China's red capitalists cashing in on the economic mess created by Europe's failed political leaders

The owners of Volvo Car Corporation are nowadays Chinese.

"First they took our jobs by inundating Europe with cheap plagiarized products made by slave workers. Now they are buying up what is left of formerly profitable companies." 
NNoN

The economic mess - a deadly cocktail of a failed common currency, insane climate change policies and disastrous tax payer subsidized wind and solar energy programs - created by Europe's political leaders is an open invitation for China's ruling red elite to come and take over what is left of once profitable industries in the European Union: 

Europe has become the world's largest recipient of foreign investment by Chinese firms. While North America largely views them with suspicion, China's state-owned corporations have been largely welcomed in a continent plagued by recession and in desperate need of cash.

Chinese state-owned companies are expanding their influence in Europe, investing more than $12.6 billion (€9.6 billion) in the Continent last year, according to a study by the Hong Kong-based private equity firm A Capital.

The amount represented an increase of about one-fifth in comparison to 2011, and was all together larger than investments in North America and Asia combined. About 86 percent of the investments were in the service and industrial sectors.

"Many Chinese investors regard Europe's current weakness as an opportunity to jump in," said A Capital CEO André Loesekrug-Pietri. "They're looking for technology, know-how, high-value brands -- and they find them here." Many European firms are world leaders in sectors like industrial manufacturing, auto manufacturing, the environment and health care.

The Chinese leadership is setting these key sectors as a top priority in their newest five-year plan. The State Council is supporting companies' expansions abroad with cheap credit and tax breaks, with 93 percent of Chinese investments in Europe coming from state-owned corporations.

"In Europe, the resistance to these kinds of investments is lower than in other places," Loesekrug-Pietri said. Reservations about the opaque interests of Chinese state companies are greater in the United States, where the government Committee on Foreign Investment in the United States (CFIUS) essentially blocked the sale of US aircraft manufacturer Hawker Beechcraft to a Chinese buyer for national security reasons. In 2008, the committee blocked the now-defunct electronics maker 3Com from being partially sold to Chinese state corporation Huawei.

In contrast, Europe has been a largely welcoming place for Chinese buyers. State fund CIC acquired a 10-percent stake in London's Heathrow Airport late last year, and a 7-percent stake in the French satellite provider Eutelsat. And Portugal's government negotiated its largest-ever privatization in late 2011, agreeing to sell its 21-percent stake in the massive power company Energias de Portugal to China's Three Gorges. The sale was Lisbon's first privatization mandated under its bailout program earlier that year.

The man interviewed by German Der Spiegel, A Capital CEO André Loesekrug-Pietri, must be a rather naive person, or - more probably - have a personal interest in Chinese foreign investment activities:

"The Europeans see things more pragmatically than the Americans," said Loesekrug-Pietri. The economies of recession-plagued Southern Europe are particularly in need of fresh capital. In addition, many small and mid-sized companies -- the so-called Mittelstand that are the backbone of the German economy -- are hoping their new shareholders will provide easier access to the booming Chinese market.
"What we're seeing with these deals is just the beginning," Loesekrug-Pietri said, adding that the coming years show tremendous potential.

Read the entire article here

If there really are German and other European business leaders, who believe that Chinese government investors will save Europe from the failures created by the political leaders, they will soon be in for a huge disappointment. 

While the Chinese are buying European companies and technology, the European Union - in spite of being in the middle of a seemingly endless recession -  continues to pour European taxpayers' hard earned money into dubious climate change projects in China:

The EU will help China in meeting its environmental, energy- and carbon-intensity targets and in the long run, contribute towards achieving a global reduction of greenhouse gas emissions. The EU support will result - through pilot projects - in providing technical assistance, training and fostering exchanges of experience, best practice and know-how in areas like the low-carbon economy and the green economy. The three projects -for which the EU contribution amounts to €25 million- will be implemented over a period of 4 years and focus on areas like water, waste and heavy metal pollution, emission trading system (ETS) and sustainable urbanisation. 

China's ruling communist autocrats of course accept the EU development aid with a polite smile. But behind Barroso's and Hedegaard's backs, they must be laughing. 


PS

It took less than five seconds to find out about Loesekrug-Pietri:

André Loesekrug-Pietri is the founder of A Capital, the first private equity group focused on Chinese outbound investments, and has fifteen years of private equity, automotive and aerospace industry experience. The most recent transaction conducted by A Capital was China's largest private conglomerate Fosun's strategic investment into Club Méditerranée.

(image by wiki)

The shale gas and oil revolution is paving the way for the great American railroad revival

The great steam engines will not return, but the American  railroad  revival is in full bloom.

The American shale gas and oil revolution is spreading its beneficial influence on a great number of industrial activities. The great American railroad revival is a case in point: 

According to data from Union Pacific (UP), the shale industry accounted for 133,000 extra UP carloads in 2012 – that’s an 84% increase from 2011. Indeed, even in the face of a coal shipment fallout, the rail industry is doing better than ever.

And the US Today reports that the railroad oil sector grew from 10,000 shipments a year to an estimated 200,000 a year in 2012.

The future for the once beleaguered U.S. and Canadian railroads is looking good:

Plus, another added benefit from America’s booming energy industry is that new manufacturing and chemical plants will also need to get their goods from landlocked states to the coast – I’m looking at you Ohio.

From a market standpoint all of the big names in rail are up double digits year over year. – Union Pacific (UNP) up 29%, Norfolk Southern (NSC) up 15% and CSX (CSX) up 10%. Each also pays near a 2% dividend.

Feeding off the same trends, the smaller U.S. rail players have done even better.

Kansas City Southern (KSU) is up 48% year over year. And one company that falls short of the top-5 by revenue, Genessee & Wyoming Inc (GWR), jumped 64% year over year.

Importantly for today’s discussion, the gains for these rail companies are just the beginning…

According to a recent report from the U.S. Department of Transportation, by 2040 demand for rail hauling is expected to increase 50% — to $27.5 billion. Indeed, rising demand for a low-cost industry like rail can lead to some solid long-term gains.

And the rail industry will benefit from the shale boom also in another way: 

Speaking of low-cost, the costs for rail providers may be getting even lower with the advent of natural gas-powered locomotives. Recently Buffett’s BNSF along with other major railways (including CSX and our neighbor to the north, Canadian National Railway) have begun testing natural gas powered locomotives.

These engines can run on liquefied natural gas (LNG), which provides an amazing cost break. In particular, while a gallon of diesel will run you about $4 the equivalent of natural gas costs about 50 cents.

So while it’s costing more and more to ship via truck or plane, the rail industry could be set for even more cost breaks. That’s a solid long-term trend if I ever saw one.

Read the entire article here

A map of the US railroad network in 1922. 

Germany's green hypocrisy

A German hypocrite

In order to show her "green" credentials, German Chancellor Angela Merkel (along with other leading German politicians) likes to talk about the catastrophe that will brought upon humanity if the international community is not able to agree on a binding global agreement reducing purported  human caused global warming. At the Petersberger Climate Dialogue last July, Merkel warned that non-action will have "terrible consequences" for the world. 

But all this "greenie talk" is of course nothing but political window dressing. On other fora the same Merkel openly - and rightly - praises Germany's incredible export successes, the main reason behind the country's stable economic development. 

A considerable part of the German export success comes from the exports of "polluting" luxury cars to China (and also Russia): 

China's luxury car sales increased about 18 percent to 1.2 million units last year. German companies together accounted for three-quarters of the total.

German automakers continued their reign in China's luxury car market last year, again reporting record sales to consolidate a dominance that is unlikely to be challenged in foreseeable future.

In 2011 the total value of German exports to China was 65 billion euros, and according to the Federation of the German Export Trade it is only a matter of time before China will overtake France as the number one German export country. 

The German export industry is to be congratulated for the country's export "miracle". But to boast about it, while at the same time warning about the catastrophic consequences of global warming is pure hypocrisy. But that's what Merkel and most politicians everywhere specialize in, hoping that nobody will notice ...

Shale gas is fueling a manufacturing boom in the US

Shale gas is fueling a manufacturing boom in the US, luring back chemical producers, which previously abandoned the country in droves:

The plummeting price of natural gas, which can be used to make a vast number of products, including tires, carpet, antifreeze, lubricants, cloth, and many types of plastic, is luring key industries to the United States. Just five years ago, natural gas prices were so high that some chemicals manufacturers were shutting down operations here. Now the ability to access natural gas trapped in shale rock formations, using technologies such as hydraulic fracturing and horizontal drilling, has led to a surge in natural gas supplies that have lowered American gas prices to a fraction of prices in other countries (see “King Natural Gas”). --


The impact of cheap natural gas on manufacturing could extend beyond the production of various chemicals. Using natural gas as an energy source, rather than a chemical feedstock, could significantly lower costs for manufacturers who use a lot of energy, such as steel makers. (The steel industry is booming already for another natural gas-related reason—it’s supplying gas producers with pipes.) What’s more, cheap natural gas is prompting a shift away from petroleum based-fuels for trucking. Some companies are switching to trucks that burn natural gas directly. Eventually, even diesel trucks could be using fuel made from natural gas. The South African company Sasol plans to build a huge $14 billion plant in Louisiana partly to convert natural gas to diesel, potentially lowering fuel costs for conventional vehicles as well.

Overall, cheaper chemicals, cheaper steel, and cheaper transportation could make the U.S. a far more attractive place for a wide range of industries.

Read the entire article here

France in free fall: "A shocking deterioration in competitiveness"

Karl Lagerfeld - not afraid of speaking out.

Karl Lagerfeld, the creative director of the French fashion house Chanel recently grabbed headlines with this statement:

"Outside of fashion, jewellery, perfume and wine, France isn't competitive," Lagerfeld said. "The rest of our products don't sell. Who buys French cars? I don't."

France's socialist president Francois Hollande may not have liked the comment, but a look at the French economy shows that Lagerfeld's description is most accurate:

A deeper look shows that France is mired in no less than an economic crisis. The eurozone's second-largest economy (2012 GDP: 2 trillion euros) is suffering more than any other member from a shocking deterioration in competitiveness. Put simply, France's products -- its cars, steel, clothing, electronics -- cost far too much to produce compared with competing goods both from Asia and its European neighbors, including not just Germany but even Spain and Italy. That's causing a sharp and accelerating fall in its exports, and a significant decline in manufacturing and the services that support it.

The virtual implosion of French industry is overlooked by analysts and pundits who claim that the eurozone had dodged disaster and entered a new, durable period of stability. In fact, it's France -- not Greece or Spain -- that now poses the greatest threat to the euro's survival. France epitomizes the real problem with the single currency: The inability of nations with high and rising production costs to adjust their currencies so that their products remain competitive in world markets.

So far, the worries over the euro have centered on dangerously rising debt and deficits. But those fiscal problems are primarily the result of a loss of competitiveness. When products cost too much to make, the economy stalls or actually declines, so that even modest increases in government spending swamp nations with big budget shortfalls and excessive borrowings. In this no-or-negative growth scenario, the picture is usually the same: The private economy shrinks while government keeps expanding.

That's already happened in Italy, Spain and other troubled eurozone members. The difference is that those nations are adopting structural reforms to restore their competitiveness. France is doing nothing of the kind. Hence, its yawning competitiveness gap will soon create a fiscal crisis. It's absolutely astonishing that an economy so large, and so widely respected, can be unraveling so quickly.

Read the entire Fortune article here

Francois Hollande enjoys grandstanding in his role as president, with all the traditional trappings of a royal head of state, but - as we have said before - he is in reality nothing but an emperor without clothes. 

It will not take long before the citizens of the once mighty and powerful La France will wake up and ask the question, why on earth did we elect this incompetent party apparatchik as our president?

"Vorsprung durch Technik": Germans seem unable to build an airport

"Vorsprung durch Technik" ("Advancement through technology") is the familiar slogan of a well known German car manufacturer, also symbolizing the technical and industrial prowess of the eurozone paymaster in general. 

However, judging by what is going on in the capital Berlin, the German leadership role may have to be reconsidered:

The saga of Berlin's hapless efforts to build a new airport has taken another embarrassing twist with reports that its opening will be delayed for a fourth time because of continued problems with the fire safety system.

The opening of Berlin's new airport BER, set for Oct. 27, has been delayed for the fourth time and will not go ahead this year in a further blow to the city's reputation. Although not yet confirmed by official sources, the news has triggered calls on Mayor Klaus Wowereit to resign and spells at least another year of congestion at the city's two small, increasingly overstretched eastern and western airports.

Newspapers reported on Monday that the airport's management company had informed contractors in December that an opening before 2014 was unfeasible due to construction errors. The main problem, which also led to previous delays, is the fire safety system. --

Bild added that construction experts checking the building had found hundreds of other faults including cracks in the floor tiles, and more seriously, problems with the airport's local area network that steers everything from the check-in system to the runway lights.

Experts have also warned that the airport doesn't have enough check-in counters and baggage claim conveyor belts to cope with passenger numbers at peak times.

The new airport is, or was to have been, a major prestige project for the German capital, replacing the two ageing and outdated western and eastern airports, Tegel and Schönefeld, which are due to close once it opens.

Construction started in September 2006, and the airport was originally due to open on Oct. 31, 2011. It was then delayed to June 3, 2012, then to spring 2013, and finally to October 2013.

And in addition to the Berlin airport, there are several other construction scandals in Germany.

The EU's senseless renewable energy and climate change policies are seriously weakening manufacturing industries

The crisis-ridden European Union's senseless renewable energy and climate change policies are seriously weakening the competitiveness of European companies, which increasingly are moving their production facilities to countries with cheaper energy costs:

High energy costs are emerging as an issue in Europe that is prompting debate, including questioning of the Continent’s clean energy initiatives. Over the past few years, Europe has spent tens of billions of euros in an effort to reduce carbon dioxide emissions. The bulk of the spending has gone into low-carbon energy sources like wind and solar power that have needed special tariffs or other subsidies to be commercially viable.

“We embarked on a big transition to a low-carbon economy without taking into account the cost and without factoring in the competitive impact,” says Fabien Roques, head of European power and carbon at the energy consulting firm IHS CERA in Paris. “I think there will be a critical review of some of these policies in the next few years.”

Both consumers and the industry are upset about high energy costs. Energy-intensive industries like chemicals and steel are, if not closing European plants outright, looking toward places like the United States that have lower energy costs as they pursue new investments.

BASF, the German chemical giant, has been outspoken about the consequences of energy costs for competitiveness and is building a new plant in Louisiana.

“We Europeans are currently paying up to four or five times more for natural gas than the Americans,” Harald Schwager, a member of the executive board at BASF, said last month. “Energy efficiency alone will not allow us to compensate for this. Of course, that means increased competition for all the European manufacturing sites.”

--

Current European energy policies were mostly shaped when the European economy was booming. In the grim economic climate of today, spending big money on renewables can seem like a luxury. Spain — once a strong supporter of renewables — has sharply cut funding.

The British government, another big backer of clean energy, recently struck a compromise. It promised to soak consumers for billions of pounds of subsidies for renewables like wind power and even new nuclear power plants, but it also gave a cautious green light to shale gas drilling in hopes of finding a cheaper source of natural gas.

A British consumer advocacy group called Which? recently pegged the costs to British consumers of decarbonization and new energy infrastructure at more than £100 billion, or $161 billion, and said that “persistently rising energy prices” were putting “intense financial pressures” on the public. In Germany, renewables subsidies are already adding 10 percent to 15 percent to bills, according to IHS.

Europeans cannot help noticing that the United States has managed, through the shale gas boom, not only to slash natural gas prices but also to cut carbon dioxide emissions to a 20-year low as utilities have shifted from coal to natural gas, which produces much less carbon dioxide.

Read the entire article here

The repercussions of an economic slowdown in China

The Taiwanese know China better than most other people. That is why it is worth reading what Wu Hui-lin, a researcher at the Chung-hua Institution for Economic Research, has to say about the deteriorating trend for China´s small and medium-sized companies, which contribute about 60% to China´s GNP and 80% of urban employment:

It is a well-known fact that China’s economy is going through great structural changes. Small and medium-sized enterprises (SMEs), which make up more than 99 percent of all Chinese companies, require a healthy operating environment and such an environment normally includes free entry to the market, fair competition, a mature and reasonable financial order, a sound legal system, transparent regulations and controls, as well as effective execution. However, for some time now the Chinese operating environment has placed major restrictions on the development of SMEs. In particular, these companies have been treated differently when it comes to financial assistance.

The interest rates on 62.3 percent of loans to SMEs are higher than the benchmark interest rate, while only 27.2 percent of large enterprises are subject to a higher rate. In addition, large enterprises receive more preferential loans. SMEs also tend to have less sound credit, which makes it difficult for them to obtain loans. Now that China is tightening access to credit, SMEs tend to be the first to have their loans put on hold by banks, compounding their already difficult situation.
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Judging from the situation in China, the manufacturing industry is clearly deteriorating. While it is true that this sector has been affected by the continued appreciation of the yuan, rising raw material prices, rising labor costs and the international financial crisis, the factor that has most directly undermined the manufacturing and -processing industries is the difficulty accessing capital as a result of financial controls and tightening credit.

On April 30, an article in the Chinese magazine Economic Review revealed that many Chinese SMEs are experiencing problems.

Rising costs have led to declining profits and many businesses facing a situation where stopping production will cause them to close, while continued production will lead to an even faster demise. Needless to say, a wave of SMEs are having to close.
One entrepreneur said that the biggest problems for Chinese SMEs is that: “Regardless of whether they are selling to the domestic market or for export, there is a clear shortage of orders and it is very common to see factories running at half capacity and making a loss. Even if they run at full capacity, they will not make any profits to speak of and everyone is doing all they can just to hold on.”
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Last year, there were more than 10 million registered SMEs in China and the final value of their products and services was equal to about 60 percent of the GDP. They provided 80 percent of urban employment and their tax payments made up 50 percent of all tax revenue. SMEs are clearly vital to China’s economic and social stability, and the current wave of closures will undoubtedly have an impact on the nation.
Now there is increasing talk of the Chinese economy’s possible collapse. Not long ago, “Dr Doom” himself, renowned economist Nouriel Roubini, included China’s demise as one of four factors in a perfect storm. Even those who used to have a bullish outlook are now changing their tune.

Read the entire Taipei Times article here

There are, of course, a number of other factors contributing to the risk of a serious slowdown in China, such as e.g. inflation and the looming real estate bubble.

The slowdown of the Chinese economy will without doubt have major repercussions in other countries as well. From a European point of view, Germany is the country that is going to be hardest hit, considering the importance of China in the German export success of recent years:

China is now Germany´s most important non-European export destination. As the Economist recently pointed out, German firms "happen to produce exactly the things that a booking China wants, from luxury cars to the machinery that enable Chinese factories to be the workshops of the world". Mercedes and BMW e.g. make 40% of their profits in China.

There are already signs of cooling in the German economy:

German investor confidence dropped for a fifth month in July, executives grew less optimistic and manufacturing growth slowed. German consumer confidence will drop for a fifth month in August, a survey by the GfK SE (GFK) market-research company showed on July 26.

Add the euro crisis and the financial turmoil in the US and you have the ingredients of a "perfect storm".