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The deals will be announced following talks in London on Monday between British Prime Minister David Cameron and Chinese Premier Wen Jiabao, who is in the middle of a European tour taking in Hungary, Britain and Germany.
As Greece teeters on the brink of default, Beijing is seeking to safeguard its vast holdings of euro-denominated assets and to preserve trade growth with the European Union, its largest trading partner.
Deals worth more than one billion pounds are set to be announced after Monday’s talks between Cameron and Wen, Cameron’s office said.
It gave no details but a government source said agreements could be reached in the energy, retail and design sectors.
The two sides are expected to announce the reopening of the Chinese market for British poultry exports, potentially worth 10 million pounds a year, British officials said. China banned poultry products from Britain following an outbreak of bird flu at a farm in eastern England in 2007.
Britain and China will also announce an expansion of trade in pork products, following agreements last November to export British breeding pigs and British pig meat to China.
A further deal to supply 800 breeding pigs will be signed. Five more British farms will be approved to export pig meat to China in a deal worth more than 25 million pounds, Britain said.
Wen’s visit is the latest of several recent high-level diplomatic exchanges between Britain and China, including a visit to China by Cameron last November.
Britain wants to double trade with China by 2015 to some $100 billion, in line with the British government’s strategy of expanding business with fast-growing emerging markets to help offset subdued domestic demand at a time of sharp spending cuts.

HUMAN RIGHTS
Britain said it planned to raise human rights concerns with Chinese officials.
China has clamped down heavily on dissent this year, arresting scores of activists to smother scattered online calls for an Arab-style “Jasmine revolution”, though it released prominent artist and activist Ai Weiwei last week and prominent dissident Hu Jia on Sunday.
Foreign Minister Yang Jiechi, Trade Minister Chen Deming and central bank governor Zhou Xiaochuan will accompany Wen at the London talks, while finance minister George Osborne and Foreign Secretary William Hague will join Cameron.
Wen told the BBC on Sunday China plans to stimulate domestic demand and reduce its foreign trade surplus to encourage balanced trade growth. [ID:nL6E7HQ04P]
He repeated his assurance that China would remain a long-term investor in European sovereign debt, saying China would lend to those countries experiencing difficulty borrowing

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 Posted in ASSET MANAGEMENT NEWS, FINANCE NEWS ARTICLES, FINANCIAL ADVISORY |  Tags: Collection of the most recent news articles by Dynamic Wealth Management, Dynamic Wealth Management Headlines, Dynamic Wealth Management Zurich News Updates, UK farm exports to get boost in $1.6 bln UK-China deals |  195 Comments »

Dynamic Wealth Management Headlines: The great repression

 June 18th, 2011

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Jun 16th 2011 | from the print edition

http://www.economist.com/node/18834259?story_id=18834259&fsrc=rss

OF THE many unpleasant legacies left by the economic crisis the mountain of sovereign debt may prove hardest to erode. Across the rich world, debt levels approaching 90% of GDP are now common. Indebted governments face an unenviable menu of options. Growing their way out of trouble will prove difficult as economies deleverage. Austerity, a second and unappetising choice, can easily choke recovery. Defaults are seen as a last resort. Politicians are searching for an easier way.
There is another model. Following the second world war many countries reduced debt quickly without messy defaults or painful austerity. British debt declined from 216% of GDP in 1945 to 138% ten years later, for example. In the five years to 2016, by contrast, British debt as a proportion of GDP is expected to drop by just three percentage points despite a harsh austerity programme. Why was it so much easier to cut debt in the immediate aftermath of the war?
Inflation helped. Between 1945 and 1980 negative real interest rates ate away at government debt. Savers deposited money in banks which lent to governments at interest rates below the level of inflation. The government then repaid savers with money that bought less than the amount originally lent. Savers took a real, inflation-adjusted loss, which corresponded to an improvement in the government’s balance-sheet. The mystery is why savers accepted crummy returns over long periods.

Related topics

• Bond markets
• Government bonds
• China
• United States
• Government and politics

The key ingredient in the mix, according to a recent working paper* by Carmen Reinhart of the Peterson Institute for International Economics and Belen Sbrancia of the University of Maryland, was “financial repression”. The term was first coined in the 1970s to disparage growth-inhibiting policies in emerging markets but the two economists apply it to rules that were common across the post-war rich world and that created captive domestic markets for government debt.
The exchange-rate and capital controls of the Bretton Woods financial system kept savers from seeking high returns abroad. High reserve requirements forced banks to lock up much of the economy’s savings in safe asset classes like government debt. Caps on banks’ lending rates ensured that trapped savings were lent to the sovereign at below-market rates. Such rules were not necessarily adopted to facilitate debt reduction, though that side-effect surely didn’t go unnoticed. The system was ubiquitous, reducing pressure on governments to abandon it.
Repression delivered impressive returns. In the average “liquidation year” in which real rates were negative, Britain and America reduced their debt by between 3% and 4% of GDP. Other countries, like Italy and Australia, enjoyed annual liquidation rates above 5%. The effect over a decade was large. From 1945 to 1955, the authors estimate that repression reduced America’s debt load by 50 percentage points, from 116% to 66% of GDP. Negative real interest rates were worth tax revenues equivalent to 6.3% of GDP per year. That would be enough to move America’s budget to surplus by 2013 without any new austerity programme.
The same conditions of instability that produced the post-war system of repression are again at work. Banks’ reserve requirements are rising in the wake of the financial crisis. Regulators like Britain’s Financial Services Authority are mandating that banks boost their holdings of safer government bonds for liquidity reasons. The new Basel 3 rules on bank capital still privilege government debt over other assets, nudging holdings toward sovereign debt despite the possibility of below-market returns. Interest rates hint at a return to post-war conditions, too, according to the Reinhart-Sbrancia sample of advanced economies. From 1981 to 2007 real interest rates were almost always positive. Since then they have been negative about half of the time.
More desperate governments are going further still. Ireland has raided its national pension reserves to help meet financing needs. European leaders are considering a textbook example of repression to postpone a reckoning on Greece’s debt. European banks are under state pressure “voluntarily” to roll over or reprofile their holdings of Greek government debt.
Emerging markets had more buttoned-down financial systems to start with. China, the world’s second-largest economy, is the financial system’s arch-represser. Tight controls over the banking system and strict limits on capital movements enable China’s leaders to hold down the value of its currency. An implicit tax on Chinese savers keeps down government borrowing despite hefty state expenditures.
Don’t hold it in
Politicians are sure to find bits of the post-war model appealing, despite the distortions to investment decisions it entails. Fortunately, the financial world is a far more liberal, multipolar place than it used to be. The Bretton Woods system fractured amid the inflationary pressures of the 1970s, around the time the rich world embarked on a three-decade process of financial liberalisation. Capital now flows quickly and easily around the world in search of high returns. New regulations in the West have done little to change that. China, too, is easing its financial controls. It is difficult to imagine how the genie of liberalisation can be stuffed back into its lamp.
Nor is repression alone enough to solve debt woes. Inflation is necessary too, and the example of Japan suggests that ageing societies may prefer to sacrifice the young to a long period of slow growth rather than erode the savings of older voters. Most importantly, governments must stop adding new debt. Even in a financially repressed system austerity is not entirely avoidable. Most economies must still cut their debts the hard way.

* “The Liquidation of Government Debt”, Peterson Institute for International Economics working paper, April 2011

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 Posted in ASSET MANAGEMENT NEWS, FINANCE NEWS ARTICLES, FINANCIAL ADVISORY |  Tags: Collection of the most recent news articles by Dynamic Wealth Management, community local news, dynamic wealth management business reports, dynamic wealth management economy, Dynamic Wealth Management Headlines, Dynamic Wealth Management Zurich News Updates, Post-war governments reduced debt by constraining savers’ options. That is harder today, The great repression, zurich company reports | 767 Comments »

Dynamic Wealth Management Headlines: Swiss Economy Defies Downturn

 June 14th, 2011

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By DEBORAH BALL

http://online.wsj.com/article/SB10001424052702303745304576357172729094318.html

ZURICH—The Swiss economy expanded 2.4% in the first quarter, powered by exports that continue to grow despite a Swiss franc that is at record highs against the dollar and the euro. But some worry that Switzerland’s gravity-defying economy could be headed for a fall by year’s end.
While other countries suffered a deep recession in recent years, Switzerland saw only a mild downturn and has bounced back strongly—and the country’s first-quarter economic data provides no hint of a serious slowdown.
First-quarter gross domestic product grew by 0.3% over the fourth quarter of 2010, and by 2.4% over the first quarter of 2010. Exports rose 5.7% from the fourth quarter, helping offset a slowdown in spending by Swiss consumers and companies at home. Higher oil prices, the euro debt crisis and events in Japan dragged on domestic consumption.
Switzerland’s durability to date is owing to several factors. Fiscal frugality is key; Switzerland’s gross public debt is 53%, half the level of some European neighbors. In addition, it largely dodged a real-estate crisis while others saw their property markets plummet. As a result, the financial crisis was relatively mild here, with the economy contracting 1.9% in 2009, compared with a 4.1% decline for the European Union. Just last week, a Swiss leading economic indicator came in at a near-record level for May, while capacity utilization at Swiss companies is above 85%.
But Switzerland is paying for its rectitude in the form of an ultra-strong currency. In the last year, the Swiss franc has gained 24% against the dollar and 13% against the euro, hitting record highs against both currencies in recent weeks as a Europe’s latest round of sovereign-debt woes sent investors scurrying for the safe-haven currency.
Despite the strong franc, however, Swiss exports have stayed remarkably strong. “It’s not at all what you would expect,” says Jan Posner, economist with Swiss bank Sarasin. “The strength of exports is quite amazing.”
Swiss exports have held up because manufacturers retooled following a prolonged economic crisis in the 1990s. As a result, about 60% of the country’s exports are in high-quality products—such as luxury watches, pharmaceuticals or precision instruments—compared with 40% a decade ago when textiles and heavy industry were a bigger part of the mix, according to Credit Suisse estimates. For instance, Swiss power and automation company ABB AG announced earlier this month a $50 million expansion of a new plant in northern Switzerland that will make semiconductors destined for export.
As a result, Swiss companies have managed to raise prices to offset part of the rise in the franc, as consumers and corporate buyers alike have until now proved willing to pay more for quality. The economic recovery in Germany, Switzerland’s single largest export market, has also helped, as has a booming Asia, which accounts for about a third of Swiss exports.

But Aymo Brunetti, the head of the Swiss government’s Economic Policy Directorate, expects the economy to succumb in part to the currency’s pressure later this year. Indeed, the prices for exported goods fell 9.6% in April, as Swiss companies slashed prices—as well as profits—in order to offset the franc.
“At some point, the pressure on exports and companies’ profit margins will begin to feed through,” he said in an interview. “We remain more cautious on the outlook for Swiss growth.”
A cloudy economic forecast elsewhere will also drag on Switzerland. For instance, the U.S. is going through a soft patch, growing just 1.8% in the first quarter compared to the same period last year. Sarasin’s Mr. Poser expects Swiss GDP to grow just 1.5% by the last quarter of this year, half the pace at which the economy grew at the end of 2010.
A slowdown would give the Swiss National Bank some breathing room for its next rates decision. The central bank has kept rates very low since March 2009. While a strong Swiss economy might normally be reason to raise rates at its next policy meeting in mid-June, such a move would push the franc higher, possibly choking off exports. As a result, most economists believe the bank will wait until September to make a move.