Obama's job plan 'will not affect China'

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Obama's job plan 'will not affect China'

08:24, January 29, 2010      

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A series of incentives unveiled by US President Barack Obama to create jobs for Americans will not have a major effect on China's trade relationship with the US, economists said yesterday.

Obama devoted most of his 65-minute State of the Union address on Wednesday to job-creation proposals, such as eliminating capital gains taxes on small business investment and extending tax breaks for businesses to invest in new plants and equipment.

"There will be some trade frictions between the two countries this year as the US government strives to create or retain jobs. But trade frictions, including exerting pressure on the renminbi's appreciation, certainly cannot help Americans have more jobs," said Li Xiaogang, a researcher at the Shanghai Academy of Social Sciences.

Li said China's competitiveness still lies in manufacturing with an obvious low-labor-cost advantage, and that is the natural result of international division of labor that can hardly be rebalanced immediately.

"China's exports, and inward foreign direct investment (FDI) will see stable growth this year thanks to the economies recovering in both countries," he said.

The US economy has continued to strengthen with GDP rising at 2.2 percent in the third quarter after four consecutive quarters of contraction, a signal that the worst recession since the Great Depression has ended.

Dong Xian'an, chief economist at Industrial Securities, said he believes the US economy will see a year-on-year growth of over 4 percent this year.

"The US recovery will certainly help increase demand for Chinese goods, and China's exports may enjoy a 20 percent rise this year," the economist said.

Chinese exports rose 17.7 percent year-on-year last month, the first growth in 14 months. FDI to China more than doubled in December, skyrocketing 103 percent from a year earlier to $12.14 billion, compared to the 32 percent year-on-year growth in November.

"FDI will continue to grow this year, albeit slowly, and flow to different sectors," Li said.

Of the total FDI in China last year, 52 percent went to the manufacturing sector and 42 percent to the service sector. Li said the service sector would attract more investors as the quality and effectiveness of foreign investment is now more important than its scale.

"Obama's speech is more political than real practical economic proposals," Dong said.

"I want to see how the US government will put a cap on Wall Street salaries and bonuses and how much 'redemption fee' the government is going to charge Wall Street banks," he said.

Source:China Daily 

Will Obama's banking reforms prevent another recession?

08:17, January 29, 2010      

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U.S. President Barack Obama is pushing for radical banking reforms in a bid to prevent a rerun of the 2008 financial crisis that sent the global economy reeling and sparked the worst recession since the 1930s.

But a number of critics have voiced concern over the president' s latest proposals -- which include capping the size of banks and limiting investments deemed too risky -- saying such reforms may not prevent another financial crisis.

The harshest criticisms came from those who panned the proposal as an act of presidential desperation amid high unemployment and the loss of a key Senate seat in recent elections.

Still, the plan has gained some praise internationally and some U.S. analysts said it deserves a closer look.

"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Obama said last Thursday when he announced the proposal.

"My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform, and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout, " said the president. "It is exactly this kind of irresponsibility that makes clear reform is necessary."

But critics fret over the plan's lack of details.

"It's totally unclear how they are going to do it," said Douglas Elliott, a fellow at the Brookings Institution, of Obama's proposed limits to the size of banks.

Moreover, capping banks' size will do little to increase the financial sector's stability, he said.

Also of concern is Obama's proposed restrictions on " proprietary investments," a term Elliott said no one can really define.

"The problem is determining when an investment is 'proprietary, ' since every investment truly owned by a bank is proprietary in the sense that the bank will absorb any gain or loss," he said.

And many investments are held for reasons that support public policy, such as to provide a source of liquidity in case a bank needs cash unexpectedly, he said.

"We need to focus on the risk management of the investments ... I would rather that the risk management focused on capital requirements and other incentives than make a blanket ban on something we can't define effectively," he added.

The administration's earlier approach of placing higher capital charges and higher liquidity requirements is a better plan than forcing institutions to become smaller, he said.

Critics also point out that the president has not specified exactly what the right size of banks should be. And it remains unknown how large a financial institution would have to become to spark a financial crisis if it fails.

Critics also noted that Obama did not distinguish between banks and their holding companies, which are two distinctly different types of organizations. Banks' deposits are insured and they have access to Fed loans, whereas a holding company simply oversees a bank.

Still others said the proposal merits a closer look, although assessing the size of the nation's banks will require a high level of expertise.

Obama's plan has also grabbed international praise.

On Tuesday the Organization for Economic Cooperation and Development applauded the proposal, and an editorial in the Mainichi Shimbun, a major newspaper in Japan, expressed an interest in the idea, but stopped short of an outright endorsement.

The plan comes on the heels of an earlier one this month to levy a tax on the 50 largest U.S. banks in an effort to recoup taxpayer's losses from the 2008 bank bailout.

Some analysts said the president is tapping populist outrage toward Wall Street, which many blame for causing the recession. But critics charged that the president's policies are simply an expression of that anger, rather than a genuine solution.

Other critics contended too many restrictions could put U.S. banks at a competitive disadvantage with foreign banks. U.S. banks would simply shift restricted operations overseas and some analysts surmise that talented executives could bolt and find employment in less regulated financial hubs, such as Germany.

Obama's announcement did not play out well in the markets and the Dow Jones industrial average plunged more than 200 points as the president concluded Thursday's speech. The dive reverberated across the Pacific and led to a drop in shares at the Tokyo stock exchange.

Dean Baker, co-director at the Center for Economic and Policy Research, said the proposal's intentions are unclear.

"If the intention is to prevent banks from becoming too big to fail, why aren't we breaking up banks?" he asked, adding he is not against limiting the size of banks.

Baker said that while former Fed chief and White House economic advisor Paul Volcker has been pushing the idea for a while, the timing of the proposals -- just after Republican Scott Brown won a Massachusetts Senate seat that had belonged to Democrats for decades -- could be connected to recent elections.

"It's possible he would have done it in any case because Volcker is his advisor," he said.


Source: Xinhua 

Obama voices commitment to healthcare, transparency

17:32, January 28, 2010      

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U.S. President Barack Obama on Wednesday vowed to revive the stalled healthcare overhaul legislation, along with promoting transparency and reducing influence of lobbyists on U.S. politics.

REVIVING HEALTHCARE

"By the time I'm finished speaking tonight, more Americans will have lost their health insurance," Obama said in his first State of the Union address. "Patients will be denied the care they need. Small business owners will continue to drop coverage altogether."

"I will not walk away from these Americans," he promised, in response to suspicions that the president may give it up given severe setbacks in Congress and public unpopularity.

Healthcare has been one of Obama's top domestic legislative priorities since his year-ago inauguration. If not for Democrats' unexpected defeat in the recent Massachusetts Senate race, a sweeping healthcare legislation may have been mostly touted in the president's State of the Union address.

Democratic Party lost its "supermajority" in the Massachusetts Senate race, being deprived of the 60th Senate vote necessary to block filibuster -- a procedure used to stall and defeat legislation -- by Republican Senators.

Obama admitted that he should be blamed for not explaining his healthcare plan more clearly to the American people.

"This is a complex issue, and the longer it was debated, the more skeptical people became," he conceded.

ENHANCING TRANSPARENCY

"We have to recognize that we face more than a deficit of dollars right now. We face a deficit of trust -- deep and corrosive doubts about how Washington works that have been growing for years," Obama said.

He called on both the White House and Congress to take action "to end the outsized influence of lobbyists; to do our work openly; and to give our people the government they deserve."

Obama called on Congress to set up legislations that require lobbyists to disclose each contact they make on behalf of a client with the administration or Congress.

Once again, the president expressed his strong opposition to the Supreme Court ruling last week that overturned decades of law restricting political spending by corporation, unions and other organizations.

"I don't think American elections should be bankrolled by America's most powerful interests, or worse, by foreign entities. They should be decided by the American people, and that's why I'm urging Democrats and Republicans to pass a bill that helps to right this wrong," he said.

Before the Supreme Court's ruling, corporations had been banned since 1947 from using their profits to endorse or oppose political candidates.

Obama sharply condemned the ruling immediately after the court's announcement.

"It is a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans," he said.

Source: Xinhua
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