Chinese policymakers have begun to selectively ease macroeconomic policy to support growth, according to Barclays’ analysts.  While full on easing won’t come until 2012, China will face a significant economic slowdown as the export sector feels the impact of a fragile global economy, and residential investment, which makes up 12% of GDP, falls drastically as the People’s Bank of China (PBoC) seeks to control a real estate bubble.

In their attempt to execute a “soft landing,” China’s leaders have engineered a slowdown by tightening policy over the last several quarters.  This was a response to unwanted consequences of prior stimulative policy.

China provides policymakers a clear example of the possible unwanted side effects of unorthodox monetary policy, which Fed Chairman Ben Bernanke has referenced in several speeches.  Barclays’ analysts explain that “extraordinary policies designed to stimulate growth during the past years have generated some unintended consequences, such as an asset bubble, overcapacity and imbalances.”

Those imbalances have been targeted in the recent tightening cycle.  For example, PBoC appears set on forcing property prices to fall by about 20% in 2012.  They have also pushed to lower shadow banking credit and non-bank lending. This has led to a slowdown in China’s economy, with GDP slowing steadily to 9.1% in the third quarter and inflation, as measured by CPI, falling to 5.5% in October.

Another consequence, of major importance, is the consistent fall in total social financing (TSF, a measure of total credit expended beyond just banking credit), which fell from RMB 4.2 trillion ($661 billion) in the first quarter of 2011 to RMB 2 trillion ($315 billion) in the third.

A look at Chinese stocks illustrates the case.  Big names like Dang Dang and Youku reported important third quarter losses recently, while Baidu’s stock has struggled to move anywhere in the last six months.  The iShares China ETF is down about 18% so far this year

Most, if not all, of China’s slowdown was government engineered, Barclays suggests, but policymakers are beginning to reverse the cycle.  The global economic slowdown will impact China’s exports, which make up a big part of GDP.  According to Barclays, a recession in the U.S. where output falls by 1% and in the Eurozone where GDP contracts by 3.5% would shave off 4 percentage points from Chinese GDP growth.

Even more worrying for the People’s Bank, a 10% to 30% fall in real estate prices would subtract 0.5% to 1.5% from GDP growth.  Barclays’ analysts explain:

The impact of such price changes would be most directly shown in fixed asset investment (FAI). Residential investment is about 25% of total FAI, while gross capital formation is about half of GDP. This implies that residential investment is about 12% of GDP. Residential FAI is currently growing 31% y/y, faster than the close to 25% pace for overall FAI. Consensus expects residential investment to decelerate sharply next year, given falls in both prices and volumes of property transactions. Based on historical experience, a 10-30% price decline could easily lead to slower residential investment, which would subtract 0.5-1.5pp from GDP growth.

In 2012, Barclays estimates that CPI will fall to 4% and GDP to 8.4%, with the economy cooling significantly in the second half of the year.  That will be the time when policy bias swings fully into the easing camp, and policymakers will probably go all out.  This means cutting reserve requirement ratios, asset purchases (much like QE), lowering bank deposit and lending rates, and adjusting the exchange rate policy to favor exports.

China, unlike the U.S. and most of the so-called developed economies, has a lot of firepower left.  But using it could fuel further asset bubbles and other such unwanted consequences.  China’s policymakers face a compelling task, they must avoid a “hard landing” or they could jeopardize the global economy, as much of the world today depends on Chinese demand, particularly for raw materials, to keep going. — Forbes

India’s Reliance Industries and British giant BP on Friday announced the creation of an equal joint venture firm to source and market natural gas in India, according to a statement.

The move marks the next step in the $7.2 billion deal that Reliance and BP completed recently, through which the British giant acquired a 30 percent stake in 21 of Reliance’s oil and gas fields off India’s coast.

The firm, called India Gas Solutions, will also develop infrastructure to accelerate transportation and marketing of natural gas within the country.

“The need for assured gas supplies to fuel India’s growing gas demand is crucial and the Reliance-BP partnership is in a position to contribute towards this,” Sashi Mukundan, BP India chief, said in a statement.

India Gas Solutions will comprise a six-member board, with equal representation from Reliance and BP.

Equity for the firm would be based on equal contributions, the statement said, without disclosing details.

The company starts operations with 30 employees transferred from BP and Reliance.

Reliance, controlled by India’s richest man Mukesh Ambani, in October said it had suspended drilling at its oil and gas exploration blocks covered under the BP deal.

A re-evaluation of its exploration and production strategy is taking place, in partnership with BP, but current oil and gas production remains unaffected. — AFP

Boeing’s new 787 Dreamliner made its first commercial flight on Wednesday, giving a handful of deep-pocketed passengers the chance to fly into history on what is touted as an aviation breakthrough.

Carrying 252 people including corporate VIPs, aviation buffs and a large press pack, the All Nippon Airways (ANA) flight flew from Tokyo’s Narita airport to Hong Kong, where it was met by lion dancing and a water-jet salute.

Wearing traditional Japanese jackets, ANA chief Shinichiro Ito and Boeing vice president Scott Fancher broke open barrels of sake and handed the wine to passengers before they all embarked at Narita.

Passenger Chris Sloan, 42, said the trip took on a party atmosphere.

“It was truly very memorable for me. After the day my kid was born and the day I was married, this is the most memorable experience in my life,” said the aviation enthusiast from Miami after he arrived in Hong Kong on the three-and-a-half hour flight.

“I felt like I was part of history.”

The lightweight, fuel-efficient 787 is the first mid-sized plane able to fly long-haul. But critics had said the project might never take off as its development ran years behind schedule and billions of dollars over budget.

Painted in the blue and white ANA livery with red highlights, the first Dreamliner was finally delivered by Boeing on September 28, three years after it was originally promised to the plane’s launch airline.

ANA auctioned six business-class seats for Wednesday’s inaugural commercial flight. One sold for $34,000 — around 13 times the price of a regular business-class ticket between Tokyo and Hong Kong.

The winner of the eBay auction was 48-year-old Miami businessman Gino Bertuccio, according to the Wall Street Journal, which said he had mistyped his maximum bid amount but was still thrilled to be on the flight.

The newspaper said another delighted passenger was Thomas Lee, a 59-year-old Californian executive who flew on the maiden commercial flights of the Boeing 747 in 1970 and the Airbus A380 superjumbo in 2007.

Touting the 787’s green credentials, ANA said proceeds from the online auction would go to international environmental groups.

ANA also sold 100 economy-class seats as part of a tour package including one night at a hotel in Hong Kong for 78,700 yen ($1,000) per adult.

At travel agencies in Japan, a discount ANA return economy ticket on the route in late October costs around 45,000 yen.

Boeing says the twin-aisle 787’s construction, partly from lightweight composite materials, means it consumes 20 percent less fuel than comparable planes, an attractive proposition for airlines facing soaring fuel costs.

The Chicago-based aerospace and defence giant has also been touting the larger windows, bigger luggage storage bins and improved cabin humidity than conventional jets, a factor it says will reduce traveller fatigue.

Hong Kong Airport Authority chief executive Stanley Hui said the Dreamliner marked “a new era of the aviation industry”.

“It’s an honour that ANA has chosen Hong Kong to be the first city to fly this beautifully designed and technically advanced aircraft,” he said.

Production delays and technical mishaps cost Boeing billions of dollars in lost or cancelled orders for the Dreamliner, giving an edge to its fierce European rival Airbus.

ANA is planning to use the 787 on regular flights to Beijing and Frankfurt, as well as Hong Kong.

Boeing is hoping the Dreamliner will be a hit with passengers it says want more non-stop travel, and says it is already the fastest-selling twin-aisle airplane in aviation history, with more than 800 orders since 2004.

With an average list price of $202 million, the plane is the firm’s first new design in more than a decade. — AFP

Nintendo said Friday that online video service Hulu Plus will stream movies and television shows to Wii and 3DS videogame systems by the end of the year.

The Japanese videogame giant also planned to release in November a software update that will let people record 3D video using the latest version of its handheld gaming device.

“Nintendo 3DS continues to evolve with great new features and functions designed to reinforce its position as a premiere entertainment device,” said Nintendo of America president Reggie Fils-Aime.

Hulu Plus will be available with a separate subscription costing $7.99 per month. Subscribers will be able to access Hulu’s extensive library of television episodes and films.

Nintendo touted new games and other content for its glasses-free 3D handheld game consoles, which have not been the hit the company had expected when the innovative gadgets were released early this year.

The company hoped to heighten the appeal of its offerings during the precious year-end holiday shopping season.

Nintendo slashed the console’s price by up to 40 percent six months after launch.

Last month, Nintendo unveiled a host of new titles to be released for the 3DS, which offers 3D game play without the need for special glasses.

In the coming weeks, Nintendo will release Super Mario 3D, Mario Kart 7 and Pokemon games, according to Fils-Aime.

Kyoto-based Nintendo — which faces stiff competition from easily downloadable smartphone and tablet computer games and social networking websites — booked a net loss in April-June, hurt by few hit game titles and a high yen.

At the end of June, 3DS game titles came to 40 in Japan, 36 in the Americas and 33 in other regions, mostly Europe. — AFP

The latest in a series of strikes at India’s top car maker Maruti Suzuki came to an end on Friday, at a cost of $400 million in lost production and major damage to the group’s reputation.

Maruti, which is majority-owned by Japan’s Suzuki Motor Corp, said the 13-day strike at its Manesar plant was called off after an agreement between workers, the company and the Haryana state government.

Operations at the north India car plant will resume on Saturday, a spokesman told AFP.

Maruti makes nearly half the cars sold in India but in recent months has seen a sharp fall in production due to the strikes, hitting its market share — to the advantage of rivals such as Toyota.

The latest strike came after a series of clashes between workers and management at Manesar since June, costing Maruti a total of at least 19.50 billion rupees ($400 million) in lost output.

The unrest followed management refusals to recognise a new union as well as claims of sabotage on the production line and the assault of supervisors.

Earlier this month, Maruti was forced to call in police to evict 1,500 workers who had taken over the factory.

Manesar, which employs 2,000 workers, normally produces up to 1,200 of Maruti’s top-selling Swift and A-Star hatchbacks and SX4 sedans daily.

Fast-growing India is critical to the Japanese firm’s fortunes and is its biggest foreign market.

“Our first aim is to normalise production quickly as we need to meet customer orders,” the Maruti spokesman said, adding that there was a backlog of more than 100,000 Swift cars.

But analysts said the firm could still face an uphill task to regain market share.

Mahantesh Sabarad, an analyst with Mumbai’s Fortune Equity Brokers, said: “Even while production needs to be kept alive, Maruti needs to ensure that labour problems do not re-occur.”

Maruti plans to stave off future industrial action by creating a “grievance redressal committee” including representatives from the management and work force. An independent labour officer will also be a permanent member.

The strikes could not have come at a worse time as auto makers boost production to meet increased demand for cars in the run-up to the Hindu festival of lights, Diwali, next week.

During the strikes, Maruti sacked or suspended 94 workers for a range of offences including sabotaging cars and assaulting other employees.

As part of the settlement it has decided to recall 64 of the workers.

Another 30 dismissed for more serious offences will remain suspended, the company added.

Analysts estimate that Maruti has lost nearly three to four percent of its market share in the first half of the current financial year, to 39 percent.

Maruti has been further hit by a strong yen to the rupee, affecting margins as it makes payments for raw materials and dividends in the Japanese currency.

Company shares rose nearly four percent to a day’s high of 1,155 at the Bombay Stock Exchange after the announcement. Shares eventually closed up 1.53 percent.

The strikes compounded a slump in sales of new cars in India, which has also hit other automakers, due to spiralling inflation, the increasing cost of fuel and a rise in the price of raw materials. — AFP

Britain’s Cairn Energy India unit reported a 52 percent plunge in quarterly net profit on Thursday, hit by a one-time provision for crude output royalty payments.

Announcement of the figures come as the long-delayed $6-billion sale of a controlling stake in Cairn India is expected to be completed “shortly” to British mining giant Vedanta, led by Indian-born billionaire Anil Agarwal.

Energy explorer Cairn India’s net profit for the three months to September fell to 7.63 billion rupees ($167 million) from 15.85 billion in the year-earlier period, but still beat analysts’ forecasts.

Analysts had expected Cairn India, which produces oil in the western Indian state of Rajasthan, to post a second-quarter profit of around six billion rupees.

“We are now poised to optimise development,” Rahul Dhir, chief executive officer of Cairn India, said in a statement.

The profit drop reflected a $545 million provision for royalty payments since Cairn India started pumping oil from under Rajasthan in August 2009.

The Indian government in late June gave London-listed mining group Vedanta Resources conditional approval for its planned takeover of Cairn Energy’s India unit.

But approval of the sale came with a critical rider that Cairn India and India’s state-owned Oil and Natural Gas Corp (ONGC) share royalty payments on crude production from their Rajasthan oil fields.

ONGC owns a 30 percent stake in the oil block but has paid royalties on 100 percent of the output under a “royalty holiday” scheme aimed at promoting private oil exploration in energy-hungry India.

Cairn objected to the royalty payment sharing, saying such a step would sharply cut its profits, but finally accepted the terms. The royalty obligation is estimated at around 15 percent of revenue.

Cairn India’s sales slipped one percent during the second quarter to 26.52 billion rupees from a year earlier.

Cairn now produces 125,000 barrels a day of crude in Rajasthan and expects to hike output by 40 percent by the end of the fiscal year in March 2012 to 175,000 barrels a day.

The company hopes to achieve output of around 240,000 barrels a day, representing 30 percent of India’s total domestic crude production currently.

Edinburgh-based Cairn Energy announced separately that the sale of control of its Indian unit to Vedanta was expected to be completed “shortly”.

Cairn Energy renewed a pledge “to return a substantial proportion of the proceeds from the sale to shareholders”.

Vedanta already has built up a 28.75 percent stake in Cairn India, adding to its aluminium, copper, iron ore and zinc assets.

Cairn Energy, led by entrepreneur Bill Gammell, said it will hold a 22 percent stake in the Indian company once the sale goes through.

The company, which now is focusing on exploring in Greenland, said “unsuccessful drilling costs” in the remote Arctic territory totaled $573 million by the end of September. — AFP