Lame PRC Exports Can't Stop Ascendant Yuan

♠ Posted by Emmanuel at 10/15/2013 09:37:00 AM
It is fairly common knowledge by now that Chinese economic growth is slowing down from the double-digit to high single-digit range of years gone by. Among other things, weakness in demand in overseas markets has dented its vaunted export machine. The most recent external figures indicate that this trend is still continuing:
The currency moves came hot on the heels of official data showing Chinese exports slid in September [2013] by 0.3 percent from a year earlier. The figures confounded expectations for a 6 percent rise and marked the worst performance in three month [...]

In addition, the unexpected weakness in September's exports raised fresh concerns that economic growth - which has fallen in nine of the last 10 quarters - could stumble once again just as it has shown signs of picking up.
With exports on the wane and economic growth slowing down, have PRC authorities let up on the pace of yuan appreciation? Actually, no. It appears China is really serious about rebalancing its economy this time by allowing its currency to appreciate to a semblance of a market-determined exchange rate. In so doing, the hope of course is to rebalance their economy towards a domestic consumption-led economy that is less vulnerable to external shocks despite the expected complaints from exporters:
A stronger yuan is a key goal for policymakers trying to wean the economy off a heavy emphasis on exports more towards consumption-led growth. But they face complaints from Chinese exporters that the yuan's enduring strength is putting their products at a disadvantage in overseas markets even as foreign demand remains tepid.

The intraday record high of 6.1073 per dollar leaves the yuan up 2 percent in 2013, in marked contrast to slides posted by other Asian currencies, and more than 35 percent higher since a revaluation in 2005. "Domestic businesses hope there won't be more rises for the yuan, because exports are still really weak. If the yuan keeps rising, the results could be really ugly," said a currency trader at a European bank in Shanghai [...] 
Some economists predicted the central bank would be forced to let the yuan slip back, at least symbolically. Instead, it held a firm line. The currency has also risen in trade-weighted terms every month since Sept 2012 until finally declining slightly in August, data from the Bank for International Settlements (BIS) shows. BIS data for September should be released later this week.
What's interesting is that, absent Westerners haranguing China to revalue its currency, PRC authorities will actually do so on their own. There's a moral to the story about letting people figure out what they should do by themselves somewhere in here. Also, the article mentions public pressure to stop accumulating dollar-denominated (demoninated?) reserves given America's non-existent federal government as well as potential reductions in energy import costs. The price action is also in keeping with making the yuan attractive as a reserve currency, but in my case they are already preaching to the converted.

As an erstwhile marketing student, I am especially curious about how China's domestic-oriented strategy may involve producing innovative, higher-quality goods instead of competing solely on price:
Despite exporters' complaints Beijing's reformers see a stronger yuan as key to moving China to an economic model focused on producing higher-quality goods for domestic consumption, instead of churning out low-grade exports competing only on price.
I am not sure if locals are more demanding quality-wise than foreign consumers, but one thing is certain: China's salad days relying solely on a strategy of pile 'em high and sell 'em cheap are numbered. So it's a "creaking export model," according to some, but it's probably by design. Alike the rest of us, the Chinese appear to have realized that it's time to move on.
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Will the Eurozone/Euro Benefit From a US Dollar Crisis?

♠ Posted by Emmanuel in , at 10/14/2013 11:09:00 AM
With the US supposedly flirting with being the first Western country since 1933 Nazi Germany to default, attention needs to be paid on those other Westerners and their economic plight as a consequence.

As a holder of euros myself and other non-junky stores of value--not gold, not Treasuries or any of that riffraff--I of course wish that the United States' self-inflicted crisis wallops their godforsaken currency. No ifs, not buts. However, the opinion of ECB policymakers is decidedly more guarded. Sure, it may increase the prestige of euro currency at a time when the Eurozone is just exiting a very long recession if its share of global currency reserves increases further. Then again, the bifurcation of Northern and Southern states' economic performance is worrying. Sure the likes of Austria and Germany can survive with the single currency at, say, $1.40. But the hobbling "Club Med" countries declared no mas a long time ago.

So yes, (nominal) Austrian CB guv'nor Ewald Nowotny expresses concern with what happens Stateside:
The dollar's role as the world's leading reserve currency is at risk because of the political impasse in the United States, which has raised fears of a debt default, European Central Bank policymaker Ewald Nowotny said.
Then again, Nowotny wears two hats since he is also a member of the ECB's governing council and must therefore consider the plight of the Euro-laggards:
"This discrepancy is very dangerous and in my view will have a negative impact on the long-term role of the dollar.
Interviewed in Washington during meetings of the International Monetary Fund and World Bank, Nowotny said jitters over the U.S. budget standoff were already pushing the euro higher. This was not such a big problem for Austrian exporters but posed more of a threat to southern euro zone members, said Nowotny, who is also governor of the Austrian central bank.
What's that saying about the weakest link(s)? It's what holding the Eurozone from wishing the US and its currency a well-deserved oblivion. Sure the Eurozone has taken its lumps, but even the likes of Greece and Portugal didn't default outright.


 
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IMF Returns; Will Pakistanis Hate US Even More?

♠ Posted by Emmanuel in , at 10/13/2013 01:28:00 PM
I entitled an earlier post about Pakistan, the US and the IMF "When Cash & Hate Collide." To underline that assertion, here's Exhibit A: In a recent Pew Global Attitudes poll, the country which assigned the lowest favorable opinion rating to the United States was--wait for it--Pakistan at a ridiculously low 11% [click for a larger image]. It even outdoes places where Amerihatred is keenest based on current events alike Egypt and the Palestinian territories. As for the cash part, in case you haven't read about it, Pakistan recently inked another IMF bailout for $6.6 billion. That's its eighth--that it not a typo--since 1988. Talk about a state of perma-crisis.

Recently I assigned US-Pakistani ties as a term paper topic to my students. They are well aware of what binds these two reluctant "allies": the danger of a failed nuclear state, the constant Taliban menace, and the strategically advantageous location of this country. The truth is that no matter how badly Pakistan mismanages its economy, the US through the IMF will always come to its "rescue":
In 2008, Pakistan agreed to an $11.3bn loan from the IMF to avert a balance of payments crisis. It received $7.6bn but failed to get the remaining $3.7bn because of its slippages in meeting the performance criteria. That led to the suspension of the programme in May 2010. The programme was extended in December 2010 for nine months, but disbursements were not resumed because of the country’s failure to take fiscal measures as demanded by the IMF. Ironically, Pakistan has availed itself of the new $6.6bn loan to repay the old loan to the IMF of which about half – some $4bn – is outstanding [my emphasis].
From where I come from, borrowing to repay previous borrowing is called a "Ponzi scheme." Whether the IMF does more harm than good is an open question as the IMF readies fairly harsh conditionalities once more. That said, there is hardly reason to believe that Pakistan can work its way out of trouble on its own despite the constant IMF debt overhang. Misplaced subsidies, huge budget deficits, moribund investment, next to non-existent FDI, lack of basic law and order in most places...Pakistan has almost all the negatives humanly possible.

But, going back to the title of the post, can Pakistan be made to hate the US even more after unauthorized incursions via drone strikes, bin Laden strikes, perceptions of IMF neo-imperialism and so on? You can argue that America's 11% favorable rating has nowhere to go but up. I actually expect that it will in the near future as a "dead cat bounce" phenomenon.

As for IMF lending, I expect the same cycle to repeat itself as it has eight times over the last few decades: Pakistan will try to comply for a while with IMF conditionalities but eventually decide the political price of obsequiously bowing to this American hegemonic institution are too high. After all, if there's a better scapegoat for Pakistani perma-crisis than the IMF with its 11% approval rating by proxy, I don't know what is. Who's more masochistic here, Pakistan or the IMF? Beats me, pal.

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Central Banks and Gold: Buy High, Sell Low

♠ Posted by Emmanuel in at 10/10/2013 11:24:00 AM
Despite strides made by central banks worldwide in recent years to control inflation, they are hardly infallible. Take the case of gold: With developed country central banks printing money like there's no tomorrow in order to jump-start their moribund economies--especially after the global financial crisis--you would expect that gold would benefit as an inflation hedge. Indeed, gold prices have increased many time over in the new millennium.

However, central bankers have not really benefited from the rising and now falling of gold prices since they are, after all, public financial managers of a sort rather than speculators. Owning nearly a fifth of all bullion extant, they are major market players. Yet, when it comes to trading gold, their timing tends to be off in the sense that they collectively buy high and sell low. Based on central bank gold holdings, Bloomberg calculates that their combined losses amount to $545 billion since the metal hit its peak in 2011:
Policy makers, who are responsible for shielding their economies from inflation, often mistime gold investment decisions, buying high and selling low. They were reducing holdings when bullion reached a 20-year low in 1999 and as prices as much as quadrupled in the next nine years. Central bankers became net buyers just before the peak in 2011.
There's more detail from Bloomberg on the extent of mistiming the markets:
Holdings were little changed from the start of 2008 through early 2009. Then, policy makers increased gold reserves as prices doubled and they have purchased a net 884 tons since the 2011 peak, International Monetary Fund data show. Russia was the biggest buyer, adding about 171 tons. Kazakhstan bought 67.2 tons and South Korea purchased 65 tons. Turkey’s reserves swelled about 371 tons in the past two years as it accepted bullion in reserve requirements from commercial banks.

In addition to buying when prices rose, central banks sold into slumping markets, disposing of about 5,899 tons in the two decades from 1988, equal to about two years of current mine supply. The U.K. auctioned about 395 tons from July 1999, a month before prices reached a two-decade low, through March 2002. Gold averaged about $277 as the country was selling. The Bank of England’s hoard of ingots and coins, including a bar smelted in New York in 1916, now totals 310.3 tons, or 13 percent of the nation’s total reserves.
Gold bugs will of course argue that continued money printing and developing states' inability to transition away from easy money policies will result in massive price rises in the future. If this scenario comes to pass, then seemingly large losses trading gold now will disappear. Again, though, it's more conjecture than fact at the moment.

Bottom line: there are good reasons why central bankers are where they are instead of at commodity trading desks.
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Puerto Rico...Uncle Sam's Next Bailout Victim?

♠ Posted by Emmanuel in , at 10/09/2013 02:29:00 PM
They could use more tourists right about now
 I don't wanna be your lover...I just wanna be your victim - Elvis Costello's "The Beat"

The post title may strike you as unusual: How can someone be a "bailout victim" when a bailout is some sort of "rescue" from financial calamity? Well, read on. Recently I have been on a tear classifying episodes of economic stagnation combined with depopulation as "Detroitification." Unbeknownst to many, the American protectorate of Puerto Rico is in a major financial bind a la Detroit with increasingly unpayable debt and a declining population:
Puerto Rico, with 3.7 million residents, has about $87 billion of debt, counting pensions, or $23,000 for every man woman and child. That compares with about $18 billion of debt for Detroit, with a little more than 700,000 people, or about $25,000 for every person in the city. Detroit and Puerto Rico have been rapidly losing population, leaving a smaller, and poorer, group behind to shoulder the burden.
Since the start of the year, bond prices have fallen 18.1% in a selloff as investors (suckers?) took fright. Fine then, you say--let Puerto Rico declare bankruptcy alike Stockton, Detroit, or any other Brokebank Yank town. Unfortunately for Puerto Rico, it's not that easy. As a protectorate, its status is unlike that of a municipality but rather a nation-state. In other words, it cannot "work out" its issues with creditors since, well, there's no international bankruptcy court out there. Nor can it go to the IMF since it's not a member. So tough:
Detroit, at least, was able to seek relief in bankruptcy court, but Puerto Rico is in a legal twilight zone. Territories, like states, have no ability to declare bankruptcy. Another territory, the Northern Mariana Islands, tried in 2012, but its case was rejected.  
Now, to the part about being a "bailout victim." The United States has been roiling the world economy at an increased rate with its myriad dysfunctions and financial chicanery since 2007. When all the (premature) talk about tapering introduced panic into global capital markets midyear, it was the United States' collateral damage that dealt Puerto Rico the knockout blow. As bond investors chased yield in a low-to-no yield environment, Puerto Rico abused its peculiar attractiveness to engage in high-risk borrowing. The worst symptom, as you would expect, is borrowing to pay off previous borrowing:
Until a few months ago, Puerto Rico was the belle of the bond markets. As a territory, it can sell bonds that pay tax-exempt interest in all 50 states, a rare and desirable trait. Puerto Rico’s bonds also pay higher interest than many others because its credit rating is relatively low — but not low enough to scare off investors. Some of its bonds were insured against default; others have special legal structures that make them seem bulletproof. The territory’s constitution explicitly states that general bond obligations have first call on all available resources.

Because Puerto Rico’s bonds have these unusual advantages, investors snapped them up year after year, even as the territory’s overall debt load started to snowball. In each of the last six years, Puerto Rico sold hundreds of millions of dollars of new bonds just to meet payments on its older, outstanding bonds — a red flag. It also sold $2.5 billion worth of bonds to raise cash for its troubled pension system — a risky practice — and it sold still more long-term bonds to cover its yearly budget deficits.
So Puerto Rico was pyramid scheming its debt. Let it pay the price, you say. Once more, it's not that easy. Last I checked, the US (federal) government was closed and could not reach agreement on anything dealing with fiscal matters. With Puerto Rico's credit rating set to be downgraded to junk status, things could get even worse. Uncle Sam is aware of the impending catastrophe, but can he get the legislators on board to execute a rescue? It's certainly an open question:
As a result, officials at the White House, Treasury Department and Federal Reserve have been meeting to discuss the matter and to assess the potential consequences for the overall municipal-bond market, people familiar with the discussions said [...]

A Treasury spokeswoman said: "Given the potential for Puerto Rico's financial challenges to impact U.S. markets, including the municipal market, Treasury continues to closely monitor developments." The Federal Reserve Bank of New York and Fed officials in Washington declined to comment. The New York Fed has regulatory jurisdiction over Puerto Rico. The White House advisory group is coordinating with other federal agencies "to make sure that federal resources are fully utilized for maximum impact for the people of Puerto Rico," one senior Obama administration official said.
In a manner of speaking it's partly the American's fault by worrying capital markets for no good reason whatsoever with vapid taper talk. However, a larger part is due to Puerto Rican financial mismanagement plain and simple. Sammy may have delivered the coup de grace, but PR leaders had already done the bulk of the damage to set it teetering. From where I come from, $87 billion is still a lot of money. Nevertheless, just as jurisidiction over working out the debt issues of an insolvent protectorate is uncertain, so is the culpability of the US government.

At any rate, here's another headache for the Brokebank Yanks when it least needs another one. That, dear friends, is the beat.
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'Reshoring' Fad: Fed by 'Made in the USA' Fad?

♠ Posted by Emmanuel in at 10/07/2013 04:16:00 AM
I am in the minority over at Yahoo! News
Country of origin remains a sticking point in IPE no matter what economic liberals say. Today, let us look at a possible 'multiplier effect' where inviting manufacturing back home to America may be complemented by retailers advertising that more of their products are made there. In case you missed it, there's a 'reshoring'  fad going on Stateside wherein manufacturers who once decided to go to China and coming back since the cost savings they expected did not materialize. Often, transaction costs in the from of chronographic, geographic or linguistic differences negated labor cost savings. With China rapidly industrializing and its working age population falling, it was perhaps inevitable that even the labor cost advantage would be eroded. Whatever the cause, the net effect is more American firms coming home to America:
The Boston Consulting Group survey found 21 per cent of a sample of 200 executives of large manufacturers were either already relocating production to the US, or planning to do so within the next two years. A further 33 per cent said they were considering it, or would consider it in the near future.
Retailing giant Wal-Mart recently put more emphasis on selling US-made goods for obvious reasons. In difficult times, it becomes harder to justify selling boatloads of goods made elsewhere regardless of cost savings passed on to consumers. There's even a feature trumpeting "Made in the USA" products on their website. With Wal-Mart setting a quota for Stateside purchases, it was perhaps inevitable that the reshoring movement gained even more momentum:
Wal-Mart's new emphasis on U.S. goods spells opportunity for Lip Yow, a Malaysia-born entrepreneur who until recently made everything in China. Mr. Yow's company, AFC Trident Inc., Ontario, Calif., uses contract manufacturers in Shenzhen, China, to make plastic cases that shield smartphones and tablet computers. In April, Trident began production at a small factory in Rancho Cucamonga, Calif. Mr. Yow aims to shift most production from China to the new California plant, partly to appeal to retailers like Wal-Mart.

Getting on the shelves of Wal-Mart, the nation's largest retailer, is "very important," Mr. Yow said, showing a visitor his new plant where an American flag hangs from an overhead crane. [Yeah! USA #1!]

Wal-Mart has promised to increase purchases of U.S.-made merchandise by $50 billion, which would work out to an average of $5 billion a year. That affects just roughly 2% of what Wal-Mart spends annually on merchandise at U.S. stores, said Matthew Nemer, an analyst at Wells Fargo Securities. It is less than 1% of the U.S. trade gap in 2012. 
It could be a perverse sort of trade diversion if US retailers expressed trade preferences for buying American despite the economic case not being there. However, it appears that, in certain instances at least, doing so only reinforces the incentives manufacturers increasingly have of making stuff Stateside.
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Literally Dying for 2022 World Cup: Migrants in Qatar

♠ Posted by Emmanuel in ,,, at 10/06/2013 10:31:00 AM
Just when you thought Qatar's 2022 World Cup could not get any more controversial after continuing debates about the procedure used to select the tiny state and the difficulties associated with hosting the event during the peak of summer in the desert, there's more: It is common knowledge that the bulk of Qatar's workforce is composed of migrants who do the 3-D (dirty, dangerous, difficult) while its few citizens enjoy air-conditioned insulation from the harsh desert environment. However, recent reports have brought to light just exactly what the human cost is on migrant workers.

The Guardian got--pardon the expression--the ball rolling by reporting on the death toll of Nepalese workers due to poor living and working conditions out in the blast furnace of the Arabian desert to put up mega-stadiums in time for the 2022 event:
This summer, Nepalese workers died at a rate of almost one a day in Qatar, many of them young men who had sudden heart attacks. The investigation found evidence to suggest that thousands of Nepalese, who make up the single largest group of labourers in Qatar, face exploitation and abuses that amount to modern-day slavery, as defined by the International Labour Organisation, during a building binge paving the way for 2022.

According to documents obtained from the Nepalese embassy in Doha, at least 44 workers died between 4 June and 8 August. More than half died of heart attacks, heart failure or workplace accidents. The investigation also reveals:

• Evidence of forced labour on a huge World Cup infrastructure project.
• Some Nepalese men have alleged that they have not been paid for months and have had their salaries retained to stop them running away.
• Some workers on other sites say employers routinely confiscate passports and refuse to issue ID cards, in effect reducing them to the status of illegal aliens.
• Some labourers say they have been denied access to free drinking water in the desert heat.
• About 30 Nepalese sought refuge at their embassy in Doha to escape the brutal conditions of their employment.
Der Spiegel then added fuel to the fire by suggesting that Indian workers are also dying of exploitation out in the desert so that the 2022 show may go on:
There are many indications that the 44 dead Nepalese are no exception. Following the revelations in the Guardian, the Indian ambassador reported that 82 Indian workers had died in the first five months of this year, and noted that 1,460 Indians had complained of poor working conditions. The International Trade Union Confederation [ITUC] fears that up to 4,000 workers could die in Qatar before the starting whistle is blown for the first match -- that is, if working conditions don't change.
The 4,000 worker deaths are an extrapolation of the current rate of fatalities being incurred by South Asian workers in Qatar over ten years. Moreover, ITUC argues that Qatar's efforts are in vain since the structure of migrant construction labor is fundamentally abusive:
"The labour inspection system in Qatar has failed, and the government's announcement would simply add some inspectors into a system that doesn't work and will not make a difference," said Sharan Burrow, the ITUC general secretary. "Workers are not able to speak freely as, under the strict visa sponsorship system, employers retain their passports and they are not allowed to change jobs or leave the country without the employer's permission."
Alike nearly all other migrant-receiving states, Qatar has not signed up to the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families. Hence, Qatar's critics are applying pressure on Qatar being a signatory in another ILO convention concerning forced labor:
Qatar is failing to fully implement an international convention banning the use of forced labour ahead of the 2022 football World Cup, the United Nations' International Labour Organisation (ILO) has warned. Azfar Khan, the ILO's senior labour migration adviser in the Arab states, told the Guardian that despite pledges to do otherwise Qatar did not properly inspect workplace conditions and there was "no coherence" in the state's policies over the use of migrant labour.

"The onus is on the Qataris if they have ratified the convention to better implement it," he said. "Many of the abuses that take place which can lead to forced labour are still happening."
It is turning out to be a fiasco not only for football organizers but also for Qatar. The latter's image is receiving a battering that it's hard to imagine it will recover from in nine years' time. Isn't improving national reputation the goal of the whole enterprise? Qatar seems to be losing sight of it very badly.
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The (Delayed) Ascent of PRC Rating Agencies

♠ Posted by Emmanuel in , at 10/04/2013 10:16:00 AM
There was another large controversy about Chinese firms operating Stateside three years ago when the PRC-based credit rating agency (privately-owned, mind you) Dagong was denied by the SEC from being granted Nationally Recognized Statistical Rating Organization (NRSRO) status. As IPE Zone readers know by now, NRSRO status is important insofar as gaining this recognition allows a credit rating agency to legitimately evaluate what is still the most liquid capital market of them all for dollar-denominated debt. Then, the SEC claimed that Dagong could not comply with the Feds' standards for tranparency if so required:
[W]e find that we must deny Dagong's application because, irrespective of the jurisdictional question, it does not appear possible at this time for Dagong to comply with the recordkeeping, production, and examination requirements of the federal securities laws.
The "jurisdictional question" concerns the Chinese SEC equivalent the China Securities Rating Commission (CSRC) having its own set of rules concerning access to such documents. At any rate, Dagong was partly culpable in not properly explaining how it would handle SEC requests for information about ratings in terms understandable to Westerner bureaucrats. Dagong even threatened to sue, but nothing came of it:
Chinese rating agency Dagong Global Credit Rating Co. called the Securities and Exchange Commission's recent denial of its application as an officially recognized bond rater in the U.S. discriminatory and said it considers taking legal action against the agency.

In a strongly worded statement posted on the company's website Sunday, Dagong said SEC's sole reason for denying its application is the commission can not conduct cross-border supervision over the Chinese firm.
At any rate, Dagong has not given up on its quest to become a global player in the ratings game. Aside from the publicity stunt of downgrading US debt from AAA status before S&P, it now has done what few PRC ratings firms are willing to do in downgrading local issuances regardless of the argument that the government always stands ready to bail out SOEs which constitute a large part of the Chinese economy:
At the end of June, Dagong Global Credit Rating Co. broke ranks with its local competitors and downgraded three bonds issued by infrastructure-construction companies wholly owned by Chinese cities. It said it was losing faith in the governments' backing of the bonds [...] The three bonds Dagong downgraded—for the infrastructure-construction arms of local governments in Jilin, Jiangxi and Hubei provinces—had their ratings lowered by only one notch and still are rated investment grade.
Another strategy aside from establishing an image of political independence at home is using Europe instead of the US as Dagong's Western beachhead:
Dagong's go-it-alone stance is a measure of its ambitions. Chairman Guan Jianzhong—a trained accountant who took over in 1998 and owns a chunk of the 20-year-old private firm, according to a person familiar with the company—has spoken bullishly about the need to break the lock-hold Standard & Poor's Ratings Services, Moody's Investors Service and Fitch Ratings have on global debt ratings. Dagong hopes investors would be open to a new ratings firm after the global financial crisis resulted in a major loss of faith in the established players.

European regulators have taken note. In June, before the downgrades, six European Union regulators approved the registration of Dagong's Milan-based unit, allowing it to rate companies in Europe. Dagong previously had been turned down by the U.S. Securities and Exchange Commission in 2010 after it applied to do the same in the U.S.
The best way to combat Western discrimination is to tell it like it is when handing out ratings, since being proven right by subsequent bond issuer performance is the best way to gain others' confidence. Besides, who exactly is going to argue that Western ratings firms are any good in this day and age? As bond issuances increase from China in particular and East Asia in general, the clout of Asian ratings firms should increase accordingly.

The lame 2010 NRSRO application aside which appeared to fail due to unpreparedness as much as discrimination, it's only a matter of time. 
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Japan 'Defeating' Deflation? Not Quite, My Friend

♠ Posted by Emmanuel in , at 10/03/2013 10:28:00 AM
There is much debate in Japan as to whether the Bank of Japan's efforts to pull the country out of a deflationary spiral are bearing fruit. True, Japan's consumer prince index is actually showing a positive trend, but this may be largely down to temporary factors and not to any structural change. What happens when the central bank spigots close? The questions facing the developed world are  similar in certain respects. Moreover, Japan's shuttering of nuclear reactors in the wake of the Fukushima incident has caused price rises that may soon be undone as more plants come back online:
Japan’s core consumer price index, excluding volatile fresh food prices, rose 0.8% in August from the same month a year earlier. That prompted private economists to raise their forecasts closer to the central bank’s 0.6% rise on average for the current fiscal year ending March.

People familiar with the central bank’s thinking say it sees the index going as high as 1.0% by the end of this year. But private analysts still see any such a rise — driven largely by higher imported energy costs — as unsustainable.
Strip out the energy component of CPI and the news is much less headline-worthy. You guessed it--Japan remains in deflation territory:
Japan’s inflation accelerated to the fastest pace since 2008 in August on higher energy costs, underscoring pressure on Prime Minister Shinzo Abe to drive wage increases as he seeks to end 15 years of deflation.

Consumer prices excluding fresh food increased 0.8 percent from a year earlier, the statistics bureau said today in Tokyo. The median forecast of 30 economists surveyed by Bloomberg News was for a gain of 0.7 percent. Stripping out energy and perishables, prices fell 0.1 percent. 
This is non-news in the war against deflation. Can this artifice continue, though? While global energy prices are unpredictable, some commentators argue that restarting more nuclear reactors is tied to the success or failure of Abenomics. Pessimistically and perversely, then, it is possible that souring consumer sentiment caused by greater dependence on foreign energy may instead forestall the reactivation of Japanese nuclear plants:
In all likelihood, the success of Abe’s nuclear agenda will rest upon the success of his economic agenda. If the public and his party remain confident in the direction of Abe’s economic policies, he will likely be able to sell nuclear energy as an integral part of his vision.
What can I say? Japanese political economy is weird even by Asian standards and cannot be directly interpreted from Western example.
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Vaporware 3.0? Shanghai Free Trade Zone

♠ Posted by Emmanuel in , at 10/01/2013 10:10:00 AM
In technology-related industries, the term "vaporware" is used for hardware or software that is all hype and no substance. Either the announced products do not even materialize, or if they do, their features are far less impressive than promised. For our purposes, consider them as "vaporware 1.0" and "vaporware 2.0" respectively.

Today, let us consider yet another overhyped entity that is somewhat larger in scale. Try the largest city in the world's largest country--Shanghai, People's Republic of China--boasting a population of an astonishing 23 million. Just yesterday, a 29 square mile chunk of it formally became the Shanghai Free Trade Zone, but no one is entirely sure what this means. Hong Kong billionaire Li Ka-Shing said it may in time overtake Hong Kong as its economic openness--in banking and other services as well as with a more freely traded yuan--would attract more FDI from elsewhere. Yet, for something so highly touted, how Shanghai will achieve this "world capital" status remain unclear even now after its official launch date:
Well, that’s the plan, at least. The government has so far been clear in its intention to introduce financial reforms in the zone, but not as clear on how they will actually take place. The details on what can and cannot be done there, and when certain reforms will be implemented, remain sketchy. The reforms planned for this Shanghai zone will be much more difficult than those that took place in the trade- and manufacturing-focused zones of yesteryear. Factories, and the shirts, shoes and TV sets they make, are easy to monitor and control; not so financial flows, which could surge in and out of the zone with destabilizing speed. Financial firms could also take advantage of different interest rates and currency values inside and outside the zone to turn a quick buck.
In other words, the Chinese authorities need to ensure that arbitrage opportunities are limited. So the rules are not yet finalized, but there was a grand opening, right? Er, no--it was the softest of soft launches, actually:
Officials at the launch of the zone on Sunday promised a far more open and streamlined environment for foreign firms to do business in China, along with the relaxation of policies for a raft of service sectors, including banking.
However, the absence of senior Beijing leaders at the launch and few specifics on bolder reforms such as a more convertible yuan and liberalised interest rates left some disappointed, while officials stressed the zone remains a work in progress.
Vagueness and a lack of Beijing bigwigs does not make for a promising start. How about promises of greater Internet freedom, then? Well...they turned out to be unsubstantiated rumors after all that you could go tweeting and Facebooking to your heart's content:
The People's Daily, the official mouthpiece of China's ruling Communist Party, denied a recent report in the South China Morning Post saying that people would be allowed to access Facebook, Twitter, the New York Times and other politically sensitive, banned websites within a groundbreaking free trade zone set to launch this month in the country's financial hub, Shanghai. "Today (our) journalists obtained the information from a very powerful channel that these reports are wrong," said the People's Daily.
Let us consider what we have learned so far, then. Unspecified promises for greater economic liberalization at a later date, no bigwig apparatchiks on hand to lend support, and no new freedoms of expression. It doesn't sound so promising to me. However, us gweilo (foreign devils) may be thoroughly mistaken as Chinese themselves are speculating by buying up land there at a fearsome clip:
The property market near the soon-to-be free trade zone is also on a roll. Housing prices have soared 20-30 per cent in one month in the area just outside the Waigaoqiao gates, according to Shanghai Yuexin Real Estate “It seems crazy to me. Nobody knows the exact situation about the zone and they didn’t even take a look at the homes before buying them,” said Xi Xinlei, a Shanghai Yuexin agent.
What is the relevant principle here: A sucker is born every minute, or are some people smarter than you and me? If it's the former, perhaps PC World will in the near future consider the Shanghai Free Trade Zone as the top vaporware product of all time. Stay tuned; some folks have already made fairly large bets that Shanghai is entering a new golden age.
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