China’s financial markets awaken: West take note!

Currencies of the World

Currencies of the World (Photo credit: Wikipedia)

Commentary: Asian currencies will grow in influence

By David Marsh, MarketWatch

BEIJING (MarketWatch) — When I ponder the impact on the West of China’s slow but steady progress in liberalizing its financial markets, Napoleon’s oft-cited description of the Middle Kingdom comes to mind. “A sleeping giant. Let him sleep! If he awakes, he will shake the world.”

The message from around a dozen recent exchanges with top Chinese financial decision-makers and advisers is very clear. China’s financial market liberalization is now more or less unstoppable. This is being expanded now in many fields, with consequences for many sectors of Western business and finance. Much of this has yet fully to be acknowledged by the West, let alone understood.

National emblem of the People's Republic of China

National emblem of the People's Republic of China (Photo credit: Wikipedia)

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China’s consumer inflation gathered pace in March, but probably not enough to deter central bankers from easing monetary policy to boost the economy in the months ahead. Aaron Back reports on the News Hub. Photo: Reuters

Opening up of China’s previously closed financial markets has been building cautiously for several years. The move was put on hold by the aftermath of the financial crisis in 2007-08. It could still be impeded by a further sharp world downturn or another type of international dislocation. However, Beijing’s financial liberalization policies have accelerated as a result of the latest signs of disarray surrounding the world’s two principal reserve currencies, the dollar and the euro.

The liberalization extends to use of yuan USDCNY -0.0032%   in international capital market transactions especially in Hong Kong, which has been a laboratory for offshore yuan bonds, in international trade invoicing and settlement, and in international reserve holdings (where 10 to 15 central banks worldwide now own serious amounts of yuan.)

Relaxing restrictions on foreign investors investing in China, and gradually taking off the shackles for Chinese investors moving money abroad, are all part of the overall process. Read Craig Stephen’s This Week in China column: “China’s welcome mat for foreign investors.”

The same is true for easing controls on the value of the yuan (which is unlikely to appreciate as much as it has in last 12 months and could fall as well as rise) and for liberalization of interest rates in China (which is an essential quid pro quo for allowing Chinese institutions and citizens more freedom to invest abroad).

There is considerable linkage to the latest Five-Year Plan for promoting domestic-driven growth and rebalancing exports and imports. As Liu Mingkang, former chairman of the China Banking Regulatory Commission, now a distinguished fellow of the Fung Global Institute in Hong Kong, told the Boao Forum on Asia last week in southern China, liberalization of financial markets is “part of a package”. This is not a piecemeal approach, but part of a series of building blocks, he said.

The moves forward on the yuan are linked to China’s visible frustration and disillusionment on key issues of international economic governance and also on the performance of private-sector Western financial institutions during the financial crisis, for example in the fields of corporate finance or asset management.

However, China will take a steely line on gradually fostering capital account convertibility, declaring that the yuan can be used more internationally while at the same time remaining partly inconvertible. In the same vein, China is very far from being starry eyed about the overall process, emphasizing that it will reserve the right to “shut down” liberalization at times of turmoil — for example, if it ever seemed likely that we were preparing for a rerun the 1997-98 Asian financial crisis. (Note, though, that influential personalities such as Jin Liqun, chairman of the supervisory board of China Investment Corp., say not capital account liberalization, but faulty economic policies, led to the Asian upheavals of 15 years ago.)

Will the changes be good for the rest of the world? Only up to a point. There are several aspects of China’s financial market liberalization that the West needs to analyze carefully — for they may bring considerable challenges and possible setbacks.

• China’s strong line on international economic governance will eventually mean fewer jobs for the Western “boys” (and girls) at the World Bank, the IMF and other international bodies.

• Although China still see the Europeans as useful allies with whom to push for changes in U.S.-dominated economic fora, Beijing is clearly intensifying its reliance on the other BRICS countries (Brazil, Russia, India and South Africa). Until it solves its internal difficulties over the euro (which won’t be anytime soon), Europe will not really count for much in the world (although individual countries like Germany might).

• China has no wish to destabilize the euro for the time being, since it relies on Europe for an increasing proportion of its trade. However, over time, probably both the yuan and the Japanese yen will become more international. (Japan is likely to undergo an international renaissance as the Tokyo authorities seek to find way of borrowing more funds abroad). The increasing global clout of the Asian currencies will certainly increase the vulnerability of the euro to outside buffetings.

• Higher foreign earnings from international capital market and asset management activities will further increase the power, profitability and status of Chinese banks. Their earnings will come under pressure from liberalization of Chinese interest rate-setting arrangements, but better conditions for foreign business should provide adequate compensation. Watch out for Chinese banks moving into areas of asset management, trade finance and project finance where Western banks previously held comfortable positions.

• When it comes to international borrowing, the Chinese will comply with requests for funds only if Western debtors agree that borrowings should be denominated at least partly in yuan, both to intensify generally the currency’s international use and to protect the creditor against exchange-rate losses. Such a stipulation, discussed from time to time in past months, may climb gradually up the international policy agenda in the coming year.

The message for the west is: Be prepared!


Super malaria strain on the rise!

The danger of drug resistance is coming uncomfortably close to home, as scientists report the rapid spread of a super malaria strain resistant to the best drugs, and warn of the need to contain this resistance.

JUST a fortnight after the World Health Organisation (WHO) chief warned about the possible end of modern medicine because of the resistance of disease-causing micro-organisms to drugs, there was alarming news last week of the rapid spread of a strain of malaria in Asia that is resistant to the most effective drugs.

A new study found resistance growing in a malaria strain in the Thai-Myanmar border. It had earlier been found in western Cambodia.

The study’s authors warn that the deadly form of malaria could spread through Myanmar to other countries unless swift action is taken.

Malaria is caused by parasites carried by mosquitoes, and killed 655,000 people worldwide in 2010.

Alarming: Anopheles gambiae mosquitoes, a vector for the malaria parasite, hanging on a net in a research facility in Nairobi, Kenya. According to media reports recently, evidence has emerged that resistant strains of malaria have been found on the border between Myanmar and Thailand. — EPA

It had earlier been treated with quinine, then chloroquine.

When malaria developed resistance to chloroquine it was no longer effective and the new effective drug ingredient was artemisinin (derived from the sweet wormwood shrub), which is now mainly used in combination with other ingredients.

Resistance to artemisinin-based drugs is now causing alarm bells to ring, because there are no other effective drugs, and no new anti-malaria drug is expected to be in the market in the next several years.

Malaria that is resistant to artemisinin was first found in 2006 in Cambodia. In western Cambodia, 42% of malaria cases were found to be resistant in 2007-2010. That’s a shockingly high percentage, and if this kind of prevalent resistance spreads to other regions, there will be a malaria emergency.

A team of British and Thai scientists studied 3,202 patients along Thailand’s north-western border with Myanmar from 2001 and 2010 and measured the time it took them to clear malaria infections from their blood after treatment.

An article in The Lancet reported that the number of slow-clearing infections rose from 0.6% of cases treated in 2001 to 20% in 2010, indicating a rapid rise in drug resistance.

In that period, the average time taken to reduce the number of parasites in the blood by half rose from 2.6 hours to 3.7 hours. The proportion of slow-clearing infections rose from six to 200 out of every 1,000 cases, indicating resistance has reached 20% of cases.

According to a report by Sky News, lead researcher Prof Francois Nosten, director of the Shoklo Malaria Research Unit in Thailand, warned of a “race against time” to halt the resistance trend.

“If the situation continues to deteriorate then it could mean that the newest drugs that we have to treat malaria now which are the derivatives of artemisinin, will be progressively ineffective.”

Nosten said the consequences, as seen in the past, would be an increasing number of cases of malaria and more deaths.

He said the reason why the malaria strain has evolved resistance to the new treatments is probably because they have been used a lot over the last 20 years, as they were the only effective treatments.

“We can still treat the patient with these drugs and they get better and they get cured, it just takes longer for them to clear the disease,” he said.

“We have now seen the emergence of a malaria strain resistant to our best drugs, and these resistant parasites are not confined to western Cambodia. This is very worrying indeed and suggests that we are in a race against time to control malaria in these regions before drug resistance worsens and develops and spreads further. The effect of that happening could be devastating.

“Malaria already kills hundreds of thousands of people a year – if our drugs become ineffective, this figure will rise dramatically.”

Another researcher, Prof Nicholas White at the Faculty of Tropical Medicine in Mahidol Univerity in Bangkok, urged that support be given to Myanmar to fight the spread of drug-resistant malaria there.

Support is also needed to contain the resistance in this region, otherwise it is going to spread to India and Africa, said White.

The spread of resistant malaria is but one more example of a critical situation, one in which WHO director-general Margaret Chan warned of an emerging era of the end of modern medicine.

There should be a worldwide campaign to identify the sources of this problem and to contain drug resistance, including through the proper prescription and use of drugs.


Masters 2012: Watson’s talent is rewarded with first golf major

• Watson hits astonishing shot to leave two putts for win
Louis Oosthuizen bogeys second play-off hole

Bubba Watson sports the Green Jacket after winning the Masters at Augusta

The American Bubba Watson sports the Green Jacket after winning the Masters at Augusta, his first major championship. Photograph: Jamie Squire/Getty Images
Bubba Watson of the U.S. celebrates after winning the Masters during a playoff in the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. REUTERS-Phil Noble
Bubba Watson of the U.S. hits his approach shot to the 10th green during a playoff in the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. REUTERS-Mark Blinch
Louis Oosthuizen of South Africa reacts to missing a birdie putt on the 10th green during a playoff in the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. Bubba Watson of the U.S. defeated Oosthuizen in the playoff to become the Masters champion. REUTERS-Phil Noble
Louis Oosthuizen of South Africa reacts to missing a birdie putt on the 18th hole, his final in regulation, in the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. Oosthuizen lost a playoff to Bubba Watson on the second hole. REUTERS-Brian Snyder
Bubba Watson of the U.S. (R) hugs his mother Mollie after winning the the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. REUTERS-Mike Segar
Bubba Watson of the U.S. (L) hugs his caddie Ted Scott (C) next to Louis Oosthuizen (R) of South Africa after winning the Masters during a playoff in the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. REUTERS-Mike Segar
Tiger Woods of the U.S. hits his approach shot to the first green during final round play in the 2012 Masters Golf Tournament at the Augusta National Golf Club in Augusta, Georgia, April 8, 2012. REUTERS-Mark Blinch

Just another Masters Sunday, a day of madness and despair, of great shots and shockers, a day when a couple of Englishmen made the flag of St George proud and the sweet-swinging Louis Oosthuizen made a valiant stand.

But in the end it was a day for the homemade swing and other-worldly talent of Bubba Watson.

Brilliant and wild in equal parts, the American finally gave in to his better instincts, hitting an astonishing shot from trees to the right of the 10th fairway — the second hole of a play-off — that won him his first major championship. His ball finished 10 feet from the flag, leaving him with two putts for the win after Oosthuizen had bogeyed. He took both and immediately burst into tears.

It would be wrong to say his triumph was a long time coming but it would be true to say one of the most extraordinary natural talents in the game has finally been rewarded.

The South African and the American were paired together throughout a classic day at Augusta National, slugging it out like a pair of well-dressed welterweights. Oosthuizen landed the heaviest blow in regulation play, a history-making approach on the par-five 2nd hole that went into the hole for an albatross two. But Watson declined the invitation to fade away, gradually chipping away at Oosthuizen’s day-long lead until they walked off the 18th green tied on 10 under par, with only Sweden’s Peter Hanson, the overnight leader, and Phil Mickelson following.

Behind them, a crammed leaderboard told a story that disappointed no one, not even those who came to Georgia this week expecting a battle between Tiger Woods and Rory McIlroy. Both finished well down the pack. Big deal.

The fun started early when Bo Van Pelt and Adam Scott, both of whom were well down the field when they made a hole-in-one at the par-three 16th. They will earn a piece of crystal for their efforts but were clear runners-up in the unofficial shot-of-the-day competition.

That was a walk-over for Oosthuizen, who moments later stood at the top of the hill on the second fairway looking down at the distant target, no doubt thinking the middle of the green would be good. It would have been. But the middle of the hole was better. In the ball went, all the way from 260 yards, from the left side of the green across the slope and down.

Only three players have ever made an albatross at the Masters before. The South African became the fourth. Better still he vaulted into a two-shot lead. Best of all from his perspective this piece of brilliance was rapidly followed by another episode in the life and crazy times of Mickelson, who hit his tee shot at the par-three 4th off the stand at the back of the green and into a bush.

The left-handed American declined the option of a penalty drop, preferring instead to take a couple of right-handed swats at his ball, eventually making his way into the greenside bunker. By the time he finished he had taken six shots. It was his second triple bogey of the week, more evidence — not that any more was needed — that, while Mickelson is never boring, he is occasionally a bit daft.

Luckily for him, and for us, he is also blessed with sublime talent and the guts of a trapeze artist. Gradually he battled his way back into contention with birdies at three remaining par-fives, the 8th, 13th and 15th holes. It was good stuff but it was not vintage Mickelson when the moment required vintage Mickelson.

Gone are the days when the great ocean liners of American golf, Woods and Mickelson, had only to hove into view and the others would start quaking in their spikes. Reputations do not count for much these days. There is too much talent, too much hunger, too many players grappling for control of centre stage. No one is scared any more.

And as the afternoon progressed so the pool of potential winners expanded.

Padraig Harrington was suddenly in the hunt courtesy of a couple of early birdies. Then came Ian Poulter, whose brilliance with the putter will always give him a puncher’s chance around this dear green place.

The issue with golf’s king of twitter is his occasionally variable ball-striking, though it did not let him down on this particular day.

Starting the day at two under par, he went out in 33 shots – better than anyone else on the leaderboard. If he had taken another 33 shots on the back nine, he would have had a serious chance of putting additional pressure on the leaders. He could come home only in a level-par 36, though, his hopes undone time and again by putts that slipped narrowly past the hole. The vultures have been hovering over Poulter for a while now, ready to dismiss his credentials as a top-class player. Perhaps this will shut them up for a while.

Lee Westwood is another who has come under scrutiny from those who argue that he does not possess the short game required to win a major championship. There may be something in that — after all the Englishman finished 59th in putting out of 62 players who played all four rounds — but there is also a weight of evidence to suggest that his ball-striking is so good that it might one day be good enough to carry him to the promised land.

All he needs is a bit a luck, just enough to make the ball fall into the hole rather than run round the back of the cup, as it did on the 15th green on Sunday. Thus an eagle was transformed into a birdie — a good score, no doubt, but not good enough. “When you consider the way I putted, there are a lot of positives to take from this. I am obviously playing very well,” he said afterwards.

It was a familiar refrain from Westwood but it was the truth. He finished two of the pace, level with Hanson, Mickelson and Matt Kuchar, after a final round of 68.

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