MasterFeeds: August 2010

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August 31, 2010

Did Zhou Xiaochuan defect to the United States?

Did Zhou Xiaochuan,  the head of the Chinese Central Bank PBOC,  defect to the United States?   

RUMOR out there... what does this mean for china?

MasterFeeds Note:  This rumor was subsequently dismissed. 

-- The MasterFeeds

Dealbook Column - Why Wall St. Donors Are Deserting Obama -

August 30, 2010

Why Wall St. Is Deserting Obama

Daniel S. Loeb, the hedge fund manager, was one of Barack Obama’s biggest backers in the 2008 presidential campaign.

A registered Democrat, Mr. Loeb has given and raised hundreds of thousands of dollars for Democrats. Less than a year ago, he was considered to be among the Wall Street elite still close enough to the White House to be invited to a speech in Lower Manhattan, where President Obama outlined the need for a financial regulatory overhaul.

So it came as quite a surprise on Friday, when Mr. Loeb sent a letter to his investors that sounded as if he were preparing to join Glenn Beck in Washington over the weekend.

“As every student of American history knows, this country’s core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination,” he wrote. “Washington has taken actions over the past months, like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.”

Over the weekend, the letter, with quotations from Thomas Jefferson, Ronald Reagan and President Obama, was forwarded around the circles of the moneyed elite, from the Hamptons to Silicon Valley. Mr. Loeb’s jeremiad illustrates how some of the president’s former friends on Wall Street and in business now feel about Washington.

Mr. Loeb isn’t the first Wall Streeter to turn on the president. Steven A. Cohen, founder of the hedge fund SAC Capital Advisors and a supporter of the Obama campaign, recently held a meeting with Republican candidates in his home in Greenwich, Conn., to strategize about the midterm elections, according to Absolute Return magazine.

Other onetime supporters, like Jamie Dimon, chief executive of JPMorgan Chase, also feel burned by the Obama administration, people close to him say.

That the honeymoon between Washington and Wall Street has turned to bitter recriminations is not news, given that the administration had long pledged to revamp Wall Street regulation in the wake of a crisis that rattled the global financial system.

Less than two years ago, Democrats received 70 percent of the donations from Wall Street; since June, when the financial regulation bill was nearing passage, Republicans were receiving 68 percent of the donations, according to an analysis by the Center for Responsive Politics, a nonpartisan research group.

But what is surprising is that some of the president’s biggest supporters have so publicly derided his policies, even at the risk of hurting their ability to influence the party in the future. Issues like the carry-interest tax on private equity or the Volcker Rule have become personal.

Why so personal? The prevailing view is that bankers, hedge fund mangers and traders supported the Obama candidacy because he appealed to their egos.

Mr. Obama was viewed as a member of the elite, an Ivy League graduate (Columbia, class of ’83, the same as Mr. Loeb), president of The Harvard Law Review — he was supposed to be just like them. President Obama was the “intelligent” choice, the same way they felt about themselves. They say that they knew he would seek higher taxes and tighter regulation; that was O.K. What they say they did not realize was that they were going to be painted as villains.

That Wall Street view of itself as a victim has prompted much of the private murmurings and the unfortunate — or worse — outburst from Stephen A. Schwarzman, who likened the administration’s plan for taxes on private equity to “when Hitler invaded Poland in 1939.” Mr. Schwarzman later apologized for the “inappropriate analogy.”

Now Mr. Loeb, who manages about $3.4 billion at his firm, Third Point Partners, has articulated in a more thoughtful way what a lot of others in finance and business are saying.

“We have given a great deal of thought about the impact that public policy has on individual companies, industries and the economy generally,” he said. Third Point has sold its investments in big banks as a result of “regulatory headwinds”; got rid of its stake in Wellpoint, which Mr. Loeb described as “a statistically cheap stock owned by several hedge funds, but which we saw as being overly exposed to unpredictable government regulation”; and taken a short position against for-profit education companies as a result of “the government’s increased willingness to use its regulatory muscle.”

Mr. Loeb’s views, irrespective of their validity, point to a bigger problem for the economy: If business leaders have a such a distrust of government, they won’t invest in the country. And perception is becoming reality.

Just last week, Paul S. Otellini, chief executive of Intel, said at a dinner at the Aspen Forum of the Technology Policy Institute that “the next big thing will not be invented here. Jobs will not be created here.”

Mr. Otellini has overseen two big acquisitions in the last two weeks — the $7.7 billion takeover of the security software maker McAfee and the $1.4 billion deal for the wireless chip unit of Infineon Technologies. If he is true to his word, those deals will most likely lead to job cuts in the United States, not job creation.

Mr. Loeb declined to comment.

But it seems clear that he wrote the letter because so much of his fund’s investments were being driven by the impact of politics. It appears he is no longer betting that a chief executive will make his numbers; he’s betting on what legislation Congress will pass next.

Mr. Loeb, whose poison pen is legendary, usually targets obstinate corporate managers or rivals. In one such note to the chief executive of Star Gas Partners, Mr. Loeb wrote: “It is time for you to step down from your role as C.E.O. and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.”

In his letter to investors, he took issue with a number of Washington initiatives, including the Credit Card Act of 2009 and a proposed “enterprise tax” that would be levied on hedge fund managers who sell their firms.

“So long as our leaders tell us that we must trust them to regulate and redistribute our way back to prosperity, we will not break out of this economic quagmire,” Mr. Loeb wrote.

“Perhaps our leaders will awaken to the fact that free market capitalism is the best system to allocate resources and create innovation, growth and jobs,” he continued. “Perhaps too, a cloven-hoofed, bristly haired mammal will become airborne and the rosette-like marking of a certain breed of ferocious feline will become altered. In other words, we are not holding our breath.”

Critics of Wall Street will rightfully complain that it was the actions of free market capitalists that prompted a push for regulation. On that point, Mr. Loeb does not entirely disagree.

“Many people see the collapse of the subprime markets, along with the failure and subsequent rescue of many banks, as failures of capitalism rather than a result of a vile stew of inept management, unaccountable boards of directors and overmatched regulators not just asleep, but comatose, at the proverbial switch,” he wrote. “It is easy to see why so many people have concluded that the entire system is rigged.”

The latest news on mergers and acquisitions can be found at

Dealbook Column - Why Wall St. Donors Are Deserting Obama -

August 29, 2010

PA bans Hamas clerics from preaching

Print Edition
Photo by: AP [file]
PA bans Hamas clerics from preaching

Police raid two mosques near Hebron, stopping sermons.
Palestinian Authority security personnel used force to prevent two prominent Hamas figures from delivering sermons during Friday prayers, triggering clashes with worshipers.

The violence erupted after dozens of PA policemen raided two mosques in the Hebron area where Hamas legislators Nayef Rajoub and Muhammad Abu Jhaisheh were supposed to deliver the Friday khutba (sermon).

The clashes prompted the PA to close down the mosques, forcing enraged worshipers to search for alternative prayer sites.

Rajoub, who was minister for Wakf affairs in the Hamas-led unity government with Fatah more than three years ago, said that policemen in plain clothes approached him soon after he entered a mosque in his home village of Dura and warned him not to deliver the sermon.

“When I asked them for a written order, they assaulted me,” he said. “When some of the people inside the mosque tried to intervene, the policemen also beat them, and arrested some of them.”

Rajoub, who was released from an Israeli prison on June 20 after serving a 50-month sentence, accused the PA of waging a “war against mosques and Islam in collusion with Israel.”

Rajoub said that he has been serving as a preacher for nearly 30 years. He added that despite the ban, he would continue to lead Friday prayers and deliver sermons.

“Jewish settlers are torching mosques, the Israeli army is demolishing mosques and the Palestinian Authority is expelling preachers,” he said.

Nayef Rajoub is the brother of Jibril Rajoub, a former PA security commander and one of the prominent leaders of Fatah in the West Bank, who was one of the first to conduct security coordination with Israel. The former security commander is known for his ruthless crackdown on Hamas in the West Bank.

The second incident took place in the village of Idna, also in the Hebron area.

Eyewitnesses said that Palestinian security agents stopped Abu Jhaisheh shortly after he entered a mosque and demanded that he refrain from delivering the sermon.

Last week, Hamas accused the PA of “waging war on Islam and Allah” by arresting and firing hundreds of preachers and imams, closing down mosques and Islamic religious centers and imposing restrictions on religious figures suspected of being affiliated with Hamas.

Adnan Damiri, spokesman for the Fatah-dominated security forces in the West Bank, confirmed that his men had entered the mosques to prevent Rajoub and Abu Jhaisheh from addressing worshipers.

“These mosques don’t belong to Hamas,” he said, denying that the police had beaten anyone.

He also denied that the two mosques had been closed down.

Damiri said that the move against the mosques was taken in light of information suggesting that Hamas was preparing to export its “coup” to the West Bank.

“They are operating on instructions from [Hamas leader] Khaled Mashaal,” he said. “They want to create chaos that would start in the mosques. Their goal is to take over the West Bank.”
PA bans Hamas clerics from preaching

August 28, 2010

Power Struggle Among Russia's Militants

Published on STRATFOR (
Power Struggle Among Russia's Militants
Created Aug 19 2010 - 10:56
Not Limited Open Access
By Ben West and Lauren Goodrich

On Aug. 12, four members of the militant group the Caucasus Emirate [2] (CE) appeared in a video posted on a Russian militant website withdrawing their support from CE founder
and leader Doku Umarov. The reason for the mutiny was Umarov!s Aug. 4 retraction of his
Aug. 1 announcement that he was stepping down from the top leadership position [3].
STRATFOR and many others noted at the time that the Aug. 1 resignation was
unexpected and suggested that Umarov may have been killed. However, the Aug. 4
retraction revealed that Umarov was still alive and that there was considerable confusion
over who was in control of the militant group.

The mutineers were all high-level members of the militant group: Hussein Gakayev,
commander of the CE!s Chechen forces; Aslambek Vadalov, commander of Dagestani
forces and to whom Umarov had briefly turned over control in his Aug. 1 resignation; an
Arab commander named Muhannad; and a veteran field commander known as Tarkhan.
The four CE commanders said Umarov!s renunciation showed disrespect for his
subordinates and that, while the four leaders continued to pledge support to the CE, they
no longer supported Umarov. Gakayev, Tarkhan and Muhannad had all appeared in a
video that aired Aug. 1 in which they supported Umarov!s decision to appoint Vadalov CE

To further confuse the issue, a video released Aug. 11 by Emir Adam, the CE leader in
Ingushetia, pledged his and his followers! loyalty to Umarov. The next day, another video
appeared featuring the group's new leader in Dagestan, Emir Seyfullakh Gubdensky (who
succeeded Vadalov after he became deputy leader of the CE), similarly endorsing
Umarov!s reclamation of the top CE post.

These disparate messages from top leaders paint a picture of confusion and dissension in
the CE that appears to mark a serious crisis for a group, which, until recently, had been
consolidating militant groups across the Caucasus under a single, more strategic
leadership structure. STRATFOR has collected insight from sources familiar with the
group and its leadership turmoil that explains what happened and the nature of the threat
that the CE poses to Russian security in the Caucasus.

The Inside Story
According to a Russian source, the confusion caused by Umarov!s apparent indecision
over the CE leadership position was a deliberate operation by Russia's Federal Security
Service [4] (FSB). According to that source, the operation that ultimately appears to have
undermined Umarov!s position as leader of the CE began in early 2010. However, the
FSB received intelligence only over the past two months that set the stage for executing
the operation. That intelligence allegedly came from the CE!s former leader in Ingushetia,
Emir Ali Taziyev, who was arrested by the FSB on June 9 in an Ingushetian village.

Taziyev allegedly provided the FSB information on the CE!s training, ideology, weapons
procurement and leadership structure. This information then allowed the FSB to activate a
sleeper agent, Movladi Udugov, who served directly under Umarov as the CE!s head of
media and publicity. According to our source, Udugov was responsible for the
unauthorized release of the video in which Umarov announced that he was stepping down
and named Vadalov as his successor.

The story goes that Umarov had recorded the video with the intent of saving it and
releasing it only in the event of his demise. This would ensure that a crisis of succession
wouldn't erupt because of his death or disappearance. The fact that Vadalov was named
as his successor on July 25 means that each of the regional leaders within the CE had
likely agreed to the decision. It is important to note that the leadership crisis did not occur
because Vadalov was assigned to the post, but because Umarov appeared to have
stepped down and then reclaimed his title. Udugov provided the crucial blow to Umarov!s
status as leader of the CE by releasing the resignation video prematurely, laying the
foundation for dissension among Umarov!s followers.

The resulting flurry of approval and disapproval from the CE!s corps of commanders
shows just how damaging the videos were. We have to be critical of the Russian source's
account of how all of this transpired, since the source is likely interested in promoting the
FSB!s capabilities and its penetration of Russia's most dangerous militant group. The
account is logical, however, since it does explain the unusual sequence of videos, and the
FSB is capable of infiltrating such a group. There are, of course, other explanations for
what could have motivated Udugov to release the tape: Perhaps he was trying to trigger a
power struggle within the group on his own, or perhaps someone else inside the CE
obtained the tape and released it in hopes of weakening Umarov or promoting Vadalov.
However, it is very unlikely that the release was a mistake, since Umarov and his
commanders have proved very competent at running a successful militant movement.
Looking deeper, it becomes obvious that a video alone would not have caused dissension
on the scale that we are seeing now within the CE. Had everything been perfect in the CE
and had Umarov enjoyed unwavering support, he could have dismissed the video as an
attempt to undermine his authority, promised to punish those responsible and gone on
with business. It is very apparent that Umarov was not able to do this. The release of the
videos exacerbated divisions among CE factions that Umarov and his deputies were trying
to consolidate. By releasing the video of Umarov stepping down as commander, Udugov
(allegedly under FSB guidance) forced the divisions into the public spotlight.

According to our Russian source, the resignation scandal has split the CE three ways. The
first split concerns operational security. The CE knew that penetrating the group was a top
priority for the FSB and that it had to remain vigilant against outsiders attempting to do just
that. Simply the allegation that one of Umarov!s top advisers was working for the FSB
undermines the sense of operational security throughout the entire group. Already,
accusations of FSB involvement in the CE leadership crisis have emerged in the open-
source network, on sites like In such an atmosphere, the level of trust
among commanders decreases (as they begin to wonder who is reporting to the FSB) and
the level of paranoia increases. Infighting at the top of any organization can quickly create
operational gridlock and reduce the organization's effectiveness. This is exactly why the
Russians might try to claim credit for the tape's release, even if they were not responsible.
The second split is generational and ideological. According to our source, a younger
faction of the CE (led by Vadalov) has accused Umarov and his cadre of not protecting
the ideological unity of the CE. It is no secret that Umarov is much more experienced in
and knowledgeable of military strategy and tactics, while his background in Islamism is
weak. He has bungled religious protocol and terminology a number of times, undermining
his authority as emir of the group. Meanwhile, the older, more military-oriented faction
accuses the younger faction of being willing to work with Moscow and sell out the

The third and possibly most volatile fault line is the tension between regional groups within
the Caucasus Emirate. The northern Caucasus republics of Kabardino-Balkaria, North
Ossetia, Ingushetia, Chechnya and Dagestan each have their own, independent histories
of militancy, with Chechen militants traditionally being Moscow's highest-profile
antagonists. Without the support of the Chechen commander of the CE (Khusein

Gakayev, who withdrew his support for Umarov in the Aug. 12 video), Umarov has a
serious deficit of support in controlling the Caucasus Emirate. The advantage of having
the support of the current Ingushetian and Dagestani militant leaders is diluted by the fact
that Chechnya geographically lies directly between them, rendering any trans-Caucasus
network incomplete. Also, Chechens have been the more successful leaders of militant
movements in the Caucasus. Umarov himself is Chechen, as was Shamil Basayev [5], a
commander of Chechen separatist forces in two wars against Russia.

Threat and Inherent Weaknesses
It is exactly because of Doku Umarov!s ability to bring together militants of different
motivations, generations and locations under the umbrella of the Caucasus Emirate that
made his group so threatening to the Russian state. As a unified militant group, the CE
proved capable of launching a suicide attack against Moscow's subway system [6] in March
2010 and carrying out relatively sophisticated attacks [7] targeting security forces and
infrastructure. The CE leadership structure provided strategic guidance to the individual
militant groups operating in the separate republics that actually carried out the attacks.
With the recent crisis in leadership, these capabilities will likely be severely weakened.
Umarov announced the formation of the CE only in 2007, which means the group was just
three years old when the leadership turmoil broke out Aug. 1. This is precious little time to
consolidate militant groups across a region with sharp geographic fragmentation that
traditionally has caused groups to be isolated and independent. Moscow has had plenty of
problems controlling the region and is faced with the same geographic challenges as the
Caucasus Emirate. A different source familiar with the CE said that Umarov has most
recently attempted to consolidate the CE by broadcasting his statements in different
languages, such as Avar, which is widely spoken in Dagestan. But Avar is only one of 10
languages spoken across Dagestan alone, which makes communicating efficiently to an
audience across the Caucasus a difficult task.

That same source has said that the CE has had trouble moving food, supplies, weapons
and people across the Caucasus (this effort is complicated by Russian security forces as
well as geography), which means that each group is responsible for providing for itself.
This prevents standardization across the militant movement and complicates cooperation
among groups. It also reduces the reliance of regional militant groups on the Caucasus
Emirate leadership, decreasing Umarov!s control over the movement. If militant
commanders in Chechnya are supplying and recruiting on their own, they are less likely to
take orders on what to do with those resources from detached leaders. However, lack of
unity among the groups does not necessarily make them less able to carry out the small-
scale attacks that are common in the Caucasus. On Aug. 17, five days after a split in the
CE leadership became apparent, a suicide bomber (most likely affiliated with a group
linked to the CE) attacked a police checkpoint along the border of Ingushetia and North

Militant groups existed in the Caucasus long before the Caucasus Emirate was formed
and will continue to exist long after it is gone. The strategic importance of the Caucasus [8]
and the fragmentation of its inhabitants due to ethnicity, culture and geography (which
makes for ideal guerrilla-warfare terrain), ensure that whoever attempts to control the
region will face serious challenges from local populations who want to govern themselves.
With varying levels of success, these groups will continue to use violence to undermine
their respective governments, especially those seen as Moscow's lackeys.

Indeed, even though the Caucasus Emirate may be seriously disrupted by recent turmoil
in its leadership structure, the regional militant groups that made up the CE will certainly

continue to conduct attacks against security forces and even civilians as they try to loosen
Moscow!s control over the region. But the turmoil will reduce the strategic threat the
combined efforts of these disparate groups had posed to Moscow for the foreseeable

Terrorism/Security Ben West and Lauren Goodrich Russia Security Weekly
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Power Struggle Among Russia's Militants is republished with permission of STRATFOR.

August 27, 2010

Special report: World's workshop heads to inland China | Reuters

Special report: World's workshop heads to inland China

Wed, Aug 25 2010
By James Pomfret
ZHENGZHOU, China (Reuters) - In a vast muddy cornfield scarred with the tracks of heavy vehicles, two young engineers pore over a construction blueprint showing a grid of 100 rectangular factory blocks.
Here on the outskirts of Zhengzhou, the provincial capital of Henan in China's interior, Foxconn, the largest company and exporter in "the workshop of the world" has staked its future on a mammoth new industrial complex.
New powerlines are being erected and roads built to the site under the watchful eye of local farmers who daydream about the entrepreneurial opportunities that up to 200,000 new workers in the area might present.
Taiwan-based Foxconn Technology Group, which includes its flagship Hon Hai Precision Industry (2317.TW: Quote, Profile, Research, Stock Buzz), makes gadgets for a constellation of global brands including Apple APPL.O, Dell (DELL.O: Quote, Profile, Research, Stock Buzz), Nokia and Hewlett Packard (HPQ.N: Quote, Profile, Research, Stock Buzz).
Most of that production comes from its plants in Shenzhen, in the Pearl River Delta area, one of the three major Chinese coastal manufacturing hubs, along with the Yangtze River area around Shanghai and Bohai Bay north of Beijing.
With this leap into Henan province, 1,600 km (1,000 miles) from Shenzhen, Foxconn is expanding aggressively inland, where wages are lower and workers more plentiful, keeping mostly higher-value, engineering, and R&D work in China's coastal areas. It will have as many as 1.3 million workers in China by the end of 2011, up from 920,000 now, company officials say.
Foxconn is by no means alone. Intel (INTC.O: Quote, Profile, Research, Stock Buzz), the world's biggest chip maker, opened a $600 million plant this year in Chengdu and Hewlett-Packard built a laptop factory in Chongqing, both cities in the western province of Sichuan.
Cheaper labor is not the only attraction. The worker has become the consumer in China, with the government determined to raise household incomes and reduce wealth disparities. Locating factories nearer to markets makes dollars and sense.
"Most of the villagers here think it's a good thing," said Meng, Xiangting, 46, a farmer prying stones from a wall with a crowbar for use on his own crumbling home. "They've guaranteed jobs for anyone in the area between 18 to 50 years of age. I'm not interested. I'd like to open a small shop for the workers instead."
With factories closer to home, children of farmers like Meng won't have to make the annual trek to distant coastal regions and live desultory lives as migrant workers in factory towns.
A rash of suicides at Foxconn's Shenzhen plant which the company said weren't work-related but which victims' families blamed on tough conditions, helped fuel a wave of labor unrest -- and has become yet another motivation to move operations into the less volatile interior.
Foxconn's move will touch off a mini-boom in an ancient Chinese capital perhaps best known for the 5th-century Shaolin temple that is home to its famous brand of Kung Fu.
Foxconn's suppliers will have to relocate as well. The workers will need housing and places to shop. Some may even be able to afford cars to commute to work on the new highways being built to Foxconn's mega-factory and its satellites.
A foreman supervising a team of men in straw hats working on a road linking to Zhengzhou's highways and the international airport said they had paved 4 km in three weeks. "Foxconn is amazing," he said. "They work extremely fast."
A lot of people are working fast in China's rapidly developing interior.
Manufacturers are building huge factories in the provinces to escape rising costs in the coastal zones that helped China become the world's largest exporter. Big customers such as Wal-Mart (WMT.N: Quote, Profile, Research, Stock Buzz) are buying more goods from the new inland factories in a relentless quest to find low-cost suppliers.
New high-speed rail links are shrinking distances for shuttling goods in and out of China's heartland.
The move inland by manufacturers coincides with a parallel trend in urbanization. Local governments are competing ferociously to build and expand cities on farmland to lure back millions of migrants from the coast in a project that could absorb more residents than the entire population of the United States in the coming decades.
The drive is part of a strategic economic shift to rebalance China's economy -- and by extension the rest of the world's -- to rely less on exports for future growth and more on domestic consumption. The Obama administration has been pressing China to do just that.
"Our lives will completely change," said Meng, the farmer. "Next August, they'll be able to bring in over 100,000 workers. With more people, there'll be more businesses."
While a smaller percentage of Chinese coastal manufacturers are moving operations offshore -- garments to Bangladesh, shoes to Vietnam, some experts see a more pronounced move inland.
A recent survey by Hong Kong's Trade Development Council of 2,400 manufacturers found a quarter would choose to set up new factories in inland China, twice that of those who would opt for cheaper alternatives in Asia. Around half said they would stay in China's coastal hubs.
China's industrial model has relied on efficient and nearby supply chains along with good transportation infrastructure that make it more efficient to keep operations onshore.
Factory production in China will continue to move to the interior, said Bruce Rockowitz, president of Li & Fung, one of the world's leading sourcing firms that caters to clients such as Wal-Mart. "That's the future, and maybe we'll get another 20 years out of that."
Workers in Foxconn T-shirts, clocking in for the night shift along unlit paths at Foxconn's temporary plant near Zhengzhou, say they are part of the advance guard of what is expected to be a massive redeployment of the company's workforce.
The official Xinhua news agency reported recently that the Foxconn plant under construction would produce mainly Apple iPhones, generate more than $13 billion in annual exports and have a production capacity of 200,000 handsets a day.
Wei Wei, deputy director at Personnel Exchange Center, a major job recruitment center in Zhengzhou, said Foxconn had asked his firm to help recruit 100,000 workers within three months time in preparation for the first phase of the giant factory's expected opening next year.
Factories in coastal China, such as Foxconn's sprawling operations in Shenzen, have been powered by an army of 130 million or so migrant workers streaming in annually from inland Chinese provinces. They are not given permanent resident rights, however, and they often move on.
Labor shortages have begun to be a problem for these traditional export centers as the growth of the working-age population slows. Moreover, a younger generation of migrant workers, better educated, more tech-savvy, and less accepting than their parents were of life in the factories -- low pay, grueling hours and sometimes martial workplace rules -- have launched wildcat strikes and protests. Keywords: CHINA MANUFACTURING/
"To be very frank and open, I think we were caught by surprise by the structural changes in the worker composition," Louis Woo, special assistant to Terry Gou -- Foxconn's reclusive and enigmatic Taiwanese chief executive -- told reporters at a company-sponsored rally last week at its Shenzen plant.
"We haven't changed fast enough to meet the changing needs and new aspirations of this new generation of workers," said the silver-haired and rake-thin Woo, wearing blue suspenders and Prada glasses.
"China is changing and that's why Foxconn is also changing."
Recent strikes at Japanese car assembly plants in China, which resulted in a doubling of wages in some cases, have prompted other multinationals with intensive labor needs to seek a more stable and plentiful workforce inland.
"China has had a very unusual situation for a number of years with just this incredible supply of workers. That is now coming to an end," said Arthur Kroeber of Beijing-based consultancy Dragonomics, who says the number of young Chinese workers aged 15-24 years of age will likely fall by a third in the next 12 years, giving more bargaining power to this younger blue-collar generation.
Labor is plentiful in provinces such as Henan, China's most populous with over 100 million people -- more than the population of Germany.
At a recent Foxconn recruitment fair in Zhengzhou, thousands of hopefuls clamored for places, excited at the prospect of working for the Fortune 500 firm.
Already, a fifth of Foxconn's workers hail from Henan. By moving workers closer to their families it might help ease a problem that plagued the company during the first half of the year -- the dozen suicides mostly involving young workers leaping off buildings at its Shenzhen complex.
Zeng Jundan, one of the workers at Foxconn's temporary plant who previously worked for the company in Shenzhen, said he was happier. "It's not bad here -- my mom and dad can come see me every day if they want to," he said.
Like all manufacturers, Foxconn depends on a network of suppliers. Unlike others, Foxconn is big enough to force a new ecosystem to develop around it.
Jackie Ho, a Taiwanese industrialist making TV screens and mobile phone accessories in Luohe town, an hour's drive from Zhengzhou, said the new Foxconn facility would help foster fresh industrial clusters in Henan.
He is hoping to capitalize on what he terms the "Foxconn effect", along with other downstream suppliers that will likely migrate up from the Pearl River Delta.
"Most suppliers to Foxconn have no choice," Ho said. If Foxconn moves they have to follow or it will just buy from another factory. I believe that after two years Foxconn may not have to purchase and transport (its components) from the south anymore. Many firms will be here."
Foxconn is what some supply chain experts describe as a "dragon head" industry. It can nurture and sustain small- and medium-sized firms that otherwise wouldn't have the economies of scale or management mindset to move inland themselves.
"The key manufacturer is the dragon head, and there's always a supply ecosystem that goes along with it," said Edward Tse, the Greater China chairman of consultancy Booz & Co. and author of a book "The China Strategy" detailing the country's business landscape and how multinationals might capitalize.
"Without a dragonhead like Foxconn it's hard to get that kickstart," Tse said.
In several villages ringing Foxconn's Zhengzhou sites, red banners with pithy slogans were hung over roads and painted onto brick walls by local propaganda authorities, hailing the manufacturing giant as an economic savior.
"Welcome Foxconn. Swiftly move toward a well-off society" read one.
The government is clearly hoping that as companies and their "ecosystems" move to the countryside, more of China's 1.3 billion residents will progress from a life of subsistence to one of greater domestic and consumerist comforts in landlocked provinces, perhaps better described as mid-sized nations rather than regions.
"Manufacturing is something that a lot of local cities and regions can relate to because it's hard; people can see that in terms of the plants, the laborers, the products and so on," said Tse, who has advised multinationals on their China production and sourcing strategies.
"So a lot of inland areas see this as a natural area of growth. You need to find jobs for these people who've been urbanized, instead of them continuing to be peasants working on paddy fields. This is usually the first starting point like Shenzhen had done 20 years ago."
Government statistics show industrialization in inland provinces has outpaced established manufacturing hubs such as Guangdong in recent years.
The number of enterprises with annual revenues of over five million yuan ($736,000) in Guangdong province near Hong Kong grew by an average of some 24 percent in 2008 to 52,574 firms. The same figures for Henan were 38 percent and 18, 700 firms. The year before it had only been 13.6 percent.
On the green northern rim of Guangdong, beyond the mountains and into the land-locked region of Ganzhou in Jiangxi province, LED factory owner Kong Xiangzhong is one of the new breed of industrialists who have staked a future away from the cluttered expensive coastal manufacturing regions of China.
A minnow compared with Foxconn with around 100 workers, Kong has nevertheless positioned his inland factory as a potential gateway to the mainland China market, spurning the usual export track. Almost all his energy-efficient LED lighting products will be trucked and sold entirely within China from Ganzhou.
"For us factories doing domestic demand, we hope that we can expand everywhere in China, to the west, the center and the east," said Kong, a self-made businessman who started out as a production line worker in a Guangdong factory nearly 20 years ago.
Around 400 km (250 miles) north of the Pearl River Delta, Ganzhou sits at the crossroads of three of southern China's most economically vibrant provinces; Guangdong, Fujian and Hunan. Besides its relative coastal proximity, Ganzhou's surrounding counties are home to nearly 8 million residents with minimum wage levels around 40 percent cheaper than in Guangdong, making it a natural manufacturing spillover region for factories from the Pearl River Delta.
"The geographic location is good here," said Kong, who recently set up his LED lights factory in Ganzhou. "We can get to the Yantian port (in Shenzhen) for shipping in about four hours. It's also quite close to Shanghai," added Kong, speaking slightly accented Mandarin Chinese in a sign of his provincial roots.
Like many ambitious inland areas, Ganzhou has invested millions in new infrastructure, including a new airport, highways and railways to bolster the transport and logistics infrastructure so crucial to businesses. Keywords: CHINA MANUFACTURING/
This region, too, has attracted a dragon head company -- Nasdaq-listed contract manufacturer Flextronics (FLEX.O: Quote, Profile, Research, Stock Buzz). It will soon open a factory employing 11,000 in one of Ganzhou's new industrial estates to make transformers and power adaptors.
Rob Roohparvar, president of the Flextronics unit running the plant, estimates costs will be at least 10 to 15 percent cheaper in Ganzhou than the southern coast where the conglomerate and key rival of Foxconn runs its flagship China facility.
In the next five years, Zeng Weilin, vice director of the Ganzhou Development Zone, expects the region's GDP to quadruple and the number of factories to rise from 300 to over a thousand. Focusing on domestic buyers can help producers mitigate another risk: the appreciating yuan.
"The exchange rate has no effect on us, because our main market is 100 percent focused in mainland China," said Simon Lu Xingping, the head of Maniform, a fast-growing Chinese lingerie manufacturer headquartered in Shenzhen, which is building a 6,000-worker factory in Ganzhou.
Maniform is one of a batch of emerging Chinese manufacturers that started off as exporters or producers for overseas brands, picking up skills and know-how until they reached a point where they felt they could develop a brand themselves.
These Chinese competitors, often nimbler, highly entrepreneurial and more flexible than multinationals, have almost all targeted their lucrative home markets and have begun to set up vast retail networks and factories across the country.
Notable examples include those in the sportswear industry including Li Ning (2331.HK: Quote, Profile, Research, Stock Buzz), Anta (2020.HK: Quote, Profile, Research, Stock Buzz) and Hongxing Sports (CHXS.SI: Quote, Profile, Research, Stock Buzz). Global brands like Spanish clothing giant Zara (ITX.MC: Quote, Profile, Research, Stock Buzz) -- famed for the success of its rapid product development cycles -- and sportswear firm Puma (PUMD.L: Quote, Profile, Research, Stock Buzz) are reportedly planning huge expansion plans to target China's future middle class consumers.
"The internal business of consumption is competing now with the export business for space, for people, and it's driving the costs up in China. So that party (of cheap labor and exports) that we've had in the last 15 years is going away," said Rockowitz of Li & Fung.
But challenges loom for those moving to inland China.
Yifan Hu, chief global economist at Citic Securities, said the inland business environment is hampered by poor infrastructure, high transportation costs and a lack of developed free markets.
Ho, the Henan factory owner is critical of inconsistent and discretionary government policies that make it difficult for businessmen to map out longer term strategies and commit investment to the region, particularly smaller firms without the clout of a Foxconn.
"The legal environment isn't so good and everything is decided face to face with officials. You don't really know what you're getting. Their (preferential) policies need more clarity," Ho said.
Ho's transportation costs are almost double those in the Pearl River Delta, with the nearest port being the Lianyun port in Jiangsu province, almost 600 km (375 miles) away. Still, he says, transportation costs now only make up around 3.5 percent of his overall production costs so it's still manageable.
"There will be some shifting of products away from southern China to both the interior of China and outside of China," said Henry Tan, the CEO of Luen Thai Holdings, one of Hong Kong's largest listed textiles groups.
"However there will still be a portion of products that stay in the Pearl River Delta and the Yangtze River Delta, purely because of the convenience of supply chains, because all the fabrics, all the trims, all the development are there."
The waning of government stimulus efforts, which have done much to spur growth in China's rural areas over the past year or so, could also hamper the move inland. Local governments with shrinking budgets have less scope to scatter sweeteners to attract industry, Hu said.
Zhengzhou like other cities borrowed heavily to bankroll a blitz of marquee infrastructure projects, such as a new convention center, renovation of the business district and high-end property developments.
China's switch to a domestic consumption model will take time, even as exports contribute less and less to China's GDP -- now around 10 percent, Hu estimates.
"Some people think exports will not be the driver of China's economy in the future. I agree," Hu said. "But China's exports are still very strong, accounting for 20 percent of the world's exports. The share may remain the same but the growth may decline." She said the export sector's real contribution was to employment, rather than economic growth.
"No matter if it's high value-added or low-value-added they have to recruit more people … so as exports slow down I think the employment issue will really become quite intensive, maybe in the next one to three years, before they really transform to a domestic consumption-oriented economy."
Back at Foxconn's headquarters in the Shenzhen district of Longhua on a late sunny afternoon last week, tens of thousands of young workers cast off their uniforms and inhibitions, put on costumes, glitzy bikinis and bright wigs for the company-sponsored "Treasure Life" celebration.
At the rally, aimed at mending the company's image and improving worker morale after the suicides, Foxconn unveiled the "transformation" of its human resources management and new industrial strategy in China.
Hosting reporters for a rare visit inside the factory, Woo said the usually secretive Foxconn would now "open up". As China's largest employer, Woo said he hoped this new approach to Chinese industrial management would influence other firms.
Besides pledging to improve the lives of its workers through measures including wage hikes, capping overtime work at 36 hours a month from 80 and setting up 24-hour counseling services, Woo said the future for Foxconn lay in moving its factories closer to China's workers.
"We want to take out the 'migrant' from migrant worker," he said. Besides its Henan plant, Foxconn is also building new factories in Chengdu and Chongqing in Sichuan province, while it is negotiating with several other Chinese provinces about building other industrial campuses.
As the workers wended their way through the 3.3 square kilometer Longhua industrial fortress that pioneered the manufacture of some of Apple's iPhones and iPods, there was the sense of an era coming to an end.
The self-contained industrial city with its banks, bakeries, post offices, restaurants, shops, parks and dormitories catering to more than a quarter of a million workers, will eventually evolve into a higher-end research and development campus.
"Shenzhen will have more engineers than (production) line workers" in the future, said Woo, a development resonating with Shenzhen's overall economic blueprint to upgrade its industrial base and move up the value-added chain.
Some workers in the crowd that gathered for an open-air concert on a large artificial grass sports ground spoke of new hope for the future -- away from the coast.
"Everyone's talking about the new factories. If they move, I definitely want to move with them," said Yang Ning, a chirpy 22-year-old factory girl from Chongqing, one of the sites of a new Foxconn factory.
"Life here in the Pearl River Delta has been tough," she added as workers chanted effusively behind her. "I'll be glad to leave".
(Editing by Bill Tarrant)
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Special report: World's workshop heads to inland China | Reuters

-- The MasterFeeds

August 26, 2010

China's gold investment demand grew by 121% in 2Q- Central Banks buy more gold- World Gold Council Report ( WGC)

World Gold Council Report ( WGC)

WGC-  China's gold investment demand grew by 121% in 2Q- Central Banks buy more gold-

CONCLUSION: the WGC just reported its 2Q report ( see attached). Three key things:


1- ONE OF THE KEY NEW TRENDS IS CHINA WHERE RETAIL INVESTMENT DEMAND JUMPED BY 121% ( SEE PAGE 11). We continue to believe that deregulation of the gold market in China could OPEN a major new market for gold.






Gold Demand Trends for Q2 2010 out (see Enclosed file), and WGC press release below>





Demand for gold will remain robust during 2010 as a result of accelerating demand from India and China, as well as increasing global investment demand driven by continuing uncertainty over public debt and economic recovery, the World Gold Council ("WGC") said.

According to the WGC's Gold Demand Trends report for Q2 2010, published today, demand for gold for the rest of 2010 will be underpinned by the following market forces:

* India and China will continue to provide the main thrust of overall growth in demand, particularly for gold jewellery, for the remainder of 2010.

* Retail investment will continue to be a substantial source of gold demand in Europe.

* Over the longer-term, demand for gold in China is expected to grow considerably. A report recently published by The People's Bank of China and five other organisations to foster the development of the domestic gold market will add impetus to the growth in gold ownership among Chinese consumers.

* Electronics demand is likely to return to higher historic levels after the sector exhibited further signs of recovery, especially in the US and Japan.


Marcus Grubb, Managing Director, Investment at the WGC commented:

"Economic uncertainties and the ongoing search for less volatile and more diversified assets such as gold will underpin investment demand for gold in the immediate future. Further, in light of lingering concerns over public debt levels and the euro, European retail investor demand has increased significantly.

"Over the past quarter, demand for gold jewellery in key Asian markets has been challenged by rising local prices. Nevertheless, we are seeing a deceleration in the pace of decline in demand, providing a strong outlook for ongoing recovery in this crucial market segment."




* Total gold demand1 in Q2 2010 rose by 36% to 1,050 tonnes, largely reflecting strong gold investment demand compared to the second quarter of 2009. In US$ value terms, demand increased 77% to $40.4 billion.

* Investment demand2 was the strongest performing segment during the second quarter, posting a rise of 118% to 534.4 tonnes compared with 245.4 tonnes in Q2 2009.

* The largest contribution to this rise came from the ETF segment of investment demand, which grew by 414% to 291.3 tonnes, the second highest quarter on * Physical gold bar demand, which largely covers the non-western markets, rose 29% from Q2 2009 to 96.3 tonnes.

The MasterFeeds