China says US has 'responsibility' to resolve debt ceiling row

Vice-finance minister Zhu Guangyao outlines concern over 'safety of Chinese investments in the United States'

A senior Chinese government official on Monday publicly warned Washington about the dangers of the current row over the US’s debt ceiling.

In the Chinese government's first public comments on the deadlock Zhu Guangyao, the vice-finance minister, told reporters in Beijing: “The United States is totally clear about China's concerns about the fiscal cliff. We ask that the United States earnestly takes steps to resolve in a timely way before 17 October the political [issues] around the debt ceiling and prevent a US debt default to ensure safety of Chinese investments in the United States and the global economic recovery. This is the United States' responsibility.”

China is the largest foreign holder of US debt, owning about $1.277tn of US Treasury bonds at the end of July, according to the Treasury. For bond holders, economists and other investors, the row over the debt ceiling is likely to have a far greater impact than the current government shutdown.

The US Treasury secretary, Jack Lew, warned again on Sunday that by 17 October the US will be left with about $30bn in cash to meet its obligations – which are about $60bn a day – unless Congress acts soon to increase the US’s borrowing limit. “Congress is playing with fire,” Lew told CNN”s State of the Union. “If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default. There is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”

Republican House Speaker John Boehner said at the weekend that his colleagues would not agree to raise the debt ceiling unless any deal included measures to rein in public spending. President Barack Obama has accused Republicans of “blackmail” in their attempts to kill his healthcare reforms, known as Obamacare.

Zhu said China and the US were "inseparable". "The executive branch of the US government has to take decisive and credible steps to avoid a default on its Treasury bonds," he said. "It is important for the US economy as well as the global economy."

"We hope the United States fully understands the lessons of history," Zhu added, referring to a similar row over the debt ceiling in 2011 that led to a historic downgrade of the US's AAA credit rating and panic on stock markets worldwide.

Zhu’s comments came as US stock markets fell following the continued impasse over the shutdown and debt ceiling over the weekend. The Dow Jones Industrial Average fell 136.34 points, or 0.9%, to 14,936.24, below the 15,000 mark it reached for the first time last May. All the other US markets closed down, with the S&P 500 dropping 37.38 points (0.98%). Most European and Asian markets closed down as rises were seen in US Treasury notes and gold prices, both traditionally seen as safe havens. The dollar lost ground against the yen and the euro.

Daniel Rosen, founding partner of the research firm Rhodium Group, said political infighting in Washington was likely to have a profound impact on Sino-US financial relations.

“I believe that in the final analysis the US is going to pay its debts and is not going to default on its obligations,” he said. “Even assuming that case, it is politically untenable for the government of China to be in a position, whether frequently or occasionally, where the life savings of the country are going to eroded by the political shenanigans of another country.”

Rosen said China was looking at ways to move its huge dollar denominated investments into the private sector and out of the government’s coffers before the current crisis began. “But for the moment they are trapped and they have to deal with the portfolio they have,” he said.

Article Source : http://www.guardian.co.uk

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Burberry beats forecasts after 'standout' spring/summer season

Growth strongest in Asia as British luxury group reports 18% first-quarter sales rise

Strong sales of men's clothing, large leather bags and coats during dismal spring weather in Europe helped British luxury brand Burberry to a better than expected performance in the first quarter of its financial year.

Angela Ahrendts, the chief executive, said: "Spring/summer 2013 was a standout season driven by innovative marketing, cohesive monthly fashion groups and exceptional execution."

The company, which recently signed actress Sienna Miller and her fiancé Tom Sturridge to front its advertising campaign, recorded an 18% rise in sales, at constant exchange rates, to £339m, well ahead of analysts' expectations.

When the impact of new store sales were stripped out, sales rose 13%, up from 8% growth in the previous three months.

The number of staff making Burberry's signature raincoat at its British factory in Castleford, West Yorkshire, has been doubled since 2011 amid high demand, with sales of outerwear and large leather goods such as its Blaze and Orchard bags accounting for half the brand's sales growth.

A Burberry store in Beijing – the brand saw double-digit underlying sales growth in ChinaMenswear sales rose 25% over the quarter as the label brought its men's catwalk show back to London this year. One customer was tennis ace Andy Murray who wore a Burberry suit for his visit to Downing Street after his Wimbledon triumph.

Menswear now accounts for nearly a quarter of the company's sales and Carol Fairweather, chief financial officer, said it was a "significant growth opportunity" for the future.

Growth was strongest in Asia with Burberry outperforming rivals in the all-important Chinese market by harnessing the power of social media to raise the profile of the brand and by opening more large and glamorous stores. It saw double-digit underlying sales growth in the country over the quarter.

Fairweather said: "We've got a lot of self-help measures and quite a long way to go in China compared to some of our peers."

Two shops were opened in Shanghai during the quarter and another flagship store is planned to open in China later this year. The group has bounced back from a profit warning last September after sales in China had slowed.

The company said "soft" trading at its high street stores was offset by strong growth online, partly helped by the use of iPads by shopfloor staff to help customers order goods that were not immediately available.

Burberry is also experimenting with allowing shoppers to pick up goods ordered via the internet at flagship stores including outlets in London in Knightsbridge and Regent Street.

But Ahrendts, who topped the UK's pay league with a total package of £16.9m last year, almost £5m more than the next highest paid chief executive, warned that the macroeconomic outlook remained "uncertain" and that first half profits would fall below those of last year, partly because of the cost of bringing Burberry's fragrance and beauty business back in-house.

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DFS supports British manufacturing resurgence

Sofa maker is among firms bringing jobs back to the UK from overseas as Chinese labour falls out of favour

Anyone subjected to brash DFS adverts promising double discounts and 0% finance on sofas would think it was impossible for the furniture firm to get its products from anywhere other than low-cost factories in the developing world.

However, the company is one of a number of British businesses, including Golden Wonder, Hornby and Aston Martin, that has stopped shipping products back to the UK and is transporting jobs to these shores instead, making it the biggest sofa manufacturer in Europe.

At a DFS factory on an industrial estate in Derbyshire there are banks of sewing machines, state-of-the-art fabric cutters and gas-powered staple guns.

Harvey Ellis, head of manufacturing at DFS, who oversees the 838 workers on three sites and in two woodmills, explained: "Once we receive an order, it takes just four days to go from an order on our screens to being loaded on to a van. The frames are shipped in from our wood factory six miles away and we will make 3,000 pieces a week. Today we'll complete 900."

In three years DFS has toned down its Chinese activities to join the march of the makers, increasing UK production by a quarter. One worker, nail gun at the ready, said he could cover an entire sofa with fabric – sewn by the factory's seamstresses – in less than 30 minutes.

It is a skill in much demand. The desire for British-made products has become so great that the factory in Alfreton has just increased its workload, adding an extra shift to keep it running 16 hours a day. Along with two more factories in Doncaster and Long Eaton, it means DFS now makes nearly all of its fabric sofas in the UK, accounting for half of all furniture sold by the company. Only the labour-intensive leather products are still made abroad.

DFS chief executive Ian Filby said he wanted to see the business return to its British roots, and that customers now asked why the company did not make more of its UK credentials.

"Customers are astounded to think that a value-for-money player is also a major UK manufacturer," he said. Then, with a nod to the dark days of the three-day week, he added: "We all know about the bad old seventies, but the historical mindset of 'all UK manufacturing is shoddy' has gone full circle and people now see the UK as the sort of place where people work hard and make a decent crust. People believe that quality product is made in the UK and aren't going to buy British if the product is poor."

DFS appears to have tapped into a patriotic zeal among the British public. Its market share has risen from 25% to 28% in the last three years and Filby believes that there are also compelling financial reasons for bringing work back to the UK.

"I'd be surprised if there's not a lot of British manufacturers wanting to be more responsive to shorter lead times. We're never going to compete with the sweatshops of the Far East as a country, but you can manufacture here as long as you're adding design or R&D [research and development]. I think the other phenomena which people recognise and is going to continue, is that moving things around the globe is expensive."

And it is not just DFS that has seen the benefits of shifting work back to the UK. This year Golden Wonder revealed that its Pot Noodle snack will be made in Leeds instead of being shipped 10,000 miles from China, and Aston Martin Rapide S cars are now built in the Midlands, while clothing businesses including Topshop and Marks & Spencer are selling more British-made outfits.

Lee Hopley, chief economist at the EEF manufacturing association, explained that manufacturing in the UK was increasing as costs overseas grew and customers became more demanding.

"I think customers would be surprised by how much is made in the UK," she said. "There is a lingering perception that it is still made overseas. Manufacturing output is higher now than the 1980s in real terms, although we're still 11% below our pre-recession peak. There's been big investment in technology and equipment, while there is also a focus now on innovation to look beyond the product."

Model railway maker Hornby is another example, shifting its paint production back to the UK from China after there were fears that any quality issues would take several weeks to be resolved. Executive chairman Roger Canham added that making products closer to home helped businesses respond to demand – and check for errors – more easily.

"It takes four weeks for a shipment to arrive from China, which means if you want to check the quality you have to wait until it arrives," he said. "Now, if I want to check all I need to do is jump in a car and go to the factory.

Bringing jobs back home: DFS chief executive Ian Filby at the furniture manufacturer's production facility in Somercotes, Derbyshire"There was a huge surge in manufacturing from China in the 1990s, but now that wages are increasing and shipping is more expensive it's slowed down. We've got a new range of Airfix quick- build models which we will manufacture in the UK because it gives us a better chance to respond to demand quickly."

And with the shift in work back to the UK come much-needed new jobs, at a time when youth unemployment running at around 20%.

Filby said he would create 250 new jobs at DFS this year, having hired 400 new people in the 18 months to January, and revealed that one of the benefits of having UK factories was the loyalty he got from the staff who had worked there for generations.

At Alfreton, for example, nearly half the staff have been there for five years, and 35% have notched up 10 years' service. Owned by private equity group Advent, DFS has promised to reward staff for their loyalty with 1% of any profit made from the company's sale, which is expected to happen over the next few years.

Another reason why British workers will welcome the return of a manufacturing base that dwindled for decades but is showing renewed determination to compete with the rest of the world.

Article Source : http://www.guardian.co.uk

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Credit crunch confusion sends China's stock market on wild ride

Down 6% in the morning, up 6% in the afternoon. The wild ride in the Chinese stock market on Tuesday tells the tale of confusion about the depth of the China's credit crunch and the authorities' ability to control events.

China's lending almost doubled last year from the year before to 200% of economic output The trigger for the afternoon rebound was comments from the central bank that it would guide interest rates to "reasonable levels" and that cash in the financial system would be managed flexibly. In normal circumstances, such a statement would be regarded as woefully vague, almost meaningless. But the People's Bank of China traditionally runs its communications in a near-vacuum. Two statements in two days counts as an outbreak of verbosity. Investors took that as reassuring evidence that the authorities are at least aware of the risks as they attempt to defuse a credit boom.

Well, it's something to cling to. Confidence, however, looks fragile. The big problem is the scale of the ramp-up in credit in recent years. Fitch, the credit ratings agency, has calculated that the total lending in the $7.3tn (£4.7tn) Chinese economy reached almost 200% of economic output last year, up from 125% five years earlier. That rate of explosive growth can be dangerous. History is littered with example of economic blow-ups and banking crises that followed massive increases in lending – Japan in the late 1980s, most famously.

China's recent credit explosion started in 2009, when Beijing reacted to the west's banking bust and recession by ordering a massive programme of investment, principally in public infrastructure, offices and flats. That succeeded in restoring strong growth to the economy – and, indeed, helped to prevent a bigger global downturn. But, for the bears, the critical point is that the Chinese credit boom never slowed down: the skyscrapers and flats continued to be built before demand could catch up.

"The excess borrowing that occurred in 2009 has never been absorbed by the real economy and now more borrowing is being piled on top of this," said Wei Yao, an analyst at the Société Générale bank, earlier this month. She thinks "the debt snowball is getting bigger and bigger, without contributing to real activity" and suspects many borrowers are rolling over loans at punitive rates in a desperate struggle to stay in the game.

SocGen's chart shows where the credit has come from – most of the extra lending is not being made by mainstream banks but by the so-called "shadow banking" system, which largely means small finance houses that have often funded speculative property projects.

Beijing has traditionally tolerated the shadow banks. They are viewed as an essential part of a financial system that is steadily liberalising, even if they have also become a way for state-backed banks themselves to bypass official lending caps. But it was these shadow lenders that the People's Bank of China seemed to want to punish last week.

Short-term lending rates between banks were allowed to soar – to 11% for one-week money. The official message seemed blunt: rein it in, apply discipline, and don't assume the state is always on hand to keep interest rates low. Having made its point, then central bank then managed rates back downwards, albeit not all the way down.

Beijing's mission seems reasonable enough – if there is excess credit in the Chinese economy, it's better to tackle the problem before a bigger bubble is blown. Mark Williams of thinktank Capital Economics comments: "The episode is arguably the strongest sign yet that the leadership is willing to suffer short-term economic pain if necessary to achieve more sustainable growth."

But Williams also calls the People's Bank's behaviour "extraordinarily reckless" since it offered no explanation for its initial inaction. Indeed. It's all very well to have a policy but surely it's better to communicate it. The risk is that confidence is damaged.

What's more, shock and awe tactics look ill-suited to the delicate task of finessing investment away from unprofitable property projects while simultaneously keeping the economy stable. Bank of America Merrill Lynch's analysts think the biggest risk lies in the central bank mishandling the situation. "In our view, dealing with banks in breach of regulations should be done by improving prudential regulations rather than engineering an interbank credit crunch which could potentially backfire should banks lose mutual trust," they said.

Viewed from outside, China's building boom also looks to rely on inherently shaky financial structures. The shadow banks attract cash in short-term products from middle-class savers keen to escape the low deposit rates on offer at state-sponsored banks. But then they lend to long-term illiquid building projects. In a full-brown credit crunch, they would be horribly exposed. We would also see the first test of how far Beijing is willing to go to protect the shadow banks.

"I would say the [Chinese] authorities have the situation well in hand," said incoming Bank of England governor Mark Carney. For now, that's the consensus view. While economists are busy trimming their forecasts of GDP growth – Goldman Sachs now expects the economy to grow 7.7% in 2014, not 8.4% – they are also praising China for acting early to prevent a bigger debt crisis.

The alternative view is that China has left it late to rein in the credit boom without risking a major slump. If Wei Yao at SocGen is right about the chronic problem of over-extended corporate borrowers, there are lots of bad debts that haven't been recognised. In the past, recapitalising banks has never a problem for China – but the economy's new reliance on shadow banks and hazy specialist financing vehicles makes events harder to predict. Given the size of the building boom, is it even possible to estimate accurately the accumulation of bad loans in the system?

China will also have to attempt the trick against an uncertain global backdrop. The US economy is growing but not everybody is convinced the recovery can withstand higher interest rates. In the meantime, recession rumbles on in the eurozone. But Beijing seems to have decided the country's credit pains have to be confronted anyway. After 12 years of boom, Chinese-style capitalism faces its biggest test – how to apply the brakes without crashing.

Article Source : http://www.guardian.co.uk

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Fed fears and China credit crunch concerns send jitters through markets

FTSE 100 falls to just above 6000 from all-time highs last month, while Dow Jones index opens 200 points down in New York

Fears that the Federal Reserve is preparing to remove its stimulus from the US economy coupled with anxiety that China is being gripped by its own credit crunch have sent jitters through global stock and bond markets.

The rout hit yields on UK government bonds which hit their highest level since October 2011 in what analysts said was one of the most rapid moves ever witnessed on the market. Yields, which move inversely to price, on 10-year gilts have now risen a full percentage point to edge towards 2.6% in just two months, a rapid pace of change in the potential cost of government borrowing that could in turn increase the price at which companies and households borrow.

The FTSE 100, which last month was testing all-time highs, lost another 70 points to sit just above 6000 – a key level it only moved through at the start of 2013 – while the Dow Jones Industrial Average in the US suffered a 200-point loss in the first half hour of trading. Commodity prices, such as copper, were also lower.

Yields on US government bonds, known as Treasuries, also hit two-year highs as investors digested recent remarks by the Fed chairman, Ben Bernanke, that he might begin to slow down the central bank's $85bn (£55.1bn) monthly purchases of bonds which are being used to simulate the economy.

Governments in the eurozone, particularly the fragile economies of Spain and Italy, also faced their highest borrowing costs since May as yields rose.

Chinese stock markets dropped more than 5%, the biggest fall in three years to reach their lowest close in more than four years, after the People's Bank of China (PBoC) – the central bank – appeared to suggest it would not step in to prevent a rise in the rates at which banks borrow from each other.

Analysts at Nomura said that "investors remain concerned over tight liquidity conditions in the banking system" in China after the PBoC said it would "contain financial risks with more solid actions" and "fine-tune policy when necessary".

The rates which banks borrow from each other in China have jumped to close to 10% and to as much as 25% for some banks – from just 3% a month ago – raising concerns about the impact of lending by non-banks in China, known as shadow banks.

Traders on the floor of the New York Stock Exchange

Michael Hewson, senior market analyst at CMC Markets, said: "Fears of a continued cash squeeze in the Chinese banking system has seen European markets continue their soft tone on fears that a dislocation in the banking system will cause further downward revisions in forward expectations for growth over the coming months".

Hewson noted that the warning at the weekend by the Bank for International Settlements, the international central bank organisation, that more stimulus could actually harm fragile economies had also ratted markets. Stephen Cecchetti, head of the BIS monetary and economic department, warned on Sunday: "Unfortunately, central banks cannot do more without compounding the risks they have already created. Monetary stimulus alone cannot put economies on a path to robust, self-sustaining growth, because the roots of the problem preventing such growth are not monetary."

But a senior US central banker attempted to fight back against the market reaction saying that the Fed could not be broken in its resolve in easing back from monetary stimulus in the way that the UK had been forced out of the exchange rate mechanism in 1992 by speculative attacks by George Soros. "But I do believe that big money does organise itself somewhat like feral hogs. If they detect a weakness or a bad scent, they'll go after it," Richard Fisher, president of the Dallas Fed, told the Financial Times. The Fed had not even started to cut back its purchases of bonds, Fisher said. "I don't want to go from Wild Turkey to 'Cold Turkey' overnight," said Fisher.

John Higgins, chief markets economist at Capital Economics, said the potential removal for stimulus by the Fed was the main cause of the upheaval in bond markets but said, though, that a "bloodbath" should be averted. Even if US Treasury bond yields rose to 3.5% by the end of the year – from around 2.5% now – it would be low by historical standards, Higgins said.

In China, concerns about a rapid expansion in lending have dogged Beijing's economic management as consumers seek to maintain their living standards by borrowing cash from these local finance companies rather than main stream banks, although much of the lending can ultimately be traced back to the banking sector. Deutsche Bank has estimated that the among credit extended by non-banks could account for as much as 40% of Chinese GDP.

Capital Economics' China analyst, Mark Williams, said investors were factoring in lower growth as the credit squeeze takes effect while the Nomura analysts said the liquidity squeeze was the first real test for China's new leaders, in office for just three months.

"If the new leaders maintain their current approach, we believe it will add downside risk to growth in 2013 but in our opinion this would help reduce systemic financial risks, supporting long-term sustainable growth," the Nomura analysts said.

China's economy has already slowed in recent months: manufacturing contracted and property construction weakened in May, leading most analysts to say that hopes earlier this year of a bounce in growth have proved misplaced.

Article Source : http://www.guardian.co.uk

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China's economy rebounds at end of worst year since 1999

China's economic system got back speed within the final one fourth associated with This year, pulling out of the post-global financial disaster economic downturn that will created the particular slowest calendar year of economic growth since 1999.
Evidence of a new growing recuperation within exports, more powerful than expected business output along with store income, along with strong fixed property purchase, most signalled that will Beijing's pro-growth coverage blend provides gained ample traction in order to underpin a revival with no yet igniting inflationary pitfalls.

Year-on-year growth of 7.9% from the 4th one fourth beat a new comprehensive agreement forecast of seven.8% in a Reuters opinion poll.

Full-year growth of Several.8% have also been just in front of the poll's 7.7% phone as well as easily prior to the national own 7.5% focus on, which just a few months previously did actually some financial experts to stay peril.

"It's kind of like the glowing location : stronger growth, although not sufficiently strong to be able to result in far more inflationary problem. Which is perfect for fairness areas,Inch explained Dariusz Kowalczyk, Asian countries ex-Japan older economist as well as strategist in Credit Agricole CIB within Hong Kong.

"What people want will be progress that is sufficiently strong to give us all satisfaction that income raises and there isn't any hard landing risk, although not extreme, not really sufficiently strong enough to be able to result in rising prices. Which is some tips i think were acquiring. I am just favorable upon Tiongkok nonetheless.Inches
Industry effect has been typically encouraging, with Oriental shares advancing as well as platinum and palladium following fit, while gas traders had taken the opportunity of data credit reporting the particular restoration to publication profits right after 2 times of large goes up.

Market reaction to China's GDP figures was generally positive, with Asian shares advancing and platinum and palladium following suit

China's brand new leaders need to stabilise the particular overall economy this coming year to keep employment higher although steering clear of an outburst inside housing costs and also inflation that could weaken vehicles required to renovate the country's export-oriented progress product.
Without having steadiness, inward bound President Xi Jinping and Most recognized Li Keqiang, that are established being confirmed throughout Drive, don't have any possibility of providing brand new cars people say are needed to take on a number of economic, industrial and income fluctuations that will threaten China's long term.

China's stats chief, admitting the country's success gap was "relatively large", introduced any recalculated indicator of economic inequality about Friday, the 1st time in numerous decades which officialdom features dealt with the particular vulnerable matter head-on.

China's Gini coefficient was with 0.474 in 2012, along through 3.477 this year as well as from the optimum associated with 3.491 inside 2008, Mother Jiantang, the head from the National Office of Stats, told journalists in a click meeting on The coming year fiscal performance.
The actual catalog ranges coming from Zero to at least one, using the 0.Some level seen simply by professionals since the the moment when social discontentment comes into a go.

Quarter-on-quarter development of A couple of.0% was beneath the market place requirement of your Only two.3% climb, which was consumed being a signal the recovery's energy is just not sufficiently strong enough to worry the particular government bodies directly into pre-emptive action in order to snuff out and about just about any whiff associated with rising cost of living * China's long-term plan pre-occupation.
Your Some people's Bank of China, which usually lower interest rates two times in mid-2012 along with minimize banks' arrange percentages 3 x considering that delayed The new year, offers since turned in order to short-term cash shots by way of open marketplace operations to steer fiscal policy, evidently watchful about fanning price pressures or pushing a house bubble.
Potential risk of insurance plan tensing, nevertheless, looms as expansion records pace, making China with a little difference in order to tread to be sure the restoration carries on with no reinvigorating risky task in the important division of property.
Files launched along with GDP figures about Friday demonstrated house values stretching a sluggish boost in 12, with an common climb of 2.3% month-on-month within Seventy key Oriental metropolitan areas, the fifth 30 days within the last 6 to show a boost, regardless of govt efforts to temperament prices.
Investment, which landed Thirteen.8% of China's Gross domestic product this year, went up by 07.2% this past year from a calendar year before and remains an essential element involving general set property purchase -- the cornerstone associated with Beijing's recovery tactic.
Additional data launched with GDP demonstrated business productivity matured 10.3% inside Dec from a year ago, as opposed to anticipations involving 12.1%.
Retail store sales inside 12 , went up by 15.2% with a last year vs . around Fourteen.9% within a Reuters opinion poll.
Any fourth-quarter restoration ended up celebrated simply by an speeding within industrial end result throughout April along with November along with a jump in exports throughout December, even though some experts think previous month's sharpened growth throughout trade could be a blip.

China's exports grew 15.1% recently compared with 2009, racing prior market place anticipation regarding 4% and also November's A couple of.9% pace.

Ting Lu, primary China economist with Financial institution involving America/Merrill Lynch throughout Hong Kong, was confident that the information wouldn't customize the near-term coverage foot position.

"Maintaining steady expansion is the brand-new leadership's key insurance plan requirement in The year 2013,Inches Lu authored inside a note to be able to clients, adding that they predicted a growth focus on of 7.5% being used pertaining to 2013 and also policy calibrated to supplying this.

"Pro-growth plans this year will probably be expanded straight into The year 2013, and also big-bang stimulation will likely be avoided until there is one more global financial crisis. Within The year 2013, policy might be somewhat stiffened towards better half of The year 2013 about worries of increasing the cost of living, growing home values, expenditure getting hot and economic system pitfalls,Inch Lu mentioned.

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