world growth

world growth

Saturday, April 24, 2010

113 Chinese companies in the latest Forbes Global 2000 list

The latest Forbes Global 2000 list includes 113 companies from Mainland China, 49 companies from Hong Kong, 39 companies from Taiwan, and 18 companies from Singapore.

The World's Leading Companies

The Forbes Global 2000 are the biggest, most powerful listed companies in the world. These global giants usually reorder themselves at a glacial pace, but sometimes--as with the volatile financial sector of late--with more abruptness.

Extreme vagaries of business or poor performance can take them off the list entirely. In any case, our composite ranking is the best snapshot of just how these titans compare. As we show, the corporate dominance of the developed nations is steadily receding. With respect not just to size but to what investors care most about, see our Global High Performers, an elite list of companies that set the pace in their respective industries.

Forbes' ranking of the world's biggest companies departs from lopsided lists based on a single metric, like sales. Instead we use an equal weighting of sales, profits, assets and market value to rank companies according to size. This year's list reveals the dynamism of global business. The rankings span 62 countries, with the U.S. (515 members) and Japan (210 members) still dominating the list, but with a combined 33 fewer entries.

This year, the following countries gained the most ground: mainland China (113 members), India (56 members) and Canada (62 members). Even Oman and Lebanon are now Global 2000 members. Also gaining a significant presence on our list this year are corporations from Ireland, South Africa and Sweden.

In total the Global 2000 companies now account for $30 trillion in revenues, $1.4 trillion in profits, $124 trillion in assets and $31 trillion in market value. All metrics are down from last year, except for market value, which rose 61%.

An analysis of the Global 2000 shows that despite the turmoil in the financial sector, banks still dominate, with 308 companies in the 2000 lineup, thanks in large measure to their asset totals. The oil and gas industry, with 115 companies, scores high in sales, profits and stock-market value, yet these sectors were not the leaders in growth over the past year. Insurance companies (up 27%) led all sectors in sales growth, while the leaders in profit growth were drugs and biotech firms (up 20%).

Monday, April 19, 2010

China to lend Venezuela $20 billion for oil exploration

Beijing Pledges $20 Billion to Venezuela

Venezuela and China inked a substantial deal on April 17, though Chinese President Hu Jintao (L) canceled his visit due to an earthquake in China.
Beijing and Caracas underscored their burgeoning ties over the weekend with $20 billion in Chinese financing, largely for Venezuela’s energy sector. The series of accords signed includes plans for a joint venture for exploration in the oil-rich Orinoco belt and secures Venezuelan oil for energy-hungry China. “This is a larger scope, a super heavy fund. China needs energy security and we’re here to provide them with all the oil they need,” said Venezuelan President Hugo Chávez in televised remarks. “China is going to give financing to Venezuela, to the Venezuelan people, to the Bolivarian Revolution…over the long-term and in large volume.” The funds could help salve the Andean country’s battered economy and infrastructure.

Chinese President Hu Jintao missed the signing ceremony after he cut short his Latin American tour in the wake of an earthquake back home that claimed roughly 2,000 lives. But his unforeseen absence made the financial pledge no less substantial. At the heart of the new deal is a $16.3 billion joint venture between Petróleos de Venezuela (PDVSA) and China National Petroleum Corp (CNPC) to develop the Junin-4 block of the Orinoco oil belt. (View a map.) The venture gives PDVSA 60 percent of shares compared to 40 percent for CNPC in a pact that remains valid for 25 years. A PDVSA statement forecast that the Junin-4 block’s production would reach 50,000 barrels a day by 2012 and hit 400,000 by 2015.

Chávez indicated that agreements—signed by energy and finance ministers as well as development bank officials from each country—would also draw funds for Venezuelan infrastructure projects, although details had yet to be released. Moreover, the loan comes on top of an earlier $12 billion bilateral investment fund.

The deals mark increasingly warm ties between the two countries. Chinese official statistics put bilateral trade volume at $7.15 billion in 2009, up from less than half a billion in 2002. China tripled imports of Venezuelan oil between 2005 and 2008 and launched Venezuela’s first satellite in 2008. Last month, Beijing delivered four of 18 Chinese military planes—replete with air-to-ground missiles—purchased by Caracas. Still, The New York Times notes that the energy ties between the two countries remain blurred, given that Venezuela reports exports of 460,000 barrels of oil a day to China but Beijing places the figure closer to 132,000. Also, Venezuela has declared several oil-industry accords with foreign partners in the past decade, though few have come to fruition.

Should Beijing make good on its cash pledges to Caracas, the loans may soften blows to Venezuela’s economy. Last week, Chávez renewed for another 60 days an ongoing electricity emergency, which has led to power rationing. Venezuela’s economy shrank by 3.3 percent last year and 5.8 percent in the fourth quarter. The Central Bank reported that inflation ran at 26.2 percent last month and Venezuela devalued its currency in January.

The closer bilateral relations reflect warming ties between China and Latin America. A new report by the UN Economic Commission for Latin America and the Caribbean finds that China will likely overtake the European Union as Latin America’s second largest export market by 2015.

Sunday, April 11, 2010

China records first trade deficit in 6 years

BEIJING - China reported its first monthly trade deficit in six years in March, mainly due to surging import volumes and rising commodity prices.

Exports surpassed $112 billion (S$156 billion) in March, up 24 per cent year on year, while imports increased by 66 per cent to more than $119 billion, resulting in a trade deficit of over $7.2 billion, according to figures released by the General Administration of Customs (GAC) on Saturday.

Combining exports and imports, the country's foreign trade rose nearly 43 per cent year-on-year to $231 billion, GAC figures show.

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Regionally, China's trade surplus with the United States and the European Union dropped 3.5 and 13.1 per cent year-on-year respectively, but its deficit with Japan more than tripled from the same month last year.

The Association of Southeast Asian Nations' (ASEAN) trade surplus with China skyrocketed to $2.7 billion from $300 million last year, buoyed by the ASEAN-China Free Trade Area established on Jan 1.

"The deficit stemmed mainly from the fast growth of imports by China amid its efforts to increase imports against the backdrop of the global economic downturn," the GAC said in a report.

In March, spurred by domestic investment demand, the surging import of raw materials such as oil, iron ore and copper pulled up total imports by 15.3 per cent. Vehicle imports during the period of $3.2 billion, a 240-per cent rise year-on-year, also increased the deficit, according to the GAC.

The report also said shrinking exports of labor-intensive products contributed to the historic deficit as well.

Huang Guohua, director of the statistical analysis department of GAC, predicted the trade balance would return to normal after seasonal factors fade away and the effects of foreign investment and trade take over.

Yao Jian, spokesman of the Ministry of Commerce, insisted that maintaining the trade balance is the best scenario for the nation, adding that the continuous improvement of the trade balance has created a stable environment for the yuan.

The rising pressure on the yuan would not be soothed, however, by the temporary and unsustainable deficit in March, said Dong.

In the first quarter, China's trade surplus declined to nearly $14.5 billion, a slump of 76 per cent year-on-year, while the imports and exports rose 44 per cent to $617 billion.

Monday, April 5, 2010

Will China raise interest rates?

CHINA’S inflation rate rose to 2.7% in February from 1.5% in January, prompting many to anticipate an interest hike soon by The People’s Bank of China (PBC). This has dampened investor sentiment somewhat. In many countries, maintaining price stability is often the primary if not the sole mandate of the central bank.

In China, the responsibilities of the PBC are not that straight-forward. For example, while conducting monetary policy to maintain stable economic development is listed as one of its main functions, ensuring that the renminbi’s exchange rate is at a reasonable level is also an important responsibility of the PBC. Hence, before deciding whether to raise the interest rate, the PBC needs to take many issues into consideration, not just the inflation rate.

Figure 1 shows China’s inflation rate as measured by the consumer price index and the change in the benchmark one-year lending rate. When China raised interest rates in July 1995, the inflation rate had already fallen substantially from the peak in 1994. Then, as disinflation turned into deflation, the interest rates were cut many times from 1997 to 1999. When inflationary pressures returned in 2002, the PBC let the inflation rate rise above 5% before deciding to raise interest rates at the end of September 2004. By then, the inflation rate had already turned down.

Then, the PBC raised interest rates two times in 2006 when the inflation rate was a mild 1.2%-1.3%. As inflationary pressures accelerated, the PBC raised rates aggressively in 2007. Then, when inflation rate was still above 4% in September 2008, the PBC began the first of five consecutive rate cuts over the course of four months. This shows that inflation is not the only factor that determines the change in interest rates.

Negative real interest rate is another commonly cited reason in support of an imminent increase in benchmark interest rates. The one-year fixed deposit rate currently stands at 2.25%. With a 2.7% inflation rate, savers are receiving negative real deposit rates. Negative deposit rate is undesirable because it discourages savings and drives up inflationary pressures.

Figure 2 plots the change in the one-year lending rate against the difference between the one-year fixed deposit rate and inflation rate. From 1995 to 2009, there were three periods when negative deposit rate occurred for a prolonged period, i.e. in 1995, 2003-2005, and 2007-2008. In all the three times, the one-year lending rate was raised.

In the first time, the lending rate was raised more than one year after negative deposit rate first occurred. In the second time, the lending rate was raised 11 months after negative deposit rate first occurred. In the third time, the lending rate was raised before negative deposit rate occurred. However, the one-year lending rate was lowered in September 2008 even when it was still in a negative deposit rate environment.

The first two instances suggest that the PBC would definitely raise interest rates if there is a sustained period of negative deposit rate, but not immediately after negative deposit rate occurred. The third instance showed that the PBC raised and lowered interest rates for reasons other than negative deposit rate. This again shows other factors were at play as well.

Figure 3 plots the change in the one-year lending rate against China’s quarterly real GDP growth. It shows that the one-year lending rate was raised after China’s economy registered above 9% growth for an extended time period, as indicated in 1995, 2004, 2006 and 2007. In 1996, although real GDP growth remained above 9%, interest rates were lowered in response to falling inflation rate.

Apart from showing that the PBC does not rely on a single variable to determine its interest rate policy, the three figures above also suggest that the PBC is less hesitant in lowering interest rates than hiking them. The PBC would lower interest rates once economic growth is threatened.

In contrast, when it comes to raising interest rates, the PBC has been more careful. For example, after China’s economy had recovered from the Internet bubble bust and inflation was rearing its ugly head towards the end of 2003, the PBC waited until the economy had fully recovered from SARS before raising interest rates.

The quantum of changes during interest rate hikes has usually been smaller than when interest rates were cut. It would appear that when conducting its monetary policy, the PBC places the highest priority on economic growth ahead of containing inflation.

China’s economy surged 10.7% in the fourth quarter 2009. A similarly spectacular performance is expected for the first quarter 2010, due partly to a low base effect. As the low base effects taper off, economic growth is expected to grow at a more moderate pace.

i Capital is of the opinion that three things must first take place before the PBC will raise interest rates.

One, economic growth must grow at a self-sustaining pace, creating sufficient employment opportunities. Two, property prices continue to surge unabated despite selective tightening measures being introduced to cool the property market.

Three, the inflation rate shows no sign of easing in the months ahead, especially in the second half of the year, indicating embedded inflationary pressures. Hence, i Capital expects the PBC to wait a while before making its next move.