In this issue:

Machine-Tool Production Plummets Worldwide; China Now Biggest Machine-Tool Consumer

German Government, Bundesbank Consider Banking Collapse Scenarios

'Worst Year in History' for Germany's Second-Largest Bank

Financial Times: Time for Central Bankers Is Running Out

Southern Sudan To Receive Increased Development Aid from Bush Administration

Huge Congo River Hydro-Power Project To Double Capacity in Southern Africa

Zoellick in China, Attempts To Crack Chinese Markets

China's Industrial Production, Foreign Direct Investment Grow


From Volume 2, Issue Number 8 of Electronic Intelligence Weekly, Published Feb. 24, 2003

World Economic News

Machine-Tool Production Plummets Worldwide; China Now Biggest Machine-Tool Consumer

Worldwide machine-tool production for 2002 plunged by 16%, according to preliminary figures presented on Feb. 17 by the German machine-tool association VDW. The global output of machine tools, which peaked in 1989 at the equivalent of 40.9 billion euro, plunged to 32.8 billion euro in 2002, compared to 39.1 billion euro in 2001, and 40.1 billion euro in 2000. In Germany as well, machine-tool production fell by 17% last year. However, as the production decline in Japan, at -31%, was even more dramatic, Germany is now clearly the biggest producer of machine-tools worldwide. The output of U.S. machine-tool producers crashed further last year by 37%, and now amounts to just half the output of Italian producers.

While the consumption of machine tools by German (-20%) and U.S. (-40%) corporations fell sharply last year, China for the first time emerged as the largest consumer of machine tools in the world. The German machine-tool association emphasizes in its report that China offered the only ray of hope last year: While exports to every other important market were shrinking, exports of German machine-tools to China last year increased by 32%.

Production of machine tools
(billion euros)
Country 2001 2002
Germany 8.6 7.2
Japan 8.5 5.9
Italy 4.2 4.0
China 2.9 3.2
USA 3.2 2.0

Consumption of machine tools
(billion euros)
Country 2001 2002
China 5.3 6.0
Germany 6.4 5.1
USA 5.8 3.5
Italy 3.4 3.1
South Korea 2.1 2.0

The year 2002 figures in the two tables are projections based on the results in the first three quarters.

German Government, Bundesbank Consider Banking Collapse Scenarios

The German government and the Bundesbank (the German Central Bank) are developing scenarios for a banking collapse, according to the German financial weekly Focus-Money Feb. 19. Focus-Money reports on a special gathering Feb. 16, at the Chancellor's Office in Berlin. Chancellor Gerhard Schroeder, Economics Minister Clement, and Finance Minister Eichel had invited top managers of German banks to discuss issues, such as the worst crisis of the German banking system in 50 years. It was decided at the meeting that Eichel, in close cooperation with the Bundesbank, will have to work out scenarios and possible counter-measures concerning major disruptions in the banking sector, including the collapse of a larger financial institution. The German Finance Ministry declined comment on the report.

'Worst Year in History' for Germany's Second-Largest Bank

The chief executive officer Dieter Rampl of HypoVereinsbank (HVB), Germany's second-largest bank, noted in a statement that last year was the "worst and most difficult year in the bank's history." During the fourth quarter alone, the Munich-based bank produced a loss of 926 million euros, the biggest quarterly loss reported by any German bank since World War II.

HVB had a particularly high exposure to failed German corporations as well as to victims of the summer 2002 floods. For the first time in more than half a century, HVB had to eliminate its dividend payments. The bank announced plans to cut 9,100 jobs.

Financial Times: Time for Central Bankers Is Running Out

The time for central bankers is running out, and governments might soon take over the banking systems, states a London Financial Times editorial by Alan Beattie Feb. 21: "Central bankers these days must sometimes feel like the bewildered French commanders in 1940 who sat in the bunkers of the Maginot Line as German tanks simply swept around it. Having spent the 1980s and 1990s constructing a bulwark against price inflation, central banks are finding that securing victory against one old adversary does not guarantee economic peace. The three-year slide in world stock markets, the worst since the Great Depression, is threatening new sources of economic turbulence."

After reviewing the options left for central bankers to fight the implosion of stock prices, including calls by Wall Street on the Federal Reserve to take "extraordinary measures," Beattie notes that "there are even more dramatic changes possible if these measures are not enough." He points to California fund manager Paul McCulley of Pimco, the biggest bond fund in the world, who "speculates that central banking is on the brink of a regime change. The equity bubble that made it so cheap to raise capital was accompanied by huge corporate leveraging and over-investment." These debt bubbles could soon burst as well.

"If central bankers continue to insist they are powerless to prevent equity bubbles and their consequences, Mr McCulley says, responsibility will be removed from them. He suggests that governments, as the only potential source of sustainable borrowing and spending in the economy, could take the lead."

Such predictions "seem alarmist and apocalyptic" at this point, says Beattie. However, should stock markets continue to go down and drag economies down with them, central banks might be shaken to their very core. "That distant rumble just discernible from inside the bunker could be the sound of trouble ahead."

Southern Sudan To Receive Increased Development Aid from Bush Administration

Under President George W. Bush's proposed new budget, Sudan "may receive nearly $50 million in U.S. development aid next year, which would be five times the amount it got last year. Almost all that money is intended for projects in rebel-held areas," wrote Kevin Kelley in Nairobi's The East African of Feb. 10. Kelley draws on information from John Prendergast, a Sudan specialist and Khartoum-hater at the U.S. National Security Council in the late 1990s, who is now an analyst for the International Crisis Group.

Prendergast said the increase was part of the strategy to end the civil war in Sudan by demonstrating strong support for the rebels; The East African adds, "And momentum toward a peace settlement does appear to be growing, according to many independent analysts, including Mr. Prendergast. He says the southern rebels and the Khartoum government are now likely to reach a settlement within the next few months."

Huge Congo River Hydro-Power Project To Double Capacity in Southern Africa

Led by Eskom (South Africa's government-owned power company), the 12 countries of the Southern African Power Pool (SAPP) are in the process of forming a company—Western Power Corridor (Westcor)—to generate hydroelectric power and provide power transmission and telecommunications, Business Day of Johannesburg reported Feb. 13. Meetings to that end were held in the week ending Feb. 14.

The projected capacity, 39,000 MW, is huge by African standards, and will nearly double existing capacity of 43,000 MW of hydroelectric and thermal combined, in the SAPP countries.

The electricity will be generated at the Inga Grand site on the Congo River in the Democratic Republic of Congo. Inga is downstream from Kinshasa, just before the Congo River becomes the boundary between Zaire and Angola.

Nelson Ijumba, dean of engineering at the University of Durban-Westville, said Feb. 12 that the project would unfold in phases. Initially, it will provide 3,000-5,000 MW, distributed over 3,000 kilometers to member countries.

Inga Grand is one of five NEPAD (New Partnership for Africa's Development) projects that Eskom intends to lead. The planning for the project has been progressing for several years, with some support from the U.S. Agency for International Development and Purdue University in the United States. SAPP was formed in 1995 and now includes 12 countries—all of southern Africa up to and including DR Congo and Tanzania.

Zoellick in China, Attempts To Crack Chinese Markets

President George Bush's trade representative Robert Zoellick was in China two weeks ago to discuss World Trade Organization "obligations" and to try to open Chinese markets. Zoellick began meetings Feb. 17 with Chinese trade officials, to try to further open China's market for U.S. agricultural products.

Zoellick issued a statement before he left Washington, saying that the Bush Administration had made a priority of "facilitating" China's accession to the WTO during the Administration's first year.

Zoellick said he has "concerns" that in some areas, especially agriculture, the U.S. is not getting the access China promised and which the WTO mandates.

Zoellick will also go the cities of Chongqing, Shenzhen, and Hong Kong. Chinese-U.S. trade was worth $97.18 billion in 2002, up 20.8% year-on-year.

On Feb. 8, the Bush Administration released its "Economic Report of the President," which singled out China for attack for allegedly violating WTO-mandated free trade.

China's Industrial Production, Foreign Direct Investment Grow

China's industrial production rose 14.8% in January over January 2002; December's growth was 14.9% over December 2001, according to its National Bureau of Statistics. These gains were reportedly driven by production of motor vehicles and telecommunications equipment.

Its Ministry of Foreign Trade and Economic Cooperation reports that foreign direct investment (FDI) into China grew in January 2003 over the previous two months, when it waned. FDI was $3.59 billion in January, while contracted foreign investment (future investment) rose 65% to $9.24 billion that month. Nearly 70% of FDI in China goes to the heavy manufacturing sector.

All rights reserved © 2003 EIRNS