IMF calls for action as euro zone crisis festers

TOKYO (Reuters) - The IMF prodded the world's rich countries for swifter action on Thursday as Europe's debt crisis drags on while the United States and Japan show scant progress handling their budget deficits.
Christine Lagarde, managing director of the International Monetary Fund, said political wrangling added to economic uncertainty, slowing growth in both advanced and emerging economies. The IMF cut its global growth forecast this week for the second time since April.
"We expect action and we expect courageous and cooperative action on the part of our members," Lagarde told reporters ahead of the IMF's twice-yearly meetings in Tokyo.
The slowdown has not spared emerging market economies, which were instrumental in pulling the global economy out of recession in 2009. Brazil cut interest rates on Wednesday and South Korea on Thursday.
"Developing countries, which have been the engine of growth, will not be immune the increased uncertainty in the global economy," said World Bank President Jim Yong Kim.
"The economic announcements emanating in recent weeks have been sobering. Everyone is vulnerable in times of uncertainty but especially the poor who have few, if any, safety nets and resources and live from day to day."
The IMF has expressed frustration with Europe's piecemeal response to its debt crisis and warned that a recent respite in borrowing costs for debt-laden countries such as Spain may prove short-lived unless euro zone leaders come up with a comprehensive and credible plan.
In its financial stability report on Wednesday, the IMF said that without swift policy action, including the triggering of the European Central Bank's bond-buying program, the premium that investors demand to hold Spanish and Italian debt instead of safer German bonds would nearly double.
Standard & Poor's cut its rating on Spain on Wednesday to a level just above junk territory, and Moody's may soon follow.
The IMF has said it stands ready to support a European bailout for Spain, should Madrid ask. Reuters reported on October 1 that Spain was ready to seek help, but that Germany was blocking an aid request because it preferred to combine a Spanish rescue with additional assistance for other struggling countries such as Greece.
Jose Vinals, the head of the IMF's monetary and capital markets department, warned that countries must not withhold help if Spain were to ask the European Central Bank to buy its bonds under a new bailout program, known as OMT for Outright Monetary Transaction.
"If it were to be the case that they decide to activate this mechanism and they can submit to the proper degree of conditionality, it would be essential that the creditor countries do not negate this activation of the OMT for Spain or for any of the countries," Vinals told Reuters.
TRUE MONETARY UNION
Japan's finance minister, Koriki Jojima, called the euro zone's debt and financial sector problems the biggest risk to the global economy and said it was crucial for Europe to quickly implement agreed steps to resolve the crisis.
"We hope that European countries will overcome conflicts in opinions and strengthen their efforts to unite together and establish a monetary union in the true meaning," he said.
But Japan also drew criticism from the IMF for failing to come up with a medium-term plan to address its own debt difficulties. In its financial stability report, the IMF said Europe's troubles provided a "cautionary tale" for Japan that waiting to address its towering debt - estimated at more than twice its annual gross domestic product - could be costly.
European officials are keen to ensure their region is not the sole topic of discussion, and want more attention placed on the difficulties Washington faces addressing its "fiscal cliff" of automatic spending cuts and tax increases that will take effect early next year unless Congress acts.
The IMF projected that the fiscal contraction would amount to more than 4 percent of total U.S. economic output and plunge the world's biggest economy back into recession.
The Fund itself is struggling to muster the sort of decisive action that Lagarde wants to see from world leaders. Its 188 member countries meet on Friday and Saturday, and will fall short of a goal to implement voting reforms that would give large emerging economies greater say and elevate China to the No. 3 spot in IMF power.
A territorial dispute between Japan and China added another element of disharmony. China's top central bank and finance ministry officials backed out of the meetings and sent deputies to Tokyo instead. Lagarde said she hoped the world's second- and third-largest economies could resolve their differences "harmoniously and expeditiously."
"I think they lose out by not attending the meeting," she said of the Chinese officials. "And they will be missing something great."
(Writing by Emily Kaiser; Editing by Tim Ahmann

In third debate, Brown and Warren ditch Cherokee controversy

Wednesday night's debate between Massachusetts Senate candidates Scott Brown and Elizabeth Warren contained a first: There was no mention of Warren's claim to Cherokee heritage.

The controversy over Warren's ancestry has been a major sparring point up until now, with Brown, the Republican incumbent who won his seat in a special election in 2010, accusing his challenger of falsely identifying as a minority in order to receive preferential treatment. But both candidates seemed to be happy to leave the subject behind and talk policy during their third debate: With the two neck and neck—Brown leading Warren 47 to 43 percent, according to a WBUR/MassInc poll—Brown's attacks haven't changed the race's dynamic and have resulted in some perceiving him as a bully.
The audience at Springfield Symphony Hall, however, didn't shy away from cheering, hissing and jeering, despite the rules of etiquette laid out by moderator Jim Madigan of WGBY-TV.
"I'm losing control," Madigan said with a sigh halfway through the debate.
Even without talk of Warren's heritage, the candidates did manage to squeeze in a few debate "zingers" amid the exchange of views on job creation, taxes, women's issues and foreign policy.
After Warren repeated her favorite line, that the middle class has been "hammered" by tax breaks for the wealthy and loopholes for elites and corporations, Brown shot back: "When you talk about getting hammered, Professor Warren, I suggest you put down the hammer," he said to both groans and applause, "because your policies hurt the middle class."
Warren didn't hold back, either. Calling her opponent a warden of the wealthy and the powerful, she declared: "Instead of working for the people of Massachusetts, [Brown] has chosen to work for Grover Norquist."
Brown responded by saying that he did not mind the association.
Finally, during a discussion of women's issues, Brown labeled himself a pro-choice moderate, but Warren lambasted the senator's voting against equal-pay legislation.
"We should not be fighting about equal pay in 2012. This was an issue that was settled years ago, until the Republicans," she said, casting a harsh glance in Brown's direction, "brought it back."
Although the candidates backed off of the more personal attack lines, the race remains tight and shows no sign of losing intensity leading up to Election Day. On Wednesday, Warren showed no hesitation to keep nationalizing her Senate bid by connecting it to the national race, despite recent polls that show a closing gap between President Barack Obama and Republican challenger Mitt Romney.
Despite consensus in the media and polling that Obama faltered in his first debate last week, Warren felt comfortable declaring support for the president while comparing her opponent to Romney.
Throughout the debate, Brown seemed unwilling to step up and defend his party's national ticket, even as it is gains momentum. Such is the strategy in a deep blue state, where the president still leads by high double digits.

US security warning over China telecom firms

House Intelligence Committee says US companies should avoid doing business with China's two leading technology firms.

A US House Intelligence Committee has warned that US companies should avoid doing business with China's two leading technology firms because they pose a national security threat to the country.

The panel, in a report to be issued on Monday, says US regulators should block mergers and acquisitions by Huawei Technologies Ltd and ZTE Corp, who are among the world's leading suppliers of telecommunications equipment.

Reflecting US concern over cyber-attacks traced to China, the report also recommends that US government computer systems not include any components from the two companies because that could pose an espionage risk.

"China has the means, opportunity, and motive to use telecommunications companies for malicious purposes," the report says.
"The investigation concludes that the risks associated with Huawei's and ZTE's provision of equipment to US critical infrastructure could undermine core US national-security interests."

The recommendations are the result of a year-long probe, including a congressional hearing last month in which senior Chinese executives of both companies testified, and denied posing a security threat.

A US executive of one of the companies said the firm co-operated with investigators, and defended its business record.

Huawei is a "globally trusted and respected company," William Plummer, vice president for external affairs, said.

The bipartisan report is likely to become fodder for a presidential campaign in which the candidates have been competing in their readiness to clamp down on Chinese trade violations.
'Currency manipulator'
Republican presidential candidate Mitt Romney, in particular, has made it a key point to get tougher on China by designating it a currency manipulator and fighting abuses such as intellectual property theft.

The committee made the draft available to reporters in advance of its public release, but only under the condition that they not publish stories until the broadcast on Sunday of a CBS "60 Minutes" report on Huawei.

In the CBS report, the committee's chairman, Republican Mike Rogers, urges US companies not to do business with Huawei.

The panel's recommendations are likely to hamper Huawei and ZTE's ambitions to expand their business in the US.
The companies' products are used in scores of countries, including in the West, and both deny being influenced by China's communist government.

The report says the committee received information from industry experts and current and former Huawei employees suggesting that Huawei, in particular, may be violating US laws.

It says that the committee will refer the allegations to the US government for further review and possible
investigation.
Bribery allegations
The report mentions allegations of immigration violations, bribery and corruption, and of a "pattern and practice" of Huawei using pirated software in its US facilities.

Huawei is a private company founded by a former Chinese military engineer, and has grown rapidly to become the world's second largest supplier of telecommunications equipment, operating in more than 140 countries.

ZTE Corp is the world's fourth largest mobile phone manufacturer, with 90,000 employees worldwide.

While their business in selling mobile devices has grown in the US, espionage fears have limited the companies from moving into network infrastructure.

The report says the companies failed to provide responsive answers about their relationships and support by the Chinese government, and detailed information about their operations in the US.

It says Huawei, in particular, failed to provide thorough information, including on its corporate structure, history, financial arrangements and management.

"The committee finds that the companies failed to provide evidence that would satisfy any fair and full investigation. Although this alone does not prove wrongdoing, it factors into the committee's conclusions," the report says.
'Political distraction'
In Washington, Huawei executive Plummer said on Friday that the company co-operated in good faith with the investigation, which he said had not been objective and amounted to a "political distraction" from cyber-security problems facing the entire industry.

All major telecommunications firms, including those in the West, develop and manufacture equipment in China and overlapping supply chains require industry-wide solutions, he added. Singling out China-based firms would not help.

Plummer complained that the volume of information sought by the committee was unreasonable, and that it had demanded some proprietary business information that "no responsible company" would provide.

In justifying its scrutiny of the Chinese companies, the committee contended that Chinese intelligence services, as well as private companies and other entities, often recruit those with direct access to corporate networks to steal trade secrets and other sensitive proprietary data.

It warned that malicious hardware or software implants in Chinese-manufactured telecommunications components and systems headed for US customers could allow Beijing to shut down or degrade critical national security systems in a time of crisis or war.

The committee concluded that Huawei likely has substantially benefited from the support of the Chinese government.

Huawei denies being financed to undertake research and development for the Chinese military, but the committee says it has received internal Huawei documentation from former employees showing the company provides special network services to an entity alleged to be an elite cyber-warfare unit within the People's Liberation Army.

The President Surrenders

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.
For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.
Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.
The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.
Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.
And then there are the reported terms of the deal, which amount to an abject surrender on the part of the president. First, there will be big spending cuts, with no increase in revenue. Then a panel will make recommendations for further deficit reduction — and if these recommendations aren’t accepted, there will be more spending cuts.
Republicans will supposedly have an incentive to make concessions the next time around, because defense spending will be among the areas cut. But the G.O.P. has just demonstrated its willingness to risk financial collapse unless it gets everything its most extreme members want. Why expect it to be more reasonable in the next round?
In fact, Republicans will surely be emboldened by the way Mr. Obama keeps folding in the face of their threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling. Maybe it’s just me, but I see a pattern here.
Did the president have any alternative this time around? Yes.
First of all, he could and should have demanded an increase in the debt ceiling back in December. When asked why he didn’t, he replied that he was sure that Republicans would act responsibly. Great call.
And even now, the Obama administration could have resorted to legal maneuvering to sidestep the debt ceiling, using any of several options. In ordinary circumstances, this might have been an extreme step. But faced with the reality of what is happening, namely raw extortion on the part of a party that, after all, only controls one house of Congress, it would have been totally justifiable.
At the very least, Mr. Obama could have used the possibility of a legal end run to strengthen his bargaining position. Instead, however, he ruled all such options out from the beginning.
But wouldn’t taking a tough stance have worried markets? Probably not. In fact, if I were an investor I would be reassured, not dismayed, by a demonstration that the president is willing and able to stand up to blackmail on the part of right-wing extremists. Instead, he has chosen to demonstrate the opposite.
Make no mistake about it, what we’re witnessing here is a catastrophe on multiple levels.
It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn’t over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.
In the long run, however, Democrats won’t be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.

Asian Shares Plummet as Fear Spreads

HONG KONG — The turmoil in the world’s financial markets showed no sign of abating on Tuesday, with relentless selling once again sending stock markets in Asia sharply lower as investors dumped equities in favor of traditional havens like gold and U.S. Treasury securities.
Some of the steepest decreases were seen in South Korea and Hong Kong, where the main market indexes slumped 5.2 percent and 6 percent, respectively, by midafternoon. The Nikkei 225 index in Japan sagged 2.7 percent, Australia and Taiwan retreated about 0.5 percent, and the main market gauge in Indonesia gave up 3.1 percent.
Once again, investors shrugged off the fact that Asian economies — with the exception of Japan — remain in fundamentally good shape, with growth rates far above those in the West and debt levels well below those in many developed nations.
“When you get declines of this sort, it is technical factors and emotion that drive markets — the fundamentals are largely irrelevant,” said Stephen Davies, chief executive of Javelin Wealth Management in Singapore, referring to Wall Street’s plunge on Monday. The stock market there saw its worst day since December 2008, in the midst of the global financial crisis.
The Dow Jones industrial average fell 5.6 percent, and the Standard & Poor’s 500-stock index dropped 6.7 percent, accelerating a sell-off that began a couple of weeks ago.
Futures on the S.&P. 500 were down 1.7 percent during the Asian day on Tuesday, signaling that U.S. markets could sag again Tuesday.
Mr. Davies of Javelin Wealth Management characterized sentiment in Asia as “weary resignation” rather than outright panic, but he said that the markets in general had been caught in a “negative feedback loop” — where declining markets fuel worries about the economic fallout of the turmoil, which in turn undermines sentiment further.
The fear is that the upheaval could ultimately weaken the wider economy by constraining the ability and willingness of banks to extend credit to businesses and making it harder for companies to raise money from the capital markets.
On Tuesday in the United States, a few obscure but important parts of the credit market also showed signs of stress. For example, the market for commercial paper, short-term loans that companies use to finance themselves, became less favorable. This was not nearly as bad as during the financial crisis, but people will be keeping an eye on it to see if conditions deteriorate.
Friday’s decision by Standard & Poor’s to downgrade the United States’ credit rating — once deemed bulletproof — deepened the uncertainty but was not in itself the only cause of the current sell-off, many analysts and market strategists believe.
Rather, the downgrade, combined with the widening of the debt worries in Europe, highlighted the fact that governments in many parts of the developed world are having to rein in spending at a time when private-sector spending is still anemic.
“The fear is that when you remove that prop, the chances of recession go up,” Mr. Davies said. “Chances of a double-dip recession have increased markedly in the last few weeks.”
Analysts at Royal Bank of Scotland echoed that assessment, noting in a research report that although they did not believe that a renewed recession was the most likely outcome, the odds of a double dip in the United States had increased “given the risk of negative psychology feeding on itself, and with the economy already looking more fragile.”
These concerns have helped send equity markets around the world sharply lower in recent weeks, while pushing “safe haven” assets like gold, the yen and the Swiss franc to record levels.
The S.& P. 500 is now down 18 percent from its April 29 peak and is nearing official bear market territory, defined as a fall of 20 percent.
Gold, by contrast, has soared from $1,485 per ounce at the start of July, vaulting the $1,700 mark on Monday and rocketing to just under $1,770 at one point on Tuesday.
Officials in Asia tried to soothe markets on Tuesday by stressing that they were closely monitoring the situation.
“I will pay close attention to market movements with a sense of urgency today,” Japan’s finance minister, Yoshihiko Noda, was quoted by Reuters as saying.
Australia’s prime minister, Julia Gillard, told reporters, “We will continue to see economic growth,” according to Reuters.
“We should also get a degree of confidence from the strong fundamentals of our economy,” she said. Australia has been booming recently thanks to the strength of the Chinese economy, which imports massive amounts of iron ore, copper and other commodities to fuel its growth.
Graham Bowley contributed reporting from New York.

China: How to Steal $3 Billion

In no way, shape or form am I advocating stealing $3 billion from anyone. But if you were so inclined, apparently all you have to do work on the railroad.
According to CCTV, the state-owned television broadcaster in China, Zhang Shuguang, the former deputy chief engineer at the Ministry of Railways, is accused of having deposits abroad of $2.8 billion, reports Tom Lasseter from McClatchy Newspapers. Zhang’s former boss, Liu Zhijun, the Railways minister, is accused of walking off with $155 million.
Both officials were suspended in February on graft charges. The figures had been circulating previously on China’s rumor mill, but the report by CCTV appeared to be an official confirmation, writes Malcolm Moore of The Telegraph. At least five former senior officials at the Railways ministry are now under investigation for corruption.

Zhang is regarded as the “father of China’s high-speed railways,” according to Asia Times. He supported Liu’s plans for “leapfrog development” by building a $300 billion high-speed rail network covering nearly 10,000 miles by 2015.

Zhang reportedly has his $2.8 billion stashed away in Swiss and US bank accounts, and owns three luxury homes in Los Angeles, despite his status as a prefecture-level official, with a monthly salary of just $1,240 (8,000 yuan). His wife and daughter live in the U.S.

Last weekend, two high speed trains collided off a bridge in Zhejiang province, killing 40 and injuring nearly 200.

Chinese Premier Wen Jiabao vowed to punish any corrupt person found responsible for the crash, wrote Gillian Wong from AP. “If corruption was found behind this, we must handle it according to law and will not be soft. Only in this way can we be fair to those who have died,” Wen said.

China’s Dollar Problem

China is the biggest holder of US debt outside of US fixed income investors. It’s been diversifying away from buying US Treasurys all year, and instead has been buying gold and other developing market investment grade bonds. In fact, China demand for euro debt is one of the reasons why the euro — despite the budget problems in Greece and Portugal — has managed to hold steady against the dollar.

Come and get it...

“The dollar and the euro are fighting in an ugly contest,” said Martin Schulz, managing director of international equity at PNC Capital in Cleveland. “The Chinese government, in fact, is being forced to go through a process of ‘worsification’. There’s not a lot of quality out there in the developed world,” he said.
In this regard, China’s dollar problem has been good for the euro. Yu Yongding, a former adviser to the People’s Bank of China, has called on the government to reduce its demand of US debt and to buy bonds from other countries instead.  China cannot really short US bonds on any meaningful level, because if it induced a sell-off of US bonds, it would be shorting its own portfolio.
“China will probably seek to calm markets rather than risk startling them with a policy change,” said Mark Williams, an economist at Capital Economics in a research note.
Chinese officials said buying euro zone debt was its best alternative, but there is no doubt that wherever the dollar goes from here, China will continue to buy a lot of Treasuries.
President Barack Obama announced Sunday that Congress finally agreed to raise the $14.26 trillion debt ceiling by $2.4 trillion in a best case scenario, and to cut an initial $12.4 trillion from federal government over the next 10 years.  But the agreement is still subject to more voting. There are still some unknowns about the debt ceiling. At least $500 million is subject to more voting. 
Once the market fully digests the debt deal (if Congress ever puts it to bed), then the dollar will make its move. If the market views the deal as long term positive, the dollar will stabilize or gain against the euro. If the market views the deal as long-term weak, then the dollar will continue its downward trend against all currencies and commodities, which is problematic for China.
The weak dollar means higher commodity prices, and China is the leading importer of raw materials. China’s appetite for iron ore, soybeans and crude oil lends support to those higher prices, as well. As a result of this combination — weak dollar/China demand — China ends up importing its own inflation problems.
China’s consumer price index hit a three-year high of 6.4% in June. Expectations are that July could be even higher. Zhu Baoliang, chief economist at the State Information Center, a top government think tank, told China Daily on Monday that the country’s core inflation for July would be similar to June.
“Once the alarm of debt default is removed, China will not suffer an immediate effect. Instead, the effect…will eventually be seen in the long term,” Zhu said, adding that cuts over the next 10 years wouldn’t be enough to lower US debt to GDP going forward.
Under Standard & Poor’s baseline macroeconomic scenario, net general government debt will reach 84% of GDP in two years, based on 3% GDP growth over the same period and the end of the Bush tax cuts in 2012. The high debt-to-GDP percentage indicates what Standard & Poor’s credit analysts called “a relatively weak government debt trajectory compared with those of the US’s closest ‘AAA’ rated peers – France, Germany, the U.K., and Canada.”
Lu Zhengwei, chief economist with Industrial Bank Co Ltd, told China Daily that a third round of quantitative easing could be in the works if the economy slows further in the second half. The second quarter growth was barely over 1%. Another round of quantitative easing, whatever it may be called, would cause the dollar to weaken as investors turn to hard assets like commodities to hedge.
“If the unemployment rate continues to rise, it will further damage investor confidence and force them to move away from US Treasury securities, leaving the US government no choice but to print money and depreciate its currency,” Lu told China Daily.
China maybe be down on US debt, but its purchases of US Treasurys have risen steadily for the last five years, going from $527 billion in 2005 to $1.6 trillion in 2010. This year, China has made $1.2 trillion in US government bond purchases as of May 31, according to the Federal Reserve Board. That’s around $250 billion worth of US Treasurys purchased by China each month. At that pace, China will likely purchase more government debt in 2011 than it did in 2010.
China investment bank, China International Capital Corp, said in a report on Monday that the US economy remains a cause for concern even with the debt debate finally “over”.
China Daily got its hands on the report and quoted an analyst who wrote that “The debt crisis may have a negative impact on the fiscal spending of the US government, which may drag down the US economy for the rest of the year,” writes Hou Zhenhai of China International Capital. In that case, QE3 is a possibility. In the US, the market is not expecting another round of easing. But moods on Wall Street can change fast.

Does this weekend’s agreement provide any relief to China’s dollar problem? Not really. Under the plan, a bipartisan congressional panel would seek $2.4 trillion in spending cuts or tax increases over the next 10 years. The only immediate cut is around $917 billion. If the remainder of the package fails because Congress or the president rejects its spending cut recommendations, then the rest of the spending cuts would be implemented automatically, the USA Today explained: “It’s called a ‘trigger’ and it has been used in the past, but with mixed results at best. In the 1980s and ’90s, triggers passed by Congress under Presidents Reagan, George H.W. Bush and Clinton eventually were evaded. Veterans of past budget deals say the same thing could happen this time.”

Hong Kong fund manager Agnes Deng told Forbes last week that should the debt problem lead to a credit rating downgrade by Standard & Poor’s – which called for $4 trillion in cuts on July 18– Chinese equity markets will suffer.

“A downgrade will hit this market hard,” she said in a phone interview from her office in Hong Kong. “China’s market is perceived as a higher beta market and when investors become risk averse, they don’t want to hold high beta assets so there will be a lot of selling in Hong Kong and Shanghai,” she said.

The World’s Highest-Paid Soccer Players

David Beckham arrived to play for the Los Angeles Galaxy four years ago amid much hoopla of turning the U.S. into a soccer-loving country. His American summer debut was a media circus with stars like Tom Cruise, Eva Longoria, Mary-Kate Olsen and Arnold Schwarzenegger turning out to catch a glimpse of Becks on the field.
Alas the soccer explosion in the U.S. didn’t happen. Major League Soccer has had success, but it continues to appeal to a niche audience with games averaging 249,000 viewers on ESPN2 last season. The Galaxy failed to make the playoffs during Beckham’s first two seasons and he scored only nine goals in his first four years with the Galaxy as injuries slowed his game.
Yet the move to the U.S. was a huge success financially for Beckham. Despite being in the twilight of his career (he turns 36 next month), Beckham continues to be the highest-paid soccer player in the world with total earnings of $40 million last year (click below for the full list).

In Pictures: Soccer’s Highest-Paid Players

“Beckham is more analogous to a Hollywood star than a footballer,” says Michael Stirling, CEO of Global Sponsors, which manages sponsorship properties worldwide. His appeal as a player has diminished as he enters the final season of his Galaxy contract (he intends to keep playing after this year), but he is a global celebrity that everyone knows.
Beckham added Electronic Arts and Diet Pepsi to his endorsement stable over the past year (he also inked a short-term agreement with Yahoo). His Adidas contract is the biggest in the sport thanks to royalties from soccer apparel and cleats as well as lifestyle lines like ObyO. He also has a cologne deal with Coty and pitches Go3’s Omega-3 line of products.
The Beckham marketing juggernaut shows no sign of slowing down. Later this year Beckham plans to launch his own underwear label and line of grooming products. He will also be a sought after partner for companies looking to advertise in the run-up to the 2012 London Olympic Games, where he’ll serve as an unofficial “host” for his hometown Games (Beckham was a bid ambassador when London won the rights to the Games).

The economic downturn had companies around the world scrutinizing expenses the past few years and athlete endorsements were no different. Gillette let deals with Thierry Henry, Ricardo Kaka and Lionel Messi expire. Coca-Cola did not re-sign Manchester United striker Wayne Rooney when their agreement ran out at the end of 2010.

While a few deals have expired, the sponsorship market is still strong for the top players according to Stirling. Sponsors are seeking bigger time commitments from athletes in some cases or flexibility in the deal terms, but deals are still getting done.

Ranking No. 2 on our list of the highest-paid soccer players is Cristiano Ronaldo who made $38 million in 2010 (our earnings figures include salaries, bonuses and endorsement income). Ronaldo’s earnings are split evenly between his Real Madrid salary and endorsement income from Nike, Armani, Castrol and others.

Ronaldo is able to reach a massive audience through social media. His 24 million Facebook fans are twice as many as any other athlete (Michael Jordan is second with 10 million fans). His Facebook audience is split evenly between men and women, which makes Ronaldo attractive to a wide range of companies as a pitchman. His 2.4 million Twitter followers are topped only by Shaquille O’Neal, Kaka and Lance Armstrong amongst athletes.

Another athlete looking to social media is Messi who ranks No. 3 on our list with earnings of $32 million in 2010. Messi launched a Facebook account this month and quickly signed up more than seven million fans. The two-time Player of the Year has beefed up his endorsement portfolio in recent years. Current sponsors like Adidas, Lay’s, Konami, Audemars Piguet, Chery and Air Europa net Messi $16 million annually on top of the $16 million he earned last year from Barcelona in salary and bonuses.

The World’s 50 Most Valuable Sports Teams

The NFL has grown explosively over the past 25 years as TV revenue jumped 700%. The league’s 32 teams now divide $3.8 billion annually under the current round of broadcast deals, which expire after the 2013 season. With ratings at record levels, the next TV contracts are bound to be even more lucrative. Teams that were selling for $70 million in the mid-1980s are now worth $1 billion on average.

Click for full photo gallery: The World's Most Valuable Sports Teams

NFL owners claim they are not getting a big enough share of the league’s $9 billion in revenue, but a look at the world’s 50 most valuable sports teams shows how valuable NFL teams already are. The list is littered with NFL franchises–all 32 teams make the cut, led by the Dallas Cowboys, worth $1.81 billion. Yet the top franchise plays a different kind of football. English Premier League power Manchester United is the world’s most valuable sports team, worth $1.86 billion.
The Glazer family, which also owns the NFL’s Tampa Bay Buccaneers (No. 18 at $1.03 billion), bought United in 2005 for $1.5 billion, but quickly drew the wrath of fans after the purchase saddled the team with a massive debt load. Fans feared the team would not have the resources to pay top players. In November the Glazers paid off $330 million of the debt which now stands at $756 million, or 41% of the team’s value (the average debt-to-value ratio of the top 50 franchises is 26%). Even better for fans of the Red Devils, the team captured its record 19th English Premier League title this year and made the finals of the UEFA Champions League before falling to Barcelona (No. 26 on our list, worth $975 million).
The finances of Manchester United continue to look up. This season marked the first year of its new shirt sponsorship with Aon, worth $32 million annually over four years. It represents a 50% bump from its prior deal with AIG. The team is reportedly in line to get a similar increase for its merchandise deal with Nike, which already pays United nearly $40 million per year. The current 13-year contract is set to expire in 2015, but a new deal is expected to be done by next year that could be worth as much as $70 million a year. Reports surfaced last month that United is considering selling shares on the Hong Kong Stock Exchange at a price that would value the club at $2.7 billion.
The Cowboys are the sports world’s second most valuable team with a worth of $1.81 billion. Jerry Jones‘ $1.25 billion stadium, which opened in 2010, features more than just a 152-foot-wide HD TV screen. Cowboys Stadium has 320 luxury suites and 15,000 club seats that generate more than $100 million annually in premium seat revenue for Jones. America’s Team has also signed a host of lucrative sponsorship deals with the likes of AT&T, Bank of America, Ford Motor and PepsiCo.

The NFL’s Highest-Paid Players

SI’s Peter King reported at halftime of the Vikings-Saints game that Tom Brady and the New England Patriots had reached terms on a new four-year contract that will make Brady the highest-paid player in the game in terms of average salary. The deal is expected to be worth around $18 million annually. The previous highest average annual salary was Eli Manning at $16.3 million per year.

Image by Getty Images via @daylife

There are several ways to slice who the NFL’s highest-paid players are as the NFL system of non-guaranteed contracts is unlike any of the other three major U.S. sports leagues. You can look at average salary, total contract values or one-year payouts. The biggest deals usually include significant signing and/or roster bonuses paid out in the first year.

The list below looks at cash paid out over a 12-month period to gauge the money players. Our list of the world’s 50 highest-paid athletes in July looked at earnings between June 2009 and June 2010 and nine NFL players made the final cut. The players below were the 15 highest-paid when you include salaries and endorsement income over that same time period (only the Manning brothers and Favre made big cash off-the-field and the rest relied on their playing contracts for almost their entire income).

Tom Brady was not among the top paid guys as he made $8 million from his Pats deal over that time and another $5 million from licensing, memorabalia and endorsements with the likes of Smartwater (owned by Coca-Cola), Stetson, Movado and Audi (his current deal with the Pats pays him $6.5 million this season). He’ll be on our highest-paid athletes list next year though as his contract is sure to include significant upfront money. It was important for Brady to get this deal done before the season started as it was only two years ago that his season ended with a knee injury in the first quarter of the first game of the year.
Brady’s title as the NFL’s top-paid player will likely be short-lived as Colts’ owner Jim Irsay has vowed that Peyton Manning’s next contract will make him the league’s financial alpha dog (Manning’s current average salary of $14 million doesn’t rank among the five highest-paid QBs). Manning is already the league’s top earner off-the-field with annual endorsement income of $10 million annually thanks to deals with Reebok, MasterCard, Gatorade, DirecTV, Sony and others.
#1 Eli Manning $39.9 million
#2 Terrell Suggs $38.3 million
#3 Julius Peppers $36 million
#4 Philip Rivers $32.1 million
#5 Albert Haynesworth $27.3 million
#6 Demarcus Ware $26.7 million
#7 Peyton Manning $24.8 million
#8 Jake Delhomme $22.4 million
#9 Matthew Stafford $21.4 million
#10 DeAngelo Hall $20.8 million
#11 Vince Wilfork $$20.6 million
#12 Nnamdi Asomugha $20.5 million
#13 Kurt Warner $20.3 million
#14 Jason Smith $19.4 million
#15 Brett Favre $18.9 million
*Incomes include salary and bonuses paid between June 2009 and June 2010 as well as endorsement and licensing income.

The Highest-Paid Female Athletes

Maria Sharapova struggled in recent years with injuries and inconsistent play on the tennis court. Her worldwide ranking plummeted to a low of No. 126 in 2009 and she was rarely a factor in Grand Slam events. But this year Sharapova has rebounded and won 80% of her matches. She is now ranked No. 5 in the world and reached the Wimbledon finals in July; her first Grand Slam final in more than three years.
While Sharapova has bounced back on the court, off the court she never left. Sharapova is the world’s highest-paid female athlete for the seventh straight year and this year it is not even close. Sharapova earned $25 million over the last 12-months, double the amount of any other female athlete in the world.
Sharapova maintains an impressive endorsement portfolio that includes Nike, Head, Evian, Clear Shampoo, Sony Ericsson, Tiffany and Tag Heuer. Sharapova has 5.2 million Facebook fans and her partners are constantly doing things on her Facebook page to reach them. Cole-Haan (a Nike subsidiary) ran a promotion for her 24th birthday where her fans got 24% off that day.

Click for full photo gallery: The 10 Highest-Paid Female Athletes

Sharapova extended her Nike agreement in 2010 for eight years that could net her as much as $70 million. Sales of her Nike line of tennis apparel were up 26% in 2010 and she now has five other Tour pros wearing the collection. Her ballet flat was the top selling shoe in 2010 at Cole Haan. She receives royalties on both her Nike and Cole Haan lines.

In Pictures: World’s Highest-Paid Athletes

Our earnings estimates are for the 12-months ending July 1, 2011. We factor in prize money, salaries, appearance fees, licensing income and endorsements in our totals. Tennis players dominate the list with seven of the ten spots. The ten highest paid women made $113 million over the past 12-months, up 1% from last year. By comparison the 10 highest-paid men earned a collective $449 million.

The second highest-paid female athlete over the past year is the world’s No. 1 ranked tennis player, Caroline Wozniacki at $12.5 million. She banked $6 million in prize money and another $6.5 million from sponsors and appearances. Companies are lining up behind the 21-year old Dane hoping to catch tennis’ next big star. She added deals this year with Yonex, Compeed and Oriflame, but her biggest partner is Adidas which paid out lucrative bonuses in 2010 thanks to her No. 1 year-end ranking.

Racing’s Danica Patrick ranked No. 3 at $12 million. Patrick continues to split her time between IndyCar and Nascar’s Nationwide Series. Her fourth place finish in the Sam’s Town 300 in March was the highest finish ever by a woman in a Nascar race. Rumors are swirling that Patrick will race full-time in Nascar in 2011. A permanent move to Nascar would certainly boost Patrick’s income.

In the future Sharapova’s stiffest competition as the top-paid female athlete should come from another breakout tennis star, Li Na. Li turned pro 12 years ago, but the 29-year-old’s big moment came at this year’s French Open where she became the first Chinese player to win a singles Grand Slam event. Her win was seen by 116 million people in China according to the WTA Tour.
Li is set to see her earnings soar as she has been busy signing new seven-figure deals with companies like Mercedes-Benz maker Daimler and others which joined Nike, Haagen-Dazs and Rolex in her endorsement portfolio. Before her French Open title in June, she was making $2.5 million annually off the court, but her newfound celebrity could see that figure jump by more than $10 million. We estimate Li earned $8 million (ranked eighth) in the 12-months through June, which is before most of her new deals kicked in.

China’s Low Roaming Fees Won’t Be Matched Soon

BERLIN — When Su Xiaoqin, a Chinese translator living in Düsseldorf, calls family and friends back in Shanghai, she does not use the mobile network of her German operator, O2. She pops in the SIM card for China Mobile.
As a result, Ms. Su’s calls home cost as little as 2.86 renminbi, or 44 cents, a minute, a small fraction of what a call using the German SIM card would run. That is because China Mobile, the world’s largest operator, with 617 million customers, recently cut its international roaming rates, following similar cuts by its domestic rivals, China Unicom and China Telecom.
“The word has gotten around that the Chinese operators now have the best rates to China,” Ms. Su said.
While Europeans and Americans traveling abroad still face steep roaming charges, travelers from mainland China can call home for as little as it costs to make a local call in that market.
In part, that reflects the growing global clout of the Chinese mobile phone industry, where the three big operators, with a combined 889 million customers, are able to negotiate less expensive roaming deals for their users with international operators.
As a result, one should not expect the lower roaming prices paid by travelers from the mainland to come soon to consumers in Europe, the United States or other parts of the world. In part, that is because European and U.S. operators do not compete directly with their counterparts in China for mobile customers, so they have little financial incentive to match the lower prices.
David Dyson, the chief executive of Three U.K., a British mobile phone operator owned by Hutchison Whampoa, the Hong Kong company, cited another reason. He said that high roaming prices in Europe, especially for downloading data, reflected the operators’ profit expectations, not the true costs of service.
Mr. Dyson said that smaller operators, especially, could not lower roaming rates because of what it costs them to connect calls using the networks of larger operators, whose rates are driven by those profit demands.
In 2007, the European Union stepped in to limit the price of mobile roaming charges in the 27-nation bloc, but those retail price caps — 35 euro cents, or 50 U.S. cents, a minute for making a call — are higher than those paid by consumers from mainland China. In the United States, the level of roaming charges is not regulated by the government but set by American and international operators through private agreements on the costs of using each other’s networks to connect calls.
For travelers from the United States, the roaming charges can still be startlingly high.
In May, Paul O’Brien, the general legal counsel of an international maker of industrial sealants based near Philadelphia, returned home after a business trip to Milan and Rome to a $2,300 roaming bill, which he had incurred in two days of normal calling and surfing.
Mr. O’Brien described his iPhone activity during his Italy trip as moderate — making and receiving calls to the United States through Telecom Italia, and downloading and reading e-mail.
Just two days into what was a four-day trip, his U.S. operator, which he declined to name, shut off his service, citing his company’s policy.
“I was blindsided,” Mr. O’Brien said, adding that he did not know what the limit was that he had exceeded.
Local operators — in Mr. O’Brien’s case, Telecom Italia — tend to reap the most profit from roaming charges, said Deep Basu, the vice president for product strategies and consumer products at Roamware, a software maker in San Jose, California, that helps operators manage roaming traffic. But the U.S. operator, which has more customers than Telecom Italia and thus more clout in negotiating deals on roaming rates, would have received a sizable slice as well.
Customers of China Unicom, the country’s No.2 operator after China Mobile, with 182 million mobile users, pay about 2.8 renminbi, or 44 cents, a minute to call China from most countries in Europe, and as little as 1.5 renminbi from the United States.
The operator makes its low rates possible by running a huge phone callback program, called **100 Program, which assigns local land line phone numbers to its mobile customers while they are abroad and then has a company computer in China call them back over less-expensive land lines to complete their long-distance calls.
China Unicom introduced the service in May, effectively cutting its roaming rates as much as 90 percent. Sophia Tso, a spokeswoman for China Unicom in Hong Kong, said the decision to reduce roaming prices drastically had been made to serve the company’s customers, who are among the 100 million Chinese citizens who travel abroad each year.

Obama and Leaders Reach Debt Deal

WASHINGTON — President Obama and Congressional leaders of both parties said late Sunday that they had agreed to a framework for a budget deal that would cut trillions of dollars in federal spending over the next decade and clear the way for an increase in the government’s borrowing limit.
With the health of the fragile economy hanging in the balance and financial markets watching closely, the leaders said they would present the compromise to their caucuses on Monday in hopes of enacting it before a Tuesday deadline to avert default.
Even as the president was speaking from the White House on Sunday night, Speaker John A. Boehner was on a conference call with House Republicans, trying to sell them on the proposal he had signed off on only minutes before.
Since he is likely to lose the most conservative elements of his rank and file, Mr. Boehner faces the task of framing the pact as friendly enough to Republican principles to win over a significant group of House Republicans without alienating Democrats he will need to push it over the top.
President Obama, in a hastily called appearance with reporters that ended a day of uncertainty, said that the compromise would “allow us to avoid default and end the crisis that Washington imposed on the rest of America.”
“It ensures also that we will not face this same kind of crisis again in six months, or eight months, or 12 months,” he said. “And it will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy.”
Just before Mr. Obama spoke on television, the two Senate leaders, Harry Reid and Mitch McConnell, took the floor to endorse the pact as well.
“I am relieved to say that leaders from both parties have come together for the sake of our economy to reach a historic, bipartisan compromise that ends this dangerous standoff,” said Mr. Reid, the majority leader.
The tentative agreement calls for at least $2.4 trillion in spending cuts over 10 years, a new Congressional committee to recommend a deficit-reduction proposal by Thanksgiving, and a two-step increase in the debt ceiling.
The announcement concluded a tumultuous 24 hours that saw hopes rise Saturday night over the prospect of a deal that might have concluded the budget stalemate. By Sunday, worry set in again as lawmakers and White House officials struggled to hammer out the fine points of an agreement that must clear a Senate controlled by Democrats as well as the Republican House.
If the deal is approved, establishing a special joint committee to explore deficit reduction, it will ensure that the size and scope of the federal government and the tension between spending and taxes will remain front and center in the Washington debate headed into the 2012 election.
Markets reacted favorably to the announcement, with Asian markets jumping on news of the deal. The Nikkei was up nearly 2 percent in late-morning trading; the dollar rose against the Japanese yen.
President Obama tempered his comments by noting that “there are still some very important votes to be taken” and that winning House approval would be a particular challenge.
On the conference call, Mr. Boehner sought to portray the new agreement as one heavily tilted toward the Republican call for no new revenue, and he said it met the goal of instituting cuts greater than the amount of the debt limit increase. In a presentation, he said the pact would prevent a “job-killing default” — a warning to lawmakers that failure to raise the limit could add to the bleak employment picture.
“Our framework is now on the table that will end this crisis in a manner that meets our principles of smaller government,” said Mr. Boehner, who said he hoped to get the legislation onto the House floor as quickly as possible. Participants on the call, which lasted about an hour, said that the tone was cordial and that lawmakers expressed less resistance than had been anticipated.
At the same time, Representative Nancy Pelosi of California, the former speaker and current Democratic leader, was noncommittal about the plan, suggesting that Democrats might not rally behind it. “I look forward to reviewing the legislation with my caucus to see what level of support we can provide,” she said in a written statement.

China 'orders shutdown' of fake Apple stores

China's law prohibits firms from copying the 'look and feel' of other companies' stores, but enforcement is patchy [AFP]

Chinese officials have ordered the shut down of two fake Apple stores in Kunming in Yunnan province, in apparent reaction to media publicity over unauthorised stores in the country, a local newspaper has reported.
A total of five self-branded 'Apple stores' were found to be operating without authorisation from Apple according to the Metropolitan Times report, posted on the Kunming government website on Monday.
Two stores were told to shut down because they did not have an official business licence, the paper said, rather than concerns over copyright or piracy.
Inspections of around 300 shops in Kunming were carried out after a blog post by an American living in this southwestern town exposed a near flawless fake Apple store where even the staff were said to be convinced they were working for the iPhone and iPad maker.
That store, one of three found by the "BirdAbroad" blogger in the city, was not one of the stores closed.
Countless unauthorised resellers of Apple and other brands' electronic products throughout China sell the real thing but buy their goods overseas and smuggle them into the country to skip taxes.
All five unauthorised Apple shops in Kunming were selling genuine Apple products, the newspaper said.
Most valuable company
Apple has just four genuine Apple stores in China, all in Beijing and Shanghai.
The company, which has 13 authorised resellers in Kunming, could not be reached for comment.
Apple's brand is the world's most valuable, worth some $153bn, according to a report earlier this year.
In addition to protecting trademarks, Chinese law prohibits companies from copying the "look and feel" of other companies' stores, but enforcement is patchy.
The US and other Western countries have often complained that China is woefully behind in its effort to stamp out intellectual property theft.
In May, China was listed for the seventh year by the US Trade Representative's office as a country with one of the worst records for preventing copyright theft.
Piracy and counterfeiting of US software and a wide range of other intellectual property in China cost US businesses alone an estimated $48bn and 2.1 million jobs in 2009, the US International Trade Commission has said.

China dives deeper in resource race

Submersible conducts country's deepest manned dive that points to its fast-growing technical capabilities.
Chinese submersible has conducted the country's deepest manned dive in the latest technological milestone for China, which theoretically puts most of the ocean floor's vast resources within its reach.
The Jiaolong undersea craft - named after a mythical sea dragon - reached 5,057 metres below sea level in a test dive on Tuesday in the northeastern Pacific, China's oceanic administration said.
Though less than half as deep as a record dive by the US Navy in 1960, the achievement highlights China's push to catch up with advanced nations in space, sea, and polar exploration, and points to its fast-growing technical capabilities.
Chinese scientists aim to complete the world's deepest dive in a manned submersible in 2012 by going to 7,000 metres, state news agency Xinhua reported on Tuesday.
"Such a depth means the Jiaolong is capable of reaching over 70 per cent of the seabeds in the world," Xinhua quoted head of the diving operation Wang Fei as saying.
Undersea resource race
The current depth record holder is Japan's Shinkai 6500, which dived to 6,527 meters in August 1989.
"At a depth of 5,000 meters, the Jiaolong withstood great pressure amounting to 5,000 tonnes per square meter," Wang said.
China has pushed hard in recent years to obtain oil, minerals and other resources needed to fuel its growth, and has said its submersible programme is aimed at scientific research and the peaceful exploration and use of natural resources.
Scientists say the oceans' floors contain rich deposits of potentially valuable minerals, but the extreme depths pose technical difficulties in harvesting them on a wide scale.
But it may not take China long to begin reaching these riches, Jian Zhimin, director of the marine geology laboratory at Shanghai's Tongji university, told the AFP news agency.
"I don't think it will be a very long time before China can perform deep-sea ocean-floor mining," he said, noting that many of the most valuable oceanic mineral resources are located around the Jiaolong's maximum designed depth of 7,000 metres.
Regional rivalries
During a Jiaolong dive to the bottom of the disputed South China Sea last year, it planted a Chinese flag in the seabed in what some saw as a provocative act.
The South China Sea, believed to be rich in oil and gas, is claimed in whole or in part by China and several other nations.
Some concerns also have been raised that deep-sea vessels could have military applications such as tapping into or severing communications cables.
China's successful dive comes after Japanese media earlier this year said Japan planned to step up its search for undersea mineral reserves, setting up a potential race for seabed resources.
Japanese researchers earlier this month said they had detected vast reserves of rare earths - substances used in many high-tech electronics - on the Pacific seabed.
Chinese state news agency Xinhua quoted the submersible's chief designer, Xu Qinan, as touting its "state-of-the-art" systems but noting that some components had been imported from abroad, such as the high-definition video and transmission equipment.

China: New Role for Military Vessel

China’s defense ministry said the nation’s much-publicized first aircraft carrier, a Soviet-era hulk being refitted in a north China shipyard, will be used purely for research and training and not for deployment in military situations, Xinhua reported.
   Speaking at a ministry news briefing for Chinese journalists on Wednesday, the spokesman, Geng Yansheng, said the ship would be used in part to train pilots in the delicate art of taking off and landing carrier-based jets from the deck of a ship rolling in ocean waters.

China's High-Speed Politics

HONG KONG — In the wake of a deadly train collision in China that claimed at least 39 lives, a single photograph has for many Chinese become emblematic of a callous, unresponsive political culture that prioritizes instant results over public well-being and accountability.
The news photograph shows a high-speed train zipping along a viaduct in Wenzhou, the site of the accident last Saturday, less than a day after rescue work was halted, some say far too soon. The wreckage of the crash is piled carelessly on the barren ground below, a tragedy swept rashly into the past.
From the outset, China’s government did its utmost to keep public doubts from gathering speed. The Central Propaganda Department instructed media across the country to avoid hard questions and focus instead on “stories that are extremely moving, like people donating blood and taxi drivers refusing to accept fares.” The overarching theme, it said, should be “great love in the face of great tragedy.”
Meanwhile, China’s rail ministry cited lightning as the cause of the accident, sidestepping questions of human error and institutional failure. When journalists asked pointedly how a young girl had been found alive after officials called an end to the rescue effort, the ministry again favored emotion over candor, calling the discovery a “miracle.”
Over the last several days, however, Chinese have insistently pushed the Wenzhou tragedy front and center, refusing to accept the government’s rationalizations and distractions. Using Twitter-like platforms on an unprecedented scale, people have clamored for answers to a hornet’s nest of questions.
How was the accident caused by lightning? Why was the train behind not aware there was a train in front? Why was the rescue effort halted so soon? Why was the wreckage piled up into shallow pits before there had been a proper investigation into the accident’s cause? Why has a list of victims not been made public?
Magazines and newspapers have followed suit, reporting boldly on the facts and pressing for answers.
At the very heart of all of these questions — and indeed of the tragedy itself — is a government that refuses to be held accountable for its decisions, and that admits no criticism when criticism might make the difference between bold vision and monstrous folly.
Questions about the rapid development of China’s high-speed rail network have simmered under the surface for years but were never given a proper hearing. Led by the former railway minister Liu Zhijun, who was jailed for corruption in February, a handful of government officials were entrusted with vast resources while being exempted from public scrutiny. (The general budget estimate for the Beijing-Shanghai high-speed railroad alone surpasses the entire budget for the Three Gorges Dam Project.) China’s railroads were Liu’s private fiefdom, and he was rewarded politically for pushing ahead with big plans through unilateral decision-making, earning the nickname “Great Leap Liu.”
Dominating resources of both power and money, Liu monopolized the debate among would-be experts. Dissenting voices, like that of Zhao Jian, a professor at the Economy Management Institute of Beijing Transportation University, were elbowed aside. In an interview published on the eve of the Wenzhou tragedy, Zhao told a magazine in southern China that his university president had discouraged him from criticizing high-speed rail development because it might hinder the school’s ability to secure research grants.
Until this month, Chinese media were almost entirely complicit, trumpeting high-speed rail as a glorious enterprise reflecting the prestige of the Chinese Communist Party. No matter that the cost of tickets placed it out of reach for the vast majority of Chinese.
Last December, the party’s flagship People’s Daily newspaper ran a front-page story valorizing an ordinary train driver who had been given a “dead order” from superiors back in 2008 to master a new high-speed train in just 10 days, against the judgment of a German trainer who said trainees needed at least two months. With all the high foolishness of state propaganda, the article relished the fact that the odds were stacked against the trainees and the fact that there was “no room for error.”
The “great leap” culture that Liu Zhijun epitomized is the way things operate across China, from county towns bursting with development all the way up to the top. Party and government officials are accountable only to superiors with whom they hope to score expedient political points. The legitimate concerns of citizens are routinely ignored.
Chinese people have pleaded with their leaders to slow down and prioritize the quality of development. “China, please slow your soaring steps forward,” one social media user wrote. “Wait for your people ... wait for your conscience! We don’t want derailed trains, or collapsing bridges, or roads that slide into pits. We don’t want our homes to become death traps. Move more slowly. Let every life have freedom and dignity.”
China’s leaders must recognize that the political culture of expediency and secrecy is the root cause of this and other tragedies, from food and mine safety to violent property demolition. Political reform is needed to empower Chinese citizens to monitor the government and eliminate corruption and mismanagement. Reform is the only way to enable real and sustained accountability.
In the face of mounting public anger, the government is now dealing more seriously with the crisis. Prime Minister Wen Jiabao has visited the crash site, pledging to hold those responsible to account, and the government has ordered an “urgent overhaul” of the national railway system. But this urgency must not, yet again, become mere expediency, another high-speed solution to a crisis of public opinion.

Lessons From the U.S. Economy's Malaise

When I began covering the American economy 11 years ago, it was the envy of the world.
The last 11 years have not been kind to it. First came the dot-com bust. Then there was the weakest economic expansion in decades, followed by the worst financial crisis and deepest recession in decades. Now we’re suffering through a painfully slow recovery, which Washington may soon make worse.
The malaise obviously has several causes, some of which are beyond our control. One major cause, however, is entirely our doing. We do not spend enough time focusing on our actual economic problems.
We are too often occupied with distractions, rather than trying to answer a simple question: What works? What economic policies have succeeded before and are most likely to lead to the best life for the largest number of people? Instead, we’ve effectively decided that because the United States is the richest, most successful country in the world, it is guaranteed to remain so.
Today’s column is my last in this space. I will continue to write in my next job, as Washington bureau chief, but not every week and not this column. So I want to take a step back today and look at what we know about the American economy and, almost as important, what we do not.
One of the tricky things about the subject is that almost nothing is certain in the way that, say, two plus two equals four. Economics — which is at root a study of human behavior — tends to be messier. Because it’s messier, it can be tempting to think that all uncertainty is equal and that we don’t really know anything.
But we do. It’s just that the knowledge tends to come with caveats and nuances. Economic truths may not rise to the level of two plus two equals four, but they are not so different from the knowledge that the earth is round or that smoking causes cancer.
The earth is not perfectly round, of course. Some smokers will never get cancer, while most cancer is not caused by smoking. Yet in the ways that matter most, the earth is still round, and smoking does cause cancer. Both of these facts are illustrative in another way, too: seemingly smart people spent decades denying them.
When it comes to economics, we know that a market economy with a significant government role is the only proven model of success. The United States has outgrown Europe partly because of our greater comfort with market forces. China and India boomed after allowing more of a market economy. On the other hand, unencumbered market forces often lead to disaster, as 1929 and 2008 made clear.
We also know that ever-rising levels of education are crucial to a country’s success. Not only is the evidence all around us — the college wage premium has been higher than ever lately — but careful studies have found that, on the margin, education itself tends to make people wealthier, healthier and happier. The next time you hear naysayers poormouth college, ask them if they plan to send their own children.
We know that the federal government has promised more benefits than it can currently afford. The only way out of this problem involves some combination of tax increases and cuts to Medicare, Social Security and the military. Anyone who won’t get specific about which ones they favor is not a fiscal conservative.
We know this country spends vastly more on health care than any other country — about 75 percent more per person than other rich countries — without getting vastly better results. The waste in our medical system offers the best chance to reduce the deficit without harming our living standards.
We know the planet is getting hotter. Last year tied for the warmest on record, and the 10 hottest have all occurred since 1998. The resulting risks, economic and otherwise, may be even more serious than the risks from the deficit, but receive far less attention in Washington. (And climate worriers do not need to be so skittish about making the connection between heat waves and the larger trend. The thing about global warming is that it warms the globe.)
We know that Wall Street, having bounced back from the crisis, remains a historically large part of the economy. Not coincidentally, we know that income inequality remains sharply higher than it used to be.
The most common income statistics can exaggerate the stagnation of middle-class pay, partly because they exclude health benefits. The American middle class is not disappearing. But it’s not doing well, and has not been for some time.
The bottom 50 percent of households, based on pretax income, make less combined than the top 1 percent. Only three decades ago, the bottom half made more than twice as much. The middle class has also received a much smaller tax cut in recent decades than the affluent.
•
This list is obviously a partial one. You could add the fact that the United States has benefited enormously from immigration, especially high-skill immigration, or the fact that discrimination, while hardly vanquished, is greatly reduced. But I think the issues here cover most of the high points.
The place where economic knowledge gets murkier is how to best deal with many of our biggest problems.
We cannot know, for example, what would happen if the government raised taxes to cut the deficit. A moderate increase seems unlikely to do much damage to economic growth, given that the increases by George H. W. Bush and Bill Clinton did not prevent the 1990s boom — and that George W. Bush’s tax cuts were followed by mediocre growth. All things equal, though, tax increases do not lift growth.
Likewise, we do not know precisely how to regulate Wall Street so that it will remain the global financial capital without also being a drain on our national resources. We do not know whether the most promising attack on climate change involves a carbon tax or more money for clean energy research. We don’t know how much medical costs would fall if people had to pay more out of pocket, as conservatives advocate, or how much costs would fall if Medicare tried to crack down on dubious care, as the Obama administration prefers.
The real problem with so many of these issues is that the political system is not even trying to find solutions.
Instead of a spirited, even partisan, debate over how health reform could be do a better job of controlling costs, lawyers are skirmishing over whether all Americans should have health insurance. Some of the world’s most talented people — students and would-be entrepreneurs who would like nothing more than to remain in this country — are told they are not welcome. Amazingly, Congress may be about to create a whole new economic problem by voluntarily defaulting on the national debt.
Democracy, not unlike economics, is often messy. And there are certainly some reasons for optimism, whether it’s the bipartisan push to improve schools or the simple fact that American society in 2011 is quite different from what many people could have imagined only a few decades ago. Much of that change has been for the good.
Perhaps the last refuge for optimists is Churchill’s reputed line: “In the long run, Americans will always do the right thing — after exploring all other alternatives.” The sentiment is nice. It would be comforting to have a little more reason to believe that history was going to repeat itself.

Surveys Point to Slowdowns in Euro Zone and China

LONDON — While most investor attention was focused on a meeting of European leaders attempting to resolve the Greek debt crisis, survey data released Thursday suggested a backdrop of stagnating economic activity in the euro zone and softening output in China.

Alexander F. Yuan/Associated Press

Assembling a wind turbine in Baoding, in northern China. China's manufacturing showed contraction for the first time in a year.

The composite euro zone purchasing managers’ indexes, known as P.M.I.s and complied by Markit, showed growth in the euro area’s manufacturing and service sectors stalled in July, with the composite index showing its lowest reading in 23 months.
In China, a closely watched survey of purchasing managers produced the lowest level in 28 months, according to HSBC, which published the index.
That suggested that a series of regulatory and policy measures is having the desired effect of cooling the red-hot Chinese economy.
The euro zone composite P.M.I. fell to 50.8 in July from 53.3 in June, Markit said. The consensus forecast among economists had been for a more modest decline to 52.6. The drop in the P.M.I.s was broad, with the services index slowing to 51.4 from 53.7 and manufacturing falling to 50.4 from 52.
The indexes provide a fairly good indication of where quarterly economic growth rates are heading, according to analysts.
Nick Kounis, head of economic research at ABN Amro in Amsterdam, said higher oil prices, budget cuts and the global economic slowdown having been dragging on growth in Europe.
“More recently,” he added, “it’s possible that business confidence also took a blow because of the escalating sovereign debt crisis.”
He said the P.M.I.’s current levels were consistent with a slowdown in euro area growth in the third quarter to flat or up just 0.1 percent from the previous quarter. The region posted a preliminary growth rate during the second quarter of 0.2 percent after a gain of 0.8 percent in the first three months.
“The slowdown in euro zone G.D.P. growth to near-stagnation levels is another warning shot to Europe’s leaders about the high stakes at today’s summit,” Mr. Kounis said. “It might not take too much of a shock to push the economy into recession from these levels.”
The releases of both sets of data came before European leaders reached an agreement Thursday in Brussels on new aid for Greece.
In China, the vast manufacturing sector appears to have contracted in July for the first time in a year, according to the closely watched HSBC survey.
The initial results of the poll of purchasing managers produced a reading of 48.9 in July, the lowest level in 28 months and down from 50.1 in June. The final reading will be released Aug. 1.
Readings below 50 represent contraction, so the slide below that level indicated that manufacturers had seen business slow markedly over the past few months, based on a combination of feeble global demand and tighter conditions at home.
For the past year and a half, Chinese policy makers have used a wide variety of tools to rein in booming growth and limit the rising prices that have accompanied it. Formerly free-flowing bank loans have become harder to obtain, for example, as banks were instructed to lend less.
Those measures have slowed the economy, but at a gradual pace that leaves room for still more tightening by Beijing in the coming months, most analysts say.
A P.M.I. reading of below 50 does not imply a “hard landing” for China, said Qu Hongbin, chief China economist at HSBC.
Industrial growth is likely to continue to decelerate in the coming months as tightening measures filter through, Mr. Qu said, but “resilient consumer spending and continued investment in ongoing mass infrastructure projects should support a G.D.P. growth rate of almost 9 percent for the rest of this year.”
The International Monetary Fund echoed that sentiment in its latest assessment of the Chinese economy, published Thursday, noting that “China’s near-term growth prospects continue to be vigorous and are increasingly self-sustained, underpinned by structural adjustment.”
“Wage and employment increases have fueled consumption, the expansion in infrastructure and real estate construction has driven investment upward, and net exports are once again contributing positively to economic growth,” the fund said.
The I.M.F. projects 9.6 percent economic growth for China this year, and 9.5 percent expansion for 2012, in line with many other forecasts. That is down from 10.3 percent last year, but well above what developed nations like the United States are managing.
But an aging population and gradually shrinking labor force risks fanning inflation in the longer term, the I.M.F. said, while low interest rates and a lack of places for savers to invest their cash mean there is a lingering risk of bubbles in the already hot property sector.
Those factors could lead to potential “significant risks” to financial and macroeconomic stability in China, the fund said, and it urged Beijing to address the challenges by raising interest rates further and allowing the renminbi to strengthen.
Beijing has so far relied heavily on so-called reserve requirement ratios for lenders as a policy tool. Successive increases in the ratio since early last year have gradually restricted the amount of money banks have been able to lend. Interest rate increases came into the policy mix relatively late: The central bank began nudging rates up again in October 2010.

Former China Mobile Official Sentenced in Bribery Case

SHANGHAI — A former executive at China Mobile, one of this country’s biggest state-owned telecommunications companies, was sentenced to death with a two-year reprieve Friday for accepting bribes, according to Xinhua, the state-run news agency.

Bobby Yip/Reuters

Zhang Chunjiang, the former vice chairman of China Mobile, was sentenced to death with a two-year reprieve. 

Zhang Chunjiang, the former vice chairman of China Mobile, the world’s largest mobile phone operator by subscribers, was charged with accepting more than $1.15 million in bribes while working at a series of state-run telecom companies between 1994 and 2009, when he was removed from his post. The two-year reprieve means that with good behavior his sentence could be commuted to life in prison. The sentence, which was handed down by a court in north China’s Hebei province, is the latest development in an unfolding corruption investigation into this country’s powerful telecom oligopoly.
While state executives and government officials are regularly arrested on corruption charges, only a handful have received the death penalty in recent years. Four years ago, the head of China’s Food and Drug Administration was executed for corruption and failing to protect consumers.
In 2009, the former chairman of Sinopec, the Chinese oil giant, was also sentenced to death with a two-year reprieve for accepting millions of dollars in bribes. And this week, two former vice mayors in China were executed for accepting millions of dollars worth of bribes.
Beijing is in the midst of a major corruption sweep ahead of a leadership change expected next year. In some cases, analysts say those charged with corruption may be singled out because of their relationships with high-ranking officials who are engaged in power struggles.
Recently, prosecutors have focused their attention on the telecom industry. At least seven other executives from China Mobile are under investigation in corruption cases, according to the nation’s state-run news media. And investigators are also looking into the role of several prominent Chinese businessmen, including Zeng Liqing, one of the founders of Tencent, a top Chinese Internet company, according to Caixin magazine, one of the nation’s most respected publications.
State-run news media said that Mr. Zhang, the 53-year-old former China Mobile executive, confessed to his crimes and therefore was given a penalty mitigated by the two-year reprieve. Xinhua said Mr. Zhang took the bribes while working as deputy director of the Liaoning Provincial Postal Administration, and also while working as general manager of the China Netcom Group and party chief and deputy general manager of China Mobile.