Tuesday, June 29, 2004

HIGHLIGHTS


ECONOMY – EU-CHINA

EU Rejects China's Bid For Market Economy Status
The European Union has refused China's bid to be recognized as a market economy after an investigation by the E.U. Commission concluded the Chinese government still micro-manages the economy, an E.U. spokeswoman said Monday.
'To arrive at that position we need to establish there is no state interference,' said Arancha Gonzalez, spokeswoman for the Commission's trade department.
In the past year, China has been lobbying hard for the so-called market economy status, which would make it harder for other countries to accuse it of flooding the market with cheap exports and level penalties against it.
In a report submitted to the Chinese authorities, the E.U. has also requested that China install and abide by corporate governance practices and accounting rules in order that accounting information be reliable enough to be consulted when China is accused of violating trade agreements. Laws governing bankruptcy and property rights will have to be imposed and implemented. Finally, China's banking sector must be freed of government control.
Until it fulfils these criteria, China will remain a non-market economy. That official label means its local prices and costs won't be used to determine whether it is dumping cheap exports. Instead, the E.U. will use prices and costs in a third country that is a market economy to determine whether China is guilty of dumping and calculate anti-dumping penalties accordingly.
The E.U. currently has 32 anti-dumping measures in force and 22 anti-dumping investigations going on against China, which is considered a non-market economy. Last year, 0.5% of Chinese exports to the E.U. were subject to anti-dumping charges.
The most important products by import volume subject to measures are bicycles and bicycle parts, fluorescent lamps, dead-burned magnesium and fluorspar, a commission statement said.
The U.S. has imposed anti-dumping duties on textiles, televisions, and wooden bedroom furniture - buoyant sectors that accounted for nearly one-fifth of Chinese exports last year.
Write; by LuisB, June 04

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AIRLINE INDUSTRY – TAIWAN

China Air Interested In Airbus A380 Planes
Taiwan's China Airlines Ltd may buy Airbus's super-jumbo A380 planes for medium to long-haul passenger and cargo services, the Economic Daily News reports, citing China Air Chairman Y.L. Lee.
Lee made the remark during a visit to Airbus headquarters in Toulouse, the report says.
While China Airlines may consider introducing A380s to its fleet, the company has set no timetable for such a plan, the report adds.
Source; ROC media, June 04
Write; by LuisB

Picture; Airbus A380

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DIGITAL DIVIDE – SOUTH PACIFIC

InternetNZ to aid Pacific ICT growth
InternetNZ and Unesco have launched an initiative to boost the use of information and communication technology in the Cook Islands, Niue, Samoa and Tokelau.
The New Zealand National Commission for Unesco, the United Nations Development Programme's (UNDP) Apia office and InternetNZ have drafted a memorandum of understanding to form the Pacific Internet Partners initiative.
The partner countries were chosen because of their strong links to New Zealand.
Laurence Zwimpfer, the National Commission deputy chairman, said the development of ICT skills in the Pacific was regionally important, and would be aided by the collaboration.
The initiative will see support this year for a Vanuatu conference, fostering of the establishment of national ICT professional organisations, and the establishment of internship and mentoring exchange programmes between New Zealand and the nations involved.
InternetNZ president Keith Davidson said members had wanted to get such an initiative off the ground for some time.
"By combining forces with UNDP, who are on the ground in these countries, and with Unesco's influence, we'll be getting significantly more bang for our buck."
Joyce Yu, of UNDP's Apia office, said the collaborative effort would allow better use of resources for meeting the UN's Millennium goals.
Don Hollander, chairman of Wellington's 20/20 Trust, who recently returned to New Zealand after two years working in Samoa on UNDP projects, said the agreement had been structured to let other interested parties join.
Hollander said Unesco New Zealand wanted to be involved in developing ICT skills in the Pacific.
Source; New Zealand Herald, June 04
Write; by Richard Pamatatau
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FOCUS


INTERNET – MARKET PERSPECTIVE

Examining the Twists and Turns of the Internet Bubble
Roger Lowenstein begins his book, Origins of the Crash: The Great Bubble and Its Undoing with the quote, “Set our course by the stars, not by the lights of every passing ship.” If only Wall Street could have appreciated a good metaphor as much as it appreciated earnings statements. Instead, the real life characters in Lowenstein’s cautionary tale spend the 1990s chasing passing ship after passing ship and disregarding the stars. The outcome would prove disastrous.

The author of two best-selling books, Buffett: The Making of An American Capitalist and When Genius Failed: The Rise and Fall of Long-Term Capital Management and current SmartMoney columnist, Lowenstein takes readers on the fateful journey through the stock market’s late century rise and subsequent slide into the new millennium. The author crafts an easy-to-read, well-researched tale that unfolds like a horror story. The villains - corporate America’s executives and their posse - get bolder at every turn and the main character - the stockholder - falls prey to the inevitable outcome.

Early in the book, Lowenstein lays out the ingredients that create this fateful cocktail. For more than half a century following the Great Depression, the stock market had fallen out of favor. But a recession took hold in the 1970s and stock prices fell. The “cheap” public companies were then taken over - many times by rivals in the same industry - by corporate raiders who purchased a majority share from company stockholders. By the mid-1980s, takeovers had morphed into leveraged buyouts (LBOs), or buyouts financed by debt. No publicly traded company was safe, and the groundwork for what Lowenstein calls “the great bubble” began to take shape.

“To escape a buyout, CEOs felt they had to raise their share price. This was a significant departure. Previously, stock prices had been seen as a long-term barometer,” writes Lowenstein. “A new phrase crept into the argot: ‘shareholder value.’”

Unfortunately, CEOs, whose job it was to maximize shareholder value, began to distance themselves from the phrase’s true meaning. According to Lowenstein, the culprit was the stock option. Although stock options existed prior to World War II, they entered the scene in a reenergized way in the early 1990s.

By giving company leaders a substantial amount of company stock, so went the reasoning, CEOs would become shareholders in their own firms, and would then behave like owner-managers. Hindsight proved this thought process incorrect. Since CEOs were not investing their own money, they assumed no risk. Writes Lowenstein: “A poker player will be aggressive when he is playing with ‘house money.’

“Execs intent on ‘managing’ their stocks became hypersensitive to a single number: quarterly earnings per share. From an economic perspective, quarterly numbers are virtually irrelevant because it typically takes years - not months - for businesses to bear fruit…. The game was to keep earnings rising, but never by too much, so as to save more for the next quarter,” Lowenstein writes.

Accounting statements became less and less transparent. And as financiers got more and more clever - and as they walked the line between creative accounting and illegalities - they found themselves rewarded, notes Lowenstein. In 1999, Andrew Fastow, Enron’s CFO, was awarded one of CFO Magazine’s prized Excellence awards for pioneering “unique financing techniques.” A year before, Scott Sullivan, WorldCom’s CFO, had garnered an “Excellence award.” A year later, in 2000, Tyco International’s Mark Swartz joined Fastow and Sullivan as Excellence award winners.

“That all three winners were eventually indicted testifies to Wall Street’s weakness for (too-) clever financiers. And it hints at a serious problem with creative accounting: it can lead to outright violations and fraud,” writes Lowenstein.

Making a quarterly number isn’t exactly the formula for long-term or enduring shareholder value, but Lowenstein argues that investors - especially professional investors - wanted to be mislead. “Fund families such as Janus, Van Wagoner, and Putman would stuff their portfolios with Cisco, Qualcomm, JDS Uniphase - the hottest stocks - which purchases would drive up the stocks and thus the fund prices higher,” Lowenstein says.

Lowenstein dots his historical narrative with juicy behind-the-scenes details from memos, meetings, and events. They lend a third dimension to Origins of the Crash. One such detail comes from a 1998 speech SEC chairman Arthur Levitt gave at the Stern School of Business at New York University. Levitt told students that “trickery is employed to obscure actual financial volatility.”

If Levitt knew this in 1998, why didn’t the SEC do something? Because the SEC was understaffed and it couldn’t catch up with “corporate miscreants” until many quarters later if at all, explains Lowenstein. “The lack of an effective deterrent, combined with the perverse structure of options, meant that, the rhetoric of pay-for-performance notwithstanding, many executives had an incentive to cheat,” he notes.

Although Lowenstein spends an entire chapter chronicling Enron (which he calls the “single corporation [that] could represent the corruptions of shareholder value”) and much of the following chapter deconstructing WorldCom, he is quick to point out that these companies were not alone in their misdeeds. He offers readers several synopses of other questionable dealings, including General Electric and its star CEO, Jack Welch; Tyco and its acquisition-crazy CEO, Dennis Kozlowski; Xerox; Webvan; CMGI, an Internet incubator; and AOL’s merger with Time Warner.

Along the way, Lowenstein takes issue with analysts, bankers, auditors, lawyers, politicians, venture capitalists, the financial press and investors. In many ways, they all conspired to look the other way. Groupthink prevailed. Lowenstein uses the case of Priceline to make this point: “By 1999, Priceline, which resold airline tickets but owned neither gates nor planes, was worth almost as much as the entire, tangible airline industry…. The bizarre yet inescapable conclusion was that according to the mathematics extant at the turn of the millennium, a dotcom stock was worth more than an actual, cash-generating business.”

Although the stories in Lowenstein’s books are not new, his ability to flesh them out with firsthand accounts and research leaves the reader with an undeniable feeling: what happened to the market at the dawn of the new millennium was years in the making and the manic “virus” of the times spread far and wide.

In the aftermath of the great bubble, what is left is a savvier public, beefed up government regulations and an SEC with as much bite as bark. For example, the Sarbanes-Oxley Act of 2002 aims to reign in the accounting profession. CEO compensation packages are becoming more realistic. Those who sit on boards of directors are now held accountable. According to Lowenstein, ten underwriting firms were fined $1.4 billion for their part in the corruption and analysts are now barred from promoting their firms’ IPO’s. Many of the corporate executives who created glowing quarterly earnings face jail time.

Yet, has anything been learned from these events? Perhaps Lowenstein’s notes on the last page of his book, say it best: “It is a chief lesson of the scandals that the culture of a community, more than any laws, provides the moral determinant for its behavior.”
Source; University of Pennsylvania, June 04

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MEDIA – INTERNET

Forget Radio, Tune In to Net
Web music broadcasting is the best thing to happen to radio since FM.
The concept has many names: Web radio, webcasting, streaming jukeboxes, Internet broadcasts. But the idea is much the same. Music fans "tune in" to various services through their Net-connected PC, where they can hear music from a huge range of genres. And not just the same 20 songs over and over again, like commercial radio. With Internet radio, listeners can tap libraries of millions of songs that would never be broadcast on the airwaves.

MusicMatch music player software, a fine rival to applications like Winamp. A free version of the program offers free streaming - unlike competitors like Napster and Rhapsody. Just keep in mind you have to keep a full-blown application running in the background to use this service.

The stations are fairly basic, with a few nice options: Listeners can skip songs and are alerted to the next artist in the queue. And, like Launchcast, users can create their own station based on their favorite artists. The more you use the service, the better it is at identifying your tastes.
A music store is integrated into the player, making it easy to purchase songs or albums you just heard. You also get an added bonus if you decide to use MusicMatch to store and organize your MP3s - it has some of the best rating and personalization features around. It's just a shame you can't carry the power of that personalization to the online radio features, which would make the whole package the ultimate jukebox.

Radio Free Virgin Lite: Here's a player that lives up to its lite name. It has virtually no features. There's no need to download anything - the Web-based player launches at the click of a button on the homepage. A listener can select from 30-odd channels - some that are very slow to load - and that's it. While the player displays the song title, artist and album cover, there's no countdown, skip button, song history or customization options. While there is a volume adjustment on the player, it didn't work during our test.
Perhaps the only thing going for this service is that it's easy on the ads. There aren't any pop-ups, which is nice. And the audio ads are few and far between, making it easy to listen to a number of songs without interruption.

Winamp Radio: While better known as an MP3 player, Winamp shouldn't be overlooked as an online radio service (in version 5.03c, click the Internet Radio link in the Media Library). It features a diverse collection of free music with superb sound quality.
Listeners can also access several of these stations through the Shoutcast directory. Shoutcast is a Winamp-based streaming audio system. It's also where aspiring DJs can spin their tunes for other listeners.
Scroll through the list of 500 streams and you can find everything from Korean DJs broadcasting blues to Russian pop hits, and find entire symphonies or video-game soundtracks. It's a nice alternative to some of the Net broadcasters that make you join their premium services to access the more obscure music.
You can also see cool information like bit rates and the number of other listeners tuning in. Another cool feature: Right-click on the station and you can bookmark it. No pop-up ads, either.

The drawbacks? Stations are occasionally cut out or are inaccessible, because many of them are run by independent broadcasters. And listeners don't receive much information on each
song beyond artist and title.
Source; Wired, June 04
Write; by Katie Dean

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ECONOMY – US

US: Consumer confidence on the upside
- In June, consumer confidence as measured by the Conference Board index markedly improved, gaining 8.8 points (to 101.9), with current conditions up by 14.3 points (to 104.8) and expectations by 5.2 points (to 100.0).
- Last Friday, the University of Michigan released the final reading of its own index for June, up by 0.4 point versus the preliminary reading. Compared with end May, the headline index was up by 5.4 points, with current conditions gaining 3.9 points over the month and expectations 6.9 points from May to June.
- While the index from the University of Michigan remained in June below the high of January, the index from the Conference Board reached its highest level of 2004, and in fact its highest reading in two years. After a marked rebound in January, both indices lost ground until May. However the fall in the index from the Conference Board index was limited to 4.6 points (from 97.7 in January to 93.1 in May) while the University of Michigan index decreased by 13.6 points (from 103.8 to 90.2).
- Details show that both declines were due to the component for expectations, even if, and contrary to the Conference Board index, the University of Michigan current conditions index also suffered. Regarding the Conference Board, expectations lost 10.5 points from January to May, while the economic outlook index from the University of Michigan declined by 18.5 points.
- Going further into details, it appears that expected business conditions were the main concern. Indeed, the decline recorded by expectations from the University of Michigan was due to an expected deteriorating financial position for just 15%, 85% of the deterioration coming from worse business conditions (especially over next year). Even if more broad-based, the deterioration of expectations according to the Conference Board survey was also mainly caused by business conditions (47%), and to a lesser extent by prospects for labour (31%) and income (22%).
- The University of Michigan provides with deeper details. For instance, it published an index retracing news heard about business conditions. These details show that the main component that drove down the composite index from January to May was "bad news from higher prices". This return of accelerating inflation is also illustrated by the sharp increase in the expected rate of inflation over next year, which is also part of data provided by the University of Michigan. While this expected rate was 2.7% in January, it jumped to 3.3% in June.
- Consumers thus expect inflation to accelerate. The first question to be raised is: Is this bad news? The answer is: No, not at all. When the Fed highlighted the deflation risks (in much softer terms…), one of its goal was to revive inflation expectations. Indeed, deflationary expectations can proved self-fulfilled: if consumers expect prices to go continuously down, this is never time to consume, since products will get cheaper with time; demand is thus contracting, which leads to downward pressure on prices. The marked increase in expected inflation is thus good news since it is an additional illustration that the risk of the deflation is well off the table.
- But does this increased expected inflation could be the sign of inflation actually accelerating? First of all, the sharp rise in oil prices since the beginning of the year surely contributed to the rebound in expected inflation. Second, as shown on the graph on next page, consumers proved particularly bad forecasters for inflation…
- In short, just keep in mind that inflation expectations have risen. In Fed terms, you could say, "the probability, though minor, of a rise in inflation from its low level exceeds that of an unwelcome fall in inflation". In clear, there is currently more risk of inflation accelerating than decelerating. Thus the additional monetary easing bias has to be removed. Something the Fed will start doing as soon as tomorrow, with a "moderate" 25 bp hike.
Source; OECD, June 04


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