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Many are speculating that after west, it is time for Asia to lead the world. 21st century is allying with Asia and expecting it to be the next power region.

Development in major Asian regions has proved it correct. Countries like China, India, Japan and Southeast are perfect examples of it, where prosperity, overall development and increasing living standard authenticate the facts.

Despite crossing major initial impediments, the Asian Development Bank’s report deterred its entire claim as it pictured the murky side of the development. Report asserted that wealth gap is widening in the region and lives of poor are becoming deplorable, meanwhile rich are successfully accumulating more money.

China and India are holding the reign of Asia’s development; both are listed on the top ten in the ADB’s annual report. China is holding 2nd position after civil war wrecked Nepal, while India is holding 7th position.

Asian region experienced major boom recently and China and India, both got bigger pie out of it, but ironically, failed to distribute the profit fairly among all. China and India’s economy is expanding with the healthy pace of 11.9% and 8 to 9 % respectively, but instead of sharing growth among all, influential people were able to pocket in 20% out of it.

In the report, bank also featured minor countries like Cambodia, Sri Lanka and Bangladesh, where disparity of wealth is growing rapidly. However, poorer countries like Pakistan and Philippines have done better then the big Asian players in terms of inequality. Thailand has the most impressive record in Asia. It has reduced inequality by over 5%, while Indonesia and Malaysia have also managed to reduce inequality to some extent.

The report seems shocking, but the situation isn’t as worse as it appears. The growing wealth gap is a byproduct of globalization, which has brought higher incomes to urban, skilled, English-speaking workers in all countries and gap can be stretch forward if the government doesn’t intervene here effectively as poorer have less access to quality education, health care, bank loans and other things needed to benefit from economic growth.

The government needs to come up with new policies to provide the decisive shares to poor people. Implementation of hardcore economic reform along with social protection mechanisms and skills and training programs could be enough steps to narrow the gap.

Apart from this, Asian governments need to increase the partnership between the public and private sectors to develop new economic activities and industries that generate new employment opportunities for the poor.

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The US House has approved modest changes to President George W. Bush’s record Pentagon budget proposal on Sunday; however, Democrats indicated plans to resurrect a more contentious debate over the Iraq war after the August recess. The House voted 395-13 to approve the measure, which would provide $459.6 billion for the Defense Department in fiscal 2008. On the whole, the bill would provide $3.5 billion less than President Bush requested in his fiscal 2008 budget blueprint and $39.7 billion, or 9.5 percent, more than was endorsed in the last fiscal 2007. The bill would not include funds for the ongoing wars in Iraq and Afghanistan and this issue will be considered separately when Congress returns from recess in September.

The defense legislation by and large endorses Bush’s plans for key weapons systems such as the next generation Joint Strike Fighter and the F-22 Raptor fighter jet, which has been beleaguered due to cost appreciations. At the same time, the Pentagon would get another several-billion-dollar budget increase through a companion measure covering military base construction and a recent round of base closures. Apparently, procurement costs are driving the Pentagon budget increasingly higher. Interestingly, if war costs are added in, the total defense budget will be significantly higher than during the typical Cold War year, even after adjusting for inflation.

The measure does not comprise Bush’s 2008 funding of extra $147 billion in Iraq war that the Bush administration wants Congress to approve this autumn. Democrats say they would consider that money in separate legislation in September. Moreover, this tactic would set the stage for a crucial clash over the war. Democrats are expected to attempt to impose conditions on the money. However, this autumn, US Iraq commander Gen. David Petraeus would report to the lawmakers on the war. According to an estimate, over $600 billion in war checks have already been written for Iraq and Afghanistan. However, the forthcoming report is very crucial and even Republican leaders have conceded that the Petraeus report could be critical to continuing support in the party for Bush’s strategy to surge nearly 30,000 extra troops in Iraq.

On the other hand, the White House has criticized Democrats for altering Bush’s proposal and in actual fact transferring $3.5 billion of the money to domestic spending programs. However, there are ample chances that the cuts will be restored in the fall when Congress will consider another wartime supplemental spending bill. The administration has not threatened so far to veto the measure. In fact, Bush’s constitutional privilege to set foreign policy and a slim Democratic majority in both chambers, have made change hard to enforce.

Along with Bush’s veto power, any war bill is subject to a 60-vote supermajority in the closely divided 100-seat Senate. Therefore, Democrats would need 60 votes to shut off debate and move to a final vote, but they control the Senate by only 51-49. This equation puts Republicans in an advantageous position to block final Senate votes on anything they can close ranks behind.

Overall, the defense spending measure provides $139 million less than Bush requested for building missile defense sites in Poland and the Czech Republic. The funds were reduced by Democrats during debate in the House Appropriations Committee. However, earlier Democratic efforts to compel a change in war policy have either been blocked in the Senate or vetoed by the present US president. George Bush has said earlier that he has concerns about the defense-spending bill, but he has not made it explicit yet that he will veto it.

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Amid escalating pressure and intensified lobbying against China in the US, Treasury Secretary of US, Henry Paulson once again urged China to permit its currency to appreciate faster, at the same time, also raising product-safety and environmental issues during the recently held meetings with senior Chinese officials. In addition, Paulson also reviewed progress on a commitment by China to open up local brokerage services to more foreign involvement. Chinese securities regulators have reportedly said that they are planning to lift a moratorium on joint ventures between foreign and Chinese brokerages in early autumn. However, the Chinese government had earlier indicated that it would lift the moratorium by December.
Though the Treasury Secretary Henry Paulson has categorically said that he was assured that China is committed to currency flexibility and more financial reforms, however Beijing has offered no precise changes or measures that could help placate US congressional resentment over China’s huge trade surplus. Washington’s point man on China, Paulson, is trying to prevent extreme measures by congressional critics who are pressing for punitive actions over Beijing’s currency controls. At the same time, in a recent development, a Senate committee has approved a bill that would require the administration to take up currency manipulation cases before the International Monetary Fund. Technically, now the bill has allowed the Treasury to avoid referring to China as a currency manipulator.

Analysts were assured enough that Beijing would not make any concessions during Paulson’s visit. The recent visit is widely perceived as an effort to show Congress that ‘Strategic economic Dialogue’ is making progress. Paulson has said explicitly that he believes Chinese leaders are wondering if they will ever be able to satisfy Washington. This can be substantiated with the fact that former Goldman Sachs chief executive has been given unexpectedly wide access to top Chinese officials, which could be dubbed as a sign of the importance Beijing places on protecting economic relations with the US. Paulson has also said that Beijing’s currency controls are less significant than barriers to foreign competition in its financial industries and other structural factors in driving the trade surplus.

In the meanwhile, the US congress is contemplating another bill aimed at Beijing that would involve Treasury to identify and punish currency manipulators. However, Paulson has rejected such action saying that they would damage Washington’s efforts to encourage Beijing to reform. Speaking on the issue he said, ‘Legislation would be counterproductive and would undermine what we’re trying to do here’. Deputy Assistant Treasury Secretary Mark Sobel has warned a House of Representative trade subcommittee saying, ‘if the United States adopts currency legislation that is perceived abroad as unilateralist, investors’ confidence in the openness of our economy could be dampened, diminishing capital inflows into the United States and potentially putting upward pressure on interest rates and prices’.
In a related development, the Bush administration warned congress that lawmaking campaign to compel China into letting its currency rise in value more rapidly could boomerang and damage the US economy. The administration is of the view that the US lawmakers have attempted constructing an economically detrimental assessment abroad that the US is becoming ‘an isolationist nation.’
On the other hand, foreign banking executive have stated that they were pushing for the moratorium on new brokerages joint ventures to be lifted by September, earlier than the Communist party congress in October, which they think could further delay the opening. Several overseas banks are, at present, in negotiation with potential partners in China in willingness to do deals to enter a sector which now has only a very few foreign participants.

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Jolted by the U.S. subprime housing market, IMF’s head Rodrigo Rato has warned that global investment and growth prospects were at risk from a dramatic rise in private equity buy-outs.

There are risks associated with the recent dramatic growth in large private equity buy-outs as such deals financed by huge debt could trigger risk to the market when they turn sour.

Rodrigo Rato said:

This in turn could adversely affect investment and growth prospects, not just in the countries where the problems occur but worldwide. I would urge regulators to remain vigilant about these deals, and pay especially close attention to deals whose failure could have systemic implications

The menace of financial globalization can trigger the inflation and devalue the currency, which can be hazardous to all economies.

With increasing cooperation and open market, all economies have become interdependent, and disturbance in one strong economy can easily affect others, especially developing economies, which need support from the developed economies.

In the resent time, moneylenders have shown their interest to invest in developing economies, where they find huge opportunity to strengthen their base. Asian economies are biggest gainers from the strong capital inflows, but IMF warned that it could be hurt by an abrupt reversal of flows in the case of financial shocks.

Asian growing economies like China and India, which are considered as the new engines of the world economic growth, will replace the United States and other developed countries in the coming time, but IMF suggested that to keep the pace of growth, policymakers should caution for financial globalization and take necessary steps in time.

Via: Reuters

Economics often prevails over politics. This observation is well proved by the increasing trade between Cuba and the US state of Alabama. Cuba has been an anathema for the US, since Fidel Castro took over the Central American country. Castro’s anti-US stance and his cozying up to the erstwhile Soviet Union meant US snapped off all trade links with Cuba. Trade on a limited scale was resumed only in 2001 after restrictions on exports of certain items were lifted.

This has been a boon to Alabama, which found in Cuba a ready market for many of its products and a way out of the sluggish demand for its produce.

Ron Sparks, Alabama’s commissioner of Agriculture and Industries, says:

When I was elected to my first term, the poultry farmers in the state were in a bind. Agriculture as a whole was in a bind. We needed to expand our markets. Cuba is a natural trading partner.

Cuba grows enough food to feed only about a third of its people. The rest it has to import. With largesse from USSR stopping, it has now turned to US for its needs. Though conditions laid down for trade with Cuba are tough: Goods can leave US shores for Cuba only after it has made payments for it in full.

But Alabama has benefited so greatly from its Cuban link that it intends to lobby at Washington to normalize US-Cuban relations. It feels its country’s policy on Cuba has proved to be useless for the people of both countries. It finds restrictions on US citizens to travel to Cuba as impinging on citizens’ rights.
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The International Monetary Fund has assured that Asian economies will not face any substantial financial crisis amid the heavy influx of global capital.

Developing Asian economies are successfully attracting healthy foreign direct investment and IMF suggested that to keep healthy pace in the economy, each economy should introduce new measures to manage huge inflows of foreign funds and exploit them for accelerating their economic expansion.

IMF Managing Director Rodrigo Rato said:

Capital inflow is certainly a worldwide phenomenon. For Asian economies, that reflects a lot of things including increased liquidity and growing attractiveness of the economies. I believe that is good news

A decade ago, major Asian economies were in a great crunch, BoP were not at its best, currency values were lynching down incessantly, but open market policy put economies back on the competitive international business dais.

Foreign players are attracting toward the rich unexplored resources of Asian region and open market policy has opened the door for investors. With minor domestic players, foreign moneylenders are putting huge money in the market and successfully gaining strength.

Service sector is the biggest gainer, but secondary sector is also accelerating from FDI. Minor economies, like Thailand, too are leaving their darker period behind and making considerable progress. China, India and Japan are leading the path, whereas South East Asian nations are backing them firmly.

However, for the overall development, IMF has suggested Asian economies to become more rational for their currency policies. China impeached for unnecessary controlling its currency wherein western nations seeks more flexibility in its exchange rate. As Rato said:

Greater exchange rate flexibility is not only in China’s best interest but would allow other Asian countries to appreciate with less concern about competitiveness

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Via: Reuters

US shares saw their biggest drops in more than four months as investors dealt with disappointing earning reports and rising concerns about the mortgage market.

The Dow Jones Industrial Average weakened by 226.47 points to 13716.95. Twenty-nine of the 30 Dow components fell, only Verizon Communications reported a gain. DuPont was the Dow’s biggest loser. The chemical maker reported flat second-quarter profit as improving sales abroad balanced the ongoing weakness in the U.S. housing and automotive markets.

Other stock indicators also suffered as the Standard & Poor’s 500-stock index lost 30.53 to 1511.04 and NASDAQ closed down 1.89% at 2,639.86 points.

US dollar slipped to its all time low and the yen hit a two-month high overnight on persistent worries over U.S. subprime mortgage problems. The euro reached $1.3853 against the dollar, surpassing its previous high of $1.3846.

The retreat is not surprising because the market’s recent rally to record 14,000 came before companies began reporting quarterly results. After the Dow’s move to 14,000, market seeks new profit making venture, to maintain the constant growth.

Earlier, European shares had also seen heavy losses in the main markets like London, Paris and Frankfurt, as all lost more than 1.5 percent. It had warned earlier that it was struggling as thousands of its sub-prime borrowers battled with debt. In what is perhaps a signal to Wall Street of more woes to come in the mortgage lending market, Countrywide Financial posted sharply lower second-quarter profit and slashed its earnings forecast as mortgage banking earnings were cut in half. Its shares fell $3.56, or 10.5 percent, to $30.50.

As the largest U.S. mortgage lender, Countrywide is used as one of the barometers of the housing industry, which has continued to slump amid delinquencies and defaults in subprime loans, or those made to borrowers with weak credit.

The deteriorating sub-prime mortgage problems have upset Wall Street this year. The market has generally recovered, but resent dip indicates that mortgage market remains vulnerable.

Via: kutv

China raised interest rates in the latest series of tightening steps aimed at keeping inflation in check and preventing the world’s fourth-largest economy from overheating.

The People’s Bank of China increases its benchmark one-year lending rate by 0.27 percentage point to an eight-year high of 6.84 percent. The deposit rate will increase by the same amount to 3.33 percent and a tax on interest income will be cut on August 15 to encourage saving.

The central bank cleared that the move aims at keeping money supply and credit expansion, as well as investment, in check. China has raised its benchmark interest rate third time since March and five times since April 27, 2006. It has also raised banks’ reserve requirements eight times since June 2006.

China is trying to slow lending and investment fueled by record exports after it announced on Thursday that its economy grew at a rate of 11.9 percent in the second quarter. In June, consumer prices rose to all time high in the last 33 months by 4.4 percent, and factory and property spending has surged while the main stock index has almost doubled in value this year. The rise in consumer prices, lifted by a 7.6 percent jump in food costs, was well above the official target of 3 percent.

Although economy is growing on a healthy pace, yet it’s receiving criticism from the major trade partners viz. US and EU. America impeached China for undervaluing its currency. Chinese manufactured goods were under regulators’ scrutiny for containing toxic ingredients.

Apart from the allegations, Chinese economy is also under pressure from swollen trade surplus and high energy consumption.

China’s communist leaders want fast growth to reduce poverty but are trying to cool some industries. They worry that runaway investment could push up inflation or ignite a debt crisis if borrowers default. Besides the interest rate hikes, they have also imposed investment curbs on some industries. Chinese authorities are worried about the rising food prices, which hit the populous countryside quite hard.

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Wall Street retreated after Federal Reserve Chairman, Ben Bernanke’s comment that the deteriorating economy pace, rising inflation and looming housing sector will remain a risk to consumer spending and overall economic growth.

Amid the inflation and increasing consumer spending apprehension in the future, investors sold off their shares, which adversely affect the Dow and fell 53.33, or 0.38 percent, to 13,918.22. The blue chip index was down by as much as 134 points during the session; a late-afternoon rebound wasn’t unexpected given the market’s recent volatility.

While speaking before the House Financial Services panel as part of the central bank’s midyear forecast, Bernanke urges to emphasize more on strengthening economy and clears that inflation risk will remain the Fed’s “predominant” concern.

However, experts arraigned Bernanke for creating fear in the mind of investors as they are already reeling from Bear Stearns, hedge funds sparking more subprime fears, and new worries about earnings.

Todd Salamone, director of trading at Schaffer’s Investment Research said:

Bernanke didn’t really say a whole lot of things that were new, but he added to a combination of seemingly negative events

The Fed lowered its 2008 GDP growth forecast to between 2.5 per cent and 2.75 per cent from its February forecast of between 2.75 per cent and 3 per cent. It also lowered its 2007 GDP forecast, as Mr Bernanke warned that the housing market has not yet eased down as he worried that it will continue to fall.

Nonetheless, the Fed kept its estimates of core inflation intact, where many Wall Street economists believed they could be lowered, and Mr Bernanke warned that productivity improvements may be slowing - a fact that would put upward pressure on inflation.
Core inflation, which excludes often volatile energy and food costs, also rose a moderate 0.2 percent last month.

Most big companies have failed to earn profit in the previous quarter ended in June. The yield on the benchmark 10-year Treasury note fell to 5.03 percent from 5.07 percent late Tuesday. The dollar was mixed against other major currencies, while gold shows some sign of improvement.

In the middle of lurking market expectations, JPMorgan Chase’s earning rose 20 percent, but firm also remains on guard for possible fallout from the mortgage industry.

Inflation remains the most excruciating factor for the economy and fed expect that the domestic interpretation on consumer prices could help ease some concerns about inflation. Investors are hoping rising prices won’t prompt the Federal Reserve to put off an eventual interest rate reduction or even to raise rates. Even if the Fed doesn’t act, higher costs could prompt some consumers to curtail their spending. Such a retrenchment could dent corporate profits.

Mr Bernanke’s asserts that moderate inflation may only be temporary, but warned that Fed is watching inflation expectations closely and vociferously rules out an early interest rate cut.

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Via: Washington Post

China’s General Administration of Quality Supervision, Inspection and Quarantine has suspended imports of chicken and pork from Tyson Foods Inc with six other U.S. companies.

China’s quality watchdog agency arraigned that frozen chicken meat from Tyson was found to contain salmonella. Ractopamine, a feed additive, was found in Van Luin Foods’ frozen pig ears, an anti-parasite drug was found in frozen chicken feet from Sanderson Farms. Quality watchdog agency also found ractopamine in Thumph Foods.

Cargill, Thumph Foods and Van Luin’s Imports were suspended for 45 days, while the remaining companies face unspecified suspension periods.

On the suspension, Tyson Foods responded quickly and said that it had received no notification and clarification from the Chinese government about the ban. To act timely over the matter, Tyson spokeswoman Libby Lawson said:

We will work with the U.S. and Chinese governments to get this matter resolved

However, the suspension seems an act of retaliation from the Chinese authorities and added fuel in the skirmish that began in March after FDA suspended its exported seafood, toothpaste and toys citing concerns about carcinogens or residues of antibiotics in the United States.

Regulations against American exported foods earn criticism from the Bush administration and the American Chamber of Commerce in China is seeking a proper and fair investigation over the ban.

US officials are aghast with the China’s action and are seeking clarification on the matter from Chinese authorities. The administration is also consulting the US exporters involved to try to see if there is substance in the Chinese claims.

US have advised China to avoid any act of retaliation, whereas Chamber suggested country to look forward to build up firm bilateral trade. Joining the league, China macro-strategist for CLSA Asia-Pacific Markets Andy Rothman, said:

China needs to avoid taking steps that appear to be simple retaliation and both sides need to make a big effort not to politicize the problem

The US is likely to make a fuller response any time today, but the thing that hurts me the most are the regulations - whether imposed by America or China - most of the business firms are hurt gravely. To win back American faith, China closed more than 100 food-processing plants and executed its former head of food and drug regulator thus making thousands of workers jobless. Well now, it is US’s turn!

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