September 7th, 2009
06:02 AM GMT
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You know how it is –- you’re in a strange city, maybe a strange country, tired, hungry, missing home, it's kind of late. You walk into that little (in my case, Chinese restaurant), there are teeth marks on the chopsticks, the floor is kind of sticky, and on the menu is the house specialty: rabbit face. Not quite what you wanted, but as luck would have it, just down the road you can see it in the distance – the golden arches, sitting high and proud calling to you.

OK, this might be (in my case) China, but you know that somehow, once you walk through those doors, there on the menu will be a cheeseburger, a Big Mac, Quarter Pounder and fries. And for the most part the food will taste pretty much like the Mickey Dee’s on Santa Monica not far from my old apartment in LA.

So, when I buy my Big Mac here in China, it’s just over 12 RMB, or $1.76. When I buy a Big Mac in L.A. it costs around $3.50. The great thing about a Big Mac as far as economists are concerned (wel, the ones at “The Economist” magazine, anyway) is that it's pretty much the same wherever you go . . . two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun.

And that means for economists it’s a great way to compare currencies. Much like the Big Mac itself, it’s not perfect – wages, rents and other costs vary, as well as the size (I have noticed the Chinese burgers a little on the small side). But for more than 20 years the people at “The Economist” have been doing this exchange rate comparison, and – surprise, surprise – they found Asian currencies under-valued, European over-valued.

In the case of China, by about 40 percent undervalued – this is at the far end of the spectrum as far as many critics in the U.S. are concerned. They accuse Beijing of deliberately manipulating the currency, keeping it undervalued. That means exports from China are a lot cheaper, giving exporters here an unfair competitive advantage, they claim.

Imagine if you could go to that McDonald’s in L.A. and instead of paying $3.50 or so for the American Big Mac, you could pay $1.76 for the Chinese version, knowing the ingredients are the same.

August 31st, 2009
06:10 AM GMT
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When most people think of their own budgets, they think of money on a relatively simple scale; food, housing, transportation, household goods and so forth.

I’ve moved several times over the past several years. With each move I track my spending to gauge my new cost of living. It’s nothing complex. I simply jot down how much I spend each day on things like lunch, groceries and transportation. After a few weeks, it’s easy to see where I stand.

That’s because the numbers are simple.

But then you hear the staggering figures batted around over the past year. Whether it’s millions of dollars for Wall Street bonuses, or billions of dollars in bankruptcy filings, it all starts to turn into a blur of huge sums.

Then, as if those figures aren’t confusing enough, the White House comes along and projects a $9 trillion budget deficit over the next 10 years.

How does a person even get their mind around such a massive sum of money?

Nine trillion is nine million million dollars.

Sorry, did that just make things more confusing? Maybe these three points might help put it all in perspective:

-         If you spent ten million dollars a day, every single day going back to the year Christ was born, you would have only spent about $7.3 trillion by now.

-         As Temple University Professor John Allen Paulos pointed out to CNN a few months back, “A million seconds is about 11½ days. A billion seconds is about 32 years, and a trillion seconds is 32,000 years."

-         Or as Colleen McEdwards found in this week’s Biz Clinic, if you stacked one dollar bills one on top of the other, the pile could go to the Moon and back … then halfway back to the Moon.

And if each of the roughly 300 million Americans chipped in to payoff a $9 trillion deficit, we’d each have to shell out $30,000.

I don’t know about you, but that’s just not in my budget.

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August 24th, 2009
07:30 AM GMT
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HONG KONG, China – The Hang Seng is up 80 percent since March. Hong Kong recently emerged from the recession. And in this volatile housing market, property prices here - always a closely watched indicator - are on the rise again.

Take a walk through one of Hong Kong’s sprawling malls, or try to fight your way through the congested stores in Causeway Bay, and it’s clear that shoppers are out in force.

Many are holding the view that the worst is over. They might be right.

But Stephen Roach, chairman of Morgan Stanley Asia,  says caution is still the key. In a chat with Biz Clinic, Roach gives his views on where things stand.

The markets: The markets are “a lot stronger than the underlying state of the global economy,” says Roach, who previously was chief global economist for Morgan Stanley for more than 15 years. That will raise some real risks for equities in the second half of this year.

It’s important to remember that as much as 75 percent of the world’s economy has been contracting, and the American consumer remains “dead in the water” right now, Roach says. “When markets go up, memories get short.”

The housing myth: The focus on the U.S. housing market is “overblown,” Roach says. In his view, the damage has already been done. And even if housing does stabilize, consumers are still “stuck with too much debt on overvalued homes,” he says. “And now they’re stuck with job and income problems on top of that.”

Shooting down ‘green shoots’: It’s been the catch phrase of the recovery, but Roach shrugs off the idea of so-called “green shoots.” “(It’s a) fiction that’s been woven around liquidity driven markets,” he says, and the current “green shoots” will not blossom into large plants or bushes.

Keys to recovery: Here is what needs to happen for a global recovery, according to Roach :  

  1. First, the world needs another consumer than the “overly indebted, savings-short American consumer.”
  2. Second, we have to watch private debt levels, as well as public debt levels brought on by the massive stimulus programs all over the world.
  3. There needs to be job growth. Without that, Roach says we could see “a recovery with limited staying power, and one that is anemic at best.”
  4. And lastly, the United States has to save again, and excess savers in Asia have to start spending again. If that doesn’t happen, Roach says he’ll be “very cautious about the prognosis for the global economy.”
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August 16th, 2009
04:53 AM GMT
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HONG KONG, China - Confused by the rules and regulations of China's stock markets? You are not alone.

Probably one of the most common questions I am asked as Asia Business Editor is how to invest in China, especially its stock markets. The markets are up more than 80 percent this year. With the world economy in turmoil, many investors see China as a bright spot on an otherwise dark landscape. They want in.

Market watchers debate if China's stock markets are headed into bubble territory and warn that trading is still a new phenomenon in the country. Information is scarce, spotty, and often only in Chinese. Market swings are extremely volatile.

But with that warning in mind, here is a little guide to help the intrepid better understand China's stock investing ABC's.

A-shares: Stocks of Chinese companies listed in mainland China - in Shenzhen and Shanghai. These shares are sold in Chinese yuan, largely to local investors. Foreign individual investors cannot buy A-shares directly. International institutions can, but with limits. "China has a very restrictive policy in terms of allowing foreign investing into the local stock market," explains Peter Alexander of Shanghai-based Z-Ben Advisors. "They don't actually need foreign investors because there is enormous amount of demand locally." Alexander suggests going through a bank or a mutual fund.

B-shares: B-shares are also stocks of Chinese companies listed in Shenzhen and Shanghai. These stocks were originally meant for foreign investors and are sold in U.S. and Hong Kong dollars. The B-share market never really took off in the way the Chinese government intended. Chinese companies looking for foreign funds often choose instead to list on the Hong Kong stock market. The government has recently loosened the rules to allow more domestic investors to buy B-shares though the number of companies is pretty small.

H-shares: If anyone wants to trade in Chinese stocks directly, Alexander says Hong Kong is the place to do it. "Over the past decade, a number of Chinese companies have begun to list on the Hong Kong market," he told me. "Banks, petroleum companies, every type of industry, big companies, very liquid." These shares trade in Hong Kong dollars and are governed by international standards, so buying and selling H-shares is more transparent. Information on these listed companies, Alexander says, is easier to find.

ADRs: American Depositary Receipts. These are shares of non-U.S. – in this case Chinese - companies listed in New York. Investors can buy big Chinese names such as China Mobile or PetroChina but the selection is limited.

Investing in Chinese companies is a bit of a letters game - and, certainly, a risky one.

August 10th, 2009
01:40 PM GMT
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Nobel laureate Paul Krugman is a famous man and particularly in Malaysia's political circles.

During the Asian financial crisis a decade ago, the American economist stunned most Western observers when he suggested that capital controls could be a viable antidote to a financial meltdown.

But that is exactly what Malaysia's Prime Minister Mahathir Mohamad had concluded as well.  Mahathir slapped capital controls on his country's financial flows to stop international speculators dead in their tracks. 

His decision was controversial at the time, but many of his critics now concede that Mahathir's tactic helped bolster Malaysia's economy rather than hurt it.  Krugman gets a lot of kudos here in Kuala Lumpur, too.

So how does Krugman suggest you track this global financial crisis?

1. Keep an eye on jobs.  "We can have a technical recovery where GDP is growing or industrial production is growing."  He told me, "But that's not going to matter for most people."  He wants to see countries worldwide adding jobs before he's convinced the economy is recovering.

2. Be wary of banks and oil.  Oil prices are hovering around $70/barrel during an unprecedented economic downturn.  "That's telling you that we've got a lot of pressure on oil supplies," Krugman said.  "And if the world economy starts to come back, oil prices will probably come up a lot, and that's a big brake on the recovery."

3. Consider working in health care.  Banking... not so much.  "Everybody's got real second thoughts about whether what's good for the trading floor is good for the economy," he said.  Trading floors are going to get "simpler" and "a lot more boring."

Veteran policymakers in Malaysia might think that would be a good thing, too.

August 10th, 2009
03:53 AM GMT
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TOKYO, Japan - “Through repetition and practice, you can create a natural smile,” says Keikyu Railways representative Taichi Takahashi. Strange as it may sound, he has reasons to think so. In June, the company installed software for employees that grade their smiles from 0 to 100.

Keikyu Railways believes the smiles of their workers affect overall service.
Keikyu Railways believes the smiles of their workers affect overall service.

“In the beginning, everyone was confused,” says station attendant Kiyomi Ogiwara, “But now it has become a habit. In the morning, everyone lines up and practices smiling.”

A camera mounted on top of the computer captures the face of each employee as they sit down. Once the test, has begun, they have to hold their smile for 10 seconds before a buzzer goes off indicating the test has finished. They are then given their score, a percentage from 0 to 100, with 100 percent being their ideal smile.

Along the way, the program offers advice on improving one's smile, for example “Relax” or “breathe deeply.” Though the company hasn’t laid down firm rules for its use, one idea under consideration would have workers print out a photo of their 100 percent smile and carry it with them so they can consult it throughout the day.

Ogiwara, 21, is clearly the station champion, her scores hovering between 90 percent and 100 percent. Others at the station struggle to master their grins, with scores around 60 percent. But the test is not mandatory, and the company says workers’ smiles will not be used to determine promotions or demotions.

To those who say they would rather have good service than a smile, Takahashi replies, “Of course good service is the most important. But you can’t give good service with a scary face. The smile affects overall service.” That’s particularly important at the Haneda airport station.

“Haneda airport will start handling more international flights next year,” he says “There will be many foreign tourists using Japan’s trains for the first time and we wish them to have a safe trip.”

Ogiwara says her smile has improved dramatically since the first time she used the machine. “I got used to it, and I try to smile naturally. Now I know how to get a high score,” she says. That natural smile is clearly in evidence as she moves from customer to customer, helping them find the right train, or pay the right fare for their tickets.

“By having a smile on my face,” she says, “I make other people feel good, and they smile back at me.”

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August 3rd, 2009
11:21 AM GMT
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Editor's note: CNN features "The Biz Clinic," a weekly installment featuring expert analysis on steering through today's uncertain financial times. Be sure to watch CNN International every Monday for "The Biz Clinic."

HONG KONG, China - On our recent trip to Shanghai, my crew and I visited People's Square, a park in the heart of the Chinese city where children play in a fountain, fly kites, and blow soap bubbles.

These may not be the only bubbles forming in China.

According to many investment analysts, the nation's stock markets and real estate sector are headed into bubble territory. And investment bubbles, they say, can lead to significant losses if those bubbles burst. Just look at the U.S. housing collapse and the current financial crisis. Read more on growing anxiety in China

So how do you avoid an asset bubble? First, you need to learn how to spot one.

1) All bubbles start with a good story: Manias over companies, U.S. homes, even tulip bulbs all began the same way. People get overly excited about the prospects of an investment and bid up its value – even if the fundamentals lag.

2) Money, money: Money is available. Borrowing is made easy.

3) Herd mentality: Everyone and his third cousin are talking up that particular investment. Independent economist Andy Xie suggested taking a survey of the people around you. "When you hear that 90-percent of those people are in, you want to get out."

4) Denial: Jerry Lou of Morgan Stanley says if "you keep telling yourself that the story is so good, the growth is so robust, it's rock solid," it is time for a reality check.

Lou says hedge funds might want to keep playing the bubble before the crash, but warns average investors to be disciplined. Xie believes if you are in a bubble, it's best to get out, preferably early. "Don't try to make the last dollar," he cautions, "it's really dangerous." Watch how IPOs in China are making a comeback

It’s much safer to blow bubbles in the park.

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