From Volume 7, Issue 4 of EIR Online, Published Jan. 22, 2008

Global Economic News

U.K. to China: Bring Your Money to London, not U.S.

Jan. 19 (EIRNS)—British Prime Minister Gordon Brown, during his discussions yesterday with Chinese Prime Minister Wen Jiabao, invited the China Investment Corporation (CIC), a $200 billion sovereign wealth fund, to use the City of London as its "overseas base." The British press is blaring that the "China bashing" in the United States leaves an opening for Britain to make this plug for the City of London's "open door" policy, in contrast to what the Financial Times called "protectionist signals" from the U.S., France, and Germany. Brown said in Beijing: "This is a very substantial fund. It can be invested positively. I realize that in some countries it is controversial, but I have talked to Premier Wen Jiabao. We want Britain to be the No. 1 destination for China's business as it looks to invest around the world."

The London Stock Exchange used Brown's trip to announce that it is opening an office in Beijing, to encourage Chinese companies to list in London. At present, there are only six Chinese companies on the LSE main market, compared to 39 in New York.

Wen responded to Brown's announcement by reiterating that the CIC would only be investing about one-third of its capital abroad, some $60-70 billion, the China Securities Journal reported today. "The amount of capital to be invested abroad is not as large, since we will continue to push forward the reform of other state-owned commercial banks, which would require further capital injections from CIC," said Wen. The CIC was set up in 2007 as an investment vehicle for what is just a very small portion of China's $1.5 trillion foreign exchange reserves. So far, the CIC has invested some $8 billion in Morgan Stanley and Blackstone Group LP.

Wen also addressed the "China bashers," emphasizing that China has neither intention nor capability to threaten others. "We have our hands full with our own affairs," he said.

So far, Wen and Brown have signed eight agreements involving almost $800 million, in education, climate change, renewable energy, and the development of sustainable cities. These are small, in contrast to the $23 billion worth signed by French President Nicolas Sarkozy during his visit to Beijing in November. However, the Chinese and British sides also agreed to raise their already substantial $40 billion in trade to $60 billion by 2010.

Italy's Galloni Demands Public Spending

Jan. 18 (EIRNS)—Italian economist Nino Galloni, who spoke at a Schiller Institute Conference in Germany on Sept. 15, 2007, on the Eurasian Land-Bridge, warned this week of the dire consequences of a failure to expand public productive investment to stop the economic collapse.

Interviewed by the newswire Agenparl on Jan. 15, about government reports that there was a reduction of public expenditures over the last year, Galloni said that "without an adequate development of public expenditures, there is no possibility of modernizing the country. Infrastructure, research, education, health, and transportation demand urgent, costly interventions, able to increase production and development of resources. Here, instead, we go on talking about balancing the budget, like 200 years ago, when current technologies were not available, and the economy had to save in order to make investments; without investments, there is no future, no development. Even the foundations of civilization are being eroded. We must understand that public expenditures cannot be financed only through taxation of the citizens and of industrial firms."

'Worst Crisis Ever' for Japanese Ruling Party

Jan. 17 (EIRNS)—As the Japanese stock market continued to plunge, Prime Minister Yasuo Fukuda told the convention of the ruling Liberal Democratic Party today, that the party "frankly admits it is facing the biggest crisis since its establishment," in 1955. In the elections last year, the LDP lost control of the upper house of parliament for the first time, although it still controls the more powerful lower house. The opposition Democratic Party of Japan is calling for another general election, but Fukuda wants to block that. "We are in a difficult situation in managing parliamentary affairs," Fukuda said.

He said that the Japanese economy was now in such a "delicate" state that it would be unwise to call a general election. Fukuda said the government would "respond if necessary" to prevent a stock market rout, but in reality government deficits are so massive that there is little room to do anything.

The Nikkei index has fallen 11% in barely two weeks, the worst start to the year since 1945. It is down 24% from its peak and as a result of investors fleeing the stock market for government bonds, yields on five-year government bonds have dropped to 0.86%. The yen has risen sharply, from 251 to 210 to the pound, since the crisis broke out last Summer. The yen surge is hitting the big exporters, led by Toyota, Honda, Sony, and Toshiba.

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