Green warns on dangers of protectionism

By Peter Thal Larsen in London

Published: October 20 2008 19:46 | Last updated: October 20 2008 19:46



The credit crisis risks triggering a rise in protectionism that could prolong the downturn, the chairman of HSBC, the world’s largest bank, has warned.

Stephen Green acknowledged that the crisis had put free markets “in the dock” and that a recession, which now seems “inevitable”, would challenge the world’s commitment to free trade.

In a speech to World Financial Centres Summit, organised by the Financial Times and the Dubai International Financial Centre, he said: “Preserving the free-trade and open investment orientation that has helped humanity to become more prosperous than ever before in the last 50 years will be a major challenge, especially if the world faces a major slowdown.

“But as we look beyond the turmoil, and as policymakers consider how to prevent future crises, we must strive at all costs to avoid repeating the protectionist errors of the 1930s.”

HSBC has emerged from the credit crisis in better shape than many of its rivals, in spite of suffering heavy losses on its portfolio of subprime mortgages in the US. Unlike some rivals, HSBC has shrugged off the need to boost its capital reserves by accepting investment from the UK government.

The bank has also resisted buying distressed rivals in Europe and the US in order to stick to its strategy of expanding in emerging markets.

Underlining this focus, Mr Green said growth rates in Asia and the Middle East were likely to slow as a result of the downturn, but that they would continue to expand at a faster rate than western countries. As a result, local capital markets are likely to increase in importance.

“In the light of this financial crisis it would be hardly surprising if caution and scepticism about the western model of capital markets were to increase amongst emerging markets,” Mr Green said.

“Nevertheless, I believe the direction is clear: regional capital markets will develop and more of the capital generated in the fast growing emerging markets will stay closer to home in the future.”

Mr Green repeated his view that financial business models based on high leverage were “bankrupt”.

Copyright The Financial Times Limited 2008

Germany hits out at French protectionism plan

RENATA GOLDIROVA

22.10.2008 @ 09:14 CET




France's idea that EU governments take stakes in European strategic companies to shield them from foreign bidders and the impact of the financial crisis has ruffled feathers in Germany, with the country's economy minister immediately going public to defend free market rules.

"The French proposal ... goes against the successful principles of our economic policy," German economy minister Michael Glos said on Tuesday (21 October), AFP and FAZ report, shortly after Nicolas Sarkozy had presented his fresh economic vision in the European Parliament.


Mr Glos opposed the French push for wider protectionism by describing current state intervention in the banking and insurance sector as "an indispensable exception so as to prevent a possible breakdown of financial flows and help protect jobs and growth."

"Germany remains open to capital from all around the world," the German minister concluded.

Berlin also poured cold water over Mr Sarkozy's suggestion to set up an "economic government" to oversee the 15-nation eurozone.

The minister's remarks came hours after French President Nicolas Sarkozy told MEPs that he did "not want European citizens to wake up a few months from now and discover that European companies belong to non-European capital which has bought at the lowest point of the stock exchange."

He had added that the eurozone government should consist of heads of state and government and gather regularly to co-ordinate action.

It is not the first time in recent days that France and Germany have differed in their economic views.

At EU leaders' summit last week, the French president led calls for giving a helping hand to European industry, in particular carmakers, arguing that the US administration had injected $25 billion into the sector in cheap loans. But Berlin questioned the approach, diplomats said.

China Worries Downturn May Spur Protectionism

Editor: Sharon Li
23 Oct 2008 10:51:36 GMT

BEIJING -- With the world's major economies headed toward recession, China is starting to worry that its flashy trade surplus will elicit a protectionist backlash.

The topic will be raised at the Asia-Europe Meeting opening Friday, an annual summit of top leaders from the two regions. According to diplomats preparing the two-day meeting, protectionism and ways of alleviating the current financial crisis will be two key topics discussed.

European leaders have said they will use the meeting to promote a global system of financial regulation. French President Nicolas Sarkozy has expressed confidence he could win China's support for the effort, which could serve as a possible counterweight to U.S. resistance.

A Chinese government spokesman said Wednesday the meeting will be a "perfect platform" to discuss the crisis. Chinese leaders have also taken a keen interest in U.S. efforts to manage the crisis. On Tuesday evening, Chinese President Hu Jintao told U.S. President George W. Bush he hoped U.S. moves to stabilize its financial markets will restore investor confidence and prevent the financial crisis from spreading to the wider economy, according to the government-run Xinhua news agency.

China's financial institutions -- most of which are state-owned -- are relatively insulated from outside shocks, thanks to heavier regulation and government controls. That makes protectionism the greater worry for China.

In recent talks with senior Chinese officials, World Trade Organization Director-General Pascal Lamy said Chinese officials raised concerns about protectionism. "In their view there's a risk of it reviving," Mr. Lamy said in an interview in Beijing.

That has been reflected by pronouncements of senior officials and discussions in the state-run media. The Chinese official in charge of economic crisis management, Wang Qishan, said China wants a new round of trade talks to succeed and "firmly" opposes protectionism.

Part of China's concerns lie in its trade imbalance. Growth in exports has remained stable, but growth in imports has been slowing. That has helped give China a record $29.4 billion trade surplus in September, helping to drive foreign-exchange reserves toward $2 trillion.

The global slowdown could accelerate this pace. China's products are primarily low-cost, so tend to sell well during hard times. In past recessions, Chinese-made products have gained market share in the U.S. and could do so elsewhere as well, economists say.

"Made in China is the favored brand of worried Western consumers," said Ben Simpfendorfer, an economist with Royal Bank of Scotland. "We think they will gain significant market share in the euro area. They gained significant market share in the U.S. during the last global slowdown."

Although a pickup in demand would be good news for China's exporters, that dynamic helped to spur previous calls for protection against Chinese imports. This time, Chinese officials are worried that those calls could yield action damaging to China, particularly from the U.S.

Mei Xinyu, a trade researcher at China's Ministry of Commerce, said protectionist calls are likely to come from the U.S. if manufacturing there continues to erode. "We need to sound the alarm bell" even before protectionist calls start, Mr. Mei said.

Protectionist sentiment could also manifest itself in calls for China to stimulate domestic demand in order to boost imports.

In Europe, with manufacturing already depleted, low-cost Chinese goods are seen to help retailers and consumers more than they trigger job losses. The EU recently extended antidumping tariffs on Chinese shoe imports but declined to set new tariffs on Chinese steel.

China's concern about protectionism helps to explain its eagerness to complete the current round of global trade negotiations.

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John W. Miller, Ellen Zhu and Andrew Batson contributed to this article.