Friday, December 28, 2012

BBC News - China approves tighter rules on internet access

China has tightened its rules on internet usage to enforce a previous requirement that users fully identify themselves to service providers.
File photo of free internet service at Beijing airportHundreds of millions of people in China use the internet, although its content is closely monitored by the authorities
The move is part of a package of measures which state-run Xinhua news agency said would protect personal information.
But critics believe the government is trying to limit freedom of speech.
The announcement will be seen as evidence China's new leadership views the internet as a threat.
The Chinese authorities closely monitor internet content that crosses its borders and regularly block sensitive stories through use of what is known as the Great Firewall of China.
However, it has not stopped hundreds of millions of Chinese using the internet, many of them using micro-blogging sites to expose, debate and campaign on issues of national interest.
In recent months, the internet and social media have been used to orchestrate mass protests and a number of corrupt Communist Party officials have been exposed by individuals posting criticisms on the internet.
The new measures come a month after a new leadership, led by Xi Jinping, was installed by the ruling Communist Party.
The new man in charge of the internet, Liu Qibao, has a reputation for taking a hard line on media control. He recently called for "more research on how to strengthen the construction, operation and management of the Internet and promote mainstream online themes".
The new measures now formally require anyone signing agreements to access the internet, fixed-line telephone and mobile devices to provide network service operators with "genuine identification information", known as real-name registration, Xinhua reports.
Real-name registration was supposed to be have been implemented in 2011 but was not widely enforced.
China's biggest internet firm, Sina Corp, warned earlier this year in a public document that such a move would "severely reduce" traffic to its hugely-successful micro-blogging site Weibo, China's equivalent to Twitter with more than 300 million users.
Under the new rules, network service providers will also be required to "instantly stop the transmission of illegal information once it is spotted" by deleting the posts and saving the records "before reporting to supervisory authorities".
The measures are designed to "ensure internet information security, safeguard the lawful rights and interests of citizens... and safeguard national security and social public interests", and were approved by China's top legislature at the closing session of a five-day meeting on Friday, Xinhua reports.
The calls for tighter controls of the internet have been led by state media, which said that rumours spread on the web could harm the public and sow chaos and confusion.
The government has said officially that it welcomes the exposure of official abuses, but a new generation of ever bolder bloggers and commentators pose a threat that the leadership seems determined to counter, the BBC's Charles Scanlon reports.

Thursday, December 27, 2012

BBC News - Turbine installation complete at London Array wind farm

London Array wind turbinesThe London Array has been built in the Thames Estuary
One of the world's largest offshore wind farms off the east Kent coast is on target to become fully operational in the spring.
London Array is being built in the Thames Estuary, 10 miles north of Ramsgate, and will produce enough power for an estimated 470,000 homes.
The 175th and last turbine was installed two weeks ago, marking the end of major construction activities.
Fifty-five have been connected and are supplying power to the national grid.
The wind farm has been generating energy since October, when the first turbine began producing power.
London Array said during 2012, 84 foundations, 175 wind turbines, 178 array cables and three export cables had been installed.
A second phase with a further 166 turbines is yet to be approved.

Reuters News - Japan retail investors pour $2.3 billion into fund investing in N. America

TOKYO | Thu Dec 27, 2012 5:34am EST
(Reuters) - Japanese retail investors poured about $2.3 billion in a mutual fund that mainly invests in U.S., Mexican and Canadian shares, the biggest subscription since October 2006, a distributor of the fund, SMBC Nikko Securities, said on Thursday.
The country's third-largest money manager, Nikko Asset Management, launched the Japan domiciled fund, called Nikko Gravity Americas Fund, which attracted 200.1 billion yen ($2.3 billion) at the launch - the third biggest subscription ever.
Its subscription ceiling is set at 300 billion yen.
Cash-rich Japanese investors heavily bought the Nikko Gravity fund on expectation of strong potential U.S. economic growth with the recent rise in the dollar against the yen encouraging their interest, an official at SMBC Nikko said.
The fund makes allocations in line with its model portfolio, which gives a 64 percent weighting in U.S. shares, 14 percent in Mexican shares, 10 percent in Canadian shares and the rest split in Latin American countries including Columbia and Brazil, Nikko Asset's document on its website showed.
The fund's allocations in sectors include 20 percent in energy - the highest weighting - followed by 15 percent each in financial and information technology.
Japan's $720 billion mutual fund market is the second-largest in the Asia-Pacific region after Australia and the eighth-largest in the world.
Japanese individuals hold a massive 1,500 trillion yen in personal assets of which 57 percent is held in low-yielding bank and postal savings, while less than 4 percent is invested in mutual funds, Bank of Japan data shows.
($1 = 85.6700 Japanese yen)
(Reporting by Michiko Iwasaki and Chikafumi Hodo; Editing by Matt Driskill)

Wednesday, December 26, 2012

Reuters News - Lawmakers play waiting game with "fiscal cliff" deadline in sight

U.S. President Barack Obama speaks about the fiscal cliff in the briefing room of the White House in Washington December 21, 2012. REUTERS/Kevin Lamarque
U.S. President Barack Obama speaks about the fiscal cliff in the briefing room of the White House in Washington December 21, 2012.
Credit: Reuters/Kevin Lamarque
WASHINGTON | Mon Dec 24, 2012 3:46pm EST
(Reuters) - With only a week left before a deadline for the United States to go over a "fiscal cliff," lawmakers played a waiting game on Monday in the hope that someone will produce a plan to avoid harsh budget cuts and higher taxes for most Americans from New Year's Day.
Though Republicans and Democrats have spent the better part of a year describing a plunge off the cliff as a looming catastrophe, the nation's capital showed no outward signs of worry, let alone impending calamity.
The White House has set up shop in Hawaii, where President Barack Obama is vacationing.
The Capitol was deserted and the Treasury Department - which would have to do a lot of last-minute number-crunching with or without a deal - was closed.
So were all other federal government offices, with Obama having followed a tradition of declaring the Monday before a Tuesday Christmas a holiday for government employees, notwithstanding the approaching fiscal cliff.
Expectations for some 11th-hour rescue focused largely on Senate Minority Leader Mitch McConnell, a Republican, in part because he has performed the role of legislative wizard in previous stalemates.
But McConnell, who is up for re-election in 2014, was shunning the role this year, his spokesman saying that it was now up to the Democrats in the Senate to make the next move.
"We don't yet know what Senator Reid will bring to the floor. He is not negotiating with us and the president is out of town," said McConnell's spokesman, referring to Senate Majority Leader Harry Reid, a Democrat. "So I just don't know what they're going to do over there," he said.
Two-day-old tweets on leadership websites told the story insofar as it was visible to the public.
House Speaker John Boehner's referred everyone to McConnell. McConnell's tweet passed the responsibility along to Obama, saying it was a "moment that calls for presidential leadership."
Reid's tweet said: "There will be very serious consequences for millions of families if Congress fails to act" on the cliff.
The next session of the Senate is set for Thursday, but the issues presented by across-the-board tax hikes and indiscriminate reductions in government spending, were not on the calendar.
The House has nothing on its schedule for the week, but members have been told they could be called back at 48 hours notice, making a Thursday return a theoretical possibility.
However, aides to the Republican leaders in Congress said there were no talks with Democrats on Monday and none scheduled after negotiations fell off track last week when Boehner failed to persuade House Republicans to accept tax increases on incomes of more than $1 million a year.
"Nothing new, Merry Christmas," an aide to Boehner responded when asked if there was any movement on the fiscal cliff.
If there is some last-minute legislation, Republicans and Democrats agreed on Sunday news shows that it will not be any sort of "grand bargain" encompassing taxes and spending cuts, but most likely a short-term deal putting everything off for a few weeks or months, thereby risking a negative market reaction.
A limited agreement would still need bipartisan support, as Obama has said he would veto a bill that does not raise taxes on the wealthiest Americans.
On Monday, Texas Senator Kay Bailey Hutchison urged fellow Republicans to be flexible.
"We're now at a point where we're not going to get what we think is right for our economy and our country because we don't control government. So we've got to work within the system we have," she told MSNBC.
Two bills in Congress could conceivably form the basis for a last-minute stopgap measure.
Last spring, Republicans in the House passed a measure that would extend Bush-era tax cuts for everyone, reflecting the party's deep reluctance to increase taxes.
The Democratic-controlled Senate passed a bill in August, extending lower tax rates for everyone except the wealthiest Americans - a group defined at that point as households with a net income of $250,000 or above. Obama has since increased that to $400,000 a year, in an effort to win Republican support.
Analysts say Democrats might be able to get the backing of enough Republicans in both the House and Senate, especially if they are willing to raise the number to $500,000.
Under that scenario, lawmakers might also put off spending cuts of $109 billion that would take effect from January and agree to Republican demands for cuts in entitlement programs such as Medicare and Medicaid, the government-run health insurance plans for seniors and the poor.
However, with only a few work days left in Congress after Christmas, there is a good chance that no deal can be worked out and tax rates would then go up, at least briefly, until an agreement is reached in Washington.
"We may go off the cliff on January 1, but we would correct that very quickly thereafter," Democratic Representative John Yarmuth told MSNBC.
The prospects of the United States going over the fiscal cliff dampened enthusiasm on Wall Streetfor a "Santa rally" in the holiday season, when stocks traditionally rise.
The Dow Jones industrial average dropped 51.76 points, or 0.39 percent, in Monday's shortened holiday session.
Failure to work out tax rates in the coming days would cause chaos at the Internal Revenue Service, said analyst Chris Krueger of Guggenheim Securities.
"Next weekend is going to be a total, total debacle," he said. The IRS is unlikely to have enough time to revise its tables for withholding taxes.
"The withholding tables are sort of like an aircraft carrier, you can't turn the thing on a dime." he said.
(Additional reporting by Alina Selyukh, Patrick Temple-West and David Lawder; Editing by Alistair Bell, Fred Barbash and David Brunnstrom)

Monday, December 24, 2012

Reuters News - Destination 2013? China, Japan, BRICs and Med

A general view of the heavy traffic on a highway during rush hour in Shanghai March 29, 2012. REUTERS/Carlos Barria
A general view of the heavy traffic on a highway during rush hour in Shanghai March 29, 2012.
Credit: Reuters/Carlos Barria
LONDON | Fri Dec 21, 2012 8:47am EST
(Reuters) - With a whiff of global recovery in the air and central bank liquidity abundant, investors in 2013 are packing their bags for China, fellow 'BRICs' Braziland Russia, long-dormant Japan and even some Mediterranean sun.
Of course, seeking consensus on the top country destinations for the year ahead is hardly an exact science.
Often the simplest game is to avoid what did best the previous year, look at the subdued valuations of laggards and bet on a catch-up depending on the economic cycle. Rank underlying economic growth rates, factor in policy shifts and you're away.
And after five years of stomach-churning global crises, the more conservative western money managers won't even think of leaving home without at least some basic 'security checks' - let alone set off for exotic new frontiers.
So the basis of most 2013 forecasts are the pretty critical assumptions that the euro won't collapse, the United States will dodge its looming "fiscal cliff" of tax and spending crunches, and that China's economy has averted a nosedive in growth.
If none of that sounds an alarm, and you don't want to hunker down at home, then this year's tidal wave of central bank liquidity and money-printing from central banks in Washington, London, Frankfurt and Tokyo is waiting to be surfed.
Reuters global stock market polls yet again tell a story of BRIC rebirth. After two years in which the stock markets of the four emerging giants underperformed even those of bailed-out Greece, Ireland, Portugal, Italy and Spain - despite vastly superior economic growth rates - the old ploy of hoovering up what's been beaten down seems unshakeable.
China's long-suffering Shanghai Composite .SSEC - one of the few major bourses still in the red this year, down 25 percent from early 2011 and still less than half its 2007 peak - is easily the favorite destination for money managers, with median forecast gains of 17 percent.
In separate Reuters poll this week of some 55 major asset managers worldwide, Shanghai was also the top emerging market pick for more than two-thirds of respondents.
"From a valuation perspective and given the turn in the cycle, the Chinese equity market - surprisingly a massive underperformer this year - is the one that stands out," said Philip Poole, Head of Strategy at HSBC Global Asset Management.
Frustrated China bulls, perhaps unsurprisingly, are keen to see the gradual rebalancing of the world's No. 2 economy from exports to consumption show through in the Shanghai markets.
"This is a market that can turn on a sixpence and I would be very surprised if 2013 isn't a much better year after an ‘A' share bear market that has lasted over three years," Anthony Bolton of Fidelity's China Special Solutions fund told clients.
Mumbai's Sensex .BSESN, Sao Paulo's Bovespa .BVSPA and Moscow's RTS .IRTS are also among the top five tips in the Reuters poll, with 14-15 percent gains forecast next year.
That was also the case this year, however, and none have ended up in the top five best performers. All except Brazil finished 2012 in the black in dollar terms but they mostly underperformed "safer" markets closer to home, with even Wall Street and Frankfurt racking up meaty double-digit advances.
Long-standing BRIC bears have also yet to throw in the towel.
Deutsche Bank's emerging market equities strategist John Paul Smith reckons China will continue to disappoint with "structural shortcomings ... too obvious for foreign investors to ignore". He remains underweight China, Brazil and Russia, favoring Turkey, Taiwan, Mexico and Poland instead.
The latter two also found favor in the Reuters poll, with strong returns forecast on the Mexican peso and Warsaw stocks.
Perhaps the surprise package in the New Year's top five is Japan's Nikkei index .N225, a view this week's election win for the Liberal Democratic Party is likely to reinforce given its pledge to step up the fight against domestic deflation.
Even Jim O'Neill, the Goldman Sachs Asset Management chairman who coined BRIC acronym a decade ago, sees Japan as 2013's best performing equity market, although he stressed hedging the yen due to the pivotal role a significantly weaker currency is likely to take in reviving the economy and market.
"There's quite a widespread market belief that if the yen weakens, one wants to own the Nikkei and obviously with an export orientation," he told clients.
"But ... if the yen weakens because of new domestic fundamentals, and investors believe that this has a higher probability of working, then presumably there will be even bigger domestic Japanese equity plays to focus on."
O'Neill's top picks still include China and Russia, at numbers two and three respectively. But he then sees Mediterranean sunshine in the form of Spain and Italy, part of the battered euro periphery which the European Central bank has vowed to underpin.
The ECB's August pledge to intervene, and steady progress by euro governments in advancing tighter fiscal and banking union within the bloc have effectively removed the risk of a euro collapse, transforming these markets' prospects.
While elections in Italy and Germany next year might give pause for thought, the ECB's monetary support and backstop bond-buying program -- plus global recovery prospects and an easing of local fiscal drags -- are encouraging investors to return.
Italian stocks returned 10 percent this year, although that was only a third of German gains. Spanish shares just crept into the black.
More than half the fund managers polled by Reuters opted for European equities within the developed world, at least 50 percent of whom going for the beaten-down euro zone periphery.
Many also feel there's juice left in the big government bond markets of Spain and Italy despite a recent rally. Over 50 percent of the 32 respondents in the Reuters poll opted for euro government bonds as their sovereign debt pick for 2013, with three quarters of them specifying Italy and Spain.
"European assets strike back," declared Societe Generale strategist Alain Bokobza and team, whose top trades for 2013 involve buying the EuroSTOXX 50 .STOXX50E against the U.S. S&P 500 .SPX and buying Spanish debt versus low-risk German bunds.
There's always a wild card, usually for the very brave. As speculation grows of a market-friendly replacement for ailing populist President Hugo Chavez, Venezuela's tiny stock market .IBC was the white-knuckle bet of 2012.
If you could even get in there, and skirt the risk of nationalization or even police raids on currency brokers, it would have tripled your money in dollar terms since January.
For the less adventurous traveler, local bourses in Turkey, Poland, Estonia and Germany made up the rest of this year's Top Five, with hefty dollar gains of 38-60 percent.
If you prefer MSCI's country benchmarks, Africa muscled its way onto the map with more than 50 percent gains in Kenya, Nigeria and Egypt. Electoral risk or the threat of political violence were clearly no deterrents this year.
Portuguese and Greek 10-year government bond returns of around 80 percent in 2012, were up there with the big speculative equity bets of the year as the ECB rode in.
Losses of 50-60 percent in politically volatile Ukraine showed what can happen when things go wrong in small troubled economies, however, as did similarly poor returns in Cyprus -- likely to become 2013's first recipient of a euro zone bailout.
(Additional reporting by Andy Bruce, Ingrid Melander, Alice Baghdian. Graphics by Vincent Flasseur; Editing by Catherine Evans)

Friday, December 21, 2012

BBC Future - Fusion: The quest to recreate the Sun’s power on Earth

Gaia Vince watches the construction of the world’s biggest fusion energy reactor and wonders whether this ambitious and expensive project will actually work.
Fusion energy: The quest to recreate the Sun’s power on Earth
Anti-seismic pads that will support the 360,000-tonne structure of the International Thermonuclear Experimental Reactor, or Iter. (Copyright: Getty Images)

Cadarache: In the dusty highlands of Provence in southern France, workers have excavated a vast rectangular pit 17 metres (56 feet) down into the unforgiving rocks. From my raised vantage point, I can see bright yellow mechanical diggers and trucks buzzing around the edge of the pit, looking toy-like in the huge construction site. Above us, the fireball Sun dries the air at an unrelenting 37C.
These are embryonic stages to what is perhaps humankind's most ambitious scientific and engineering project: to replicate the Sun here on Earth.
When construction is complete, the pit will host a 73-metre-high machine(240 feet) that will attempt to create boundless energy by smashing hydrogen nuclei together, in much the same way as stars like our Sun do. Physicists have dreamed of being able to produce cheap, safe and plentiful energy through atomic fusion since the 1950s. Around the world, researchers continue to experiment with creating fusion energy using various methods. But as people within the field have said the dream has always been "30 years away" from realisation.
The need for a new energy source has never been more pressing. Global energy demand is expected to double by 2050, while the share coming from fossil fuels – currently 85% – needs to drop dramatically if we are to reduce carbon emissions and limit global warming.
Fusion, many believe, could be the answer. It works by forcing together two types, or isotopes, of hydrogen at such a high temperature that the positively charged atoms are able to overcome their mutual repulsion and fuse. The result of this fusion is an atom of helium plus a highly energetic neutron particle. Physicists aim to capture the energy released by these emitted neutrons, and use it to drive steam turbines and produce electricity.
When the reaction occurs in the core of the Sun, the giant ball of gas applies a strong gravitational pressure that helps force the hydrogen nuclei together. Here on Earth, any fusion reaction will have to take place at a tiny fraction of the scale of the Sun, without the benefit of its gravity. So to force hydrogen nuclei together on Earth, engineers need to build the reactor to withstand temperatures at least ten times that of the Sun – which means hundreds of millions of degrees.
Heated doughnuts
It's just one of the huge number of challenges facing the designers of this groundbreaking project. The concept was discussed and argued over for several decades before finally being agreed in 2007 as a multinational cooperation between the European Union, China, India, Japan, South Korea, Russia and the US – in total, 34 countries representing more than half of the world's population. Since then, the budget of 5 billion euros has trebled, the scale of the reactor has been halved, the completion date has been pushed back, and the project has somewhat lost its shine – which is somewhat ironic given the project is called Iter, meaning 'the way' in Latin.
But despite the difficulties, some progress is being made. The parts are being manufactured and tested by the participating nations, many of whom hope to develop the expertise to compete in any new fusion energy market that would be expected to follow a successful outcome at Iter.  
Since they don't have access to the special conditions available in the Sun, physicists have designed a doughnut-shaped reaction chamber, called a tokamak. Hydrogen isotopes are heated to the point to which they lose electrons and form a plasma, and this is held in place for fusion but held away from the reactor walls, which could not withstand the heat. The tokamak deploys a powerful magnetic field to suspend and compress the hydrogen plasma using an electromagnet made of superconducting coils of a niobium tin alloy.
Once atomic fusion occurs, the heat produced will help to keep the core hot. But unlike a fission reaction that takes place in nuclear power stations and atomic bombs, the fusion reaction is not self perpetuating. It requires a constant input of material or else it quickly fizzles out, making the reaction far safer. And unlike what you might have seen in a recent Batman movie, the chamber cannot be transformed into a nuclear bomb. The neutrons will then be absorbed by the surrounding walls of the tokamak, transferring their energy to the walls as heat, and this in turn will be dissipated through cooling towers.
Because one of the hydrogen isotopes used, tritium, is radioactive (with a half-life of 12 years), the entire site must conform to France's strict nuclear safety laws. And to complicate matters further, the site is also moderately seismically active, meaning that the buildings are being supported on rubber pads to protect them from earthquakes.
These issues, plus the logistics of dealing with multiple nations with their own fluctuating domestic budget constraints, mean that the site won't be ready for the first experiments until 2020. Even then, they will just be testing the reactor and its equipment. The first proper fusion tests, reacting deuterium (a hydrogen isotope abundant in sea water) and tritium (which will be made from lithium), won't take place until 2028.
Power up
Those will be the key tests, though. If all goes to plan, the physicists hope to prove that they can produce ten times as much energy as the experiment requires. The plan is to use 50 megawatts (in heating the plasma and cooling the reactor), and get 500 MW out. Larger tokamaks should, theoretically, be able to deliver an even greater input to output power ratio, in the range of gigawatts.
And that is the big gamble. So far, the world's best and biggest tokamak, the JET experiment in the UK, hasn't even managed to break even, energy-wise. Its best ever result, in 1997, achieved a 16 MW output with a 25 MW input. Scale is an extremely important factor for tokamaks, though. Iter will be twice the size of JET, as well as featuring a number of design improvements.
If Iter is successful in its proof of principle mission, the first demonstration fusion plants will be built, capable of actually using and storing the energy generated for electricity production. These plants are slated to begin operation in about 2040 - around 30 years away, in fact...
Despite the seductive promise of finally getting a supply of electricity that's "too cheap to meter", the long wait to readiness and the fact that the technology remains unproven, means that many politicians are hesitant or even hostile to the expensive project. Additionally, because fusion energy won't be ready for decades, even if it works, other low-carbon energy sources must still be pursued in the short-term at least.
But if we do manage to replicate the Sun on Earth, the consequences would be spectacular. An era of genuinely cheap energy – both environmentally and financially, would have far reaching implications for everything from poverty reduction to conflict easement.
It’s exciting to think that the next generation could in some way be fusion powered – perhaps even within the lifetimes of the workman digging below me. But I can’t help but remember the 30-year rule.
Update (14/08): The original text contained factual inaccuracies regarding the fusion reaction within the reactor. This has now been rectified.

Thursday, December 20, 2012

BBC News - World Bank raises China growth forecast

The World Bank has raised its growth forecast for China, saying stimulus measures and approval of infrastructure projects will help boost growth.
A worker in a factory in ChinaThere have been signs of a pick-up in China's manufacturing and export sector
It added that the pick-up in factory output and investment "suggested that China's economy was bottoming out".
The bank said it now expects China's economy to grow by 8.4% in 2013, up from its earlier projection of 8.1%.
A slowdown in China's growth in recent months had prompted policymakers to announce various stimulus measures.
These include two interest rate cuts since June, and the approval of infrastructure projects worth more than $150bn (£94bn).
China's central bank, the People's Bank of China, has also lowered the amount of money that banks need to keep in reserve three times in the past few months in an attempt to boost lending.
"The impact of easing credit conditions and public investment in infrastructure is beginning to show," the bank said in its report.
"The impact is expected to continue to be felt into 2013, as the authorities have accelerated the approval of large projects."
'Bright spot'
The bank also raised its forecast for the developing East Asia region, excluding China.
The grouping, which includes Thailand, Philippines, Indonesia and Burma, is now projected to grow 5.7% in 2013, up from the previous forecast of 5.5%.
The bank said that the region was likely to benefit from Thailand's recovery from last year's floods and strong growth in the Philippines.
The Philippines economy has been one of the better performing ones in the region this year.
Its growth has been helped by a strong domestic demand, government spending and increased investment in the country.
The bank raised its projection for the Philippines to 6.2% for 2013 from 5%.
It added that the opening up of Burma and the continuing reforms in the country, which have seen various sanctions against it being lifted, was "another bright spot in the region".

Wednesday, December 19, 2012

Reuters News - Euro zone rescuer Draghi faces daunting 2013

European Central Bank (ECB) President Mario Draghi addresses a news conference at the European parliament in Brussels December 17, 2012. REUTERS/Laurent Dubrule
European Central Bank (ECB) President Mario Draghi addresses a news conference at the European parliament in Brussels December 17, 2012.
Credit: Reuters/Laurent Dubrule
FRANKFURT | Tue Dec 18, 2012 7:56am EST
(Reuters) - With two short sentences, the head of the European Central Bank took the heat out of the euro zone crisis this year. In 2013 Mario Draghi has to live up to even bigger expectations.
The ECB's own forecasts suggest the euro zone economy will shrink 0.3 percent next year and markets remain skeptical that the bloc's weaker members, such as Spain and Italy, can fund ballooning government deficits without formal aid programs.
Progress towards closer economic and fiscal union -- deemed essential by policymakers to solve the euro zone crisis -- is likely to be painfully slow in 2013 because two of the bloc's top three economies, Germany and Italy, hold elections.
Draghi's inbox will fill up quickly.
"There will be a lot of focus on preparation for the ECB as the new single supervisor," said Nick Matthews, economist at Nomura, referring to new plans for the ECB to take over supervision of the bloc's biggest banks.
"The other big challenge is the performance of the real economy - does confidence return as the ECB is expecting?"
Draghi had only been in office eight months when he pulled the euro zone back from the brink of break-up by saying in July: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
Although he began 2012 relatively untried at the European level, with Berlin suspicious, the new ECB president won support from German Chancellor Angela Merkel and her nominee on the ECB board, Joerg Asmussen, for his bold plan to save the euro.
That involved the ECB standing ready to buy government bonds in secondary markets to bring down borrowing costs for stricken countries, provided they signed up to a tough program of economic targets.
Draghi's stroke of genius - or luck - was that during 2012 the mere threat of ECB action sufficed to push borrowing costs down by a critical two percentage points for Spain and Italy, without the need to actually intervene.
This was just as well, since the most influential single ECB council member - Germany's Jens Weidmann - opposed the plan.
Clemens Fuest, research director at Oxford University's Said Business School and an adviser to the German Finance Ministry, explained that Draghi's vow to "do whatever it takes" to save the euro and the development of his plan came at a time when Berlin was under intense pressure to hold the bloc together.
"They didn't like (being pushed to do more) and they knew this would take the pressures away from that area," he added.
For a man who likes to say "the proof is in the eyes of the beholder", Draghi will need to deliver on his pledge next year but without triggering another ECB internal schism that would blow the market confidence he has restored.
The first test is already looming. In Draghi's native Italy, the reforming government of technocrat Mario Monti has collapsed and there is no guarantee that elections early next year will deliver a strong government committed to economic reform.
This threatens to take the three-year-old crisis to a new level and further test Draghi's ability to get a convincing policy response from a fractured ECB Governing Council.
The ECB will likely need to activate its new bond-purchase program - dubbed Outright Monetary Transactions (OMT) - in 2013 to ease Spain's borrowing costs. Any intervention will have to be strong enough to show Draghi's pledge is credible.
Bundesbank chief Weidmann would rather not use the OMT at all. Others at the ECB would, and sooner rather than later.
"We would prefer them to apply," one member of the policymaking Governing Council, speaking on condition of anonymity, said with reference to the request for aid from Europe's bailout fund Madrid must make before the ECB can act.
If juggling these pressures is not enough, Draghi also faces the managerial challenge of building up a banking supervisory body at the ECB next year that is both credible but separate from the bank's main business of setting interest rates.
The ECB's new supervisory role is part of a vision for a more integrated euro zone that Draghi has pushed for since he succeeded Frenchman Jean-Claude Trichet as ECB president in November, 2011.
Under a landmark deal last week, the ECB will have new powers from 2014 that will give it automatic oversight of around 150 of the euro zone's 6,000-odd banks, and the authority to intervene in smaller banks if there are signs of trouble.
The establishment of this single supervisory mechanism is a first step towards a banking union that will lay a cornerstone for closer economic integration.
The Governing Council member, speaking on condition of anonymity, described the banking union as being of "existential importance for the euro zone". It will later include a fund to wind down problem banks and a deposit guarantee scheme,
But he and others at the ECB still worry about how the central bank will handle its new supervisory role without compromising its independence on setting interest rates - for instance by keeping rates low to keep banks alive.
"This institution is starting to be overburdened," said the Council member, who wanted tight rules to delineate the bank's new supervisory role and to separate it from monetary policy.
Draghi's challenge here is two-fold: he needs to put the right structures and people in place to ensure the supervisor operates effectively. But he must also separate it from ECB monetary policybusiness or risk losing the bank's independence.
Draghi's solution is to keep himself out of the supervision business - a strategy that poses a risk of its own as the ECB must make the new body credible without the authority he brings.
"It's not going to be me who is going to take care of this," he told European lawmakers on Monday. "We have to make sure that monetary policy and supervision are rigorously separated."
One tightrope walk Draghi cannot opt out of its monetary policy: in the past this was mainly the business of setting interest rates to keep inflation in check. This year, Draghi took ECB's monetary policy to a new level with his OMT plan.
In Germany, however, the OMT plan has led to worries that Draghi is moving the ECB away from the Bundesbank model of fierce independence. Before the ECB can intervene under the program, a country must seek help from Europe's bailout fund.
"This means the ECB becomes dependent on fiscal policy decisions, and gives up its independence to a degree," said Fuest, who in March takes over as head of German think tank ZEW.
These concerns echo the views of Weidmann. The resignations last year of his predecessor, Axel Weber, and German chief economist Juergen Stark in protest at the ECB's previous bond-buying plan rocked the young central bank.
While Weidmann has indicated he will not resign, 65-year-old Draghi was only able to secure his OMT plan by isolating the Bundesbank chief. Draghi needs to keep him in a minority of one, or else risk his signature policy plan losing value.
This means Draghi may have to forgo the interest rate cut some at the ECB would like in 2013 to help the euro zone's recession-hit southern economies, just to avoid other hardliners - or hawks - joining Weidmann in opposing use of the OMT.
Euro zone rates are currently at 0.75 percent, higher than Britain's 0.5 percent and the Fed's rate of close to zero.
"Draghi's key task for 2013 is keeping the sharpest weapon the ECB has - the OMT - as sharp as possible by keeping as many of the Governing Council hawks on his side as possible," said Christian Schulz at Berenberg Bank, a former ECB economist.
"If there is a gradual recovery, as expected, his chances are good because another rate cut, which the hawks would not like, would not be needed."
(Editing by Michael Stott)

Tuesday, December 18, 2012

Reuters News - External risks impede China recovery, more easing seen

Vehicles drive on the 3rd Ring Road through Beijing's central business district, December 17, 2012. REUTERS/Jason Lee
Vehicles drive on the 3rd Ring Road through Beijing's central business district, December 17, 2012.
Credit: Reuters/Jason Lee
BEIJING | Tue Dec 18, 2012 6:08am GMT
(Reuters) - China's burgeoning economic recovery may need central bank easing to spur it along next year, as foreign investors scale back spending commitments in the face of a gloomy external outlook that clouds prospects for the world's biggest exporter.
The People's Bank of China's (PBOC) fourth quarter survey of economic expectations, published on Tuesday, saw a jump in the number of bankers anticipating monetary easing in Q1 2013, even as recent hard data shows a mild rebound taking hold in Q4.
Weakness in the external environment - to which the world's second biggest economy is levered - remains a drag, according to the Ministry of Commerce, which on Tuesday revealed data showing foreign direct investment extended its longest run of year-on-year falls in three years.
"Next year, there are still many uncertainties for external demand and the prospect of a slowly growing global economy will last for a while," ministry spokesman, Shen Danyang, said.
"In addition, there is also increasing trade protectionism emerging. So we cannot be optimistic about the external trade environment next year," Shen told a scheduled news conference.
China is on course to end 2012 with the slowest full year of growth since 1999 and while the 7.7 percent rate forecast in a benchmark Reuters poll is way above the world's other major economies, it is far below the roughly 10 percent annual growth seen for most of the last 30 years.
Private sector economists, such as ING's head of Asian economic research Tim Condon, believe Beijing will act to drive the economy forward in 2013 as new leaders at the top of the ruling Communist Party get a firmer grip on the policy reins.
The government so far has relied on fine-tuning policy settings in its efforts to combat the worst downturn China has faced since the 2008-09 global financial crisis, studiously avoiding any hint of repeating the 4 trillion yuan (394.7 billion pounds) stimulus package it launched back then.
China cut interest rates in both June and July and has lowered banks' reserve requirement ratio (RRR) by 150 basis points since late 2011, freeing an estimated 1.2 trillion yuan for lending.
Many analysts believe room for further interest rate cuts is limited as inflation and property prices start to pick up. Any easing is thought likely to be directed through money market operations that inject liquidity into the financial system.
The PBOC survey showed a rising proportion of Chinese commercial bankers it questioned are joining those outside the system who anticipate more policy easing in Q1 2013.
Some 19.8 percent of survey respondents said they expected easier policy during the first three months of next year, up sharply from 5.9 percent who had expected easing in Q4 2012.
The vast majority of survey respondents - 75 percent - said current policy setting were appropriate.
The survey's findings also detected a rise in inflation expectations and particular concern about the risk of a rebound in home prices.
It found 29 percent of respondents expect home prices to rise in the first quarter of 2013, 11.3 percentage points higher than the earlier survey result, with 66.6 percent saying home prices were unacceptably high.
Data on Tuesday showed Chinese home prices displaying fresh signs of recovery taking hold in November, the fourth month in the last five to show a rise as a two-year long government campaign to curb prices frays.
Real estate, which directly impacts around 40 other business sectors in China, has been a key concern for government policies aimed at reining in property speculation which has pushed prices well beyond the reach of many middle-class Chinese and sowed social discontent.
"The risk of tightening property curbs is accumulating due to rising home prices along with a reviving economy and stabilising investment," said Zhao Xinkui, a property analyst with Huarong Securities in Beijing.
That leaves the policy backdrop finely balanced and the government likely hoping that enough momentum has been generated by its cautious easing so far to sustain a recovery.
Engendering an upswing in domestic demand could be as important to near term economic prospects as to the longer term rebalancing Beijing desires.
"There are increasing signs showing the domestic economy is stabilising, which is the most important factor driving retail sales next year," the Commerce Ministry's Shen said.
"Meanwhile, the government also pledged to raise personal income and increase fiscal spending to improve education, healthcare and social security systems. All these measures will provide more scope of growth for retail sales in 2013," he said.
China's retail sales grew 14.9 percent year-on-year in November, ahead of the 14.6 percent forecast in a Reuters poll, and has been one of the most consistent indicators of the year.
The PBOC survey detected a rise in business confidence, a reading of 60.4 percent up 1.2 percentage points from the previous survey.
But its export order index dipped 0.4 percentage point on the previous quarter to 47.1 percent and the index of corporate expectations on export orders slipped to 47.9 percent from 49.5 percent in Q3.
Those findings reflect concerns about the external sector expressed at the Commerce Ministry's news conference and which November trade data, published last week, showed to be well-placed.
China's exports growth in November slowed sharply to 2.9 percent, much lower than the 9.0 percent expected and far behind October's 11.6 percent pace, underscoring the global headwinds dragging on an economy showing otherwise signs of a pick-up in domestic activity.
Despite efforts to rebalance the economy towards domestic consumption, exports generated 31 percent of gross domestic product in 2011, World Bank data shows, and supported an estimated 200 million jobs.
Foreign direct investment inflows have been crucial to job creation in China for years. Its 3.6 percent fall to $100 billion in the first 11 months of 2012 from a year earlier extends the longest run of year-on-year falls in three years as global economic headwinds crimp corporate spending plans.
Inflows have held steady above $8 billion for each of the last four months now, a signal that long-term investors are attuned to the prospects for a mild recovery.
But the rate of fixed investment remains below the record level hit in 2011 when China drew $116 billion in FDI and is likely to fall shy of the $120 billion the Commerce Ministry aims to attract in each of the four years from 2012 to 2015.
(Additional reporting by Xiaoyi Shao; Writing by Nick Edwards; Editing by Jacqueline Wong)