profit.com.pk Monday, 11 June, 2012

RAGHURAM RAJAN

Emerging markets around the world –Brazil, China, India, and Russia, to namethe largest – are slowing. One reason isthat they continue to be dependent, di-rectly or indirectly, on exports to ad-vanced industrial countries. Slow growththere, especially in Europe, is economi-cally depressing.

But a second reason is that they eachhave important weaknesses, which theyhave not overcome in good times. ForChina, it is excessive reliance on fixed-assetinvestment for growth. In Brazil, low sav-ings and various institutional impedimentskeep interest rates high and investment low,while the educational system does not servesignificant parts of the population well. AndRussia, despite a very well educated popu-lation, continues to be reliant on commodityindustries for economic growth.

Hardest to understand, though, iswhy India is underperforming so muchrelative to its potential. Indeed, annualGDP growth has fallen by five percent-age points since 2010.

For a country as poor as India,growth should be what Americans call a“no-brainer.” It is largely a matter ofproviding public goods: basic infrastruc-ture like roads, bridges, ports, andpower, as well as access to education andbasic health care. And, unlike manyequally poor countries, India already has

a very strong entrepreneurial class, areasonably large and well-educated mid-dle class, and a number of world-classcorporations that can be enlisted in theeffort to provide these public goods.

Satisfying the demand for such goods isitself a source of growth. But, also, a reliableroad creates tremendous additional activity,as trade increases between connected areas,and myriad businesses, restaurants, and ho-tels spring up along the way.

As India did away with the stultify-ing License Raj in the 1990’s, successivegovernments understood the imperativeof economic growth, so much so that theBharatiya Janata Party (BJP) contestedthe 2004 election on a pro-developmentplatform, encapsulated in the slogan,“India Shining.” But the BJP-led coali-tion lost that election. Whether the de-bacle reflected the BJP’s unfortunatechoice of coalition partners or its em-phasis on growth when too many Indi-ans had not benefited from it, the lessonfor politicians was that growth did notprovide electoral rewards.

In any event, that election suggesteda need to spread the benefits of growthto rural areas and the poor. There aretwo ways of going about that. The first,which is harder and takes time, is to in-

crease income-generating capabilities inrural areas, and among the poor, by im-proving access to education, health care,finance, water, and power. The second isto increase voters’ spending powerthrough populist subsidies and trans-fers, which typically tend to be directedtoward the politically influential ratherthan the truly needy.

In the years after the BJP’s loss, witha few notable exceptions, India’s politicalclass decided that traditional populismwas a surer route to re-election. This per-ception also accorded well with the me-dian (typically poor) voter’s lowexpectation of government in India –seeing it as a source of sporadic handoutsrather than of reliable public services.

For a few years, the momentum cre-ated by previous reforms, together withstrong global growth, carried India for-ward. Politicians saw little need to votefor further reforms, especially those thatwould upset powerful vested interests.The lurch toward populism wasstrengthened when the Congress-ledUnited Progressive Alliance concludedthat a rural employment-guaranteescheme and a populist farm-loan waiveraided its victory in the 2009 election.

But, while politicians spent the

growth dividend on poorly targeted give-aways such as subsidized petrol and cook-ing gas, the need for further reform onlyincreased. For example, industrializationrequires a transparent system for acquir-ing land from farmers and tribal people,which in turn presupposes much betterland-ownership records than India has.

As demand for land and land pricesincreased, corruption became rampant,with some politicians, industrialists, andbureaucrats using the lack of trans-parency in land ownership and zoning tomisappropriate assets. India’s corruptelites had moved from controlling li-censes to cornering newly valuable re-sources like land. The Resource Raj rosefrom the ashes of the License Raj.

India’s citizenry eventually reacted. Aneclectic mix of idealistic and opportunisticpoliticians and NGOs mobilized peopleagainst land acquisitions. With investiga-tive journalists getting into the act, land ac-quisition became a political land mine.

Moreover, key institutions, such as theComptroller and Auditor General and thejudiciary, staffed by an increasingly angrymiddle class, also launched investigations.As evidence emerged of widespread cor-ruption in contracts and resource alloca-tion, ministers, bureaucrats, and

high-level corporate officers were arrested,and some have spent long periods in jail.

The collateral effect, however, is thateven honest officials are now too fright-ened to help corporations to navigateIndia’s maze of bureaucracy. As a result,industrial, mining, and infrastructureprojects have ground to a halt.

Populist government spending andthe inability of the supply side of theeconomy to keep pace has, in turn, led toelevated inflation, while Indian house-holds, worried that no asset looks safe,have taken to investing in gold. BecauseIndia does not produce much gold itself,these purchases have contributed to anabnormally wide current-account deficit.Not much more was required to dampenforeign investors’ enthusiasm for theIndia story, with the rupee falling signif-icantly in recent weeks.

As with the other major emergingmarkets, India’s fate is in its own hands.Hard times tend to concentrate minds. Ifits politicians can take a few steps toshow that they can overcome narrowpartisan interests to establish the moretransparent and efficient governmentthat a middle-income country needs,they could quickly re-energize India’senormous engines of potential growth.Otherwise, India’s youth, their hopesand ambitions frustrated, could decideto take matters into their own hands.

Courtesy: Project Syndicate

ISLAMABAD

AMER SIAL

FRUSTRATED with thelethargy of the GENCOHolding Company (GHC) inresolving issues related withthe construction of the

stalled 425 MW Nandipur power plant inthe heart of the power shortages hit, Pun-jab, the government has directed thecompany to settle all the lingering issueswithin a week.

An official source said that the direc-tions were given at a specially convenedmeeting on June 8 to review the progressof the under implementation projects inthe public sector. He said the local bankswere asking for a new sovereign guaran-tee for their loan as the price of the im-ported machinery has increased. He saidthe foreign banks were reluctant to re-lease their committed amount withoutthe start of actual work on the site.

More than 60 percent completed proj-

ect near Gujranwala suffered a delay ofmore than two years due to inter-minister-ial row over legal interpretation, despitethe fact that the country is going throughprolonged load shedding. The ruling PML-N in Punjab has already accused the federalgovernment of delaying the project inten-tionally to cause power shortfalls in Punjabbecause the province is under its rule.

The Economic Coordination Com-mittee of the cabinet had approved the$329 million project in May 2007. TheChinese Dongfang Electric Corporation(DEC) was given the contract of the proj-ect in December 2007. It will be one ofthe most cost efficient power plant in thepublic sector as 150 mmcfd of gas is com-mitted for it, the source added.

The project came to a halt eventhough three gas turbines and generatorswere placed on their foundations andmajor portion of civil works for the plantand equipment was completed. The proj-ect plant and machinery arrived at theKarachi port in April 2010. The plant and

machinery valuing $80 million is lying atKarachi port and the contractor hasclaimed $20 million for inspecting, test-ing, repairing and re-purchase of thedamaged plants.

GHC was directed to immediately re-solve the issue, the source said addingthat as the same model will be appliedlater on for resolving the 525 MW Chi-chon-Ki-Malian Combined Cycle PowerPlant which is estimated to cost $ 354.5million. He said GHC has been asked toresolve the issue so that the release of thewithheld amount by the local banks ismade to restart the project.

The source said that the commis-sioning date for the first gas turbine of 95MW will be rescheduled to October 2012from the contractual commissioning ofOctober 2010. Dates for the second andthird gas turbines of 95.4MW each andfor the fourth combined cycle turbine of139 MW will also have to be rescheduled.As per the actual plan the project was tobe completed in 2011.

What happened to IndIa?

ISLAMABAD

NNI

The business leaders have demandedgreater inflow of Chinese investment inSouth Asia and creation of developmentfund to inject finance in mutually inter-ested areas, which will have multiplier ef-fect on economic cooperation betweenthe two biggest civilizations of the World.

This ideas was presented during the3rd South Asia-Sichuan Business Pro-motion seminar (SASBPS) inauguratedby Mr. Qu Mu Shi Ha, Vice Governor ofSichuan Provincial Government on June8, 2012 in Chendgu city of China andaddressed by Mr. Yu Xiaodong, DeputySecretary General of CCPIT, Beijing .

Mr. Tariq Sayeed in his speech at in-augural session presented salient fea-tures of Investment climate stating thatall eight countries had pursued liberalinvestment policies offering 100% eq-uity, Tax holidays for at least five years,High margin of profits, sovereign guar-antee, 0% to 5% duty on import of rawmaterials and preferred treatment forinvestment in Export Processing Zonesand asked the Chinese entrepreneurs toget maximum benefits through invest-ment, which was more powerful tools tomaximize economic cooperation be-tween China and South Asia.

Haji Fazal Kadir Khan, President ofFPCCI also spoke on the occasion andstated that Pakistan is proud to play therole of the rotating president country atthe China South Asia Business Forum.

Mr. Sherani invited Chinese invest-ment in power sector projects, explo-ration of coal and other mineralresources, nuclear power stations, hy-droelectric power, ship-building, high-tech machinery, infrastructure &construction etc; through joint ventures.He thanked the CCPIT for providingstalls and allied logistical facilities fordisplay of Pakistan products at Com-modities Fairs in Kunming andChengdu.

Mr. Annisul Huq, Immediate PastPresident of SAARC CCI proposed forcreation of South Asian DevelopmentFund by China, opening up Chinesebanks in all South Asian countries anddeepen cooperation in energy and foodsecurity, which in return will help rein-force Chinese economic growth.

Mr. Kosala Wikramanayake, VicePresident, SAARC CCI from Sri Lanka,Mr. Fazal Kadir Sherani, President,FPCCI, Mr. Suraj Vaidya, PresidentFNCCI, Nepal, Mr. M. A. Momin, Direc-tor, FBCCI, Bangladesh, Mr. haroonRashid, Vice President FPCCI and Exec-utive committee Member of SAARC CCIPakistan, representatives of FICCI,India, MNCCI, Maldives and CNCCI andother such important organizations pre-sented their view point at the seminar.In addition to ambassador ofBangladesh, Maldives, Nepal, and repre-sentatives of diplomatic missions fromAfghanistan, and Sri Lanka, Mr. HasanHabib, Consul General of Pakistan con-sulate in Chengdu also presented viewpoints to enhance economic cooperationbetween China and South Asia.

While moderating the session, IqbalTabish, Advisor to UNESCAP BusinessForum and Secretary General of SAARCCCI said that vast potential for eco-nomic cooperation was available, whichneeded to be tapped through collabora-tive efforts at both public and privatesector level in China and South Asia.

The seminar identified power gener-ation and energy, mining, textiles andgarments, infrastructure development,construction of ports and shipping,hydro power and non-conventional en-ergy resources, agro-processing, asareas of mutual cooperation for invest-ment and industry transfer. Seminarwas followed by B-2-B meetingsamongst South Asian and Chinese busi-nessmen and signing of MoU betweenCCPIT Sichuan Council and the Federa-tion of Indian Chambers of Commerceand Industry.

Rally’s stamina hangs onEurope Page 02

A week or sevendays; pick one

Dear China,Please invest more in South AsiaYours greedily,

Bemused businessmen

Govt directs GENCO Holding Company to resolveNandipur power plant issues within a week

PRO 11-06-2012_Layout 1 6/11/2012 12:45 AM Page 1

NEW YORK

REUTERS

sPAIN is expected to askthe euro zone for helpwith recapitalizing itsbanks, a deal that couldease markets’ most im-

mediate concern about the region’sfinancial crisis.

The euro zone’s deputy financeministers will hold a conference callon Saturday to discuss the request,five senior European Union and Ger-man officials told Reuters on Friday.

At a minimum under adverse sce-narios, several of Spain’s bankswould need about 40 billion euros or$50 billion of capital to meet coreTier 1 requirements under the BaselIII standards, the International Mon-etary Fund said in a report releasedon Friday night.

“All eyes are on what will happenwith Spanish banks over the week-end. The level of uncertainty is highand the fear in the market has cer-tainly elevated,” said Amy Wu, equityderivatives strategist at RBC CapitalMarkets in New York.

Wu noted that the volatility skewin options, which had decreasedgradually throughout the week, hasmoved back up. Volatility skew,which is affected by sentiment andthe supply-demand relationship,measures the premium for downsideputs compared to upside calls.

Christine Lagarde, managing di-rector of the IMF, said it is urgent thatEurope fix its banks and create a sys-tem for more unified bank supervisionwith a single deposit insurance fund.

“Let me be clear: The heart of Eu-ropean bank repair lies in Europe.That means more Europe, not less,”she said, in prepared remarks re-leased Friday night. The speech wasset for delivery before a Leaders Dia-logue in New York. Investors andU.S. policymakers worry Europe’spolitical and financial woes willthreaten the fragile U.S. economic re-covery. Besides Spain’s weakened

banks, parliamentary elections arescheduled in Greece on June 17. Theresults could decide whether thecountry continues austerity measuresit agreed to as part of an interna-tional bailout or whether Greeceleaves the euro zone.bad neWs priCed in: WallStreet has been hit hard by other con-cerns, including signs of a slowdownin U.S. growth and shrinking demandin China, the world’s No. 2 economy.

But some market participantssaid investors have priced in badnews out of the euro zone.

“I don’t think a lot more down-side is in the cards at this point” un-less there is another shock, saidNatalie Trunow, chief investment of-ficer of equities at Calvert InvestmentManagement in Bethesda, Maryland,whose firm manages about $13 bil-lion in assets.

The broad S&P 500 index fell 6.3percent in May, its largest percentagedrop since September. The Dow’s 6.2percent drop and Nasdaq’s 7.2 per-cent loss in May were their largestmonthly declines in two years.

On June 1 the S&P 500 endedbelow its 200-day moving average for

the first time this year, but the indexclawed its way back above the keylevel and rallied later in the week onhopes Europe would find solutions toits problems.

“The market has been basicallyexpecting bad news since earlier thisyear, so we have been pretty wellhedged to the downside. Now, it’s therally that is scaring people.” Wu said.

“You don’t want to be that personhaving to explain to your boss whyyou missed the rally.”

For the week, the Dow advanced3.6 percent, the S&P 500 rose 3.7percent and the Nasdaq jumpedabout 4 percent - their best weeklypercentage gains since December.

The U.S. economic calendar inthe coming week includes data onthe Producer Price Index and retailsales on Wednesday. Reports on theConsumer Price Index and initialweekly jobless claims are set forThursday. Data on Friday includesthe Empire State manufacturingindex, U.S. industrial productionand the preliminary reading for Juneon consumer sentiment from theThomson Reuters/University ofMichigan surveys.

news02Monday, 11 June, 2012

KEMAL DERVIS

The German government’s reaction to newlyelected French President François Hollande’scall for more growth-oriented policies was to saythat there should be no change in the eurozone’sausterity programs. Rather, growth-supportingmeasures, such as more lending by the Euro-pean Investment Bank or issuance of jointlyguaranteed project bonds to finance specific in-vestments, could be “added” to these programs.

Many inside and outside of Germany de-clare that both austerity and more growth areneeded, and that more emphasis on growth doesnot mean any decrease in austerity. The dramaof the ongoing eurozone crisis has focused at-tention on Europe, but how the austerity-growthdebate plays out there is more broadly relevant,including for the United States.

Three essential points need to be estab-lished. First, in a situation of widespread unem-ployment and excess capacity, short-run outputis determined primarily by demand, not supply.In the eurozone’s member countries, only fiscalpolicy is possible at the national level, becausethe European Central Bank controls monetarypolicy. So, yes, more immediate growth does re-quire slower reduction in fiscal deficits.

The only counterargument is that slower fis-cal adjustment would further reduce confidenceand thereby defeat the purpose by resulting inlower private spending. This might be true if acountry were to declare that it was basically giv-ing up on fiscal consolidation plans and the in-ternational support associated with it, but it ishighly unlikely if a country decides to lengthenthe period of fiscal adjustment in consultationwith supporting institutions such as the Inter-national Monetary Fund. Indeed, the IMF ex-plicitly recommended slower fiscalconsolidation for Spain in its 2012 .

Without greater short-term support for ef-fective demand, many countries in crisis couldface a downward spiral of spending cuts, re-duced output, higher unemployment, and evengreater deficits, owing to an increase in safety-net expenditures and a decline in tax revenuesassociated with falling output and employment.

Second, it is possible, though not easy, tochoose fiscal-consolidation packages that aremore growth-friendly than others. There is theobvious distinction between investment spend-ing and current expenditure, which ItalianPrime Minister Mario Monti has emphasized.The former, if well designed, can lay the foun-dations for longer-term growth.

There is also the distinction between gov-ernment spending with high multiplier effects,such as support to lower-income groups with ahigh propensity to spend, and tax reductions forthe rich, a substantial portion of which wouldlikely be saved. Last but not least, there arelonger-term structural reforms, such as labor-market reforms that increase flexibility without

leading to large-scale lay-offs (a model rathersuccessfully implemented by Germany). Simi-larly, retirement and pension reforms can in-crease long-term fiscal sustainability withoutgenerating social conflict. A healthy older personmay well appreciate part-time work if it comeswith flexibility. The task is to integrate suchwork into the overall functioning of the labormarket with the help of appropriate regulationand incentives.

Finally, particularly in Europe, where coun-tries are closely linked by trade, acoordinatedstrategy that allows more time for fiscal consol-idation and formulates growth-friendly policieswould yield substantial benefits compared to in-dividual countries’ strategies, owing to positivespillovers (and avoidance of stigmatization ofparticular countries). There should be a Euro-pean growth strategy, rather than Spanish, Ital-ian, or Irish strategies. Countries like Germanythat are running a current-account surpluswould also help themselves by helping to stim-ulate the European economy as a whole.

Slower fiscal retrenchment, space for invest-ment in government budgets, growth-friendlyfiscal packages, and coordination of nationalpolicies with critical contributions from surpluscountries can go a long way in helping Europe toovercome its crisis in the medium term. Unfor-tunately, Greece has become a special case, onethat requires focused and specific treatment,most probably involving another round of pub-lic-debt forgiveness. But insufficient and some-times counterproductive actions, coupled withpanic and overreaction in financial markets,have brought some countries, such as Spain,which is a fundamentally solvent and strongeconomy, to the edge of the precipice, and withit the whole eurozone. In the immediate shortrun, nothing makes sense, not even a perfectlygood public-investment project, or recapitaliza-tion of a bank, if the government has to borrowat interest rates of 6% or more to finance it.

These interest rates must be brought downthrough ECB purchases of government bondson the secondary market until low-enough an-nounced target levels for borrowing costs arereached, and/or by the use of European StabilityMechanism resources. The best solution wouldbe to reinforce the effectiveness of both channelsby using both – and by doing so immediately.

Such an approach would provide the breath-ing space needed to restore confidence and im-plement reforms in an atmosphere of moderateoptimism rather than despair. The risk of inac-tion or inappropriate action has reached enor-mous proportions. No catastrophic earthquakeor tsunami has destroyed southern Europe’s pro-ductive capacity. What we are witnessing – andwhat is now affecting the whole world – is a man-made disaster that can be stopped and reversedby a coordinated policy response.

Courtesy: Project Syndicate

Austere growth?

STEPHEN L CARTER

Since the failure of the effort to recallWisconsin Governor , a has been slith-ering through the commentariat: Public-employee unions are down and out.

They aren’t, of course. They remainas formidable as ever, and will spend thecurrent election cycle doing what theydo, spending tens of millions of dollarsto elect candidates who favor their inter-ests. We might be better off if the unionshad less political clout — as long as thepro-business groups that get up to thesame mischief were less powerful, too.

Or so argues , a regular contributorto Bloomberg View and a professor atthe University of Chicago Booth Schoolof Business, whose new book, “A Capital-ism for the People: Recapturing the LostGenius of American Prosperity,” was re-cently in Bloomberg View.

Despite the charmingly misleadingtitle, the volume is not a paean to forcedequalization of income or the strict reg-ulation of industry. Quite the contrary.Zingales, who seems to be something ofa moderate libertarian, wants to rescuemarkets and competition from the forcesthat threaten them: overregulation onthe left and, on the right, a pro-business(as opposed to pro-market) ideology.Crony Capitalism: This last dis-tinction is what makes his book so fascinat-ing. The great threat to our economic

future, in his telling, is crony capitalism,along with other forms of rent- seekingthat have become ubiquitous in a complexregulated state. Although much of the ar-gument might seem to be standard public-choice theory, Zingales provides anenormous service by laying out such per-suasive evidence. Most of the book is de-voted to setting forth an original,middle-ground program for getting us outof our current economic mess by reducingthe opportunities for rent-seeking and in-creasing the opportunities for competition.

No reader, including me, is likely toagree with everything Zingales says. Buthe provides a useful corrective to the slo-ganeering and cant that inform so much ofour public debate about economic policy.

Zingales considers the free marketboth a moral and economic imperative.He recognizes the current tide of populistanger, reflected in different ways in boththe Tea Party and Occupy movements —and that much of the anger is directedagainst capitalism in general and big busi-ness in particular. The real trouble, hecontends, is the death of the Horatio Algermyth. People no longer believe that hardwork and following the rules will get youahead. The game, they believe, is fixed.

Zingales thinks they’re right. Spe-cial interests — particularly big busi-ness and big labor — hold too muchinfluence over the divvying up of re-sources that has become among the

most important functions of govern-ment. His solution, however, is less reg-ulation, not more. He prefers fewer andsimpler rules, and a government thatencourages entrepreneurship withouttrying to become an entrepreneur.prediCtably, ZingalessCoFFs at nearly allbailouts: “As with the punishmentof children, the costs of financial distresshave an important incentive effect.”Were policymakers right in thinking thatwithout the 2008 bailout, the bankingsystem would have collapsed? Zingalesis skeptical. Government officials gottheir information from the very financialinstitutions they were charged withmonitoring. Naturally, he writes, everycall from to said, “Buy the toxic assets.”

At the same time, he tells us that he hasbecome a supporter (sort of) of the , whichseparated commercial and investmentbanking and was repealed in 1999. In eco-nomic terms, he concedes, the costs prob-ably outweighed the benefits. But the rulehad a simplicity that even a “six-year- oldcan understand”: “Banks should not gam-ble with government- insured money.”simple rules: Simple rules, hesays, are better than complex ones, inpart because they can actually be sub-jected to democratic debate, in part be-cause it is harder “to hide the loopholes.”If the basic problem slowing us down isa government built around secret favors

for special interests, then simpler ruleswill leave space for fewer favors.

Then there is the matter of taxes. Zin-gales would tax at the applicable personalrate, and in return would slice the corporateincome tax to avoid the problem of doubletaxation. In this way, as any number ofeconomists have pointed out, taxes wouldbe assessed on the profits distributed to theactual owners of the corporation.

But Zingales identifies a different ad-vantage. It is much easier for corpora-tions than for individuals — even verywealthy individuals — to lobby for specialtreatment in the tax code. If corporationsaren’t being taxed, or are being taxedonly a little, their incentives to seek rentsthrough the tax code evaporate.

He also sees the entire spectrum ofdeductions on individual returns as aninstance of special interests grabbingfederal subsidies. He would abolish alldeductions while cutting all tax rates, achange that would (he and others insist)produce the same amount of revenue.

Here I register a small but importantpoint of disagreement. Tax simplifica-tion is indeed imperative, and doingaway with deductions is an attractiveidea. But the special treatment for char-itable donations.

Everything else the governmentmight choose to subsidize through the —home buying, child care, and so on — itcan support directly, with full trans-

parency and opportunity for debate. Thecharitable world it cannot, both becausethe bureaucracy would lack the neededinformation and because governmentsupport would swiftly put an end to thediversity of civil society. I would turn thededuction into a refundable tax credit, toencourage giving even by those who aremost poorly off, and to acknowledge for-mally that a dollar given to support theinstitutions of civil society is no less im-portant than a dollar given to supportthe operation of the bureaucracy.

At the same time, Zingales does seethe tax code as a vehicle for certain incen-tives — not by creating a welter of deduc-tions but by deciding what to tax.Consider his approach to campaign-fi-nance reform. Rather than fussingaround in arguments over who should beable to give how much to whom, Zingaleswould prefer a progressive tax on all cam-paign contributions, as well as all moneyspent on lobbying. If it costs me $250 intaxes to make a $1,000 contribution, I amgoing to think twice. The bigger the con-tribution, the bigger the tax bill.

The genius of capitalism, he tells us,“is not private property, not the profitmotive, but competition.” He sees com-petition as important in the public aswell as the private realm — a propositionthat I will take up in a future column.

Courtesy: Bloomberg

WALL STREET WEEK AHEAD:

TRUE CAPITALISTS ARE PRO-MARKET, NOT PRO-BUSINESS

Rally’s staminahangs on Europe

Investorscelebrated USstocks’ bestweek in 2012 on Friday, but acloud hangsover Wall Street

PRO 11-06-2012_Layout 1 6/11/2012 12:45 AM Page 2

news

Monday, 11 June, 2012

03

APPLE’S WAR WITH GOOGLE HEATS UP:

BLOOMBERG

China’s consumer prices rose the least in two years in May and indus-trial output and retail sales trailed estimates, adding pressure for moreloosening after this week’s interest-rate cut.

Inflation slowed to 3 percent from a year earlier, the National Bu-reau of Statistics said today, compared with the 3.2 percent medianforecast in a Bloomberg News survey. Production increased 9.6 per-cent, lower than a projected 9.8 percent gain, and retail sales increased13.8 percent, the Beijing-based bureau said in separate statements.

Today’s data adds to concerns that global growth is stalling asGreece teeters on the edge of exiting the euro, prepares a request for abank bailout and U.S. job growth weakens. Premier may introduce ad-ditional stimulus to protect a full-year growth target of 7.5 percent evenas the nation wrestles with bad loan risks from local government debt.

“These data should defeat any remaining complacency that thepolicy response has been adequate to maintain steady growth,” saidShen Jianguang, chief Asia economist for Mizuho Securities Asia Ltd.in . “More dramatic easing, especially in housing and local governmentfinancing vehicles is urgently needed and necessary to avoid a hardlanding in the Chinese economy.”

Shen, who previously worked for the European Central Bank, saidhe expects at least one more reduction in interest rates and three cutsin banks’ reserve requirements this year.

CREdIT GRowTh

The reserve ratio has dropped by 150 basis points in three cuts sinceNovember to spur credit growth and now stands at 20 percent for thebiggest banks. The People’s Bank of China lowered benchmark lendingand deposit rates by 25 basis points effective yesterday, taking one-year borrowing costs down to 6.31 percent and one-year savings ratesto 3.25 percent. It also allowed banks more leeway to set their own .China’s fell yesterday, capping the biggest weekly slide this year, afterthe central bank’s move intensified concerns the nation’s economicslowdown is deepening. Stocks in declined yesterday after cut Spain’slong- term credit rating while the Standard & Poor’s 500 Index roseon speculation central banks around the world will add stimulus toboost growth.

oUTLook ‘BENIGN’

Slowing inflation “is what gave the central bank the confidence to cutinterest rates” on June 7, said Liu Li-Gang, head of Greater China eco-nomics at Australia & New Zealand Banking Group Ltd. in Hong Kong,who accurately forecast the consumer prices reading. “Given the fallingproducer prices, China’s inflation outlook remains benign and we expectanother cut in banks’ in June to boost slowing economic activities.” ANZsaid in a note yesterday it expects reductions totaling 150 basis pointsthis year while further interest-rate cuts will depend on inflation.

China customs data tomorrow may show and imports grew lastmonth by less than the government’s 10 percent target this year. Over-seas sales probably increased 7.1 percent from a year earlier while pur-chases rose 5.5 percent, according to the median estimates in

Bloomberg News surveys.Nations are acting to shore up growth as the global economy suf-

fers its steepest slowdown since the recession ended in 2009.

BoRRowING CoSTS

Australia and lowered interest rates over the past two weeks while theleft the door open at a June 6 press conference for a cut in borrowingcosts. Federal Reserve Chairman told a Congressional committee thisweek that policy makers will discuss later this month whether to domore to spur growth. China’s May growth was below 10 percent for asecond straight month, today’s data showed, the first time that’s hap-pened in three years. Power output rose at the second-slowest pace inthree years excluding distortions caused by the timing of the LunarNew Year holiday. Retail sales, which aren’t adjusted for inflation, rosethe least in almost six years, except for the January and February hol-iday months. Growth in sales of home appliances slid to 0.5 percentcompared with a 15.4 percent gain in May last year, after the govern-ment ended incentive programs.

At the same time, deliveries of passenger vehicles to dealershipsby automakers including Toyota Motor Corp. and Honda Motor Co.rose 22.6 percent last month from a year earlier to 1.28 million units,the China Association of Automobile Manufacturers said in Beijingtoday. The rebound came after sales fell 0.1 percent in May last yearas Japanese automakers cut production after ’s earthquake.

wEAkEST INCREASE

Fixed-asset investment, excluding rural households and not adjustedfor inflation, rose 20.1 percent in the first five months, compared withthe median economist estimate for a 20 percent gain. That was theweakest increase for a Jan.-May period since 2001, according to pre-viously released data.

China’s fell 1.4 percent in May from a year earlier, the statisticsbureau said in a separate statement. That’s the third straight drop andthe longest stretch of declines since 2009. The median estimate in aBloomberg survey was for a 1.1 percent decline.

Inflation in China has eased from a three-year high of 6.5 percentin July 2011, aided by government efforts to cool property prices, boostpork supplies and cut transport costs. Falling global commodity costshave helped. China yesterday announced a 5.5 percent cut in retailgasoline prices after global crude costs slumped. The move follows areduction last month that was the first since October.

‘ShARp’ dEfLATIoN

“China’s producers are seeing sharp deflation, pointing to a worryinglack of final demand,” said Alistair Thornton, a Beijing-based econo-mist with IHS Global Insight. The decline in prices, combined with the“sharp” drop in the prices gauge in May’s purchasing managers’ index“points to considerable sluggishness in domestic manufacturing activ-ity” and should “act as a spur for the government to move more ag-gressively,” he said.

The nation’s biggest cement producer, warned this week its first-half profit probably fell more than 50 percent as prices of its products

“dropped significantly” due to slower growth in fixed-asset investment.expanded 8.1 percent in the first three months from a year earlier,

the fifth quarterly and the slowest pace in almost three years. Growthmay slide to 7 percent to 7.5 percent this quarter, Lu Ting, head ofGreater China economics at Bank of America Corp. in Hong Kong, saidin a note today. “We expect the government to start and speed up moreprojects on the one hand and to make easier” by cutting reserve re-quirements and interest rates, approving more corporate bond is-suance and lifting lending restrictions, he said.

—Zhou Xin. With assistance from Ailing Tan in , Cynthia Li in HongKong, Penny Peng and Chua Baizhen in Beijing. Editors: Nerys Avery,

SAN FRANCISCO

REUTERS

mORE than ever, theconsumer electronicsjuggernaut finds itselfin a pitched battle withthe online search giant

- in smartphones, cloud computing and thenever-ending competition for the heartsand minds of the best software developers.

Apple on Monday is expected to an-nounce its own mapping application, chal-lenging the position of Google Maps as oneof the most-valued features on the iPhone.It will unveil closer integration of itsiPhone apps and iCloud storage servicewith all its devices, the latest riposte in itsbattle with Google’s Android smartphonesoftware. It may promote the latest in Siri,the voice interface that the company thinkscan continue to set the iPhone and the iPadapart from the Android pack. And therewill likely be a new line of Macintosh lap-tops too - underscoring the leverage that afull line of hardware productscan bring to what is mainly asoftware war with Google.

Apple is lookingto differentiateits mobile de-vices fromG o o g l e ’ sAndroid byfurther en-ticing con-s u m e r sdeeper intoits appe c o s y s t e m ,said CarolinaMilanesi, analystat Gartner Re-search. “It’s allabout loyalty and

basically leveraging the opportunity ofselling more to them,” she said. “I don’tthink the consumers in the mass marketare necessarily tied into the Androidecosystem in the same way that con-sumers on the Apple side are.”

Battling in many arenas, the rivals em-ploy different weapons. Apple’s vise-likegrip on its ecosystem - with the closelymanaged app store and its seamless inte-gration with the hardware - stands in sharpcontrast to Google’s free-for-all approach.The open system approach, reminiscent ofMicrosoft Corp’s hugely successful strategyof creating standard-setting software thatruns on a variety of hardware, has allowedAndroid to capture the market lead insmartphones (albeit with nothing close toApple’s profit margins).

Android has also helped create sev-eral potent hardware rivals to Apple.Samsung Electronics’ Android-driven

Galaxy SIII is drawing favorablecomparisons to iPhone and Ama-

zon.com Inc’s cheaper KindleFire is challenging

Apple in tabletsand digital con-

tent.Apple’s ex-

pected move toreplace GoogleMaps with itsown mappingapplication is a

particularlydramatic ex-ample of how

the rivalry be-

tween the companies has been evolving.Google has invested huge sums in its map-ping technology over the years, and abouthalf of its map traffic now comes fromiPhones and iPads. Among other things,the traffic from those devices reveals valu-able location data that helps improve themapping service and provides features likereal-time traffic reports. Apple has spentthree years preparing to take mappingback. It has integrated technology from ac-quisitions such as 3D mapping company C3Technologies, Canadian startup Poly9Group and mapping service Placebase, saidISI analyst Brian Marshall.

“As Apple builds out its Siri service,they build out the iCloud infrastructureand more capability into its operatingsystem, location data is going to becomeimportant,” said Sterne Agee analystShaw Wu. “This could help their advertis-ing business too.”multi-pronged battle: In whatwas seen as a pre-emptive move againstApple’s upcoming maps service, Googleon Wednesday showed off its own map-ping capabilities, including soon-to-be-launched 3D features.

While Google executives avoided anycomment on the possibility of beingousted as a default service on Apple de-vices, one executive said the integrationwith Google’s search engine provides amapping service that is far more usefulthan a product that simply uses a“geocoder. Apple began to use its owngeocoder - technology that uses geo-graphic coordinates to create a digitalmap - for the Google-based maps on its

smartphones late last year, a move thatwas seen as a precursor to Apple using itsown map software.

Another software upgrade that fansand developers are hoping for is Siri, apopular voice-enabled personal assistantservice that Google has yet to match.

The service could come out of its betatesting phase and show up on the iPadwhen Apple unveils iOS6 or the next ver-sion of its mobile operating software. Siri,which has been plagued with connectivityand other issues, is still in beta test version.

Apple’s global war on Google and An-droid in the courts is one sign of how se-riously it is taking the potential threat.The consumer device giant is seeing lim-ited success, though, in courtrooms forvarious patent infringement cases it hasagainst Android manufacturers.

Apple said this week it is mulling alegal order to stop the U.S. launch ofSamsung Galaxy S III phone later thismonth. Samsung is one of the biggest An-droid phone manufacturers. In another ofthe many lawsuits worldwide pittingApple against Motorola Mobility, nowowned by Google, a federal judge can-celed a scheduled trial as neither couldprove damages. That decision particu-larly hurts Apple because the iPhonemaker was seeking an injunction barringthe sale of Android products, said BrianLove, a professor at Stanford Law School.“The Android side is likely thrilled to sim-ply have the case go away,” Love said.Apple declined to comment on the case.maCbooK redesign in tHeWorKs: Where Apple has the upper

hand is in its hardware - groundbreakingin design, vastly popular with consumersfor its ease of use.

The redesigned MacBook laptops tohit the stage next week are expected to in-clude high-definition screens and IntelCorp’s Ivy Bridge cutting-edge proces-sors. Some even expect the iPad’s “retina”display to show up on the MacBook line.

This would be Apple’s first big re-design of the MacBook Pro since mid-2009. With the new lineup, it hopes tofend off budding competition from rivalmanufacturers who are pushing a spate ofnew, thinner laptops called “Ultrabooks.”

Windows 8, a new version of Mi-crosoft’s flagship operating system thatruns on tablet computers as well as PCs,will bolster PC makers’ ability to offerpremier computers rivaling Apple’s Mac-Book line. Already, about 20 touch-en-abled ultrabook designs with variousstyles of foldable, detachable or slidingkeyboards running the new Windows 8system are in the pipeline. The MacBookline generated 13 percent, or about $5 bil-lion, of Apple’s fiscal second-quarter rev-enue. Unit sales of the aging lineup wereup 7 percent from the previous year butwere down 23 percent sequentially.Whatever the case, Apple fans and part-ners can look forward to a fairly action-packed week. “Apple is very serious aboutgetting far in front of Windows 8 and Ul-trabooks,” said Barclays analyst Ben Re-itzes. But “software and services will bethe focus, with major enhancements toMaps, iCloud and Siri, which developersand users can take advantage of.”

Google continues to upset the Applecart g When Apple Inc kicks off its annual conference for software developers on Monday, all the power players in

the Apple universe will be on hand, save the one that is in many ways driving the agenda: Google Inc

China’s slowing inflation, output growth add easing pressure

KARACHI: The former MNA, founder President WCCI, V.P, FPCCI and

prominent social personalty Begum Salma Ahmed, hosted a reception at

Bhopal House. Photo shows Speaker Sindh Assembly Nisar Ahmed Khuro, C.G.

of Russia Andrey V. Demidov, C.G of Japan Masaharu SATO, Salma Murad, CEO

of TANEEZ Jewlry Zeenat Saeed, Kousar Junejo and others.

PESHAWAR: Mr Imran Samad Group Head Credits The Bank of Khyber (BOK) and Ch.

Aslam Feroze Executive Director United Insurance Company (UIC) signing MOU for

BOK Agriculture Loans insurance coverage in presence of BOK’s Managing Director Mr.

Bilal Mustafa, BOK’s Executive Director Mir Javed Hashmat and other BOK – UIC senior

officer at BOK Head Office Peshawar.

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