Breakingviews

China’s big fiscal guns best left in the holster

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s fiscal guns are ready to fire. Premier Wen Jiabao reminded the world this week that government debt is low, and the country has scope to spend its way back to rapid growth. Investors believe it will: Shanghai’s stock market closed up on Sept.10, even as China showed August exports barely grew year on year.

China’s absent princeling is a mystery not a crisis

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s growth is slowing, and president-in-waiting Xi Jinping hasn’t been seen in public for two weeks. China-watchers are discussing little else. The former issue matters greatly to the world, while the latter is fascinating, but basically unimportant.

For Italy, crisis freedom is almost within reach

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Rome is half out of the woods. Italy’s 10-year bond yields have fallen by over a percentage point since European Central Bank Chief Mario Draghi hinted at a new bond-buying programme. With yields falling and confidence returning, the need for a bailout is waning.

Coal’s slide poses broader risks for Indonesia

By Wayne Arnold

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Coal’s slide poses a problem for Indonesia. As the biggest exporter of coal used for generating power, the country’s fortunes might seem directly tied to China and India’s economic slowdown. In fact, exports account for only a sliver of GDP. The bigger risk is that falling demand spooks foreign investors, undermines a provincial boom, and hurts poor workers.

U.S. political jamborees alienate Mr. Market

By Daniel Indiviglio and Jeffrey Goldfarb
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Mr. Market would have felt unwelcome in Charlotte and Tampa over the last couple of weeks. The political jamborees hosted in the two southeastern U.S. cities offered stark differences in tone that mirror the different options Americans face in November’s elections. Eat the fiscal spinach served up by Mitt Romney and the Republicans, or gorge on the pro-worker red meat dangled by Barack Obama and the Democrats. Voters may be tempted by one or the other, but investors will probably turn their noses up at both.

China’s unbalanced path is still the right one

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

So much for China’s rebalancing. President Hu Jintao has extolled the merits of infrastructure investment at an Asia-Pacific summit, even as the government approved some 1 trillion yuan of local projects, from subways to sewers. The goal of consumption rather than investment driving economic expansion has been put on hold. For now, that’s as it should be.

Obama job adds match Bush, Clinton but not Reagan

By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Thirty months after the U.S. jobs nadir, employment has risen by 3.1 percent, according to Friday’s report for August. That’s roughly in line with the post-recession record of the last 2-1/2 presidents – but far short of Ronald Reagan’s 9.8 percent jobs increase. The picture for August alone was also mixed: President Barack Obama, his Republican presidential rival Mitt Romney, and the Federal Reserve can all take something from it.

U.S. leaders could learn from European austerity

By Daniel Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

U.S. leaders could learn from Europe’s austerity. Noting the lessons of the continent’s flubs and fixes would help either Barack Obama or Mitt Romney tackle the policy and politics of a debt load that just surpassed $16 trillion. Waiting too long might give investors time to make a new choice.

Chavez’s cash pump PDVSA runs on empty

By Raul Gallegos
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Hugo Chavez’s cash pump, Petroleos de Venezuela, is running on empty. Venezuela’s troubled state oil group may now pay its suppliers with IOUs instead of cash. That’s hardly surprising given Chavez’s systematic squeezing of PDVSA to finance social spending, particularly ahead of elections set for Oct. 7. Harder to imagine is what happens when oil prices decline from today’s lofty heights.

China’s “guanxi” system may cost Wall Street dear

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Do a favour, get a favour. That’s how China works, and banking is no different. In keeping with the country’s “guanxi” system of personal relations, Citi, UBS and Goldman Sachs all helped out troubled financial firms in the past and received privileges for it later. Rivals have not been so fortunate, however. And there’s the risk that one favour leads to demands for more. Citi won goodwill by restructuring troubled Guangdong Development Bank in 2006. In return for such support, it now has 51 branches on the mainland – more than any other U.S. lender. Last month, it became the first global bank to issue its own credit cards in China. Goldman Sachs and UBS have also benefited. Goldman acquired the licenses of failed Hainan Securities in 2004, and was allowed to establish its own brokerage in a structure no competitor has since been allowed to mimic. UBS helped reform Beijing Securities, and got to take a direct stake in the brokerage – a format that also remains uncopied. There are other ways to earn guanxi. Lending banks like Standard Chartered and HSBC have grown in China thanks in part to concessions like running rural banking schemes, or opening branches in economically less attractive locations. HSBC, Goldman and UBS all bought stakes in Chinese banks and helped to transfer skills and technology. The system doesn’t always work smoothly. Nomura accepted Chinese trainees as far back as the 1980s, but is one of the few banks still without a mainland joint venture to issue domestic equities. HSBC recently bought shares in a private placement by partner Bank of Communications, just two years after pumping almost $1 billion in through a rights issue, yet a three-year old credit card venture between the two remains unapproved. Guanxi-based market access can also store up future problems. China’s lenders have doubled their loan books since 2009, and there are signs that overdue loans are now mounting. If small banks get into trouble again, Western banks that were helpful in the past may face demands for a new round of favours.