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Panel Urges More U.S. Ships In Pacific For Pivot To Asia

By David Lerman - Jul 27, 2012 11:00 PM CT

The Defense Department should move more ships to the Pacific and better define its strategy as it pivots toward Asia to counter a rising China, according to a report commissioned by the Pentagon.

The U.S. should deploy a second Amphibious Ready Group of ships from the Atlantic to the Pacific to meet the requirements of the Marine Corps, the report made public yesterday recommends. It also calls for stationing at least one additional attack submarine in Guam.

Congress required the Pentagon to obtain the independent assessment of U.S. Asia policy after President Barack Obama released a strategic plan in January that called for a “rebalancing” of military forces toward the Asia Pacific. The report by the Center for Strategic and International Studies found the military’s force posture “is heavily tilted toward Northeast Asia, to Korea and Japan” to focus on threats on the Korean peninsula and the Taiwan Strait.

“As evidenced by recent Chinese activities in the South China Sea and throughout the Pacific islands, the stakes are growing fastest in South and Southeast Asia,” the Washington- based group said. “To be successful, U.S. strategic rebalancing needs to do more in those areas.”

The report also said the Defense Department “has not adequately articulated the strategy behind its force posture planning nor aligned the strategy with resources in a way that reflects current budget realities.”

Budget Cuts

That finding raises questions about whether the Pentagon is prepared to explain the need for increased resources in the Pacific when it’s facing as much as $1 trillion in cuts from planned spending over the next decade.

John Hamre, the center’s president and chief executive officer, likened the need for a clear strategy toward Asia to the “remarkably consistent defense policy” that guided the U.S. during the Cold War.

“We now need a comparable framework for the next 30 years in Asia,” Hamre, a former deputy defense secretary, wrote in a letter to Defense Secretary Leon Panetta accompanying the report.

Leaders of the Senate Armed Services Committee, in a joint statement, said the report “raises a number of issues that are worthy of further consideration.”
Noting the report’s call for a more clearly stated strategy, Democratic Senators Carl Levin of Michigan and Jim Webb of Virginia and Republican John McCain of Arizona said, “This is particularly important as support for the resourcing of major overseas initiatives, in the current fiscal environment, will depend to a significant extent on a clear articulation of U.S. strategic imperatives and the manner in which the investments address them.”

Panetta, in his own written comments on the report, took exception to a few details, such as a recommendation to rotating fewer than 5,000 Marines to Guam. He said the Defense Department and the research group “are on common ground in understanding the key challenges to and opportunities for U.S. interests in the Asia-Pacific region.”

To contact the reporter on this story: David Lerman in Washington at

To contact the editor responsible for this story: John Walcott at


Growth In U.S. Slows As Consumers Restrain Spending

By Shobhana Chandra - Jul 27, 2012 3:20 PM CT

Economy Grows at Slower Pace as Spending Cools.The world’s largest economy cooled in the second quarter as limited job growth prompted Americans to curb spending while state and local governments cut back.

Gross domestic product, the value of all goods and services produced, rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter, Commerce Department data showed today in Washington. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year.

Europe’s debt crisis and looming U.S. tax changes threaten to keep the expansion in check and are hurting sales at companies from United Parcel Service Inc. (UPS) to Procter & Gamble Co. (PG) Federal Reserve policy makers, led by Chairman Ben S. Bernanke, meet next week to discuss whether further measures are needed to boost growth and push down an unemployment rate that’s been stuck above 8 percent for more than three years.

“We’re not going to bust out of this moderate-growth recovery we’ve been in for quite some time,” said Dean Maki, chief U.S. economist at Barclays Capital in New York, who correctly forecast the GDP gain. “Growth is slow but not fragile, and there may be a modest pickup in the second half.”
Stocks rose on speculation the European Central Bank will buy bonds to help lower borrowing costs and preserve the euro. The Standard & Poor’s 500 Index climbed 1.9 percent to 1,385.97 at the close in New York. The yield on the benchmark 10-year Treasury note increased to 1.54 percent from 1.44 percent late yesterday.

‘Moderate Expansion’

“The economy remains on a moderate expansion path,” said Chris Rupkey, chief financial economist at the Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, predicting growth will benefit from a decline in gasoline prices and signs the European crisis may ease.
The GDP report leaves the door open for President Barack Obama to win an election contest dominated by economic concerns and shaping up as one of the closest in decades.
“This sort of slow-growth region puts it in the too-close- to-call category,” said Alan Abramowitz, a political science professor at Emory University in Atlanta.
The median forecast of 82 economists surveyed by Bloomberg News called for a 1.4 percent increase in GDP in the second quarter. Estimates ranged from gains of 0.7 percent to 1.9 percent.

Household Spending

Household consumption rose at a 1.5 percent rate from April through June, down from a 2.4 percent gain in the prior quarter. Purchases added 1.05 percentage points to growth.
Rebecca Offensend, who works in the marketing department of a travel company in San Francisco, said she and her friends are cutting back.
“There’s a belt-tightening going on with my group of friends,” Offensend, 26, said. “It’s just very, very hard to save any money at all when you’re living paycheck to paycheck. It shocks me that I’m barely getting by after taxes.”
UPS, the world’s largest package-delivery company, cut its full-year profit forecast after a drop in second-quarter international package sales. The Atlanta-based company, considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals, projects the U.S. will grow 1 percent in the remainder of 2012.

Global Economy

“Economies around the world are showing signs of weakening,” Chief Executive Officer Scott Davis said on a July 24 call with analysts. “In the U.S., uncertainty stemming from this year’s elections and the looming fiscal cliff constrains the ability of businesses to make important decisions such as hiring new employees, making capital investments, and restocking inventories.”

The so-called fiscal cliff represents more than $600 billion in higher taxes and reductions in defense and other government programs next year that will occur automatically without action by U.S. lawmakers, threatening to push the economy into recession.
A pickup in homebuilding has helped some manufacturers. Caterpillar Inc. (CAT), the largest maker of construction and mining equipment, this week raised its full-year profit forecast on increased demand from North American builders.
“We are planning for a world that is growing anemically in the next 24 months,” Chief Executive Officer Doug Oberhelman said on a July 25 conference call to discuss his company’s earnings. “We are not planning for an implosion.”
GDP Revisions
With today’s release, the Commerce Department’s Bureau of Economic Analysis also issued revisions dating back to the first quarter of 2009. The changes showed the first year of the recovery from the worst recession in the post-World War II era was even weaker than previously estimated.

In the first three years of this recovery, the economy has grown 6.7 percent compared with an average 14 percent gain during comparable periods in expansions dating back to 1948, excluding the short-lived 1980-81 rebound.

GDP grew 2.5 percent in the 12 months after the contraction ended in June 2009, compared with the 3.3 percent gain previously reported, the Commerce Department said.
The final quarter of last year was revised up to a 4.1 percent gain, the best performance in almost six years, underscoring a more marked slowdown in the first half of 2012. The fourth-quarter gain was previously reported as 3 percent.

Consumer Sentiment

Another report today showed consumer confidence in July dropped to the lowest level this year. The Thomson Reuters/University of Michigan final index of sentiment declined to 72.3 this month from 73.2 in June. The gauge was projected to hold at the preliminary reading of 72, according to the median forecast of economists surveyed by Bloomberg.
Recent data signal consumers are reluctant to step up purchases. Retail sales fell in June for a third consecutive month, the longest period of declines since 2008. Same-store sales rose less than analysts’ estimates at retailers including Target Corp. (TGT) and Macy’s Inc.

Slowing sales and currency fluctuations led Procter & Gamble, the world’s largest consumer products company, to cut profit forecasts three times this year.
Consumers may remain cautious until hiring accelerates. Payroll gains averaged 75,000 in the second quarter, down from 226,000 in the prior three months and the weakest in almost two years. The unemployment rate, which held at 8.2 percent in June, has exceeded 8 percent for 41 straight months.

‘Frustratingly Slow’

Bernanke told lawmakers last week that progress in reducing the jobless rate probably will be “frustratingly slow.”

“Economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said in testimony to Congress. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery.”
Cutbacks by government agencies continued to hinder growth as spending dropped at a 1.4 percent annual rate in the first quarter, the ninth decrease in the last 10 periods. The decline was led by a 2.1 percent fall at the state and local level that marked an 11th consecutive drop.

Business investment cooled last quarter, reflecting stagnant spending on commercial construction projects. Corporate spending on equipment and software improved, climbing at a 7.2 percent pace, up from a 5.4 percent increase in the previous quarter.

A report yesterday showed the corporate spending outlook has dimmed. Bookings for non-military capital goods excluding aircraft, a proxy for future investment, fell at a 3.1 percent annual rate in the second quarter, the first decrease since the same period in 2009, when the U.S. was still in a recession, according to Commerce Department data.
A measure of inflation, which is tied to consumer spending, climbed at a 0.7 percent annual pace in the second quarter, the smallest gain in two years. The slowdown in spending combined with less inflation helped boost the personal saving rate to 4 percent from 3.6 percent in the prior period.

To contact the reporter on this story: Shobhana Chandra in Washington at
To contact the editor responsible for this story: Christopher Wellisz in Washington at


Greek political leaders struggled to clinch agreement on an 11.5 billion-euro ($14 billion) package of budget cuts, as international creditors began a review of Greece’s progress that may determine its future in the euro.

Greek Finance Minister Yannis Stournaras arrives for a meeting at the Finance Ministry in Athens. Photographer: Louisa Gouliamaki/AFP/Getty Images

Prime Minister Antonis Samaras and his coalition partners, Evangelos Venizelos of Pasok and Fotis Kouvelis of Democratic Left, are to meet again on July 30 to determine the savings required to receive the funds pledged under Greece’s two rescue packages totaling 240 billion euros. European Commission President Jose Barroso urged Samaras to make good on promises.

“The key word here is deliver,” Barroso said after meeting the premier, the first visit to Greece by a senior European Union official in more than a year. “Deliver, deliver, deliver. The delays must end. Words are not enough.”

Greece, which held consecutive elections in May and June as public opposition to spending cuts grew, risks running out of money without the disbursement of 4.2 billion euros due last month as the first instalment of a 31 billion-euro transfer. Citigroup Inc. (C) said there’s now a 90 percent chance Greece will leave the euro in the next 12 months to 18 months.

The coalition government leaders met after Finance Minister Yannis Stournaras held his first talks of the review with the “troika” of officials representing the euro area, the European Central Bank and the International Monetary Fund.

‘Extremely Difficult’

“We are not done,” Kouvelis told reporters after the meeting. “The economic situation is extremely difficult but society on the other hand can’t stand being bled any more.”
Since forming his coalition government, Samaras has promised more asset sales to pay down debt and help finance an additional two years to the program agreed with creditors to restore economic health. He and his partners are trying to avoid the across-the-board pay and pension cuts that have driven the country into the worst recession since World War II.

Greece’s two elections in six weeks derailed planned reforms, halted state-asset sales and fanned concerns over whether the country can remain in the 17-nation euro bloc.
“All want to contribute to achieving fiscal targets,” government spokesman Simos Kedikoglou told reporters in Athens. “Everyone is seeking in this negotiation alternative choices so that this happens with a sense of social justice and without further recession.”

‘Worse Hardship’

Failure to satisfy the troika on budget cuts and other reforms promised under the two packages may threaten Greece’s place in the euro.

Barroso said he was encouraged by Samaras’s pledges to step up state-asset sales and to keep to promises made under a 130 billion-euro second rescue package earlier this year. Sticking to commitments would ensure the country’s place in the euro, he said.

“Staying in the euro is the best chance to avoid worse hardship and difficulties for the Greek people, mainly for those in vulnerable positions.” he said. “Greece is part of the European family and the euro area and we intend to keep it that way.”

Citigroup updated its forecast for a Greek exit from the currency area from a previous estimate of 50 percent to 75 percent, and said it would most likely happen in the next two to three quarters. The bank assumes a Greek exit would occur on Jan. 1, 2013, while saying that isn’t a forecast of a precise date.

Robert Mundell, a Nobel Prize-winning economist, said the Citigroup report doesn’t help the situation.

Debts in Euros

“In Greece, getting out of the euro doesn’t change the fact that the debts are in euros,” Mundell said in Athens today. A euro exit and devaluation of a new currency could lead to a doubling of Greece’s existing debt, he said. If Greece defaults, it would make more sense to do it within the euro area, Mundell said.

Venizelos, the head of Greece’s Pasok party and a former finance minister who negotiated the second bailout earlier this year, said the continuous speculation of a Greek exit is undermining the country’s attempts to reform its economy as well as hurting other nations.

“Sacrificing Greece will prove suicide for the euro area,” Venizelos said. He said it was imperative that the current bailout plan be extended to the end of 2016.

Greece has to reduce its budget deficit to 7.3 percent of output this year from 9.1 percent in 2011. With the economy shrinking about 7 percent, more than forecast, Stournaras has said the goal is to reach the nominal target of 14.8 billion euros for this year’s deficit, not the ratio.

Second Restructuring

The ECB holds the lion’s share of Greece’s residual debt after private bondholders forgave 100 billion euros in the biggest debt restructuring in history in March.
Euro-zone governments are weighing options including asking the ECB to accept losses from Greek bonds and coaxing private creditors who didn’t take part in the March writedown to do so now, German newspaper Die Welt reported today, without saying where it got the information.

“I cannot understand why anybody should be talking about restructuring or any other such measures,” Thomas Wieser, head of the group that prepares meetings of euro-area finance ministers, said in an interview on Bloomberg Television.

“I would regard any question of what should be changed with the program as being completely premature” until the troika’s assessment is complete, Wieser said. “There is very strong political will to do whatever it takes to bring the program back within the parameters.”

To contact the reporters on this story: Maria Petrakis in Athens at; Marcus Bensasson in Athens at


Caterpillar Echoing Wall Street Rebuts Gross’s Pessimism

By Shruti Singh and Shobhana Chandra - Jul 25, 2012 5:22 PM CT

Caterpillar Inc. (CAT), among the first companies to ring warning bells about the recession in 2007, isn’t subscribing to the pessimism of investors such as Bill Gross even while moderating its global growth projections.

A U.S. recession this year is unlikely and the economy will probably grow slightly more than 2 percent, down from an April forecast for about 3 percent, Caterpillar said yesterday in its second-quarter earnings statement. The climate is different than in 2008 because short-term interest rates are lower, central banks are prepared to inject more liquidity and the U.S. housing market is slowly improving rather than falling off a cliff, the company said.

Caterpillar Inc., while lowering the upper end of its sales forecast today partly on a “weaker” global economy, raised its 2012 profit outlook and said actions to spur growth have begun in several countries.

“The good news is, this doesn’t feel like 2008,” Chief Executive Officer Doug Oberhelman said in the statement.

Caterpillar has a track record of accurate forecasts. In October 2007 it said the U.S. may fall into a recession, in contrast to the outlook of companies including Ford Motor Co., DuPont Co. and Intel Corp. at the time. Caterpillar, considered a U.S. bellwether because it’s the world’s largest maker of construction and mining equipment, proved to be correct as the economy experienced a slump that began in December 2007 and ended in June 2009.

Caterpillar’s projections this year are more in sync with the majority view of economists and contrast with comments made by Gross in a July 16 Twitter post. Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. is “approaching recession when measured by employment, retail sales, investment and corporate profits.”

‘Muddle Through’

Improvement in the U.S. economy, a “muddle through” scenario for Europe and China trying to ramp up investments with its slowdown bottoming will produce a pickup in world growth later this year and into 2013, Bob Baur, chief global economist for Principal Global Investors, which manages about $260 billion, said in a telephone interview.

Caterpillar, while lowering the upper end of its sales forecast partly on a “weaker” global economy, raised its 2012 profit outlook and said actions to spur growth have begun in several countries.

Brazil late last year began lowering interest rates and China’s investment initiatives should help growth later this year and into 2013, the company said. In Europe, the central bank’s monetary easing and a commitment to solving the debt crisis are improving the euro zone’s long-term outlook, the company said.

‘Growth Prospects’

“We understand the world economic horizon is hazy,” Ed Rapp, chief financial officer of Peoria, Illinois-based Caterpillar, said in a video posted on the company’s website. “We are encouraged by the pro-growth actions by governments and central bankers throughout the world that are intended to stimulate world economic growth prospects moving forward and out into 2013.”

Prospects for growth in the U.S. likely will improve next year if there is more clarity on issues such as taxes and health care, Rapp said yesterday in an telephone interview.
Global growth will average 2.5 percent this year, lower than the expansion of more than 3 percent it forecast in April, Caterpillar said.

“We are planning for a world that is growing anemically in the next 24 months,” Oberhelman said yesterday on a conference call to discuss his company’s earnings. “We are not planning for an implosion.”

‘Modest Signs’

A majority of economists forecast the world’s largest economy may avoid a recession even as growth decelerates amid a cooling job market.

Federal Reserve officials predict a U.S. expansion of 1.9 percent to 2.4 percent this year, with unemployment stuck in a range of 8 percent to 8.2 percent. The probability of a U.S. recession within the next 12 months held at 20 percent this month, according to the median forecast of economists in a Bloomberg News survey taken from July 6 to 10.
“We should see a little faster growth in the second half,” said Baur, who is based in Des Moines, Iowa. “The U.S. is still on a healing path. I don’t see a recession imminent on the horizon.”

U.S. housing, the industry that helped trigger the recession, is stabilizing. Fed Chairman Ben S. Bernanke, in testimony to Congress last week, said growth in construction and historically low mortgage rates are among “modest signs” of a housing recovery, even as some buyers show concern about personal finances and the broader economy and have difficulty meeting lending standards.

Bright Spot

Caterpillar forecast housing starts will exceed 750,000 units this year. While down from its prior forecast of 800,000 units, the prediction represents the best level since 2008.

The auto industry remains a bright spot in the U.S. Economic growth is helping drive sales for Ford as more consumers trade in their older vehicles for newer models, said Alan Mulally, chief executive officer of the Dearborn, Michigan- based carmaker. In the first half of the year, annualized U.S. vehicle sales rose to 14.6 million from 12.8 million a year ago, according to Ford (F), which includes medium- and heavy-duty trucks.
“Even though it’s a slower recovery than we’ve had from past recessions, we’re seeing that expansion of around 2 percent to 2.5 percent,” Mulally said of the U.S economy on a conference call yesterday.

‘Fragile’ World

FedEx Corp. (FDX), the world’s largest cargo airline, last month forecast 2.2 percent U.S. economic growth this year, up from a projection of 2.1 percent in March. The company, which carries everything from mobile devices to pharmaceuticals, said it expects the economy to accelerate to 2.4 percent in 2013, contingent on the U.S. avoiding a significant tax increase.

Boeing Co. (BA) Chief Executive Officer and Chairman Jim McNerney said yesterday “the world is a fragile one economically.”

“Despite slower global economic growth and a range of uncertainties, including the European sovereign debt crisis, we continue to see positive worldwide expansion in air traffic,” McNerney said on an earnings call with analysts.

Not all companies are sanguine. United Parcel Service Inc. (UPS), the world’s largest package-delivery company, said on July 24 that a gradual deceleration of business-to-business shipments reflects a softening of the U.S. economy in the second half of 2012 from earlier this year. UPS predicted the U.S. economy will slow to 1 percent growth in the last six months of the year.

‘Too Optimistic’

“Right now, the estimates are a little too optimistic,” UPS Chief Financial Officer Kurt Kuehn said July 24 in a telephone interview. “We’re not trying to ring the alarm bell, but we do think that there’s probably a little more likelihood that the numbers will turn lower than estimates.”

Caterpillar climbed as much as 4.9 percent earlier yesterday in New York trading after it posted record profit and sales in the second quarter.

Still, the stock dropped as much as 1.4 percent midday because investors were concerned about macroeconomic risks and that rising inventories may hurt the company if the situation worsens, Larry De Maria, a New York-based analyst for William Blair & Co. who has a buy rating on the company, said in an e- mail yesterday.

At the close yesterday, Caterpillar rose 1.4 percent to $82.60.
“Although we think that macroeconomic concerns could continue to be a driver of the stock in the near term, we think today’s results demonstrate the company’s ability to execute at a high level,” Barclays Capital analysts led by Andy Kaplowitz said yesterday in a note.

Slower Growth

Kaplowitz, based in New York, said in a telephone interview that Caterpillar has “tended to err on the side of optimism in its recent forecasts,” which has worried investors.
“The expectations around the U.S. economy were for slower growth and Caterpillar was going to have to moderate its comments,” said Kaplowitz, who has a buy rating on the shares. “That’s what Caterpillar has done.”

“Investors believe the U.S. economy is choppy and slower growing than we believed a few months ago,” Kaplowitz said. “But growth is not stopping. There are still some drivers of growth.”

To contact the reporters on this story: Shruti Singh in Chicago at; Shobhana Chandra in Washington at
To contact the editor responsible for this story: Simon Casey at
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Hydrocarbon Exploration and Politics in the South China Sea

July 25, 2012


Vietnam's first jack-up drilling rig.

China's state-owned China National Offshore Oil Corp. Ltd. issued a takeover bid July 23 for Canadian energy company Nexen. The $15.1 billion offer, if approved by the Canadian government, would increase the Chinese firm's technical capabilities by giving it access to offshore-drilling technology being used in the North Sea and in the Gulf of Mexico.

In a region with numerous overlapping territorial claims, such as the South China Sea, the search for additional hydrocarbon reserves is about more than energy acquisition. As countries continue vying for control of the South China Sea, hydrocarbon exploration and production can lead to territorial claims. However, there is risk in exploring in the South China Sea, and continued slow progress toward exploration in deeper waters could eventually make hydrocarbon exploration of limited political use for smaller countries. Countries that rely on joint ventures for the necessary technology will be subject to market conditions for further exploration. China -- the one country currently making progress toward unilateral capabilities -- could continue to use hydrocarbon exploration as a political tool, regardless of the risk and time involved.


Activity in the South China Sea, on both the military and energy fronts, has increased in recent months. Recent actions, including the launch of a new domestic deep-sea drilling vessel and the auctioning of blocks in disputed waters, illustrate China's proactive approach to using energy exploration as a political tool to claim territory.

Risks and Obstacles

Reported estimates for the South China Sea place reserves of oil at 21.6 billion barrels and of natural gas at 8.5 trillion cubic meters (tcm). However, in the absence of information from exploratory drilling, these estimates rely heavily on geological information used to calculate resources in unexplored areas. Additionally, the reported numbers are simply the mean of an estimated range of potential reserves (8.9-41.6 billion barrels and 3.7-15.8 tcm). Chinese estimates are actually much higher, exceeding 200 billion barrels of oil. These reserve estimates often change after initial exploration.

The uncertainty over the amount of hydrocarbons present makes investment in unproven areas like large portions of the South China Sea a risky proposition. There is a huge difference between fighting for resources thought to be there and competing for resources actually coming out of the ground.

The Outer Continental Shelf of the Gulf of Mexico provides a good example of the potential costs of failure. Initial rough estimates indicated more than $9 billion a year would be required to develop regions that had been closed to exploration for decades. Even in fields about which significant information was known, such as the Tahiti field, it would take several years to develop the infrastructure necessary for exploration. The first estimates showed that the Tahiti field might require an investment of $4.7 billion before the first dollar of profit would be seen. The first stage of the field, completed in 2009, was a $2.7 billion investment. When the numbers are this high, it is extremely risky to make a financial investment based on little hard data.

Progress into deeper waters of the South China Sea has been slow, partly because of regional tensions. Energy exploration and production in the South China Sea has remained close to the shores of controlling regional bodies and away from disputed areas for the past 40 years. In other offshore areas, such operations have expanded into deeper waters in the same time frame.

The high potential for hydrocarbon recovery in the area is known, so the lack of exploration could be attributed to several factors, including political and financial risks. There have been examples of success in recent years, including promising results from the Liwan gas field through collaboration between Canadian firm Husky Energy and the China National Offshore Oil Corp. However, a failed or dry deep-water well can cost a company tens of millions of dollars. If the number of new exploratory wells in deeper waters remains limited, so will the acquisition of new reserve estimates based on exploration. Thus investment in the area will continue to be risky.

The farther offshore hydrocarbon sources are located, the greater the need is for additional technology that allows the platform and drilling equipment to withstand the harsher conditions of deeper waters. Semisubmersible rigs and drill ships are the most commonly used rigs in deep-water exploration and production. These rigs must be stabilized at the surface of the water, through traditional mooring or dynamic positioning systems.

China National Offshore Oil Corp. recently finished construction on and began drilling with its first domestic deep-water capable semisubmersible rig, CNOOC 981. Smaller countries, such as Vietnam and the Philippines, still rely on international cooperation for deep-water drilling, because these countries lack the technological capabilities necessary for exploration in deeper waters. This may require the leasing of a rig. The daily cost of a semisubmersible rig or a drill ship required for deep-water drilling is two to 10 times more than the daily costs for an offshore rig capable of shallow-water operations. The cost of a drill rig also depends greatly on market forces, as limits on the availability of drill rigs can increase the daily costs for producers.

Other Countries' Options

For nations in the region, territorial claims can take precedence over the actual energy resource. For example, China can use its drilling capabilities to stake claims on disputed areas without going to war. The presence of Chinese assets in the region, the assumption goes, will result in de facto control and legitimate use of the water to supply any rigs present. The cost of failed rigs could be rationalized as a territorial acquisition cost.

As China continues to develop its technological capabilities through domestic development and acquisitions of foreign companies like Nexen, countries like Vietnam and the Philippines are placed in a weaker position. However, they retain several options. One is to work with China, which by Beijing's calculation would solidify its claims on the region via a physical presence. Another option is to enter into joint ventures with third parties. However, this second option only works when there is incentive for investment. That is, the region needs to actually contain hydrocarbons in order for this strategy to work in the long run, unless the joint partner becomes politically motivated as well.

Forum Energy, a subsidiary of Philippines-based Philex Petroleum, appears to at least be considering the first option. As of late June, the firm was still considering a potential partnership with China National Offshore Oil Corp. to explore areas of the Reed Bank in disputed waters. However, the Philippine Department of Energy is set to receive bids on blocks in a similar region at the end of July.

Vietnam appears to be using the second option; it has been able to find third-party countries and companies willing to cooperate on projects. India announced July 18 that Indian energy firm Oil and Natural Gas Corp Videsh Ltd. would continue exploring Block 128, even though it had already abandoned a block in the same region due to poor performance. Remaining in the region could indicate a political motivation on India's part. Gazprom and ExxonMobil had also been active in the region and Italy's ENI also recently agreed to conduct exploration activities off the coast of Vietnam. The political situation does not yet appear to be adversely affecting investment.

Smaller countries in the region have a third option: developing independent technology much like China did. Vietnamese energy companies own a few shallow-water rigs and plan to invest $600 million over the next four years into rigs. However, China has a significant head start, and joint ventures are still the most viable short-term option.

Politics and China's Primacy

In addition to the possibility of poor performance, escalation in political tensions could cause international companies to withdraw from projects in the South China Sea. Exploration is financially risky to begin with, and regional disputes would only increase that risk. Countries such as India and Japan might have an interest in the South China Sea and may remain there longer because they are politically motivated to thwart China's advances in the region. Political motivation as a factor in exploration efforts should not be ignored and could provide an alternative motivation for financing and bringing in necessary partnerships for smaller countries in the South China Sea region.

However, China is the only country with territorial claims in the South China Sea that currently possesses the technology required for deep-sea operations. China may deem the cost of a failed well worth the political gain of securing a broader maritime buffer and thus Beijing may continue exploration beyond where it is financially viable. Until further exploration is conducted and more information is known about the deeper waters of the South China Sea, reserve estimates will not be established enough to mitigate the higher risk of exploration posed by the potential escalation of political tensions for parties with only financial interests in such operations. Until then, China appears to have the upper hand in using energy as a geopolitical tool in the South China Sea.


China Plans To Put Garrison On Disputed South China Sea Island

By Daniel Ten Kate - Jul 22, 2012 11:15 PM CT

China will establish a military garrison on a disputed island in the South China Sea, part of an increased assertiveness in the resource-rich waters that’s straining ties with nations in the region and the U.S.

The garrison for the new city of Sansha was approved as 1,100 Chinese residents elected a legislature to oversee the area, the Xinhua News Agency reported yesterday. Sansha is on the Paracel Islands, which are also claimed by Vietnam.

Enlarge image
A file photograph from 2008 shows the beach on Philippine-occupied Pag-Asa island, the largest of the disputed Spratly Islands in the South China Sea. Photographer: Joel Guinto/Bloomberg

The move adds to recent efforts by China, the Philippines, Vietnam, Taiwan and Brunei to affirm command over disputed islands in the waters. While it may rile other claimants in the South China Sea, China sets up military garrisons in all its administrative districts, according to Arthur Ding, a research fellow at the Institute of International Relations in Taiwan.

“In order to show its seriousness, just like any other administrative area, China set up a military unit there,” Ding said in a phone interview. “It has nothing to do with combat preparation.”

About 150 Vietnamese protesters marched through Hanoi yesterday to decry China’s claims over the Spratly and Paracel islands. The demonstrators, including parents with toddlers and seniors, defied police requests to disperse and circumvented barricades aimed at preventing access to a square where the Chinese embassy is located.

The Xinhua report didn’t provide details on what kind of military personnel or hardware would be stationed on Sansha.

Prefectural City

China welcomed a statement by the Association of Southeast Asians last week calling for self-restraint in resolving disputes in the waters. The 10-member bloc had failed to issue a communique after a meeting of foreign ministers this month for the first time in its 45-year history because members differed over wording that may have criticized China’s actions.

Asean’s eventual statement was “in line” with China’s policies, the official Xinhua News Agency said in a commentary published July 21.

In June, China’s State Council approved the establishment of the prefecture-level city to administer the Paracel and Spratly Islands. Vietnam, the Philippines and Malaysia have “de facto military occupation and administration” over most of the disputed islands in the South China Sea, parts of which are also claimed by Taiwan and Brunei, according to the International Crisis Group.

Sansha will be based on Yongxing, the largest island in the Paracels with an area of 2.1 square kilometers (0.8 square miles). The chain is several hundred kilometers southeast of Hainan. China ousted Vietnam from the 30 islets and reefs that comprise the Paracels in a 1974 battle in which 71 soldiers were killed.

Earlier this month, China rebuffed U.S. calls to quickly complete a code of conduct for the seas as Secretary of State Hillary Clinton warned more clashes are likely without a region- wide deal. Asean failed to reach consensus on handling disputes in the South China Sea.

To contact the reporter on this story: Daniel Ten Kate in Bangkok at
To contact the editor responsible for this story: Peter Hirschberg at


Is the Osprey safe? Depends on which stats are used

Stars and Stripes
Published: July 10, 2012

Ospreys to be sent to Okinawa, but will not fly for now
Iwakuni city tells Marine Corps: We don't want Ospreys here
Has the Osprey gone from 'too dangerous' to 'too expensive'?
Critical GAO report prompts call to suspend Osprey production

Thousands of Okinawans gathered June 17 to protest the planned deployment of the Marine Corps Osprey aircraft to the island later this year.


Osprey aircraft could soon be parked on spots like this on the amphibious assault ship USS Bonhomme Richard, which was retrofitted to facilitate their move to the Pacific, seen here at Sasebo Naval Base.


SASEBO NAVAL BASE, Japan — The U.S. Defense Department says the MV-22B Osprey is safe. Residents of Okinawa, where 24 of the tilt-rotor aircraft are to be deployed soon, strongly disagree, with the prefectural governor threatening a movement to close all U.S. military bases on the Japanese island if their concerns are not addressed.

Who is right or wrong might not be so black and white. It all depends on which statistics are used to assess the safety record of the helicopter-plane hybrid that has been combat tested in Iraq and Afghanistan. The key is whether recent high-profile crashes are included in the safety calculations, and if those calculations are even valid.

The Japanese government released a Marine Corps environmental review of the Osprey’s proposed deployment on June 14, a day after the U.S. Air Force reported that one of its Ospreys flipped over on a Florida base, injuring the crew. Safety statistics in the report indicated that the aircraft are slightly safer than the aging CH-46E Sea Knights, which the Ospreys are replacing.

That was true until a deadly Osprey crash in Morocco in April claimed the lives of two Marines and inflamed Japanese concerns over the aircraft’s safety. But that crash was not factored into the Marine Corps environmental review released by the Japanese government, because the Corps had finalized the report prior to the crash.

Factor in those two additional crashes, and on paper, statistics would indicate that the Osprey is less safe than the Sea Knight. Updated statistics that include the Morocco crash were provided to Japanese officials in an addendum to the environmental review, Japanese government and Marine Corps officials said.

But the Marine Corps says those figures aren’t as bad as they appear.

“The numbers don’t tell the story of the bird,” Marine Corps spokesman Capt. Richard Ulsh said. “It’s a safe aircraft.”

The safety figures are based on the number of Class A mishaps per 100,000 flight hours. Class A mishaps involve repair costs for the aircraft or government property exceeding $2 million or the death or permanent disability of a servicemember.

In the review given to the Japanese government, the Osprey was listed as having a slightly better safety record than the Vietnam-era Sea Knights — 1.12 Class A mishaps per 100,000 flight hours, compared with 1.14 for the Sea Knight.


Responding to a Stars and Stripes query, Marine Corps headquarters released the updated set of statistics that included the Morocco crash. As a result, the Osprey mishap rating almost doubled, to 1.93 Class A mishaps per 100,000 flight hours.

Ulsh said that the Osprey has proved itself in continuous combat missions over the past five years, and that the safety numbers are overly skewed by the crash in Morocco.

The statistics spike when an aircraft with low flight hours has a Class A mishap, Ulsh said. In the last 10 years, the Sea Knight has more than 480,000 flight hours compared with 115,000 for the Osprey since 2007. So a crash or two wouldn’t have the same impact on the Sea Knight’s record as they would for the Osprey.

“In five years of operational flight, the MV-22 has only had two Class A mishaps; the most recent one taking place in Morocco in April of this year,” Ulsh said. “Given the fact that the past five years include continuous combat missions in Iraq and Afghanistan, this relatively low number of mishaps is considered a testament to the aircraft’s safety and survivability.”

Richard Whittle, former Washington and Pentagon correspondent for The Dallas Morning News and author of “The Dream Machine: The Untold History of the Notorious V-22 Osprey,” said the Osprey has a bad reputation due to the crash record of the pre-2001 version of the aircraft, which was “designed, prototyped and tested with inadequate funds because of the politics of defense acquisition.”

Whittle, who covered the Osprey off and on for 22 years, said that ensuing crashes marred the Osprey’s reputation. It was later redesigned and retested, but the damage was already done.

“Judged by Class A mishaps per 100,000 flight hours, the Sea Knight has a slightly better statistical average than the Osprey at the moment, but that’s because the CH-46 has been flying since Elvis Presley was King,” Whittle said. “Many more Sea Knights than Ospreys have crashed over the years … Today, there is no safer rotorcraft being flown by the U.S. military, in my view.”

Yet Okinawans, spooked by the recent crashes, strongly object to the planned deployment. The prefectural government and various cities on the island have passed resolutions opposing the Osprey deployment. About 5,000 Okinawans showed up at a protest rally last month in Ginowan City, home to the long-embattled Marine Corps Air Station Futenma, which is to house the Ospreys.

The local opposition is animated by still-sharp memories of the 2004 crash of a Sea Stallion helicopter on the campus of Okinawa International University, which sits adjacent to Futenma.

In that incident, the Sea Stallion’s tail rotor and a section of the tail rotor pylon detached from the aircraft. The rotor blades struck the university and the helicopter crashed and burst into flames. No civilians were hurt and the crew survived the crash, which was blamed on shoddy maintenance, but it prompted impassioned protests calling for the closure of Futenma, located in the middle of a densely-populated urban area.

The charred walls of a building struck by the helicopter were left standing in the middle of the university campus, as both a memorial and constant reminder of the crash.

“While it has long been said that Ospreys are defective aircraft, recent crashes like the one in Morocco and in Florida once again proved it,” said Seishin Hanasaki, 73, who attended the rally with his wife and neighbors.

“It’s very scary to think that such an accident-prone airplane will fly over our skies,” said his wife, Hatsuyo Hanasaki, 70.

Atsushi Sakima, mayor of Ginowan and an organizer of the event, agreed.

“To protect the lives and property of citizens, I call for immediate cancellation of the deployment of Osprey to Okinawa,” he told the rally.

More protests followed a few weeks later, when Japanese Minister of Defense Satoshi Morimoto visited Okinawa Gov. Hirokazu Nakaima to explain the host nation notification the U.S. government issued to Japan regarding the impending deployment of the Ospreys.

“We are yet to be convinced of the safety of the aircraft,” Nakaima said during the half-hour meeting.

Morimoto stopped short of discussing the government’s stance on the Osprey.

“What is clear is that the United States is continuing flight operations of the aircraft despite the accidents,” he said, adding Japan would reserve opinions until final reports on the crashes are released. “We are not in a situation at this moment to make any decision.”

Morimoto was on a two-day tour of Okinawa and Yamaguchi, host community of Marine Corps Air Station Iwakuni, where the aircraft will originally land in late July for system checks before moving on to Futenma.

Yamaguchi Gov. Sekinari Nii has expressed opposition to the deployment plans, as has Mayor Yoshihiko Fukuda of Iwakuni, where the Ospreys would fly two or three times a month to refuel.

There are also concerns in Sasebo, home to Sasebo Naval Base and ships of the U.S. Navy’s 7th Fleet. The amphibious assault ship USS Bonhomme Richard deployed there recently with upgrades to carry the Osprey.

Officials in Iwakuni said the Japanese government will not be able to proceed without public support.

The U.S. government announced two weeks ago that in recognition of Japanese safety concerns, the Ospreys will be grounded until the final crash investigations are provided to Japan. The Japanese Ministry of Defense has said it will set up a team to independently evaluate the Ospreys’ safety.

“If the deployment takes place by brushing aside concerned voices of the people of Okinawa, it will inevitably lead to a prefectural-wide movement to demand immediate closure of all the military bases on the island,” Nakaima said.

Ulsh said the Sea Knights are old and must be replaced. The Department of Defense has touted the Ospreys’ versatility, which includes the humanitarian arena. But the Japanese must live with the aircraft. And it isn’t just an Okinawan issue. Their increased range allows for more flights over mainland Japan, Ulsh said. He is confident the Osprey will serve safely, but he says there are no alternatives to the planned deployment.

“There isn’t another answer,” he said. “It’s important for us to have the Okinawan people think this is a safe aircraft.”

Stars and Stripes reporters Chiyomi Sumida and Hana Kusumoto contributed to this report.


China Third-Quarter Growth May Slow To 7.4%, Adviser Says

By Bloomberg News - Jul 21, 2012 11:00 AM CT

China’s growth may slide to 7.4 percent this quarter from a year earlier, an adviser to the nation’s central bank said, underscoring Premier Wen Jiabao’s warning that the economy’s difficulties may “persist for a while.”

The possibility of a “short period” of deflation in the world’s second-largest economy can’t be ruled out, Song Guoqing, an academic member of the People’s Bank of China monetary policy committee, said at a forum in Beijing yesterday.

China’s expansion slowed to 7.6 percent in the three months ending June, the sixth straight deceleration, as Europe’s fiscal crisis sapped exports and a crackdown on property speculation curbed domestic demand. Wen said the momentum for a recovery in growth isn’t yet in place, according to a July 15 Xinhua News Agency report, and warned two days later that the labor situation will become more “severe.”

“The slowdown in growth could worsen in the second half if Beijing is not decisive in unwinding some outdated tightening measures and carrying out effective stimulus,” Lu Ting, a China economist at Bank of America Corp. in Hong Kong, said in a July 19 note. The government should introduce measures equivalent to 1 percent of gross domestic product, about 470 billion yuan ($74 billion), “to fill the gap generated by slowing exports and fixed-asset investment,” he wrote.

The government will be “prudent” with any stimulus, Song said at yesterday’s forum held by Peking University’s China Center for Economic Research.

Deflation ‘Fact’

“Prudence can be good as it can avoid big swings,” Song said. “But in an economic slowdown it may also lead to insufficient measures.”

Signs of weakening domestic demand include falling factory- gate prices and softening inflation. The producer price index dropped 2.1 percent in June from a year earlier, the fourth straight decline, while consumer prices rose 2.2 percent, the smallest increase since January 2010.

“Deflation is already a fact for the corporate world,” Song said.

Angang Steel Co., China’s largest Hong Kong-traded producer of the alloy, said July 6 that it probably swung to a loss in the first half after prices plunged. The cost of steel fell this month to the lowest in two years.

Moderating inflation has given the central bank more room to ease monetary policy. It announced the second reduction in interest rates in a month on July 5 and has lowered the proportion of deposits banks must set aside as reserves three times since it started cuts in November to boost lending.

The central bank is “very likely” to further cut banks’ reserve-requirement ratio, Song said yesterday, without saying when he expects an announcement. It is “very difficult to make a forecast” on interest rates as the PBOC needs to look at “timing and conditions,” he said.

--Zhou Xin. Editors: Nerys Avery, Linda Shen
To contact the reporter on this story: Xin Zhou in Beijing at


China Raises Treasury Holdings First Time In Three Months

By Daniel Kruger and Cordell Eddings - Jul 17, 2012 10:33 PM CT

China, the largest foreign U.S. creditor, boosted its holdings of government securities in May to the most in six months as the American economy stalled and Europe’s sovereign-debt crisis deepened.

Chinese holdings rose 0.4 percent to $1.1696 trillion, Treasury Department data released yesterday show. Those of Japan, the U.S.’s second-largest lender, climbed 1.4 percent to an all-time high of $1.1052 trillion. Net foreign purchases of Treasuries increased $54.2 billion, or 1 percent, to a record $5.264 trillion in May, the data show.

“From China’s perspective, U.S. Treasuries are of much lower risk compared with holding European bonds,” said James Su, who oversees $50 million of fixed income assets as a fund manager at SinoPac Asset Management in Hong Kong. “It’s also linked to stronger exports to the U.S. relative to Europe.”

Investors continued to seek a haven in U.S. Treasuries in May as concern mounted regarding the potential need for Spain to seek a bailout and amid uncertainty whether a party seeking to cancel the terms of earlier bailouts would win elections in Greece. The balloting was seen as a referendum on whether the country would stand by its international-bailout commitments.

Falling Yields

China’s first-half exports rose 9.2 percent from a year earlier, lower than the government’s target of expanding trade by 10 percent, the nation’s customs bureau data said on July 10. Sales to the European Union fell 0.8 percent in the first six months, while U.S. exports rose 13.6 percent.

Yields on benchmark 10-year Treasury notes dropped to a record low of 1.44 percent on June 1 after U.S. employers added the fewest workers in a year in May and as the Fed pledged to keep borrowing costs close to zero to sustain economic growth.
“Slowing U.S. growth and increasing uncertainty about Greece is what caused more private and official demand,” said Shyam Rajan, an interest-rate strategist in New York at Bank of America Merrill Lynch, one of the 21 primary dealers that trade with the Federal Reserve. “U.S. data has actually gotten weaker since.”

The data showed China held $1.1644 trillion of Treasuries in April, an increase from the $1.1455 trillion reported for the period on June 15. The Treasury is revising holdings data on a monthly basis rather than annually based on the nationality of the beneficial holder of the debt, while the initial data will still count the location of the purchase. For the year, China’s holdings have risen 1.5 percent.

China’s holdings of short-term Treasury bills increased 97 percent in May to $7.3 billion from $3.7 billion the month before.

Asian Demand

Demand from Asia “is another component that’s going to push the Treasury market higher in price,” said Sean Simko, who oversees $8 billion at SEI Investments Co. (SEIC) in Oaks, Pennsylvania. “There’s larger issues in Europe than in the states, and with where our government securities are trading, there’s still more room for Treasuries to run.”
China’s policy makers have advocated diversification of the nation’s foreign-exchange reserves away from U.S. assets after more than doubling its holdings of Treasuries since 2007 in the wake of the global financial crisis.

Treasuries have returned 2.8 percent this year, according to the Bank of America Merrill Lynch Indexes.

Top Holder

The Fed remains the top holder of U.S. debt with $1.66 trillion. The central bank said on June 20 it would increase to $667 billion from $400 billion its program of extending the average maturity of the Treasuries on its balance sheet by selling short-term securities and buying an equal amount of longer-maturity Treasuries. Traders call the program Operation Twist after a similar effort in 1961 to contain borrowing costs for companies and consumers.

Net buying of long-term equities, notes and bonds totaled $55 billion during the month, compared with net purchases of $27.2 billion in April, the Treasury said in Washington. Economists surveyed by Bloomberg News projected net buying of $41.3 billion of long-term assets, according to the median estimate.

To contact the reporters on this story: Daniel Kruger in New York at; Cordell Eddings in New York at
To contact the editors responsible for this story: Dave Liedtka at; Sandy Hendry at

IMF ”EUが原因でBRICは景気後退する”

IMF Cuts Global Outlook As EU Ensnares Emerging Economies

By Sandrine Rastello - Jul 16, 2012 1:27 PM CT

The International Monetary Fund cut its 2013 global growth forecast as Europe’s debt crisis prolongs Spain’s recession and slows expansions in emerging markets from China to India.

Growth worldwide will be 3.9 percent next year, less than the 4.1 percent estimate in April, the fund predicted in an update of its World Economic Outlook. Spain’s economy will contract 0.6 percent instead of a prior forecast for 0.1 percent growth, and India’s projection for next year was reduced 0.7 percentage point to a 6.5 percent expansion, it said.

Central bankers from London to Seoul have lowered borrowing costs or increased bond buying in recent weeks in a round of international stimulus echoing the response to the 2007-08 global financial crisis. The fund said a U.S. rebound is moderating, the outlook is deteriorating for developing economies and global growth could suffer further if European policy makers put off measures agreed at a June summit to arrest the region’s instability.

“In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness,” the Washington-based IMF said in the report. “Downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action.”

2012 Slowdown

For 2012, the global forecast was little changed at 3.5 percent, the IMF said, as the Germany and Japan’s economies expand faster than projected three months ago.

The U.S. will grow 2 percent this year and 2.3 percent in 2013, as forecast July 3. Too much fiscal tightening in the world’s largest economy would pose a risk to global growth, according to the fund, especially if policy makers fail to reach a consensus on extending some temporary tax cuts and reversing automatic spending reductions.

A report from the U.S. Commerce Department today showed retail sales unexpectedly declined for a third straight month in June as limited employment gains took a toll on the biggest part of the economy.

The 0.5 percent drop followed a 0.2 percent decrease in May. The decline exceeded the most pessimistic forecast in a Bloomberg News survey in which the median projection called for a 0.2 percent rise. Purchases last fell for three or more months in July through December 2008.

The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,356.25 at 2:23 p.m. in New York after declining as much as 0.6 percent.

Policy Action

The IMF said its latest estimates hinge on an assumption “that there will be sufficient policy action to allow financial conditions in the euro-area periphery to ease gradually and that recent policy easing in emerging market economies will gain traction.”

The fund, which co-financed bailouts for Ireland and Greece, lowered its growth forecast for the euro region next year to 0.7 percent, from 0.9 percent in April, and left a forecast for a 0.3 percent contraction this year unchanged.

Italy and Spain, which has requested a bailout from euro countries to help shore up its banks, have taken important steps from fiscal consolidation to reforms of their economies, IMF chief economist Olivier Blanchard said at a press conference today in Washington.

‘Reasonable Rates’

“They can only succeed if they can finance themselves at reasonable rates,” Blanchard said. “So long as these governments are committed to reforms, other euro members have to be willing to help so as to make the adjustment feasible.”

Jose Vinals, who heads the fund’s capital markets department, said some action should be taken to stabilize funding conditions in the euro region. That could be done by restarting the European Central Bank’s bond-buying program, he said at the press conference.
Carlo Cottarelli, his counterpart at the fiscal department, estimated that spreads on Italian and Spanish bonds are at least 200 basis points higher than the level their economic fundamentals call for. Other potential supportive measures include issuing common bonds, he said.

The IMF, in a separate report released today, said risks to the global financial system have increased since April.

“Funding conditions for many peripheral banks and firms have deteriorated” even as the ECB provided lenders with ample liquidity, the IMF wrote in an update of its Global Financial Stability Report. “Interbank conditions remain strained, with very limited activity in unsecured term markets, and liquidity hoarding by core euro-area banks.”

Easing Room

The IMF said “there is room for monetary policy in the euro area to ease further” and repeated its call for policy makers to move toward a banking and fiscal union. Besides restarting the bond-purchasing program, the Frankfurt-based ECB could offer liquidity to banks with lower collateral requirements or start a quantitative easing program with asset purchases, the IMF said.

The U.K. economy will advance 1.4 percent next year, less than the 2 percent growth seen in April, the fund predicted in the economic outlook report.

In many emerging markets, there is also scope for monetary easing and “policy makers should stand ready to adjust policies, given spillovers from weaker advanced economy prospects and slowing export growth and volatile capital flows,” according to the report.

India, China

The IMF reduced its forecasts for India and China this year as well as for emerging markets as a group, where slower growth reflects a weaker international environment, lower domestic demand and increased risk aversion among investors.

China’s gross domestic product is forecast to expand 8 percent in 2012, compared with 8.2 percent seen in April, and accelerate to 8.5 percent growth in 2013, compared with 8.8 percent predicted three months ago. In the medium term, the IMF sees “tail risks of a hard landing” if overcapacity in some industries led to a sharper decline in investment spending in the world’s second-biggest economy.

While Asia appears more shielded, markets in the region as well as global commodity prices are feeling the pinch from slower Chinese growth, the IMF said. Japan’s economy is forecast to expand 1.5 percent in 2013, less than the 1.7 percent growth estimated in April, the fund said.

Brazil Outlook

India is forecast to grow 6.1 percent this year, from 6.8 percent previously forecast. Brazil will expand 2.5 percent, 0.6 percentage point less than in April, and 4.6 percent in 2013, compared with 4.1 percent, the fund said.

“Downside risks to growth in emerging-market and developing economies seem primarily related to external factors in the near term,” the IMF said.

While policy makers in emerging markets tightened policies to avoid over overheating, they have now started to reverse the move, with Brazil and Korea both cutting rates last week.

“The deliberate slowing has come to an end,” Thomas Helbling, a division chief in the research department, said in Washington today. “In our forecast we think that easing will gain traction.”

To contact the reporter on this story: Sandrine Rastello in Washington at


Consumer Sentiment In U.S. Drops To Year’s Low: Economy

By Michelle Jamrisko - Jul 13, 2012 3:42 PM CT

Confidence among U.S. consumers unexpectedly declined in July to the lowest level this year as Americans grew more pessimistic about their finances.

The Thomson Reuters/University of Michigan index of consumer sentiment dropped to 72 this month from June’s 73.2 reading. The gauge was projected to rise to 73.5, according to a median forecast of 69 economists surveyed by Bloomberg News.

The weakest quarter of hiring by companies in two years along with stock market volatility tied to Europe’s debt crisis threaten to hold back the household spending that accounts for about 70 percent of the economy. Sales at retailers such as Hhgregg Inc. (HGG) may struggle as fewer consumers expect their incomes to increase.

“The labor market has been pretty slow to recover, house prices are still low and there’s a lot of nervousness about what’s going on in Europe” and Washington, said Michael Hanson, a senior U.S. economist at Bank of America in New York, who correctly forecast the July reading. “The economy looks like it’s slowing.”

Estimates for the Michigan confidence measure ranged from 71.5 to 76.5, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

Stocks climbed, erasing the week’s loss for the Standard & Poor’s 500 Index on speculation China will boost stimulus measures and as JPMorgan Chase & Co. rallied after reporting earnings. The S&P 500 gained 1.7 percent to 1,356.78 at the 4 p.m. close in New York.

China’s Economy

Elsewhere, China’s growth slowed for a sixth straight quarter. Gross domestic product expanded 7.6 percent in the second quarter from the same three months last year, the weakest in three years, the National Bureau of Statistics said today in Beijing.
In Europe, Spanish lenders’ net borrowings from the European Central Bank jumped to a record 337 billion euros ($411 billion) in June as the European bailout agreement failed to ease their access to funding.

The University of Michigan’s measure of confidence mirrors the Bloomberg Consumer Comfort Index, which stagnated last week and has fallen since the end of June.

The Michigan survey’s index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, decreased to 64.8, also the lowest this year, from 67.8.
One in 10 consumers surveyed said they expected their inflation-adjusted incomes would increase in the next 12 months, according to economists at Barclays Plc in New York.

Retail Sales

Electronics retailer Hhgregg this week cut its full-year profit forecast amid declining sales of televisions. Dennis May, chief executive officer of the Indianapolis-based chain, said purchases in the fiscal first quarter are “an indicator of the difficulty in the current retail environment,” according to a statement on July 10.

The Michigan gauge of current conditions, which asks Americans whether they’re better off than they were a year ago and if they think it’s a good time to buy big-ticket items like cars, rose to 83.2 in July from 81.5.

Employment growth has waned relative to its pace earlier this year. Private payrolls, which exclude government agencies, increased by 84,000 in June, capping the worst quarter for corporate employment since the first quarter of 2010. The jobless rate held at 8.2 percent.

Federal Reserve

The Federal Reserve has signaled that a further economic slowdown would bring growing support among policy makers for additional steps to spur the three-year expansion, according to minutes of the June 19-20 meeting released this week in Washington.
A few members of the Federal Open Market Committee said the Fed should ease policy to move the economy toward its targets for full employment and stable prices. Several others said more action could be warranted if growth slows, risks intensified or inflation seemed likely to fall “persistently” below their goal.

Cheaper energy costs are providing some respite for Americans. The price of a gallon of gasoline was $3.39 as of yesterday, according to AAA, the biggest U.S. auto group. While that’s down from a high this year of $3.94 in April, fuel prices are up about 5 cents higher since the end of June.

Less Inflation

Consumers in today’s confidence report said they expect an inflation rate of 2.8 percent over the next 12 months, the lowest since October 2010 and down from 3.1 percent in June.

Over the next five years, the figures tracked by Fed policy makers, Americans also expected a 2.8 percent rate of inflation this month, matching the figure in June.

Another report today showed prices paid to producers unexpectedly rose in June as food costs picked up. The producer price index climbed 0.1 percent after a 1 percent decrease a month earlier. The gauge minus energy and food rose 0.2 percent, as forecast.

Economists surveyed by Bloomberg projected a 0.4 percent drop in wholesale prices, according to the survey median.

To contact the reporter on this story: Michelle Jamrisko in Washington at
To contact the editor responsible for this story: Christopher Wellisz in Washington at


Asean Fails To Reach Accord On South China Sea Disputes

By Daniel Ten Kate and Nicole Gaouette - Jul 12, 2012 3:39 PM CT

The Association of Southeast Asian Nations failed to reach consensus on handling disputes in the South China Sea, reflecting a rift between China and the U.S. over rules to keep peace in the trade lane.

Cambodia, which holds the bloc’s rotating chairmanship, rejected a compromise on the wording of a joint communiqué among the other nine members in Phnom Penh, according to Sihasak Phuangketkeow, the top bureaucrat in Thailand’s foreign ministry. The group’s failure to agree after a week of meetings is unprecedented, Indonesian Foreign Minister Marty Natalegawa said.

“This is strange territory for me,” he told reporters yesterday. “It’s very, very disappointing that at this 11th hour Asean is not able to rally around a certain common language on the South China Sea. We’ve gone through so many problems in the past, but we’ve never failed to speak as one.”

The squabbling underscores growing unease among the Philippines and Vietnam over China’s assertiveness in disputed waters that may contain oil and gas reserves. China this week rebuffed U.S. calls to quickly complete a code of conduct for the seas as Secretary of State Hillary Clinton warned more clashes are likely without a regionwide deal.
“It’s a sign of Asean’s maturity that they are wrestling with some very hard issues here,” Clinton told reporters yesterday. “They are not ducking them. They are walking right into them.”

Oil, Gas

The region is estimated to have as much as 30 billion metric tons of oil and 16 trillion cubic meters of gas, which would account for about one-third of China’s oil and gas resources, according to China’s official Xinhua News Agency. China had 2 billion tons of proven oil reserves and 99 trillion cubic feet of natural gas reserves in 2010, according to BP Plc estimates.
The Philippines wanted the meeting’s communiqué to mention a two-month standoff with Chinese vessels over a disputed reef known as Scarborough Shoal in the Philippines and Huangyan Island in China. In the security meeting of 26 Asia-Pacific nations and the European Union yesterday, Philippine Foreign Secretary Albert del Rosario denounced “pressure, duplicity, intimidation” from China and warned that tensions “could further escalate into physical hostilities that no one wants.”

“The chair had a problem with mentioning Scarborough Shoal,” he said in an interview afterward, referring to Cambodia. “We’re looking to report what’s factual, so we said if we don’t report Scarborough Shoal, what are we talking about? So he took a position and I took a position and we reached an impasse.”

‘Unfair Accusation’

Cambodian Foreign Ministry official Kao Kim Hourn rebuffed criticism that his nation was under pressure from China, calling it an “unfair accusation.”

“The process of discussions is still ongoing,” Kao Kim Hourn, a spokesman for Cambodia during the meetings, told reporters as most foreign ministers left the venue. “The moment we go into specific issues, we have a hard time to secure the consensus.”

China warned nations this week to avoid mentioning the territorial spats during the Asean meetings and repeated calls for joint development. Vice Foreign Minister Fu Ying yesterday said China would start talks with Asean on a legally binding Code of Conduct in the South China Sea “when conditions are ripe,” according to Xinhua.

Conduct Code

Asean’s discord over the communique “could enhance the prospects for reaching agreement” on a Code of Conduct because China “is less likely to feel that all the Asean member states are ganging up against it,” Robert C. Beckman, director of Center for International Law at the National University of Singapore, wrote in an e-mail. Key issues will be whether Asean can reach consensus “and remain united on those principles during the negotiations with China,” he said.

Clinton downplayed the risk of conflict with one of the U.S.’s biggest trading partners and stressed ways to cooperate with China in the region. U.S.-China commerce totaled $503 billion in 2011, more than double the combined $194 billion traded with Indonesia, Thailand, Philippines, Malaysia, Vietnam and other Asean nations, according to the U.S. Census Bureau.

The U.S. interest in the South China Sea is based on the importance of freedom of navigation in the 1.2 million-square- mile body of water that links the Pacific and Indian oceans, Clinton said yesterday. China has denied its actions threaten ships passing through the waters.

“We recognize that a zero-sum approach in the Asia-Pacific will lead only to negative-sum results,” Clinton said, noting that her meeting yesterday with Foreign Minister Yang Jiechi touched on science, technology, public health and the environment. “So we are committed to working with China within a framework that fosters cooperation where interests align, and manages differences where they don’t.”

Regional Solution

Vietnam and the Philippines, a U.S. ally, reject China’s map of the waters as a basis for joint development and have sought a regional solution to increase their bargaining power with Asia’s biggest military spender. Clinton has urged the countries to define their territory based on the UN Law of the Sea, a move China has resisted because it may lead to a loss of some waters it now claims.

Vietnam Oil & Gas Group (PVD), known as PetroVietnam, last month called for China National Offshore Oil Corp., the government- owned parent of Cnooc Ltd., to cancel an invitation for foreign companies to explore nine blocks that overlap with areas awarded to Exxon Mobil Corp. (XOM), Moscow-based OAO Gazprom and India’s Oil & Natural Gas Co.
The differences represent a learning experience for Asean, Secretary-General Surin Pitsuwan said in an interview yesterday.

“Asean operates on consensus and if one member holds back, we can’t move,” he said. “We need to digest the experiences and try to make sure we internalize, we understand and we walk forward.”

To contact the reporters on this story: Daniel Ten Kate in Phnom Penh at; Nicole Gaouette in Phnom Penh at
To contact the editor responsible for this story: John Brinsley at


‘Good Neighbor’ China Pushes Asean For Joint Development In Seas

By Daniel Ten Kate and Nicole Gaouette - Jul 11, 2012 6:20 PM CT

China repeated a call for joint development of energy resources in waters claimed by Vietnam and the Philippines before a regional security meeting today that includes U.S. Secretary of State Hillary Clinton.

Envoys from 26 Asia-Pacific nations and the European Union are meeting in Phnom Pehn, Cambodia, to discuss security concerns in the region. China warned nations this week to avoid mentioning the territorial spat, which Clinton called a “critical issue” two days ago in a visit to Vietnam.

“Pending the settlement of the disputes, the parties concerned may put aside their differences and engage in joint development,” Zhang Jianmin, spokesman for the Chinese delegation to the meetings, told the official Xinhua News yesterday. “China will always be a good neighbor, good friend and good partner for other Asia-Pacific countries,” he said.

The Philippines and Vietnam reject China’s map of the waters as a basis for joint development and have sought a regional solution to increase their bargaining power with Asia’s biggest military spender. Clinton has urged the countries to define their territory based on the United Nations Law of the Sea, a move China has resisted because it may lead to a loss of some waters it now claims.

Vietnam Oil & Gas Group (PVD), known as PetroVietnam, last month called for China National Offshore Oil Corp., the government- owned parent of Cnooc Ltd., to cancel an invitation for foreign companies to explore nine blocks that overlap with areas awarded to Exxon Mobil Corp. (XOM), Moscow-based OAO Gazprom and India’s Oil & Natural Gas Co. PetroVietnam will continue exploring in the area, Chief Executive Officer Do Van Hau told reporters on June 28.

Energy Resources

Chinese vessels last year cut the cables of a PetroVietnam survey ship and chased away a boat in waters delimited by the Philippines. The region is estimated to have as much as 30 billion metric tons of oil and 16 trillion cubic meters of gas, which would account for about one-third of China’s oil and gas resources, according to Xinhua. China had 2 billion tons of proven oil reserves and 99 trillion cubic feet of natural gas reserves in 2010, according to BP Plc estimates.

China has also clashed with Japan over a disputed island chain known as Diaoyu in Chinese and Senkaku in Japanese, where both countries have sent patrol boats in recent weeks. Chinese Foreign Minister Yang Jiechi told Japanese counterpart Koichiro Gemba yesterday in Phnom Penh that he hopes Japan will appropriately handle problems in the bilateral relationship, Xinhua reported.

Enforceable Code

Asean countries, including four with claims in the South China Sea, reached an agreement this week on rules for operating in the waters and will seek talks with China. The Philippines called for an enforceable code of conduct during a meeting of envoys from Asean, China, Japan and South Korea, according to a statement citing Foreign Affairs Secretary Albert del Rosario.

He called for “the eventual realization of a credible, binding and enforceable regional Code of Conduct in the South China Sea,” according to the statement.

Asean has achieved a “milestone” because all countries are now committed to agree to a legally binding code of conduct, according to Secretary-General Surin Pitsuwan. Last year, Asean and China agreed on guidelines to implement a non-binding agreement signed in 2002.

The 2002 Asean-China statement calls on signatories to avoid occupying disputed islands, inform others of military exercises and resolve territorial disputes peacefully. The eight guidelines approved last year say activities in the sea should be step-by-step, on a voluntary basis and based on consensus.

“The fact that it’s on the right track it’s already lessening the anxiety of the international community and of the regional states that there could be some potential conflicts and tension in the region,” Surin said in Phnom Penh yesterday.

To contact the reporters on this story: Daniel Ten Kate in Phnom Penh at; Nicole Gaouette in Phnom Penh at
To contact the editor responsible for this story: John Brinsley at


China Cuts Fuel Prices To Lowest Since 2010 As Crude Costs Slide

By Bloomberg News - Jul 10, 2012 9:24 PM CT

China, the world’s second-biggest oil consumer, reduced fuel prices for the third time since May after crude tumbled, easing costs for factories and motorists while threatening profit margins at refiners.

The maximum at which gasoline can be sold at the pump fell by 420 yuan ($66) a metric ton starting today and diesel slid by 400 yuan, the National Development and Reform Commission said in a statement on its website yesterday. The cuts represent a reduction of as much as 4.8 percent, according to Bloomberg calculations based on average retail rates across the country.

Falling oil costs have allowed China, which imports more than half its crude, to reduce fuel rates as its economy cools. The government may say this week that gross domestic product in the second quarter expanded at the slowest pace since 2009, according to a Bloomberg News survey of economists. The cuts are eroding margins at China Petroleum & Chemical Corp. (600028), or Sinopec, and PetroChina Co., the nation’s biggest crude processors, according to Sanford C. Bernstein & Co.

“The result of the third consecutive fuel-price cut in two months will be to push refining margins back into negative territory which is clearly not good for refiners,” Neil Beveridge, an oil and gas analyst at Bernstein in Hong Kong, said in a note e-mailed today. “Although Sinopec has underperformed since the first quarter and is now in deep value territory, we see no clear catalysts in the near term.”

Share Prices

Sinopec slid 1.2 percent in Hong Kong yesterday after the official Xinhua News Agency reported the price cut, without specifying the size. It fell 0.2 percent to HK$6.42 at 10:03 a.m. today and is down 21 percent this year. PetroChina dropped 1.6 percent to HK$9.34 and has fallen 3.4 percent in 2012. The benchmark Hang Seng index, down 0.6 percent, has gained 4.6 percent since Dec. 31.
The fuel-price reductions returned costs at the pump to levels last seen in December 2010. The ceiling for 90-RON, China III gasoline in Beijing fell to 9,100 yuan a ton, or $4.09 a U.S. gallon, according to the NDRC data. The China III specification is similar to the Euro III fuel standard. The NDRC, China’s top economic planner, also cut tariffs on May 10 and June 9.

Brent, a benchmark grade that China uses to gauge oil- processing costs, averaged $95.93 a barrel in June, the first time the mean price fell below $100 a barrel since January 2011, according to data compiled by Bloomberg. Futures for August were at $98.38 in London today and have slumped 23 percent since this year’s intraday peak on March 1.

Price Reforms

Gasoline and diesel prices are set by the NDRC under a system that tracks the 22-day moving average of a basket of crudes comprising Brent, Dubai and Indonesia’s Cinta. The government may change fuel rates when the measure falls more than 4 percent from the last adjustment. The NDRC said yesterday the criteria for price changes were met on July 9.

The nation is waiting for an “appropriate time” to revise its price mechanism, Zhou Wangjun, the deputy director of the pricing department at the NDRC said in a webcast by Xinhua on April 26. The system will be implemented when global oil prices are “relatively low,” he said.

China’s economy may have expanded 7.7 percent in the second quarter from a year earlier, down from 8.1 percent in the prior three months, according to the median estimate in a Bloomberg News survey of economists before data due July 13. That would be the slowest pace of growth since the first three months of 2009.

To contact the reporter on this story: Chua Baizhen in Beijing at
To contact the editor responsible for this story: Alexander Kwiatkowski at



Osprey deployment heightens safety worry
Okinawans fret about possibility of crashes in their own backyard


Staff writer
The United States last month announced that the MV-22 Osprey transport aircraft will be deployed to U.S. Marine Corps Air Station Futenma in Okinawa as scheduled in October.

The planned deployment has fueled anger among people living in Okinawa, who have long opposed the Futenma base, and Iwakuni, Yamaguchi Prefecture, where the aircraft are to first reach Japanese soil, because crashes involving the planes have raised safety concerns, earning the Osprey, like countless predecessors in aviation history, the nickname "widow maker."

Following are some questions and answers about the MV-22 Osprey:

What is the Osprey?

The V-22 Osprey is the world's first operational tilt-rotor transport aircraft, capable of vertical takeoff and landing like a helicopter and relatively fast forward flight like a prop plane. Variants of the V-22 include the marines' MV-22, the navy's HV-22 and the air force's CV-22.

Why are Ospreys being deployed to Futenma?

The U.S. Marine Corps is in the process of replacing its CH-46 Sea Knight helicopters, which are to be retired in 2014. Currently, about 140 Ospreys have been deployed to Marine Corps Air Station New River in North Carolina and at Miramar Air Station in California.

The fast-deployment Osprey will play a major strategic role in connection with the force deployment changes planned for the U.S. military presence in Asia. The changes include deploying marines to Darwin, in northern Australia, and to Guam.

The Osprey are expected to be an indispensable part of the marines' transport equipment, because the project to develop a next-generation amphibious vehicle has been canceled and one to create a vertical takeoff and landing-capable marine version of the F-35B Joint Strike Fighter has been delayed.

What can the Osprey do?

For the U.S. military, the Osprey is a dream aircraft that provides greater flexibility and capabilities, including flying at higher speeds and offering greater range than the CH-46.

Ospreys have been involved in combat operations in Iraq and Afghanistan and in disaster relief in Haiti.

The standard V-22 has a maximum cruising speed of 275 knots (520 kph), twice that of the CH-46, and with its in-flight refueling capabilities, the aircraft can be launched from carriers out at sea, well beyond the threat of coastal mines.

The Osprey's operational area is also quadruple that of the CH-46, which has a combat radius of 140 km, barely covering the Okinawan islands.

The Osprey's combat radius can be extended by as much as eight times farther with aerial refueling, thus any based in Okinawa can reach Osaka, Seoul, Shanghai and the northern Philippines.

In the Middle East, the Osprey's combat area could cover an area the size of Iraq, Syria and part of Saudi Arabia and Iran if flown from the al-Asad Air Base in western Iraq's Anbar Province, whereas the CH-46 can basically only operate over an area the size of Iraq.

"If a crisis were to erupt in North Korea, the Osprey would be quicker to respond," said Narushige Michishita, associate professor at the National Graduate Institute for Policy Studies (GRIPS) in Minato Ward, Tokyo.

How did the Osprey's development start?

The Osprey has been an expensive project, taking some 25 years to design, build, test and eventually deploy. Development started after the failed mission to rescue U.S. hostages in Iran in 1981 demonstrated that the U.S. military needed aircraft that would give them more options than existing sea-launched assault aircraft.

The initial Osprey program called for production of more than 1,000 aircraft costing less than $40 million each, but the technical hurdles to create the two turboprop engines and rotating nacelles at the end of short, winglike appendages sent the price soaring.

But the helicopter-airplane hybrid has survived many setbacks and even possible cancellation of the entire project, but it was never killed, in part because the U.S. Marines in particular lobbied hard to keep it.

Amid the budget crisis, the Government Accountability Office in 2009 ordered the cost and performance of the V-22 to be clarified and alternatives reconsidered.

According to the GAO, the program's cost increased over 200 percent from 1986 through 2007 — from $4.2 billion to $12.7 billion — while the cost of procurement increased 24 percent from $34.4 billion to $42.6 billion.

As of 2009, it was estimated that $75.4 billion would be needed for the program's life cycle, or the costs involved in procuring and operating the aircraft before they are retired.

Is the Osprey accident prone?

The Osprey had three fatal accidents, claiming 30 lives, during its development and early deployment stage. In total, the aircraft had four accidents before the Pentagon authorized full-scale production in September 2005.

But Pentagon investigations ruled out technical or mechanical faults as being the causes of the accidents.

More recently, an MV-22 crashed in Morocco in April, killing two, and an air force CV-22 crashed in June in Florida, injuring its crew.

The causes of the latest accidents have yet to be officially established but they took place when the aircraft were transitioning from helicopter to aircraft mode — the Osprey's main feature.

Although Defense Minister Satoshi Morimoto admitted an aircraft's development does not end with the start of full-scale production, the Defense Ministry said the accident rate for the MV-22, which presently stands at 1.93 per 100,000 flight hours, is much lower than that of the U.S. Marine Corps. aircraft average, of 2.45. The rate for the CH-46 is 1.11.

Yet critics point out that these figures only take into account major incidents, not minor ones.

Noboru Yamaguchi, a professor at the National Defense Academy of Japan and a Self-Defense Forces helicopter pilot, cites the so-called bathtub curve, saying the accident rates are high at the start of deployment but go down as flight hours increase. As the aircraft age, however, the rate goes back up.

"It should be hitting the bottom of the curve when it's deployed in Okinawa," said Yamaguchi.

Do the Ospreys have any mechanical or material faults?

That question seems to be an open one.

Some news reports say the Osprey is unable, like conventional choppers, to autorotate, or effectively descend at a controllable attitude and speed if the engines fail, just by controlling the prop speeds and angles.

The Pentagon has reportedly said autorotation is not a formal requirement to ensure an Osprey can make a safe power-off landing.

A Defense Ministry brochure meanwhile states that the Osprey has autorotation capability, something Morimoto said the Pentagon confirmed.

All helicopters in Japan are required to be able to autorotate. However, in the U.S., autorotation is only required for civilian helicopters.

Autorotation is performed if both engines fail, as usually if one engine remains on, it can control the other one via in interconnected driveshaft.

The Defense Ministry noted that the loss of both engines is very rare and the Osprey can also enter a steep descending glide akin to that of a C-130 while in airplane mode.

Is the Osprey a better choice than the CH-46?

Deploying the Osprey will not alleviate the burden on the people living near Futenma, an environmental impact assessment concluded.

The report says the noise level is only slightly lower than the CH-46 when the craft is flying in airplane mode and just as noisy in helicopter mode.

"We are in a double bind as we feel we are being forced to choose between Ospreys, whose safety has not really been confirmed, or the CH-46, as aging craft could cause another crash," said Mikio Shimoji, a member of the House of Representatives from Okinawa. He took a flight on an MV-22 at Miramar Air Station in California in January.

When will the Ospreys come to Okinawa?

Amid the growing opposition to the deployment, especially after two recent crashes, the U.S. made a concession by pledging it will not carry out any test flights in Japan, including at Iwakuni, where the first 12 Ospreys will be offloaded and grounded until the final investigative reports on the accidents are compiled by the end of August.

Morimoto said findings already submitted by the U.S. military indicate the accidents were caused by operational error, but he said his ministry has formed a special team to verify this claim.

The Weekly FYI appears Tuesdays. Readers are encouraged to send ideas, questions and opinions to


Japan’s Nuke Report Undercuts Itself With Cultural Copout

By the Editors Jul 8, 2012 5:30 PM CT


By Japanese standards, the report released Thursday by the Fukushima Nuclear Accident Independent Investigation Commission could be considered remarkable.

Its 641 pages, drawing on town-hall meetings, household surveys, more than 900 hours of hearings and interviews with 1,167 people are the product of an unprecedented six-month inquiry -- the first independent investigation in Japan to have subpoena power.

Its account of the March 11, 2011, earthquake, tsunami and ensuing nuclear meltdown, which displaced about 160,000 people and left parts of Japan unlivable, differs in crucial ways from those of Japan’s nuclear regulatory agencies, the Tokyo Electric Power Co. (9501) that operated the plants and then-Prime Minister Naoto Kan. Most important, the report squarely blames the catastrophe on a pattern of human failure, not a freakish act of nature.

Yet for all its detail and willingness to label the Fukushima disaster as “profoundly manmade,” the report does not identify which men (and this being Japan, there probably weren’t many women) failed. Instead, it sweepingly indicts “the ingrained conventions of Japanese culture,” effectively letting individual culprits off the hook. Its conclusions and recommendations avoid any discussion of prosecution or punishment.

Still, the report helps guide the way forward. A crucial finding is that the earthquake prior to the tsunami may have incapacitated one of the reactors and its safety equipment -- a possibility that Tepco had resolutely denied. Moreover, the commission found that Tepco had not upgraded that reactor’s seismic defenses as required by Japan’s Nuclear and Industrial Safety Agency, that the agency failed to enforce that upgrade and that the recorded seismic motion at Fukushima actually exceeded even the level that the standards were meant to protect against.

These findings suggest that Japan’s decision to restart some of its reactors -- the first, in Ohi on Japan’s west coast, resumed operation a week ago -- is premature. The Ohi reactor passed the stress test required in the aftermath of Fukushima, but that is no guarantee it could withstand an earthquake of the same 9.0 magnitude. One of the country’s most vocal seismic whistle-blowers, Katsuhiko Ishibashi, who foretold the potential for the disastrous 1995 Kobe earthquake as well as a Fukushima- like event, has warned that the government is underestimating the restarted plant’s vulnerability.
Given the risks involved, the prevalence of seismic activity in Japan and the diminishing enthusiasm of the Japanese public for nuclear energy, it would be sensible for Prime Minister Yoshihiko Noda to err on the side of caution and set as a temporary benchmark the ability to withstand a 9.0 earthquake before a reactor can go back online.
Temporary is the key here, because rigorous new standards will take time to refine and should be the purview of the new independent regulatory body that the commission calls for, and that the government is moving too slowly to establish. The long history of collusion between companies such as Tepco and the Nuclear and Industrial Safety Agency -- housed in the Ministry of Economy, Trade and Industry, which also promotes Japan’s nuclear industry -- has contributed to numerous deadly incidents and near-misses. The commission also rightly calls for Japan’s Diet to more closely supervise this new regulatory body. NISA resisted the commission’s inquiry, and Tepco still refuses to turn over video footage of conference calls held during the crisis that might shed still more light on it. More political heat might make it easier to overcome such recalcitrance in the future.

Where the report falls seriously short, however, is the aspect that has drawn the most approving attention: its conclusion that the near-cataclysm at Fukushima was, at bottom, a cultural mishap. It is both a copout and a cliche to fall back on Japan’s “groupism” and say that “had other Japanese been in the shoes of those who bear responsibility for this accident, the result may well have been the same.” Japan is hardly the only country where safety regulations are poorly enforced and old-boy networks protect industry interests. Witness the 2006 Sago mine explosion in the U.S., where hundreds of earlier safety violations brought only low fines, and the revolving door between the coal mining industry and the U.S. Department of Interior was in full swing.

Moreover, notwithstanding the commission’s lament about the Japanese “reluctance to question authority,” many citizens did repeatedly express their concerns about the safety of Tepco’s Fukushima reactors, including legislators from Japan’s Communist Party. Their warnings were brushed aside by those in power. Let’s hope that the otherwise instructive findings and recommendations of this commission are not.

Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View editorials, columns and op-ed articles.

Today’s highlights: the editors on whether it’s a penalty or a tax and the latest jobs report; William D. Cohan on Finra’s captive arbitration system; Susan P. Crawford on whether Google is a monopoly; Albert R. Hunt on gaming the Electoral College; Simon Johnson on banks’ living wills; Pankaj Mishra on the false promise of Asian values; Jed Kolko on the downside of rising house prices.
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Samsung Denied Request for Immediate Stay of Galaxy Tab Ban

By Susan Decker - Jul 6, 2012 6:07 PM CT

Samsung Electronics Co. (005930) lost an emergency bid to resume selling the Galaxy Tab 10.1 tablet computer while it has at least another week to sell its Galaxy Nexus smartphone in the U.S., a U.S. appeals court ruled.

The U.S. Court of Appeals for the Federal Circuit today said a ban on sales of the Galaxy Nexus will be put on hold at least until it considers Apple Inc. (AAPL)’s response to Samsung’s appeal of the ban. Earlier today, the court denied Samsung’s request to put the sales ban of the Galaxy Tab on hold. Apple was ordered to respond to both appeals by July 12.

Apple and Samsung, the world’s two biggest makers of smartphones, are locked in a battle for market share that spans four continents. Together, they make more than half of the smartphones sold worldwide, according to IDC, a Framingham, Massachusetts-based market researcher.

U.S. District Judge Lucy Koh issued the ban on the Galaxy Tab June 26 after finding that Apple would probably win its claim that the Tab copied a patented design owned by the Cupertino, California-based smartphone maker. She had denied the request in December, and the Federal Circuit ordered her to reconsider.

Three days after the Galaxy Tab order, Koh imposed a ban on the Galaxy Nexus smartphone, saying Apple was likely to win its claims that Suwon, South Korea-based Samsung infringes four valid patents, including one for a search feature that captures results from multiple sources, such as the Internet and e-mail contacts.

Android System

The Galaxy Nexus is the first phone to run on the Ice Cream Sandwich version of Google Inc. (GOOG)’s Android operating system, the most popular platform for mobile devices, Koh said in her opinion.

“We’re going to continue to work the courts process, but simultaneously we’re working with Google because the patent in question involves their unified search function,” Teri Daley, a spokeswoman for Samsung’s mobile unit, said in an interview.

The Galaxy Tab case is Apple Inc. v. Samsung Electronics Co., 12-1506, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court Galaxy Tab case is Apple Inc. v. Samsung Electronics Co. Ltd., 11-cv-01846, U.S. District Court, Northern District of California (San Jose).

The Galaxy Nexus case is Apple Inc. v. Samsung Electronics Co., 12-1507, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court Galaxy Nexus case is Apple Inc. v. Samsung Electronics Co. Ltd., 12-cv-00630, U.S. District Court, Northern District of California (San Jose).

To contact the reporter on this story: Susan Decker in Washington at

To contact the editor responsible for this story: Bernard Kohn at



China Busts Traffickers After Babies Auctioned Off For $7,800

By Bloomberg News - Jul 5, 2012 9:26 PM CT

Chinese police broke up child- trafficking rings in 15 provinces and arrested more than 800 people after babies were auctioned off to the highest bidder for up to 50,000 yuan ($7,800).

Footage aired on Chinese television today showed a police officer involved in the raids wresting a child away from a woman who had allegedly bought it. Suspects and other rescued children were also shown being taken away by police.

The July 2 raids involved 10,000 police and resulted in 181 children being freed and 802 arrests, the Ministry of Public Security said in a statement on its website yesterday. China’s one-child policy and a tradition of favoring boys have been cited as contributing to the nation’s trafficking problems.

A doctor at a clinic in Hebei province organized a trade in which pregnant women sold their children for up to 50,000 yuan depending on the baby’s gender and health, and its parents’ appearance, the Xinhua News Agency reported yesterday.

A suspect who had allegedly helped in the trafficking of more than 100 children was also arrested, the ministry said in the statement. It said police first became aware of one child- trafficking ring in Henan province when four suspects were found on a bus traveling with babies they intended to sell.

China started a campaign in 2009 to combat trafficking, freeing 18,000 children and 34,000 women in that time. The U.S. State Department’s 2011 Trafficking in Persons Report said that while China has increased attention to trafficking of women and children, “the government did not demonstrate evidence of significant efforts to address all forms of trafficking or effectively protect victims.”

Some families from rural farming communities sell their female babies for cash because boys are considered more valuable at home.

To contact Bloomberg News staff for this story: Yidi Zhao in Beijing at


China Beige Book Shows Pickup Unseen In Official Data

By Bloomberg News - Jul 4, 2012 8:14 PM CT

China’s official statistics may be lagging behind independent data that show a pickup in the world’s second-biggest economy last quarter, according to a new private survey modeled on the U.S. Federal Reserve’s Beige Book.

The China Beige Book, through interviews of about 2,000 company executives and bankers, found retail sales and manufacturing strengthened while property sales increased and shortages of unskilled labor failed to abate. CBB International LLC, the New York-based researcher that conducted the survey, provided a summary of the results to Bloomberg

The key drivers of an “upswing” in the real estate market were increasing sales volumes that were reported by 54 percent of residential property agents and 57 percent of commercial property agents, the China Beige Book said.

The report said four of every five retailers see higher sales in six months, a bigger proportion than in the first quarter, contrasting with government data showing the weakest non-holiday sales growth since 2006 in May. Bankers foresee growing availability of loans and 46 percent of companies intend to borrow, “suggesting a fairly stable rise in credit demand.”

“These findings diverge considerably from the current ‘gloom and doom’ narratives,” CBB President Leland R. Miller and Craig Charney, director of research and polling, said in a statement to Bloomberg. The official statistics probably lag CBB’s data by one to three months and may reflect a pickup by “mid- to late summer,” they said.

The survey suggests China’s measures to reverse the deepest slowdown since 2008 may be boosting growth even as Europe’s sovereign debt crisis crimps exports. Authorities lowered interest rates last month for the first time in more than three years and have cut reserve requirements for banks three times since November while speeding approvals for investment projects.

Growth Evident

“The economy as a whole is now strengthening modestly” and credit is “fairly loose,” Miller said in an e-mailed response to questions. “Quarter-on-quarter growth was particularly evident by June in consumer spending and real estate, while agriculture and mining also showed improvement.”

CBB said its findings are based on interviews with 1,783 company managers, face-to-face interviews with 138 senior corporate executives and telephone interviews with 160 bank loan officers and branch managers. The survey was conducted from May 14 to June 8.
The survey uses methodology adapted from the Fed’s Beige Book survey, according to CBB. The central bank is not involved in the China survey, CBB said. The U.S. Beige Book is published eight times a year, or two weeks before each meeting of Fed policy makers, giving anecdotal data to inform interest-rate decisions.

CBB provided Bloomberg with a full copy of the inaugural first-quarter report running 58 pages.

Rising Revenue

The China Beige Book’s second quarterly survey showed property agents reporting higher second-quarter revenue doubled to almost 60 percent, manufacturers recording rising sales increased 3 percentage points to 63 percent and retailers with increased sales climbed 5 percentage points to 68 percent.

Retailers expect spending to strengthen further and 71 percent of manufacturers foresee higher revenue in six months, the survey said, indicating a reduced need for further stimulus measures.

Higher spending may help vendors including Chow Tai Fook Jewellery Group Ltd. (1929) of Hong Kong, which said June 27 that profit jumped 79 percent last fiscal year.
The data contrast with another private survey watched by investors, the manufacturing purchasing managers’ index released monthly by HSBC Holdings Plc and Markit Economics. That gauge fell in June to the lowest level since November, showing a contraction for an eighth straight month. The survey covers executives at more than 400 companies.

Export Slowdown

Some parts of the economy may have slowed further in June, based on preliminary results of analyst surveys by Bloomberg News. Growth in exports may have fallen to 10.5 percent in June from a year earlier compared with 15.3 percent in May, while expansion in retail sales weakened by 0.4 percentage point to 13.4 percent, according to median estimates.
New yuan loans probably climbed to 900 billion yuan ($142 billion) in June from 793 billion yuan in May, according to Bloomberg’s analyst survey.

The key drivers of an “upswing” in the real estate market were increasing sales volumes that were reported by 54 percent of residential property agents and 57 percent of commercial property agents, the China Beige Book said.

China’s new home prices in June increased for the first time in 10 months, according to a survey of 100 cities by SouFun Holdings Ltd. (SFUN), the nation’s biggest real estate website owner.

Commercial Developers

Not all the data in the China Beige Book showed a pickup. Manufacturers that principally export are “hurting,” with 28 percent reporting sales declines, double that for firms that also rely on domestic markets, the report said. More than a fifth of residential property developers and 18 percent of commercial developers had declining revenue in the quarter.

Shipping companies’ expectations also deteriorated with the proportion expecting higher revenue in six months falling 15 percentage points to 52 percent and those anticipating drops tripling to 21 percent, the survey found.

Elsewhere in the Asia-Pacific region today, Malaysia’s central bank is forecast to leave its benchmark interest rate unchanged at 3 percent, where it’s been for more than a year. Taiwan’s consumer prices probably rose 1.78 percent in June from a year earlier, the fourth straight acceleration, based on the median estimate of 14 economists.

The European Central Bank meets in Frankfurt, where analysts anticipate officials will lower the benchmark interest rate to a record low of 0.75 percent. The U.S. may say applications for jobless benefits declined to a four-week low of 385,000 in the period ended June 30.

Geographic Divisions

The China Beige Book divides China’s 31 provinces, municipalities and autonomous regions into eight geographic areas and covers industries including manufacturing, retail, service, transportation, property, farming and mining.

The project’s backers say they are first to gather this much independent data across China’s regions and industries to provide a regular snapshot of the economy akin to the Fed’s in the U.S. The company is charging a “premium” price for the quarterly reports that Miller declined to specify.

“The Chinese economy has become too complex to simply accept the old standby data sources,” Miller, 35, said in an interview.

CBB was formed by people from New York-based Charney Research and consultant Avascent International of Washington. Craig Charney, president of Charney Research, has conducted polls in more than 35 countries including India and Indonesia and worked for political figures such as U.S. President Bill Clinton, according to a biography from CBB.

--Kevin Hamlin. Editors: Scott Lanman, Patrick Harrington

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at
To contact the editor responsible for this story: Paul Panckhurst at
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Author: Nobuyoshi Ozaki

A long forty six years have passed since I stepped on to American soil. I have had various odd jobs in the past until I recently retired. Examples include working with Steven Spielberg as assistant director in a film called "1941." I was supervisor and later became Public Relation representative for Toyota Group - USA. My last occupation was a Senior Research analyst working in Silicone Valley for a major news paper from Tokyo, Japan. My spouse, Christine is a flight attendant, traveling often to the Middle East and Africa. We have spent three quarters of our life together as world adventurers. This photo was taken in Argentina. We now live in swampy Louisiana.