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Saturday, November 22, 2003

The control of the Euro is at stake

I have written before in Dutch on the way politics in the Netherlands deals with the Stability and Growth Pact (SGP).
(Here, here and here in English).

To my surprise today Pedro Solbes (in a letter in my newspaper) supported the point of view of Dutch finance minister Zalm (who apparently regained his courage) declaring that "it's no use to agree on the Convention when the countries do not live up to what they agreed on." (my translation). The title of his letter is "the control of the Euro is at stake".
Our prime minister Balkenende, -I really don't like him-, is getting courage too and phones his colleagues in other European countries. Although I still think that their efforts are for the Dutch audience in the first place, I must admit that I start to incline to their point of view to some extent.

I have two reasons for that. The first one is that I plead for some kind of "Global Stability and Growth Pact". Of course that is only to say that we should watch the battle of the SGP very closely and learn of the mistakes that were made and are being made, but against this background I succeed in looking at the issue in more unbiassed way. So I can see that the arguments from France and (even more so) Germany do not focus on the wisdom of the pact per se but purely on the effects on France and Germany.

Friday, November 21, 2003

Steven Roach - Macro

An expanded view by Steven Roach relating to what I posted yesterday on my blog. Our imbalances at critical stage? Things are hot... We could start taking things serious, but I don't think this administration can see serious. It's too bad that only time will tell...

Torn Fabric

In the end, it’s the only solution that macro can really offer: An unbalanced world needs a realignment in relative prices. As the most important relative price in a US-centric global economy, the dollar had to fall. And that’s exactly what has been happening over the past 21 months -- an 11% decline in the “broad” trade-weighted dollar index (in real terms) since February 2002. The risk, in my view, is that there’s a good deal more to come on the downside. It’s not just economics that drives me to that conclusion. It’s also the world’s faith or, in this case, lack of faith in its reserve currency. I fear there is a tear in the fabric of confidence that underpins the special role of the dollar -- a tear that is now getting larger under the stresses and strains of an unbalanced world.

Macro can provide us with a framework that defines the tensions bearing down on currency markets. It doesn’t guarantee the magnitude or the timing of the ultimate adjustment. But it does offer an analytical construct to understand the forces at work. The set-up for the dollar’s depreciation comes straight out of the traditional macro of the current account adjustment. Large and ever-widening current account deficits are not a stable outcome for any economy. It’s only a matter of when, and under what conditions, that a mounting overhang in the quantity of a deficit currency triggers a decline in its price. An oft-cited Federal Reserve study puts the typical current-account breaking point at about 5% of GDP (see Caroline Freund, “Current Account Adjustment in Industrial Countries,” International Finance Discussion Paper No. 692, Federal Reserve Board, December 2000). That’s, of course, precisely the threshold that the US hit in the first half of 2003.

But there’s far more to the US current-account adjustment than a correction in the dollar. As the world’s largest debtor nation, America currently needs about $2 billion of foreign capital per business day to finance ongoing economic activity. There are already warning signs that foreign investors are losing their appetite for dollar-denominated assets. In data just released, overseas portfolio inflows into dollar-based assets totaled only $4.2 billion in September 2003 -- far short of the $64 billion average inflows in the first eight months of the year and the $46 billion monthly bogey required to finance the US current account deficit at its prevailing rate. Moreover, with budget deficits on the rise and little hope of an offsetting surge in private saving, the daily foreign financing requirement could climb to $3 billion by the end of 2004. Such an increase in the offshore dollar overhang only reinforces expectations of a further currency correction. Eventually, there comes a point when foreign investors need to be compensated for taking such currency risk. That compensation invariably shows up in the form of higher real interest rates. That then completes the macro equation of the forces that drive the current-account adjustment. Not only does a cheaper dollar improve the competitiveness of US exporters, but it also triggers an interest rate response that leads to a compression in domestic demand. The resulting shift in the mix of aggregate demand -- more exports and less domestic consumption -- then leads to a narrowing of trade and current account deficits. ....Article Continued

The prolonged death-struggle of the U.S. textile industry

Now that the U.S. Textile industry is getting renewed protection ("safeguards", in Orwellian newspeak) from the Bush administration it’s time to take an historical view. Indeed, it seems that the destruction of the American textile industry by foreign trade is going on for decades, or so they say:

- 1948: "Six more months...would bring an almost complete collapse of the textile industry (in the U.S.)."
- 1955: "The textile industry...faces losing odds in its struggle to keep mills running."
- 1961: "The collapse which the industry had been predicting to our Government for several years arrived with a bang."
- 1961: "Unless immediate relief is provided, the domestic textile industry will be destroyed by foreign textile imports."
- 1970: "We are going out of business, and fast. The Mills bill (a textile quota bill) is the only thing that is going to save us..."
- 1985: "If we do not act now to curb imports, in five years our entire industry...will simply cease to exist."
- 1985: "Well, this is the last gasp of the industry."
- 1990: "If the current trend continues...at the turn of the century the U.S. Textile industry will go the way of the dinosaurs-and extinct species."

The morons and cowards that said all this, are politicians of both parties and captains of industry. As captains of industry they are supposed to take risks and relish some foreign competition. Instead they are cry-babies turning to the government to safeguard them from imports.
The genius of American capitalism is not found in the textile industry!

A Condensed Transcript Of The Miami FTAA Talks

I imagine that this was, more or less, the gist of the trade talks:

(Outside the negotiation room people chant: "We don't want free trade! We don't want free trade!" Inside, the delegates from Brazil and the US are sitting stiffly in front of each other, while the rest of the delegates look at them.)

US: Those people outside are being silly. We want free trade.
Brazil: We certainly do. Trade is part of the way to prosperity.
US: The thing is, you've got to start pushing harder to protect Intellectual Property rights, and give our companies more chances to bid for state contracts.
Brazil: No problem. After you stop subsidizing your farmers.
US: Sorry, can't. Politics.
Brazil: Ditto.

(Both delegates relax. A companionable silence sets for a while between them.)

US: We knew that this would happen, didn't we?
Brazil: Yeah. It could have been worse.
US: I know. Thanks for not bailing out like last time.
Brazil: Don't mention it. We can't keep walking out of these things. Brazil needs more trade, you know? Anyway, do we sign the dummy accord now or wait until Friday?
US: Let's do that now and go back to our homes. See you around in Geneva?
Brazil: Most likely. Good luck with the Chinese and the Europeans, though. They are not a happy bunch.
US: I know, I know. But what can I do? It's (all delegates together, with a semi-amused, semi-exasperated rolling of their eyes) Politics, we know!

If you don't buy this version of the talks, just meditate on the following quote from Robert Zoellick, the U.S. Trade Representative: "Economies are different in the early 2000s than they were in the 1990s. We each have our own politics to deal with."

Understatement, so it seems, is still the heart of diplomacy.

Thursday, November 20, 2003

Beijing denounces US limits on imports

Well no prizes for guessing what the issue of the month is going to be. This is sending ripples down every serviceable spine on the planet. On another topic. I am going to Valencia to do field work interviews tomorrow, so here's an invite to all of you with time and energy on your hands to get posting. I will be coming and going, but I will be back to normal on Tuesday.

Beijing on Wednesday denounced Washington's decision to limit imports of Chinese-made dressing gowns, bras and knitted fabrics as a betrayal of World Trade Organisation principles that threatened overall China-US trade relations.

In a gesture that appeared to underline its displeasure, China also cancelled plans to send two official delegations to the US to buy agricultural products.

"The Chinese government expresses its very great regret and its firm opposition," the Commerce Ministry said. "[This decision] runs against WTO principles of free trade, transparency and non-discrimination.

"The Chinese side hopes the US government will fully recognise the harm to bilateral trade relations and the barriers to the textile trade caused by these special trade restrictions."

Beijing stopped well short of threatening direct retaliation, with officials blaming the cancellation of the buying delegations on visa and logistical problems.

The US announced the restrictions on Tuesday, in the face of surging Chinese imports that spurred a political backlash from US manufacturers, who blame China for some of the more than 2.5m factory jobs lost over three years. The textile industry alone has lost more than 300,000 jobs.

Unless China agrees to introduce its own export restraints, the US will impose quotas that allow for only 7.5 per cent growth over the next year in the three affected products.

But its decision, which has contributed to a sharp fall in the US dollar, may have greater repercussions than expected.

The news initially sent the euro to new highs against the dollar and drove gold above $400 a troy ounce for the first time in seven years. But the dollar later rallied, gold slipped back and the Dow Jones Industrial Average closed up 66.30 at 9,690.46.

The International Monetary Fund said the US action was a risky one. "It is the kind of situation which the IMF strongly discourages on both sides, so we have cautioned the US not to use such . . . policy," said Steven Dunaway, senior adviser in the IMF's Asia-Pacific department.

The US action could prompt similar moves by other countries. Italy, which has a large textile and apparel industry, on Wednesday urged the European Union to follow the US lead. Giulio Tremonti, Italian economy minister, wrote in the Italian daily Il Sole-24 Ore that imposing new quotas would not be protectionism, but rather "a means to restore equal conditions for balanced competition".
Source: Financial Times

Wednesday, November 19, 2003

Further Thoughts on the Textile Decision

As promised, some more stuff on today's decision by the US to invoke safeguard measures against China textiles. For a full news background, Yahoo is as good a place as any to start.

Another bit of reference is the Federal Register notice detailing the procedure by which the US Committee for the Implementation of Textile Agreements would solicity and digest public comments on this issue. This was effective on May 23, 2003 and got the ball rolling.

The safeguard provision that is being invoked is from China's WTO accession agreement. The specific citation to the safeguard measure is Chapter IV, section D, sub 11 Textiles, paragraph 242. See Chapter IV in its entirety on the Trade Compliance Center site. The TCC also has a useful summary of the whole agreement.

So here is what is supposed to happen:

1. The US sends a request to China for consultation, complete with data showing a market disruption for the relevant goods, that threaten "to impede the orderly development of trade in these products".

2. Once the request is received, China shall "hold its shipments to the requesting Member of textile or textile products in the category or categories subject to these consultations to a level no greater than 7.5 per cent (6 per cent for wool product categories) above the amount entered during the first 12 months of the most recent 14 months preceding the month in which the request for consultations was made". I put the language in verbatim to show how fun your typical trade agreement language is. No wonder that the news reports have been a bit fuzzy on what the safeguards are actually going to do. To cut through the blah blah blah, it is a "voluntary" quota calculated from a certain 12-month baseline period.

3. The US and China will have to start talking to each other about this, with a 90-day period specified for resolution.

4. Surprise! If the 90-day period is up with no resolution, talks will keep going, and the quotas will remain in place.

5. The real time restriction is either December 31 of the year during which the request is made or, if fewer than three months are left in the calendar year, then 12 months following the request. Hint: guess what happens almost exactly one year from now? Yes, that's right, the US election will coincide nicely with the end of the 12-month period, assuming of course that an agreement cannot be concluded by that time. Hmm . . .

Korea to build 100M bps Internet system

This is unrepentant Keynesian industrial policy that flies in the face of neoliberal ideology. Yet I don´t know why it should be wrong.

"South Korea plans to build a nationwide Internet access infrastructure capable of speeds between 50M bps (bits per second) and 100M bps by 2010, the online edition of the Chosun Ilbo daily newspaper reported Tuesday. The infrastructure will be known as the broadband convergence network (BcN) and will offer telecommunications, broadcasting and Internet access from a wide variety of devices, the paper said, quoting the Ministry of Information and Communication.

Construction of the BcN will be worth 95 trillion won (US$80.4 billion) in output of equipment and services, and will create 370,000 jobs by 2010, according to the Chosun Ilbo. South Korea is already regarded as the world's leading broadband nation, with 11.3 million broadband subscribers in a population of 48 million, and with 85 percent of new subscribers opting for broadband, according to telecommunication equipment vendor Alcatel SA."

China: Sports Shoe Capital of the world

Hi everyone. I've just set up a blog called Asia Labour News. The idea is to develop a searchable online database of labour-related stories (covering law, OHS, policy, FDI, workplace conditions, CSR, and so on) from Southeast Asia and China.

Today the BBC has an interesting story about Yue Yuen . Yue Yuen Industrial (Holdings) Limited is the world's largest producer of sports shoes, churning them out for forty companies (Nike, adidas, Reebok, New Balance, Asics, Timberland and Rockport among the more famous). Its factories in China, Indonesia and Vietnam made 130 million pairs last year, and employ nearly 250,000 workers, the majority (160,000) at three large sites around Dongguan (in the Pearl River Delta). Sales last year topped US$1.3 billion for a net profit of $229 million, and Yue Yuen holds a 17% market share. The company is listed on the Hong Kong stock exchange [stock code 551] and currently trades at around HK$21 per share. Although it's a Taiwanese company, it's incorporated in Bermuda (hardly surprising).

When I worked for the Asia Monitor Resource Centre, we were involved in the delivery of an occupational health and safety program in a Yue Yuen factory (the Yue Yuen II plant in Dongguan). You can read the final report of that training program here. Nike, Reebok and adidas all offered support, along with Hong Kong NGOs and international experts. The jury is still out on how successful we were, but the project is just one of many taking place all across China.

On The Soya Bean Trail

Just in: according to Bloomberg China has said it will cancel a visit to meet soyabean sellers in the United States. This is straight retaliation for the textile restrictions. Things are hotting up. Watch this space.

Chinese trade officials postponed a planned visit to the U.S. Friday to meet soybean sellers after the U.S. said it would restrict imports of knit fabric, robes and other textiles from China.

China was set to discuss purchases of U.S. soybeans, wheat, machinery and other products. It backed out when some of the officials didn't obtain visas, said Phillip Laney, the American Soybean Association's China director. A new date for the talks hasn't been set.

"The official reason is that some of the members didn't get visas but there are suspicions that it reflects some unhappiness with the textile negotiations that are going on,'' Laney said. China's imports of U.S. soybeans may rise as much as 17 percent to 9 million tons in the year ending Sept. 30, 2004, as domestic demand increases, the Beijing-based China National Grain & Oils Information Center said in a report last week. That's worth about $2 billion based on this year's average futures price. Soybeans for January delivery fell 3 cents, or 0.4 percent, to $7.74 in after-hours trading on the Chicago Board of Trade.

Still A Long Long Way To Go

According to Xinhua there are over 2,500 State Owned Enterprises that are technically bankrupt, and awaiting closure. This is just one of the reasons why I wouldn't expect too much inflation in China anytime soon.

A senior official said here Wednesday China now has some 2,500 large and medium-sized state-owned enterprises (SOEs) that are in fact bankrupt but yet to be closed down.

Li Rongrong, minister in charge of the State-owned Assets Supervision and Administration Commission, made the remarks at the International Merger and Acquisition Summit Beijing 2003. These SOEs employ 5.1 million workers and involve a total of 240 billion yuan (29.0 billion US dollars) of liabilities. Li said the SOEs cannot immediately exit the market due to certain restrictions, including banks' inability to write off the non-performing loans, limited fiscal resources of the government and inadequacy of the social security system. From 1994 to 2002, Li said, 3,080 SOEs were closed down or went bankrupt in China, with 199.54 billion yuan (24.1 billion US dollars) of non-performing loans written off and 5.3 million laid-off workers relocated.

International Financial Architecture

I found Lloyd's post very interesting, not only as a fellow Bonoboer, but also being from Argentina [one of the countries where the IMF has the highest, if not the best, public profile] and a student of mathematics [with a keen interest in financial matters]. Besides, it seems (at least to an outsider) a reasonable political move, although it seems hard prima facie to identify a proposition that would satisfy at the same time financial interests and the broader anti-Bush "coallition" [in any case such an alliance is probably necessary, if anything else just to counteract the funds/influence gathering for the Republican party's 2004 campaign].

That said, I'm very curious about what documents (blueprints, primers, etc) about the international financial architecture Lloyd could point me to. I realize that interest isn't the same as knowledge (which in turn isn't the as understanding), and it's something I'd like to understand well.

Let's all try to look surprised...

Let's all try to look surprised about the U.S.'s decision to impose quotas on the growth of certain textile imports from China.

All the obvious comments apply. No, this doesn't make any economic sense at all. Yes, the Bush administration is playing the "yellow peril" card for 2004. Yes, this might get uglier in the future, although, and five years ago I would have laughed at the idea, maybe we can count on the Chinese government having a tad more self-preservation and common sense than the American. So, with luck, we'll not get all caught in another trade war (first the EU, then China... who's next, Japan?). No, neither the WTO nor the IMF are amused. Yes, the dollar did go south on these news. No, this doesn't look good for the Miami talks in a couple of days either.

And, yes, this is a headache-inducing piece of news.

Tuesday, November 18, 2003

Oil depletion and economics - Part III

The previous two posts presented an argument for depletion and that it would act as an exogenous component in the supply of oil. The effect would become increasingly dominant as the resource endowment was used up. But supply is only part of the picture. The structure of demand will determine the overall effects on the market. For example, if demand were extremely elastic then the overall effects of a supply limitation would be minimal.

Together, the ‘income effect’ and ‘substitution effect’ are large determinants of the elasticity of demand. The first reflects the relationship between income and consumption. The latter reflects the ease of switching to alternatives.

[The previous posts focused on oil. However, it’s difficult to talk about demand, particularly substitution, without occasionally extending the discussion to energy in general.]

The income effect

It turns out that per-capita energy usage is a pretty good indicator of overall welfare in a society. This suggests that energy consumption and income/wealth/development are related. However, this relationship isn’t linear, or even monotonic.

At low levels of development, profits are invested in relatively low energy intensity activities. Eventually, further development brings about industrialization/mechanization and with it - increased energy intensity. However, further development moves society to a point where the less-energy-intensive service sector becomes a large portion of the economy’s growth. The end result is that a plot of energy consumption vs. income would be somewhat ‘s’- shaped: It would increase slowly for a while, and then would increase rapidly until it slowed down again.

In microeconomic terms, the income elasticity is the derivative of this curve. At low levels of development, the income elasticity is relatively low but increasing. In the mid-stage, income elasticity of energy is relatively high. As service sector growth becomes more significant, the economy begins to ‘dematerialize’ and the income elasticity decreases.

It is important to note that the middle, high-elasticity, phase captures the fact that *building* the infrastructure for a modern society requires energy. So, even developing economies that focusing on rapidly growing the service sector (e.g. India) are still going to go through the middle stage.

To be accurate, there isn’t a single ‘s’-curve that applies for all countries. The exact shape will be a function of a large number of factors including taxes, subsidies and transportation mix. The general behavior, not the specifics in the height and shape of the curve, are what’s important here. For example, there’s a dramatic difference in per capita energy consumption between OECD countries. However they went through the same general trend as they developed.

The behavior of the income elasticity of energy consumption repeats with oil consumption. And the broad conclusions also apply. The declining GDP/oil consumption ratio of OECD countries is a consequence of the ‘dematerialization’ associated with the ‘top’ of the ‘s’.

The substitution effect

The income effect is only part of the picture. In general, the substitution effect is much larger. The purpose of this section is to describe why isn’t.

From an engineering perspective, oil is a great fuel. It has a high energy density, minimizing the size and weight of fuel tanks. It burns hot for good thermodynamic efficiency and as a liquid, it’s easy to distribute. These are only some of the reasons why the vast majority of the transportation industry uses oil. Other industries use oil as well. In some cases, they can switch to a substitute (typically natural gas) relatively easily. A great deal of infrastructure, and engineering, has been optimized to take advantage of oil’s attributes. This places limits on the ease of substitution, at least in the short term.

An even stronger limitation comes from the market itself. Switching away from oil entails a considerable investment of time and money. The delay between commitment and implementation means that the trigger for substitution is not the price but the *expected* price for some period in the future.

The oil market has a history of price surges, followed by spectacular collapses, and any rise in the price of oil is viewed through this lens. This means that price increases or spikes are viewed as temporary so the expected future price doesn’t change appreciably. As a result, the incentive (price signal) is largely ignored.

Another factor is that oil is less of an end product and more of a factor of production. In many cases, the price of oil is a small factor of the overall cost. As such, price swings are easily passed on. Alternatively, since the price increase is viewed as temporary the cost increase is ‘eaten’.

The end result is that the substitution effect for oil is very low.


The overall elasticity will be a combination of the income effect and the substitution effect. Given that the substitution effect is very small, it’s possible that the income effect can have a significant – even dominant – impact. Recently, between 1998 and 2000, the price of oil jumped from about $10 to more than $30, a 200+% increase. At the same time, demand didn’t decrease appreciably – on the order of a percent or two. Even if the deviation of trend, rather than the absolute change, is used the overall conclusions remain unchanged. A 200% jump in price yielded a few percent change in demand. The net elasticity (dQ/dP) << 1. Demand is virtually inelastic, at least in the short term.

It turns out that the observation mentioned above occurred under somewhat unusual circumstances. Specifically during this interval, the U.S. made up a disproportionate amount of the overall world growth. A quick summary of a few economies should highlight the significance of this.

* US – The U.S. is the largest consumer of oil, its per-capita consumption is among the highest in the world and its oil/gasoline taxes are very low relative to other OECD countries. In principle, this should make U.S. more elastic. Despite this, recent observations show that overall demand is very inelastic.

* Other OECD – They aren’t as energy intensive as the U.S. and they also have relatively high taxes on oil – suppressing the effects of price increases. Arguably, they should be less elastic than the U.S. As was the case with the U.S., the recent tripling of crude oil prices had little overall effect on demand – a low elasticity of demand.

* OPEC – Higher prices translate to increased revenue. This, along with their rapidly increasing populations, implies increasing consumption – both for oil and other products.

* China – As the lowest-cost producer of basic goods, they would be beneficiaries of OPEC’s increased income. This also contributes to a secular (as far as oil price is concerned) trend of growth in China. Although it is difficult to gauge the net effect, demand for oil is inelastic, if not positive (for secular reasons).

* Commodity Exporters (e.g. Chile, Peru, Brazil) – This is an interesting, subtle, case. Increases in oil prices cause their customers (e.g. OPEC and China) to increase demand. In turn, this increases their income. Since many of these countries are close to the steep portion of the ‘s’ curve (large income elasticity), and the large role that commodity export plays in their GDP, the income effect overrides the substitution effect. This gives rise to a *positive* elasticity of demand – demand increases with increasing oil price (a ‘Giffen good’.


To summarize; recently the price of oil jumped dramatically. Despite this, the decrease in overall demand was negligible. Furthermore, this occurred when the U.S. made up a very large portion of world income growth. The U.S. has a relatively low income elasticity compared to other countries. Arguably, if world growth had been more evenly distributed, the overall elasticity would have been smaller, if not positive. This would have been particularly true if growth was focused in rapidly industrializing countries. This past Friday, the WSJ had an article on Friday about how China made up a very large percentage of the growth in world oil demand this year.

The short-term elasticity for oil is very low. If depletion starts to dominate oil supply, there’s no reason to believe that the demand side will be able to mitigate the effects mentioned in the previous posts – at least in the short-term. Clearly, elasticity is not fixed for all prices but there is little evidence that elasticity will suddenly jump either.


The long-term effects are difficult to untangle. Perhaps the biggest single hurdle is the ‘price-expectation’ issue: Alternatives will take time to implement. If the price expectation doesn’t take depletion into account, the market signal could be delayed to the point that alternatives will not be ready in time.

The absence of alternatives will present us with some harsh decisions. Some of which involve developing countries. In order for developing countries to obtain a ‘modern’ infrastructure, they will have to go through a higher energy/oil utilization phase. In the absence of alternatives, depletion implies one of two choices: Either developing countries halt their advancement, or developed economies reduce their oil consumption to free up oil for the developing countries to advance. In the latter case, the relatively high GDP/unit of oil consumption of is something of a ‘curse’: A developed country must sacrifice many dollars of output to free up a unit of oil. The recipient, a developing country, uses this oil to advance but produces relatively fewer dollars of output. The economically optimal solution allocates oil to the country with the highest marginal output per unit of oil, so it’s clear which choice the market would favor.


The next (hopefully last) section will cover international flows and investment in both oil and alternatives.


Disclosure: The last few posts, this one included, rely on the works of others that I’ve been too lazy to cite properly. Please do not interpret this as entirely original work. If there is sufficient interest, I will write this up in a formal format with proper citations. Otherwise, if you have questions where something came from, ask me.

- Chris Anderson

The Play Magazine Editor

Here he is, here's the competition. He's even into the ludic dimension. Maybe we should show him some naked Bonobos at play. Actually the interesting thing is just how much interest some people are taking in weblogging these days. ( Here's another example of this). What I don't see is how their idea of 'business model' is going to play out. This is going to be an interesting match. He's certainly right: blogging is very inexpensive: especially when there is virtually no physical infrastructure, and people do it for free. Puts a whole new meaning on 'lean and mean'. (Actually I'm neither). As I was saying a couple of days ago, what seems to be going on is the elimination of space as a communicational coordinate. This is going to play havoc with our sense of identity. Meanwhile the last round of innovators: Yahoo, Salon etc have got problems. They have buildings to pay for. They need to thin down a bit. They don't have on-the-street correspondants either. Bloggers, of course, are everywhere: even in Baghdad. So battle of the titans: let it role. At least the guy's British. Where the hell are the Americans? (This question is not a rhetorical one. It is dead serious, and will be answered in a subsequent post. Meanwhile a hint. I think there is a problem in US blogging: the ideological divide).

Mr. Denton, a British entrepreneur and self-styled "play magazine editor," is trying to turn blogging - once only the province of hobbyists - into a profitable, ad-supported business. But Gawker Media is not exactly gushing cash just yet.

Mr. Denton says his blogs, which also include a gadget site called Gizmodo, "are businesses with, at least for the moment, the turnover of a lemonade stand." He says each site brings in several thousand dollars a month in revenue.

But that may be just the beginning. Mr. Denton is planning to roll out a dozen more blogs in the next year, though he insists he is in no rush, and does not expect, to turn his lemonade stand into a money machine overnight. He is a 1990's dot-com millionaire who sold an events company called First Tuesday, which brought together entrepreneurs and venture capitalists at gatherings, right before the bursting of the bubble. "I'm kind of embarrassed," he said. "All this blogging is kind of paid for by the cocktail parties of the boom."

But all his blogging is catching the attention of millions of visitors a month and, increasingly, the interests of venture capitalists and New York's media elite - despite Mr. Denton's best efforts to at least feign a desire to remain under the radar. (At first he said he did not want to be interviewed for this article, and when Gawker was mentioned in passing in this newspaper and also in New York magazine earlier this month, the site declared, "Gawker: So Totally Over.")

"When I first met Nick, he showed me this amazing new thing he called blogging," said Jeff Jarvis, president and creative director of Advance.net, the online arm of Advance Publications. "I frankly had no idea what he was showing me. Only later did I understand the significance of this: Tying history's easiest, cheapest publishing tool to history's best distribution network, the Internet, would have tremendous impact on media."

Mr. Jarvis, who invested Advance Publications' money in Moreover Technologies, another company started by Mr. Denton, added: "He recognized that what sets Web logging apart from other media is only how incredibly inexpensive it is."
Source: New York Times

Look AT These Numbers

Accurate or exaggerated, rigged or massaged, realistic or fantasic: these numbers are still incredible. And remember what i said yesterday, is this 'overheating', is this speculative: who the hell knows. Lets just keep watching.

China's investment in fixed assets rose 30 percent from a year earlier to 3.05 trillion yuan ($369.2 billion) in the first 10 months of this year, helping to support a high pace of economic growth, the government reported Tuesday.

Spending on real estate, construction and technical upgrading of plants and equipment, along with exports and foreign investment, has helped keep China's economy growing at rates of 8 percent or more in recent years. However, authorities have recently sought to curb high levels of spending on some fixed assets, particularly in the property sector, urging banks to limit growth in lending.

Overall spending on fixed assets was down 1.2 percent from the pace of investment through the end of September, the National Bureau of Statistics said. Investment in technical upgrades and equipment soared 34.1 percent in the first 10 months from the same period a year before, while real estate investment rose 31.3 percent on-year, the bureau reported. The number of new projects fell 17.8 percent compared with the previous month to 9,056, it said in a statement.
Source: Yahoo News

No Inflation in Sight

I don't know if anyone else is thinking what I'm thinking: 7.3 % growth rate last quarter, interest at !%, and still no sign of inflation. Spooky. And some were saying deflation was already yesterday's thing.

U.S. consumer prices held steady last month as plunging energy prices offset increases in the cost of food, homes and lodging, the government said on Tuesday in a report that showed little change in underlying inflation trends.
The consumer price index (news - web sites), the most widely used gauge of U.S. inflation, was unchanged in October, the Labor Department (news - web sites) said. The so-called core index, which strips out sometimes volatile food and energy prices, rose 0.2 percent, just above the 0.1 percent gain expected on Wall Street. Economists polled ahead of the report had also expected a gain of just 0.1 percent in the overall index.

Energy prices plunged 3.9 percent in October, reversing course after big gains in the prior two months, the department said. Food prices rose a sharp 0.6 percent, reflecting the biggest advance in beef prices in nearly 25 years. A ban on imports of Canadian beef, put in place after Canada discovered one case of mad cow disease earlier this year, have driven prices higher, analysts say. The 0.2 percent gain in the core CPI marked a bit of an acceleration from September, when core prices inched up just 0.1 percent. The department said a rise in "shelter" costs, including a 2.3 percent spike in lodging and a 0.3 percent gain in the cost of owning a home, was the biggest factor behind the pickup in core prices.
Source: Yahoo News

Future past

The emergence of the Chinese market has been nothing short of phenomenal.

Once you recognize that China and Hong Kong should be rightly treated as one market, the Chinese market becomes the largest market for Taiwan, S Korea and Singapore exports ... by far.

For SE-Asian countries Malaysia, Thailand and Philippines, China is the number 3 market.

The thing is, speed. Last year, S’pore’s exports to China/HK was about the same amount as S’pore’s exports to the US. This year, S’pore’s exports to China exceed the US by a fifth!

At this rate, S’pore’s exports to China will be twice its exports to the US in another 2 years.

The other thing is, change. Exports to China aren’t benefiting S’pore manufacturers as much as exports to the U.S. used to. China is forcing S’pore back to its historic role as an entrepot port. More than half of S’pore’s exports to China are re-exports.

This role is 2 ways. Not just to China, but from China - as the second article below illustrates. Here, Singapore’s multi-lingual society is its advantage, with a little help from trade tensions brewing between the U.S. and China!

Looks like the middle-man is where the City-state will have to rediscover its new role.

China now S'pore's top export market

CHINA has eclipsed the United States to become Singapore's top export destination for the first time, a phenomenon becoming increasingly common for many Asian countries.

For the first nine months this year, Singapore's exports to China and Hong Kong, which redirects much of the exports to China, hit $30.6 billion, compared with the $24.8 billion to the US in the same period.

In a fillip for the all-important electronics sector, which accounts for a third of Singapore's manufacturing output, microchip exports to China almost doubled for the first nine months of this year, compared with the previous year.

However, economists cautioned against writing off the importance of the US just yet.

While there is little doubt that the fast-growing mainland economy is emerging as an engine of growth for many of Asia's export-oriented economies, the US remains the single-most important barometer of Singapore's economy, they said.

Much of what is exported to China is components for goods whose ultimate destination is the US, the economists pointed out ...
Straits Times

'Little America' That's how some China firms see Singapore

LIKE thousands of Chinese businessmen, Mr Feng Jun wants his burgeoning technology company to crack the lucrative US consumer market and to sell his product - hard disk drives - directly to Americans.

But for many in China's growing entrepreneurial class, selling to the West seems as difficult as mastering the tongue-twisting English language.

To make the leap, Mr Feng is taking a route increasingly popular among smaller Chinese companies - setting up an office in Singapore, possibly Asia's most Westernised city. Its base of 6,000 multinational companies has nourished Western and Asian influences for years.

'Singapore is like a 'Little America',' said Mr Feng, president of Beijing Huaqi Information and Digital Technology, China's largest digital storage device producer.

Some analysts say Chinese companies may use Singapore as a 'Trojan Horse' - a back-door channel for shipping to the United States as China's trade surplus mounts and as US lawmakers accuse Beijing of dragging its feet on opening up its markets.

Tapping Singapore's official English and Chinese languages, recent free trade deals, and building on links with its predominantly ethnic Chinese population, many mainland companies are seeking a Singapore address.

This year, about 250 Chinese companies operate on the island, according to the Economic Development Board, a 56-per-cent increase from 160 last year...
Straits Times

Japan Pessimism Sets In

As expected, this continues:

Pessimism continued to surround Japanese equities on Tuesday morning as share prices slipped, having already fallen nearly 4 per cent in the previous session as worries surfaced that the market had overheated. The Nikkei 225 average was down 0.4 per cent to 9,746.88 by midday following a 3.7 per cent fall on Monday, while the Topix index was 1 per cent lower at 962.14.

Ryoji Musha, strategist at Deutsche Bank, said: "People have no confidence, so as soon as the momentum turns they start to sell. This shows how speculative the past bull market has been." Shares were pushed lower not by any specific news but by a growing sense that share prices had risen beyond levels justified by the strength of corporate earnings and both the Japanese and global economies, analysts said. Investors became more anxious about the course of world economies on Monday following weak industrial production and retail data from the US and what appeared to be a new terror threat from al-Qaeda.
Source: Financial Times

Brussels Plans Services Single Market

It's funny, I thought we already had a single market, years ago. Apparently nearly 70% of the economy has been left out. Funny little secret that's been hiding under the bed, isn't it. (We do have a single currency, don't we? Or have I been imagining things). Should be good for the UK: it will give the Indian back-office continental reach.

The European Commission plans to open up the service sector by sweeping away unnecessary red tape for companies operating outside their home countries and reducing advertising restrictions. Draft legislation, seen by the Financial Times and due to be made public next month, calls for "the free movement of services between member states" and an end to barriers to companies in one European Union country setting up businesses elsewhere in the EU.

The service sector, which covers industries from architecture to accountancy and jobs from hotel manager to boiler-fitter, accounts for 70 per cent of the EU economy. However, it has lagged behind other sectors in creating a single market and has accounted for only 20 per cent of EU cross-border trade.
Source: Financial Times

The Muzimei Phenomenon and its Impact on the Chinese Internet

"These days, the whole Chinese internet is crazy about Muzimei! Thousands of people came to my personal blog and weciti.com through search engines using the following search words: “Muzimei photo”; “Muzimei..… Muzimei is the first Chinese girl who published in detail her sex life on the web. I think she will be the symbolic girl of modern chinese culture," Owen said in reply to my request for permission to translate a recent WECITI blog post on the Muzimei phenomenon in the chinese internet world.

Last week Blogcn.com, a major Chinese weblog hosting system, was brought down due to a sudden surge of traffic that was directed to Muzimei's blog on Blogcn.com. Many Chinese bloggers who had mentioned Muzimei in their blogs witnessed similar increase of traffic to their sites.

Who is Muzimei? How did she shake the Chinese Internet and society with her personal blog? Here are how chinese bloggers view her...

Gender: Female
Age: 25
Origins: Meizhou, Guangdong
Graduated from: Guangzhou Zhong San University
Profession: Magazine Editor
Height: 160 cm
Popularity: 5 Stars
Reasons for her rising fame: Writings on sexual experience

'Love Letters Left' is where Muzimei, a columnist writer at Guangzhou City Pictorial Magazine, documents her private life. Sex is the theme of her blog and love making is what motivates her blog. Muzimei has created her very own city of desire through the love letters she leaves on her blog.

It is difficult to imagine the influence and network effect that Muzimei's blog has on the Internet. Everyone she mentions could very well become famous overnight!

Major Chinese portals like SINA and SOHU have published special essays on Muzimei. Mainstream media has also brought her into the society, way beyond the limited blogger community she was previously in. Her love making partners have also had to face society because of this. That's why when the media asks to interview her, she would suggest: "(you) want an interview, make love first".

Her photo is already all over the Internet. This sexual emancipation practitioner has used the most shocking ways to show her sexual charms. Even in countries like America, where there is a long history of sexual emancipation, the behaviour she exhibits are at not all that common in the West. There are many discussions about Muzimei on the net. The hype of the human body, the sales of sex life, internet whore, and etc. There are all kinds of comments, ranging from critical, supportive, silent and to copy-cat like ones that emulated Muzimei's writings. Some would even say that Muzimei is the Internet version of Wei Wei (author of Shanghai Baby). With only a few years of (sexual) experiences under her belt, Muzimei talks bluntly about sex and love making. She uses actions to show us (what sex is all about). She has also sparked the subconsciousness of sexual emancipation in chinese society.

There is no question that Muzimei has a casual attitude towards sex. But her written words are honest. Her literature is sincere. She expresses what she wants to say, she accentuates the marginal culture in urban areas. These are truths that no one can dispute, Owen concludes in his blog post at WeCiti, a group weblog in simplified chinese.

"Clearly, I am on the side to support her. Sharing is good. Why people have to judge others behavior if it does not hurt anyone?" Jianshuo Wang, a Chinese blogger commented in his blog.

However, "Muzimei has released the name of the men who has ever slept with. This is bad. I believe a blog can reveal whatever you want to show about yourself, but not others," he added.

"Of cause people has the right to expose everything about him/herself. It is granted right. But people cannot hurt other's privacy by exposing other's personal information without other's agreement. I see the problem of Muzimei's blog as privacy probelm only."

Today, the Muzimei phenonmenon continues to generate commentaries and conversations all over the Chinese internet. Some Chinese bloggers like Sima ponders whether Muzimei has brought benefits or negative effects to the Chinese weblog world.

What is for sure is that this female journalist blogger has generated a huge number of eyeballs to the chinese weblog world, chinese media, and even Muzimei herself in a very short span of time. Already, Ron Shu Xia, an on-line publisher is lining up a (paid) book project for Muzimei according to Chinese blogger Zheng. Perhaps Muzimei will become another pioneer in the Chinese weblog world: the first Chinese blogger that has a business model.

Further Reading:
'Muzimei Shock Wave' by Jianshuo Wang
'Doggy Style in Guangzhou' where you can see a photo of Muzimei from November's simplified chinese edition of Marie Claire.

Perhaps this year's most important graph

This is the long-term projection for the U.S. fiscal deficits, based on the Bush administration's own (and very optimistic) parameters, courtesy of the OMB and their faithful watchers, OMBWatch.org.

See, ponder, and then go and read the rest of their article.

Monday, November 17, 2003

The International Financial Architecture

An American Perspective

Edward has kindly invited me to post. I thank him. I am an engineer by trade and an economist by choice. I had another subject in mind but this seemed more pressing.

I posted this snippet on MoveOn.org last night. MoveOn is one of the NGO's receiving millions of dollars by such notables as George Soros and others, for the sole purpose of defeating BushCo. I hope I can stir some interest by the candidates, as I mailed it to them as well.

The International Financial Architecture

I'd like to discuss a serious issue - The IFA. I believe we could accomplish more by bringing this subject into the platform debate more than any other subject, as this is where the neocons have us over a barrel, publicly. If we were to make this subject our own, we could gain the upper hand intellectually and marketwise - the real power. The International Financial Architecture needs major reform - Reform of the IMF, The World Bank, The WTO, The International Court - The entire Bretton Woods System, including and especially the world's 32+ tax havens. Ann Pettifor's new book, "Real World Economic Outlook" states that 7.1 million super wealthy families are net worth $26.2 Trillion dollars - that's more than half of real global GDP. Much of this money is in/booked to the tax havens. We as Democrats must understand these complex markets to truly resolve the real world and national problems, as these international institutions actually control our national destiny. We could accomplish more by our candidates bringing this into the national debate more than any other goal, as it has financial hegemony over all our desires. Without this debate being brought to the front, we are simply spinning our wheels on ice!

Common Sense
- Lloyd Gillespie, Retired Engineer/Economist (November 16, 2003; Rockland, ME)

On the Crumb Trail

I've just found another primate lover, over in California:

A press release from the San Francisco based Leakey Foundation about studies by University of Pennsylvania scientists done with foundation support is anthropomorphized as a morality play.

Baboon studies reveal pressures and benefits of complex social societies

Can the complex loves and rivalries of baboons in Botswana's Okavango Delta rival the social dynamics of Shakespeare's Romeo and Juliet?

It is accepted that humans routinely classify others according to their individual attributes, such as status or wealth. We all know that we classify others according to what groups they belong to in society – Republicans, Red Sox fans, the 'Bloods", and so on. The ability to classify others by membership in a group, maybe even more than one group, requires a lot of computing power – brainpower - and may even require language. Until now, we have not known whether such complex group classifications are uniquely human, or whether animals do it too.

The press release from the University of Pennsylvania has quite a different spin:

Baboons identify each other by status and family

Such abilities may have influenced human evolution
We may take it for granted that humans can classify each other according to familial or social status, but how did those abilities evolve? In the Nov. 14 issue of the journal Science, researchers at the University of Pennsylvania report that, much like humans, baboons identify each other based on complex rules that determine relationships between families and status or "rank" within their particular family.

"Humans organize their knowledge of social relationships into a hierarchical structure, and they also make use of hierarchical structures when deducing relationships between words in language," said Robert Seyfarth, a professor in Penn's Department of Psychology of the School of Arts and Sciences and one of the study's authors. "The existence of such complex social classifications in baboons, a species without language, suggests that the social pressures imposed by life in complex groups may have been one factor leading to the evolution of sophisticated cognition and language in our pre-human ancestors."

The University of Pennsylvania article also has sufficient detail about the methods of the study to give some idea of the usefulness of the work.

Dominant baboons make threatening grunts, which lower ranked baboons answer with supplicating screams. The researchers tape-recorded the calls of known individuals, then used a computer to mix and match the grunts and screams to make it seem as if a lower-ranked baboon was effectively dominating a higher ranked baboon. Then, in a playback experiment, the researchers played recorded interactions to individual baboons to see if there would be a response. Some playbacks mimicked the existing hierarchy, whereas others mimicked a rank-reversal, either between two members of the same family or between two members of different families.
"Rank-reversals run counter to their expectations, and a baboon will momentarily pause and give a look, just as you might if you didn't quite believe what you had just heard," said Thore Bergman, lead author on the paper. "Our results demonstrated that these relationships were real and relevant to these baboons."

The Leakey article wildly anthropomorphizes and romanticizes baboon social behavior while providing little real information, but the scientists present results that speculate about the evolution of sophisticated cognition and language driven by life in complex groups. They seem to have quite different objectives and conceptions of audience.

The Rabbi and the Deficit Hawks

Last week the Dutch newspaper I read daily (NRC-Handelsblad) reported on Rabbi's for human rights. The article is based on some research that was apparently carried out as a follow up on what’s reported by the rabbis themselves over here: a group of fundamentalist Jews in the night destroyed hundreds of olive-trees raised and owned by their Palestinian neighbours. Rabbi Arik Ascherman stated that the Israeli soldiers that were supposed to protect the Palestinians against the illegal settlers lied or slept extremely deep while the destruction with chainsaws took place at only 30 meter from their camp.

The report is noteworthy because of its reliability: who is going to accuse rabbis of anti-semitism? Somehow I immediately made the link with the “deficit hawks” Brad DeLong wrote about last week. He wrote “Of all the remarkable things the Bush administration has done, its ability to so mismanage fiscal policy as to turn even a social spending-loving Keynesian like Max Sawicky into a Deficit Hawk is surely the most strange”. On the referred issues surely there is little similarity but on the way of raising credibility to your point of view there is. It is almost the opposite of name-calling: an attempt to get the political debate on the right level: not questioning the intentions of your opponents.

One step further, but I admit that I often don not reach that level myself, is to address only policies and proposals and the (foreseen) effects of them in the real world; restraining from all negative judgments on political opponents.

Nikkei Takes a Knock

This should not come as a surprise.

Several pieces of bad news combined to produce a big fall in Tokyo stocks on Monday morning, with the Nikkei 225 average dipping under the 10,000 mark for the first time since mid-August.

The Nikkei dropped 3.6 per cent to 9,796.80 by midday while the Topix index was down 3.3 per cent at 973.19.

Reports that Japan had been named a possible terrorist target by Al Qaeda dented market sentiment, as did a fall in US stocks on Friday and a regulatory order for some Japanese banks to increase their loan loss provisions.

Disappointing corporate earnings from technology stocks sent Wall Street shares down 0.7 per cent on Friday, making it difficult for Tokyo to make a flying start to the new week.

Japanese chip equipment makers felt the impact directly, with Advantest down 5.9 per cent at Y7,560 and Tokyo Electron off 6.7 per cent at Y7,250.

Last Friday, the Financial Services Agency said that after follow-up inspections of Japan’s major banks, it had lowered the internal ratings on some, forcing them to increase loan loss charges for the six months to September.

Japan’s big five banks all fell by more than 5 per cent, with Mizuho down 7.9 per cent at Y221,000, SMFG 5.2 per cent lower at Y470,000 and MTFG off 5.4 per cent at Y383,000. Resona tumbled 9 per cent to Y122 and UFJ was down 5.4 per cent at Y383,000.

Worries about the effects of regulatory pressure on banks sent construction stocks, many of which depend on bank support, lower.
Source: Financial Times

And It's Up and Up We Go

Overheating or not overheating: that is the question. Do you know, I don't think any of us really has a clue. This is uncharted territory, and that is the measure of just what the problem could be. Flying blind isn't easy.

China’s retail sales increased in October at their quickest pace in two years, as domestic consumption recovered from the effects of severe acute respiratory syndrome and people spent in earnest during the National Day holiday.

Retail sales jumped 10.2 percent to Rmb420.4bn (US$50.7bn) in October compared with the same month a year ago, China’s State Statistical Bureau said on Monday. The jump in October was the biggest month-to-month increase since October 2001, when sales grew by 10.5 per cent. From January to September, retail sales climbed 8.6 per cent year on year.

The data is the latest evidence that growth in China’s economy, the sixth-largest in the world, continues unabated. Last week the government released data showing consumer prices increased 1.8 per cent from a year earlier - its fastest annual rate in six years. Also in October, China’s trade surplus ballooned to $5.74bn, its highest in more than half a decade, and exports were $40.93bn, up 36.7 per cent from a year ago. Industrial output rose 17.2 per cent in October from a year earlier.

The surge in consumer spending in October was driven by weeklong Golden Week celebrations centred on the October 1 National Day holiday, the bureau said. The holiday spurred demand for transportation, travel and retail. Autos, furniture and mobile phones were among the best-selling items.

The Golden Week holiday was the first major opportunity for Chinese consumers to spend in large amounts after Sars disrupted holidays and travel plans earlier this year as people stayed home to avoid contracting the virus.

Sales of telecommunications equipment, automobiles and furniture rose 74.6 per cent, 48.4 per cent and 40.4 per cent, respectively, year on year in October.

Concern is growing that such consumption coupled with demand from the industrial sector reflects economic overheating. Last week China reported a 40 per cent year-on-year rise in imports, setting the country on course to eclipse Japan as the world's third largest importer behind Germany and the US.

Imports have been fuelled by ravenous demand for construction materials amid soaring investment in real estate and for products such as steel used in the vehicle industry.
Source: Financial Times

Trouble At Mill

According to the Financial Times, the European Commission is heading for a confrontation with the German government. It is expected to call today for Germany to make €6bn of additional savings from its 2004 budget. Eichel's response was not long in coming. Things are really starting to hot up, and even more so if the anticipated recovery doesn't materialise in quite the way everyone is expecting.

Hans Eichel, German finance minister, on Friday criticised the European Commission's stance on the European Union's stability pact as "devoid of all logic", in a stinging attack set to further strain Berlin's relations with Brussels.The reproach came after the Commission said it would consider new measures requiring Germany to cut its budget deficit next Tuesday.

In a guest article for the Financial Times due to appear on Monday, Mr Eichel hit back at Brussels, arguing that the Commission was wrong to interpret the stability pact that underpins the euro as "a purely mechanical procedure". Mr Eichel suggested that the Commission had provoked "avoidable and needless conflicts" with EU members over the pact. He said it was "unacceptable for members states which conform to the measures agreed in the Ecofin (the EU finance ministers' meeting) to be subjected to additional procedures and sanctions. This sort of discipline is devoid of all logic and contradicts the spirit of the pact". Germany admitted it would exceed the stability pact's 3 per cent budget deficit threshold for a third year in succession next year. Mr Eichel argued that Germany was doing its best in implementing economic reforms to reduce its deficit, and should not be penalised.
Source: Financial Times

Sunday, November 16, 2003

Police bust at gigolo school

Police raided a Taipei gigolo training centre and charged school administrators for overcharging students. Officer Liu Tai-shun told The Apple Daily that the school's owners had inflated tuition costs by adding in expensive clothes and mobile phones.

During the raid police also seized fancy clothes, earrings and lecture notes as evidence. The school, in Panchiao, a suburb of Taipei, was also accused of having links to organised crime.

The school ran classified ads offering "well-paid moonlighting jobs" and had collected up to NT200,000 (US$5,900). The wannabe gigolos, or "male public relations workers" as they are called in Taiwan. were instructed on taboos at the bars, such as wearing white socks, smoking while walking or walking across the dance floor, the newspaper said.

Argentina goes (where else?) to Asia

The Argentine chancellor Rafael Bielsa, together with representatives of Argentina's biggest companies, will begin in a couple of weeks a business tour through China and Japan.

A few years ago this might have been a trip to "exotic markets" looking for new opportunities, but nowadays Asia is the main destination for Argentine exports. And keep in mind that since the devaluation of the peso, and driven in part by Chinese demand for raw agricultural materials, exports have been the fiscal lifeline of the government, which in turns allows it to finance its social and political projects.

Still, Argentina isn't as oriented towards international commerce as some zones of China itself. According to this article mentioning the visit of Chinese businessmen to Argentina yesterday, the Guangdong province alone has the same GDP as Argentina, but five times its volume of international commerce (which, adding imports and exports, is higher than its own GDP!).

By the way, I can't help but wonder about whether Latin American businessmen, long used to doing business at, let's say, more of a personal than a strictly formal level, might find it easier to relate to unique Chinese relationship patterns like Guanxi than american and european executives coming from a different cultural background.

Artificial Life in a fortnight

Craig Venter is back in the news. This time for building a virus from scratch in two weeks, becoming the second virus to be synthesized artificially after Eckard Wimmer's polio virus in 2002 (which took 3 years to build and could barely infect a cell and reproduce).

Venter's team cobbled together the virus, called phi-X174, following its published genetic sequence. They stitched up its DNA from ready-made overlapping fragments called oligonucleotides, each built from 40 chemical building-blocks, or bases. The smart part, according to Wimmer, involved steps that eliminated genetic errors. For example, the team filtered out common oligonucleotides that harbour genetic mutations.

The team used enzymes to glue the oligonucleotides together accurately into the complete 5,386-base genetic strand, and to copy it many times. When the synthetic viral genome was injected into bacteria, the bacterial cell's machinery read the instructions and created fully fledged viruses. Genetically, one of the resulting virus strains was 100% identical to the natural virus, says Venter. By contrast, Wimmer's polioviruses, which were some 7,500 bases long, had to be laboriously checked for mistakes as each genetic piece was added.

Of course, the spectre of bio-terror (especially given the ease with which Dr. Venter's team built the virus) has been raised.

The study may revive concerns that such techniques could one day be hijacked to make pathogens such as polio or even smallpox for bioweapons. This was widely discussed following the publication of Wimmer's work. The prospect of synthetic viruses or bacteria also raises fears about their possible environmental impact. "It reminds us that we'll continue to confront these issues in an accelerating way," says public-health expert Stephen Morse of Columbia University, New York City. Now, as then, Morse and others argue that the benefits of the new technique outweigh the risks and that the method should be made public.