From Volume 37, Issue 45-46 of EIR Online, Published Nov. 26, 2010

Global Economic News

Kazakhstan's National Bank: The Future Is in China, Not London

Nov. 15 (EIRNS)—Large-scale funding for new investments in Eurasian nations will be raised in China and Hong Kong, not London, Grigori Marchenko, the head of Kazakhstan's National Bank, told the Daily Telegraph in an interview published Nov. 15. "Over-relying on London was a mistake," he said. "London was extremely important because that was where the money was. Increasingly, the money is shifting eastwards." Ten Kazakhstan companies were listed in London between 2005 and 2007, making Kazakhstan second only to Russia in the volume of equity its companies raised in London.

"People take for granted that most of the Kazakh, Russian and Ukrainian companies are doing their IPOs in London," Marchenko said. "But, excuse me, that's been the case just for the last nine years. My point is that in five years, it could be some place else." IPOs will move to Hong Kong, he said; big infrastructure investment will come from China itself.

"For China, there's a completely different, very simple and true investment story. China is going to continue to grow. For its growth, it requires natural resources. The geographically closest country is Kazakhstan," Marchenko told the Telegraph. In 2008, the State Bank of China and Eximbank lent $10 billion to the Kazakhstan sovereign wealth fund Samruk Kazyna, so that key projects would be built. Now, Kazakhstan is considering further infrastructure projects, which China could help fund, Marchenko said.

"If there are projects, there is definitely money in China which could be invested in Kazakhstan. If they eventually start building a high-speed rail link from Beijing to Europe, and if they build it using their money and our territory, well why not?"

Astana is encouraging mining companies Kazakhmys and ENRC, already listed on the FTSE stock exchange index in London, to also go to Hong Kong. "Instead of relying 95% on London like before, we should diversify, and we should raise maybe about a quarter of our capital in the Far East, where Hong Kong will be the principal financial centre, and a quarter we could raise in the Middle East," Marchenko said. "London was not the first financial center favored by former Soviet nations. If you look at the history of the last 18 years, where were the papers or equity bonds out of the FSU were first placed? The initial winners were Frankfurt, and the most actively traded market was, you know where? In Berlin. Then it was all about New York in the late 1990s, and then, because of Sarbanes Oxley [the U.S. 2002 anti-corporate-fraud law], people moved to London."

China Moves To Control Food Price Inflation

Nov. 17 (EIRNS)—The Chinese government is moving to hold down the rapidly increasing prices of food and other important commodities in daily use. The State Council released a statement today that said: "We need to understand the importance and urgency of stabilizing market prices and take forceful measures. When necessary, temporary intervention measures will be implemented on prices of some important daily necessities and production materials."

The statement singled out grain, oil, sugar, and cotton as markets that it was seeking to stabilize. On the same day, it was announced that 200,000 tons of sugar will be sold out of China's reserves to Chinese food-processing companies. In Guangxi Zhuang Autonomous Region, the country's largest sugar-producing area, prices recorded a new high on Nov. 8, up 74.7% from the same period of the 2009-10 season.

The State Council also vowed to intensify a crackdown on price speculation and to punish those found hoarding commodities and pushing up prices by illegal means.

Chinese Premier Wen Jiabao made a public statement on the State Council's actions, to reassure the public that the government was acting on the crisis.

Germany's Hankel: Euro System Is Doomed

Nov. 17—Wilhelm Hankel, one of five German economists who have filed a constitutional complaint against the euro bailout policy at the Constitutional Court of Germany, said in an interview posted yesterday on the website, that he expects the euro system to collapse.

The end of the euro, which will restore Germany's control of its own currency, would be a great benefit not only for Germany, but also for the rest of Europe, because it would bury the Brussels-based EU bureaucracy which Hankel sees as an adjunct of the Cold War-era NATO, which is past history now.

Ironically, Hankel added, the EU Commission is acting like Europe's Politburo, strangling freedom.

Hankel said he does not know exactly how Europe would look after the collapse of the euro system, but at least it would have regained its freedom to act, because it would return to standards of international law and the nation-state principle.

Hankel has given several interviews to EIR, and has participated in EIR conferences.

Irish Official: Banks Are Bankrupt, Not the State

Nov. 15 (EIRNS)—The Irish Independent today quotes an unnamed government official that "there is no question about Irish sovereign debt—the question remains about the funding of the banks. The banks are having trouble getting money. We have to find out—could you go to the fund and get money for the banking sector? The Irish state doesn't need the funds. There are no negotiations. People haven't separated the two issues—the state and the banks. What is the problem? The problem is about the banks, rather than the sovereign [funds]."

The daily writes that there has been an exodus of corporate deposits from Irish banks, while the banks are fully dependent on the European Central Bank for credit. "What are the implications of that? It's just not straightforward," said the source. Finance Minister Brian Lenihan will have an opportunity to discuss it at this week's EU finance ministers' meeting, the source said. "It would be the banks that would have to pay it back—not the state."

European Central Bank Vice President Vitor Constancio confirmed this report, telling the Irish Times, "The Irish state is financed until part of next year, but it is also a problem of the banks that are at the center of the problems in Ireland and considerations have to be pondered." He added that Ireland should use the ECB fund to bail out its banks; the only problem is that "according to the regulations of that facility, it cannot lend directly to banks." But he quickly added, "The facility lends to governments, but then the government, of course, may use the money for that purpose."

A few days ago the Bank of Ireland reported that international customers had pulled EU10 billion of corporate deposits out of the bank before the government guarantee on EU145 billion of bank assets was extended in September. This week, the Inter-Alpha Group's AIB will issue a trading statement and it is expected to show similar outflows.

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