There are other things Mr Yanai’s peers can learn from Uniqlo. One is the need for being direct. Few are his equal at framing the debate about what ails Japan.suited to thriving beyond the water’s edge.

Can China escape the debt crisis?

FEW DELUSIONS IN CHINA

My impression from China’s “Summer Davos” in Dalian is that Beijing’s elite is less deluded about the risks than Europe’s leaders were for so long.

“The whole world needs to lower its expectations from China,” said Mr Lee Kaifu, the country’s software mogul.

“There is an even bigger threat than a global double-dip, and that is a prolonged recession with no growth and very limited policies to fight it. We are already in it.”

Dr Cheng Siwei, head of Beijing’s International Finance Forum and a former vice-president of the Communist Party’s Standing Committee, said China is entering a “very tough period” as growth runs into the inflation buffers, paralysing the central bank.

“The inflation rate and the growth rate are conflicting with each other it is very troubling,” he said. China faces the sort of the incipient stagflation that hit the West in the ’70s.

Matters have reached the point that even a light tap on the brakes by China’s central bank — through credit curbs (deposit rates are still minus 3 per cent in real terms) — is already threatening a hard-landing.

Dr Cheng said local authorities had built up US$1.7 trillion in debt, mostly using arms-length finance vehicles.

This is coming back to haunt.

“The tightening policy is creating a lot of difficulties and causing defaults. This is our version of subprime in the US, and the government is taking this very seriously,” he said.

Whether the housing market will also set off a chain of defaults is the great question dividing analysts.

“Decidely bubbly”, is the IMF’s politically-correct view.

Its own data shows that price to income ratios range from 16 to 22 in the eastern cities of Shenzhen, Shanghai, Beijing, and Tianjin, multiples of the worst extremes in the very tame US boom.

Caixin Magazine

China has not abolished economic gravity.

Its policy of yuan suppression against the dollar and euro has been impossible to sterilise, leading to an imported credit bubble of epic proportions. Its export- led strategy has left it with a deformed economy that relies on perma-demand from exhausted debtors in America and Europe.

As China Premier Wen Jiabao said in Dalian, “China’s development is not yet balanced, coordinated and sustainable”.

The next five-year plan is a breakneck switch towards a domestic growth. Bravo, but awfully late.

China is acutely vulnerable to the second leg of depression in the West — should that occur — and cannot conjure a second rabbit out of the hat.

This will not stop the rise of China as the great force of 21st century, any more than America’s jolting upset in 1930 stopped US ascendancy.

Yet economic history has taught us two iron-clad rules.

There is no escape from credit hangovers, and surplus trading powers suffer just as much as deficit states — if not more — once Kondratieff slumps turn really serious.reports that Guangzhou R& F Properties is slashing prices by 20 per cent and other big developers may soon follow.

THE DA ILY TE LEGRAPH

Ambrose Evans-Pritchard is International Business editor at The Daily Telegraph.

Can China escape the debt crisis?

Ambrose Evans-Pritchard

When America became the first casualty of the global credit bubble in 2007, Europe’s political elites thought it had nothing to do with them.

TOO LITT LE CONSUMPTION

Whatever the mix: There is simply too much global investment, and too little consumption. 

[## How to cOnsUmE wIth lOwest Interest Rates  ? ? ? ?##]

The [lOwest Interest Rates] system is out of joint.

It does not feel like the 1930s because we are richer in the West, with a better safety net, and emergency stimulus has so far cushioned the effects, but Bertil Ohlin, John Maynard Keynes, and Irving Fisher would find it unnervingly familiar.

The “Savings Glut” flooded global bond markets, especially the EMU markets as central banks rotated into euros. Hence the collapse in yields during the long bubble.

Pension funds were forced to search for better return in ever riskier countries and assets to match their liabilities.

This is why Greece was able to borrow for 10 years at 26 basis points over Bunds, and Spain at four points of spread at the end of the boom, and why Italy’s €1.8 trillion (S$3.1 trillion) public debt did not seem to be a problem.

It [lOwest Interest Rates] hid all sins.

Capital was hanging from the lowest branches [Interest Rates], almost free for all. America took it, Britain took it, Iceland took it (a lot), and Euroland took it.

Yet China itself must ultimately be a victim of this warped structure as well, and that is where we are in late 2011. Act III of the global denouement is unfolding. The world will have to lance the debt boils of Asia as well before clearing the way for another cycle of global growth.

The facts are simple. China dodged the Great Contraction of 2008 to 2009 by unleashing credit on a massive scale.

Professor Zhu Min, the International Monetary Fund’s deputy chief and a former Chinese official, said loans had jumped from 100 per cent of GDP before the crisis to around 200 per cent today — if you include off-books financing from letters of credits, trusts and such like.

To put this in perspective, a study by Fitch Ratings found that credit in America rose by just 42 per cent of GDP in the five year period before the housing bubble popped. It rose by 45 per cent of GDP in Japan from before the Nikkei cracked in 1990, and 47 per cent before the Korean crisis in 1998.

Home construction is running at 10 per cent of GDP, about the same as Spain in the “burbuja” of late 2006, and much higher than in either Korea or Japan at any point during their catch-up Tiger phases.

WhAt is SINGAPORE's %age of HOME CONSTRUCTION to GDP ? ? ? ?

“China’s banking system is the largest, fastest-growing, but most thinly capitalised among emerging markets. Such a rapid run-up in leverage is a sign that the incremental return on credit has declined,” said Fitch.

The economic boost from each extra yuan of credit collapsed from 0.75 to 0.18 per cent during the crisis and has yet to recover.

> > Continued on page 19

Even after Lehman and AIG collapsed a year later — and Europe’s economy crashed into slump — it remained an article of faith in Berlin, Paris and Rome that this was just fall out from the Anglo-Saxon casino.

Few understood that the “China Effect” had engendered credit bubbles everywhere, and that Europe’s variant was even more pernicious because euro-banks were more leveraged, with much greater liabilities, and the structure of the Economic and Monetary Union (EMU) concentrated the damage on weaker states with no policy defence against sovereign collapse.

By the “China Effect”, I mean the Asian trade tsunami that flooded Western markets and deflated the price of everything from shoes and clothes, to washing machines and solar panels. This seduced Western central banks into running uber-loose monetary policies for 20 years, and disguised the build-up of dangerous asset bubbles.

[##How mUch is SINGAPORE's DANGEROUS ASSET BUBBLES  ? ? ? ?##]

It was coupled with Asia’s “Savings Glut”, as Federal Reserve chairman Ben Bernanke calls it. The rising powers accumulated US$10 trillion (S$12 trillion) of reservesdown currencies to gain trade share, or because their economic and social structure was geared towards mercantilism and excess output., either because they were holding

China’s consumption rate has fallen to 36 per cent of gross domestic product from 48 per cent in the late 1990s.

Academic libraries are bursting with PhD papers trying to explain why.

Some posit the welfare theory, arguing that ageing citizens must save for a future with almost no pension or health provision others that China has frantically leveraged an infrastructure and manufacturing boom to buy time and contain the wrath of 200 million migrant workers.

Barito will hold a 59.4 per cent stake and will remain a controlling shareholder of Chandra Asri.

– A unit of Singapore’s Temasek Holdings yesterday agreed to sell its 22.9-per-cent stake in an Indonesian petrochemical maker for about US$318 million (S$403.4 million) to Thailand’s largest industrial conglomerate, Siam Cement.DOW JONES

BOC ‘stops trading with some European banks’

BEIJING/HONG KONG

This is a reminder that some counterparties feel a little bit uncomfortable ... We’ve got many banks over-leveraged.

Rabobank’s Asia head of financial markets research Adrian Foster— Bank of China (BOC), a big market maker in China’s foreign exchange market, has stopped forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, sources with direct knowledge of the matter said yesterday.

Disclosure is important

Letter from Chua Soo Kiat

I thank the Government of Singapore Investment Corporation (GIC) for its prompt reply “GIC’s total portfolio value back to pre-crisis levels” (Sept 20) to my letter.

Since the General Election, Government institutions have become more responsive, which many Singaporeans welcome.

In relation to GIC’s reply, two areas deserve more clarification.

First, while I can appreciate GIC’s argument that it does not disclose strategies or details of specific investments to protect its competitive edge, why is it unable to disclose the aggregate value of its holdings and its annual profit and loss?

If such disclosures will erode an organisation’s competitive edge, both the Monetary Authority of Singapore (MAS) and Temasek Holdings would have been in trouble by now. But this is not the case.

MAS is a well-respected central bank with sound financial standing, while bonds from Temasek have credit ratings among the best in the world.

Second, while I am relieved that GIC’s total portfolio value is back to its pre-crisis level, we must be mindful the next crisis, if and when it hits, could be deadlier than the last one.

There is already talk of Italy collapsing, which could have unimaginable consequences on the global economy, especially as many governments now have less in the tank to reignite the economic engine.

Fiscal spending is not an option in many countries.

In short, should the crisis hit again, could GIC’s portfolio potentially suffer a bigger loss and with what chance of recovery?

It needs to explain what is being done to prevent a collapse in value.

We may not be twice lucky.

Over the years, the Government has put in place safeguards to ensure the reserves are not misused. Singaporeans have just elected a pair of steady hands to oversee this important task.

It is equally important to ensure there is timely, factual and comprehensive disclosure of the reserves and investments held at GIC, MAS and Temasek, to assure Singaporeans there is enough in the kitty for times of crisis or for future generations.

Ongoing and adequate disclosure will also prevent the masses from being misled by unsubstantiated or dubious reports on GIC’s performance, especially during critical times.

The less GIC discloses, the more rumours will thrive.

And I am still keen to hear from our newly-elected President on this matter.

Is GIC at mercy of ‘speculative returns’?

Letter from Lim Kay Soon

UBS chief executive Oswald Gruebel claimed that he would be unable to stop rogue trades from happening if the bank has, unfortunately, employed fraudulent traders.

Does it mean that if there are other such traders within UBS’ large investment team, such massive losses could be repeated?

If what he claims is true, the investment in UBS by the Government of Singapore Investment Corporation (GIC) may have to be reclassified, from one founded on prudence to a stake in a bank at the mercy of speculative returns.

Would this not be against the charter of GIC’s investment policy?

whO  mAde thE  UBS  InvEstmEnt  dEcIsIOn  at  gIc  ? ? ? ?

Management a profession? Where’s the proof?

Jeffrey Pfeffer

Good decisions rely on sound research — now if only managers would accept that

A few years ago, a compensation committee I was serving on was deliberating about the use of stock options for the senior executive team. As it happened, Penn State University’s Donald Hambrick had just published some revelatory research on how stock options affect a company’s risk behaviour.

When I asked our compensation consultant if he knew about the article, he said no. When I offered to send it to him (along with other important articles from the volumes of research on the topic), he had no interest.

How could someone we were paying so dearly for advice be so indifferent to evidence that might inform our decisions?

And why did my board colleagues not see this as cause to question our selection of adviser?

I was disappointed — but not surprised.

To be fair, our adviser’s behaviour was hardly unusual.

When I tell this story to others in the human resources consulting industry, they often suspect I am talking about someone from their company.

Harvard Business School’s Rakesh Khurana has embarked on a campaign to make management more of a true profession and he is right to bemoan that it is not.

But Khurana’s focus is on one aspect of professionalism:

The adherence to “higher aims” than self-interest or economic benefit.

In fact, professions have another defining feature:

A specialised body of knowledge that practitioners are obliged to apply in their daily work.

In law, people must pass an exam to gain admission to the bar.

In medicine, continuing professional education is required of doctors.

What is important, though, is not the licensing and courses themselves but the overall mindset that effective practice depends on awareness of advances in the field.

In business, the movement toward using the best available scientific data to make decisions — evidence-based management — seems to be growing.

It has the strong support of the Academy of Management and The Conference Board. The idea of competing on analytics is catching on. The venture capital community is investing eagerly in startups offering solutions that mine raw data for practical, strategic information.

But setting higher knowledge standards for managers will require action from many more constituencies.

Start with business schools.

As The Wharton School’s J Scott Armstrong and others have shown, research is the differentiating factor that makes some schools’ degrees more valuable than others’. Rigor can be eroded, for example, when students demand more enjoyable instructors for electives (often in leadership and entrepreneurship) and schools hire practitioners.

There is nothing wrong with the voice of experience — it often leaves a stronger impression.

But if those instructors are not proponents of science-based practice, their influence may weaken the intellectual foundations of business training.

Management publications also have their part to play. Too many books and articles purport to offer important new insights but fall short. When editors ignore prior research, they undercut the idea of cumulative knowledge building. When they fail to challenge methodologies, they publish invalid findings.

The most important actors, however, are the public and private organisations where management gets done. They must cultivate in their people the belief that good decisions depend on relevant evidence and data. They should compel managers to draw on sound research and learn deliberatively from experience.

The United States military regularly conducts after-action reviews, hospitals convene mortality and morbidity meetings.

Yet such voluntary formal reviews of decisions and their outcomes are rare inside companies — even the ones that have made costly blunders.

Surprisingly, it is in the startup world, where there are presumably fewer resources for analysis and less time for reflection, that I have observed the greatest reliance on accumulated evidence.

It is part of the ethos of the “lean startup” movement — after all, what better way to cut development time and costs than to avoid mistakes?

Before management can be considered a profession, its practitioners will have to see themselves as part of a larger purpose. But it took more than higher aims to move medicine beyond quackery. It took science and its application to practice.

In a world afflicted by complex problems, we should have more assurance that managers will also draw on knowledge greater than their own.

© 2011 Harvard Business Publishing (Distributed by The New York Times Syndicate)

Jeffrey Pfeffer is the Thomas D Dee II Professor of Organizational Behavior at the Stanford Graduate School of Business.

TheIr cOmpensAtIOns  have  nO  bAsIs tO bE bEbchmArkEd  tO  TOP 5 PROFESSIONALS  ? ? ? ?

GIC sought details of how UBS is tightening the control environment and looks forward to the conclusions of on-going investigations.

The Government of Singapore Investment Corp

whAt is  ThE PrEsIdEnt's  EXPERT  ADVICE ? ? ? ?