Global Growth Faces Hazards

David Wyss,Global Chief Economist at Standard&Poor's,notes that 9% growth has been average for China for the past 30 years.Now its trading partners are slowing down.Falling end demand and rising commodity prices will slow China's growth.In the U.S.,there is a 30% chance of a double dip recession,with housing being much worse than expected.So far,we haven't seen the Chinese consumer growing fast enough to sustain 9-10% GDP growth by themselves.
In Europe,you've got stellar German growth,but the rest are looking pretty sick.The European Central Bank was very late off the block in lowering interest rates.The price correction hasn't gone as far there as it has in the U.S.Southern Europe will want lower rates,but Northern Europe will want higher,Mr.Wyss points out.
Chinese companies have been reporting their Q2 earnings.Industrial and Commercial Bank of China saw a 38% rise in profits,while Bank of China reported a 27% climb,and PetroChina 4%.Multinational firms are counting on robust Chinese growth to get them through the tough days.China reported good manufacturing results on Wednesday.

China's Formidable Qualities

China is a country full of driven and ambitious people,in the view of Donald Feigenbaum of The Eurasia Group.Scale is something that China,with its huge population, has going for it.They want to compete in technological developments such as high speed rail and green energy.They are looking to attack any sector tied to the economy.
On the other hand,it is harder for China to engage in basic innovation.And China is not the first country to have an industrial policy.Having one doesn't mean they'll succeed across the board,Mr.Feigenbaum pointed out.
Many observers feel China is experiencing a mid-cycle slowdown.Some of this is self-imposed,to prevent the economy from overheating-particulary the property market.

China's Strategy Turns Slightly

China has begun buying quantities of Japanese government bonds recently.According to Yifan Hu,Chief Global Economist at Citic Securities,China's overall strategy is:
1.Buy more commodities.
2.Make direct investments in natural resources.
3.Buy Treasuries and European bonds,as well as some Japanese bonds-but that's not a trend.The U.S. dollar will still be relatively strong,at least in the medium term.U.S. growth will still be better than Japan's,with their aging population and other problems,so Treasuries will still be bought.As well,China cannot afford to harm the U.S. economy,which would happen should she suddenly stop buying Treasuries.
Ms.Hu doesn't expect high Chinese export numbers,with the U.S. and European economies being slow.The tightening talk by Beijing has been toned down.The Chinese currency,the Yuan,has started to appreciate again.This is bound to instigate more calls by U.S. politicians for retaliatory action to be taken against China,whose trade advantage is linked to the rising Yuan.

HSBC Sees Steady Growth

British bank HSBC's profits have doubled.Peter Wong,CEO of the bank's Asia-Pac division,says that this year the growth is quite sustainable.The loan growth has not had its full impact yet.Hong Kong is definitely a pocket of strength.So are Malaysia,Singapore,mainland China,India and Australia.Over the next couple of years,European GDP will be pretty low,affecting China,but China will still have a GDP of 10% this year and 8.5-9% in 2011.
HSBC has done a lot of background work to list in mainland China's stock market.China says it is a high priority.HSBC continues to build 15-20 branches a year in China.In India,they are gonna buy RBS assets,but mainly HSBC is growing organically.In China,HSBC has invested in ICBC and Ping An Insurance.
HSBC is very cautious in its mortgages.Customers do not pay more than 15% of their income.HSBC's portfolio is quite secure.
If Hong Kong continues to increase,it will form a bubble.It is stable for now,in Peter Wong's estimation.
HSBC Holdings,plc(HBC)

Haunted By The Nikkei

The specter of Japan's most popular stock average,the Nikkei,hovers over the minds of U.S. officials and investors alike.The Nikkei reached its peak of around 40,000 in 1988.For 22 years,it has failed to even get close to that level again.It's only at about 9500 now.Is that to be the fate of Western markets as well following the financial crisis?
James Bullard,President of the Federal Reserve Bank of St.Louis,says deflation is not the main economic scenario for the U.S.All the same,core inflation has drifted below 1%.We're on the low side.The Japanese situation has been very difficult for them to get out of.Mr.Bullard calls for a plan to have significant easing.If the economy continues to recover,we can all forget about it,but a big shock to the economy could cause the Japanese situation here.Japan is a big,industrialized country;they're like us.The Fed's interest rate targeting can create this outcome.Low inflation plus low rates can cause deflation.
The academic community takes this risk seriously.Mr.Bullard is still an inflation hawk,but that's not where we are now.If we promise to stay at 0% rates for 10 years,it's gonna be Japan all over again.At some point,the strategy has to shift.In that situation,deflation,ordinary stabilization methods are shut down.You're in this environment where inflation can be too low,and you have to deal with that.Quantitative easing can work.It's important to do contingency planning for all outcomes,the Federal Reserve Bank President James Bullard believes.