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A S I A T h u r sd a y N o v e m b er 2 0 20 08

‘China’s belief in its own Great Power status is real. But so is its lack of
confidence’
David Pilling Comment Page 9
Newspaper of the year

Guru, schmuru We review the world’s worst ever business self­help book Business
Life Page 10
World Business Newspaper

News Briefing
TPG row highlights risk of investing in China
TPG risks losing a substantial investment in a Chinese leasing venture after a dispute
in which the company’s local staff called in police to remove the private equity
firm’s representatives. The difficulties between TPG and local managers of Nissin
Leasing (China) highlight the risks of investing in China and come at a bad time
for the US firm. Page 13

Motown pow­pow Industry chiefs plead for support in US

Indian navy sinks pirate craft off Aden
By James Lamont in New Delhi and Robert Wright in London India has flexed its maritime
muscles by destroying a pirate boat in the Gulf of Aden as part of an international
effort to fight the rising tide of hijacks of merchant shipping. An Indian frigate
sunk a pirate vessel on Tuesday night after the pirates threatened to attack, the
navy said yesterday. The encounter is the second this month in which Indian forces
have repulsed such threats in the area. The development comes as the rising incidence
of piracy off Somalia begins to affect shipping costs for exporters and insurance
for shipowners. Taiwan’s TMT, a big operator of dry bulk ships and tankers, yesterday
became the latest shipping company to say it was considering avoiding the Gulf of
Aden and taking goods bound for Europe and the US around the Cape of Good Hope instead.
India is fast emerging as a maritime nation. Deployment in the Gulf of Aden extends
its navy’s reach across the Indian Ocean, whose sea lanes are crucial to trade
for one of the world’s fastest growing economies. India is one of the largest contributors
to United Nations peacekeeping missions and is modernising its armed forces. It plans
to add aircraft carriers and nuclear submarines to its fleet. Commander Nirad Sinha,
a naval spokesman, said the Indian ship had asked the pirate boat – bristling with
rocket-propelled grenade launchers – to stop but it had responded by threatening
to blow up the frigate. The sinking comes days after brigands mounted an audacious
attack on the Sirius Star, a Saudi-owned supertanker laden with a cargo of 2m barrels
of oil, worth about $100m. The tanker was seized 420 miles off the East African coast
and remained at anchor off Somalia yesterday. Lawless waters, Page 6

Ex­minister murdered
Tokyo tightened security for officials after stabbings left former vice-welfare minister
Takehiko Yamaguchi and his wife dead. The attacks came amid anger over the ministry’s
mishandling of pension records.
Page 2

Obama health choice
US president-elect Barack Obama chose Tom Daschle to be secretary for health and
human services. The former US senate majority leader is expected to spearhead Mr
Obama’s push for universal healthcare reform.
Al­Qaeda attack, Page 4; Energising the economy, Page 9; www.ft.com/obama

Chiefs of the US carmaking industry seen at a Congressional hearing in Washington
yesterday, where they pleaded for government support. From left: Ron Gettelfinger,
president of car workers’ union the UAW; GM’s chief Rick Wagoner; Chrysler’s
Robert Nardelli; and Ford’s Alan Mulally Reports, Pages 4 & 14; Lex, Page 12; www.ft.com/detroit
AP

London’s Aim falls flat
The boom times have come to a halt for Aim, London’s lightly regulated share market
for smaller companies that elicited envy from rivals in recent years as it attracted
listings from companies worldwide. Page 13;
Markets, Pages 26­28

Fed f ight against def lation
Consumer prices fall by record amount Data point to further cut in interest rates
By Michael Mackenzie and Nicole Bullock in New York The Federal Reserve will take
every step required to ensure the US does not fall into deflation, its vice-chairman
said yesterday as data showed consumer prices fell a record amount last month. Don
Kohn, Fed vice-chairman, stressed he did not believe deflation was the most likely
outcome for the US economy, but was a “less remote” possibility than he previously
thought. “Some people have argued that we should save our ammunition, that interest
rate cuts aren’t effective,’’ he said. “I think that were we to see this
possibility, that we should be very aggressive with our monetary policy, as aggressive
as we can be.” The consumer price index data point to more easing in US interest
rates. The Fed has cut rates by 4.25 percentage points to 1 per cent in 2008 to combat
the credit crisis and support the economy. Yesterday’s data highlighted concerns
that the US economy faced a sustained period of falling prices, or deflation, not
seen for at least half a century. Combined with figures showing another big slide
in US housing starts, they prompted sharp falls on US and European stock markets.
The consumer price index fell 1 per cent in October after being unchanged in September.
Much of the fall in headline inflation came from energy prices dropping 8.6 per cent.
Yesterday crude oil fell to a $53.30 a barrel, its lowest since January 2007. The
main surprise from the CPI report was the slide of 0.1 per cent in the core CPI rate,
which excludes food and energy prices. It was the first negative core reading since
December 1982. “The collapse in energy prices means that headline inflation is
almost guaranteed to turn negative next year,“ said Paul Ashworth, senior US economist
at Capital Economics. He said the past three months of CPI readings when calculated
as an annual rate are “already at minus 4 per cent”. The S&P 500 traded 3 per
cent lower at midday and was on course to close at a new five anda-half year low.
In Europe, stocks fell 4 per cent and the FTSE 100 dropped 4.8 per cent. Asian markets
had fallen ahead of the data, with Japan’s Nikkei 225 index slipping 0.7 per cent.
Jittery credit markets were stirred up by selling into extremely illiquid conditions.
The yield on US junk bonds was above 20 per cent, a record level that reflects concerns
of a deep economic downturn and a wave of corporate bankruptcies. “The general
thrust of the report supports our call that disinflation is now a reality and deflation
will be the next major risk to financial markets,” said Steven Ricchiuto, chief
economist at Mizuho Securities. “An extended recession will increase the risk of
the economy transitioning into an outright deflationary environment.” When US markets
last flirted with deflation in 2003, the economy was emerging from a shallow recession.
Economists expect the economy to face its worst recession since at least 1980. The
one part of the market that notched up gains was US Treasury debt. Long-term government
bonds, whose value is primarily determined by expectations of inflation, rallied.
The yield on the 30-year bond fell 14 basis points to 4 per cent. Treasury Inflation
Protected Securities reflected the highest levels of expected deflation for nearly
a decade. Traders cautioned the lack of liquidity across markets was affecting this
sector, but it remains a good signal of market expectations. The five-year breakeven
rate, or expectation of future inflation, was minus 0.70 basis points yesterday,
indicating that investors expect annualised inflation to be minus 0.70 per cent over
the next five years. Comment, Page 9 Lex, Page 12 www.ft.com/centralbanks

BASF battens hatches
BASF, the Germany chemicals group, will cut output by a quarter and reduce the hours
of 20,000 of its staff for the next two months as the credit crunch hits the real
economy. Page 13;
Leading the way, Page 14

Argentina air of unease
In a decision likely to intensify investor concerns about Argentina, MPs recommended
the expropriation of Aerolineas Argentinas, the debt-laden flag carrier. Page 4;
www.ft.com/airlines

Australia trades up
Australia plans to join a trade pact that spans the Pacific. Trade minister Simon
Crean said it would join Brunei, Chile, New Zealand, Singapore and the US in the
Trans Pacific Partnership. Page 5

US rethinks its oil fix
US oil demand has fallen 5 per cent this year, the biggest drop since 1981, say figures
that underline changing attitudes to energy use. Page 4; Commodities,
Page 26; www.ft.com/oil

Seoul food

Berlin package faulted
Germany should launch a much more ambitious economic stimulus package and eastern
European aid programmes must be accelerated in a concerted response to the gathering
economic crisis, a European Central Bank policymaker said.
Page 2

UN warns of Tehran’s progress in stockpiling enriched uranium
Material could be used to make atom bomb
By Daniel Dombey in Washington and James Blitz in London Iran is forging ahead with
its nuclear programme, the United Nations’ nuclear watchdog reported yesterday,
deepening the dilemma facing US presidentelect Barack Obama over his campaign promise
to engage with Tehran. The latest report by the International Atomic Energy Agency
reveals that Iran is rapidly increasing its stockpile of enriched uranium, which
could be rendered into weapons-grade material should Tehran decide to develop a nuclear
device. The agency says that, as of this month, Tehran had amassed 630kg of low enriched
uranium hexafluoride, up from 480kg in late August. Analysts say Iran is enriching
uranium at such a pace that, by early next year, it could reach break-out capacity
– one step away from producing enough fissile material for a crude nuclear bomb.
“They are moving forward, they are not making diplomatic overtures, they are accumulating
low enriched uranium,” said Cliff Kupchan, an analyst at the Eurasia Group, a risk
consultancy in Washington. “These guys are committed to their nuclear programme:
if we didn’t know that, they just told us again.” The IAEA report also says there
has been a breakdown of communication between the agency and Iran over alleged research
on an atomic weapon. “The Iranians are making good progress on enrichment but there
is absolute stone-walling on past military activities,” said Mark Fitzpatrick of
the International institute for Strategic Studies. “It’s very disappointing.”
The progress chalked up by Iran increases the difficulties for Mr Obama, who campaigned
on promises of talking to America’s enemies, although during the election he scaled
down his initial vow to meet Iran’s leaders to a more general commitment to consider
doing so if it advanced US interests. “Obama faces a real dilemma,” said the
Eurasia Group’s Mr Kupchan. “He must decide whether to pursue diplomacy quickly
in light of rapid Iranian progress or whether to wait in the hope of a more moderate
Iranian leadership after Iran’s June presidential election.” European diplomats
have responded favourably to Mr Obama’s suggestion of US engagement with Iran,
although they are keen to avoid unilateral US actions that would rip up the approach
fashioned by the permanent five members of the UN Security Council and Germany. www.ft.com/iran

Politkovskaya uproar
Colleagues of murdered Russian reporter Anna Politkovskaya accused the government
of a cover-up after a judge barred the public from the trial of three men accused
of helping kill her. Page 2

US Democrats advance
The defeat of Ted Stevens, Alaska’s Republican senator, chalked up one more seat
for a Democratic majority striving for the 60-seat threshold that would immunise
it from opposition filibuster. The Democrats have 58 seats, with races in Minnesota
and Georgia yet to be declared.
Page 4

Daewoo Logistics of South Korea said it expected to pay nothing to farm maize and
palm oil in an area of Madagascar half the size of Belgium. The Indian Ocean island
will simply gain employment opportunities from the 99­year lease of 1.3m hectares,
the company said. They emphasised that the aim of the investment was to boost Seoul’s
food security. Report, Page 3 Editorial Comment, Page 8

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World Markets
STOCK MARKETS
Nov 19 Dow Jones Ind Nasdaq Comp S&P 500 FTSEurofirst 300 DJ Euro Sto 50 FTSE 100
8268.64 1433.11 834.44 811.99 2295.36 4005.7 1998.02 3087.89 4354.09 8273.22 12815.80
134.7 prev 8424.75 1483.27 859.12 845.37 2390.10 4208.6 2095.23 3217.40 4579.47 8328.41
12915.89 138.7 %chg -1.85 -3.38 -2.87 -3.95 -3.96 -4.82 -4.64 -4.03 -4.92 -0.66 -0.77
-2.9 Oil Brent $Jan Oil WTI $Dec Gold $ $ per Û $ per £ £ per Û ´ per $ ´ per
£ $ inde

Cover price
CURRENCIES
Nov 19 1.265 1.511 0.837 96.9 146.4 92.3 prev 1.265 1.501 0.843 97.4 146.2 92.3 1.518
Û per $ £ per $ Û per £ ´ per Û £ inde Û inde Nov 19 0.794 0.663 1.194
122.6 82.8 97.4 prev 0.792 0.669 1.187 123.1 82.2 97.5 1.802 Fed Funds Eff Nov 19
52.67 54.76 748.25 prev 51.84 54.39 738.25 chg +0.83 +0.37 +10.00 US 3m Bills Euro
Libor 3m UK 3m US Gov 10 yr UK Gov 10 yr Ger Gov 10 yr Jpn Gov 10 yr US Gov 30 yr
Ger Gov 2 yr

INTEREST RATES
price 102.83 107.38 101.82 100.26 108.33 103.19 Nov 19 0.38 0.10 4.11 4.05 yield
3.41 4.04 3.53 1.47 4.02 2.16 prev 0.37 0.12 4.15 4.05 chg -0.13 -0.05 -0.13 -0.02
-0.13 Ð chg +0.01 -0.02 -0.04 -


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