PRO 21-05-2012_Layout 1 5/21/2012 12:54 AM Page 1
Obama presses ailing Europe to focus on growth Page 02
profit.com.pk
Attock Advises
Monday, 14 May, 2012
The Doctor’s therapy seems to be working Revenue collection grows by 25 pc in 10 months: Shaikh ISLAMABAD: Federal Minister for Finance Dr Abdul Hafeez Shaikh said on Saturday the revenue collection had registered 25 percent growth during the first 10 months of the current financial year (2011-12) as compared to the last year. “If the trend continues, the revenue target of Rs.1952 billion is expected to be achieved by the end of current financial year”, he told journalists after attending a convocation of Iqra University here. He said the budget for next financial year would be announced on June 1. The Finance Minister said the General Sales Tax on services, whether collected by the provinces or by the Federal Government, is the right of former. Replying to another question, the Minister said the United Kingdom (UK) has announced a financial assistance of 1.4 billion pounds for next four years to Pakistan. APP
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Pakistan, India asked to accelerate trade liberalisation Hydel generation jumps to 4,167 MW ISLAMABAD
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HE Attock Chamber of Commerce and Industry (ACCI) on Saturday asked Pakistan and India to speed up trade liberalisation efforts. Pakistan and India are the two most populous and largest economies in South Asia while trade volume remains unsatisfactory, it said. Liberalised trade will help both countries save billions in the transport costs alone that
could be utilised for fruitful efforts, said President ACCI Tariq Mehmood while speaking to business community. Islamabad and New Delhi should hammer out issues impeding trade and growth as both countries have already wasted over half a century in futile struggle, he said. Increased foreign direct investment, increased technology, higher productivity, access to larger markets, efficiency boosts and regional integration are some of the potential advantages of trade liberalization, he added.
Tariq, who is Chairman FPCCI Standing Committee on Health and Director Pak-UK Business Council, said only trade can help bring temperatures down and ensure a cordial environment. He said that now policymakers of two countries have realised that too much focus on security has deprived masses of many benefits. Enhanced trade shouldn’t be confused with compromise on political disagreements, he stressed. Pakistan can easily promote its own economic interests by opening up trade and conflict resolution dialogue with India.
ISLAMABAD: The hydel generation has witnessed sharp increase owing to improved water inflow in all major rivers and it stood at 4,167 MW during the last 24 hours. According to the report on daily power generation and load-management position on Daturday, the total generation was recorded as 11,887 MW against the demand of 16,387. The hydel generation stood at 4,167 MW, WAPDA thermal 1,704 MW and Independent Power Producers (IPPs) 6,016 MW. The electricity shortfall in the country also jumped to 4,500 MW from 3,873 MW. As many as 660 MW was supplied to the Karachi Electric Supply Company (KESC), the report added. APP
China may surpass India as biggest gold market, WGC says MUMBAI/SINGAPORE BLOOMBERG
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oLD demand in China may surge as much as 30 percent this year as rising incomes boost consumption, helping the country topple as the world’s largest bullion market on an annual basis, according to the World Gold Council. Demand, which rose to a record in the first quarter, may gain to between 900 metric tons and 1,000 tons this year, from 769.8 tons in 2011, , Far East managing director at the producerfunded group, said in an interview. Indian usage may drop to 800 tons to 900 tons, from 933.4 tons, he said. Higher demand in the world’s largest gold producer may help arrest a slump in prices, which have plunged from last year’s record as investors favored the dollar amid concern may quit the euro. Global gold demand fell 4.6 percent to 1,097.6 tons in the first quarter, the council said in a report today. “We are confident China will become the largest source of demand for gold this year,” Cheng said in , restating a council forecast made earlier in 2012. “over the next two to five years, and India will go neck to neck and may account for more than 50 percent of world demand.” Immediate-delivery gold traded at $1,548.19 an ounce at 4:03 p.m. in Singapore. That’s down 1.2 percent this year, and 18.5 percent from the record close on Sept. 5. The price touched
$1,526.97 yesterday, the lowest level since December as the Greek debt crisis sent the euro to a four-month low. ‘Seek CASh’: “Investors are selling gold now to seek cash and rebalance their investment portfolio because of concerns about the euro- zone sovereign-debt crisis,” said Cheng, who’s been in the gold industry since 1985. “The fundamental reasons for investing in gold remain very strong, so these investors will return.” Bullion has rallied for 11 years, gaining through the financial crisis that started in 2008, as investors bought the metal to protect their wealth from currency debasement and inflation. said in a May 9 report the precious metal remains the so-called currency of last resort. Demand in China totaled 255.2 tons in the three months to March 31 from 232.5 tons a year earlier, the council said in the report. Investment demand gained 13 percent, while jewelry demand increased 7.9 percent to 156.6 tons, making China the world’s largest jewelry market for a third quarter. The council’s outlook for increased consumption in China this year contrasts with the view from, the mainland’s biggest gold-jewelry maker, which said this month the country’s demand growth may stagnate in 2012. ‘InCreASIng WeALth’: “The of the middle class is very important,” Cheng said. “In the past 10 to 15 years, it had reached first- and second-tier cities such as Beijing, Shanghai and
Hangzhou. We expect such wealth to reach 600 million people in third-tier cities.” The prospect of China becoming the largest bullion user reflects the country’s economic ascendance. Per capita gross domestic product has more than
doubled since 2000, according to World Bank data. The country is already the top consumer of copper and biggest producer of steel. In India, demand fell to 207.6 tons in the first quarter, from 290.6 tons a
year ago, after the government hiked taxes and , the council said. Investment demand dropped 46 percent and jewelry demand fell 19 percent, it said. A drop in annual demand this year would be the second straight fall.
PRO 21-05-2012_Layout 1 5/21/2012 12:54 AM Page 2
Monday, 21 May, 2012
02 news Obama presses ailing Europe to focus on growth CAMP DAVID
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REUTERS
growing chorus of world leaders pushed for a shift toward more pro-growth policies to help ease a European crisis that threatens to oust Greece from the euro zone and reverberate throughout the global economy. Setting the tone for a weekend G8 summit, President Barack obama aligned himself with the new French president’s drive for more economic stimulus in recession-plagued Europe, in a swipe at the tough austerity programs that have been spearheaded by German Chancellor Angela Merkel. obama’s stance reflects his worries that the euro zone contagion, which threatens the future of Europe’s 17-nation single currency, could hurt the fragile U.S. economic recovery and his own re-election chances in November. The Camp David summit kicked off four days of intensive diplomacy - including a NATo meeting in obama’s home town of Chicago - that will test leaders’ ability to quell unease over the threat of another financial meltdown as well as plans to wind down the unpopular war in Afghanistan. over dinner Friday at the presidential retreat, the leaders discussed still other intractable global problems. The group, which included Russian Prime Minister Dmitry Medvedev, agreed ahead of world powers’ talks next week with Iran that Tehran must answer questions about its suspected nuclear weapons program, a U.S. official said. North Korea, Syria and Myanmar were also on the dinner agenda, but it was the global economy that dominated the day. After White House talks with French President Francois Hollande, obama said the two agreed that tackling the euro-zone crisis was “an issue of extraordinary importance, not only to the people of Europe, but also to the world economy.” “We’re looking forward to a fruitful discussion later this evening and tomorrow with the other G8 leaders about how we can manage a responsible approach to fiscal consolidation that is coupled with a strong growth agenda,” obama said before flying to Camp David and greeting fellow leaders for an opening dinner. Merkel, who has insisted on the need for tough fiscal discipline to bring down suffocating debt levels even as angry voters have toppled some euro zone governments, seemed certain to find herself increasingly alone.
As obama welcomed his guests oneby-one outside a rustic lodge at the presidential retreat in Maryland, he asked Merkel: “How have you been?” She shrugged and offered a strained smile. “Well, you have a few things on your mind,” he said in a brief exchange captured by a boom microphone. Her predicament could be underscored in the summit’s final communique that, according to a draft shown to Reuters, will stress “our imperative to create growth and jobs.” greeCe MUSt “MAke UP theIr MInDS”: Reflecting growing frustration as Greece’s post-election turmoil shakes global markets, British Prime Minister David Cameron called on euro members for decisive action and said the Greeks must “make their minds up” whether to stay in the euro zone. No major economic policy decisions are expected from the talks but obama will urge the Europeans to work harder at forging a comprehensive approach to their debt troubles. World stocks fell to levels below where they began the year, depressed by the prospect that a Greek euro exit would spread upheaval in the currency bloc and engulf much larger economies such as Spain’s. The European Union’s trade commissioner said for the first time that European officials were working on contingency plans in case Greece bombs out of the euro zone.
While obama and Hollande found common ground on economics, their meeting also showed differences over France’s commitment to the NATo military mission in Afghanistan, which will be the focus of the alliance’s summit in Chicago starting on Sunday. Hollande, a socialist sworn in this week as president, told obama he would stick by his campaign pledge to withdraw French combat troops from Afghanistan by year’s end, earlier than the alliance’s 2014 timetable. But Hollande said France would continue to support the NATo effort in a “different way. U.S. officials hope to convince Hollande to rethink the French pullout plan. gerMAnY ‘QUIte ISOLAteD’: But the two leaders, meeting for the first time since Hollande’s election victory earlier this month, were more in sync on the euro zone crisis. Hollande said he spoke to obama about the need to put a priority on growth, and that they also agreed it was important to find a way for Greece to stay in the euro zone. obama’s administration spent heavily to try to tackle the 20072009 U.S. recession, and has long urged Europeans to do more to boost growth. Hollande is seeking to take the edge off austerity with more job-creating infrastructure investments. Like Cameron, Canadian Prime Minister Stephen Harper has been a frequent critic of euro zone G8 members’ handling of their debt woes. Italian premier Mario
Monti was calling for growth measures even before Hollande did. That could leave Merkel, who has used Germany’s status as Europe’s biggest economy to pressure others to keep a tight rein on debt, cutting a lonely figure at Camp David. “Germany is absolutely quite isolated,” said Domenico Lombardi, a former International Monetary Fund official who now is a senior fellow at the Brookings Institution think tank. Lombardi said that while Germany had the upper hand when controlling debt was the focus, “it is now clear that Greece has become a systemic crisis” and this must now become the center of the debate. A SOFter APPrOACh: While Merkel wants Greece’s continued membership in the euro zone tied to Athens meeting tough austerity measures laid out in its bailout program, Hollande was seeking a softer approach. Hollande also said he favors Europe recapitalizing Spain’s troubled banks, which would mark a significant shift toward Europe taking over wider responsibilities from individual nations. Backing calls for a concerted effort to boost economic activity, Jose Manuel Barroso, president of the European Commission, said there was a need to promote growth while putting public finances in order and this should be center stage at the summit. He insisted, however, that “we want Greece to stay in the euro area.” The G8 summit comes as Greeks are pulling cash from banks amid growing fears about its euro zone membership. Financial markets are deeply concerned about the future of the entire currency zone, with Spain’s banking sector also under pressure. Nearly two-thirds of Greeks voted on May 6 for parties of the radical left and far right, which oppose the austere terms of an EU/IMF assistance program. Talks failed to avert a repeat election, which is now set for June 17. The “balanced approach” that obama is pushing for in the euro zone is similar to his domestic efforts combining short-term stimulus and longer-term cuts to try to heal the U.S. economy and stoke hiring that has not recovered from the financial crisis. But the U.S. economy continues to struggle, posing problems for obama’s re-election. Mitt Romney, the presumptive Republican nominee to face obama in the November 6 election, has made reducing the U.S. debt load, which has escalated during obama’s tenure, one of his key campaign messages.
SECP signs MOU with Jordanian counterpart ISLAMABAD APP
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HE Securities and Exchange Commission of Pakistan (SECP) and the Jordan Securities Commission (JSC) have signed an MoU to further enhance regulatory cooperation and information sharing between the two regulatory bodies. A statement of the Commission issued here said , on the sidelines of the annual meeting of the International organization of Securities Commissions (IoSCo) in Beijing, Muhammad Ali, the SECP Chairman, and Mansour Haddadin, the JSC Commissioner signed the MoU. The agreement reiterates the two regulators commitment to work together in ensuring that securities and commodities markets in the two countries are fair, transparent, efficient and regulated to world standards. Both the SECP and JSC are signatory to the IoSCo multilateral MoU, the international standard for information sharing between the securities regulators and this bilateral MoU would supplement the cooperation extended under the umbrella of multilateral MoU. The MoU has been inked in the backdrop of evolving globally integrated financial markets, necessitating for regulatory agencies of capital markets to develop cooperative linkages to ensure information-sharing for enforcement of securities laws and facilitate detection and combat cross-border violations. The SECP has been promoting cooperation with other regulatory authorities of the capital market at the bilateral, regional and international levels. The SECP has already signed MoUs with the regulatory agencies of India, Maldives, Australia, Bhutan, Sri Lanka, Iran, China, Turkey, oman and Morocco. The MoU also outlines a framework for cooperation and information sharing in areas of mutual interest. The scope of document also includes assistance in actions against insider dealings, market manipulation and other fraudulent practices in securities dealings, enforcement of relevant laws, rules and regulations, monitoring the markets for their compliance with laws and regulations, promoting high standards of fair dealing in their conduct or business, and technical assistance among the two regulatory bodies. Chairman SECP after signing the agreement said that it is a significant milestone in the development of the capital markets of two brotherly countries. It cements an already excellent level of cooperation between the two independent agencies. Each regulator will be able to rely on the MoU to ensure compliance with applicable legislation and to collaborate in regulating inter-jurisdictional dealings as well as share technical know-how and joint training in enhancing the credibility of financial markets and protect investor rights. The MoU seeks to minimize the risk that is usually associated with financial market transactions and will also help prevent fraud, money laundering, market manipulation and other prohibited practices in the securities markets of both countries.
JPMorgan to be haunted by change in risk model DAVID HENRY
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REUTERS
PMoRGAN Chase & Co’s decision to radically change the way risk was measured in its Chief Investment office is likely to dog the bank in the developing crisis over the big trading losses it has suffered. The move, which allowed the bank to disguise the level of risk that the CIo was taking in its trading, could become a major focal point of investigations by the U.S. Securities and Exchange Commission and the FBI, former regulators said. It also will likely become part of investor cases in lawsuits against the bank and its executives. When JPMorgan Chief Executive Jamie Dimon announced on May 10 that the company had lost at least $2 billion through “egregious mistakes” in trading, he also said for the first time that the bank had changed its model for measuring so-called value-at-risk in the CIo where the deriva-
tives portfolio was managed. The change made the CIo’s portfolio, which totaled about $375 billion, appear to be a lot safer than it actually was and gave traders more leeway to make risky bets. The rest of the bank’s divisions apparently kept to more conservative modeling. The old model would have sounded alarms by showing that the CIo could lose $129 million, or more, in a day during the first quarter - a higher reading than during the financial crisis. But the new model cut that figure alm ost in half, to $67 million, clouding the view inside and outside the bank of the danger it faced. That figure was lower than the $69 million reading at the end of the prior quarter. So far, Dimon has not revealed exactly when the model was changed, or why. Those questions now appear certain to be at the center of regulatory and shareholder inquiries into the losses, which are expected to grow. Some traders and analysts at other firms estimate the final loss
tally could exceed $5 billion as the bank tries to unwind its positions. Dimon has said the losses could total $3 billion or more. LAWSUItS ABOUt rISk: Investors have dumped JPMorgan’s shares since the loss was announced, pushing them down more than 17 percent and erasing more than $27 billion of market value. Two shareholder lawsuits were filed against the company on Wednesday, accusing the bank and its management of taking excessive risk. The SEC is investigating what happened at JPMorgan, the White House has confirmed. [ID:nL5E8GECMU] The FBI has also opened a preliminary investigation, according to agency director Robert Mueller. [ID:nL1E8GG9HX] A JPMorgan spokesman declined to comment. Spokesmen for the SEC and FBI declined to comment. “It is logical to expect that the SEC will look at this issue” of the disclosures, as well as why and how the new model was
adopted, said Harvey Pitt, a former SEC chairman. “Regulators are going to want to know if changes were made consistently with the obligation to operate safely and soundly,” said Pitt, who is currently CEo of Kalorama Partners, a business consulting firm. An initial report on the bank’s results for the first quarter, made April 13, disclosed the $67 million figure, the reading under the new risk model. It did not say that there had been a change in models. on May 10, as it explained the losses, the bank showed the $129 million risk reading from the old model. on a call with analysts that day, Dimon said the bank had tried the new model, and then reverted to the old one, which it had used for several years. “There are constant changes and updates to models — always trying to get them better than they were before,” Dimon said in the May 10 conference call. “That is an ongoing procedure.” That explanation, “does not pass the
smell test,” said Mike Mayo, analyst at investment firm CLSA. “It is a red flag for them to change the model,” said Mayo, author of “Exile on Wall Street,” about the inner workings of big banks. Banks sometimes refine their value-atrisk, or VaR, models but those commonplace changes do not by themselves produce such dramatically different results, said Christopher Finger, one of the founders of RiskMetrics Group, which pioneered VaR models and is now a unit of MSCI Inc. The model JPMorgan put back in place shows “a huge, huge increase in risk,” Finger said. Finding out how the company decided to change the model would reveal a lot about its internal controls and about how the traders apparently got the upper hand over risk managers, said Finger. Risk controls on traders in the CIo were eased last year without Dimon knowing, the Wall Street Journal reported on Friday, citing unidentified sources.
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Monday, 21 May, 2012
news
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Hillary ClinTOn’s The paradox of China’s reform asian advEnTurE Jamie F Metzl
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JASWANt SINGH
N her recent trip to China, Bangladesh, and India, US Secretary of State Hillary Clinton was eager to trumpet America’s “New Silk Road” strategy, which she unveiled last September. But the Silk Road was a trade route, whereas knife-edge diplomacy dominated Clinton’s Asian tour. Nothing about Clinton’s trip was as path-breaking as her visit earlier this spring to Myanmar, where she met with opposition leader Aung San Suu Kyi and President Thein Sein to lend her support to their delicate political dance, which may yet bring the country into the global democratic fold. Her trip opened with the always-tense annual US-China Strategic and Economic Dialogue, which was threatened at the start by the plight of the blind human-rights activist Chen Guangcheng, who had taken refuge in the United States’ embassy in Beijing. But Chen was not the only one to upstage Clinton; her boss, President Barack obama, did so as well, landing at midnight in Kabul, where he executed a strategic pact with Afghanistan, flying back to the US before dawn. Was this – a negotiation without her participation – the defining event of Clinton’s Asian fortnight? Afghanistan’s national security adviser, Rangin Dadfar Spanta, describes the pact as “providing a strong foundation for the security of Afghanistan, (and) a document for the development of the region.” But, while the new pact does clarify America’s post-2014 posture toward Afghanistan, and to some extent has assuaged India’s concerns about that troubled land’s future, anxiety in Pakistan has only deepened. only time will tell whether the pact boosts stability in the region. Twice upstaged, Clinton’s discussions with China’s leaders took place under the shadow not only of the Chen affair, but also of the recent purge of Bo Xilai from the Communist Party’s senior leadership. Bo’s ouster, the source of the greatest intra-Party ruckus since the Tiananmen Square massacre in June 1989, is the sort of dirty linen that China’s leaders never air in public. So, instead, they “ripped into” the US delegation, in the words of a senior American official, over the Chen affair. At first, with Chen in the US embassy,
the Chinese began to suggest canceling the Strategic and Economic Dialogue, scheduled to begin with the arrival of Clinton and Treasury Secretary Timothy Geithner. The Americans also appeared willing to walk away. In the end, both sides blinked: the Americans accepted a deal for Chen to leave the embassy that could not be enforced, and the Chinese ultimately agreed to allow Chen to go to the US to study, just like many thousands of other Chinese do nowadays. The China leg of Clinton’s Asia tour was salvaged – so much so that, at the end of her stay in Beijing, she indulged in the type of diplomatic hyperbole that few would have expected three days earlier: “our countries are thoroughly, inescapably interdependent,” she said, adding that “a thriving China is good for America…” That may or may not be true; but both countries seem to have reached
the conclusion that no human-rights dispute is worth sabotaging the entire bilateral relationship. So it was on to Bangladesh for Clinton. But here the American propensity for gratuitous preaching led to unnecessary strain in her talks with Prime Minister Sheikh Hasina’s government. This time, the issue was Hasina’s treatment of the Nobel laureate Muhammad yunus, the microcredit pioneer and founder of the Grameen Bank. Unlike the testy Chinese, Hasina’s spokesperson offered only a gentle rejoinder, rejecting Clinton’s suggestions about alleged mistreatment of yunus. From Dhaka, Clinton made the short journey to India’s West Bengal, where her host was the diminutive Chief Minister Mamata Banerjee, whose election ended 34 years of Communist rule in the state. Assurances of US investment in Bengal’s development flowed; whether funds will actually follow remains to be seen. Then it was on to India’s capital, New Delhi, for what many took to be Clinton’s farewell visit (assuming, that is, that she steps down at the end of this year as planned) – a visit marred by awkward coincidences and untidy scheduling. Even as Clinton was cautioning Indian officials about contacts with Iran (demanding, in particular, a reduction in imports of Iranian oil), India was hosting a high-level Iranian trade mission aimed at boosting bilateral economic ties. Finally, Clinton, speaking from Delhi, warned Pakistan not to allow its territory to be used as a “launching pad” by terrorist groups, asserting that al-Qaeda leader Ayman al-Zawahiri was hiding in the country. True to form, Pakistani officials were outraged at the charge, which they promptly refuted with roughly the same vehemence with which they once denied osama Bin Laden’s presence. The US responded by announcing that its drone attacks on Pakistan’s North Waziristan region will continue. Was this the long-awaited signal that the US was about to squeeze Pakistan on the issue of terrorism? With the US blueprint for its withdrawal from Afghanistan completed by obama earlier on Clinton’s journey, one might think so. In any case, Clinton’s tour appears to confirm the central fact of US diplomacy nowadays: the Asia pivot is complete. The region is now America’s top foreign-policy priority. Courtesy: Project Syndicate
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HE compelling drama of former Chongqing Communist Party chief Bo Xilai’s ouster amid allegations of corruption and murder, and of blind Chinese human-rights advocate Chen Guangcheng’s dash to safety in the US Embassy in Beijing, are more than just fascinating narratives of venality and courage. Unless China can purge the thousands of corrupt Party leaders like Bo, and empower people – like those Chen represents – who have been left behind or harmed by rapid growth, its economy will increasingly suffer. Like the Asian Tiger economies before it, China has excelled in the first phase of capitalist economic growth, benefiting from massive infusions of capital, low-cost labor, intellectual-property theft, and centralized planning. And, like many of them, China is now facing a “middle-income trap”: as wages rise, its low-end manufacturing is losing global competitiveness while government policies, endemic corruption, and dominant state-owned enterprises are stifling the type of private-sector innovation that China needs most to generate products and services with higher added value. China’s leaders understand this, which is why the government’s 12th Five-year Plan calls for a gradual opening up of the Chinese economy. Likewise, a Chinese government think tank worked with the World Bank to produce the report, which outlines the structural reforms needed to strengthen the foundations of the country’s market-based economy and create a climate of open innovation. But if China’s national imperative today is reform, the greatest threat to that goal is the massive influence and institutionalized corruption of the country’s entrenched elites. For years, senior Chinese officials and their families have received a cut of countless major investments throughout China. They and their families have become multimillionaires by exploiting the close association of business and politics, as well their strong links with China’s state-owned enterprises. The resulting rise in inequality has been exacerbated by China’s capital controls and mandated low interest rates on savings. For lack of other options, poor people put their money in banks which then lend to more privileged people to fund state-owned enterprises or much higher-yielding real-estate investments. This system worked to drive overall economic growth and financial rewards in the first phase of China’s post-reform growth, but the incomes of ordinary Chinese have stagnated over the past decade, their interests have been neglected, capital has been misallocated, and major negative environmental and social side effects have emerged.
Now those who have benefited most from the current system are blocking badly needed reforms. For example, years of imbalanced incentives have led China to overbuild premium residential real-estate, which should cause prices to fall dramatically. But, although the government is trying to take some of the air out of the market, the authorities cannot easily take the more aggressive action that is required, because Chinese officials and other elites store so much of their wealth in real estate, which also comprises much of the collateral of state-connected banks, Similarly, although state-owned enterprises are sucking too much oxygen out of China’s economy, reforming them would require taking on China’s most powerful business and government leaders. This is why the Chinese government’s dance around the Bo scandal has been so complicated. Bo may have lost an internal political struggle, and may have crossed a line after the murder of British businessman Neil Heywood, for which Bo’s wife is under arrest; but vilifying him is a double-edged sword for the government. on one hand, the authorities need to pursue him aggressively to justify the purge of someone who was so recently lauded. on the other hand, many of the accusations against Bo could be leveled at an extremely large number of senior officials across China who, like Bo, have amassed multimillion-dollar family fortunes. In highlighting Bo’s misdeeds, the Party is trying to demonstrate that it alone can and should be responsible for addressing official corruption. But given that the people who have benefited so much from the current system are unlikely to clean it up, the only other way to generate reform would be to empower the people getting the short end of the stick – people like Chen and those he has helped. The crackdown on Chen for representing villagers who have been abused by the authorities follows the same pattern as the silencing of parents who protested shoddy school construction after the 2008 Sichuan earthquake, and of opponents of the environmentally damaging Three Gorges Dam. If China is serious about reform, it will need armies of people like these, fighting for their rights, in order to balance the overwhelming political power of its entrenched elites. China’s reform process can succeed only if it is pushed from the top and the bottom. The Party needs to find every possible way to get rid of the Bo’s in its midst. Instead of threatening people like Chen, the Party should give them recognition and support. None of this will be easy, but the future of China’s economy depends on it. Courtesy: Project Syndicate
WALL ST WEEK AHEAD
The market is oversold, but major signs say ‘sell’ NEW YORK
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REUTERS
oRMALLy a big decline would set up Wall Street for a technical rebound. But that may not be the case next week, even after the market posted its worst weekly loss for the year and the S&P fell for six straight sessions. With the corporate earnings season drawing to an end and recent U.S. economic data raising doubts about the pace of growth, the S&P 500, which is down 7.3 percent so far in May, could decline further next week as concerns about the financial health of Europe persist. “What has changed in the world since April? We went from hearing a constant refrain that the world is awash in money and markets must go higher to hearing nobody wants to take any risk. ... All in a week,” said Peter Cecchini, global head of institutional equity derivatives at Cantor Fitzgerald &
Co in New york. The S&P 500 fell 4.3 percent for the week, its steepest weekly decline this year, and closed below 1,300 for the first time in four months. The hotly awaited market debut of Facebook on Friday was marred by technology glitches on the Nasdaq in sending messages back to the brokerages that handled orders of Facebook Inc (FB.o) for individual, or “retail,” investors. Those problems rekindled fears about the market’s electronic trading system and caused some investors to stay away from equities. Weighing on sentiment is a growing sense among investors that the euro zone debt crisis is nearing new heights, fueled by fears of the potential for a Greek euro exit and the deteriorating health of the Spanish banking system. Solid corporate earnings and upbeat U.S. economic indicators had fueled the rally in U.S. stocks, offsetting jitters over Europe. But with earnings almost out of the way and data starting
to disappoint, investors have shifted their focus back to headlines out of Europe. Leaders of the Group of 8 major industrial economies meet this weekend to try to tackle the financial crisis in Europe. U.S. President Barack obama, the G8 host, has urged European leaders repeatedly to do more to stimulate growth, fearing contagion from the euro crisis that could hurt the U.S. economy and his chances of re-election in November. “The market is extremely oversold. Nonetheless, all major indicators remain on sell signals,” said Larry McMillan, president of options research firm McMillan Analysis Corp, in a report on Friday. “We expect a powerful but shortlived rally should be coming soon. But at this point, barring some major shifts in our indicators, it may only be a rally in a larger down-trending market,” McMillian said. the FACeBOOk eFFeCt: Face-
book, the No. 1 online social network, disappointed investors with a tepid market debut on Friday. Shares rose a scant 0.6 percent - nowhere near expectations for double-digit gains on the first trading day - and the day was marred by technical problems due to huge order volume. The stock closed at $38.23 after falling as low as $38, its initial offer price. The disappointing debut curbed investors’ appetite for other social media stocks. Hardest hit was Zynga Inc (ZNGA.o), which closed down 13.4 percent to $7.16 after falling as low as $6.40. The stock was temporarily halted twice due to sudden declines. LinkedIn (LNKD.N) shares fell 5.7 percent to $99.02, and Groupon (GRPN.o) fell 6.7 percent to $11.58. Zynga and Groupon, both of which went public late last year, are also trading below their IPo prices. Despite the disappointing market debut and the weak performance of social media stocks, market participants
are still optimistic about Facebook going forward. “In any brand new area, social media in this case, most are going to be losers and only some are going to be winners. yes, the IPo was disappointing, but Facebook is clearly the winner here and others aren’t,” said Randy Warren, chief investment strategist at Warren Financial Service. Next week’s economic data includes April’s existing home sales on Tuesday at 10 a.m. Existing home sales are forecast at a 4.60 million-unit annual, up from 4.48 million in March. New homes sales figures are due on Wednesday at 10 a.m. April’s new home sales are also expected to post an increase, gaining about 7,000 units over a 328,000-unit annual rate in March. Initial jobless claims and durable goods orders will be published on Thursday at 8:30 a.m. Consumer sentiment is due at 9:55 a.m. on Friday. For the week, the Dow is off 3.5 percent and the Nas.