Currency wars 'hurt global markets', World leaders seek currency peace,China yuan reform

Currency wars 'hurt global markets'

International Monetary Fund and European Union warn nations  against undervaluing their currencies.

Dominique Strauss-Kahn, IMF Managing Director, says re-balancing currencies should be the main goal [AFP]  Global policymakers clashed over currency policies as Western leaders warned China and other emerging markets that widespread efforts to weaken exchange rates threaten to derail economic recovery. Officials around the world fear that a rush to undervalue currencies may trigger trade tariffs and other measures that could damage global economic growth. Using exchange rates "as a policy weapon" to undercut other economies and boost a country's own exporters "would represent a very serious risk to the global recovery," Dominique Strauss-Kahn, the International Monetary Fund (IMF) director, said ahead of Friday's twice-yearly IMF meeting. European officials said on Thursday that a rapidly rising euro, victimised by an undervalued US dollar and Chinese yuan, could threaten eurozone recovery and vowed to press both Washington and Beijing to take action. European Union leaders contend that the euro - currently at an eight-month high of more than $1.40 - is being squeezed in a  transglobal race for trading income. "The euro is currently bearing a disproportionate burden in the adjustment of the global exchange rate," a spokesman for Olli Rehn, the European Union Economic Affairs Commissioner, said. "This may affect recovery of the European economy," the spokesman stressed, reiterating that the yuan is "still significantly undervalued." 'Singled out' But China, which the West accuses of keeping the yuan artificially weak to promote exports, has rebuffed the criticism. Al Jazeera's Melissa Chan, reporting from the Chinese capital of Beijing, said that while China is typically "singled out" as a currency manipulator, within the country, there is an understanding that its economy must move "from an export-driven model to a consumer-based one". "But while everyone knows that China has a trade surplus with the United States, few know that China has a trade deficit with countries like Brazil, South Korea and Japan." On Wednesday, Premier Wen Jiabao told the European Union to stop piling pressure on Beijing to revalue the yuan, saying a rapid exchange rate shift could unleash disastrous social turmoil in China. "Many of our exporting companies would have to close down, migrant workers would have to return to their villages," Wen said during a visit to Brussels. "If China saw social and economic turbulence, then it would be a disaster for the world." EU Commissioner Rehn's spokesman also contended that US currency policies were also troubling the European Union and said the EU would raise the same complaints it did with China on Wednesday "to the Americans, to Geithner too". Competitive devaluations However, Timothy Geithner, the US treasury secretary, continued his attacks on countries with large trade surpluses, saying they must let their currencies rise lest they trigger a devastating round of competitive devaluations. "When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same," Geithner said on Wednesday, in remarks that appeared aimed at China. Some economists suspect that it suits the United States to have a weak dollar and a strong euro when the pace of recovery is so dependent on winning the competition for exports with emerging powers such as China, India, Russia or Brazil. Low interest rates in Europe and Japan and expectation that the Federal Reserve will launch another round of money printing that could weaken the dollar have pushed currencies to the top of the agenda at the IMF meeting and at Friday's gathering of finance leaders from the Group of 20 economies. Al Jazeera's Steve Chao, reporting from Tokyo, Japan, said that while the Yen is seen as a stable investment, "hordes of speculators" have switch to the currency, driving its value up. This, he said, lead to a "rebellion of sorts" as the government had to take unilateral action in manipulating its currency. "And there lies the vulnerability. Facing major pressure from Japan's own industries, the Bank of Japan slashed interest rates to zero, and sold off a trillion yen," our correspondent said. "That marks the largest one-day currency action ever in this country." Newscribe : get free news in real time  World finance leaders seek currency peace International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn (R) and World Bank President Robert Zoellick chat at the beginning of G-24 ministers meeting during the annual IMF-World Bank meeting in Washington October 7, 2010. Credit: Reuters/Yuri Gripas By Emily Kaiser WASHINGTON | Fri Oct 8, 2010 12:27am EDT WASHINGTON (Reuters) - World finance leaders on Friday will try to soothe simmering currency tensions which threaten to drag on an economic recovery that is already too slow and uneven for their liking. The Group of 20 finance ministers scheduled a working breakfast on the sidelines of this weekend's International Monetary Fund and World Bank twice-yearly meetings. The smaller G7 grouping of advanced economies holds a closed-door dinner later on Friday. Neither group is expected to issue a formal statement, but G20 officials said foreign exchange matters will be discussed at both events amid concerns that countries will intentionally weaken their currencies to pursue export-led growth. China, usually at the center of the currency debate, has company this time. Officials are still leaning on Beijing to allow the yuan to rise more rapidly, but Japan's intervention last month to weaken the yen put Tokyo on the hot seat, too. The United States can also expect criticism over its seemingly benign neglect of the sinking dollar, which has led investors to chase bigger returns in emerging markets such as Brazil, driving up asset prices and inflation. "What we all want is a rebalancing of the global economy and this rebalancing cannot happen without ... a change in the related value of currencies," IMF Managing Director Dominque Strauss-Kahn said on Thursday. The currency strains are symptomatic of a deeper problem: most advanced economies are not growing rapidly enough to reduce unemployment despite trillions of dollars in government stimulus spending and emergency loan guarantees. U.S. Treasury Secretary Timothy Geithner may get an unpleasant reminder of that when U.S. monthly employment data is released on Friday -- right in the middle of the G20 breakfast. Economists polled by Reuters think the report will show virtually no net growth in employment, with the jobless rate ticking up to 9.7 percent. For Geithner and most of his European counterparts, options for providing more stimulus are limited because either politics, creditors or both prevent them from amassing significantly larger piles of government debt. Until rich nations find their footing, emerging markets will be the strongest source of global growth. So far, they appear to be up to the task. The IMF expects emerging markets to grow at three times the pace of advanced economies. Those countries are clamoring for greater decision-making power at the IMF, commensurate with their growing economic prowess. This has been another thorny issue for G7 and G20 leaders who have yet to agree on how exactly to divvy up power when no one wants to relinquish their own position. The United States thinks Europe ought to give up some if its seats on the IMF executive board, while European countries have proposed a seat-sharing rotation. IMF officials are scheduled to attend Friday's G20 breakfast, and are hopeful that some progress can be made toward resolving reform issues by a G20 leaders summit in Seoul next month. (Editing by Leslie Adler) Newscribe : get free news in real time Related Video IMF,World Bank try to ease tensions China to further reform of yuan exchange rate formation mechanism:senior official 08:38, October 08, 2010     Increases the bookmark twitter facebook digg Google Windowslive Delicious buzz friendfeed Linkedin diigo reddit stumbleupon China would continue to further the reform of the formation mechanism of its currency (RMB) yuan exchange rate, but a sharp rise in the value of the currency would damage the Chinese economy, a senior official of the People's Bank of China (PBOC), China's central bank, said here on Thursday. "Chinese Premier Wen Jiabao said recently that a steep appreciation of yuan would cause social unrest and serious unemployment problem," Yi Gang, vice governor of the POBC, made the remarks at a Thursday seminar, one part of the International Monetary Fund and World Bank annual meetings program. Yi contended that although some currencies had depreciated against the U.S. dollar during the financial crisis, China kept its currency basically stable, greatly contributing to the global economic recovery. China announced in June this year that it would further the reform of the formation mechanism of the yuan exchange rate to improve its flexibility. Yi noted that Chinese enterprises were still mostly at the lower ladder of the global industry chain. China has registered surplus in trade in goods, but deficits in services trade, and had surplus in processing trade with deficits in general trade. China further deepened the reform of the yuan exchange rate mechanism in July 2005. The yuan has appreciated by 22 percent against the U.S. dollar since then. During this period of time, however, China's trade surplus against the United States has still increased by a large margin, Yi said, adding that yuan appreciation cannot help the United States to solve its trade surplus problem. "We have had surplus in trade with the U.S. and the EU, but deficits in trade with South Korea, Japan and the Association of Southeast Asian Nations (ASEAN). Doesn't all this show that it is an issue of trade structure instead of a mere exchange rate?" Wen said earlier this week in Brussels. China has made big efforts to invest in social safety network building, infrastructures, urbanization process, environmental protection in recent years, to stimulate domestic consumption, industrial restructuring and boost domestic demand, Yi added. Source:Xinhua Newscribe : get free news in real time  Wen's speech at the 6th China -EU Business Summit (Xinhua) Updated: 2010-10-07 18:20 BRUSSELS - The following is the full text of Chinese Premier Wen Jiabao's keynote speech delivered at the 6th China-European Union Business Summit here on Wednesday: Confidence was the keyword of my speech at the China-EU Business Summit two years ago when the financial crisis just broke out. Today, the keywords are calmness, wisdom and courage. With so many Chinese and European business leaders sitting in front of me, I would like to focus on several issues the EU business community is concerned with and use this opportunity to make a few clarifications so as to eliminate misunderstandings and boost our cooperation. It is a basic fact that the bilateral trade and investment between China and the EU have been growing rapidly. EU statistics show its overall exports declined in 2009 due to the impact of the financial crisis. However, its exports to China increased by 4 percent. In the first half of this year, EU exports to China surged by as much as 42 percent. Last night, I paid a brief visit to Germany. I told Chancellor (Angela) Merkel that the monthly bilateral trade between China and Germany averaged about 10 billion US dollars, and that the 2010 total would probably surpass 120 billion dollars. The trade between China and the EU was worth some 400 billion dollars in 2009, and it would likely exceed 500 billion dollars this year. These are the basic status quo and facts. Related readings:  ROK FM to attend IMF-WB meeting ahead of G20 Summit  ASEM summit kicks off in Brussels Nations hope ASEM Summit will help bind them closer together  Introduction to China-EU summit  Cambodian PM to attend ASEM 8 summit in Brussels On the exchange rate of the Chinese yuan, I said yesterday when meeting with the Euro Group troika that European political and business leaders should not join the "chorus" to pressure China to appreciate the yuan.  Again, let's take a look at some basic facts. The yuan has appreciated by an accumulated 55 percent in terms of the real effective exchange rate since China initiated the reform of the yuan exchange rate mechanism in 1994. Some major currencies have all depreciated during this period. China further deepened the reform of the yuan exchange rate mechanism in July 2005. The yuan has appreciated by 22 percent against the US dollar since then. During this period of time, however, China's trade surplus against the United States has still increased by a large margin. We have registered surplus in trade in goods, but deficits in services trade. We have had surplus in processing trade, but deficits in general trade. We have had surplus in trade with the US and the EU, but deficits in trade with South Korea, Japan and the Association of Southeast Asian Nations (ASEAN). Doesn't all this show that it is an issue of trade structure instead of a mere exchange rate? The euro exchange rate experienced large fluctuations recently, but it was caused by the US dollar, instead of the yuan. How can you place the blame on China? The imbalance of trade is caused by structural problems against the backdrop of globalization. It should not be politicized. We pursue balanced and sustainable trade, and in no way seek surplus. In the cold winter in January 2009, I visited Europe and brought with me not only the confidence needed to overcome the financial crisis, but also a procurement delegation to place orders to the European countries. The EU is a strategic partner to China, and China did not look on unconcerned when some eurozone countries were in trouble. We continued to hold and buy euro-denominated bonds and helped Iceland, Greece, Spain, Portugal and Italy in their most difficult time. We will continue to render assistance and tide some countries over their difficulties. China is a friend indeed and I believe the entrepreneurs here all know it. You should not pressure China on the yuan's appreciation if you consider the issue from another perspective. Many Chinese export enterprises have profit margins of only 2 to 3 percent, 5 percent at most. Should the yuan appreciate by 20 to 40 percent, as demanded by some people, a large number of Chinese export enterprises will go bankrupt, the workers will lose their jobs and the migrant workers will have to go back to the rural land, making it hard for society to remain stable. The world will by no means benefit from a crisis in the Chinese economy. China contributed about 50 percent of the global economic growth in 2009. It is a huge market with great potentials for many enterprises. Once again, I would like to tell our friends in the industrial and business community candidly: Don't pressure China on appreciation of the Chinese yuan. We will stick fast to the reform of the yuan exchange rate mechanism. The reform involves developing a managed floating exchange rate system based on the market supply and demand and adjusted to a basket of foreign currencies, to gradually allow more flexibility in the yuan exchange rate while maintaining its basic stability on a reasonable and balanced level. If the yuan exchange rate is unstable, enterprises will also be unstable. So will be employment, and society in general. Should China have problems in economy and society, it will be disastrous for the world. The second question is whether the investment environment in China is good or not. I would like to tell you that China will steadfastly push forward its reform and opening-up process and will in no way deviate from the path. Only through reform and opening to the outside world will China develop further. The basic policies that have been established in the reform and opening-up drive will not be changed. The only changes that have taken place are that foreign investment is now under better and more orderly regulation. Entrepreneurs' concern for the investment environment does not go beyond three aspects -- intellectual property, innovation and government procurement. I can tell you in a responsible manner that all foreign businesses that are legally registered in China are entitled to enjoy national treatment, and that all products made by foreign-invested enterprises in China are made-in-China products. We will protect not only your intellectual property, but also all your legitimate rights and interests. The third question regards the export of raw materials, specifically the export of rare earth. As a long-time researcher on rare earth metals, I have a say on the issue. There are two kinds of rare earth metals, the heavy rare earth elements and the light rare earth elements. China has rare earth deposits in different regions, with the heavy ones located mainly in the south, such as Jiangxi Province. The light ones are mainly in the north, such as Baotou City in Inner Mongolia. In the 1980s and 1990s, there was a lack of well-regulated management over rare earth metals in China, and also a lack of extraction technologies in the country. Some countries bought a large amount of rare earth metals from China at low prices in a period of time when management over rare earth in China was the most chaotic, and even now they still have a considerable stockpile, which they know very well. China contributes a large proportion of the global rare earth output, which far outdoes its share of the world's total rare earth deposits.  We haven't imposed, and will not, impose an embargo on the industry. We are pursuing a sustainable development of the rare earth industry, not only to meet the demand of our own country, but also to cater to the needs of the whole world. We not only need to accommodate the current demand, but also, more significantly, need to take a long-term perspective. It is necessary to exercise management and control over the rare earth industry, but there won't be any embargo. China is not using rare earth as a bargaining chip. We aim for the world's sustainable development. China wishes to forge more extensive, deeper and closer economic and trade ties with EU countries. The EU is now China's largest partner in terms of trade and investment,ahead of the United States and Japan. To be frank, the EU has done a better job in relaxing restrictions on high-tech exports to China. For instance, there is cooperation on the Galileo satellite project, with Airbus and there is nuclear power cooperation, to name a few. This morning, the Belgian King also mentioned to me about cooperation on the fourth generation micro-nuclear technology. It is in the fundamental interests of both China and the EU to develop bilateral trade and economic relations. Standing here today, I am feeling under a heavy responsibility. I will try my best to promote China-EU trade and economic cooperation and overcome the temporary difficulties and problems that have emerged in the process of cooperation. So, let's join hands to promote the development of China-EU trade and economic relations and jointly usher in broad prospects for future development of the China-EU comprehensive strategic partnership. Newscribe : get free news in real time

China's Competitive Edge In The Outsourcing Space

Egidio Zarrella, 10.07.10, 06:25 AM EDT

China's calculated move from being the world's factory to becoming the world's back office is increasingly becoming a reality, as our recent outsourcing survey finds.

Egidio Zarrella

China’s size, infrastructure and talent pool all indicate a promising future for outsourcing over the coming decade. The numbers speak for themselves: in 2009, industry revenues totalled $13 billion and they are projected to grow to $44 billion by 2014, according to IDC KPMG analyses and Datamonitor.

As China comes to the fore in this space, India remains ahead of the game, which is not surprising given it has a 20-year lead in this space. To put it in context, the vendor industry in India is worth around $60 billion, whereas in China it is a fledgling industry, worth around $25 billion. However, the key point is that it is no longer an India play, as multinationals are increasingly opting to have a balanced portfolio, with outsourcing centers located in a number of countries and regions. This is in order to mitigate potential social, economic and political risks, and to avail of favourable government incentives, which tend to vary from country to country.

China’s outsourcing industry has also been shaped by different factors to those of India. Its growth has been founded on the domestic market as well as nearby overseas markets such as Japan and Korea. It continues to branch out into new markets, taking advantage of its strong infrastructure and talent pool, as well as diverse language skills. Our latest survey (KPMG Pulse Survey: Shared Services and Outsourcing in China) confirms the extent to which outsourcing has become prevalent amongst organizations across Asia. These activities are no longer the preserve of US and European companies looking to offshore their back office functions.

Eighty-one percent of the 280 Asia-based respondents said they had a strategy that involved outsourcing. China was their number-one choice of location, ahead of India and Singapore. Most respondents said they had outsourced to more than one other country, with many still choosing more developed hubs like Singapore and Hong Kong as well.

It is important to note that Asian companies outsource just as much as their Western counterparts, as they all look for efficiencies in their supply chains. To illustrate this point, the survey indicates that almost 80% of respondents either have shared services in one location or two, as well as outsourcing various functions.

One of the key drivers to outsource is that of demographics. Australia, Korea and Japan are aging populations, and as a result they are increasingly tapping into the workforce of countries like China, India, the Philippines and Malaysia. In contrast to India, where the industry moved up the value curve sequentially, it appears that IT Outsourcing (ITO), Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) functions are all emerging simultaneously in China. This is a seismic shift as China increasingly becomes home to more of the world’s intellectual firepower.

China’s scale--and the number of potential outsourcing cities and service providers to choose from--offers huge opportunity for the market ahead of its competitor nations. Organizations are able to source multiple suppliers within one country, which reduces their dependence on a single location or supplier. It has a large domestic market, a government that invests heavily in infrastructure and a large pool of graduates that form the workforce. It offers good logistics operations, in addition to competitive wages. It does now need to shift from manufacturing into services, in order to maintain its competitive edge. Its main consumers in Europe and the US are purchasing less and this means their importance to China will lessen as its economy continues to expand. There will be less opportunity to sell its goods to overseas markets. This will equate to steady volume growth, while margins continue to fall and investment in factories and equipment will decline. Hence the need to shift its focus to services.

Current developments are encouraging, as we continue to see China’s political leadership support the growth of the outsourcing sector. This is evidenced by the series of Five Year Plans, where the foundations were laid for the development of the service outsourcing industry. There are now twenty-four designated outsourcing cities and over 9,000 service providers in China.

While India has tended to provide outsourcing for US and European organisations, China has mainly serviced the Korean and Japanese markets, partly due to geographical proximity and similar time zones. Our survey found that outsourcing strategies are no longer just about cost arbitrage. Equally or even more important is the need to ensure access to a reliable supply of abundant and skilled talent. China’s workforce boasts an impressive array of language skills, both Asian and European.

The government has made English a priority in schools and universities, boosting the country’s ability to win business from western markets. Another source of high quality skills is the large number of Chinese returnees who have the much needed project management experience. While China has a massive pool of outsourcing professionals, special domain expertise is crucial in order to maintain a competitive edge.

Government support continues to play an important role, with more encouragement being given now to domestic companies to outsource as well. China plans to train 1.2 million service outsourcing professionals by 2013, while 1 million college graduates are expected to find jobs in this sector within the same time frame. Financial subsidies for training and tax incentives also help to drive more interest in this sector.

Infrastructure is crucial, as without adequate telecommunications and transportation networks, it is difficult to attract investors and multinationals. China has invested heavily in a modernized telecommunications network with high-speed broadband connections in the major cities. It has also developed technology parks to further attract multinationals to locate here.

China has also made rapid progress in the development of shared services facilities. Accounting and finance already surpass IT as the most common functions being conducted by shared services centres in China, while HR functions are increasingly being outsourced or offshored. In terms of moving up the value chain, as service providers expand and the industry continues to mature, many are providing higher-value services. The government has also initiated a drive to encourage multinational corporations to set up research and development (R&D) centers in China. There are now over 1,200 R&D centers established by multinationals across China, benefiting from the vast R&D talent pool, according to numbers provided by the Ministry of Commerce.

It is also increasingly looking at the potential of its domestic market, particularly for automotive, telecommunications and financial services. Historically, the domestic service providers have primarily served the local government and state-owned enterprises (SOEs). While they may have an edge over the international players in the local market, they are limited by their size and experience of managing large scale and complex projects. The anticipated domestic demand on outsourcing services is a major differentiator compared to India, where the outsourcing industry is more offshore demand-driven.

No one destination will offer everything on the checklist and a new paradigm is emerging in which multinational companies assess several attractive markets, scoring them on their existing strengths. Companies increasing want global sourcing, not simply from India or China, but from both. As Chinese companies grow in size and complexity, the business case for setting up outsourcing arrangements becomes stronger. India remains a juggernaut in this space however the key differentiator for China is the rising potential of its domestic outsourcing industry.

Egidio Zarrella is a Partner in the Advisory practice at KPMG China.

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Currency wars ! China warns against rapid rise in yuan, IMF warms, Global central banks may act, Weak US dollar fuels financial bubble fears !

Wen Jiabao tells EU to stop pressuring Beijing to revalue the yuan or risk unleashing serious social unrest in China

• Julia Kollewe and agencies
• The Guardian, Thursday 7 October 2010
• Article history

 

China's Wen Jiabao rejected calls for a rapid appreciation of the yuan. Photograph: Koji Sasahara/AP

The war of words over international currency valuations escalated yesterday when the Chinese premier Wen Jiabao told the European Union to stop pressuring Beijing to revalue the yuan as any rapid shift risked unleashing serious social unrest in China.

Speaking in Brussels, Wen said that China would move towards making its currency more flexible but he rejected calls for a rapid appreciation as the issue threatened to dominate this weekend's meeting of the International Monetary Fund and G7 countries in Washington.

"Do not work to pressurise us on the renminbi [yuan] rate," Wen said, departing from a prepared speech on the sidelines of a summit with EU leaders. "Yes, we are going to proceed with the reforms."

China has been criticised by the EU and even more so by the US for pegging its currency at a low level, meaning that its exports are cheaper worldwide, hindering the efforts of western nations to recover from recession via export-led growth.

But Wen said yesterday that China's trade surplus with the US was explained by the specific structures of the two economies, not the yuan exchange rate.

He noted that a US congressman had predicted social unrest in China if there was a rapid rise in the yuan. "Many of our exporting companies would have to close down," Wen said. "Migrant workers would have to return to their villages. If China saw social and economic turbulence, then it would be a disaster for the world."

His remarks come as finance ministers from the G7 are about to discuss growing concerns over currency wars on the sidelines of the annual IMF gathering in Washington on Friday.

Timothy Geithner, the US treasury secretary who visited China earlier this year to plead the case for a higher yuan, said in Washington that a "damaging dynamic" of large economies keeping their currencies undervalued can cause inflation and asset bubbles. He called on countries to co-ordinate their policies.

"More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies," he said yesterday at the Brookings Institution in Washington. He said currencies are "inherently a multilateral issue. It's much easier to solve if countries come together and do things to complement each other.

Geithner's comments echoed calls by the IMF for greater currency flexibility. The organisation's chief waded into the row, warning governments against using exchange rates as a weapon. Dominique Strauss-Kahn told the Financial Times: "There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery … any such approach would have a negative and very damaging longer-run impact."

The Bank of Japan reinstated its zero interest-rate policy and pledged to buy ¥5tn (£37bn) of assets, leading to a drop in the yen. In recent weeks it has also intervened in the currency markets to weaken the yen for the first time in six years, although the impact was short-lived.

Brazil has threatened intervention to weaken the real. On Monday, it doubled a tax on foreign investors buying local bonds to put a lid on a recent rally in its currency. Brazil's finance minister, Guido Mantega, coined the phrase "international currency war" last week, following a series of interventions by central banks in Japan, South Korea, Switzerland and Taiwan to make their currencies cheaper.

Strauss-Kahn appeared to refer to Mantega's comments when he said: "We have seen reports that some emerging countries whose economies face big capital inflows are saying that maybe it is time to use their currencies to try to gain an advantage, particularly on the trade side. I don't think that is a good solution."

The weak dollar and expectations that the US Federal Reserve may announce stimulus measures pushed gold to a new record high yesterday. Spot gold hit $1,349.80 an ounce. Silver soared to a fresh 30-year high and platinum reached a four-and-a-half-month peak.

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6 Oct, 2010, 05.41PM IST,REUTERS

IMF warns against currency war, dollar heads lower

 A growing drive by nations to cap the strength of their currencies risks derailing the world economic recovery !

LONDON: The head of the IMF warned that a growing drive by nations to cap the strength of their currencies risked derailing economic recovery while the dollar dropped further on Wednesday.

Concerns that the Federal Reserve is about to embark on another round of policy easing that could weaken the dollar, tallied with China's polite refusal to let its yuan rise fast, has pushed currencies to the top of the agenda at Friday's meeting of finance chiefs from the Group of Seven nations.

Few hold out much hope of any meaningful agreement at the G7 or the International Monetary Fund meeting that follows.

"It's doing nothing for the American economy, but it's causing chaos over the rest of the world. It's a very strange policy that they are pursuing," Nobel economics laureate Joseph Stiglitz said of US policy.

The dollar extended its losses on Wednesday, falling to an 8-1/2 month low against a basket of currencies and edging toward a 15-year trough versus the yen.

That trend prompted Japan to intervene to weaken the yen last month and some emerging economies have followed suit or are threatening to.

"There is clearly the idea beginning to circulate that currencies can be used as a policy weapon," IMF Managing Director Dominique Strauss-Kahn was quoted as saying in Wednesday's edition of the Financial Times.

"Translated into action, such an idea would represent a very serious risk to the global recovery ... Any such approach would have a negative and very damaging longer-run impact," he said.

The IMF, which holds its twice-yearly meeting in Washington this weekend, is also expected to discuss foreign exchange moves as part of its mission to get countries working for balanced global growth.

Brendan Brown, economist at Mitsubishi UFJ Securities International in London, said the Fund, which has the United States as its biggest stakeholder, would not try to prevent further US monetary easing or a resulting slide of the dollar.

"That Washington institution has failed in its central mission to prevent currency war ," he wrote in a report.

CHINA UNMOVED

Euro zone policymakers urged Chinese premier Wen Jiabao on Tuesday to allow the yuan to rise more rapidly, but he politely rebuffed them, repeating Beijing's standard line on seeking currency stability.

Wen was due to hold a joint news conference with EU leaders in Brussels at 1515 GMT.

Policymakers have highlighted the issue of global imbalances for years, with fundamental problems seen as the dollar's global dominance, China's overvalued yuan and Germany's lack of domestic consumption.

Emerging nations say the cash flows seen this year have damaged their exports due to the determination of major economies to restrain their own currencies' levels.

But entrenched positions make it unlikely that officials sitting down to IMF and G7 meetings this weekend, and G20 meetings later in the year, will resolve their differences. 

Brazil fired the latest shot in what it has dubbed an "international currency war," doubling on Monday a tax on foreign investors buying local bonds to 4 per cent to curb a strong real.

Policymakers from emerging Asian economies have voiced growing concerns about the risk of a flood of hot money inflows. South Korea warned investors it might impose further limits on forward trading and India and Thailand said they were looking at steps to control speculative surges.

"It's natural in that context for them to say -- we can't just let our exchange rates appreciate and destroy our exports," Stiglitz told reporters at Columbia University on Tuesday.

MORE FED EASING?

Adding to speculation that the Federal Reserve will soon extend asset purchases to pump money into the economy, Chicago Fed President Charles Evans was quoted as saying the central bank should do much more to spur the economy.

And in a surprise move, Japan pulled interest rates on the yen back to zero on Tuesday and pledged to pump more funds into an economy struggling to compete while the currency remains close to a 15-year high against the dollar.

The euro gained 7.6 per cent versus the dollar last month as Fed easing speculation hotted up. Europeans are worried they will be saddled with an overvalued currency, stifling recovery, because they have few tools to contain the euro's rise.

France, which takes over the presidency of the Group of 20 major economic powers next month, has put reforming the international monetary system at the top of its agenda, hoping to draw China into multilateral talks on currency coordination.

Global Central Bank Action May Follow BOJ Moves

Wednesday, 06 Oct 2010 11:46 AM

 The Bank of Japan may have acted first in a new round of central bank action to prop up the global economy as recoveries in industrial nations falter.

The unexpected decision by the Japanese central bank yesterday to drop its interest rate to “virtually zero” and expand its balance sheet follows the U.S. Federal Reserve’s move toward more unconventional easing. Bank of England officials will consider further stimulus tomorrow, while the central banks of Australia, Canada and New Zealand are among those now holding fire on further interest-rate increases.

The renewed push for easier monetary policy comes as the International Monetary Fund warns growth in advanced economies is falling short of its forecasts ahead of its annual meetings in Washington this week. The dilemma for policy makers is that their actions may do little to revive growth and end up roiling currency markets.

“The Bank of Japan is at the head of the pack,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $370 billion in assets. “It looks like a lot of others will follow. Whether it’s right or not is another matter.”

Group of Seven ministers will gather Oct. 8 in Washington, on the sidelines of the IMF meeting. Currency issues will be discussed, Canadian Finance Minister Jim Flaherty, who will chair the meeting, said this week. Japanese Finance Minister Yoshihiko Noda said he’s ready to explain his country’s actions at that meeting.

BOJ Move.

The Bank of Japan cut its overnight call rate target from 0.1 percent and established a 5 trillion yen ($60 billion) fund to buy government bonds and other assets. It moved as the yen’s surge to a 15-year high last month hurts exports and damps economic growth. The yen traded at 83.13 per dollar at 2:32 p.m. in Tokyo, close to a Sept. 15 record of 82.88.

The central bank said today that weaker exports and slower global growth are causing the nation’s rebound to moderate. “Japan’s economy shows signs of a moderate recovery, but the pace of recovery is slowing down,” the bank said in a monthly economic report released in Tokyo.

‘Vicious Spiral’

Bank of Japan Governor Masaaki Shirakawa may not be alone for long in taking action and Daiwa Institute of Research argues he’s now engaged in a “vicious spiral” of monetary easing with the Fed as both compete to bolster their economies.

“The BOJ’s next moves will depend on the Fed,” said Maiko Noguchi, an economist at Daiwa in Tokyo. “The bank will have no choice but steadily take easing measures.”

Fed Chairman Ben S. Bernanke and his colleagues have signaled they may announce the purchase of more Treasuries as soon as their next policy meeting on Nov. 2-3 in an effort to boost growth and reduce an unemployment rate stuck near 10 percent for the past year.

“The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world,” Joseph Stiglitz, a Nobel Prize- winning professor at New York’s Columbia University, said today in New York.

Quantitative Easing

Bernanke said on Oct. 4 that the Fed had aided the economy by buying $1.75 trillion of mortgage debt and Treasuries from August 2008 through March 2010. Pacific Investment Management Co. says a new round of quantitative easing, the policy of creating money by enlarging the central bank’s balance sheet, is “likely.”

“The bottom line for the U.S. is a growth trajectory so slow you’d nearly call it stalled,” Paul McCulley, a portfolio investor at Pacific Investment Management Co., wrote on the company’s website this week.

Steven Englander, New York-based head of Group of 10 currency strategy at Citigroup Inc., said he anticipates the dollar will continue to fall, with the euro likely to pass through $1.40 from $1.37 yesterday. The dollar has already dropped 7 percent against the euro since the start of September.

Asset Purchases

At the Bank of England, policy maker Adam Posen made the strongest call yet on Sept. 28 for the U.K. central bank to resume asset purchases after keeping its bond-buying program at 200 billion pounds ($317 billion) for the past 11 months. That proposal lays the ground for the first three-way split when the Monetary Policy Committee meets tomorrow, with member Andrew Sentance advocating higher interest rates.

“At the present time, the growth threat is more of a danger than inflation,” said Graeme Leach, chief economist at the Institute of Directors, a London-based business lobby group. “Yes, inflation is above target now. But a double-dip recession would raise the specter of deflation.”

The revival of quantitative easing is a reversal from earlier this year, when central banks were halting stimulus or debating how to tighten policy. What’s changed is the loss of momentum in industrial economies.

Global Slowdown

John Lipsky, the IMF’s No. 2 official, said on Sept. 27 that global growth in the second half of the year will fall short of the fund’s 3.75 percent forecast. The Washington- based lender revises its outlook today.

While not yet looking to buy assets, some central banks are suspending their interest-rate increase campaigns.
After embarking on the most aggressive policy tightening in the Group of 20, the Reserve Bank of Australia unexpectedly left its benchmark rate unchanged yesterday at 4.5 percent for a fifth straight month. Bank of Canada Governor Mark Carney, who has overseen three rate hikes this year, said Sept. 30 that “the unusual uncertainty surrounding the outlook warrants caution.”

Not all policy makers are changing course. The central banks of Israel and Taiwan raised borrowing costs in the last ten days and the European Central Bank, whose Governing Council convenes tomorrow in Frankfurt, has indicated it wants to continue withdrawing liquidity support for banks.

‘Fully On’

The ECB will be forced to postpone tighter policy as European exports fade and investors continue to fret about peripheral euro-area economies such as Portugal and Ireland, said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Inc. in London.

“The ECB’s exit strategy is fully on, but the business cycle will turn against them,” said Peruzzo. “The communication will then be adjusted to consider downside risks greater than what they have anticipated.”

The ECB last week stepped up its government bond purchases as the cost of insuring against default on Portuguese government debt surged to a record and Irish bond spreads soared to euro-era highs.

Bolster Expansion

The question for those central banks leaning toward buying more assets is whether doing so will actually bolster expansion, said Charles Dumas, director of international research at Lombard Street Research Ltd., a London-based consultancy.

“Is quantitative easing going to cause people to spend more? I don’t think so,” he said. “It does add value in reducing the risk of a downward spiral in markets.”

Another risk is that the use of unconventional monetary policy is viewed as an effort to weaken currencies to boost exports, rising competitive devaluations and protectionist responses, said Eric Chaney, chief economist at AXA Group in Paris. Japan, Switzerland and Brazil are among the countries that have already intervened in markets to restrain their exchange rates.

“This is close to a currency war,” said Chaney, a former official at the French France Ministry. “It’s not through exchange-rate manipulation, but through monetary policies.”

© Copyright 2010 Bloomberg News. All rights reserved.

Weak US dollar fuels financial bubble fears!

By IZWAN IDRIS  October 7, 2010
izwan@thestar.com.my,

Emerging markets stepping up measures to control speculation!

PETALING JAYA: There is rising concern that the weak US dollar is fuelling new financial bubbles in emerging markets.

A growing number of Asian and South American countries, whose currencies had seen unwarranted appreciation, are stepping up control to curb speculative short term investments from overseas.

The flood of investment money into emerging market is expected to reach US$825bil this year, according to the latest estimate by Institute of International Finance (IIF) on Monday.

This is higher than the previous forecast of US$709bil it made in April. Last year’s figure was US$581bil.

The Malaysian ringgit, like other emerging market currencies, has been rising steadily against the greenback. — AP

 

Analysts expect capital flows from advanced economies into emerging markets to remain strong as long as central banks in developed nations continue to pursue a loose monetary policy.

Earlier this week, South Korea and Brazil announced plans to increase measures aimed at discouraging disruptive capital flows.

CIMB Research, in a recent note, said instead of imposing tough capital controls on inflows, central banks in South Korea, Taiwan and Indonesia had implemented quasi-capital controls by restricting currency derivatives and imposing a minimum holding period.

But the trend in capital flows from advanced economies into emerging markets will likely continue because the widening yield gap is in the emerging markets’ favour.

Growth prospects are also stronger and there are lingering worries about sovereign credit quality in mature economies,

CIMB Research said the “push and pull” factors are reinforcing competition to attract private capital flows into emerging economies.

Reuters reported yesterday that the falling dollar had escalated a global currency war, and that the exchange rate issue was now expected to top the agenda as finance officials from around the globe meet this week starting with those from the Group of 7 tomorrow followed by the International Monetary Fund (IMF) over the weekend.

Ultra low interest rates in Europe and Japan and concerns that the US Federal Reserve is about to embark on another round of money printing could weaken the dollar further.

This could result in further appreciation of emerging market currencies to a point that it would start to hurt exports.

London’s Financial Times reported yesterday that the head of IMF had warned that governments were risking currency wars if they tried to use exchange rates to solve domestic problems.

At the same time, emerging countries are also increasingly edgy about the flood of capital inflows from advanced economies.

The massive inflows had sent Asian stock indices, as well as their currencies, to or near record highs.
“If the situation continues for a while and Asian currencies continue to appreciate, there is a possibility that emerging Asian economies may have to do something to protect their interests.

“This may lead to, perhaps, some form of tax on capital inflows,’’ said Peck Boon Soon, an economist at RHB Research Institute.

In his report, Peck noted that overseas investors held 27% of Indonesia’s local currency government debts as at end-July, compared with 16% a year earlier.

In Malaysia, foreigners owned 18.8% in July versus 10% a year earlier.

Demand for Asian currency-denominated debts was so huge that the Philippines’ US$1bil worth of peso bonds directed at global investors was oversubscribed by 13 times.

Investors were so bullish that the Philippines was able to sell the bonds at just 5% yield. Based on Moody’s Investors Service’s calculation, the yield implied the bonds were rated at A3 by investors, which was six notches higher than the firm’s rating.

The weak US dollar also boosted the price of gold – viewed by some as the leading reserve currency – to a new all-time high of US$1,349.80 an ounce yesterday.

At home, the ringgit rose for the first time in two days to 3.0925 against the US dollar. The local currency hit a 13-year high at 3.085 last week.

Sex in the US: the shocking truth

The way a survey is reported, you'd think it's a surprise anyone's having any. This hypocritical puritanism poisons public discourse

• 
• • Melissa McEwan
  • guardian.co.uk,
  • Article history

 

A billboard displaying a message of abstinence towards teen sex; the Indiana university study found that teenagers are savvy and responsible about using condoms. Photograph: AP/Gail Burton 

 

"Sex is different for different people." Such is the keen observation of Logan Levkoff, a sexologist at New York University and member of the Trojan Sexual Health Advisory Council, some of whose members were part of the research team at Indiana University that recently concluded one of the most significant studies on sexual behaviour in America.

The study, comprised of nine smaller individual studies, was carried out by polling 5,865 preselected participants reflecting a nationally representative sample of adolescents and adults between the ages of 14 and 94. The full results are viewable here, although some of the more notable findings are already available in breathless headlines. Among the most widely-reported findings are the widespread use of condoms among teenagers, who use condoms even more frequently than adults, and that Americans' sex lives are wildly diverse, from a panoply of positions, even down to how we define sex and sexuality.

For some respondents, masturbation is sex; for others, it's not sex until someone inserts something into someone else's something somewhere. (And anal and oral sex are more popular than ever.) For some respondents, having had sex with a person of the same sex means identifying as gay or bisexual; for others, not so much. And we're no vanilla shakes: "There is enormous variability in the sexual repertoires of US adults, with more than 40 combinations of sexual activity described at adults' most recent sexual event."

"The surprise we found in this survey is the variability and diversity of the way people conduct their sex lives," says Levkoff.

Frankly, I'm more surprised by the surprise with which the findings – that teens are sexually responsible, sex lives are varied and people view themselves on a sliding scale of sexuality – are being met. The shock that Americans are not puritans is not only outdated – surely, we've all known Americans aren't doing it missionary-style through hole-punched fuck sheets ever since Dr Kinsey got a boner staring at gall wasps – but, ironically, seems indicative of the false puritanism that guides much of the US's public discourse about sex and sexuality.

We insistently believe ourselves to be puritans despite all evidence to the contrary, an intractable myth periodically punctuated by the findings of some sex researcher or another, who reveals to us the true nature of our naughtiness – and, oh, how we love to gasp at our scandalously sexy sexbusiness!

But even the actual Puritans weren't puritans. (This lady knows what I'm talking about.) And despite the collective apoplexy about the appearance of a boob at a football game or a naked butt in primetime, what happens behind closed doors has never had any relationship to the public sanctimony about sex and sexuality peddled by pecksniffs who parade a contrived virtue to bored busybodies.

The profound disconnect between who we are and who we regard ourselves to be would be amusing if it weren't so dangerous. The persistent narratives that we keep our bits buttoned-up and locked-down, only allowed fresh air for dignified attempts at Jesus-sanctioned reproduction attempts, that kids shouldn't be having sex because they're irresponsible, that same-sex sex is for deviant weirdos, are the damnable propaganda that underlie some of the most destructive, woman-hating, gay-hating legislation in this nation.

The lies we tell ourselves about who we are in the bedroom (or on the kitchen floor, or the conference room table at work, or the backseat of the car) are why we still argue about funding comprehensive sex education in public schools, why we are still fighting the slow but steady erosion of the conferred rights of Roe v Wade in state governments, why we are still having the absurd debate about whether we should allow to serve openly the gay, lesbian and bisexual soldiers who are willing to die for this country, in spite of its stubborn insistence on treating them as second-class citizens.


It is why the last sex survey of this scope, the National Health and Social Life Survey of 1992, started with government funding but had to be completed "with support from private sources" after congress cut off the financing, because the government is "reluctant to pay for studies of sexual behavior that do not focus on reproduction".

Our surprise serves a purpose, which is why it hangs around so tenaciously. Would that we could arrive at a day when the news that we are a sexually diverse and sexually sophisticated people was met with a shrug and a yawn, so that we might extricate ourselves from the grip of a puritanical illusion.

Sex is different for different people. If only that weren't still a radical statement in America.

[Note: the poll, while conducted by polling firm Knowledge Networks, was developed by researchers with the input of Church and Dwight, the corporation that owns the Trojan condom brand; and, because the primary researchers also sat on Trojan's sexual advisory council, a conflict of interest was disclosed. Researchers note, however, "that while they had shared information with the sponsor during the course of the study, the company had not exerted influence over the way it was conducted, except to offer advice on how to phrase questions to accurately gauge condom use."]

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The benefits of investing in exchange-traded funds (ETFs)

What are ETFs and why is it beneficial to buy them?

Personal Investing - By Ooi Kok Hwa

LATELY, the number of ETFs that get listed on Bursa Malaysia has been increasing.

At present, we have a total of five ETFs listed in Malaysia. Unfortunately, we have noticed that not many investors are aware of these instruments and there is also a lack of understanding on the true value of these ETFs.

ETF stands for exchange-traded fund. Buying into ETFs is almost similar to buying normal mutual funds. The key differences are that investors can buy or sell ETFs in a stock exchange or go through an authorised participant whereas investors can only buy and sell mutual funds through unit trust companies or other financial institutions.

ETF originated in United States. During 1960s and 1970s, some fund managers in the US discovered that it was quite difficult to beat the stock market index. They discovered that it was better to buy stocks that mirrored the index composition as many fund managers found that they tend to underperform the index.

As a result, the ETF industry has been growing in the US from two ETFs in 1995 to more than 900 ETFs listed in the US now. At present, there are many types of ETFs available in the US, for example ETFs on stocks, bonds, commodities, currencies and countries. For stocks, ETFs can be further divided into different types of market capitalisation (big cap vs small cap), equity styles (growth investing vs value investing) as well as different types of sector funds (like ETF on stocks in technology, health care or financial institution sectors).

One of the key advantages of buying into ETFs is that it is cheaper to buy ETFs as compared to normal mutual funds. Investors need to pay about a 5.5% sale charge (also known as front-end load) for normal mutual funds whereas they only need to pay a normal brokearge fee of 0.7% (inclusive of all other charges) for ETFs.

Comparing similar type of funds, the annual management fee for ETFs is generally lower than that of mutual funds.

Normally, ETF will charge about 0.65% per annum (0.6% for the annual management fee and 0.05% for the index license fee).

However, normal mutual funds will charge about 1.5% annual management fee. Assuming an investor intends to buy an index fund and intends to hold the fund for a one-year period, he or she will incur about 1.35% (0.7% - total transaction fee and 0.65% - annual management fee and index license fee).

However, the investor will incur about 7% (5.5% for sale charges and 1.5% for annual management fee) if he buys into the normal mutual funds. Given that ETFs are using the “in-kind” creation and redemption of shares, they eliminate any price discrepancy to net asset value (NAV) due to the supply and demand pressure.

As compared with close-end funds where investors may buy at the premium or discount to its NAV, the price that we pay for ETFs will be closed to its NAV like the normal mutual funds. As an added advantage over mutual funds, ETFs are generally more liquid than normal mutual funds as we can buy and sell them through secondary markets.

Please refer the chart for the mechanism of creating an ETF. The reverse of all of the arrows will be for the redemption of an ETF.

In addition, ETFs provide investors the benefits of portfolio diversification, same as normal mutual funds. Given that they will try to replicate the benchmark indices, their performances will be very close to the indices.

In Malaysia, sometimes we notice that some mutual funds may underperform their benchmark indices.
In short, we believe that there will be more ETFs getting listed on the stock market.
It will be to investors’ benefit to understandhow they can add ETFs onto their investment portfolios as a cost effective investment alternative.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting 

Investing Advice: 5 Benefits of ETFs

Understanding the strengths and weaknesses of your investment options is fundamental to successful investing. Advice may be limited to how it fits into your particular investment strategy, but ETFs offer an opportunity to diversify without starting out with a great deal of money. Here are the five strengths of investing in ETFs.

When people ask for investing advice, ETFs usually come up pretty quickly, because they are so heavily marketed and trumped by the industry. Exchange-traded funds, or ETFs, are an easy way to diversify a small investment, but to get the most out of your investment, it is important to understand how they operate.

ETFs are like mutual funds, in that they are a collection of investments, but they are traded on an exchange, such as the NYSE, instead of purchased directly from the issuing company. They also differ in their redemption structure and tax efficiency from traditional mutual funds.

Here are five benefits of ETFs over mutual funds:

1. Tax Efficiency: Upon redemption, mutual funds must sell its underlying securities, and the capital gains are then distributed to the owners of the funds. Since ETFs trade on an exchange and investors are selling to other investors, no underlying securities are sold, and no capital gains are distributed. If the makeup of the ETF changes it will, occasionally have to distribute gains, but it should be less frequent than with traditional mutual funds.

2. Lower Fees: ETFs are no-load funds, and you won't be slapped with a redemption fee when it's time to liquidate your position. Further, ETFs typically have lower annual fees than traditional Mutual Funds, making them an attractive alternative. (NOTE: In rare cases where a very small amount is being traded, broker's fees may be a higher percentage of the investment than a mutual fund's expenses would be, but in most of these cases the invested amount would not meet the minimum investment required by most mutual funds).

3. Liquidity: The exchange-traded structure of ETFs generally allow for liquidation of a position faster than a mutual fund, which must be liquidated at end of day. Further, the ability to set a limit order allows flexible trading that no investor could get from a mutual fund. Not all ETFs have the same liquidity, however, and it is important to review trading volumes and the ETF prospectus to determine whether you are comfortable with the frequency of trades.

4. Intraday Pricing: Because ETFs are traded on active stock exchanges, purchases and sales happen at market prices, rather than end-of-day Net Asset Value, which mutual funds use. As a result, one may purchase ETFs at a premium or a discount to the value of the underlying assets, and arbitrage is frequent.

5. No Minimum Investment: When starting investing, diversification can be cost prohibitive if you're using traditional mutual funds, which frequently have a minimum investment of $2500 or more. Because ETFs have no minimum investment (other than the market price of one share), they are a good vehicle for diversified investing.

Of course, many of these benefits could be liabilities if not used properly. For instance, the intraday pricing feature of ETFs could lead an investor to buy an ETF at a premium or sell it at a discount to the value of the underlying securities. Also, brokerage fees may have a greater impact on some investors than traditional mutual funds' management fees and loads would have.

Used wisely, ETFs can be a good vehicle for widely diversifying a small or initial investment, but it is always best to seek professional investing advice.

In the future I will cover the five negatives of investing in ETFs.

By Pat Regan

An exchange-traded fund (ETF), a member of exchange-traded product-family (ETP), is an investment fund traded on stock exchanges, much like stocks.^[1] An ETF holds assets such as stocks, commodities, or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.^[2][3]

Only so-called authorized participants (typically, large institutional investors) actually buy or sell shares of an ETF directly from/to the fund manager, and then only in creation units, large blocks of tens of thousands of ETF shares, which are usually exchanged in-kind with baskets of the underlying securities. Authorized participants may wish to invest in the ETF shares long-term, but usually act as market makers on the open market, using their ability to exchange creation units with their underlying securities to provide liquidity of the ETF shares and help ensure that their intraday market price approximates to the net asset value of the underlying assets.^[4] Other investors, such as individuals using a retail broker, trade ETF shares on this secondary market.

An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought or sold at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be more or less than its net asset value. Closed-end funds are not considered to be "ETFs", even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. In 1993, the first country specific ETFs were a collaboration between MSCI, BGI and a small independent third party Distribution firm called Funds Distributor, Inc. The product eventually evolved into the iShares brand widely known around the globe. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively managed ETFs.^[4]

Contents

• 1 Structure
• 2 History
• 3 Investment uses
• 4 Types of ETFs
  
  • 4.1 Index ETFs
  • 4.2 Commodity ETFs or ETCs
  • 4.3 Bond ETFs
  • 4.4 Currency ETFs or ETCs
  • 4.5 Actively managed ETFs
  • 4.6 Exchange-traded grantor trusts
  • 4.7 Leveraged ETFs
• 5 ETFs compared to mutual funds
  
  • 5.1 Costs
  • 5.2 Taxation
  • 5.3 Trading
• 6 Criticism
• 7 Issuers of ETFs
• 8 See also
• 9 References
• 10 Further reading
• 11 External links

China: a developing nation with growing pains

Though 61 is a mature age for people, the new China, which celebrated the 61st anniversary of its founding on Oct. 1, is still in its adolescence, developing rapidly and full of the vigor of a young man.

Also like a youth, the country has experienced growing pains over those contradictions between its self-perception and recognition by its peers.

China has been on track for rapid development during the three decades since its reform and opening-up in the late 1970s, as gross domestic product (GDP) jumped to more than 34 trillion yuan (5.08 trillion U.S. dollars) in 2009, from 364.52 billion yuan in 1978.

Even the global financial crisis failed to slow the country's developing momentum, with an annual growth rate of 9.1 percent last year, outshining its developed counterparts, such as the U.S. and Japan.

Despite the impact from the economic downturn, China also replaced Germany as the world's third largest economy and largest exporter last year, and overtook the U.S. to become the world's largest auto market.

What's more, in the second quarter of this year, China's GDP exceeded that of Japan for the first time.

Zhuang Jian, chief economist with the Asian Development Bank, praised the achievements China has accomplished during the past three decades, saying its strong growth has boosted the confidence of the Chinese people and encouraged them to work harder for a better future.

As China's economic clout grows, so do suspicions, criticism and even intentional exaggerations. Different readings on China's development have caused confusion - is China still a developing nation or a developed one?

The Chinese government has reiterated its status as a developing nation, while some insisted that China could no longer be called an emerging economy, and thus held China accountable for more responsibilities in its trade surplus, exchange rate, emission reductions and energy consumption. There is also fear that the emerging China would be a threat to other nations.

Premier Wen Jiabao said in September at the UN General Assembly that China was still in the "primary stage of socialism" and remains a developing country.

"These are our basic national conditions. This is the real China," he said.

Wen stressed this point with data showing that, although China's GDP ranks it as the world's third largest economy, per capita GDP is only one-tenth of those of advanced countries. China's further development is constrained by its shortage of resources, as well as energy and environmental problems, he added.

Experts believe that the growing Chinese economy is too large to be ignored, despite it still being a developing economy.

Wang Jun, a researcher with the China Center for International Economic Exchanges, said China would continue its relatively fast economic growth for an extended time, a fact that would be difficult for some nations to accept in the short term. This also requires constant adjustments in how China views its own development, as well as how other nations see China, he said.

"Misunderstandings and conflicts are inevitable," Wang noted.

"I can't name another country in the world that has changed so much in so short a time," said Patrick Chovanec, an associate professor at Tsinghua University's School of Economics and Management in Beijing. He has been coming to China since 1986.

Chovanec noted that China has undergone one of the most rapid and dramatic social changes in history, and "it is still playing out".

"People around the world have a lot of uncertainty over what a more powerful China would look like and what it would mean for them. A lot of cultural and political differences remain, and some of them are pretty significant," said Chovanec. So it is understandable that people have some fears and concerns, he added.

Further, to deal with misjudgments, Zhuang Jian said China should be more involved in explaining its true self to the world as it becomes more involved in the international community.

Patrick Chovanec suggested China should "try to empathize, and develop a thick skin ... As it becomes more powerful, China is going to be on the receiving end of more, not less, criticism. "

Sheng Hong, director of the Beijing-based Unirule Institute of Economics, warned of self-complacency and arrogance, saying the larger one's economy grows, the more cautious and humble it should become.

"China should take some criticism seriously, apart from that criticism based upon purposely harmful intentions, which could help step up its economic and political reform. Also, a clear understanding of its real strength would help the government to make the right decisions," he said.

Zhuang Jian said China's strong economic growth, mainly fueled by its large investment of resources and capital, is unsustainable, inefficient and energy-consuming, remaining vulnerable to the changes of the outside world.

China has a long way to go to catch up with the developed nations in terms of per capita GDP, and China is lagging far behind in terms of industrialization, Wang Jun said.

The biggest challenge that China will face in this century is how to achieve sustainable development, he said, adding that the imbalance of regional development, income disparities and the widening gap between state-owned and private firms are also among the difficulties China must face during its future development.

Additionally, Sheng Hong said China has to step up its reforms in becoming a market economy to achieve sustainable development. For the achievements China has gained have been attributed to economic reforms, because of which millions of Chinese workers can now unleash their creativity, rather than only their hands.

China should also accelerate political reforms, including restraining and effectively supervising its administrative power to match the economic reforms, said Sheng.

Source: Xinhua

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Can You Make It as an Entrepreneur?

By Eve Tahmincioglu of Entrepreneur.com

The recession has inspired many long-time employees -- ravaged by downsizing, furloughing and a host of other corporate cutbacks -- to consider going out on their own.

While it can be tempting, especially if you think you have a killer business concept, you have to ask yourself, "Am I cut out for entrepreneurship?"

"Everybody's got a great idea, but that doesn't mean it's going to work," says Vince Orza, dean of the Meinders School of Business at Oklahoma City University and an advisor to the university's Love's Entrepreneurship Center.

The successful entrepreneur, he adds, has a deep-seated passion for being his or her own boss. "It's that kid with a lemonade stand, the kid with the paper route," he explains. "If early in life you had that bug, you're more inclined to have it later in life."

I've interviewed hundreds of business owners in my work writing about small business, and there are a few common characteristics and personality traits most of them have:

• They tend to be risk-takers. (Not bungee-jumping-type risk-takers per se, but fearless when it comes to pursuing what they're passionate about.)
• Many had a burning desire from a young age to run their own businesses.
• Most are embarrassed of failure but not afraid of it.
• Multitasking seems to come naturally.
• Their work-ethic-o-meter is often off the charts.
• Most are confident beyond what would seem reasonable.

If this doesn't describe you, it doesn't mean you can't try your hand at self-employment, but entrepreneurial experts predict you'll be swimming upstream without at least a few of these at your core.

Scott Kluth, founder of Chicago-based CouponCabin.com, ran a lawn and snow service when he was 11 years old and brought in about $350 a week.

"If you asked my mom, she'd say I was an entrepreneur since birth," says Kluth, whose online coupon service brings in about $13 million in annual revenues and employs 38 people.

He worked for Sears.com before launching his own company in 2003. What motivated him was a burning desire to have control over his own destiny. "I wanted to be focusing on my own success," he maintains.

Allison O'Kelly, founder of Atlanta-based Mom Corps, also had a dream to run her own business from a young age, but found a successful career as an accountant for the audit and tax advisory firm KPMG before becoming an executive with Toys "R" Us. Her desire for more flexibility after her sons were born pushed her to finally pursue entrepreneurship.

O'Kelly describes herself as a risk-taker who is ultra-confident, especially when it comes to the business model for Mom Corps, a staffing company focused on getting moms part-time work. The company has 10 employees and annual sales of about $2 million.

"I was confident in my skills and what I had to offer," she explains. "I always had the attitude that I could do this. I'm very positive about what I do. I never believe I can't do something. That's what makes me successful."

While she admits there were times early on in her business when she was spending too much on things such as salary and marketing, and came pretty close to seeing her venture go under, she was able to persevere.

"I would be stupid to think there is no way I could ever fail, but that's what I tried to tell myself," she recalls. "I was going to do everything in my power not to fail because I would be embarrassed if I failed."

Another attribute that great entrepreneurs possess is a commitment to a vision for a product or service they believe in, according to Deborah Bailey, author of "Think Like an Entrepreneur: Transforming Your Career and Taking Charge of Your Life."

"They can see the possibilities that others can't, and because of that they may not get support or agreement from others around them," she says. "Focusing on your vision will help keep you on track and keep you motivated through the ups and downs."

Indeed, that's the double-edged sword for many entrepreneurs: The blind commitment that drives them can also lead to stunning failures. But a true entrepreneur, says Oklahoma City University's Orza, gets up and starts all over again.

So, do you think you have what it takes to make it as an entrepreneur?

Mom Corps' O'Kelly maintains, "If you're asking yourself the question, 'How do I know?' then you shouldn't do it."

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