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News : International Last Updated: Apr 24, 2009 - 5:31:05 PM


Friday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Jan 25, 2008 - 8:37:34 AM

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The Irish Independent reports that Coca Cola chief executive Neville Isdell yesterday warned that Ireland and Britain are likely to be heading for a particularly difficult economic patch, amid fears of a US recession.

The world's largest soft drink company believes there is a greater than 50pc chance that the US is facing a recession.

Mr Isdell, a Downpatrick native, said:"I think there is certainly better than 50pc chance that the US is headed into a recession".

He was speaking at the World Economic Forum in Davos.

"But does this signal we are going to have significant contagion around the world, which means we are going into a global recession? I don't believe that is the case,"he said.

"What we are going to see is some rebalancing in the global economy because the importance of the developing world is going to increase."

His comments echo those from other executives in Davos, where the sharp contrast between the economic slowdown in developed markets and strong growth in emerging markets has become an early theme. Coca Cola generates 20pc of its profits in the US, with the balance coming from some 200 international markets, where Mr Isdell said volume sales were growing at 6pc.

Like other manufacturers, Coca Cola has been hit by rising commodity prices but the chief executive said there were now signs of commodity prices moderating.

"We certainly have seen the peak of the acceleration, so I think any increases are going to be more modest as we go into '08," he said.

That should, overall, allow Coca Cola to hold prices steady in real terms.

The Irish Independent also reports that small and medium enterprises (SMEs) are being encouraged to boost their research and development activity (R&D) following the simplification of the application process to access a €500m innovation fund established under the national development plan.

Announcing the new application structure yesterday, in conjunction with the IDA and Enterprise Ireland, Minister for Enterprise, Trade and Employment, Micheal Martin, said that the challenge for established indigenous companies is to "make a step change in the level of R&D they are engaging in".

He added that the new application process will also make it easier for SMEs, third-level institutions and multinationals to engage in collaborative projects.

The new rules also mean that companies will no longer have to pay back up to 50pc of R&D grants received, while a 15pc R&D funding bonus is being made available for collaborative projects.

As a result, small companies that engage in an R&D project with another firm or third-level research institute could potentially receive a grant worth 50pc of the overall cost of the project to a maximum of €650,000.

Bonus

The bonus funding was only previously available if Irish SMEs collaborated with a company in another EU member state.

Mr Martin added that R&D spending should not just be confined to the traditional notion of scientific research, but be broadened to include firms in the services sector and in other industries such as construction.

He said he believes Ireland "has the fundamentals right" in terms of attracting jobs and maintaining investment.

In the last Budget, Minister for Finance Brian Cowen extended the R&D tax credit system until 2013 -- the year the current national development plan comes to an end. That enables companies to delay tax payments and instead funnel cash into R&D projects in the hope of generating revenue-producing products.

The Irish Times reports that European markets shrugged off Société Générale's disclosure of a massive fraud to post their strongest gains since 2003. Buoyed by an overnight rally on Wall Street and hopes of a bailout for bond insurers in the US, stocks rebounded strongly from the previous day's lows.

"The Dow moved up 4 per cent and that gave markets in Europe the go-ahead. With talk of a bailout for bond insurers, everything was right,"said one Irish trader.

The FTSE Eurofirst 300 closed up 5.3 per cent to 1,329.48; Frankfurt's Xetra Dax climbed 5.9 per cent to 6,821.07; the CAC 40 in Paris added 6 per cent to 4,916.98; and London's FTSE 100 rose 4.8 per cent to 5,875.8. The Iseq also put in a strong performance, up about 5 per cent at 6,813.70.

Despite the problems at Société Générale, financial stocks were resilient, largely buoyed by hopes of a solution to the problems facing bond insurers in the US, following the credit rating downgrade of Ambac last week by ratings agency Fitch.

US stocks were modestly firmer in choppy trade yesterday morning as investors digested an array of mixed earnings and renewed weakness among bond insurers after a ratings downgrade. The early gains on Wall Street complemented Wednesday's rally after New York state regulators held talks with banks about a bailout for struggling monoline insurers. These insurers underwrite securitised debt products like the mortgage-backed bonds behind the summer credit crunch. The bailout could involve the banks committing up to $15 billion (€10.2 billion) to support the insurers.

European financial stocks enjoyed strong gains, helped by positive news from Allianz, Europe's largest insurer. Among the insurers, France's Axa was up 10.4 per cent to €24.30, Swiss Re added 9 per cent to 83.25 Swiss francs, while Germany's Allianz rose 11.3 per cent to €123.85. In Britain, life assurers also moved higher, with Aviva up 8.4 per cent to 647.2p, Legal & General 6.9 per cent higher at 134.1p and Standard Life up 4 per cent to 234.3p.

Bank stocks were also lifted. Anglo Irish Bank jumped 9.8 per cent to €10, Switzerland's UBS added 8.1 per cent to SFr47.34 and Franco-Belgian group Dexia climbed 8.8 per cent to €16.20.

Strong results from Nokia boosted the markets, while the mood was helped by upbeat data from the US, Germany and China that encouraged the view that the global situation may not be as grim as feared.

Chinese gross domestic product grew 11.4 per cent in 2007, the highest pace in 13 years.

There were signs of strength in the euro zone, as the Ifo index of German business confidence rose to 103.4 from 103.0 in December.

The Irish Times also reports that French finance minister Christine Lagarde last night expressed the astonishment of the French political class and business community as news that a single rogue trader had lost €4.9 billion at Société Générale (SocGen), a pillar of French finance and one of Europe's most profitable banks

"I have asked the banking commission to . . . tell me very quickly how can it be that despite monitoring by the banking commission, none of the misappropriation by this dishonest employee was detected. I have also asked the banking commission and its president, who is also the governor of the Banque de France, to propose to me additional means of supervision, operational measures, to prevent this type of situation arising again,"she said.

The simple yet sophisticated fraud was being blamed on a Paris-based 31-year-old trader, Jérôme Kerviel. In effect, Mr Kerviel bet billions of euro on future movements in European stock markets and created fictitious hedging positions to cover his tracks. SocGen quickly unwound the equity derivative positions he had amassed, estimated to have totalled €50-€70 billion.

A small crisis team worked round the clock. "We have just lived through the five most difficult days of our lives," said a source close to chairman and chief executive Daniel Bouton.

Both Mr Bouton and Jean-Pierre Mustier, head of the investment bank, tendered their resignation, but had their offer rejected by the board.

Rival banking executives questioned how Mr Kerviel was able to build up such a large position without attracting attention.

They said the mismatch should have been clear from the bank's cashflows, while his fake hedging should have been noticed by desks responsible for borrowing shares to cover short positions.

However, Mr Kerviel appears to have built up his losses over a very short period. He closed his position in December at a small profit, Mr Mustier said, before starting trading again early in January. SocGen executives were first alerted to the fraud late on Friday after a tip from another trader. At the time, Mr Kerviel had built up losses of about €1.5 billion. But as SocGen attempted to unwind his positions on Monday, falling stock markets around the world quickly multiplied the losses.

The final figure puts other similar frauds in the shade. In 1995, Nick Leeson broke Barings Bank which crashed with losses of close to £827 million, largely attributed to futures contract speculation and fudged financial records by Mr Leeson.

Another rogue trader, John Rusnak, was sentenced in 2003 to seven and a half years in prison after he admitted hiding $691 million in trading losses while working at Allfirst Financial, a subsidiary of Allied Irish Banks.

Despite €6.9 billion in overall losses, SocGen expects to report net profits of some € 700 million for 2007. The bank made € 5.2 billion in profits in 2006. SocGen will raise €5.5 billion through an emergency rights issueto ensure that its capital reserves remain strong. The price of the issue will be formally set after SocGen reports its results for 2007.

Although it discovered the problem at the weekend, SocGen waited until it could unwind the trades before revealing their extent. The scandal shocked the French establishment, which closed ranks to support the bank.

About 100 shareholders of French, Dutch and Belgian nationality filed a lawsuit with the Paris prosecutor for "fraud, abuse of confidence, forgery and possession". In Davos, where he is attending the World Economic Forum, French prime minister Francois Fillon said the SocGen fraud "is a serious affair but has nothing to do with the instability of world financial markets" this week.

The Irish Examiner reports that the United States and other countries must not demonise sovereign wealth funds as they come to the aid of troubled US banks, some of the world’s biggest state-run investors said yesterday.

A top US official denied the United States feared government-run investment funds, many of them based in Asia, the Gulf and Russia, but said their rapid growth demanded vigilance.

Sovereign fund managers at the World Economic Forum in Davos accused rich nations of labelling them as a potential threat with no evidence that they are destabilising the global economy, trying to wield political influence or threatening national security.

“It’s like the sovereign wealth funds are guilty until proven innocent,”said Mohamed Al-Jasser, vice-governor of the Saudi Arabian Monetary Agency.

“Are we creating a straw man before we destroy it? We have to be careful about that,” he told a panel discussion packed with business and political leaders.

This year’s Davos gathering has been dominated by talk of the failings of the US financial system, and whether state-run investment funds pumping billions of dollars into troubled banks are essential to calm global markets.

Sovereign funds have replaced hedge funds and private equity as the major driver of the global market as they seek to invest huge currency reserves in Western businesses, notably the banks.

On Wednesday, US President George W Bush issued an order to clarify procedures for a US law strengthening national security reviews of foreign deals, while at the same time saying the United States welcomed foreign investment.

The order came after several foreign government-controlled funds from the Middle East and Asia injected tens of billions of dollars into major US banks, which badly need capital to write down losses related to US subprime mortgage investments.

The head of the Kuwait Investment Authority, which injected $5 billion (€3.3bn) into Citi and Merrill Lynch this month, emphasised all it investments have been commercially driven and wealth funds are no different from other large investors.

“We look at the bottom line, we don’t look at anything else. We have been passive in all our investments,”
said Bader al Sa’ad, managing director of the Kuwaiti agency, noting his fund had been a shareholder in German carmaker DaimlerBenz since 1969.

“We haven’t been active in any of our (holdings). All this fear about sovereign wealth funds has no real basis... Why do only sovereign wealth funds need to be regulated and not other large investors?”


The US administration official denied Washington feared the funds.

“At this point, the history with sovereign wealth funds is they are generating higher investment returns without generating political controversy,” US Deputy Treasury Secretary Robert Kimmitt told the panel.

“However, the growth in the size and the number of these funds is such that vigilance is required.”

Sovereign wealth funds’ assets are set to reach $12 trillion (€8 trillion) by 2015, almost 10% of all financial assets in the world.

“These are only an aspect of a much bigger phenomenon. This is an enormous shift of power and influence in the world. It is mainly the story of the rise of China and India,” Singapore’s foreign minister George Yeo Yong-Boon said, adding that the Asian giants should join the world’s G7 and G8 policy discussion groups.

A top Gulf regulator expressed bafflement about the debate.

“There is a lot of rhetoric at the moment.

“Nothing has actually happened,”
said Phillip Thorpe, who heads the Qatar Financial Centre Regulatory Authority.

“As far as I can see there is transparency about transactions and there is no manipulation. So what is the problem?” Mr Thorpe said.

The Financial Times reports that a lone rogue trader was on Thursday night being blamed for the biggest fraud in investment banking history after Société Générale, one of the pillars of French finance, revealed his actions had cost it €4.9bn (£3.6bn) and forced it into an emergency €5.5bn cash call on shareholders.

Jérôme Kerviel, a 31-year-old Paris-based trader working on the bank’s European equities derivatives desk, was already being portrayed by the governor of the Banque de France on Thursday as a “genius of fraud”.

The whereabouts of Mr Kerviel, who had been interrogated by SocGen chiefs over the weekend, were unknown, although his lawyer on Thursday night dismissed rumours he had fled and told the French press he was available if needed by the authorities.  

Mr Kerviel risked billions of euros on equity derivatives – in effect betting on future movements in European stock markets – and created elaborate fictitious hedging positions to cover his tracks in a covert scheme.

SocGen, the world’s leading equity derivative trading house – it claims to have invented the instruments – quickly unwound the positions he had amassed, estimated at €40bn-€50bn. SocGen’s fire sale contributed to the heavy stock market falls on Monday that provoked the US Federal Reserve’s dramatic interest rate cut the following day. The Fed was informed of the SocGen problem on Wednesday by the Banque de France. 

SocGen denied that its operations had caused the market fall because it kept them to about 10 per cent of trading volumes. Analysts pointed out that markets began to fall before the sell-off.

The fraud also overshadowed SocGen’s announcement on Thursday of a €2bn hit from the US mortgage crisis, in addition to the €375m of writedowns taken in the third quarter. SocGen shares fell 4.14 per cent, ending down €3.27 at €75.81. Both Daniel Bouton, executive chairman, and Jean-Pierre Mustier, head of the investment bank, tendered their resignations but had their offers rejected by the board. Nonetheless their future with the bank is in doubt. Although it discovered the problem at the weekend, SocGen waited until it could unwind the trades before revealing it.

The scandal – incorporating a fraud significantly bigger than the $1.4bn deception that brought down Barings Bank in 1995 – has shocked the French establishment, which moved quickly to avert a crisis of confidence.

Christian Noyer, governor of the Banque de France, said: “I am not worried about confidence. The proof is that Société Générale, even with such an unprecedented fraud – that was conducted with a sophistication also without precedence – can be repaired in three days and emerge stronger than before [due to the capital increase].”   

Mr Kerviel appears to have built up his losses over a short period using accounts and passwords belonging to colleagues. SocGen was first alerted to the fraud late last Friday, following a tip from another trader. At the time, Mr Kerviel had built up losses of about €1.5bn, which spiralled as the positions were unwound in a falling market.

Mr Mustier said he believed Mr Kerviel acted alone and did not profit personally, although his motive was unknown.The trader and up to six people above him have been sacked. SocGen is understood to have filed a complaint with police.

SocGen will raise €5.5bn through an emergency rights issue, underwritten by JPMorgan and Morgan Stanley, that will leave its Tier One capital ratio higher than before at 8 per cent. The price of the issue will be formally set after SocGen reports its results for 2007 next month.

But the crisis has revived speculation that SocGen will become a takeover target.

The FT also reports that business launched a scathing attack on the government on Thursday after Alistair Darling unveiled capital gains tax concessions.

Critics argued the new regime would “seriously clobber” wealth creators and send “all the wrong signals” about the UK’s attitude to entrepreneurship.

The withering riposte from leading employers’ organisations came after the chancellor sought to address business concerns over his decision to scrap the 10 per cent CGT rate for many business assets and impose a single 18 per cent rate from April. Mr Darling announced a new “entrepreneurs’ relief”, offering small business owners a capital gains tax rate of 10 per cent on lifetime gains of up to £1m. The climbdown will cost an estimated £200m a year, reducing the £900m annual revenue the CGT reforms were designed to generate.

The chancellor said tax simplification – the stated original intent of the reforms – remained “a good thing if you can do it” but the government had listened to business protests. “The proposals I announced in October were right then and are right now but it is right to recognise the concerns of small business,” Mr Darling told MPs.

But a lukewarm welcome from some business groups was drowned out by protests about the impact of the new CGT regime as a whole and the government’s perceived mishandling of the reform.

How the new system will operate

● A single 18 per cent rate of capital gains tax will take effect on April 6, ending the taper relief 10 per cent rate for business assets held for at least two years

● A new “entrepreneurs’ relief”, announced by the government on Thursday, will offer a 10 per cent CGT rate on lifetime gains of up to £1m. The measure will help people who own a stake of at least 5 per cent in a trading business and are also an employee, company director or other officer of that company

● The relief will help an estimated 80,000 business owners and investors in the next tax year, 90 per cent of whom are forecast to pay CGT at the 10 per cent rate only. The move will reduce the government’s expected additional tax take from the CGT reforms by £200m to £700m a year

● Alistair Darling, the chancellor, pledged on Thursday to keep the £1m limit “under review”

● More anti-avoidance legislation is in the pipeline, designed to stop people disguising income streams as capital to benefit from lower CGT rates

● The “next steps” on measures to prevent abuse will be published after a consultation is completed, Mr Darling said. “I want to be satisfied that only genuine investors benefit from the reformed CGT regime,” he told MPs

Richard Lambert, director – general of the CBI employers’ body, warned that the “superficially quite clever” new relief would “do nothing to help the real business powerhouses of this country”. The “real wealth and job creators of the UK’s economy ... will be seriously clobbered”, he said. “The bottom line is that the reaction of the UK government, in the face of an economic slowdown, has been to slap on a major tax hike of £700m. This will have a damaging effect on job creation, investment and savings at exactly the wrong time in the economic cycle.”

Other leading business groups also went on the attack. Martin Temple, chairman of the EEF manufacturers’ body, said the “helpful concession” did not mask the fact that the government’s tax policy “sends out all the wrong signals” about the UK’s attitude to business.

The insurance industry vowed to step up pressure on the government over changes that it says could jeopardise life assurance sales worth £35bn a year.

The Association of British Insurers said it expected to hold ministerial-level meetings in an effort to address the disparity between the capital gains tax regimes for collective investment products, such as unit trusts, and insurance based savings products, principally investment bonds.

The reaction from inpidual entrepreneurs was also generally negative. Mark Constantine, founder of the Lush chain of more than 500 cosmetics stores, told the FT the partial climbdown “exposes Gordon Brown as a ditherer”. The government is “gathering more and more money but does not have the management ability to allocate it”, Mr Constantine said. “If I ran my business like that, I would get the sack.”

Yoav Leitersdorf, a globe-trotting entrepreneur and venture capitalist who sold his UK-based internet business Movota to a big media group in 2005, warned: “The UK is shooting itself in the foot. A lot of entrepreneurs aim to sell for more than £1m. You don’t want them relocating to Switzerland, Luxembourg or Cyprus, which will now have more attractive regimes.”

The Tories characterised the concession as a “humiliation” for the chancellor, saying he had been forced to “dismantle the single-rate CGT regime even before it’s been put into place”.

 

The New York Times reports that useful, but flawed and probably not enough: that, in general terms, was the verdict pronounced on the $150 billion emergency spending plan agreed to by the White House and Congressional leaders on Thursday in a bid to stimulate the suddenly sputtering economy.

Most economists praised the deal as a necessary effort that by increasing the public debt to put cash swiftly into the hands of ordinary consumers, could limit the severity and duration of a recession and very likely spare some jobs.

Nonetheless, economists of nearly every ideological stripe also found substantial fault with the plan: liberals, because it does not expand unemployment benefits or food stamps; conservatives, because it fails to lock in President Bush’s tax cuts beyond their planned expiration in 2010.

Few economists thought the stimulus plan alone would be adequate to keep the economy clear of a recession. Yet many portrayed the package as a significant psychological boost for anxious markets around the world, a sign that the Washington overseers of the American economy are seriously engaged in finding a fix.

“It is a much needed and very constructive step,” said Lawrence H. Summers, the Treasury secretary in the Clinton administration who has recently called for specific and temporary tax cuts. “It will provide some confidence. But policy-making will need to be on standby, because more may be needed.”

The plan was a result of intensive horse-trading between Democrats and the Bush administration, bringing to the fore fundamentally competing notions about economic policy. But the basic goal was shared and simple — keeping the economy growing at a time when millions of Americans are losing confidence and cutting back in the face of falling home prices, mounting debt and rising joblessness.

At the center of the plan is an effort to spur consumers, whose spending makes up 70 percent of the American economy. The plan leans heavily on cash payments for all but the wealthiest Americans, assuming that money put in pockets will swiftly find its way into cash registers, generating jobs at restaurants, retail outlets and banks and on the factory floor.

The most fervent proponents of free markets criticized the plan as a damaging intrusion by government that incurs public debt for dubious subsidies.

“The economy is working these things out,” said David R. Henderson, a libertarian economist at the Hoover Institution at Stanford. “We’ve got the housing crisis and the subprime, and all these things take a while to settle. The government just doesn’t have the discipline to kind of let things work out.”

But in recent weeks, mainstream economists from across the political spectrum have come to the conclusion that growing economic turmoil demands that significant public money be poured into limiting the pain of a downturn.

Still, the way the deal was cut left many bemoaning the compromises.

Democrats had sought the extension of unemployment benefits and an increase in food stamps. Research shows these measures deliver the largest increases in spending, because poor people are prone to buy what they need when given the chance. Wealthy people, by contrast, tend to save more when taxes are cut.

The Bush administration insisted on rebates alone, and House Democrats relented in exchange for adding payments to people who do not pay income taxes.

“They gave up pieces of the package that were more effective,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington, who blamed the Bush administration for blocking the expansion of benefits. “It’s a political choice, and a bad one. It’s an ideology that says, ‘I can get a lot more credit for tax cuts than I can for expanding unemployment insurance.’ ”

Unemployment among blacks and Hispanics has been rising at triple the rate for whites, while the time it takes for people to find new jobs has been lengthening, according to government data. Some experts argue that by failing to expand unemployment benefits, the plan leaves minority groups most vulnerable to a recession.

“It’s way inadequate,” said William Spriggs, an economist at Howard University in Washington. “It doesn’t fix the problems we have with the safety net.”

Seven years ago, the last time the government handed out rebate checks in a downturn, recipients spent two-thirds of the money within six months, according to Mark Zandi, chief economist at Moody’s Economy.com.

This time, unlike the last, some of the money is going to people who do not pay taxes, so an even bigger surge of spending is likely, he said.

“This is a very positive, big step,” Mr. Zandi said.

But much has changed in recent years. Given that a lot of Americans are so deeply in debt, some economists said, many may use the money to pay off bills rather than to buy new goods and services. “People are already behind on mortgages and credit cards,” said Gary A. Hoover, an economist at the University of Alabama.

Another big factor is that an increasing share of goods sold in the United States are made overseas. During the 2001 recession, 18 percent of what Americans spent on food and manufactured goods was imported, according to the Commerce Department. By 2006, the share had risen to 21 percent.

“A great deal of any stimulus is going to be sent overseas,” said Alan Tonelson, a research fellow at the United States Business and Industry Council, a trade association of small manufacturers that lobbies to limit imports.

Other analysts argued that the best way to ensure that dollars do not leak abroad would be to spend them on state-financed public works projects employing large numbers of people — repairing levees and dams, fixing bridges or building schools.

The money could also be directed to states that face shrinking tax revenues as the economy contracts. An infusion of federal money would allow them to sustain construction programs and social services for the poor.

“The first people to go in this squeeze are social workers, and that should not be,” said Paul A. David, an economic historian at Stanford. “When people are short of money or unemployed, they have trouble at home and need help.”

Debate over the stimulus plan also tripped one of the key fault lines in American economic policy — argument about the merits of tax breaks.

The Bush administration championed tax cuts for businesses, arguing that this would coax companies to expand. But many economists question that assumption, asserting that if consumers lack money to spend, then businesses will stand pat or even cut back and fire people, whatever the tax rate.

“Breaks in taxes for corporations are unlikely to make a difference,” said Desmond Lachman, an economist at the American Enterprise Institute. “There’s waste in it.”

But conservatives who expound the supply-side view expressed disappointment with the plan because it focused on temporary tax cuts rather than improving economic incentives through lower rates, which tend to benefit the wealthy the most.

Over the last quarter-century, Republicans have generally argued that the economy grows when money is freed up through lower taxes for all, businesses especially. Some argue that the prospect that a new administration will take office next year and increase taxes is damping investment now, stifling the creation of new jobs.

“One of the factors that’s currently souring this economy is the prospect that taxes are going to be rising in the future,”said William W. Beach, a senior fellow at the conservative Heritage Foundation in Washington. “I’m concerned about the bang for the buck.”

The NYT in reports from Hong Kong and Shanghai, says that Asian exporters are already feeling the effects of an American economic downturn — effects that may be magnified by a weak dollar, volatile world markets and fears that more bad loans may be ticking in the coffers of American companies.

Rather than waiting for things to get worse, companies from Chinese garment businesses to Japanese equipment manufacturers are changing how they operate.

The weakening American demand is clear. American orders for small tractors fell 5 percent last year at the Kubota Corporation in Osaka and are expected to fall further this year. Orders from the United States have been weak for a year at Top Form, the Hong Kong company that is the world’s largest bra manufacturer. And at Aigret Industries, a manufacturer of multiline phone systems and fax machines in Xiamen, China, orders from the United States plunged 30 percent in the fourth quarter compared with a year ago.

In some Asian industries, the result has been deep gloom. At the Evergreen Knitting Company in Ningbo, China, orders from the United States for T-shirts and sweaters abruptly dropped 20 percent this winter. The company expects some rival Chinese knitwear producers to shut down altogether.

“We anticipate that this year, 10 to 20 percent of the knitwear factories will have to close due to the inability to compete,”said Sean Zhu, Evergreen’s sales manager.

In response to the downturn, some companies are pursuing remedies that will affect economic output, like Aigret Industries, which has lengthened next month’s Chinese New Year vacation for its workers to 20 days, instead of the usual 10.

Others are investing in more technological research and developing new models, like the Xigo Electric Company in Zhongshan, China, which manufactures air-conditioners and liquid-crystal display television sets.

“We really felt the impact of the slowdown in the U.S. during the second half of 2007,”said Stan He, a Xigo sales manager. “Orders were generally down by 10 to 20 percent relative to the same period a year ago.”

Asian exporters lie at the center of the debate in financial markets over the extent to which Asia has decoupled from the United States and can grow strongly even if the American economy slows significantly. The evidence so far is that the effects of an American slowdown will vary widely, depending on each country’s reliance on exports and the extent to which each country’s economy is currently overheating or stumbling.

China, which has struggled in recent months with rising inflation, has actually benefited from slower exports — although a steeper decline could prove a problem. The Chinese government announced on Thursday that growth eased to 11.2 percent in the fourth quarter, from 11.5 percent in the third quarter and 11.9 percent in the second quarter.

The modest slowing, almost entirely because of less brisk growth in exports, helped reduce inflation to 6.5 percent in December from 6.9 percent in November, the government said.

But with fixed-asset investment still soaring in China, Xie Fuzhan, the director of the National Bureau of Statistics, warned at a press conference in Beijing that China was still worried that overall growth was too fast to be sustained without inflationary pressures.

For countries that were already struggling with weak growth and faced little if any inflation, like Japan, weak exports are proving a serious setback.

“Now we see ‘re-coupling,’ ”said Tetsufumi Yamakawa, chief economist in Tokyo for Goldman Sachs. “The economy of Japan is proving disappointingly fragile to external shocks.”

China overtook Canada last year as the largest exporter to the United States. But year-over-year growth in Chinese exports to the United States slowed sharply last autumn, posting a gain of just 7 percent in November from a year earlier. That was only slightly greater than the appreciation of the Chinese currency against the dollar over the same period, suggesting that the actual volume of Chinese goods headed to the United States stagnated.

For Japan, Malaysia, Thailand, Australia, Bangladesh, Sri Lanka, Cambodia and Indonesia, exports to the United States actually dropped in dollar terms in November.

On Wednesday, Citigroup cut its average estimate for economic growth this year among Asian economies by four-tenths of a percent, while reducing its estimate for growth in the United States by seven-tenths of a percent, to 1.6 percent.

The question across Asia is how much worse can it get.

Willie Fung, the chairman of Top Form, said that American stores were not oversupplied with bras after the Christmas season.

“Apparently it is not going from bad to worse. I hardly notice any changes over the past couple months as far as demand is concerned,”he said.

A few exporters are even upbeat.

“I have not seen orders go down from the U.S. or from Europe,”said Alice Lam, a sales manager at the Shunde Growth Corporation, which assembles bookcases and other furniture in Shunde, in southeastern China, from imported Taiwanese steel.

But many exporters are worried. Kubota is trying to increase sales of larger tractors and expand market share in Thailand, China and Europe to offset small tractor weakness in America.

Fuji Heavy Industry, which makes Subaru cars, is also fretting. “Our concern about the future of the U.S. economy is becoming very strong, though our sales aren’t declining now,” said Shinichi Murata, a Fuji spokesman. He said Subaru may offer incentives, like price cuts or better terms on car financing deals.

China’s garment industry is particularly wary.

“Because of the subprime crisis in the U.S., the U.S. economy is not as big as in years before — a lot of Chinese textile companies are getting fewer and fewer orders from the U.S.,”said Cao Xinyu, the deputy director of the China Chamber of Commerce for the Import and Export of Textiles.

But executives at six different manufacturers said in separate telephone interviews this week that their biggest worries lay not in the United States but at home.

The Chinese government is imposing stricter labor laws and tighter environmental regulations while cracking down on corporate tax evasion and making it harder for companies to claim large rebates of the value added taxes that they pay.

Chinese officials have imposed export quotas on the number of garments shipped, forcing companies to make fewer but costlier products that compete with clothing from higher wage countries. “They really have stepped up their efforts,” Mr. Fung of Top Form said, “to attain what they want to see.”

 

 


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