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Inflation in China eases to its slowest pace in 14 months

China shoe vendor

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

California invests in 'green' bonds

Mirrors in mojavepbspic

California is buying $400 million worth of so-called green bonds from the World Bank.

The purchase is a good deal for the state's taxpayers and also for financing of needed environmental projects in dozens of countries, state Treasurer Bill Lockyer said.

The short-term bonds, which mature on Dec. 16, 2013, will be used by the international financial institution to pay for reforestation, alternative energy and water purification projects, among others.

"These bonds are a great investment for California and its taxpayers," Lockyer said. "We're earning an excellent return, strengthening our portfolio and backing our policies with money in the fight against global warming."

The bonds have a 0.51% yield, roughly double the current rate on two-year U.S. Treasury bonds, 0.26%, Lockyer said.

The purchase is the state's second since April 2009, when California became the first U.S. buyer of the international green securities, acquiring $300 million worth in an investment that matures next April.

The bonds were bought by the state Pooled Money Investment Account, which manages $65 billion for the state, local governments and school districts.

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Photo: A solar power plant in the Mojave Desert. Credit: PBS photo

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

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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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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

OECD report cites increasing income inequality in U.S.

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Income inequality in the United States is rising and is now greater than in all developed countries other than Chile, Mexico and Turkey, according to a new report.

The report released Monday by the Organization for Economic Cooperation and Development indicates that income inequality has increased in almost every developed country in the last 30 years, and has continued to rise since the global financial crisis. Among the few countries where inequality has decreased in the last 30 years are Ireland, France, Greece and Turkey.

In the United States, the average income among the richest 10% is 14 times greater than the average income among the poorest 10%, up from a 10 to 1 ratio in the 1980s. The countries where the ratio between the incomes of the top 10% and the bottom 10% is the lowest -- around 5 to 1 -- are Denmark, the Czech Republic, Belgium and Norway.

The conclusions by the OECD, whose members are developed countries, come just after the Occupy Wall Street movement focused attention on the gap between the wealthiest 1% of the population and everyone else. In a side note specifically about the U.S., the OECD notes that the disparity between the top 1% and the bottom 99% has grown much faster than the gap between the top 10% and bottom 90%.

The report says there are many causes for increasing income inequality, including technological progress, which sends a greater share of national income to workers who are technologically literate. The report says labor market reforms have helped get more low-income people working, but have also led to more part-time jobs and general job instability.

The head of the OECD, Angel Gurria, said in a speech Monday that increasing inequality is an issue because "the social compact is starting to unravel in many countries"

"Uncertainty and fears of social decline and exclusion have reached the middle classes in many societies," Gurria said. "People feel they are bearing the brunt of a crisis for which they have no responsibility, while those on high incomes appear to have been spared. Addressing the question of 'fairness' is a condition-sine-qua-non for the necessary restoring of confidence today."

Michael Lewis, the author of "Moneyball" and "The Big Short," wrote a sardonic commentary , published Monday by Bloomberg, on the topic. The piece is written as a memo by a member of the top 1% complaining to others in that group about the rabblerousers in the 99%:

We must be able to quit American society altogether, and they must know it. For too long we have simply accepted the idea that we and they are all in something together, subject to the same laws and rituals and cares and concerns. This state of social relations between rich and poor isn’t merely unnatural and unsustainable, but, in its way, shameful.

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Photo: A 99% sign is projected on New York's Verizon Building by Occupy Wall Street demonstrators last month. Credit: Jessica Rinaldi / Reuters


 

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.

Continue reading »

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

GetprevThe 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.

Continue reading »

Central banks join forces to ease debt crisis

The Federal Reserve and five other major central banks joined forces Wednesday to offer European lenders easier access to dollars in an attempt to quell growing fears of a global funding crunch
Reacting to the deepening Eurozone debt crisis, the Federal Reserve and five other major central banks joined forces Wednesday to offer European lenders easier access to dollars in an attempt to quell growing fears of a global funding crunch.

The Fed said its coordinated action with the European Central Bank, the Bank of Japan and three others 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 lift to European markets, and U.S. stock futures surged.

The action, which follows a similar coordinated move in September, lowers the cost of so-called dollar swap lines to increase the flow of cash to European lenders. The new pricing would take effect next Monday.

Separately, the People's Bank of China announced a plan to inject more cash into its economy by lowering bank reserve requirements by a 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.

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Photo: The U.S. Federal Reserve building in Washington. Credit: Bloomberg News

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

China's central bank cuts reserve requirements to inject liquidity into the country's slowing 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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Photo: A Chinese bank clerk counts notes. Credit: Zhong Min / EPA

OECD calls for urgent action to resolve European debt crisis

OECD Chief Economist Pier Carlo Padoan
The Organisation for Economic Cooperation and Development on Monday called for "urgent action" to stop the European debt crisis, warning that it is the key risk to the world economy.

"Concerns about sovereign debt sustainability are becoming increasingly widespread," the OECD said in releasing its annual economic outlook in Paris. "If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption."

The OECD is an organization of 34 countries, including the United States, Japan, Canada and most of Europe, that promotes policies to improve economic and social conditions worldwide.

"We are concerned that policymakers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” said OECD Chief Economist Pier Carlo Padoan. "We see the U.S.  growth recovering only slowly, the Euro area entering into mild recession and Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”

The group's baseline economic outlook assumes that European policymakers take steps "to avoid disorderly sovereign defaults."  Even so, it projects that economic output in its member countries will slow to 1.6% next year from 1.9% this year. Unemployment will be at about 8% through the next two years.

The projections for the U.S. are weak growth of 2% in 2012 and 2.5% the following year. The OECD also warned that the failure of Congress and the Obama administration to agree on budget cuts poses "another serious downside risk" to the global economy.

The group is concerned that policymakers won't find ways to offset the $1.2 trillion in automatic spending cuts over the next decade that kick in because of the  failure of the congressional "super committee" to agree on deficit-reduction measures.

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Photo: Pier Carlo Padoan, chief economist of the Organisation of Economic Cooperation and Development, at a Monday news conference in Paris. Credit: Eric Piermont / AFP/Getty Images

Chinese factories hit by strikes amid manufacturing slowdown

Chinese factories have been hit by a series of strikes as the manufacturing sector readies for growing slowdown
Already facing a sharp slowdown, factories in China's manufacturing heartland are now experiencing a rash of labor strikes reminiscent of the worker unrest that swept the country last year.

Thousands of workers at a massive shoe factory in the southern city of Dongguan last week clashed with police as they marched to a local government office to protest the loss of overtime.

The strike at the plant owned by the Taiwanese Pou Chen Group came shortly after 18 managers were laid off because of declining orders, according to the Economic Observer, a Chinese newspaper.

Earlier in the week, 1,000 workers walked out of a plant in nearby Shenzhen that manufactured computer keyboards for leading brands such as Apple and IBM. Employees said they were being forced to work excessive hours on weekdays so that owners didn't have to pay overtime on Saturdays, as required by law. The company acquiesced after three days.

"People had to work so late, they couldn't concentrate any longer," said Zhao Xiaobing, 38, a former employee. "They will have more strikes."

A day before in Shenzhen, 400 workers went on strike in a pay dispute at an underwear factory.  Employees reportedly were denied fair wages and forced to meet unachievable production quotas, according to China Labor Watch, a New York-based workers advocacy group.

Two other strikes took place in October, one at a Shenzhen factory owned by Japanese watchmaker Citizen Holdings Co., and one at a furniture plant in Dongguan where employees were left unpaid after their boss disappeared.

"There are more protests because of the economy," said Li Qiang, director of China Labor Watch. "The management systems in factories are not suitable."

Official data to be released Thursday could show manufacturing contracting in November. The so-called purchasing managers index barely broke even in October.

Annual export growth rose 15.9% in October, down from 17.1% in September, largely because of diminishing orders from financially-troubled Europe.

Labor unrest spread across China during the summer of 2010 as workers were galvanized by strikes at plants operated by Toyota, Honda and Foxconn, the world's largest electronic components manufacturer.

Workers then were protesting low pay as inflation was driving up the cost of living. Many provinces responded by boosting minimum wages. Independent unions, however, are still illegal.

It remains to be seen if the recent demonstrations will inspire others. Unlike in 2010, local governments and factory bosses may not be as willing to increase pay now that growth prospects appear grim in many foreign markets. China's economy is also expected to taper off, because of declining exports and continued restrictions on the property market and limited options for fiscal stimulus.

"One difference between the recent strikes and last summer's is that, as far as I can see, this time workers are not winning big victories" such as 50% wage increases, said Geoffrey Crothall, a spokesman for China Labor Bulletin, a Hong Kong-based workers rights group. "This means the domino effect of one successful strike inspiring another is not happening this time. There is a lot going on now, and I think we might have to wait a while to see what kind of picture emerges."

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Photo: Workers at a Shenzhen, China, underwear factory take part in a strike to demand higher wages earlier this month. Credit: STR / AFP/Getty Images

NBA lockout is a boon for Chinese basketball league

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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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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.

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