June 25th, 2009
07:27 AM GMT
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In 2005, I took a road trip through Iran.  The sights – such as Yazd, the center of the endangered Zoroastrian religion, and the impressive mosques and madrassas of Esfahan – were some of the most fascinating I have ever seen. 

Also fascinating was what we didn’t see: No McDonald's, no Starbucks or any other globe-trotting American brand. 

Yet in the vacuum of Western products and services brought by financial sanctions against Iran, Asian companies have been eager to fill the void.

Ben Simpendorfer, author of "The New Silk Road: How a Rising Arab World is Turning Away from The West and Rediscovering China,” said trade between Asia and Iran has been surging since 2003.  China accounts for half the increase.  Railways, construction, and consumer goods firms, he says, have benefited in particular. 

Trade sanctions – in place since the 1979 revolution against the Shah – have diverted Iranian trade away from the West and more to the East. The rising trade power of China and other Asian nations with Iran has weakened the effectiveness of sanctions, Simpendorfer said.

"Over the past couple of years, demand from the traditional markets – Europe and the United States – have collapsed," Simpendorfer explained.  "So a lot of exporters in this region are now turning to the developing markets to try to find substitute buyers."

However, some exporters here are starting to face the same pressures as their Western counterparts.  "Asian companies are increasingly finding it difficult to finance their trade with Iran," he said.

Chinese exporters, Simpendorfer said, "are suggesting that they should rely on telegraphic transfers, for example, or euro-denominated trade finance, or even look to try to divert their trade through Dubai as an alternative to directly exporting to Iran."

The current unrest makes the future difficult to read, but Simpendorfer believes no matter the outcome, Iran’s economic ties with Asia are bound to rise.

June 2nd, 2009
07:11 AM GMT
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BEIJING, China — Not long ago, the U.S. government was talking tough with accusations of currency manipulation by China. But U.S. Treasury Secretary Timothy Geithner struck a very different tone on his visit to Beijing this week.

At his speech at Peking University and with government officials, Geithner sought to reassure Beijing that the value of the dollar was safe – as are the $768 billion in U.S. treasuries Beijing owns.

The tough talk has evaporated with the spiraling credit crisis and the ballooning U.S. budget deficit of $2 trillion – nearly 13 percent of GDP. Geithner assured the Chinese that the U.S. would work to cut that deficit down to 3 percent of GDP once the economy stabilized and was on the path to recovery.

Geithner says the U.S. aims to rebalance the world economy with China exporting less and importing more – preferably from the U.S., to help reduce the massive trade surplus.

How these twin economic powers can escape this embrace, however, is another matter.

Chinese bloggers, economists and editorial writers are complaining that their government is financing U.S. hegemony and urges Beijing to stop bankrolling U.S. debt. But for the Chinese economy, there are few credible options for what to do with its massive foreign currency reserves.

Should it move that cash back to China it could trigger an appreciation of the value of the yuan. Chinese asset-buying across the globe would raise thorny political concerns. The U.S. credit market is still the best place to park its cash reserves.

For the U.S., the dance is difficult because if Chinese exports decline, so too does the cash China has to buy U.S. debt.

The bond between the two has been likened to two drunks trying to carry each other down the street, or that of a crack dealer and buyer. Regardless of metaphor, it’s a very complicated relationship – one in which the fate of the world economy hangs in the balance.

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Filed under: BusinessChinaUnited States

April 14th, 2009
12:28 PM GMT
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SEOUL, South Korea - I am in a van driving back to Seoul from LG Chem's car battery plant in Daejeon, south of the Korean capital, and I can't help thinking how the global auto industry might be transformed by 11 sheets of black paper wrapped in aluminum foil. At least that's what LG Chem's new car battery cell looked like to me.

The Korean company is making the cells for GM's new hybrid electric car - the Chevy Volt. The Volt is not yet in production, but the manufacturing lines are churning out cell after cell that LG Chem engineer Jeon Byong Hee says will go for rigorous testing at the company's labs and GM's facilities. If successful, the Volt could help breathe new life into the nearly defunct American automaker.

The LG Chem campus is huge and the car battery factory immaculate. Just to enter the building, you have to leave your shoes at the door - as if you're visiting a Korean home. To see the production lines, we had to put on protective clothing and a pair of clean slippers before our bodies were blasted with air to blow away any potentially polluting particles.

My favorite room was the cavernous "formation" room - what manager Ham Jae Gyung describes as "a mother's womb". Batteries, Ham explained to me, "breathe" and need to come to life - much like humans. In the "formation" room, fastidious engineers in pristine lab coats oversee rows of what look like towering floor-to-ceiling metal bookcases. These contraptions charge and discharge stacks of battery cells until the batteries begin to operate on their own. New car batteries are born here every day.

LG Chem's engineers are thrilled they are working on a project for GM. Volt project leader Shin Youngjoon said he was "happy" and "proud". Ham said winning the job validated his team's hard work. "We are a pioneer in this area," he told me. Developing batteries for cars is "new land" - land that can be conquered by anyone with the wherewithall to compete. "We are confident," Ham told me.

And the good engineers at LG Chem will need that confidence as their company invests in a shaken industry on the cusp of a new era.

March 4th, 2009
04:34 PM GMT
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LONDON, England - Have you seen the cover of this week's Economist with Brown, Sarkozy and Merkel having to pay the "dinner" bill to rescue Eastern Europe? If you did you would have seen the artwork of Kevin Kallaugher - or Kal as he signs his work.

An example of Kal's witty and perceptive cartoon talent.
An example of Kal's witty and perceptive cartoon talent.

American-born Kal has contributed more than 100 Economist covers during the past 30 years. He's also been published in my hometown paper; the Baltimore Sun. Kal was discovered during the recession of the late 1970s drawing caricatures on the streets of London and Brighton.

He has benefited from Reaganomics, Thatcherism, Bill Clinton (fish in a barrel all of them) but is now tasked with describing the "credit crunch" with pen and ink.

Some commentators speculate that the end of the Bush era might mean the end of cartoon satire to reflect today's news. Not Kal.

"Certainly it (the Bush presidency) was the golden era to a certain degree," he told me during an interview at the Political Cartoon Gallery in Central London last month.

"I mean also what we're seeing in Obama's case - although the satire may not be immediately directed at him as an individual - is that we're going through such historic changes, politically, economically, around the world, it's going to supply a lot of material."

The challenge for Kal and his contemporaries is to describe the credit crunch in one drawing. Kal hopes his craft actually helps people make sense of the global recession. "You not always just react to the news. I like to think that we're in the business of kind of clarifying the news," he said.

He is very busy these days trying to "draw" the recession and also the new president. "It's this early phase, where we as the cartoonists are helping to establish in the public's mind what these people look like, this is an interesting time for us."

Kal has drawn many a character during his career. He often has to hear their voice to capture their essence. If you want to hear his imitation of one famous voice (he says it drives his wife crazy as he talks to himself in character as he draws some people) and see his efforts to capture the character of a certain CNN employee, watch Quest Means Business on Thursday night or check out cnn.com/international on Friday.

February 25th, 2009
03:57 PM GMT
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HONG KONG, China – This week, I met with a businessman who ships goods from Hong Kong's port all over the world. All he could talk about was the lack of orders especially from the United States. 

Freight movement out of Asia is slowing as orders dry up.
Freight movement out of Asia is slowing as orders dry up.

"It's all about the orders!" he lamented. "There are no orders."

No orders is a bit of an exaggeration. He later calmed down and told me that American retailers were placing orders - but not a lot by his estimation and only to bigger manufacturers they felt confident would be around at least for the next several months.

This lack of confidence is disconcerting for business people in Asia and for the governments who, for decades, relied on the sales of competitively priced goods to countries such as the United States to enrich their impoverished economies.

For the vast majority of exporters out here, the U.S. market is crucial to their survival. In addition, others that support these manufacturers - like the businessman I was speaking to - can't imagine further growth in the region without America's confident spenders.

Already, Japan has posted a record trade deficit. Taiwan's exports are down by over 40 percent from a year ago. Hong Kong's recession is deepening. South Korea is facing a debt crisis as its companies' sales wither.

The businessman I met with isn't normally interested in U.S. politics, but he is this year.

His hope? That President Barack Obama and his aggressive economic agenda will inspire the American people to buy again - and keep the orders coming to Asia.

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Filed under: AsiaBusinessObamaUnited States

January 30th, 2009
02:21 AM GMT
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NEW YORK — News this week of big bonuses paid out at financial firms on government life support has sparked outrage. AIG is paying $450 million to roughly 400 people at a financial products unit - the same unit that directly contributed to massive losses at the insurer. The company calls them “retention bonuses”.

 A woman holds up a sign near Wall Street on September 22, 2008, in New York City.
A woman holds up a sign near Wall Street on September 22, 2008, in New York City.

They are not alone. The New York state comptroller’s office said cash bonuses paid by Wall Street firms totaled $18 billion in 2008. That is down sharply from the boom times, but still unbelievable considering that these companies would be out of business if not for taxpayer bailouts.

Those headlines stand in stark contrast to another story told to me this week. A medium sized company, hit hard by frozen credit markets and clients that are behind in payments, found itself running low on cash. The bosses made the difficult decision of asking their workers if they would skip a pay period. It was totally voluntary. Ninety percent agreed, with many coming up to the bosses after to express their support and willingness to pull together to make it through this crisis.

Another story crossed our desks about a Michigan pancake restaurant where workers got together and agreed to work a shift with no pay to help the restaurant owner bring down costs. Local patrons, hearing the news, left more generous tips to help make up the difference.

These are not big bosses worth millions of dollars who make a big show of taking a dollar salary as a public relations move. These are real people with real bills who are making big sacrifices to try to save their jobs and the companies they are loyal to.

Maybe we should require CEO’s at companies taking taxpayer money to do a job swap and go spend some time out in the real world. They might find out that you don’t need to pay million dollar bonuses to find employees that are worth holding on to.

January 21st, 2009
08:38 PM GMT
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NEW YORK - In his inauguration speech President Barack Obama said, "...those of us who manage the public's dollars will be held to account – to spend wisely, reform bad habits, and do our business in the light of day – because only then can we restore the vital trust between a people and their government."

White House Chief of Staff Rahm Emanuel briefs U.S. President Barack Obama in the Oval Office.
White House Chief of Staff Rahm Emanuel briefs U.S. President Barack Obama in the Oval Office.

He has wasted no time putting those words into action. Wednesday Obama announced a pay freeze for senior White House staffers.

Perhaps more importantly, he also imposed new limits on lobbyists, saying anyone who works in his administration and leaves can not lobby the White House while he is in office.

It is unclear how much of an immediate impact these changes will have, but it is a step in the right direction.

A government job is not supposed to be an internship for a lucrative lobbyist job. Special interests wield huge power in DC.

They impact legislation in a way that the founding fathers never envisioned.

It will be hard to break their grip, but if Obama can make a start, it may go a long way in trying to restore people's faith in government.

Do you think Obama can usher in real reform in Washington or is this just more talk?

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Filed under: BusinessUnited States

January 18th, 2009
09:57 AM GMT
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LONDON, England – Dear President Obama,

Enjoy your inauguration, and party like there is no tomorrow, because that day is about as much fun as you are going to have.

You have a daunting and unenviable task, fixing the worst financial crisis since the Great Depression. It's clear - what's happened to date hasn't restored confidence in the banking sector.

Much more will need to be done and it needs to be dramatic and bold. Already being discussed is setting up a bank that would acquire the banks' toxic debt.

The thinking seems solid enough; if the bad debt is taken off the books, that will mean fewer write downs, free up capital, and that could lead to more lending.

That was the original idea behind the $700 billion bank bailout cooked up by the Bush administration. But then it couldn't figure out how to price all that bad debt, and so they decided to give the banks capital instead. That left the bad debt sitting there, leading to the renewed lack of confidence in the banking system. So going back to the original idea is now once again in focus.

The other idea, of course, is to guarantee the toxic assets that remain on the banks' books, such as authorities did this past week for Bank of America.

None of this will be cheap. It's estimated that up to $1.2 trillion in new aid could be needed. Of course, that's on top of the massive amounts of money already thrown at the problem.

Which brings me to my final point, the ballooning budget deficit. It's estimated it will more than double this year to about $1.2 trillion, or 8.3 percent of GDP, the biggest budget deficit in the post-war period. And that figure doesn't include the proposed $825 billion economic stimulus package. You yourself have said there is the potential to have trillion-dollar deficits for years to come.

No wonder you've appointed a chief performance officer to see where savings can be made in the federal budget.

I realize you have no choice but to pull out all the stops to try and get the economy moving again. It, along with getting the banks lending again, is priority number one. But for the sake of the long term health of the economy, rein in the deficit as soon as it's possible.

The U.S. national debt keeps growing and could reach a mind boggling 400 percent of GDP by mid-century if current tax and spending policies are not addressed.

You've been dealt a tough hand. The weight of expectation on you is huge. You've tried to play down those expectations, but they remain.

So enjoy your inauguration day, enjoy the adulation, and the overwhelming good will and optimism you've engendered.

And as the recession lingers on, I hope the public will be as forgiving as they have been hopeful. The problems the economy and banking system face are more than one very well intentioned and articulate man can easily cure.

As your wife Michelle reminds us, you may be a gifted man, but at the end of day you are still just a man. I wish you the best of luck.

  • If you could write a letter to President Obama what would you say? Are you optimistic that he will be able to solve the economic and banking crisis?
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Filed under: BusinessUnited States

January 11th, 2009
06:51 AM GMT
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LONDON, England - What is it like being George W. Bush right now?  With Barack Obama's presidential inauguration just a few days away, how is the present occupant of the Oval Office spending his last few days in office?

The first seven years of the Bush administration witnessed strong economic gains.
The first seven years of the Bush administration witnessed strong economic gains.

Well, clearly there are the usual decisions to be taken, meetings to be held, visits to be made, people to be hosted and so on.  But it's my guess that there is a question that must echo ever more loudly in the mind of any outgoing president of the United States as he prepares to leave the White House: what will my legacy be?  And once Mr. Bush has packed his toothbrush and headed back to Texas, the minute-to-minute pressures of office will no longer distract him.  As he chews languidly on, say, a pretzel that question will no doubt pop unbidden into his mind.

History can be a fickle prism.  What journalists say today about George W. Bush's legacy may not be what the historians looking back from the 22nd century will see.  But for now it is clearly 9/11 and his response to it, above all the invasions of Iraq and Afghanistan, that will be held up as the defining issues of Mr. Bush's administration.

Millions of words will continue to be written about the rights and wrongs of his national security and foreign policy, which under the Constitution are the central concerns of the U.S. president.  But one of the pervading ironies of U.S. politics is the way that Americans ultimately vote for their president on the basis of economic achievement and promise.

So what of the Bush economic legacy? It certainly looks ugly.  On Friday last week we learned that the U.S. economy had shed 524,000 non-farm jobs in December 2008, bringing the total number of jobs lost in that lamentable year to 2.6 million. The day before, the non-partisan Congressional Budget Office put out a forecast that the federal deficit would balloon from $455bn in fiscal 2008 to $1.2 trillion, or more than 8 percent of GDP, in fiscal 2009.  That's before you factor in the huge additional fiscal stimulus that Mr. Obama will announce soon after taking office.

Breathtaking, especially when you remember that under the Clinton administration the federal budget moved into surplus, and even stayed there for the fiscal year of Mr. Bush's first inauguration in 2001.

But that was the last year he balanced the federal budget; then came the big tax cuts that were his economic signature, plus the wars in Iraq and Afghanistan, thought likely to cost Washington a couple of trillion dollars (some economists say much more) by 2017.  (To put that into perspective, $2 trillion represents seven weeks' worth of the entire U.S. national output.)

But back to January 2009 and the recession that George W. Bush is handing on to Barack Obama. What triggered that, of course, was the implosion of the U.S. housing market in 2007.  It has battered tens of millions of ordinary Americans, exposed the reckless lending of many banks, shredded the balance sheets of many a proud name on Wall Street, triggered a bewildering global financial turmoil and forced a Republican President to swallow free market principles and mount a $700 billion programme of government bailouts.  

From this vantage point, the Bush legacy could hardly look worse.  But no actor would be judged solely on his last major performance; no sporting hero would stand or fall on the basis of how well he played in the last season before his retirement.

The fact is, the first seven years of the Bush Administration were years of strong GDP growth: before 2008, the slowest rate at which the U.S. economy grew was 3.2 percent in 2001 (during a cyclical downturn) and the fastest was 6.6 percent in 2004, with 2005 and 2006 not far behind that blistering rate.

There were some other strong points - at least until the cataclysm of 2007 and the perfect storm of collapsing house prices, shrinking economies and rising commodity values.  Under the stewardship of Alan Greenspan, the Fed kept inflation in check.  The Dow soared some 34 percent in the first six Bush years, peaking at 14,164 in October 2007.  Under a light regulatory regime the financial sector burgeoned.  U.S. businesses and consumers alike reaped huge rewards from the rollout of new technologies.  The Internet came of age.  Cheap consumer goods from China boosted the feel-good factor.  Cell phones and iPods became must-have accessories for most Americans; well into 2007, they could have been forgiven for thinking they had never had it so well.

But then came that terrible cataclysm, the steady slide into recession, a near-40 percent decline on the Dow from that heady peak and the brutality of unemployment for more than 7 percent of the U.S. workforce.

So the years of plenty ended in misery - there'd been plenty too much plenty, it turned out.  America had partied, and partied too hard; the present hangover is proving the most painful since the one that afflicted our grandfathers four score years ago.

But is the U.S. president to blame?  Will history look kindly on him, saying it was the blind greed of bankers that led them to lend more than humble borrowers could ever afford, and so trigger the housing crash?  Will George W. Bush be seen as the victim of powerful global forces that not even the most powerful elected official on Earth could foresee, let alone resist?

What do you think?  Will we remember the many boom years or just the bust?  Once the U.S. economy recovers, will Mr. Bush's economic legacy be seen in a more positive light?

Bob Parker of Credit Suisse Asset Management discusses your views

December 18th, 2008
06:26 PM GMT
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NEW YORK – Here we go again. A major U.S. company, actually two, are on the verge of collapse. People are concerned about what kind of ripple effect that might have on the broader U.S. economy and yet, the Bush Administration dithers. Well, that might be too strong a word. They are probably crunching numbers, calling in experts and hotly debating what to do over autos. But so far, they are not acting. And the companies are quickly running out of money.

Late Wednesday, Chrysler announced it will shut down production at all plants for a month. GM and Ford have also said they will extend their usual seasonal shut-down. GM and Chrysler made it clear in testimony earlier this month, they can not survive much past the end of the year without a financial lifeline.

The Bush Administration has said a "disorderly bankruptcy" would be harmful to the economy and is not an option. But it feels like we are getting awfully close to that. GM has denied news reports that it is in merger talks with Chrysler, but at this rate it is hard to see how all three carmakers are going to survive this crisis in the current form.

The idea of naming a car czar to oversee the restructuring process also seems to have stalled. The New York Times is reporting that Treasury Secretary Henry Paulson has effectively taken on the role of "auto czar." That's alarming to many who are critical of his handling of the bank bailout.

Our CNNMoney.com folks report that Speaker of the House Nancy Pelosi wants Paul Volker to take over the role. A former Fed chairman and advisor to President-elect Obama, Volker knows a lot of monetary policy, but few believe he has the corporate experience or turn-around skills needed to make a real difference to the auto industry.

The White House says they are getting close to announcing some kind of plan, but I wonder ... have we passed the point of no return? Is it too late to save all three of these car companies?

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Filed under: BusinessUnited States

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