A ruling with ramifications

WHEN China joined the World Trade Organisation (WTO) in late 2001, its share of world exports stood at 4.3%. By last year that share had soared to 10.6%, and the country had become the world’s biggest exporter. In addition to awe and envy, its rise has spawned a rapidly growing list of trade quarrels. China was a party to only two of the 93 trade disputes that were taken to the WTO between its accession and the end of 2005. But in the five years to the end of 2010, it was involved in 26 of the 84 cases filed at the forum.

On July 5th the WTO’s dispute-settlement body found against China on three linked complaints. The cases were brought by America, the European Union and Mexico in 2009 and took issue with China’s policy of restricting the exports of certain industrial raw materials, including bauxite, magnesium, zinc and silica, of which it is a leading producer. The plaintiffs argued that China’s policies gave domestic firms that use these commodities an unfair competitive advantage, while also restricting world supply of these inputs and causing their prices to soar. ...

Asia’s frothiest housing markets are calming down. Is America’s bottoming?

THE bubble that caused a global recession has been a long time deflating. The American housing market began to decline half a decade ago and hasn’t stopped yet. Prices dropped by 5.1% from the year before, according to the latest S&P/Case-Shiller national index. Among markets tracked by The Economist, only Irish homes have fallen further since 2006. Robert Shiller, one of the fathers of the Case-Shiller index, says more hard times lie ahead. Prices may slide another 10-25%, he reckons, as the economy wrings out the excess supply of the bubble years.

By our calculations, however, America’s housing market has overshot the fair-value mark, as measured by the long-run average ratio of house prices to rents. Rents are rising: an increase in the cost of rental housing contributed to May’s robust American inflation data. With home ownership looking a better deal, prices should stabilise. The Case-Shiller index posted a month-on-month increase in April for the first time since July 2010. It was not alone in showing gains. The Federal Housing Finance Agency (FHFA) price series ticked up in April for the first time since May 2010, and the CoreLogic index of home prices, a favourite of the Federal Reserve, notched price rises in both April and May. The pace of sales has been sluggish but an index of pending home sales posted a surprisingly large gain in May. ...

Experience suggests Greece’s privatisation plan is too fast

WITH a target of €50 billion ($72 billion) by 2015, Greece’s privatisation plan aims to raise more cash as a share of GDP than any OECD government has managed before. If the goal for listed companies is met, the market capitalisation of the Athens stock exchange would double. The economic benefits of privatisation are widely accepted: a 2003 OECD study found “overwhelming support” for the idea that “privatisation brings about a significant increase in the profitability, real output and efficiency of privatised companies.” But is Greece’s timetable too rapid?

Most privatisation programmes involve a trade-off between long-term structural reform and short-term fund-raising. In Greece’s case, there is an urgent need for money. Lenders want Greece to raise as much of it as possible so they can limit the amount they have to fork out in the next bail-out; the IMF hopes that asset sales will mean less growth-sapping austerity. ...

The man behind Muddy Waters, a scourge of listed Chinese companies

CARSON BLOCK isn’t the obvious candidate to show up John Paulson, a hedge-fund star who oversees $37 billion in assets. Mr Block is 35 years old. His previous business ventures include a Shanghai storage company called Love Box Self Storage. He co-authored a book called “Doing Business in China for Dummies”. Muddy Waters Research, his latest firm, has been around for only 12 months.

Most people on Wall Street hadn’t heard of him until last month, when he released a report accusing Sino-Forest, a Chinese forest-plantation operator listed in Canada, of overstating its timber holdings. Spooked investors sold the stock, which plunged by 78% in a matter of days, dealing Mr Paulson, Sino-Forest’s largest shareholder, around $110m in net losses after he dumped all his shares. ...

How vulnerable is Spain? The answer depends on which Spain you mean

EUROPE’S sovereign-debt crisis has already engulfed Greece, Ireland and Portugal. But the real fear is that it might spread to a large economy. Spain, whose GDP is almost double that of the three rescued countries put together, has long been a source of concern. Although it entered the crisis with relatively low public debt, at just 36% of GDP in 2007, that figure will rise to an estimated 68% by the end of 2011 because of big deficits. Worse, Spain shared several of the smaller economies’ weaknesses, like a loss of competitiveness and big current-account deficits.

The immediate threat of contagion from Greece receded on June 29th when the Greek parliament passed a plan for more austerity, opening the way for the country to get another chunk of bail-out money. But just as Greece’s problems have not really gone away, nor has Spain’s vulnerability. A land of striking physical contrasts, Spain has an economy to match. There are, in effect, two Spains, one vibrant and one sickly. Reinforcing one and reviving the other require painful reforms. ...

Plans to roll over private creditors’ Greek debt run into trouble

PITY the ratings agencies. During the financial crisis they were slammed for being in hock to the people they rated and for being hopelessly wrong on their structured-credit scores. Now they are being slammed for showing some backbone and for being right. On July 5th, for example, Moody’s downgraded Portugal’s rating to junk, prompting Jose Manuel Barroso, the head of the European Commission, to talk darkly of bias. “Our analysis is more refined and complete,” he said (in a Portuguese accent).

That the view of private ratings agencies should matter so much is partly the fault of the Europeans themselves. Take the negotiations on an agreement for private creditors to roll over as much as €30 billion ($43 billion) of Greek debt, to reduce the size of the country’s next official bail-out. A complex proposal advanced by the French banking lobby had been seen as a basis for such an agreement. ...

A hot market starts to sputter

BACK in May, the biggest problem for bankers, lawyers and accountants in Hong Kong was finding enough people to handle a deluge of initial public offerings (IPOs). Come July and the mood has abruptly changed. Officially only seven IPOs have been abandoned this year, meaning that a prospectus has been issued and withdrawn. But plenty more have been shelved at an earlier stage on worries about China’s slowing economy (which were reinforced by another interest-rate rise this week).

The bullish view is that any pause in the IPO frenzy will be short-lived. PwC, a consultancy, this week forecast that the second half of 2011 would be even more active than the first. It expects a total of 110 IPOs for the year in Hong Kong (after 48 in the first six months) and almost triple that number on the mainland, in Shenzhen and Shanghai. Edmond Chan, a PwC partner, points out that the first-half boom came in spite of Japan’s earthquake, the Arab spring and crisis in Greece. ...

The process of reducing the rich world’s debt burden has barely begun

FOR Federal Reserve officials, marking down America’s economic outlook has become a depressing routine. A year ago they projected growth of about 4% this year and next. By last month they had chipped those numbers down to 2.8% this year and 3.5% next. “We don’t have a precise read on why this slower pace of growth is persisting,” said Ben Bernanke, the chairman. But he ventured that “balance-sheets and deleveraging issues” may be stronger headwinds than expected.

The same diagnosis may explain similar disappointments in other highly indebted rich countries. In late 2009 the Bank of England reckoned Britain would be growing by 4% this year. It now thinks it will grow by closer to 2%; the private-sector consensus is a mere 1.5%. The Bank of Spain has avoided similar climbdowns by starting out pessimistic and remaining so. ...

Banks would do rather too well out of a proposed rollover

IMMEDIATE worries about a Greek debt default were allayed on June 29th, with the passage of a first vote in the Greek parliament on an austerity plan. Not before fear had spread well beyond the Aegean. The interest rates demanded by investors to hold Spanish and Italian government debt rose to their highest levels in seven months on June 27th, before slipping back. On June 29th America’s Federal Reserve extended a promise to provide dollars to other major central banks.

The pressure to put together a second bail-out package for Greece remains intense. A proposal from the French banking sector this week on rolling over privately held Greek debt is supposed to clear the way. Not all the details are clear but the plan seems to do too little to help Greece, and too much to help the banks. ...

Which emerging economies are at greatest risk of overheating?

WHEN the term “emerging markets” was coined 30 years ago by Antoine van Agtmael, then at the World Bank, these economies accounted for one-third of global GDP (measured at purchasing-power parity). Now they make up more than half. More dramatic still, emerging markets produced more than four-fifths of global real GDP growth over the past five years.

Important though these countries are, many commentators still tend to lump them together in a way they never would with developed economies. Headlines about rising inflation, rampant bank lending and a flood of capital inflows might appear to suggest that virtually all emerging economies are overheating. In reality, some are red-hot and others are only lukewarm. An analysis by The Economist tries to identify the hottest spots. ...