Market Information

The economy is in for a bumpy ride this year, economists say, as fears mount about the global impact of a US recession.

The belief that the United States is heading for recession, or may even be in one already, has led to carnage on world sharemarkets since the new year and a dramatic interest-rate cut of three-quarters of a percentage point by the US Federal Reserve.

Because of the time such moves take to work, economists see it more as a bid to reassure the markets and shorten and reduce the severity of a US recession than to stave one off altogether.

How great the impact of a US slowdown on New Zealand is will depend on how long it lasts and how much validity there turns out to be in the idea of “decoupling”.

Decoupling is the theory that the Asian economies, which have generated most of the world’s growth in recent years, have enough momentum of their own to shrug off at least a short drop in their exports to the US.

If they do, the impact on commodity prices, whose current strength underpins the growth prospects for New Zealand and Australia, our largest export market, should be modest.

Bank of New Zealand chief economist Tony Alexander expects the economy to grow at a weak rate of below 2 per cent this year.

“There will definitely be an impact but there is some insulation,” he said, citing the dairying boom, infrastructure spending, job security and wage growth, the prospect of tax cuts and businesses investing.

Any fall in local fixed-term mortgage rates would be limited, Mr Alexander said, when US interest rates began to rise again later in the year as concerns about inflation came to the fore again.

ANZ National Bank chief economist Cameron Bagrie said the world economy was less reliant on the American consumer than it had been 10 years ago.

But economies had become more interdependent because of intricate interconnections of markets, making it impossible to quarantine the kind of problems the US banking system was grappling with as a result of lax lending practices in the “subprime” mortgage market.

With the banks looking sideways at each other, wondering what losses had yet to be disclosed, credit while still available had become more expensive, he said.

“For an economy such as New Zealand, which is very reliant on offshore capital, this is probably the worst possible scenario. We are still managing to tap overseas capital markets but it is far more difficult and is costing more,” Mr Bagrie said.

“That is a cost borrowers will have to face, whether it is for housing or in the corporate world.”

He is dubious about the decoupling theory.

“If it’s just a US problem, the overall prognosis for New Zealand is reasonably good. But growth is fading in Japan and Europe looks sluggish. They are very big shoes for the rest of Asia and emerging markets to fill.”

New Zealand Institute of Economic Research chief executive Brent Layton is more optimistic.

He does not believe the US slowdown will amount to a recession. “I don’t think Asia will slow a lot, hence the impact on Australia will not be so great, helping New Zealand.”

Sharemarkets’ volatility reflected uncertainty, Dr Layton said. They were not always a reliable barometer of the economic outlook.

“It is only a very small proportion of the total value of equities that gets traded on any day,” he said.

“You can have large movements which affect the value of the market but only a small proportion of players are participating.”

In overnight trading, London’s FTSE 100 had fallen 0.8 per cent.

After three weeks of falls, the New Zealand sharemarket closed higher yesterday - though only just.

Source: New Zealand Herald via: Asia markets key for NZ

New Zealand is close to a free-trade agreement with China and Trade Minister Phil Goff is confident a deal will be signed in April after final details are worked through.

Source: Goff confident of China trade deal

via: NZ Herald

CHINA will tighten prices of certain goods including medicine and property as part of measures to stabilize a market which has been rocked by surging price rises, said the National Development and Reform Commission. “China will face a rather arduous task to cope with inflation pressure next year, driven by rising global prices, robust domestic demand, higher costs for using environmentally friendly resources,” said Bi Jingquan, vice director of the nation’s top planning body, according to a statement on its Website. But the country’s good harvests in recent years and the substantial increase of fiscal revenue will help ease the pressure, said Bi. According to the statement, China will ensure that overall prices do not rise too fast. It will improve supervision, guiding production, supplies and market distribution of basic necessities. The country will offer a preferential price for purchases of wheat and rice from farmers to guarantee market supply and provide subsidies for sectors badly hurt by price increases of power, crude oil and natural gas. China’s consumer prices in October climbed 6.5 percent, the highest pace in more than a decade while they widened to more than six percent in August and September. The producer prices, a gauge of factory-gate inflation, rose 4.6 percent last month from a year earlier, the highest in more than two years. The previous record was 5.9 percent in May 2005. China’s fiscal revenue may expand by 27.23 percent to more than five trillion yuan (US$675.7 billion) this year, estimated Yao Jingyuan, chief economist with the National Bureau of Statistics.

Via: Market’s stability via cost controls

from Shanghai Daily: Business by Wang Yanlin

LOCAL markets may be selling mineral water and potato crisps which have unacceptable levels of bacteria by China’s standards. Beijing quarantine authorities this week seized a batch of French Evian mineral water and American Lay’s potato crisps which were found to contain bacteria. Manufacturer Pepsi said the company had established a manufacturing base in China. A spokesman said Lay’s crisps sold on the Chinese market should be made in China rather than imported from the United States. The products in question were imported by sales companies rather than Pepsi, the company said. The high level on the bacteria index was caused by different measurement standards between China and the US, the company said. Pepsi said it would discuss the matter with its US headquarters to find a way to solve the problem. Evian said the company would issue a statement when a conclusion was drawn. The Shanghai Exit-Entry Inspection and Quarantine Bureau said it will investigate local markets to see whether the imported products are being sold here. Several batches of imported food - a total of 23 brands - found to have quality problems were seized by authorities this year, state-level authorities said. Famous brands such as Pringles crisps produced by the US-based Procter and Gamble Group were also on the blacklist.

from Shanghai Daily: Metro by Lu Feiran Contaminated water, crisps warning

China will soon set up a potato research center for the Asia-Pacific region. The move shows the world’s biggest producer and consumer that they are committed to spending more on global agricultural research.

Via: People’s Daily:   New Potato center to help global research in agriculture. 

When official figures are released on Australia’s global trade in 2007, they are expected to show that China has emerged for the first time as the country’s leading economic partner.

It is already way ahead of the United States in trade with Australia and is rapidly overhauling Japan. Statistics released in Canberra in August showed that Australia’s goods and services trade with China last year reached A$50.3 billion ($57.6 billion), barely A$5 billion less than the value of Australia’s two-way trade with Japan.

Via NZ Herald: Booming China becoming big part of Australia’s economy

Photo by Joe: SOHO Beijing 2007. “Show your mercy to the green lawn”

A great sticky message is one that people can understand when they hear it, that they remember later on, and that changes something about the way they think or act.

Malcolm Gladwell’s The Tipping Point: How Little Things Can Make a Big Difference explains that successful messages have a Stickiness Factor: Stickiness means that a message makes an impact – it’s memorable.

“There is a simple way to package information that, under the right circumstances, can make it irresistible/sticky and compels a person into action. All you have to do is find it.”

Companies will often spend months coming up with business plans and product ideas for China but then spend only a few hours thinking about how to convey that message to their Chinese customers often translating it directly from English to Chinese. Great ideas need great messages. It’s worth spending time making sure that your message is going to be meaningful and memorable in the Chinese context.

When we undertook the market entry campaign for Canterbury of New Zealand we needed to create messages that would open doors and make companies sit up and listen. We wanted to present Canterbury’s company information in a way that would be irresistible to potential partners in China. Here’s a sample of some of the messages we used when introducing Canterbury to potential partners (translated from Chinese).

“Canterbury is the world’s original rugby brand, for this reason they have forever earned a place in history.”

“Canterbury’s products are the culmination of over 100 years of pride and tradition.”

“Canterbury is sold in many of the world’s leading retailers including Harrods and Saks Fifth Avenue.”

The elements in these messages that stuck in the Chinese mind were the references to Canterbury’s heritage and their international credentials “Ming Pai”. Ming Pai and heritage are two of the most important qualities Chinese businesses look for in foreign brands. We crafted stories and messages to reinforce these elements, giving just enough information to wet taste buds and leaving people wanting to know more.

Being able to create a meaningful message in China requires an understanding of the culture, language and a perception of how messages are understood and remembered by Chinese people.

The Stickiness Factor test

• Is your message going to be memorable?
• Does it make sense in the Chinese context?
• Is it practical – how does the message fit?
• Is the message unique?
• Is the message packaged to make the desired impact?

Unicon work with companies to create meaningful messages in the Chinese context and we’re bloody good at it too! (kiwi context).

www.unicon.co.nz

Property development near Olympic Village - Beijing, 2007 by Joe

FOREIGN developers and corporations will start to pay a land-use tax starting from next year in Shanghai, according to a notice issued by the city government yesterday. The land-use tax will range between 1.50 yuan to 30 yuan (US$4.06) per square meter, per year depending on the size and location of the property, the notice said. Foreign companies are exempted from the tax before the notice takes effect but they still need to pay certain fees for land use. Domestic companies have been paying the tax since 1988. Individuals are exempt from the tax on their residences. The new policy means that developers have to pay tax for the land approved by authorities for construction of property projects. The move is widely expected to add costs to developers which are hoarding land in order to fetch higher selling prices in the future. “The tax won’t affect the city’s housing prices since it has been imposed for many years,” said Xue Jianxiong, head of research at Shanghai Youwin Real Estate Information Service Co Ltd. “Foreign firms mainly use office buildings, which account for less than one percent of the city’s land,” Xue said. The notice ruled that land inside the Inner Ring Road will be levied 12 yuan to 30 yuan per square meter and land between the Inner Ring Road and Outer Ring Road will be levied six yuan to 20 yuan per square meter. China has imposed a variety of taxes on developers, such as a land value-added tax and land-transfer fees. The country will also levy a property tax in 10 regions on a trial basis next year, including Beijing, Shenzhen and Liaoning. Analysts said that the property tax can reduce the number of idle properties, boost supply and slash housing prices. Last month’s average housing price in the mainland’s 70 major cities jumped 9.5 percent on a yearly basis, compared with September’s 8.9-percent growth rate.

via Shanghai Daily: Business by Winny Wang on 11/29/07 Foreign firms to pay land-use tax next year

A BIG Chinese currency revaluation would invite speculation and damage growth, said Fan Gang, an adviser to the People’s Bank of China. Sharp increases in the yuan’s value would trigger “large speculative capital inflows and outflows that will kill China’s growth and financial stability,” Fan, a member of the central bank’s monetary policy committee, said at an investment forum in Seoul yesterday. Officials from the Group of Seven nations have increased pressure on China to allow the yuan to appreciate more and take the burden off other currencies. French Finance Minister Christine Lagarde said on Sunday that the yuan causes “tensions,” Bloomberg News reported. “What would happen after a large - say 40 percent to 50 percent - appreciation of the yuan? Another request in two years?” Fan said. He was referring to United States legislators’ calls for bigger gains. Stronger currency The yuan has climbed about 11.5 percent versus the US dollar since a fixed exchange rate was scrapped in July 2005. China’s economy grew 11.5 percent in the third quarter as record trade surpluses pumped in cash. A stronger currency would make exports more expensive, staunch the inflow of money and ease tensions with trading partners. The US dollar is likely to keep falling, a “problem” for the yuan, Fan said. Central bank Governor Zhou Xiaochuan said on Monday China supports a strong US dollar. The greenback has dropped to records against the euro and the Canadian dollar this month. Fan underscored the potential cost to China in job losses from a currency revaluation, denied the yuan was responsible for global trade imbalances, and said the nation’s priorities were long-term growth and stability. He also said the government should speed up tax changes to curb a stock market bubble, adding that several measures are being prepared. The key CSI 300 Index has more than tripled in the past year, even after declines since mid-October.

Source: Shanghai Daily Adviser warns on huge rise in yuan

A NEW Zealand kiwifruit marketing company took a Jiangsu Province fruit trading company to court, accusing it of trademark infringement and demanding 300,000 yuan (US$39,474) compensation. Shanghai No. 1 Intermediate People’s Court heard the case yesterday but didn’t give a verdict. New Zealand Zespri Group Limited, the world’s biggest kiwifruit marketing company, sells kiwifruit in about 70 countries and regions. It entered the mainland market in 1998 and registered its trademark as Zespri with a logo showing sunbeams. But company officials found a similar trademark and logo on kiwifruit sold by Xishu Fruit Trading Company in the local market earlier this year. They reported the case to Shanghai Administration of Industry and Commerce, as Xishu’s fruit bore the trademark Znishio and a similar sunbeam logo. The watchdog seized about 100 boxes of the fruit and the labels. However, Zespri told the court that Xishu continued selling the fruit with the similar trademark, which also appeared on its Website. During the hearing, Xishu argued the two words were obviously different. The sunbeam, it said, was a common way of representing the fruit.

Source. Shanghai Daily: NZ fruit company sues Jiangsu trader