NEWS,20.09.2012

China to help resolve eurozone crisis

Chinese Premier Wen Jiabao said on Thursday that Beijing will maintain its efforts to help resolve the eurozone debt crisis, after months of investing in European sovereign bonds."China will continue to play its part in helping resolve the European debt issue through appropriate channels," Wen told a business summit after political talks with European Union leaders in Brussels."In the past few months China has continued to invest in bonds of European governments... and discussed ways of cooperation with the ESM," Wen said, referring to the European Stability Mechanism, a new €500bn rescue firewall set up by eurozone leaders and due to become operational next month."Europe is on the right track in tackling its debt issue," Wen told the audience. "What is crucial now is to fully implement the reforms" it has agreed on economic governance, he said.Wen's remarks saw a shift in tone from the "serious concerns" about spillover effects hurting China that he had expressed just three weeks earlier when German Chancellor Angela Merkel visited Beijing.Almost half of all European exports to China come from Germany, and a quarter of all European imports from China are into Germany.Wen highlighted that China had pumped tens of billions of dollars into the International Monetary Fund this summer, as global economies joined forces in a bid to limit the damage from a global economic downturn.And he said this was done for "strategic" reasons, saying the "essence" of China's "stable" relationship with the EU bloc was "long-term" and "not affected by ideological differences or temporary setbacks."Having visited 18 EU member states since 2003 to cement a trading relationship worth a €1bn a day, Wen said the present challenges also presented "huge opportunities" on both sides.While the economic picture was at a "critical juncture," China and the EU were working on a host of levels to "scale-up" trade.The levers through which this would be achieved, Wen said, involved two-way investment with a "need to expand cooperation in infrastructure development" that could see Beijing invest in new EU project bonds.Likewise investment in technological innovation, where he cited nuclear energy or the information technology sector, or European offers of expertise whether in smart cars or sewerage as China steps up urban planning.

Mixed reaction to rate decision

 

SA Reserve Bank (SARB)'s decision to keep interest rates unchanged on Thursday afternoon met with a mixed reaction."From a household sector point of view, the SARB arguably made the right decision not to cut rates further," said FNB property economist John Loos.Given rising household indebtedness, SARB's decision was a good one, as it would preserve longer term residential market health.The household sector carried a high debt risk, and more rapid growth in credit to this group should not be encouraged, said Loos.The sector had improved its payment performance significantly, with insolvencies dropping. But the sector had relied on the SARB to maintain interest rates, which were at historically low levels.It had not made significant financial improvements itself, he said.The Independent Municipal and Allied Trade Union (Imatu) said it was disappointed by bank's decision to keep interest rates unchanged."An interest rate cut would have given our financially strapped members some much needed economic reprieve, and encouraged an increase in consumer spending," said Imatu spokesman Johan Koen in a statement.While the latest consumer inflation figures indicated only a mild increase in food, housing and transport costs, sharp increases in the cost of petrol and diesel would undoubtedly affect prices in the near future.The cost of a basic food basket had increased on average by 16% per year for the last five years. Electricity had effectively increased by 82.3% in the last three years and petrol prices by 11% per year on average for the last decade. Metrorail's ticket prices had effectively increased by 69% in the last three years."An interest rate cut would have given people the much-needed economic breather that is being afforded to other emerging economies," Koen said.The Monetary Policy Committee opted to leave interest rates unchanged, the bank's governor Gill Marcus said on Thursday."The monetary policy committee is of the view that a further reduction in the repo rate would not be appropriate at this stage," she said at a televised press conference in Pretoria.The repo rate would be left unchanged at 5% a year.This is the rate at which commercial banks can borrow money from the SARB. It is used to calculate the prime rate, which banks give their best customers.Marcus said the global growth outlook remained weak.South Africa's trade deficit in the balance of payments posed a risk to the exchange rate. If the rand weakened further, inflation was likely to increase as a result. Although consumer demand was unlikely to impact on inflation, supply-side shocks were possible.Higher food prices and resilient international oil prices could not only impact on inflation, but act as a drag on growth in the near term."This is a combination which poses enormous challenges for monetary policy," she said.The United Democratic Movement said the SARB had made a prudent decision."The SARB had to consider a number of economic performance indicators such as the slight increase in the inflation rate, an improved economic growth performance together with the Eurozone crisis, to keep the South African economy on a steady course," it said in a statement.

Strikes against retail reform rock India

Shopkeepers, traders and labourers in India blocked railway lines and closed markets on Thursday to protest against reforms allowing in foreign retail giants such as Walmart and Tesco.Opposition parties and trade unions called the strike after Prime Minister Manmohan Singh last week announced a raft of reforms designed to revive India's slowing economy, a move that has sparked a furious backlash.Thousands of policemen were deployed in Kolkata in West Bengal state to prevent violence as shops, markets and offices shut down for the 24-hour strike."Train services have come to a halt across West Bengal as strikers squatted on railway tracks," Samir Goswami, regional public relations officer, said by phone.Protesters demonstrated throughout Kolkata in support of the strike, with large rallies planned later in the day in New Delhi and many other cities.Police said that protesters also blocked some national highways.Activists from the main opposition Bharatiya Janata Party (BJP) and its allies gathered at railway stations across Bihar state in north India and forcibly stopped train services, leaving thousands of passengers stranded."Protesters have tried to target trains and bus stations and (we expect) they will also target shops and business establishments," Ravinder Kumar, a senior police officer in Patna, the capital of Bihar, said.All private schools in the state were closed because of the strike, but government schools and offices remained open.The Confederation of All India Traders (CAIT) forecast that 50 million people would participate in the protest against retail reforms unveiled by Singh.Many small business owners and workers fear that the arrival of large-scale foreign supermarket chains will lead to drastic job losses as India's supply chains and shopping habits are transformed.Singh has been buffeted by reaction to the reform package and a sharp rise in diesel prices, with a key West Bengal-based coalition party quitting the government and demanding the policies are reversed.The arrival in India of chains such as Walmart, Tesco and Carrefour is expected to herald a consumer revolution with shoppers moving from small, neighbourhood stores to large, out-of-town supermarkets.The government and many industry leaders argue that a modern retail system would improve value and choice for Indian consumers, create new jobs and enable farmers to reduce wastage.But Singh, weakened by the worst quarterly GDP figures in three years and a series of corruption scandals, faces a major challenge to push through the reforms and boost the economy before elections due in 2014.Truck and bus drivers are also expected to strike on Thursday over a 12% hike in subsidised diesel prices as the government tries to tackle its widening fiscal deficit.Mumbai, the country's financial capital, was largely unaffected by the strike as local political parties declined to support the action.