Monthly Archives: April 2010

Cathay says it has immunity in price-fixing case

Fri, Apr 23, 2010

HONG KONG – Cathay Pacific said Friday it had been granted immunity from any fine by British regulators in a price-fixing case with Virgin Atlantic, on condition that it offered full cooperation.

Britain’s Office of Fair Trading (OFT) said Thursday it was investigating whether the Hong Kong-listed airline and Virgin had infringed pricing law over the lucrative London to Hong Kong route.

The OFT said the matter had been brought to its attention by Cathay under the its leniency policy, which says a firm may be given immunity from penalties for being the first to report its participation in possible cartel conduct.

“Cathay Pacific has applied for and been granted immunity from any financial penalty by the OFT in relation to this matter, conditional upon Cathay Pacific’s full cooperation with the investigation,” the airline said in a statement posted to the Hong Kong stock exchange on Friday.

The statement said Cathay “has a policy of full compliance with competition law and will cooperate in full with requirements of any relevant authorities”.

The case concerns a number of alleged contacts between employees of the two airlines over a number of years, a statement issued by the British competition watchdog said.

Sir Richard Branson’s Virgin Atlantic has strongly denied the allegations.

“Virgin Atlantic intends to robustly defend itself against these allegations dating from 2002-2006,” it said in a statement.

“The airline does not believe that it has acted in any way contrary to the interests of consumers.”

It is alleged that the contacts “had the object of coordinating the parties’ respective pricing strategies regarding passenger fares through the exchange of commercially sensitive information on pricing and other commercial matters,” according to the OFT.

Comment: An interesting case of Game Theory “Prisoner’s Dilemma” at work?  The first party to report on the price fixing or anti-competitive behaviour gets away with it, while the other party(ies) get punished. If you don’t report, you don’t know if the other party will “play you out”. Seems like an interesting and effective way of breaking up tacit collusion among firms.


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IMF Urges Stronger Chinese Yuan; Japan Might Need More Stimulus

By Aki Ito

April 22 (Bloomberg) — The International Monetary Fund said China should let the yuan gain to cool growth, while Japan must be prepared to widen its stimulus measures as Asia’s two biggest economies diverge.

Japan, with its “tentative” economic recovery, is an exception in a region that’s leading the global rebound, the IMF’s semiannual World Economic Outlook, released yesterday, showed. The Washington-based lender that offered rescue packages to countries from Iceland to Ukraine during the crisis raised its projections for growth in Asia’s economies for 2010 and 2011.

Asia’s strengthening expansion, fueled by consumer spending and investment in China and India, means policy makers in several countries should embrace stronger exchange rates, the fund said. The Group of 20 emerging and developed nations, whose finance chiefs meet tomorrow in Washington, should discuss coordinating policies to strengthen the global recovery, the IMF said.

“Currencies of a number of emerging Asian economies remain undervalued, substantially in the case of the renminbi,” the IMF said in the report. Renminbi is a name for China’s currency, a denomination of which is the yuan. It’s “essential” for China to address excess demand pressures by “reining in credit growth and allowing exchange-rate appreciation,” it said.

The IMF’s comments reinforce calls from economic leaders from the U.S. to India, Brazil and Europe for China to allow the yuan to rise. U.S. lawmakers have proposed restrictions on Chinese imports to counter what they call the unfair export subsidy of an undervalued yuan.

Yuan Peg

Premier Wen Jiabao’s government has kept the Chinese currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years. China’s growth will accelerate to 10 percent this year from 8.7 percent in 2009, according to the IMF, which raised its 2011 projection to 9.9 percent from 9.7 percent previously. India will expand 8.8 percent this year and 8.4 percent next, compared with estimates from January of 7.7 percent and 7.8 percent.

Japan, which is projected to be surpassed by China as the world’s second-biggest economy this year, will expand 1.9 percent in 2010 and 2 percent in 2011 after a 5.2 percent contraction in 2009, the report shows. While Prime Minister Yukio Hatoyama’s government has urged the central bank to help whip deflation this year, the IMF sees consumer prices falling through 2011.

 BOJ Measures

 “For Japan, with the reemergence of deflation, the current accommodative monetary policy stance remains appropriate, but additional easing measures may be necessary if deflation persists,” the IMF said. The Bank of Japan in March doubled the size of a special three-month program providing loans to banks, to 20 trillion yen ($214 billion).

By contrast, central banks in India, Malaysia and Vietnam have started raising interest rates. India’s central bank on April 20 raised borrowing costs for the second time in a month and ordered lenders to set aside more cash as reserves. While China’s central bank has yet to increase rates, the government has stepped up measures to damp property prices in 70 cities that jumped a record 11.7 percent last month.

“Given the region’s strong recovery, planning the speed and sequencing of the exit from stimulative macroeconomic policies must become a policy priority,” the IMF said. “In China, the withdrawal of the exceptional monetary stimulus introduced in 2009 will also minimize the risks from excessively easy credit conditions.”

Other priorities for officials in Asia include preventing the development of “speculative booms” as the region’s growth outperformance attracts a surge of capital from abroad, the IMF said. Finance Ministers from the Association of Southeast Asian Nations said this month they are “cognizant” of the risks that foreign funds bring and the need to strengthen their “monitoring system” of such trends.

Last Updated: April 21, 2010 11:00 EDT

Comment:  Everyone is expecting China to revalue the Yuan, and Asian currencies to appreciate in tandem with the renminbi, spurred by the rapid economic recovery in the region.

Exchange rate appreciation is, however, a double-edged sword that can cut both ways, and its ultimate effects are by no means certain. While it may help to correct trade imbalances by making the country’s exports more expensive and imports relatively cheaper, it may also attract capital inflow giving rise to asset bubbles and inflationay pressure.  To some extent, the lowering of import prices resulting from currency appreciation may help control domestic price levels, but this depends on the country’s propensity to import. On the other hand, there could be other forces driving the country’s export growth (eg. input prices, productivity…) which may not be stemmed by exchange rate revaluation. So, revaluation is no magic pill for correcting trade imbalance.

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Singapore’s GDP soars 32 percent in first quarter

By ALEX KENNEDY, Associated Press Writer – Wednesday, April 14

SINGAPORE – Singapore’s economy soared in the first three months of 2010, bouncing back from a contraction the previous quarter as manufacturing more than doubled. Gross domestic product grew an annualized, seasonally adjusted 32.1 percent in the first quarter, led by a 139 percent jump in industrial production, the Trade and Industry Ministry said Wednesday. The economy grew 13.1 percent in the first quarter from the same period a year ago, and the government boosted its 2010 GDP forecast to between 7 percent and 9 percent from between 4.5 percent and 6.5 percent, the ministry said. Singapore’s strong GDP numbers suggest Asia has emerged from last year’s recession as a leading driver of global economic growth. The city-state was the first Asian country to report first quarter GDP results, while China is scheduled to do so Thursday. “The recovery of the Singapore economy has been stronger than expected and more entrenched since the beginning of this year,” the central bank said. “Looking ahead, domestic economic activity is likely to be sustained at a relatively high level.” The bank, known as the Monetary Authority of Singapore, said Wednesday that it has shifted its exchange rate policy from a 0 percent appreciation of the Singapore dollar to a “modest and gradual” appreciation in a bid to dampen inflation. The government also raised its inflation forecast for this year by 0.5 percentage points to between 2.5 percent and 3.5 percent. “Inflationary pressures are likely to pick up, driven by rising global commodity prices,” the bank said. – AP

Comment: Well, it looks like Singapore is headed for a V-shaped recovery! Some may argue that the growth rate seems high due to the low base coming from the recession. However, this does not negate the fact that the growth momentum appears to be getting stronger. This has given rise to some inflationary concerns as asset bubbles appear to be already forming. It is therefore not surprising that the MAS would shift its policy stance to a gradual appreciation of the Singapore dollar, to keep import prices down and control domestic price level.

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