China slow to silence roaring tiger of inflation

Wang Qishan, Chinese vice-premier, this week became the latest senior official to identify the fight against inflation as his government’s most important task this year.

“The most pressing problem we face right now is the problem of inflation,” Mr Wang said in an interview on The Charlie Rose Show in the US on Monday. “In order to do this, we have to use monetary policy, fiscal policy and at the same time economic restructuring,” he said.

Wen Jiabao, China’s premier, used a more colourful turn of phrase recently when he described inflation as a tiger that, once freed from its cage, is nearly impossible to put back.

But the policy measures taken by Beijing in its fight against inflation do not reflect the kind of life and death struggle suggested by comments from the country’s leaders.

For one thing, Beijing is encouraging double-digit wage increases — of up to 40 per cent a year in some places — as a way of reducing the country’s wealth gap and shifting the country away from over-reliance on cheap, labour-intensive manufacturing industries.

The government has also allowed several increases in tightly regulated energy prices in recent months, which feed directly into higher prices of most other consumer items.

According to official data released on Wednesday, annual consumer inflation in April was 5.3 per cent, moderating only slightly from a nearly three-year high of 5.4 per cent in March. Both figures were higher than many analysts had expected and indicated that government efforts to rein in surging prices have not yet had a major impact.

There are a number of reasons why Beijing’s actions are a lot less forceful than the rhetoric of senior officials would suggest.

Firstly, analysts say there is no real consensus over the actual causes of inflation among the various government departments responsible for economic policymaking.

For example, the central bank and banking regulator argue inflation is a direct result of the huge liquidity overhang created by the credit-fuelled, post-financial crisis stimulus package, which has been described by some economists as the greatest ever financial and monetary easing in history.

Other government agencies, such as the powerful National Development and Reform Commission, argue inflation is a result of transport and infrastructure bottlenecks as well as profiteering and price manipulation. Until recently, many Chinese officials also blamed loose monetary policy in the US and elsewhere and argued inflation was mostly being imported.

With no clear consensus on the causes or the severity of the problem, China’s leaders are trying a wide range of policy initiatives without fully committing themselves to any of them.

While Beijing is reducing the availability of credit in the economy, mostly through direct orders to Chinese banks to slow lending, the government is wary of damping growth too much, as many believe it did in the early part of 2008, when inflation spiked above 8 per cent.

“In hindsight Chinese policymakers overtightened in 2008 just before the world fell apart,” said Stephen Green, chief China economist at Standard Chartered. “They are clearly tightening monetary policy, but overall growth is already slowing and there is a lot of tension between those arguing now is not the time to overdo things and those who want to act more aggressively to tackle inflation.”

Since last October, the central bank has raised interest rates four times and increased the proportion of deposits banks must hold in reserve eight times.

But the average weighted annual lending rate offered by Chinese banks at the end of March was 6.91 per cent, well below 8.72 per cent at the end of March 2008, according to Standard Chartered figures, indicating that monetary conditions are still much looser than during the last serious bout of inflation.

At that time, in late 2007 and early 2008, Beijing introduced strict direct price controls on a wide range of products but now the government is relying more on moral suasion and scare tactics to deter price rises of key consumer items.

Last Friday, the NDRC fined Unilever RMB2m ($308,000) for suggesting to Chinese media that it might raise detergent and soap prices, saying the Anglo-Dutch consumer goods giant had “intensified inflationary expectations among consumers” and “seriously disturbed market order.”

Analysts describe the fine as an example of “killing the chicken to scare the monkey”, and believe the government is more likely to use such public shock tactics than direct price controls, especially considering growing evidence the economy is starting to slow.

“China is entering an awkward phase now where inflation will stay higher than 5 per cent in the coming months but growth will continue to decelerate,” Mr Green said. “The question is how fast the deceleration will be.”

http://edition.cnn.com/2011/BUSINESS/05/11/china.inflation.tiger.ft/index.html

India Hunts For Oil

When Ranbir Singh Butola took over as the managing director of ONGC Videsh Ltd (OVL) in 2004, the overseas subsidiary of Oil and Natural Gas Corporation (ONGC), his brief was to expand India’s oil and gas footprint. Not surprising then that Butola has spent the last six years living out of a suitcase, logging countless air miles and crisscrossing as many as four continents in less than a fortnight. Butola’s shopping bill adds up to a whopping Rs 54,000 crore, but he isn’t done yet. According to Petroleum Minister Murli Deora, India’s oil PSUs, led by OVL, have invested nearly $12 billion in acquiring overseas assets, taking the country’s share of oil and gas production from these assets to 8.8 million tonnes in 2009-10.

The rush for oil assets is understandable. Already, the nation’s oil import bill has grown six-fold in the past decade to $85.47 billion, equivalent to almost 7 per cent of the country’s GDP. As the Indian economy continues to expand, oil imports are expected to account for 90 per cent of the country’s requirement by 2030, up from 70 per cent at present. As India’s economic growth depends on a steady supply of oil and gas, it’s imperative for the country to secure oil assets overseas. Explains Deora: “Acquisition of exploration and oil producing properties overseas is a key strategy to enhance oil reserves in the country and reduce our dependence on world’s oil reserves.”

The Planning Commission has earmarked an investment of Rs 45,000 crore in the 11th Plan for the acquisition of oil and gas assets. According to Butola, this entitles him to Rs 9,000 crore annually; however, a lot also would depend on the opportunity and India’s ability to leverage it. Led by Butola, OVL carried out India’s biggest energy acquisition-the London Stock Exchange-listed Imperial Energy for an estimated cost of $1.4 billion. The acquisition, says Butola, will give OVL access to around 80,000 barrels per day by the end of 2011, from the current 7,000 barrels per day (bpd) of oil. “Imperial has in place reserves of about 3.4 billion barrels of oil equivalent and this takeover would enhance ONGC’s reserves by around 20 per cent,” says the OVL chief.

”Acquisition of exploration and oil producing properties overseas is a key strategy to reduce our dependence on world’s oil reserves” – Murli Deora, Petroleum Minister

Butola, however, agrees that India has made a late entry. “All the national big players in various countries have taken the good acreages in the oil rich regions of the world.” According to Vivek Pandit, director, energy, at FICCI, China has tactfully used its offer of technological assistance and infrastructure-building capability to strengthen its presenc

e in Africa. “Their plan was simple. Give us oil and we wi

ll build your roads, highways, refineries and power projects. The value proposition clicked,” says Pandit. So while China was grabbing the best assets in Africa, OVL’s role remained limited in those crucial years to delivering a few services, with no power to buy property in foreign shores. The power to acquire came only in 1977, with the Navratna tag, but by then India had lost the edge and over the years, China has outpaced India i

n the global quest for energy resources. Armed with a $300-billion sovereign fund, Chinese companies spent a record $32 billion on oil, coal and metals assets abroad. The result: India lost vital deals to the dragon as in the case of a Canadian company with oil fields in central Asia preferring a $4.2-billion takeover bid by China National Petroleum Corp to a

$3.6-billion offer by OVL.

The Government, of course, is quick to explain these losses as a matter of fixing priorities. “We are making efforts to diversify our basket of crude oil imports,” says Sunil Jain, joint secretary (international cooperation), Ministry of Petroleum. “It is not that we lack a strategy or foresight. Each country has its own priorities. Our priority is to ensure that India gets sufficient crude to run its refineries.”

Source: http://indiatoday.intoday.in/site/Story/114809/FROM%20THE%20MAGAZINE/india-hunts-for-oil.html