Issue 17| March 16, 2012

Concerns over Chinese "hard landing" intensify
Worries that Chinese economic performance intensified after Premier Wen Jiabao announced a growth target of 7.5 percent, a prominent downgrade from the 8 percent target of the past seven years. . “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact,” said Adrian Mowat, JPMorgan Chase & Co. chief Asian and emerging-market strategist. While Chinese economic activity has been hurt by lower overseas demand and government action to control a surging property market, whether or not the slowdown will evolve into something more serious is yet to be seen.

Greece reaches agreement with creditors but debt crisis not over
The Greek government completed a debt deal on March 9, with private owners of Greek bonds taking a 75 percent haircut in order to reduce the debt burden by more than 100 billion euros, or approximately $132 billion. While the news displeased many investors, with the market devaluing Greek debt further, the reduction was a great relief to Greece’s fiscal outlook, decreasing yearly interest and principal payouts by 15 billion euros. However, with the conclusion of the agreement, Greece’s remaining 260.2 billion euro burden will be held by the International Monetary Fund, the European Central Bank and individual European countries, entities that will be far less likely to accept future debt reductions.

Positive February employment numbers buoy economic outlook
The U.S. Department of Labor reported better than expected February employment numbers on March 9, contributing to an increased sense of economic optimism. According to the report, the economy gained 227,000 jobs in February and while the unemployment rate saw little change, this was attributed to an increase of 500,000 people who have begun or resumed their job searches. While it is yet unclear if such rates can be sustained, especially as slower growth has been projected for the first quarter of 2012, the news was nonetheless interpreted as an encouraging sign of recovery.  

United States, European Union and Japan to challenge Chinese rare earth restrictions in World Trade Organization
The United States has filed a challenge with the World Trade Organization over China’s restrictive export regulations of rare earths, minerals that are used in the manufacture of batteries, televisions, phones, green technologies, cars and other high-tech products. As China produces 97 percent of all rare earths, U.S. officials have claimed that Chinese export taxes and quotas have raised production costs for manufacturers worldwide. “America’s workers and manufacturers are being hurt in both established and budding industrial sectors by these policies,” U.S. trade representative Ron Kirk said. “China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace.”