Finance and Economic

Chinese authorities have arrested 3,001 people in their latest crackdown on rampant product piracy and seized fake or counterfeit medicines, liquor, mobile phones and other goods, officials said Sunday.

The campaign launched in October comes as Beijing faces pressure from the United States and other trading partners to stamp out product copying. China is a leading soure of fake goods despite repeated crackdowns, but Chinese officials have promised the latest enforcement will produce lasting results.

Communist leaders have given the new crackdown special prominence, publicly linking it to efforts to transform China from a low-cost factory to a creator of profitable technology by nurturing companies in software and other fields. China’s fledgling software, music and other creative companies have been devastated by unlicensed copying.

“Intellectual property protection is essential for building an innovation-oriented country and achieving a shift from `China manufactured’ to `China innovated,’” Li Chenggang, deputy director of the Commerce Ministry’s law department, said at a news conference. He was joined by officials of China’s commerce, intellectual property and other agencies.

Trade groups say illegal Chinese copying of music, designer clothing and other goods costs legitimate producers billions of dollars a year in lost potential sales. The American Chamber of Commerce in China says 70 percent of its member companies consider Beijing’s enforcement of patents, trademarks and copyrights ineffective.

Businesspeople have expressed optimism about the latest effort because a rising Communist Party star, Vice Premier Wang Qishan, has been put in charge and an enforcement office set up in the Commerce Ministry payday loans.

A report distributed at Sunday’s news conference said that goods seized in the latest crackdown include 26,000 mobile phones, some with phony Nokia and Apple labels, copies of Louis Vuitton bags and Rolex watches, automotive components, DVDs and clothing.

It said authorities shut down 292 websites selling counterfeit and fake goods.

Also Sunday, the official Xinhua News Agency said 23 people accused of producing fake medicine were detained in the central city of Jingzhou in Hubei province. It said they made more than 100 million capsules filled with sawdust and wheat flour and sold under the brand names of 201 different types of medication.

Xinhua said the medicines were sold by mail and over the Internet but gave no details of whether anyone was injured or which brand names were counterfeited.

Piracy is especially sensitive at a time when Washington and other Western governments are trying to create jobs by boosting exports. In 2009, the World Trade Organization upheld a U.S. complaint that Beijing was violating trade commitments by failing to root out the problem.

Rampant copying also has hampered Beijing’s efforts to attract technology industries because businesspeople say companies are reluctant to do high-level research in China or bring in advanced designs for fear of theft.

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AOL CEO Tim Armstrong said Thursday the company is cutting 200 jobs in the U.S. and 700 in India following its $315 million purchase of the Huffington Post.

Armstrong, speaking at the Bloomberg Media Summit in New York City, lamented the cuts but said AOL (AOL) is "much more healthy" than it was a few years ago.

"From a portfolio perspective, you need to continue to invest in things that make you profitable," Armstrong said. He added that he would address his employees about the cuts after leaving the conference.

Armstrong added that AOL’s staff is moving toward having 70% of its staff be in editorial or other content divisions. That’s up from a little more than half currently. He also said AOL intended to have more full-time workers and fewer freelancers.

AOL unloaded 40% of its cash on the Huffington Post purchase last month. As part of the deal, HuffPo founder Arianna Huffington became president and editor-in-chief of all HuffPo and AOL content.

At the conference, Armstrong said Huffington was moving to New York City Thursday.

"She is fearless, and she wants to do great things," Armstrong said. "I didn’t know her that well, but we had spoken on a few panels together. She approached me saying that we had a similar vision."

Armstrong said the HuffPo buy was "a signal" to competitors about AOL’s path and a reflection of his belief that the digital space "is only going to get bigger."

In the past year, AOL has spent $530 million on acquisitions as it focuses on becoming a content company rather than an outdated Internet portal payday loans guaranteed no fax. In a single week last September, AOL bought TechCrunch, online video distributor 5Min Media and social media company Thing Labs.

Armstrong also discussed AOL’s dial-up business, which currently accounts for 40% of its revenue. He said that business "still has a few years," but AOL’s annual yearly decline in that revenue stream is 25-29%.

"You have to reinvest in your content," Armstrong said. "Access to cash can be like a rich uncle — you just get money and you never have to learn. It’s time for that to change."

Armstrong implied the content acquisitions are a positive for the "bunch of big shareholders who hold onto the stock." He said AOL stock had a "pretty small float," and he noted that he invested $10 million of his own cash in company stock a few weeks ago.

Nonetheless, AOL’s stock fell about 1% Thursday morning. Shares are currently trading near their lowest level since AOL was spun-off from CNNMoney parent company Time Warner (TWX, Fortune 500) in November 2009. The stock has dropped nearly 25% since its IPO.

But Armstrong remained optimistic.

"AOL will turn around. I have no doubt about that. The employees deserve a ton of credit," he said. "To go from managing a decline to managing growth is physically getting up and doing something different every day." 

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The Bay is bringing British fashion retailer Topshop and Topman to Canada, the department store confirmed early Wednesday.

The announcement ends months of speculation about the U.K. fashion leader, internationally renowned for collaborating with young designers and also some of history

China faces a 60 percent risk of a banking crisis by mid-2013 in the aftermath of record lending and surging property prices, according to a Fitch Ratings gauge.

Fitch sees the risk of “holes in bank balance sheets” should a property bubble burst, Richard Fox, a London-based senior director, said in a phone interview on March 4. The risk assessment is from a macro-prudential monitor used by the ratings company.

Chinese banks fueled record property-price gains by extending a record 17.5 trillion yuan ($2.7 trillion) of loans over 2009 and 2010 under the stimulus program that propelled the nation through the financial crisis. Regulators’ efforts to contain the risks for lenders have included stress tests for declines in house prices and a crackdown on lending to local- government financing vehicles.

China’s risk of a systemic crisis is based on the nation’s MPI3 classification, the highest of three risk categories, in a Fitch monitor begun in 2005. The indicator signaled crises in Iceland and Ireland and has been tested back to the 1980s, Fox said.

In contrast with Fitch’s concern, the Hang Seng Finance Index (HSF), which includes five Chinese banks traded in Hong Kong, advanced 1.5 percent as of 3:34 p.m. local time.

Depleted Capital

Fitch follows an International Monetary Fund definition of a systemic financial crisis, Fox said. Such crises exhaust “all or most of the aggregate banking system capital,” cause a “large number of defaults” and “financial institutions and corporations face great difficulties repaying contracts on time,” according to a November 2008 IMF working paper.

“We’re talking about systemic crises here, affecting most of the major banks,” Fox said. “A crisis is something which technically de-capitalizes the banking system.”

Sixty percent of emerging-market countries downgraded to MPI3 face banking crises within three years, he said. China entered that classification in June. The indicator’s failures have included not sounding an alarm about the banking system in Spain, he added.

Banking systems in emerging markets are vulnerable to systemic stress when credit growth exceeds 15 percent annually over two years with real property prices rising more than 5 percent, according to Fitch.

Wen’s Pledge

Credit growth in China averaged 18.6 percent annually over 2008 and 2009 as house prices jumped, according to the ratings company. Chinese Premier Wen Jiabao pledged more efforts to cool the property market on March 5, telling lawmakers that “exorbitant” increases in housing prices in some cities are a top public concern.

The fallout from China’s lending spree may be bad loans totaling $400 billion, according to Hong Kong-based advisory firm Asianomics Ltd.

China is seeking to avoid a repeat of its last banking crisis, when the government spent more than $650 billion over a decade to bail out banks after years of state-directed lending.

Fitch’s concern contrasts with gains in banks’ profits and capital adequacy ratios and declines in non-performing loan ratios, according to data released by the China Banking Regulatory Commission payday loan.

The industry’s “capitalization has been noticeably strengthened throughout 2010, with capital ratios of major banks being well supportive of their standalone credit profiles,” Liao Qiang, a director of financial institutions ratings for Standard and Poor’s in Beijing said today.

‘Strong Liquidity’

“With reasonable loan loss reserves at present, good pre- provisioning profitability and strong liquidity, Chinese banks are likely to gradually absorb potential spikes in credit costs caused by looming bad loans, particularly from China’s property sector and local government financing platforms,” Qiang said.

Chinese banks listed in Hong Kong will likely report “strong” 2010 earnings when they report at the end of the month, BNP Paribas SA said in a report today.

In November, Moody’s Investors Service said that it had “concerns over the intrinsic, stand-alone strength of China’s banking system.” At the same time, the largest lenders weren’t materially damaged by the global financial crisis and aren’t likely to pose any significant contingent liability risk to the government balance sheet, the ratings company said.

Absorbing Losses

“Furthermore, we expect that future credit losses — arising from the surge in lending in 2009, from exposures to the property market, from risky loans to local government financing vehicles, and from off-balance sheet operations in the ‘shadow’ banking system — will be mostly absorbed by the banks themselves, either from capital, or from future earnings,” Moody’s said in a statement.

To limit risks for banks, China has increased oversight of lending to the local-government vehicles, which surged during the nation’s two-year stimulus program. In a March 5 speech to lawmakers, Wen pledged a “comprehensive audit” of local- government debt, while the Ministry of Finance said separately that “local governments face debt risks that can’t be overlooked.”

Banks have also been told to assign a higher risk rating to local-government loans.

The country’s “systemically important” lenders may be subject to an overall capital adequacy ratio of as high as 14 percent when their credit growth is judged excessive, a person with knowledge of the matter said on Jan. 28. Other lenders would need to meet a 13 percent threshold, the person said. The minimum ratio, used to gauge banks’ ability to withstand financial stress, is currently 11.5 percent for big banks.

Lenders including China Minsheng Banking Corp. and Agricultural Bank of China Ltd. (1288) have announced plans to sell more than 80 billion yuan ($12 billion) of shares and 70 billion yuan of subordinated bonds this year.

- Kevin Hamlin, with assistance from Zhang Dingmin. Editors: Paul Panckhurst, Lily Nonomiya.

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ST. LOUIS

Probes by state attorneys general and other government agencies into banks’ foreclosure practices carry the risk of fines and other major costs, according to regulatory filings from three of the country’s biggest banks.

Revelations that major U.S. banks rammed through hundreds of foreclosures daily without giving many borrowers a fair shot at keeping their homes triggered investigations from all 50 states’ attorneys general and from state and federal regulators. They also sparked pressure from lawmakers and class-action lawsuits.

Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. called out possible financial repercussions in annual filings with the Securities and Exchange Commission Friday. None of them provided any details on how much was at risk.

“Those investigations and any irregularities that might be found in our foreclosure processes, along with any remedial steps taken in response to governmental investigations or to our own internal assessment, could have a material adverse effect on our financial condition and results of operations,” Bank of America said.

The Charlotte, N.C.-based bank said it is dedicating significant resources to comply with investigations, and warned that the probes could result in “material fines, penalties” and expose the company to new lawsuits and more legal costs.

“Our costs increased in the fourth quarter of 2010 and we expect that additional costs incurred in connection with our foreclosure process assessment will continue into 2011 due to the additional resources necessary to perform the foreclosure process assessment, to revise affidavit filings and to implement other operational changes,” Bank of America said in the filing.

New York-based Citigroup said investigations and scrutiny of its own foreclosure processes have “resulted in, and may continue to result in, the diversion of management’s attention and increased expense, and could result in fines, penalties, other equitable remedies, such as principal reduction programs, and significant legal, negative reputational and other costs.”

Wells Fargo also said it is being investigated by several government agencies for its foreclosure practices.

“It is likely that one or more of the government agencies will initiate some type of enforcement action against Wells Fargo, which may include civil money penalties,” the company said in its filing. “Wells Fargo continues to provide information requested by the various agencies.”

The bank also said several lawsuits have been filed against it, claiming that Wells Fargo submitted fraudulent affidavits or other documents to foreclose on homes.

“Specifically, plaintiffs allege that Wells Fargo signers did not have personal knowledge of the facts alleged in the documents and did not verify the information in the documents ultimately filed with courts to foreclose,” the San Francisco-based bank said in the filing.

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Foreigners fled the turmoil in Libya by the thousands on Wednesday, climbing aboard ships, ferries and planes or fleeing in overloaded vans to the country’s borders with Egypt and Tunisia. Tripoli’s airport was overwhelmed with stranded people seeking a way out.

Two Turkish ships whisked 3,000 citizens from the chaos engulfing the North African nation and a U.S.-chartered ferry arrived to evacuate Americans to the nearby Mediterranean island of Malta, a five-hour journey. Several countries _ including Russia, Germany and Ukraine _ sent more planes in to help their citizens leave the increasingly unstable situation.

“The airport was mobbed, you wouldn’t believe the number of people,” said Kathleen Burnett, of Baltimore, Ohio, as she stepped off an Austrian Airlines flight from Tripoli to Vienna on Tuesday. “It was total chaos.”

Turkey was cranking up the largest evacuation in its history, seeking to protect some 25,000 citizens and more than 200 Turkish companies involved in construction projects in Libya worth more than $15 billion. Some of the construction sites have come under attack by protesters.

Two Turkish commercial ships left the eastern Libyan port of Benghazi on Wednesday escorted by a navy frigate. The first one is expected to reach Turkey’s Mediterranean port of Marmaris around midnight. Authorities began setting up a soup kitchen and a field hospital at Marmaris and arranged buses to transfer the evacuees. Turkey has also sent two more commercial ships to Libya.

Turkey has now evacuated more than 5,000 citizens from Libya over three days, about 2,000 of them by plane, Foreign Minister Ahmet Davutoglu said.

“We are carrying out the largest evacuation operation in our history,” he said, adding that Turkey was also helping other nations. “So far, a total of 21 countries have asked Turkey to evacuate their citizens as well.”

One Turkish citizen has been killed in Tripoli, he said. Davutoglu said Turkey was considering diverting its ships from Libya to Tunisia for quicker evacuation.

“We will then bring them from Tunisia by planes,” he said.

Davutoglu stressed that Turkey was not leaving Libya and would send “food and medicine to Libyan brothers by ships.”

Libya is one of the world’s biggest oil producers _ producing nearly 2 percent of the world’s oil _ and many oil companies were evacuating their expatriate workers and families.

China was also gearing up for a massive evacuation. There are reportedly 30,000 or more Chinese in Libya building railways and other infrastructure and providing oilfield services. Greece is making plans to help evacuate around 13,000 to Crete by ship.

China’s first chartered evacuation flight, staffed with relief officials and stocked with food and medicine, left for Libya on Wednesday.

Chinese media reports said a site run by China’s Huafeng Construction Co., Ltd. in eastern Libya was attacked by armed looters over the weekend who stole computers and other equipment and forced nearly 1,000 Chinese workers out of their dormitories.

The International Organization for Migration said several Asian, African and one European government requested its help to evacuate their citizens.

Migrants were pouring into Libya’s land borders with Egypt and Tunisia and the group was trying to help find accommodation for those already at the border, said Jemini Pandya, a spokeswoman for the Geneva-based organization.

Vans piled high with luggage and furniture showed up at the Salloum border crossing with Egypt.

Pandya said it was difficult to estimate how many migrants, many of them undocumented, would flee Libya, but “it will be thousands.”

The first planeload of Russians to be evacuated from Libya landed in Moscow, bringing 118 Russians. Three more planes are expected to arrive later in the day. A ship was also setting sail for Ras Lanuf, the site of Libya’s largest refinery and port, to evacuate up to 1,000 Russians, Turks, Serbs and Montenegrins.

Two French military planes evacuated 335 French people and 56 foreigners to Paris from Libya, and a third plane was en route from France to evacuate French tourists.

A Bulgaria Air plane, carrying 110 Bulgarians and six Romanians from Tripoli _ mostly medical and construction workers _ arrived in Sofia. Some passengers said they heard gunfights.

“I saw horror,” a nurse who gave only her first name, Polly, told reporters upon her arrival in Sofia.

Others fleeing were wary of the political situation. Libyan leader Moammar Gadhafi has urged his supporters to strike back against the Libyan protesters, escalating a crackdown that has led to widespread shooting in the streets. Nearly 300 people have been killed in the nationwide wave of anti-government protests.

“We decided to return because the situation is unstable. When we left Tripoli there was some kind of euphoria, everybody was celebrating some kind of victory,” engineer Natalia Vakova said. “But that’s Libya _ absolutely unpredictable.”

Unease over the safety of U.S. citizens intensified after failed attempts to get some out on Monday and Tuesday. British Airways and Emirates, the Middle East’s largest airline, canceled flights to Tripoli on Tuesday.

Dutch Foreign Ministry spokesman Christoph Prommersberger said a Dutch KDC-10 air force transport plane left Tripoli late Tuesday with 32 Dutch evacuees and 50 other nationalities.

“What we hear from our people is it is chaotic but functioning,” he said of the Tripoli airport.

Britain is redeploying a warship, the HMS Cumberland, off the Libyan coast for a possible sea-borne evacuation of British citizens.

Italians continued to take Alitalia flights from Tripoli home, and a few hundred have already returned to Italy. An Italian air force plane landed in Libya on Wednesday to evacuate more people.

Separately, two Italian naval vessels are headed to eastern Libyan ports to rescue citizens from Benghazi and other cities where airports are damaged. Italian citizens based in Misurata, Libya, said their private company was arranging evacuation by sea because the airfield at that coastal city was damaged by the protests.

About 450 Romanians were in the process of being evacuated but some lived far away from Tripoli and it was not clear how they would get to the Libyan capital. Germany was also trying to evacuate about 150 Germans still in Libya.

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Ivory Coast’s incumbent leader Laurent Gbagbo, who is clinging to power, has sued the West African regional bloc over recognizing his rival candidate as the winner of the country’s recent election.

A lawyer for Gbagbo filed the lawsuit Monday in the Economic Community Of West African States’ Court of Justice in Abuja, Nigeria. The suit asks judges there to void the decision by the regional bloc, known as ECOWAS, to recognize Alassane Ouattara as the winner of a Nov cheap business cards. 28 presidential run-off election.

Ivory Coast has been gripped by political crisis since the election. An electoral commission said Ouattara won and the U.N. supervised the election and certified the result. A constitutional council later overturned the results and declared Gbagbo the winner.

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Prices in the new home market increased for the 12th straight month in a row, according to figures released by Statistics Canada on Thursday.

But housing market indicators released in the past few weeks have been so contradictory that builders, realtors

President Barack Obama is riding high, with legislative successes in the lame duck congressional session, an inspirational speech after the Tucson shootings and a can-do State of the Union address.

Given what looks like an unusually weak Republican presidential field, Obama today is a favorite for re-election.

Yet as events in the Middle East over the last two weeks show, unforeseen crises can shake up the political dynamics. If over the next year regimes that are more Democratic and not hostile to U.S. interests emerge in Egypt and elsewhere, the president will win praise for skillful diplomacy; if chaos or more radical elements take over, his political stock will drop.

Frustrating for Obama is that there isn’t a lot he can do to shape this outcome. The same is true of several variables that likely will be determinative in the 2012 election: the economy, the war in Afghanistan and the behavior of the House Republican majority.

Since World War II, no president or incumbent party has won re-election in a presidential race when the unemployment rate is higher than 7.5 percent. The current rate officially is 9 percent, and if those who have given up looking for a job are included, it’s actually greater than 10 percent; almost no expert thinks it will drop sharply in the next year and a half.

Home Prices, Debt

Mark Zandi, chief economist at Moody’s Analytics Inc., sees unemployment close to 8 percent in the autumn of 2012. He offers three caveats that could worsen the outlook: if the weakness in U.S. home prices persists, or, on a global level, if the European debt crisis worsens, or if China’s economy, the world’s second-largest, has a bumpier landing than envisioned.

An 8 percent jobless rate in October of next year probably would be a political winner, Zandi suggests, as voters would see a clear pattern of progress. One model may be President Ronald Reagan in 1984. Despite the memories of “the morning in America,” a Reagan theme that year, the unemployment rate on Election Day was 7.4 percent. A year earlier, it had been 8.8 percent. It was the direction that mattered.

The Obama White House would settle for anything resembling such signs of forward movement in Afghanistan. That may be tough. Last year, U.S. deaths in that conflict reached almost 500, up 60 percent from the year before and more than triple the number two years earlier. The number of wounded more than doubled from 2009, as the U.S. struggles to counter the improvised explosive devices that are the largest cause of casualties.

Loss of Holbrooke

The government of President Hamid Karzai, insiders acknowledge, is as corrupt as ever. And Obama lost his most creative diplomat when Richard Holbrooke, the special envoy for Afghanistan and Pakistan, died suddenly in December, though the White House foolishly didn’t fully utilize his talents.

The president has vowed to start withdrawing some of the 100,000 U.S. troops in Afghanistan starting in July. That assumes progress, a dicey assumption.

The government’s own review at the end of last year was optimistic that al-Qaeda and the Taliban militants have been weakened, and the influence of Pakistan reined in. Bruce Riedel, a former Central Intelligence Agency officer and Afghanistan expert, now at the Brookings Institution in Washington, says the U.S. is “no longer close to the precipice of defeat and strategic disaster,” as it was when Obama took office in January 2009 payday loan companies.

Yet, especially with a delicate state of play in Pakistan, he also writes, “we are far from being on the edge of anything anyone would describe as success.” The administration’s own review warns the situation “remains fragile and reversible.”

Tea Party Overreach

When it comes to domestic politics, the White House and other Democratic strategists are optimistic that congressional Republicans, with the take-no-prisoners Tea Party newcomers, will overreach. They believe the president will be able to out- position and outmaneuver the opposition, a brightening picture that began to emerge with the State of the Union address.

There already are schisms within Republican ranks. Minnesota Congresswoman Michele Bachmann, the self-styled Tea Party leader, has made clear she has no intention of following the line of the House speaker, Ohio Representative John Boehner, or other leaders. Nationally, the ubiquitous Sarah Palin hijacks the agenda anytime she weighs in.

The establishment Republican leaders, including Representative Paul Ryan of Wisconsin, who has received mostly uncritical press for months, will soon have to produce on the tough fiscal issues, specifically by showing how they would slash domestic spending or whether to touch politically lethal entitlements like Social Security and Medicare. Democrats are salivating over these pending particulars — such as proposed cuts in education or health research — which will come as early as this week.

No Election Mandate

There remain a few Republicans who misread last November’s election as a mandate for their agenda rather than a protest against the governing party and tough economic times. Even a seasoned professional like the Senate minority leader, Mitch McConnell, sometimes seems tone deaf. “If the president is willing to do what I and my members would do anyway, we’re not going to say no,” the Kentucky Republican cracked the other day.

Still, top Senate Republicans such as McConnell, Arizona’s Jon Kyl and Tennessee’s Lamar Alexander aren’t likely to provide many such openings for the Democrats to exploit. And Tom Davis, a former top Republican congressman who is an astute analyst of U.S. politics, suggests the White House is miscalculating that House Republicans will make the same mistakes their predecessors did in 1995 when they shut down the government, assuring President Bill Clinton’s re-election.

Boehner, Not Gingrich

“John Boehner is not Newt Gingrich; he’s not out there going to the zoo,” Davis says, noting the different styles and skills of the current Republican House speaker and the one 15 years ago. “The Republican base in the House is fractured but Boehner is the right guy to manage it well.”

The odds are the economy will continue to improve over the next year and half, the situation in Afghanistan won’t deteriorate and the Republicans will overreach on unpopular positions. If one, or certainly two, of these occur, and there’s no global cataclysm, bet on Obama’s re-election. That, however, largely is out of his control.

Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

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