China’s Wen Rebuffs U.S. Calls for Stronger Currency

Bloomberg News

March 15 (Bloomberg) — China’s Premier Wen Jiabao rebuffed calls for the yuan to appreciate, risking a further deterioration in relations with the U.S. where lawmakers and economists say his stance is hampering a global recovery.

“I don’t think the renminbi is undervalued,” Wen said yesterday at a press conference in Beijing marking the end of China’s annual parliamentary meetings, using another term for the yuan. “We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.”

Non-deliverable yuan forwards fell the most in more than a month as Wen’s remarks prompted traders to reduce their expectations for appreciation in the coming year.

U.S. lawmakers, including Senator Charles Schumer, are proposing that China be hit with stiffer tariffs to compensate for the unfair export advantage they say comes from an undervalued currency. Economist Paul Krugman estimates that global growth would be about 1.5 percentage points higher if China stopped restraining the value of the yuan, and after Wen’s comments said the U.S. should consider putting a 25 percent surcharge on Chinese goods.

“Chinese officials are alone in their refusal to acknowledge that the yuan is undervalued,” Senator Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee, said in a statement responding to Wen’s remarks. “If they choose to stick their heads in the sand, we’ll have to find another way to address this problem because it’s been going on for far too long.”

Yuan Forwards Fall

Non-deliverable yuan forwards fell 0.2 percent to 6.6425 per dollar as of 11:45 a.m. in Hong Kong today, the biggest decline in more than a month. The contracts indicate that traders are betting the currency will gain about 2.8 percent in the next 12 months.

Wen also urged America to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit.

The U.S. currency has climbed about 7 percent from last year’s Nov. 25 low, according to the Dollar Index, a six- currency gauge of the greenback’s value.

Treasury Department figures show China’s holdings of Treasury securities dropped for a second month in December to $894.8 billion. Only Japan holds more Treasuries.

Wen, 67, echoed central bank Governor Zhou Xiaochuan’s comments that China needs to be cautious in ending crisis policies, which have included pegging the yuan at about 6.83 per dollar since July 2008 as the global financial crisis took hold.

One-Off Revaluation

The premier reiterated that the nation will keep the yuan “basically stable” and maintain a moderately loose monetary policy and a proactive fiscal stance. He said it’s “essential” for the timing of any policy changes to be appropriate.

“This is a sign that there will be no one-off revaluation in coming months,” said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong. “China’s top policy makers do have their own currency reform plans but coercion from other countries will do disservice to this cause.”

A bipartisan group of U.S. senators including Schumer, a New York Democrat, wrote Commerce Secretary Gary Locke last month, saying imports from China are being subsidized by that nation’s intervention in the currency market. Grassley, in his statement, said the U.S. should consider bringing a case against China’s currency policy at the World Trade Organization.

‘Strong Supporter’

The Chinese premier said that pressure for currency gains can amount to trade “protectionism,” adding that “I’m a strong supporter of free trade.” Protectionism affecting China will backfire because much of the nation’s trade involves foreign-invested exporters, Wen said.

The yuan rose 21 percent against the dollar between July 2005 and July 2008, before the government halted its advance to protect exporters. The dollar and the yuan have strengthened against the euro this year, pushing up the cost of Chinese exports in the European Union, the Asian nation’s biggest market.

Krugman, a Nobel Prize-winning economist, wrote in a March 14 New York Times editorial that China’s currency policy “seriously damages the rest of the world” and said Wen “absurdly” called the yuan fairly valued. A 25 percent surcharge on Chinese imports would force China to take action to revalue the yuan, he said.

‘Take a Stand’

“I don’t propose this turn to policy hardball lightly,” Krugman wrote. “But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand.”

Ballooning sovereign debt and high unemployment around the world could send the global economy into a second, or “double dip” downturn, Wen said. In China, inflation, combined with wide income gaps and official corruption, could lead to social instability “and even affect the government’s hold on power,” he said.

Policy makers have made managing “inflation expectations” a key task for this year. February’s gain in consumer prices was 2.7 percent, compared with Wen’s target of about 3 percent for the year. Zhou said yesterday that while the increase was a little higher than forecast, it hadn’t altered the central bank’s plans.

China’s goal is to grow without stoking inflation and while adjusting an economic model that has led to an “‘unbalanced, uncoordinated and unsustainable’’ expansion, Wen said. Officials will maintain ‘‘appropriate and sufficient’’ liquidity and keep interest rates at ‘‘reasonable’’ levels, he added.

Tibet, Taiwan

Wen blamed strains in China’s relationship with the U.S. on President Barack Obama’s meeting with the Dalai Lama and American arms sales to Taiwan. He expressed hope for an improvement in ‘‘our most important diplomatic relationship.”

Asked about increasing dissatisfaction among foreign businesses in China over the investment climate, the premier sought to reassure international investors.

In January, Mountain View, California-based Google Inc. said it may close down its Chinese Web site because of alleged cyber attacks and China’s ongoing online censorship.

“China will unswervingly pursue the policy of opening up to the outside world,” Wen said. “Foreign businesses are welcome to come to China to set up businesses according to the law.”

Grow Your Brain

The best leaders have healthy brains

“In essence, every organisation is a product of how its members think and interact.”
— Peter Senge

LAST week at IMD Switzerland, I met brain researcher Terry Small, who posed a very interesting question: “What is the most important part of your body with regards to leadership?”

I immediately answered, “The brain.” Our emotions, intellect, knowledge and expertise all reside in the brain.
“Absolutely,” he answered. And he asked a second question: “So, if your brain is critical to leadership success, how many books on the brain have you read?”

I had to pause for a second as I knew he was right. If the brain is so important to leadership, why aren’t leaders more interested in knowing how to develop and grow a healthy brain? Thus began my exploration of the brain and leadership.

The brain is involved in everything we do. In Primal Leadership: Realising the Power of Emotional Intelligence, Daniel Goleman, Richard E. Boyatzis and Annie McKee demonstrate that leaders appointed solely on the basis of IQ and technical ability, lack the necessary emotional competencies to lead effectively.

They argue that high-performing leaders have both high EQ and IQ levels. Both are directly connected and controlled by the brain. The limbic system in the brain controls your emotions, impulses and drives, whilst your neocortex is the part of your brain that manages IQ, knowledge and learning.

Human emotions are brain-controlled and spread charismatically whenever people are near each other, even with no verbal contact.

When emotionally engaging leaders were observed, their followers harmonised most readily with the leaders’ ideas, and ultimately “caught” the leaders’ moods.

Mental exercise

High-energy and positive leaders like British entrepreneur Sir Richard Branson effortlessly transfers optimism to his followers, while the negative ones wear down their employees.

On the other hand, when a leader perceives a threat or is under stress, their brain acts differently and an “amygdala hijack” is likely to happen, where we act on impulse instead of reason.

A person with high emotional intelligence vetoes this hijack, but an “untrained” brain will not be able to prevent an “amygdala hijack” and there will be a reactionary response.

(The amygdala is the part of the brain that figures how we process and recall emotional reactions.)
Wang Laboratories, a top technology company in the 1980s, was destroyed by a bad decision that was highly emotional by its then leader, An Wang.

A leader’s ability to manage emotions is critical as emotions can compromise or sabotage your ability to make effective decisions.

Recently, I wrote about “gut feeling” and how our life’s wisdom and experiences are stored by the brain and retrieved when we face an emergency complex situation.

World-class leaders learn to develop their “gut feel” by managing an emotional brain part called the basal ganglia.

Interestingly, our brain actually gets better the more we use it. The same with our bodies – the more you use it the longer it lasts.

Since 1986, scientist David Snowdon studied 678 nuns of Mankato, many of whom lived past 100 years. He painstakingly collected data, tested them and dissected their brains after death. Among the findings of this study:

● An active intellectual life prolongs your brain’s lifespan and protects you from the effects of Alzheimer’s disease;
● Those who express the most positive emotions in their language end up living longest;
● The brain retains the capacity to change and grow stronger even in elderly people;
● Those who teach and are constantly challenging their minds live longer than folks who don’t; and
● Strong bonding develops positive emotional intelligence, which leads to a sharper mind.

After the Mankato nuns’ deaths, scientists were shocked to see that parts of the brains that generally wither with age did not do so in the brains of these women. How did these nuns manage to remain sharp and productive even after 100 years?

Researchers have found that intellectual stimulation of only 20 minutes a day can spur new neuron growth. Brain exercises were the norm for these nuns, who lived by the principle that an idle mind is the devil’s playground.

They wrote spiritual meditations in their journals, letters to their politicians and doggedly challenged themselves with quizzes, puzzles, and debates on current events.

Understanding the feelgood factors

Your brain has the capacity to continue to develop and grow. A growing brain keeps mastering the competencies of leadership – everything from self-confidence and decision-making to empathy and persuasion to running effective meetings – until it gets it right.

Our brain thrives on change and challenges. But in most cases, people resist change because of the pain of change. The brain’s main function is to keep you alive and resist pain.

Generally, the brain pushes back when instructed what to do. This is attributed to homeostasis, the movement of organisms toward equilibrium and away from instructed change.

On the other hand, your brain will release an adrenaline-like rush of neurotransmitters when you figure out how to solve a problem yourself rather than being told how to solve it by your bosses.

When I returned to Malaysia 10 years ago and helped in the turnaround of an organisation, one of the methods we deployed was to conduct mini action labs, where employees were given the opportunity to solve a problem, recommend and implement the solutions.

Within a short period, there was high engagement and the turnaround was swift and effortless, driven by the employees.

Compare that with numerous attempted turnarounds when a commanding CEO comes in and dictates the terms of the change.

There is usually huge resistance to the change and failure. Leaders who leverage brain-power will understand the need for engagement and employee participation in any change effort.

Our emotional brain has neural pathways that pump out streams of good feelings when a goal is accomplished and reduces feelings of worry and frustration in achieving the target. Great leaders use this in their change efforts too.

Leadership by reflection

Many leaders still hold on to the old adage of leadership by command and control. Instead, empathy and social intelligence is the way forward. A newly discovered brain neuron, called the mirror neuron, enables leaders to learn empathy.

Mirror neurons, discovered accidentally by Italian neuroscientists monitoring a monkey’s brain, show that the brain has neurons that mirror what others do.

“When we consciously or unconsciously detect someone else’s emotions through their actions, our mirror neurons reproduce those emotions. Collectively, these neurons create an instant sense of shared experience,” wrote Goleman and Boyatzis.

Additionally, mirror neurons enable leaders’ emotions and actions to be mirrored by their followers. This role-modelling was never truly understood until the mirror neuron discovery.

So, a leader’s action is more important than his words. The brain thinks in pictures not words.
Finally, if you really have no time to develop and grow your brain, the least you can do is keep your brain healthy.

Small’s research concludes that by just eating a few prunes a day, you “reduce the chances of Alzheimer’s disease by 92%.”

The brain is 80% water. So, drinking lots of water keeps it hydrated, and listening to baroque music increases your ability to learn by 25% to 400%.

Like you, I am on this new journey of discovering the power of the brain in leadership. For starters, why not invest 20 minutes of doing something outside your comfort zone each day? At least you will grow some new neurons!

Source: SCIENCE OF BUILDING LEADERS By ROSHAN THIRAN
● Roshan Thiran is CEO of Leaderonomics, a social enterprise providing leadership development and consulting services to MNCs. Leaderonomics will hold a “Becoming A Talented Manager” programme on March 24 and 25 at Menara Star, Petaling Jaya. To sign up, call 012-3070326 or login to www.leaderonomics.com for details.

Traders Extremely Bearish on British Pound

Traders make bearish bets on sterling - Bets against the currency more than when Soros beat BoE

COPENHAGEN - Futures traders are more bearish than ever on sterling amid concern that the currency's worst annual start in 13 years will continue as the United Kingdom's budget deficit approaches the Greek shortfall that roiled the euro. 

Wagers on the pound weakening against the dollar outnumber futures that profit on a rise by eight times more than when George Soros made $1 billion betting against the currency in 1992, the year Prime Minister John Major's Conservative government was forced to withdraw from the European Exchange Rate Mechanism. Sterling fell 19 percent that year. 

The pound has lost 6.2 percent in 2010 on speculation a budget gap will skewer the currency: Either record borrowing will push debt costs higher and force policymakers to print more money to buy bonds, or lawmakers will cut spending too fast and trigger a new recession. Prime Minister Gordon Brown's government estimates the deficit will hit 12.6 percent of gross domestic product, almost as high as the 12.7 percent in Greece that drove European leaders to consider a bailout. 

"The risk of a UK double dip is substantial," said Hans-Guenter Redeker, London-based head of foreign-exchange strategy at BNP Paribas SA, which predicts an additional 13.6 percent drop to $1.31 by the end of 2010. "Sterling is increasingly trading like an emerging-market currency with rising bond yields no longer working in favor of the currency." 

Ten-year gilt rates have climbed more than a percentage point in the past year, the fastest increase since mid-2004.

BNP, whose Sept 8 forecast for this quarter is closest to the mark in a Bloomberg survey, is now the most pessimistic of 36 strategists. After reducing their median prediction 2 percent in January, strategists cut it 3 percent this month, the quickest drop since September. Twenty-two strategists see the pound ending the year below 2009's $1.6170 close. 

Brown said on March 10 the economic recovery is "still in its early stages and remains very fragile". His Labour Party is locked in an election battle that may lead to the first parliamentary stalemate in 36 years and reduce the chances of enacting his five-year plan to cut the shortfall to 4.4 percent of GDP, which Fitch Ratings already has called "too slow". 

Sterling was at $1.5167 on Monday, up 0.7 percent for the past week. The currency slid 0.2 percent against the euro to 90.63 pence, down 2.1 percent this year. The pound is the only one of 16 most-traded currencies tracked by Bloomberg to weaken over the past six months against the euro. 

Strategists remain bullish on the pound even after cutting their forecasts. The median prediction of 35 analysts in Bloomberg's survey calls for a 4.9 percent gain to $1.59 per pound by Dec 31, down from a consensus of $1.67 on Jan 28.

The pound's drop may already reflect the deficit. At 4.098 percent, 10-year gilt yields are up 115 basis points in the past 12 months and were 103 basis points higher than German bund rates on Feb 23, the biggest gap in more than four years. 

Greek yields have risen as much as 139 basis points this year and closed at 6.25 percent last week. Gilt rates have risen no more than 22 basis points since Jan 1, peaking at 4.23 percent on Feb 22. British government debt was 55.8 percent of the economy in 2009, less than half of Greece's 113.4 percent, according to Goldman Sachs Group Inc. 

The UK isn't facing a financial crisis in the "foreseeable future", You-Na Park, an analyst at Commerzbank AG in Frankfurt, wrote in a March 10 note to clients. 

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