Legion of Angels News Archive

NEW YORK (CNNMoney.com) – The United States has sneezed. And while it may be too strong to say that China has now caught a cold, it has, at the very least, come down with a bit of a runny nose.

And that’s not an encouraging sign for the U.S. economy.

China’s government reported on Monday that its economy grew 9% in the third quarter. That is, of course, still robust expansion by any measure.

But it is a cause for concern considering that China’s gross domestic product increased at a greater than 10% clip in the first two quarters of this year and has been growing at a double-digit pace annually since 2002.

The Chinese economy was expected to slow a bit following the Olympics in Beijing this past summer. But this is clearly more than a post-Olympic pullback.

It’s even more troubling when you take into account the fact that China is a big investor in U.S. stocks and bonds. The Chinese sovereign wealth fund China Investment Corp. has stakes in U.S. financial firms Morgan Stanley (MS, Fortune 500), Visa (V) and Blackstone (BX), for example.

And as I pointed out last week, foreign purchases of U.S. securities - with the notable exception of Treasurys - is starting to slow.

Simply put, a slowing Chinese economy is not good news for the United States. Consider another reason: China is an important customer of U.S. goods.

According to figures from the U.S. Department of Commerce, exports to China increased 18% last year. And China is now the country’s third-largest export market. China surpassed Japan in 2007 and trails only Canada and Mexico.

Christian Broda, an economist with Barclays Capital, said in a research report last week that China helped keep the U.S. economy from slipping into a deeper recession in 2001 since it was just beginning to become a more active trading partner with the rest of the world at that time.

China was only added to the World Trade Organization in December 2001.

But Broda pointed out that China’s exposure to the global economy is now double what it was in 1998-2002 because of its more active role as an importer and exporter. In other words, it’s now too big to be immune from the financial crisis.

“We don’t expect China to provide a buffer this time,” Broda wrote. “As growth decelerates in the developed world, there is unlikely to be a region in emerging markets that will act as a natural countervailing force.”

To be sure, China’s economy is not going to grind to a halt. But even a marginal slowdown could hurt large U.S. firms. Many of them have been able to offset sluggish growth in the United States with sales to China and other developing markets.

And it’s not certain that China’s economy will continue to keep expanding at such a rapid pace in the next few years if this credit crunch continues to persist for much longer.

“This enormous shock to the worldwide banking business, which was really magnified in mid-September, should probably lead to a reduction of 2.5% in the growth for all global economies next year. So if you thought China would grow 10% in 2009, you now have to figure it will grow 7.5%,” said Alexander “Sandy” Cutler, CEO of Eaton, a Cleveland -based manufacturer of industrial equipment.

Cutler said he expected China to remain a big growth opportunity for the company. Still, Eaton (ETN, Fortune 500) warned Monday that its fourth-quarter results would be lower than expected in large part due to slowing demand around the globe.

Construction equipment giant Caterpillar (CAT, Fortune 500) also hinted that China’s economy would slow down next year when it reported slightly lower-than-expected results for the third quarter Tuesday.

Stuart Hoffman, chief economist of PNC Financial Services in Pittsburgh, said it would not be a surprise if China’s slowdown affected other industrial companies, as well as tech firms that have increasingly looked to China as a growth market.

However, he added that there is one piece of good news worth mentioning - China is now the world’s second-largest importer of oil. So the sharp decline in crude prices could help keep China spending more than other countries.

And since China doesn’t rely as heavily on oil production as other developing nations - Russia being the most notable - it is unlikely to experience as much economic hardship due to falling oil prices.

Still, it’s crucial for the health of the U.S. economy that China’s doesn’t suffer a severe meltdown.

To that end, Treasury Secretary Henry Paulson is giving a speech in New York on Tuesday night about China and the global economy. It will be very interesting to hear what he has to say.

There is already some evidence to suggest that the two nations may need to work together to avert more global economic pain.

When the Fed announced a coordinated interest rate cut on Oct. 8 with banks in Europe and Canada, China’s central bank also lowered interest rates that day.

The Fed’s announcement didn’t mention the Chinese rate cut and China’s central bank didn’t acknowledge the rate cuts in the United States and Europe. But does anyone honestly think that the United States and China coincidentally decided on the same day to lower interest rates?

Make no mistake. The two countries clearly realize they need each other and that economic hardship suffered by the other is not good for either. China may not have the exact problems that the U.S. does but its third-quarter GDP slowdown is definitely a sign that the credit crunch is hitting China as well.

“This is proof positive that the world is very much interconnected and not decoupled. The U.S. is not the only locomotive for growth. China’s growth is likely to continue slowing down,” Hoffman said.

Source — CNN

WASHINGTON - The Bush administration, dismissing the recommendations of its top experts, rejected regulating the greenhouse gases blamed for global warming Friday, saying it would cripple the U.S. economy.

In a 588-page federal notice, the Environmental Protection Agency made no finding on whether global warming poses a threat to people’s health or welfare, reversing an earlier conclusion at the insistence of the White House and officially kicking any decision on a solution to the next president and Congress.

The White House on Thursday rejected the EPA’s suggestion three weeks earlier that the 1970 Clean Air Act can be both workable and effective for addressing global climate change. The EPA said Friday that law is “ill-suited” for dealing with global warming.

“If our nation is truly serious about regulating greenhouse gases, the Clean Air Act is the wrong tool for the job,” EPA Administrator Stephen Johnson told reporters. “It is really at the feet of Congress.”

White House press secretary Dana Perino said that President Bush is committed to further reductions but that there is a “right way and a wrong way to deal with climate change.”

The wrong way is “to sharply increase gasoline prices, home heating bills and the cost of energy for American businesses,” she said. “The right way, as the president has proposed, is to invest in new technologies.”

At the just concluded G-8 summit at Toyako, Japan, Bush and other world leaders called for a voluntary 50 percent reduction in greenhouse gases worldwide by 2050 but offered no specifics on how to do it.

In a setback for Bush, the Supreme Court ruled last year that the government had the authority under the Clean Air Act to regulate greenhouse gases as a pollutant. Bush has consistently opposed doing that.

Congress hasn’t found the will to do much about the problem either. Supporters of regulating greenhouse gases could get only 48 votes in the 100-member Senate last month. The House has held several hearings on the problem but no votes on any bill addressing it. Both major presidential candidates, Republican John McCain and Democrat Barack Obama, have endorsed variations of the approach rejected by the Senate.

In its voluminous document, the EPA laid out a buffet of options on how to reduce greenhouse gases from cars, ships, trains, power plants, factories and refineries. On Friday, Johnson called the proposals drafted by his staff as “putting a square peg into a round hole” and he said moving forward would be irresponsible.

“One point is clear: The potential regulation of greenhouse gases under any portion of the Clean Air Act could result in unprecedented expansion of EPA authority that would have a profound effect on virtually every sector of the economy and touch every household in the land,” Johnson wrote in the document’s preface Friday.

Attorneys general from several states called the administration’s findings inadequate.

“While we appreciate the effort that EPA staff made in putting together today’s documents, the time has long passed for open-ended pondering — what we need now is action,” said Attorney General Martha Coakley of Massachusetts, which initiated the Supreme Court case.

The EPA said it had encountered resistance from the Agriculture, Commerce, Energy and Transportation departments, as well as the White House, that made it “impossible” to respond in a timely fashion to the Supreme Court decision.

“Our agencies have serious concerns with this suggestion because it does not fairly recognize the enormous — and, we believe, insurmountable — burdens, difficulties, and costs, and likely limited benefits, of using the Clean Air Act” to regulate greenhouse gas emissions, the secretaries of the four agencies wrote to the White House on Wednesday.

Discussing the benefits from reducing greenhouse gases, the EPA said doing nothing more than increasing fuel efficiency standards under last year’s energy bill will reduce the harmful effects of global warming by $340 billion to $830 billion over the next three decades.

In a May draft of Friday’s notice, the EPA had put the benefits to society of further reducing greenhouse gases at $2 trillion.

Friday’s action caps months of often tense negotiations between EPA scientists and the White House over how to address global warming under the major federal air pollution law. It ended with the White House and other agencies citing “extraordinary circumstances” and refusing to review the draft forwarded in June by EPA scientists.

The document released Friday is much more cautious than a determination made in December by the agency that found greenhouse gases endangered welfare, and it also appears to counteract findings of drafts released in May and June that found the Clean Air Act could be an effective tool for reducing greenhouse gases.

“EPA’s approach to this has been completely thrown out by the White House, which is only attempting to stall any kind of cleanup,” said Frank O’Donnell,” president of Clean Air Watch, an environmental advocacy group. “It sounds like the Bush administration is trying to ignore the Supreme Court and to pretend it doesn’t exist.”

Rep. Edward Markey, chairman of the House Select Committee on Global Warming, called the administration’s findings “the bureaucratic equivalent of saying that the dog ate your homework.”

“The White House has taken an earnest attempt by their own climate experts to respond to the Supreme Court’s mandate to address global warming pollution and turned it into a Frankenstein’s monster,” said Markey, D-Mass.

Industry groups still expressed concern Friday over some of the suggestions included in the document, which will be the basis for a future action rule under a new president more inclined to take tougher action to address global warming.

“Our point on this is that EPA has set forth a road map which literally throws the entire way which we manage the environment and economy in complete turmoil,” said Bill Kovacs, vice president of the Environment, Technology and Regulatory Affairs Division at the U.S. Chamber of Commerce.

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On the Net:

EPA Advanced Notice of Proposed Rulemaking: http://www.epa.gov/epahome/pdf/anpr20080711.pdf

EPA Fact Sheet: http://www.epa.gov/epahome/anprfs.htm

Source — Yahoo!