latest trade numbers.

The Commerce Department said Friday that the nation’s trade deficit in October narrowed to $43.5 billion, the lowest level since December 2010.

The improvement, from an upwardly revised deficit of $44.2 billion in September, was due almost entirely to higher exports and lower imports of petroleum, a volatile category.   

Still, the smaller trade shortfall prompted analysts to mark up their projections for gross domestic product, the broadest measure of economic activity.

Macroeconomic Advisers raised its GDP growth forecast for the quarter by two-tenths of a percent, to an annual rate of 3.7%. That’s a significant pickup from 2% most recently estimated for the third quarter. If such an acceleration could be sustained, it would give a big boost to job creation.

But that’s a very big if.

Some analysts expect the U.S. trade deficit to widen again as oil prices have ticked back up. What’s more, there are hints that American exporters are starting to feel the pinch from Europe’s debt troubles and weakening economy.  While shipments of capital goods continued to grow, the rate of increase has slowed. Europe accounts for about one-fifth of all U.S. exports.

Meanwhile, the recent uptick in American consumer spending could lead to gains of imports in the near future.

Despite worries about the Eurozone debt crisis and the slow growth of jobs in the U.S., consumers are clearly feeling better about the  economy. In the latest sign of that, the early December reading of the University of Michigan consumer sentiment index increased to 67.7, from 64.1 in November, according to a report Friday. It marked the fourth straight month of improvement and was slightly better than what many analysts were expecting.

-- Don Lee

Inflation in China eases to its slowest pace in 14 months

China's inflation rate slowed in November to its slowest pace in 14 months, increasing the likelihood policymakers will loosen bank lending to stimulate the country's slowing economy.

Inflation rose 4.2% from a year earlier, compared with a 5.5% rate of growth in October, China's National Bureau of Statistics said Friday.

The cooling prices provide valuable breathing room for the central government to issue targeted fiscal stimulus at a time when the country is facing falling export orders from the West and plunging real estate activity.

Last week, China's central bank lowered the required amount of money banks must hold, for the first time since December 2008.

"With the easing of inflationary pressure, policymakers will have greater leeway to carry out selective policy loosening to counter growing downside risks to growth," said Jing Ulrich, chairwoman of global markets for JP Morgan.

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-- David Pierson

twitter.com/dhpierson

Photo: A vendor drinks tea as he waits for customers at his shoe stall in Taiyuan in China's Shanxi province. Credit: Reuters.

Forever 21 expands in China with support from L.A. mayor

Los Angeles-based fashion retailer Forever 21 signed an agreement Tuesday to open a flagship store in Beijing, part of a greater plan by the company to expand into the world’s largest emerging consumer market.

In a ceremony attended by Los Angeles Mayor Antonio Villaraigosa, the clothing maker committed to a 24,000-square-foot retail space in a multi-story mall located in the Chinese capital's central shopping district, Wangfujing.

Additional stores are set to open in Shanghai and Hong Kong. The brand briefly operated a store in Changshu, a city 70 miles from downtown Shanghai, but it closed two years ago because of poor sales.

Famous for churning out staggering numbers of new styles in record time, Forever 21 follows other mid-market fashion brands from abroad -- such as H&M, Zara, Uniqlo and the Gap -- into the Chinese market.

"The action and money is here," said Sung Won Sohn, the company's vice chairman. "China is the only locomotive left in the world."

China's retail sales grew 17.2% in October from a year ago, to $262.6 billion.

Sohn, who is also an oft-cited economist at Cal State Channel Islands, acknowledged the company's investment comes at a time when China could see a considerable economic slowdown. Exports are declining, and the property market has been stung by government restrictions.

"There's growing potential for a real estate bust," said Sohn, whose dark suit and white shirt contrasted with the brand's lively casual wear, known for wild prints and revealing cuts. (The person at the ceremony who appeared to be making the most effort to look fashionable was Villaraigosa's girlfriend, Lu Parker, who paired black knee-high boots with faux snakeskin pants and a black blazer).

But Sohn remained bullish on Chinese consumers, explaining that affordable brands such as Forever 21 tend to do well during recessions.

However, Sohn said, like most foreign retailers, Forever 21 clothing will be priced slightly higher in China than in the U.S. This comes despite lower Chinese household incomes and the fact that 60% of the brand's clothing is manufactured in the country.

But some things will remain the same. Sohn said the family-owned company had no plans to scrap printing Bible verses on its yellow shopping bags just for China, a country where religious worship remains muted and generally under the purview of the government.

"We have them in Birmingham, England, too, where there's a huge Muslim community," Sohn said of the biblical references. "I don't think that will change."

Speaking on stage at the event, Villaraigosa said Forever 21's Korean-immigrant roots embodied the story of L.A.

"Forever 21 is an L.A. fashion company we are very proud of," he said.

The mayor is on an 11-day Asian trade mission that is also scheduled to take him to Japan and South Korea.

On Monday, he met with the head of China's sovereign wealth fund, Lou Jiwei, who expressed interest in investing in L.A.'s public infrastructure -- possibly through the Metropolitan Transit Authority, Villaraigosa said.

The mayor didn't elaborate. He was in a hurry to remove specks of glittery confetti that had rained on attendees at the end of the ceremony –- lest he look too festive in his meetings that afternoon with Chinese Vice Premier Wang Qishan and Vice President Xi Jinping, a man pegged to become the next president of China. 

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-- David Pierson in Beijing
Twitter.com/dhpierson

Photo: Los Angeles Mayor Antonio Villaraigosa, center, raises a glass marking an agreement Tuesday to open a Forever 21 store in a Beijing shopping mall. Sung Won Sohn, the fashion retailer's vice chairman, stands to the mayor's left. Credit: David Pierson / Los Angeles Times

Chinese leaders worry economic slump could spark more protests

The images of Greek demonstrators rioting over austerity measures and American protesters scuffling with police as part of the Occupy Wall Street movement is no doubt unsettling to China's communist leaders.

No force is potentially more destabilizing to the government's inner circle than a sustained financial crisis, especially given that the party has staked its credibility to the promise of high economic growth.

Now one of China’s most senior leaders has acknowledged that the souring global economy has the government on edge.

According to an official New China News Agency report published Saturday, China's top security chief warned provincial officials to brace for unrest if financial conditions continue to deteriorate.

Fed action won't stave off threats to euro or global economy

The coordinated action by the Federal Reserve and five other major central banks will help dollar-strapped European banks, but analysts said it doesn’t address the fundamental problems threatening the breakup of the euro and the global economy.

The Fed, with the European Central Bank, the Bank of Japan and three others, jointly announced Wednesday that they would offer cheaper access to dollars in an attempt to quell growing fears of a global funding crunch.

The Fed said the move, which expands on a joint effort by the central banks first announced in September, was intended to "ease strains in financial markets" and mitigate the resulting effects of a credit squeeze for businesses and households.

The announcement gave an immediate huge lift to European markets, and U.S. stocks surged. The euro rose against the dollar.

The markets also got a boost by a separate announcement by the People’s Bank of China, which announced a plan to inject more cash into its economy by lowering bank reserve requirements by half a percentage point. It was Beijing’s first monetary easing in three years and comes amid signs of economic slowing in the world's second-largest economy.

The Fed and other central banks’ action lowers the cost of so-called dollar swap lines by a half-percentage point, a move that would likely increase the flow of cash to European lenders. The new pricing would take effect next Monday.

As the debt crisis has intensified, European banks have seen a dwindling of dollar funding as vital sources such as U.S. money market funds have been reducing their exposure to the continent’s lenders.

“The open market used to be a cheap source of obtaining dollar funding by European banks, but this is becoming more economically unviable,” said Enam Ahmed, senior economist at Moody’s Analytics in London. “Banks are responding by reducing their dollar assets in a bid to raise dollar funds,” which has resulted in increasing evidence that European banks are pulling back from dollar-funded projects around the globe and raising the risk of a credit crunch.

“This action would reduce some of the strains in the global financial system,” he said.

China's central bank cuts reserve ratios to boost sagging economy

In an unexpected policy shift, China's central bank said Wednesday that it would cut the amount of money banks must hold in reserve, a move aimed at boosting liquidity in the country's slowing economy.

The step comes after a year of tightening to rein in inflation and growing debt levels in an economy that still grew 9.1% from a year earlier in the third quarter.

"Today's surprise reserve ratio cut marks the start of an across-board easing policy for China," Qu Hongbin, an economist for HSBC, wrote in a note Wednesday. "This, plus tax cuts and additional fiscal spending should help keep China on track for a soft-landing."

The People's Bank of China said it would lower the so-called reserve ratio requirements of large commercial banks by 0.5 percentage points starting Dec. 5., the first such move since December 2008.

The move allows banks to inject more credit into the economy, which has been feeling the effects of declining export orders from the West and plunging property transactions because of government cooling measures.

"More important though is the signal this gives to the markets and to investors," Mark Williams, chief Asia economist for Capital Economics, wrote in a note to clients Wednesday. "The fact that [the central bank] chose to act in this more public way is a signal not only that policymakers are loosening but that they want to be seen to be doing so."

The cut suggests policymakers are confident that inflation will taper off in the coming months. The nation's inflation rate grew by 5.5% in October from a year earlier, well below a three-year peak in July of 6.5%.

In the last year, the central bank has raised reserve requirement ratios six times and the benchmark interest rate three times.

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-- David Pierson in Beijing
Twitter.com/dhpierson

Photo: A Chinese bank clerk counts notes. Credit: Zhong Min / EPA

NBA lockout is a boon for Chinese basketball league

It may not have the same cachet as a Los Angeles Lakers and Boston Celtics match-up, but the Guangsha Lions' double overtime season-opening victory over the Tianjin Gold Lions on Sunday may be a sign of good things to come for the Chinese Basketball Assn.

Blessed by the NBA lockout, the struggling league has opened its checkbook to American free agents that should help snare a larger following in the biggest basketball-loving country in the world with an estimated 300 million fans.

One of the newest additions, Wilson Chandler, scored 43 points and grabbed 22 rebounds to lead the Golden Bulls on opening day. The former Denver Nugget, who signed for $1.7 million, averaged only 15.3 points per game last season in the U.S.

“Chandler seemed to have basketball god in him when he beat Tianjin all by himself. It was so easy for him. Just like a practice,” wrote a micro-blogger named Gechao on the popular Twitter-like service, Sina Weibo.

Other arrivals include another former Nugget, J.R. Smith, who inked a record $3-million contract to play for the Zhejiang Golden Bulls and 11-year NBA veteran Kenyon Martin, who signed a $2.6-million deal to play for the Flying Tigers in the western province of Xinjiang, better known for its ethnic strife and government crackdowns.

The Washington Wizards’ Yi Jianlian is also returning to his home country to play for the defending CBA champions, the Guangdong Tigers. 

They join established stars in the league such as former Dallas Maverick James Singleton and former two-time all-star Stephon Marbury, who has an almost cult-like following in China. The Beijing Ducks’ starting point guard has more than 140,000 subscribers to his micro-blog, where he posts pictures of himself riding the city’s subway.

Already, the CBA has raised its number of corporate sponsors from 16 to 22 this season, and the national sports broadcaster  CCTV5 has increased the number of games it shows each week from three to four to make up for the lost weekly NBA game.

That’s a huge boost for a largely hapless league that was reportedly losing an average of $18 million a season and had to cut the 2009-10 season short by 18 games to save about $9 million (the recent contracts handed to former NBA players were provided by a handful of richer teams that have strong sponsors such as banks and coal mine bosses).

China has long been mined by the NBA and sneaker companies for its market potential. Players such as Kobe Bryant often visit on promotional tours. Ron Artest, Shane Battier and Jason Kidd endorse Chinese sneaker brand Peak. One of the main reasons Marbury decided to play here was to push sales of his footwear line, Starbury. 

It remains to be seen if more NBA players are willing to make the move east. Bryant was rumored in August to have been eyeing China, and Guangsha is reportedly wooing free agent center Tyson Chandler.

Those that do come will have to overcome vast cultural differences that famously confronted not only Marbury but Bonzi Wells. The former Portland Trailblazer was averaging more than 40 points a game for the Shanxi Brave Dragons in 2009 but never returned to the team after taking holiday only 14 games into the season.

“It was a big cultural shock for me,” he later explained.

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--David Pierson

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Photo: The Chinese basketball team's captain, Wang Zhizhi, is thrown into the air as the team celebrates its win in the gold medal basketball game against South Korea in the Asian Games last year. Wang plays for the Bayi Rockets in the Chinese Basketball Assn. Credit: Wong Maye-E/Associated Press.

Inflation and property prices ease in China

Inflation in China eased for the third consecutive month in October on government policy tightening that has also started to drive residential property prices down with greater momentum.

China’s annual inflation rate fell to 5.5%, the country's National Bureau of Statistics said Wednesday, down from 6.1% in September.

The decline potentially gives the central government room to ease new credit after months of strict controls aimed at cooling down the country’s overheated economy.

Looser bank lending may soon be necessary to blunt the effects of another global recession and carefully guide economic growth down from unsustainable annual rates of 9% to 10%.

“Weakness in the export sector will be the main hindrance to economic growth in the coming quarters,” Jing Ulrich, an economist for J.P. Morgan, said in a research note. “However, with falling inflation clearing the way for policy easing, we believe that China will manage a ‘soft landing,’ achieving respectable GDP growth of 8.3% in 2012.”

That will require delicate policy tinkering as signs are growing that China’s frothy property market has begun its long-awaited correction.

A national index of property prices in 100 cities has declined two consecutive months as cash-strapped developers are experiencing steep declines in sales.

Tight credit and rules targeting speculators could drive prices down 10% to 30%, according to Barclays Capital.

That’s a relief to potential homebuyers priced out of the market and to a government worried a property bubble was stoking social instability.

So far, only angry homeowners have openly protested changes in prices. Last month, hundreds gathered outside the offices of a Shanghai developer that cut prices, demanding refunds and contract cancellations.

The government risks sinking prices at its own peril. Real estate accounts for a fifth of China’s economy, according to some estimates, and contributes up to half of local government revenue in the form of public land sales.

Still, Premier Wen Jiabao remains committed to driving residential prices down.

“We aim to lead housing prices back to a reasonable level and promote a healthy development of the real estate industry at the same time,” Wen told reporters Sunday.

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Photo: Two women look at buildings under construction in Chongqing, China. Credit: Getty Images

Wall Street: Gold falls, stocks waver

Gold: Trading now at $1,639 an ounce, down 2.3% from Monday. Dow Jones industrial average: Trading now at 11,414.56, up 0.2% from Monday.

Uncertainty. Stocks are wavering as investors digest earnings reports and news from Europe.

Bad for banks. This morning's earnings announcements from Goldman Sachs and Bank of America confirmed that Wall Street is indeed hurting.

A man of many contradictions. One of the men who has given to the Occupy Wall Street protests and spent time in Zuccotti Park, the epicenter of the New York demonstrations, is also a former Wall Street trader and current donor to Mitt Romney.

Blaming Madoff. Bernard Madoff's daughter-in-law breaks her silence and blames the Ponzi schemer for her husband's suicide.

Stone on the Street. Oliver Stone took on Jamie Dimon and the rest of the Wall Street crowd after a screening of his film about the industry.

Fat cats. The real fat cats of Wall Street.

-- Nathaniel Popper in New York
Twitter.com/nathanielpopper

Photo credit: Stan Honda / Getty Images

China's economy slows in third quarter

China's economy grew at its slowest pace in two years in the third quarter on weaker demand for exports, tighter credit and home-buying restrictions.

The country's gross domestic product rose 9.1%, compared with 9.5% in the second quarter and 9.7% in the first quarter, China's National Bureau of Statistics said Tuesday.

The increase was below a median forecast of 9.3% in a survey of 22 economists by Bloomberg News and less than the 9.2% median estimate in a Dow Jones Newswire survey of 14 economists.

Though its growth rates are the envy of the world, China's central government is trying to engineer a controlled cool-down of the economy, which is battling its highest inflation in three years.

Policymakers say China needs slower and more sustainable growth after record amounts of lending in 2009 and 2010 fueled soaring debt and excess real estate investment and infrastructure construction.

The government faces the risk of tightening the economy too much and triggering a so-called hard landing. Worsening economic conditions in Europe and the U.S. make that task even harder because of the threat of declining demand for Chinese exports.

"Growth has come in lower than market expectations, but we remain of the opinion that the Chinese economy continues to chug towards a soft-landing, even as the risk of a hard-landing is rising on account of weakness in advanced economies," analysts at IHS Global Insight wrote Tuesday.

Investors have already shown diminishing faith in Chinese shares. Before rebounding modestly this week, the Hang Seng China Enterprises Index of Chinese stocks was one of the worst performing benchmark indices, sinking 20% for the year. The MSCI China Index has lost about 25% of its value in the last 12 months.

A Bloomberg poll of investors, analysts and traders released last month found that 59% of respondents thought China's economic growth would expand by less than 5% by 2016.

That doesn't mean demand by the Chinese for imported commodities, consumer goods and automobiles will collapse, say analysts at GaveKal Dragonomics, a China-based research firm.

In a note to clients Monday, the firm said China's economic output was on track this year to equal $7 trillion. That's more than double the $3 trillion of five years ago.

"So every percentage point of GDP growth now has much more real impact," the firm noted. "In fact, China's economy is so large now that it is now creating more new domestic demand, in raw dollar terms, than it did when headline GDP growth was in double digits. Even a slowdown to 7.5% next year would still probably mean China is adding more new domestic demand than the Euro zone or the U.S."

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-- David Pierson
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Photo: Chinese workers on a construction site in Shanghai. Credit: Qilai Shen / EPA

Wal-Mart executives resign in China labeling scandal

Wal-Mart said Monday it was replacing the head of its operations in China, the giant U.S. retailer's latest setback in the country after employees were arrested and detained last week in the western city of Chongqing in connection with a labeling scandal.

The company said in a statement posted on its website that Ed Chan, its chief executive in China since 2007, was leaving the company for personal reasons. Clara Wong, a senior executive for human resources, was also stepping down, the statement said.

Though Wal-Mart did not link the personnel moves to the controversy in Chongqing, the company continues to deal with fallout from charges that it sold about 140,000 pounds of pork over the last two years that was mislabeled as a more expensive organic variety. The added cost to consumers amounted to about $115,000, according to the city government's website.