Business Global Scene

Chinese bank to invest in Citigroup

China Development Bank is expected to invest around two billion dollars in struggling Citigroup Inc., the Wall Street Journal reported on Monday.

The investment could come in exchange for convertible bonds, the paper reported unnamed sources as saying, but a China Development Bank spokeswoman based in Beijing would not confirm the report when contacted by AFP.

Citigroup is hoping to bring in eight to 10 billion dollars from a range of sources, including Saudi Prince Alwaleed bin Talal, who was involved in a large investment in the company in the 1990s, the paper said.

Citigroup executives have warned that the bank - America's second-biggest banking group by market worth - faces potentially huge losses due to a default crisis in the US mortgage market.

Analysts are braced for the bank to report earnings firmly in the red in results due this week.

China is in the process of converting China Development Bank, which was set up to help implement government financial policy, into a commercial lender.

An arm of China Investment Corp. injected 20 billion dollars into the bank on December 31 as part of the restructuring. The corporation manages part of China's giant foreign exchange reserve of more than 1.5 trillion dollars.

In December, the corporation agreed to take a 9.9 percent stake in troubled Morgan Stanley, one of Wall Street's oldest investment firms, for five billion dollars.

AFP

US automakers face onslaught in 2008

After years of crisis, the big three US automakers face another brutal year with demand expected to dip again due to an economic downturn threatening to snuff out 2007's timid recovery.

The world's major automakers will exhibit upcoming models and the concept cars of the future from Sunday as media previews kick off for the Detroit motor show. But the extravaganza comes amid gloomy predictions for the market.

"It's pretty clear that demand in the US will decline during 2008," Bruce Clark, an analyst at Moody's financial research group, told AFP.

"At this point we are anticipating total retail shipments of about 15.7 million units. But actual shipment levels could be even lower depending on the overall state of the US economy."

The three US manufacturers used to hold 95 percent of the market, but this has been chiseled to just over half as Asian firms seized 47 percent with Japan leading the charge, according to the firm Autodata.

Japanese giant Toyota for the first time passed Ford in the US auto sales rankings in 2007, taking second place behind General Motors (GM). Ford was pushed back into third place, with Chrysler in fourth. European makers pose less of a general threat with around seven percent of the US market, but hold an edge in sales of deluxe vehicles.

GM said last week it had met its aims for 2007 by stabilizing its position in the market, while Ford reported having considerably reduced its net losses after record losses of 12.6 billion dollars in 2006.

But challenges remain: GM reported net losses of 39 billion dollars in the third quarter of 2007 and is fighting to put more fuel-efficient models in its show rooms.

Ford is reshuffling its product line to balance expensive models with larger numbers of popular cheap ones.

"The manufacturers are in very different places," said JD Power analyst Tom Libby. "Ford is obviously struggling and needing to stabilize things. They have a couple of major introductions coming."

Chrysler is in the biggest fix, analysts said, despite a boost to restructuring by the investment group Cerberus which bought it last year. "Chrysler is in big trouble," said John Wolkonowicz of Global Insight. "Chrysler needs to merge with somebody quickly."

Clark said Chrysler's focus on the North American market deprives it of possible relief by selling, as GM and Ford do, also in emerging markets such as China, India, Brazil and Russia. Oil prices and the general economic downturn in the United States could hit sales of even the most efficient models.

Investment bank Goldman Sachs lowered its forecast for vehicle sales in 2008 to 15 million, down from 16.3 million in 2007. Credit rating agency Standard and Poor's predicted North American sales could hit a 10-year low this year.

AFP

Chocolate company bites into rising Asian economy

In a cavernous white building filled with huge bubbling vats, clattering conveyor belts and the luscious aroma of melted chocolate, a Swiss tradition is being transplanted, cocoa butter block by cocoa butter block.

Swiss chocolate maker Barry Callebaut opened a $20 million factory in the eastern Chinese city of Suzhou on Wednesday, a move aimed at capturing the growing regional taste for chocolate and other sweets - by supplying chocolate and production facilities to brand manufacturers.

Zurich-based Barry Callebaut claims a 25 percent share in the market for the raw chocolate that is processed into candy bars, cocoa and pastries, or as the company's CEO Patrick De Maeseneire puts it, "one in every four bites of chocolate in the world." China's own huge market, and its role as world supplier of just about everything, from tennis shoes to laptop computers, has made it a prime destination for legions of business-to-business suppliers.

As increasingly affluent Chinese and other Asians indulge their taste for luxury treats, companies like Barry Callebaut are shifting operations eastward to cut costs and hone their competitive edge in supplying manufacturers based in China.

"Only with this Chinese production we are a truly global company," Andreas Jacobs, the chocolate maker's chairman, said at the factory's opening ceremony.

Barry Callebaut has assets ranging from cocoa production facilities in Africa to retail candy brands in Europe and the United States. The company partners with major manufacturers such as Japan's Morinaga & Co., Cadbury Schweppes PLC, Nestle SA and Pennsylvania-based Hershey Co.

Barry Callebaut SA opened its first Asian factory in 1997, in Singapore, but decided in 2005 that it had to have a presence in mainland China if it wanted to remain a top global player. In 2006, it settled on building the factory in Suzhou. The factory began operations just a year later.

The wholly owned factory is the chocolate maker's first in China and is part of a strategy aimed at significantly expanding in Asia.

Jacobs and other executives said the company does not plan to offer its own-brand products directly to consumers. Instead it will sell to other companies, while also cultivating a fast-growing business in supplying high-end customers such as luxury hotels and patisseries.

The allure of the China market is such that the company appears to have been unswayed by the uproar over product quality safety last year.

Barry Callebaut's 38 factories in more than 20 countries maintain the same quality standards as in their home factories in Europe, said De Maeseneire. "Food safety is a primary objective," he said. "All raw materials are tested and sampled.

All products are tested and sampled and must pass before they leave the factories." Chocolate processed at the Suzhou factory is made from imported cocoa; China has no domestic production.

Eurozone unions pay demands amid surge in oil, food prices

Two years of solid economic growth and a spike in oil and food prices are driving demands for hefty pay rises in the eurozone, which the European Central Bank and businesses warn could backfire.

Wages have risen modestly since 2000, but oil and food prices shot up late last year and third-quarter business profits posted their biggest quarterly rise since early 2001, according to the Swiss bank UBS.

Germany, the biggest eurozone economy, has seen a "virtual stagnation in real disposable income" while other countries posted gains and employment finally took off, said Holger Schmieding, senior economist at the Bank of America.

Average wages grew by five percent in the past seven years, "and on top of that we had employment growth," long a weak point of the now 15-nation economy, Schmieding added. Inflation averaged around 2.1 percent, he said, before leaping to 3.1 percent in November and December.

Lower unemployment has strengthened trade unions' hands, but the European Central Bank insists it will not tolerate "second round" inflation from further increases in prices and wages.

Most observers agree pay increases must be matched by higher productivity to avoid fueling inflation, while business groups add that excessive wage deals discourage companies from hiring more workers.

"Employment recovery in Europe over the last decade has been a major factor of growth, it would be a very big change if it stops," said Marc Stocker, economic director at BusinessEurope, a group of employer federations from 33 countries.

But in Germany, where fresh public sector wage talks will pave the way for unions representing the steel and service industries, pay demands of eight percent or more have been voiced.

"We need strong salary increases," said Ronald Janssen, economic advisor to the European Trade Union Confederation.

World Bank advisor Jean-Francois Jamet reckons eurozone purchasing power increased by just 1.25 percent annually from 1998 to 2006, while labour productivity showed a gain of 1.7 percent.

But the high inflation that has fueled calls for better pay should ease this year, the ECB says, before warning that stiff wage raises and more consumer and industrial price increases could create a long-term problem.

ECB president Jean-Claude Trichet said Thursday the bank was following wage negotiations "with particular attention."

It was "prepared to act pre-emptively so that second round effects" did not occur, Trichet warned.

German wage demands have been backed by ministers from the Social Democratic Party, while conservative Economy Minister Michael Glos said an eight percent hike for civil servants was "over the top and sent the wrong signal" as Berlin strained to maintain a balanced budget.

Leaders in Italy and Spain have said they would cut taxes and raise minimum wages to boost spending power, but boosting salaries further in countries like Portugal and Ireland, where a new round of pay talks is to start soon, could hurt their economies' ability to compete, analysts and business sources say.

AFP

Oil prices lower in Asian trade

World oil prices were mixed in Asian trade on Monday, with fears of a US recession continuing to dominate trading and after unrest in the key producing country Nigeria, analysts said.

In morning trade, New York's main futures contract, light sweet crude for delivery in February, dropped 12 cents to 92.57 dollars a barrel after closing down 1.02 dollars a barrel in New York on Friday.

London's Brent North Sea crude for February rebounded, gaining 18 cents to 91.25 dollars per barrel after closing down 1.15 dollars on Friday to settle at 91.07 dollars per barrel.

Nigeria, Africa's biggest oil producer, faces problems from rebel activity that caused the country to shut down some oil installations. A prominent militant group in the oil-rich Niger Delta said Friday it planted an explosive device that set a tanker on fire in Nigeria's main oil hub, Port Harcourt.

David Johnson, an oil analyst with Macquarie Research in Hong Kong, said "oil prices will be trimmed even further today and may be down by a dollar by the end of the week." Johnson noted that the seasonal demand for oil will slow due to the end of Northern hemisphere winter, which comes toward the end of the first quarter.

Crude prices slumped by as much as five dollars last week amid widespread fears that slowing economic growth in the United States could dampen demand from the world's number one oil consumer.

"Persistent worries about a potential recession in the US and a slowdown in growth rates put downward pressure on the market," Sucden analyst Andrey Kryuchenkov said earlier. "Investors fear that a slowdown in the US could spread to the broader market and become a drag on the global economy, consequently denting demand for energy," Kryuchenkov added.

The market's focus is now turning to a production meeting of the OPEC oil producers' cartel in Vienna next month.

Ministers from the Organisation of the Petroleum Exporting Countries, which accounts for about 40 percent of global crude supplies, will convene in the Austrian capital on February.